<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED SEPTEMBER 30, 1998
KEMPER MUNICIPAL BOND FUND
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
OFFERING INVESTORS THE OPPORTUNITY FOR AS HIGH A LEVEL OF CURRENT INTEREST
INCOME THAT IS
EXEMPT FROM FEDERAL INCOME TAXES AS IS CONSISTENT WITH PRESERVATION OF CAPITAL
KEMPER NATIONAL TAX-FREE INCOME SERIES
". . . We're very optimistic about the prospects for municipal
bonds. . . . they still represent an extremely attractive investment. . . ."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
TERMS TO KNOW
9
PORTFOLIO STATISTICS
12
PORTFOLIO OF
INVESTMENTS
29
REPORT OF
INDEPENDENT AUDITORS
30
FINANCIAL STATEMENTS
32
NOTES TO
FINANCIAL STATEMENTS
37
FINANCIAL HIGHLIGHTS
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER NATIONAL TAX-FREE
INCOME FUNDS' TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(UNADJUSTED FOR SALES CHARGE)
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 8.84%
CLASS B 7.84%
CLASS C 7.93%
LIPPER MUNICIPAL BOND FUNDS CATEGORY AVERAGE* 8.20%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 7.34%
CLASS B 6.38%
CLASS C 6.55%
LIPPER INTERMEDIATE MUNICIPAL BOND FUNDS CATEGORY AVERAGE* 7.04%
- --------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
* LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES
IN NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT
OF SALES CHARGES AND, IF THEY HAD, RESULTS MAY HAVE BEEN LESS FAVORABLE.
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT REFLECT FUTURE PERFORMANCE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/98 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER MUNICIPAL BOND FUND
CLASS A $10.61 $10.46
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
CLASS B $10.58 $10.44
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
CLASS C $10.62 $10.47
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/98 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER INTERMEDIATE MUNICIPAL
BOND FUND CLASS A $10.53 $10.31
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL
BOND FUND CLASS B $10.52 $10.31
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL
BOND FUND CLASS C $10.53 $10.31
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER NATIONAL TAX-FREE INCOME FUNDS'
LIPPER RANKINGS AS OF 9/30/98*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THE GENERAL MUNICIPAL DEBT AND INTERMEDIATE
MUNICIPAL DEBT LIPPER CATEGORIES
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #44 of 237 funds #167 of 237 funds #147 of 237 funds
- --------------------------------------------------------------------------------
5-YEAR #31 of 134 funds N/A N/A
- --------------------------------------------------------------------------------
10-YEAR #15 of 73 funds N/A N/A
- --------------------------------------------------------------------------------
15-YEAR #6 of 36 funds N/A N/A
- --------------------------------------------------------------------------------
20-YEAR #6 of 22 funds N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #49 of 145 funds #116 of 145 funds #104 of 145 funds
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND AND YIELD REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLES SHOW PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUNDS
AS OF SEPTEMBER 30, 1998.
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ONE-YEAR INCOME: $ .5169 $ .4279 $ .4303
- --------------------------------------------------------------------------------
SEPTEMBER DIVIDEND: $ .0406 $ .0342 $ .0342
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 4.59% 3.88% 3.86%
- --------------------------------------------------------------------------------
SEC YIELD+: 3.74% 3.32% 3.30%
- --------------------------------------------------------------------------------
TAX EQUIVALENT
YIELD: 5.95% 5.28% 5.25%
- --------------------------------------------------------------------------------
</TABLE>
BASED ON A MARGINAL FEDERAL INCOME TAX RATE OF 37.1%
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ONE-YEAR INCOME: $ .4503 $ .3674 $ .3705
- --------------------------------------------------------------------------------
SEPTEMBER DIVIDEND: $ .0359 $ .0288 $ .0294
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 4.09% 3.29% 3.35%
- --------------------------------------------------------------------------------
SEC YIELD+: 3.27% 2.50% 2.58%
- --------------------------------------------------------------------------------
TAX EQUIVALENT
YIELD: 5.20% 3.97% 4.10%
- --------------------------------------------------------------------------------
</TABLE>
BASED ON A MARGINAL FEDERAL INCOME TAX RATE OF 37.1%
+ CURRENT ANNUALIZED DISTRIBUTION RATE IS THE LATEST MONTHLY DIVIDEND SHOWN AS
AN ANNUALIZED PERCENTAGE OF NET ASSET VALUE ON SEPTEMBER 30, 1998.
DISTRIBUTION RATE SIMPLY MEASURES THE LEVEL OF DIVIDENDS AND IS NOT A COMPLETE
MEASURE OF PERFORMANCE. THE SEC YIELD IS NET INVESTMENT INCOME PER SHARE
EARNED OVER THE MONTH ENDED SEPTEMBER 30, 1998 SHOWN AS AN ANNUALIZED
PERCENTAGE OF THE MAXIMUM OFFERING PRICE ON THAT DATE. THE SEC YIELD IS
COMPUTED IN ACCORDANCE WITH THE STANDARDIZED METHOD PRESCRIBED BY THE
SECURITIES AND EXCHANGE COMMISSION. TAX EQUIVALENT YIELD IS BASED ON THE
FUND'S YIELD AND THE 37.1% FEDERAL TAX RATE. INCOME MAY BE SUBJECT TO STATE
AND LOCAL TAXES AND, FOR SOME INVESTORS, A PORTION MAY BE SUBJECT TO THE
ALTERNATIVE MINIMUM TAX. YIELDS AND DISTRIBUTION RATES ARE HISTORICAL AND WILL
FLUCTUATE.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN
PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER, HE WAS WITH THE HARRIS
BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, INC. IS THE INVESTMENT MANAGER FOR KEMPER FUNDS. IT
IS ONE OF THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS
WORLDWIDE, MANAGING MORE THAN $245 BILLION IN ASSETS GLOBALLY FOR MUTUAL FUND
INVESTORS, RETIREMENT AND PENSION PLANS, INSTITUTIONAL AND CORPORATE CLIENTS,
INSURANCE COMPANIES, AND PRIVATE, FAMILY AND INDIVIDUAL ACCOUNTS.
DEAR SHAREHOLDERS,
If you're like most investors, you may be wondering if you should allow yourself
to breathe a sigh of relief as 1998 comes to a close. After several months of
generally declining stock prices and extreme volatility, the U.S. stock market
seems to have rediscovered its resiliency. In the fourth quarter, the Standard &
Poor's 500, an unmanaged index generally representative of the U.S. stock
market, bounced back into the 1100-point range, up nearly 20 percent from its
third-quarter low of 957. The blue chip Dow Jones Industrial Average enjoyed a
comparable rise. Investor confidence suddenly overtook the investor uncertainty
that had plagued the markets at summer's end.
To what can we attribute the change? Simply this -- the cumulative effect of
some good news, not the least of which was a long-awaited reduction in interest
rates by the Federal Reserve Board. In September, the Fed reduced the federal
funds rate a modest 1/4 of a percentage point, however, the cut disappointed
some investors who were expecting a more dramatic gesture. In October, the Fed
reduced the rate an additional 1/4 of a percentage point. This was an unexpected
cut that seemed to have a positive effect on Wall Street. Investors were also
pleasantly surprised by better-than-expected corporate earnings reports early in
the fourth quarter. (Other contributors to the good vibrations included Mark
McGwire, Sammy Sosa and John Glenn. While they don't have the market clout of
Alan Greenspan, they may have played a role in elevating the national mood.)
Although there was no good news to be garnered from the sensationalized
presidential scandal, as the shock of Kenneth Starr's report wore off, the
nation seemed to refocus its attention on other matters. In this sense, another
veil of despair was lifted.
In many ways, 1998's market activity provides a study in how investor
perceptions can upstage economic realities. Certainly, the tumultuous lessons of
Russia and Southeast Asia renewed investors' awareness of risk in 1998, which
was an important wake-up call. At all times, investors must understand and
consider risk. But over the course of 1998, U.S. economic fundamentals have
essentially remained strong. In fact, inflation has remained low for the entire
year. Economic growth has been solid. Our consumer confidence has remained
fairly high, although not quite as high as last year.
Other signs of strength this year have included better-than-expected regional
retail sales, as well as robust housing starts and home sales. The nation's
budget surplus for 1998 came in at $60 billion, with another budget surplus
expected for fiscal 1999.
Growth in the nation's gross domestic product (GDP), which represents the
total value of all goods and services produced within the U.S. economy, has
remained remarkably steady. GDP is expected to have grown at an annualized rate
of between 2 and 3 percent for the second half of 1998 and is anticipated to
hover around 2 percent for the first half of 1999. The consumer price index
(CPI) remains at about 1.5 percent to 2 percent.
While employment growth has slowed a bit, the slowdown in wage gains may
provide the Fed with an incentive to reduce interest rates even further. U.S.
corporate profits have generally been flat, so we may see a decrease in capital
spending. Banks appear to be only a little less willing to lend, so the threat
of a general credit crunch is minimal.
Investors may take comfort in the fact that the U.S. markets and economy have
withstood the test of 1998's tumultuous third quarter. Similarly, while certain
countries, such as Malaysia, Indonesia, Brazil and Russia, are still suffering
from economic crises, others, including the Philippines, South Korea, Thailand
and China, appear to have survived. As long as the Fed and the Group of Seven
leading industrial nations (G7) are committed to avoiding recession on national
and global levels respectively, investors have a good chance of experiencing a
more stable economic environment.
At home, there has been somewhat of a slowdown in manufacturing, as reduced
U.S. exports reflect foreign economic turmoil. But the global impact of the
Asian crisis still has not hit the U.S. as hard as was expected. Indeed, Asian
turmoil has not affected U.S. trade as much as it has lowered import prices and
helped reduce global interest rates.
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND SHAREHOLDER
DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR DEFLATION, CREDIT
EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR INVESTMENT
RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE 10-YEAR TREASURY
RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES. THE OTHER DATA REPORT
YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
OCTOBER 31, 1998 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 4.53 5.64 6.03 6.53
PRIME RATE(2) 8.12 8.50 8.50 8.25
INFLATION RATE(3)* 1.43 1.38 2.22 3.00
THE U.S. DOLLAR(4)* 0.89 3.92 7.62 4.74
CAPITAL GOODS ORDERS(5)* 10.21 10.47 15.67 4.79
INDUSTRIAL PRODUCTION(5)* 2.45 2.57 2.60 3.18
EMPLOYMENT GROWTH(6)* 2.34 2.57 2.65 2.22
</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 SEPTEMBER 30, 1998.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
In Europe, the much anticipated Economic and Monetary Union (EMU) is on the
move, with a focus on more flexibility and growth potential for the region.
European equities may be the beneficiaries of increased spending, as governments
seek to foster growth and reduce unemployment.
If you're a long-term investor in today's short-term world, go ahead and
breathe that sigh of relief as 1998 comes to an end -- but get ready for 1999.
It's going to be an interesting year as the EMU emerges, the race for the next
presidency heats up and the year 2000 approaches. And, remember: Investors don't
like uncertainty, be it economic or political. A threat of impeachment, new acts
of terrorism or any other hints of crisis could help drag our markets downward
again.
I would like to take this opportunity to thank you for choosing to invest with
Kemper Funds. We appreciate the opportunity to serve your investment needs.
Sincerely,
/S/ John E. Silvia
JOHN E. SILVIA
November 9, 1998
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN SILVIA AS OF NOVEMBER 9, 1998, AND
MAY NOT ACTUALLY COME TO PASS. THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF
THIS MATERIAL IS INTENDED AS AN INVESTMENT RECOMMENDATION.
4
<PAGE> 5
PERFORMANCE UPDATE
[MIER PHOTO]
CHRISTOPHER MIER JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1986 AND IS A
MANAGING DIRECTOR. MIER IS A VICE PRESIDENT AND PORTFOLIO MANAGER OF KEMPER
NATIONAL TAX-FREE INCOME SERIES. MIER RECEIVED A BACHELOR'S 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.
[ASHTON PHOTO]
M. ASHTON PATTON HAS BEEN THE LEAD PORTFOLIO MANAGER OF KEMPER INTERMEDIATE
MUNICIPAL BOND FUND SINCE MARCH 1998. PATTON JOINED SCUDDER KEMPER INVESTMENTS
IN 1990 AND IS A SENIOR VICE PRESIDENT. PATTON RECEIVED A B.A. FROM DUKE
UNIVERSITY AND IS A CHARTERED FINANCIAL ANALYST.
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.
MUNICIPAL BONDS IN GENERAL AND KEMPER MUNICIPAL AND INTERMEDIATE MUNICIPAL BOND
FUND IN PARTICULAR PERFORMED WELL DURING THE PAST TWELVE MONTHS. BELOW, LEAD
PORTFOLIO MANAGER OF KEMPER MUNICIPAL FUND, CHRIS MIER DISCUSSES THE FORCES THAT
AFFECTED THE MUNICIPAL BOND MARKET, AND HOW THE FUNDS WERE POSITIONED IN
RESPONSE.
Q CHRIS, THE LAST YEAR APPEARS TO HAVE BEEN A PERIOD OF UNUSUALLY STRONG
PERFORMANCE FOR MUNICIPAL BONDS. IN FACT, THE AVERAGE MUNICIPAL BOND FUND
RETURNED 8.20 PERCENT WHICH RIVALED THE STOCK MARKET'S 9.08 PERCENT AS MEASURED
BY THE S&P 500*. WHAT FACTORS WERE RESPONSIBLE FOR THIS PERFORMANCE?
A The last year was somewhat unusual because factors outside the U.S. played
a significant role in the performance of municipal bonds. The market was
impacted first by developments in Asia, then in Latin America and Russia.
Before the fiscal year began, news about potential economic and currency
problems in Asian countries had been circulating for a while. Investors began to
realize that the outsized growth experienced by these countries -- particularly
Hong Kong, Thailand, Malaysia and Indonesia -- was fueled largely by intense
speculation by investors worldwide. This support reversed itself in the summer
of 1997 and came to a head in October as the Hong Kong stock market imploded. A
series of foreign currency devaluations followed.
However, the problems abroad led to strong performance by government bonds
here in the U.S. Investors opted for the relatively safe haven of Treasuries,
and demand drove Treasury bond prices sharply higher. At the same time,
investors expected cheaper foreign goods to put a damper on U.S. inflation, and
lower exports to impede U.S. economic growth. This suggested lower interest
rates in the future, a positive for bonds.
In 1998, Latin American countries also started to experience problems, and
most recently, Russia effectively devalued the ruble. This continuing turmoil
further increased demand for U.S. government bonds, and the result was that
Treasuries staged a powerful rally in August as the fiscal year drew to a close.
* AVERAGE MUNICIPAL BOND FUND RETURN REPRESENTED BY THE LIPPER GENERAL MUNICIPAL
DEBT CATEGORY AVERAGE. THE S&P 500 INDEX IS AN UNMANAGED INDEX GENERALLY
CONSIDERED REPRESENTATIVE OF THE U.S. STOCK MARKET. RETURNS ARE HISTORICAL AND
DO NOT GUARANTEE FUTURE RESULTS. INVESTORS CANNOT INVEST IN THESE INDICES.
Q DID MUNICIPAL BONDS ENJOY THE SAME KIND OF RALLY?
A To an extent, yes. But one factor that impeded the muni market's progress
was very heavy issuance. Lower interest rates increased the supply of municipal
bonds in two ways:
1) New issues -- new bond offerings flooded the market as local
governments tried to capitalize on low interest rates to beef up
infrastructure such as highways and water/ sewer projects.
2) Refinancing bonds -- when rates decline, municipal issuers look to
refinance their debt, just like private homeowners refinance their
mortgages when rates fall. So municipal governments issued new
5
<PAGE> 6
PERFORMANCE UPDATE
lower-yielding bonds to replace the higher-yielding ones.
If the current rate of issuance keeps up, 1998 will be a record year in
terms of municipal bond issuance.
Much of this supply has been sopped up by hedge funds and "crossover"
buyers, primarily investors who usually buy taxable bonds, but who have
recognized the outstanding value in municipals. Such "non-traditional" buyers,
have helped offset the glut of issuance.
Q HOW DID YOU RESPOND TO THE MARKET'S CONDITIONS?
A Primarily, we adjusted the duration of the fund to help position it to
perform. Duration, as you may know, is an indication of a portfolio's
sensitivity to changes in interest rates. If you expect the market to rally and
interest rates to go down, you want to lengthen duration to help the funds
participate as much as possible. If you expect interest rates to trend up, you
want to shorten duration to help lessen the negative effects.
As the fiscal year began, we had been keeping the duration of the fund
neutral. That continued through October, when global stock markets went into a
tailspin. After that, we began to lengthen duration because we expected a flight
to quality to increase demand for government bonds and to force interest rates
lower.
In January, market yields appeared to be near a low, so we moved back to a
neutral stance until late into the summer of 1998. During the first half of the
year, the domestic economy still appeared strong, and the Federal Reserve's
policy reflected a bias to keep interest rates stable to help guard against
inflation. But in June, investors began to see signs that U.S. economic growth
was slowing and that troubles abroad would likely impede strong domestic growth.
So we lengthened the duration of the fund through July, which put us in a
position to benefit when the market rallied strongly in August.
Overall, we did a good job adjusting duration in advance of the market's
moves, which helped us post good returns despite an overabundance of supply. In
fact, both funds (Class A shares, unadjusted for any sales charge) outperformed
their peer group for the year as measured by their respective Lipper Analytical
Services categories (see accompanying chart).
BOTH KEMPER NATIONAL TAX-FREE INCOME FUNDS OUTPERFORMED THEIR PEER GROUP
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED 9/30/98*
<TABLE>
<CAPTION>
1-YEAR 3-YEAR 5-YEAR 10-YEAR INCEPTION DATE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kemper Municipal Bond Fund Class A 8.84% 8.01% 6.19% 8.46% 4/20/76
- -----------------------------------------------------------------------------------------------------------------------
Lipper General Municipal Debt Fund Category 8.20 7.52 5.66 7.97 --
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1-YEAR 3-YEAR INCEPTION DATE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kemper Intermediate Municipal Bond Fund Class A 7.34% 6.35% 11/01/94
- -----------------------------------------------------------------------------------------------------------------------
Lipper Intermediate Municipal Debt Fund Category 7.04 6.27 --
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* RETURNS ARE UNADJUSTED FOR SALES CHARGES. IF SALES CHARGES WERE INCLUDED
RETURNS WOULD HAVE BEEN LOWER. THE MAXIMUM SALES CHARGE FOR CLASS A SHARES IS
4.5% AND 2.75% RESPECTIVELY. RETURNS ARE HISTORICAL AND DO NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
Q YOU MENTIONED THAT CROSSOVER BUYERS HAVE BEGUN TO "RECOGNIZE THE
OUTSTANDING VALUE IN MUNICIPALS." WHAT OUTSTANDING VALUE DO YOU MEAN?
A Municipal bonds offer attractive value right now for several reasons.
First, the heavy supply of municipal bonds has kept yields from declining as
fast as Treasuries. Thus, at the end of August, municipal bonds offered nearly
the same yield as Treasuries. Second, that relatively high yield doesn't even
take into account the tax advantage. Third, municipal bonds give you a better
real return, that is, what you have left after taking into account the effects
of taxes and inflation.
Finally, municipal bonds are not currently experiencing some of the credit
problems other markets -- such as those for corporate bonds or emerging foreign
bonds -- are facing.
6
<PAGE> 7
PERFORMANCE UPDATE
Q SO YOUR OUTLOOK FOR THE MUNI MARKET IS PRETTY BRIGHT AT THIS POINT.
A We're very optimistic about the prospects for municipal bonds. They've not
only performed well during the year, they still represent an extremely
attractive investment. Their value versus other fixed income securities is only
one reason. There are others. For example, the strong economy and low interest
rates have increased tax revenues and allowed municipal governments to
strengthen their balance sheets. In our experience, credit quality has never
been better for many states.
In addition, the Federal Reserve may continue to lower interest rates in
the near future if the U.S. economy appears to be stalling. (The "Fed" eased
0.25 percent on September 29 and another 0.25 percent on October 15). That would
mean lower rates for money market fund investors, and investors who currently
have billions of dollars in assets on the sidelines may recognize that municipal
bonds appear to be the best value in the fixed-income market right now. Demand
from such investors could spark a significant rally.
And finally, the volatility in other markets over the last 12 months has
shown the importance of diversification. Because the stock market has advanced
strongly over the last three years, many investors' portfolios may have become a
little stock-heavy. They may want to take some money out of stocks and put it in
bonds to rebalance their portfolios, and municipal bonds right now may be a
smart choice for many such investors.
TERMS TO KNOW
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.
FLIGHT-TO-QUALITY BUYING When investors move assets from foreign equity and
foreign bond securities to U.S. Treasuries and other high quality securities in
times of global economic uncertainty.
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for the period. Total return assumes the
reinvestment of all dividends and represents the aggregate percentage or dollar
value change over the period.
YIELD A fund's yield is a measure of the net investment income per share earned
over a specific one-month or 30-day period expressed as a percentage of the
maximum offering price of the fund's shares at the end of the period.
7
<PAGE> 8
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED SEPTEMBER 30, 1998 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER MUNICIPAL BOND FUND CLASS A 3.97% 5.18% 7.96% 7.80% (since 4/20/76)
- ----------------------------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND CLASS B 4.84 N/A N/A 6.50 (since 5/31/94)
- ----------------------------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND CLASS C 7.93 N/A N/A 6.99 (since 5/31/94)
- ----------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND CLASS A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Lehman
Kemper Brothers
Municipal Municipal Consumer
Bond Fund Bond Price
Class A(1) Index+ Index++
<S> <C> <C> <C>
1/1/80 10000 10000 10000
8170 8723 10443
9524 10333 10782
8552 9550 10952
8228 9108 11252
8851 9363 11538
8492 9182 11812
7293 8292 12151
7405 8177 12256
8025 8823 12321
8142 9175 12647
10008 10923 12764
10596 11519 12725
11407 12144 12764
11641 12203 12973
11998 12542 13129
12107 12446 13207
12444 12786 13377
11987 12307 13520
12660 13145 13690
13356 13759 13729
13844 14313 13872
15050 15513 14029
15049 15280 14120
16183 16515 14250
17650 18187 14185
17578 18075 14276
18533 19046 14368
12/31/86 19271 19705 14407
19683 20182 14615
19388 19634 14798
18868 19146 14993
19866 20001 15046
20141 20689 15189
20664 21090 15385
21110 21631 15619
21583 22034 15711
21679 22180 15945
23233 23493 16180
23166 23509 16297
24022 24411 16441
23906 24520 16780
24494 25093 16936
24383 25107 17301
25622 26190 17445
26137 26782 17601
26715 27354 17731
27883 28417 17888
28896 29370 17979
28679 29457 18162
30115 30574 18279
30773 31388 18422
12/31/92 31412 31959 18501
32626 33146 18722
33960 34231 18827
35233 35388 18918
35558 35885 19009
33656 33915 19192
33957 34298 19296
33942 34524 19478
33600 34030 19518
36003 36435 19739
36751 37313 19883
37725 38385 19974
39758 39970 20013
38880 39489 20300
39093 39791 20430
39989 40703 20574
41080 41740 20678
40888 41640 20860
42344 43075 20900
43657 44373 21017
44923 45577 21030
45451 46102 21147
46012 46804 21252
9/30/98 47517 48240 21330
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND CLASS B
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Lehman
Kemper Brothers
Municipal Municipal Consumer
Bond Fund Bond Price
Class B(1) Index+ Index++
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9904.03 9942.00 10034.00
9876.16 10007.00 10129.00
9743.00 10816.00 10698.00
10428.80 9864.00 10149.00
10622.40 10561.00 10264.00
10880.30 11126.00 10339.00
11443.90 11586.00 10386.00
11165.10 11446.00 10407.00
11190.20 11534.00 10556.00
11421.50 11798.00 10624.00
12/31/96 11706.80 12099.00 10753.00
11627.60 12070.00 10847.00
12018.40 12486.00 10888.00
12373.40 12862.00 10929.00
12/31/97 12693.40 13211.00 10936.00
12827.10 13363.00 10997.00
12945.90 13567.00 11051.00
9/30/98 13143.50 13983.00 11078.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND CLASS C
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Lehman
Kemper Brothers
Municipal Municipal Consumer
Bond Fund Bond Price
Class C(1) Index+ Index++
<S> <C> <C> <C>
5/31/94 10000 10000 10000
9934 9942 10034
9897 10007 10129
9776 9864 10149
10463 10561 10264
10659 10816 10339
10919 11126 10386
11484 11586 10407
11206 11446 10556
11233 11534 10624
11464 11798 10698
12/31/96 11762 12099 10753
11665 12070 10847
12077 12486 10868
12422 12862 10929
12/31/97 12755 13211 10936
12877 13363 10997
13009 13567 11051
9/30/98 13407 13983 11078
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
* AVERAGE ANNUAL TOTAL RETURN AND TOTAL RETURN MEASURES NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM PORTFOLIO INVESTMENTS OVER THE PERIODS
SPECIFIED, ASSUMING REINVESTMENT OF DIVIDENDS AND, WHERE INDICATED,
ADJUSTMENT FOR THE MAXIMUM SALES CHARGE. THE MAXIMUM SALES CHARGE FOR CLASS
A SHARES IS 4.5%. FOR CLASS B SHARES, THE MAXIMUM CONTINGENT DEFERRED SALES
CHARGE IS 4%. CLASS C SHARES HAVE NO SALES CHARGE ADJUSTMENT, BUT
REDEMPTIONS WITHIN ONE YEAR OF PURCHASE MAY BE SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE OF 1%. SHARE CLASSES INVEST IN THE SAME UNDERLYING
PORTFOLIO. AVERAGE ANNUAL TOTAL RETURN REFLECTS ANNUALIZED CHANGE WHILE
TOTAL RETURN REFLECTS AGGREGATE CHANGE. DURING THE PERIODS NOTED,
SECURITIES PRICES FLUCTUATED. FOR ADDITIONAL INFORMATION, SEE THE
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION AND THE FINANCIAL
HIGHLIGHTS AT THE END OF THIS REPORT.
(1) PERFORMANCE INCLUDES REINVESTMENT OF DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A SHARES AND THE CONTINGENT DEFERRED SALES
CHARGE IN EFFECT AT THE END OF THE PERIOD FOR CLASS B SHARES. WHEN
REVIEWING THE PERFORMANCE CHART, PLEASE NOTE THAT THE INCEPTION DATE FOR
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX IS JANUARY 1, 1980. AS A RESULT,
WE ARE NOT ABLE TO ILLUSTRATE THE LIFE OF FUND PERFORMANCE (SINCE APRIL 20,
1976) FOR KEMPER MUNICIPAL BOND FUND. IN COMPARING KEMPER MUNICIPAL BOND
FUND TO THE LEHMAN BROTHERS MUNICIPAL BOND INDEX, YOU SHOULD NOTE THAT THE
FUND'S PERFORMANCE REFLECTS THE MAXIMUM SALES CHARGE WHILE NO SUCH CHARGES
ARE REFLECTED IN THE PERFORMANCE OF THE INDEX.
+ THE LEHMAN BROTHERS MUNICIPAL BOND INDEX INCLUDES APPROXIMATELY 15,000
BONDS. TO BE INCLUDED IN THE INDEX A MUNICIPAL BOND MUST MEET THE FOLLOWING
CRITERIA: A MINIMUM CREDIT RATING OF BBB, HAVE BEEN ISSUED AS A PART OF AN
ISSUE OF AT LEAST $50 MILLION, HAVE BEEN ISSUED WITHIN THE LAST FIVE YEARS,
AND HAVE A MATURITY OF AT LEAST TWO YEARS. BONDS SUBJECT TO ALTERNATIVE
MINIMUM TAX, VARIABLE RATE BONDS AND ZERO COUPON BONDS ARE EXCLUDED FROM
THE INDEX. SOURCE IS TOWERSDATA.
++ THE CONSUMER PRICE INDEX IS A STATISTICAL MEASURE OF CHANGE, OVER TIME, IN
THE PRICES OF GOODS AND SERVICES IN MAJOR EXPENDITURE GROUPS FOR ALL URBAN
CONSUMERS. IT IS GENERALLY CONSIDERED TO BE A MEASURE OF INFLATION. SOURCE
IS TOWERSDATA.
8
<PAGE> 9
PORTFOLIO STATISTICS
KEMPER MUNICIPAL BOND FUND
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 9/30/98 ON 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 69% 72%
- --------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 18 10
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURED 13 13
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS -- 5
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
QUALITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 9/30/98 ON 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 63% 47%
- --------------------------------------------------------------------------------
AA 13 14
- --------------------------------------------------------------------------------
A 11 10
- --------------------------------------------------------------------------------
BBB 10 21
- --------------------------------------------------------------------------------
BB -- 3
- --------------------------------------------------------------------------------
B -- 1
- --------------------------------------------------------------------------------
NOT RATED 3 4
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
YEARS TO MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 9/30/98 ON 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
1-10 YEARS 17% 15%
- --------------------------------------------------------------------------------
11-20 YEARS 50 49
- --------------------------------------------------------------------------------
21+ YEARS 33 36
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
AVERAGE MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE MATURITY ON 9/30/98 ON 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
16.3 years 16.6 years
- --------------------------------------------------------------------------------
</TABLE>
* Portfolio composition and holdings are subject to change.
9
<PAGE> 10
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED SEPTEMBER 30, 1998 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR LIFE OF CLASS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS A 4.41% 7.17% (since 11/1/94)
- --------------------------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS B 3.38 6.61 (since 11/1/94)
- --------------------------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS C 6.55 7.12 (since 11/1/94)
- --------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Kemper Lehman
Intermediate Brothers
Municipal Municipal Consumer
Bond Fund Bond Price
Class A(1) Index+ Index++
<S> <C> <C> <C>
11/1/94 9724 10000 10000
9653 10035 10013
10365 10744 10127
10622 11003 10201
10899 11319 10247
12/31/95 11241 11787 10268
11133 11645 10415
11162 11734 10482
11350 12003 10555
11624 12309 10609
11617 12279 10702
11917 12702 10722
12216 13085 10783
12/31/97 12499 13440 10789
12636 13595 10849
12776 13802 10903
9/30/98 13113 14225 10930
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS B
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Kemper Lehman
Intermediate Brothers
Municipal Municipal Consumer
Bond Fund Bond Price
Class B(1) Index+ Index++
<S> <C> <C> <C>
11/1/94 10000.00 10000.00 10000.00
10117.20 10035.00 10013.00
10615.00 10744.00 10127.00
10853.50 11003.00 10201.00
11113.20 11319.00 10247.00
12/31/95 11430.50 11787.00 10268.00
11309.50 11645.00 10415.00
11317.60 11734.00 10482.00
11484.20 12003.00 10555.00
11737.80 12309.00 10609.00
11698.50 12279.00 10702.00
11977.40 12702.00 10722.00
12264.60 13085.00 10783.00
12/31/97 12511.50 13440.00 10789.00
12637.30 13595.00 10849.00
12748.90 13802.00 10903.00
9/30/98 12847.60 14225.00 10930.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS C
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Kemper Lehman
Intermediate Brothers
Municipal Municipal Consumer
Bond Fund Bond Price
Class C(1) Index+ Index++
<S> <C> <C> <C>
11/1/94 10000 10000 10000
10133 10035 10013
10623 10744 10127
10865 11003 10201
11143 11319 10247
12/31/95 11463 11787 10268
11333 11645 10415
11336 11734 10482
11507 12003 10555
11759 12309 10609
11730 12279 10702
12010 12702 10722
12287 13085 10783
12/31/97 12552 13440 10789
12665 13595 10849
12780 13802 10903
9/30/98 13093 14225 10930
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURNS AND
PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
* AVERAGE ANNUAL TOTAL RETURN AND TOTAL RETURN MEASURES NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM PORTFOLIO INVESTMENTS OVER THE PERIODS
SPECIFIED, ASSUMING REINVESTMENT OF DIVIDENDS AND, WHERE INDICATED,
ADJUSTMENT FOR THE MAXIMUM SALES CHARGE. THE MAXIMUM SALES CHARGE FOR CLASS
A SHARES IS 2.75%. FOR CLASS B SHARES, THE MAXIMUM CONTINGENT DEFERRED
SALES CHARGE IS 4%. CLASS C SHARES HAVE NO SALES CHARGE ADJUSTMENT, BUT
REDEMPTIONS WITHIN ONE YEAR OF PURCHASE MAY BE SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE OF 1%. SHARE CLASSES INVEST IN THE SAME UNDERLYING
PORTFOLIO. AVERAGE ANNUAL TOTAL RETURN REFLECTS ANNUALIZED CHANGE WHILE
TOTAL RETURN REFLECTS AGGREGATE CHANGE. DURING THE PERIODS NOTED,
SECURITIES PRICES FLUCTUATED. FOR ADDITIONAL INFORMATION, SEE THE
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION AND THE FINANCIAL
HIGHLIGHTS AT THE END OF THIS REPORT.
(1) PERFORMANCE INCLUDES REINVESTMENT OF DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A SHARES AND THE CONTINGENT DEFERRED SALES
CHARGE IN EFFECT AT THE END OF THE PERIOD FOR CLASS B SHARES. IN COMPARING
THE KEMPER INTERMEDIATE MUNICIPAL BOND FUND TO THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX, YOU SHOULD NOTE THAT THE FUND'S PERFORMANCE REFLECTS
THE MAXIMUM SALES CHARGE, WHILE NO SUCH CHARGES ARE REFLECTED IN THE
PERFORMANCE OF THE INDEX.
+ THE LEHMAN BROTHERS MUNICIPAL BOND INDEX INCLUDES APPROXIMATELY 15,000
BONDS. TO BE INCLUDED IN THE INDEX A MUNICIPAL BOND MUST MEET THE FOLLOWING
CRITERIA: A MINIMUM CREDIT RATING OF BBB, HAVE BEEN ISSUED AS A PART OF AN
ISSUE OF AT LEAST $50 MILLION, HAVE BEEN ISSUED WITHIN THE LAST FIVE YEARS,
AND HAVE A MATURITY OF AT LEAST TWO YEARS. BONDS SUBJECT TO ALTERNATIVE
MINIMUM TAX, VARIABLE RATE BONDS AND ZERO COUPON BONDS ARE EXCLUDED FROM
THE INDEX. SOURCE IS TOWERSDATA.
++ THE CONSUMER PRICE INDEX IS A STATISTICAL MEASURE OF CHANGE, OVER TIME, IN
THE PRICES OF GOODS AND SERVICES IN MAJOR EXPENDITURE GROUPS FOR ALL URBAN
CONSUMERS. IT IS GENERALLY CONSIDERED TO BE A MEASURE OF INFLATION. SOURCE
IS TOWERSDATA.
10
<PAGE> 11
PORTFOLIO STATISTICS
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 9/30/98 ON 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 68% 70%
- --------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 19 17
- --------------------------------------------------------------------------------
US GOVERNMENT SECURED 13 8
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS -- 5
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
QUALITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 9/30/98 ON 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 62% 48%
- --------------------------------------------------------------------------------
AA 12 14
- --------------------------------------------------------------------------------
A 4 5
- --------------------------------------------------------------------------------
BBB 13 23
- --------------------------------------------------------------------------------
NOT RATED 9 10
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
YEARS TO MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 9/30/98 ON 9/30/97
- --------------------------------------------------------------------------------
<S> <C> <C>
1-10 YEARS 68% 73%
- --------------------------------------------------------------------------------
11-20 YEARS 32 27
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
AVERAGE MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 9/30/98 ON 9/30/97
<S> <C> <C>
- --------------------------------------------------------------------------------
AVERAGE MATURITY 7.0 years 7.7 years
- --------------------------------------------------------------------------------
</TABLE>
* Portfolio composition and holdings are subject to change.
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
KEMPER MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS AT SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVANCE REFUNDED OBLIGATIONS SECURED
AS TO PRINCIPAL AND INTEREST BY UNITED
STATES GOVERNMENT SECURITIES
- ---------------------------------------------------------------------------------------------------------------------
Broward County, FL, Airport System Rev., 7.625%,
to be called 10-1-98 @ 102 $ 2,620 $ 2,673
Greater Orlando Aviation Auth., FL, Rev., 8.375%,
to be called 10-1-98 @ 102 3,065 3,129
Riverside County, CA, Riverside Juvenile
Facilities Corp., Certificates of
Participation, Rev., 8.00%, to be called
10-1-98 @ 102 4,000 4,081
Community Dev. Auth., WY, Single Family Mortgage
Rev., 7.875%, to be called 12-1-98 @ 103 10 10
Health Facilities Auth., CO, Vail Valley Medical
Center, Rev., 8.125%, to be called 6-1-99 @ 102 7,000 7,356
Clermont County Hospital Facilities, OH, Mercy
Health Systems, Rev., 7.50%, to be called
9-1-99 @ 102 7,720 8,157
Marion County, IN, Hospital Auth., Hospital
Facilities Rev., 8.625%, to be called 10-1-99 @
102 7,195 7,704
Gaithersburg, MD, First Mortgage Economic Dev.,
Asbury Methodist Home Incorporated, Rev.,
7.85%, to be called 1-1-00 @ 102 4,000 4,277
Medical Care Facilities Finance Agcy., NY, Mental
Health Services, Rev., 7.75%, to be called
2-15-00 @ 102 2,955 3,177
Philadelphia, PA, Municipal Auth., Criminal
Justice Center Rev., 7.80%, to be called 4-1-00
@ 100 3,635 3,858
Henry Ford Health System, MI, Rev., 7.00%, to be
called 7-1-00 @ 102 11,000 11,837
Health and Education Facilities Auth., MO,
Christian Health Services Dev. Corp., Rev.,
6.875%, to be called 2-15-01 @ 102 7,000 7,640
Health and Education Facilities Auth., WI, Wausau
Hospitals, Inc. Proj., Rev., 6.625%, to be
called 2-15-01 @ 102 3,000 3,257
Local Assistance Corp., NY, Rev., 7.375% and
7.50%, to be called 4-1-01 @ 102 9,675 10,741
Durham County, NC, 1991 Jail Facilities and
Computer Equipment Financing Proj., Rev.,
6.625%, to be called 5-1-01 @ 102 5,500 6,004
Lancaster County Water and Sewer District, SC,
Waterworks and Sewer System Improvement, Rev.,
6.75%, to be called 5-1-01 @ 102 3,000 3,286
Coconino County, AZ, Industrial Development
Auth., Health Care Rev., 9.25%, to be called
6-1-01 @ 102 565 647
Environmental Facilities Corp., NY, State Water
Pollution Control, Revolving Fund Rev., 7.25%,
to be called 6-15-01 @ 102 4,520 5,024
New York City, NY, Municipal Water Finance Auth.,
Rev., 7.00%, to be called 6-15-01 @ 101 760 833
Philadelphia, PA, Gas Works Rev., 7.70%, to be
called 6-15-01 @ 102 14,850 16,656
Industrial Development Auth., PA, Rev., 7.00%, to
be called 7-1-01 @ 102 5,000 5,529
Gen. Oblg., NY, 7.75%, to be called 8-15-01 @
101 1/2 3,408 3,835
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Clermont County Hospital Facilities, OH, Mercy
Health Systems, Rev., 7.50%, to be called
9-1-01 @ 100 $ 2,280 $ 2,521
Austin, TX, Water, Sewer and Electric Rev.,
14.00%, to be called 11-15-01 @ 100 85 90
City and County of Denver, CO, Airport System
Rev., 8.75%, to be called 11-15-01 @ 102 2,120 2,472
New York City, NY, Gen. Oblg., zero coupon to
8.40%, to be called 11-15-01 @ 101 1/2 28,120 32,425
Chicago, IL, Central Station, Tax Increment Rev.,
8.90%, to be called 1-1-02 @ 102 1,680 2,028
Gen. Oblg., NY, 7.00%, to be called 2-1-02 @
101 1/2 2,640 2,946
Health Facilities Auth., IL, South Suburban
Hospital, Rev., 7.00%, to be called 2-15-02 @
102 3,055 3,415
Ector County, TX, Hospital District, Rev., 7.30%,
to be called 4-15-02 @ 102 550 624
Dormitory Auth., NY, State University Educational
Facility, Rev., 7.25%, to be called 5-15-02 @
102 3,810 4,336
Gen. Oblg., D.C., 6.30%, to be called 6-1-02 @
102 4,500 4,963
Finance Auth., IA, GNMA Mortgage-Backed
Securities Program, Single Family Mortgage
Rev., 7.00%, to be called 7-1-02 @ 102 12,000 13,509
Lehigh County, PA, General Purpose Auth., Lehigh
Valley Hospital Inc., Rev., 6.50%, to be called
7-1-02 @ 102 6,000 6,684
Public Finance Auth., V.I., Rev., 7.25%, to be
called 10-1-02 @ 102 3,000 3,442
City and County of Denver, CO, Airport System
Rev., 6.75% to 8.50%, to be called 11-15-02 @
102 20,735 23,850
St. Louis, MO, Regional Convention & Sports
Complex Auth., Rev., 7.90%, to be called 8-1-03
@ 100 4,760 5,617
St. Louis, MO, Regional Convention & Sports
Complex Auth., Rev., 7.00%, to be called
8-15-03 @ 100 4,380 4,997
City of Reno, NV, Redev. Agcy., Tax Allocation
Rev., 5.65% and 5.75%, to be called 9-1-03 @
101 7,165 7,796
Jacksonville Health Facilities Auth., FL, Baptist
Medical Center, Rev., 11.50%, to be called
10-1-03 @ 100 10 13
City of Battle Creek and Calhoun County, MI,
Downtown Dev. Auth., Tax Increment Rev., 7.60%,
to be called 5-1-04 @ 102 3,800 4,545
Charleston County, SC, Charleston Public
Facilities Corp., Certificates of
Participation, Rev., 6.875% and 7.00%, to be
called 6-1-04 @ 102 7,260 8,508
Environmental Facilities Corp., NY, State Water
Pollution Control, Revolving Fund Rev., 6.875%,
to be called 6-15-04 @ 101 1/2 6,815 7,940
Metropolitan Transit Auth., NY, Transit
Facilities, Rev., 6.25%, to be called 7-1-04 @
101 1/2 6,000 6,827
Jacksonville Health Facilities Auth., FL, Baptist
Medical Center, Rev., 11.50%, to be called
10-1-04 @ 100 35 49
City and County of Denver, CO, Airport System
Rev., 7.50%, to be called 11-15-04 @ 102 1,240 1,499
Health Facilities Auth., IL, Northwestern Medical
Faculty Foundation, Inc., Healthcare Facilities
Rev., 6.50%, to be called 11-15-04 @ 102 3,900 4,513
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Essex County Improvement Auth., NJ, County Jail
and Youth Housing Proj., Lease Rev., 6.90%, to
be called 12-1-04 @ 102 $ 2,645 $ 3,126
Medical Care Facilities Finance Agcy., NY,
Hospital and Nursing Home, Rev., 6.75%, to be
called 2-15-05 @ 102 8,000 9,413
Detroit, MI, Gen. Oblg., 6.70%, to be called
4-1-05 @ 101 2,500 2,908
Cuyahoga County, OH, Meridia Health System,
Hospital Rev., 6.25%, to be called 8-15-05 @
102 7,050 8,151
Arapahoe County, CO, Public Highway Auth., Rev.,
7.00%, to be called 8-31-05 @ 103 45,525 55,037
Jacksonville Health Facilities Auth., FL, Baptist
Medical Center, Rev., 11.50%, to be called
10-1-05 @ 100 40 58
Jacksonville Health Facilities Auth., FL, Baptist
Medical Center, Rev., 11.50%, to be called
10-1-06 @ 100 15 23
Albuquerque, NM, Southwest Community Health
Services, Rev., 10.125%, to be called 8-1-08 @
100 4,000 5,538
Housing Finance Agcy., OH, Single Family Mortgage
Rev., zero coupon, to be called 1-15-13 @ 82 3,360 1,430
Housing Finance Agcy., OH, Single Family Mortgage
Rev., zero coupon, to be called 7-15-13 @ 86 3,515 1,537
----------------------------------------------------------------------------
TOTAL ADVANCE REFUNDED OBLIGATIONS--11.3% 362,541
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS
- ---------------------------------------------------------------------------------------------------------------------
NEW YORK--11.5% Dormitory Auth., State University Educational
Facility, Rev., 5.75% and 6.00%, 2013 and 2014 12,500 14,409
Environmental Quality, Gen. Oblg., 6.50%, 2011 4,260 4,948
Environmental Facilities Corp., State Water
Pollution Control, Revolving Fund Rev., 6.875%
to 7.25%, 2010 through 2014 7,540 8,426
Gen. Oblg., 5.00% and 5.25%, 2013 through 2017 9,745 10,090
Long Island, Power Auth., Electric Systems Rev.,
5.25% and 5.50%, 2026 and 2029 85,690 88,509
Medical Care Facilities Finance Agcy.:
Hospital and Nursing Home, Rev., 6.45%, 2009 8,440 9,379
Mental Health Services Facilities Improvement,
Rev., 7.75%, 2010 980 1,048
Metropolitan Transit Auth., Transit Facilities,
Rev., 5.125% to 6.00%, 2012 through 2028 76,960 81,209
Nassau County, Gen. Oblg., 5.25%, 2013 1,620 1,753
New York City:
Gen. Oblg., zero coupon to 8.40%, 2000 through
2019 62,982 59,393
Industrial Dev. Auth., USTA National Tennis
Center Inc. Proj., Civil Facility Rev., 6.50%
and 6.60%, 2010 and 2011 6,485 7,439
Municipal Water Finance Auth., Rev., 5.25% to
7.00%, 2015 through 2029 49,135 51,414
Port Auth. of New York and New Jersey, Rev.,
6.00% to 9.125%, 2008 through 2015 17,595 19,420
Triborough Bridge and Tunnel Auth., General
Purpose Rev., 5.20%, 2027 5,300 5,433
Urban Dev. Corp., Correctional Facilities, Rev.,
5.60% and 5.70%, 2015 and 2020 8,255 9,066
----------------------------------------------------------------------------
371,936
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ILLINOIS--10.0%
Chicago:
Board of Education, Gen. Oblg., zero coupon to
6.25%, 2009 through 2027 $ 90,330 $ 78,556
Gas Supply, Peoples Gas, Light and Coke
Company, Rev., 8.10%, 2020 8,250 8,918
Gen. Oblg., 5.25% and 5.50%, 2014 and 2028 10,400 11,215
Sales Tax Rev., 5.25%, 2020 3,100 3,172
School Finance Auth., Gen. Oblg., 5.00%, 2008 5,000 5,254
Water Rev., zero coupon, 2012 6,350 3,319
County of Cook, Gen. Oblg., 6.50%, 2013 and 2014 39,780 48,428
Dev. Finance Auth.:
McGaw YMCA-Evanston Proj., Rev., 7.50%, 2013 3,750 4,328
Pollution Control, Commonwealth Edison Company
Proj., Rev., 6.75%, 2015 16,780 19,223
Harvard, Multifamily Housing, Northfield Court,
Rev., 8.80%, 2008 3,800 4,094
Health Facilities Auth., South Suburban Hospital,
Rev., 7.00%, 2009 4,695 5,525
Lake Cook Community School District, Kane and
McHenry Counties, Gen. Oblg., 6.30%, 2017 1,885 2,251
Metropolitan Pier & Exposition Auth., McCormick
Place Expansion, Rev., zero coupon, 2008
through 2018 53,305 25,110
O'Hare International Airport:
General Rev., 6.00% and 6.375%, 2012 20,000 22,185
International Terminal, Special Rev., 6.75%,
2018 23,350 25,515
Regional Transportation Auth., Gen. Oblg., 6.70%,
2021 25,800 32,574
Sports Facilities Auth., Rev., 7.875%, 2010 2,990 3,130
St. Charles, Wessel Court Proj., Multifamily
Housing Rev., 7.60%, 2024 3,780 3,956
University of Chicago, Educational Facilities
Auth., Rev., 5.125%, 2038 10,000 9,957
University Park, Governors Gateway Industrial
Park, Tax Increment Rev., 8.50%, 2011 2,800 3,228
Will County, Community School District, Gen.
Oblg., zero coupon, 2015 8,000 3,563
----------------------------------------------------------------------------
323,501
- ---------------------------------------------------------------------------------------------------------------------
NEW JERSEY--6.7% Atlantic City, Board of Education, Gen. Oblg.,
6.00% and 6.10%, 2013 and 2014 9,100 10,678
Economic Development Auth., Rev., 5.875%, 2026 1,000 1,048
Elizabeth, Gen. Oblg., zero coupon, 2005 and 2006 12,250 9,186
Essex County, Property and Equipment Improvement
Leasing Program, Rev., 6.50%, 2012 4,050 4,509
Health Care Facilities Financing Auth.:
Atlantic City Medical Center, Rev., 6.80%, 2011 6,840 7,587
Southern Ocean County Hospital, Rev., 6.125%,
2013 3,735 3,974
West Jersey Health System, Rev., 6.125%, 2012 11,000 12,010
Jersey City Sewer Auth., Rev., 4.50%, 2019 13,000 12,506
Salem Pollution Control Financing Auth., Rev.,
5.70% and 6.20%, 2028 and 2030 22,925 25,498
Transportation Trust Fund Auth., Gen. Oblg.,
5.50%, 2015 4,420 4,737
Turnpike Auth., Rev., 6.20% to 10.375%, 2003
through 2016 103,630 125,383
----------------------------------------------------------------------------
217,116
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COLORADO--5.8% Adams County, Gen. Oblg., 6.125%, 2007 $ 4,280 $ 4,708
Arapahoe County, Public Highway Auth., Rev., zero
coupon to 5.75%, 2012 through 2025 172,540 86,346
City and County of Denver:
Airport System Rev., 5.60% to 8.75%, 2005
through 2023 42,440 47,770
Gen. Oblg., zero coupon and 6.50%, 2008 and
2010 16,475 14,236
Douglas County School District No. 1, Douglas and
Elbert Counties, Gen. Oblg., 7.00% and 6.50%,
2013 and 2016 10,715 13,576
Health Facilities Auth., Covenant Retirement
Communities, Inc., Rev., 6.75%, 2015 and 2025 5,900 6,703
Housing Finance Auth., Single Family Mortgage
Rev., 7.65%, 2022 435 455
Metropolitan Wastewater Reclamation District,
Gen. Oblg., 6.00%, 2010 11,505 12,266
----------------------------------------------------------------------------
186,060
- ---------------------------------------------------------------------------------------------------------------------
TEXAS--5.3% Abilene, Health Facilities Development Corp.,
Retirement Facilities Rev., 5.875%, 2018 3,250 3,265
Austin:
Combined Utility Systems Rev., 6.00% and 5.60%,
2013 and 2025 19,500 21,624
Water, Sewer and Electric Rev., 14.00%, 2001 2,635 3,028
Bexar, Water Works Rev., 5.00%, 2022 5,000 5,011
Colorado River Municipal River District, Water
Rev., 5.125%, 2016 5,000 5,146
Denison Hospital Auth. Rev., 6.125%, 2012 and
2027 7,790 8,338
Department of Housing and Community Affairs,
Rev., 6.40%, 2027 3,350 3,644
El Paso, Independent School District, Rev., zero
coupon, 2011 3,600 1,922
Gen. Oblg., 7.00%, 2012 9,963 10,839
Georgetown Higher Education Finance Corp.,
Southwestern University Proj., Rev., 6.25%,
2009 840 922
Harris County:
Gen. Oblg., 5.00%, 2014 3,235 3,322
Hospital District, Mortgage Rev., 7.40%, 2010 6,940 8,469
Toll Road Unlimited Tax and Subordinate Lien,
Rev., 6.75%, 2014 15,000 16,407
Housing Agcy., Single Family Mortgage Rev.,
7.15%, 2012 785 844
Houston:
Higher Education Finance Corp., University of
St. Thomas, Rev., 7.25%, 2007 1,445 1,589
Water and Sewer Junior Lien, Rev., 5.50%, 2016 3,000 3,226
Irving Independent School District, Rev., zero
coupon, 2014 6,190 3,017
Public Finance Auth., Gen. Oblg., zero coupon,
2012 and 2014 10,000 4,856
Rio Grande Valley, Health Facilities Dev. Corp.,
Golden Palms Retirement and Health Center,
Rev., 6.40%, 2012 3,700 4,056
Sabine River Auth., Texas Utilities Electric
Company, Rev., 6.10%, 2018 30,200 33,609
Spring, Independent School District, Gen. Oblg.,
5.30%, 2022 4,535 4,692
State Veteran's Land Bonds, Gen. Oblg., 6.40%,
2024 8,550 9,438
</TABLE>
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Titus County Hospital District Improvement, Rev.,
6.125%, 2013 $ 6,700 $ 7,003
Travis County Housing Finance Corp., Residential
Mortgage, Senior Rev., 7.00%, 2011 310 332
Turnpike Auth., President George Bush Turnpike,
Rev., zero coupon, 2010 3,000 1,828
Waxahachie Independent School Dist., Gen. Oblg.,
zero coupon, 2009 through 2013 9,300 5,183
----------------------------------------------------------------------------
171,610
- ---------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--4.7% Bay Transit Auth., General Transportation System,
Rev., 5.25% to 6.20%, 2015 through 2026 37,665 41,921
Consolidated Loan Series B, Gen. Oblg., zero
coupon to 6.50%, 2011 through 2018 16,940 16,196
Federal Highway Improvements, Fuel Sales Tax
Rev., zero coupon, 2014 27,680 12,974
Harvard University, Health and Elderly Facilities
Auth., Rev., 5.375%, 2032 10,820 11,342
Municipal Wholesale Electric Company, Power
Supply System, Rev., 6.00% to 6.75%, 2011
through 2018 37,055 40,174
Port Auth., Rev., 13.00%, 2013 1,500 2,603
Turnpike Auth., Rev., zero coupon, 2018 through
2022 74,355 26,574
----------------------------------------------------------------------------
151,784
- ---------------------------------------------------------------------------------------------------------------------
CALIFORNIA--4.4% Foothill/Eastern Transit Corridor Agcy., Tollroad
Rev., 5.00% to 6.50%, 2016 through 2035 61,575 67,119
Murrieta Valley School District, Gen. Oblg., zero
coupon, 2012 and 2014 8,475 4,236
San Diego Industrial Dev. Auth., Rev., 6.10%,
2019 14,600 16,033
San Francisco:
Building Auth., Lease Rev., 5.25%, 2021 12,000 12,405
International Airport Rev., 5.50%, 2014 4,065 4,390
Redevelopment Finance Auth., Tax Increment
Rev., zero coupon, 2022 5,100 1,592
San Joaquin Hills, Rev., zero coupon, 2013
through 2021 77,990 36,720
----------------------------------------------------------------------------
142,495
- ---------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--4.3% Allegheny County, Airport, Rev., 5.75%, 2013 and
2014 10,825 12,190
Armstrong County Hospital Auth., St. Francis
Medical Center Proj., Rev., 6.25%, 2013 11,350 12,362
Columbia County, Industrial Dev. Auth., First
Mortgage Rev., 9.00%, 2014 1,555 1,746
Convention Center Auth., Rev., 6.70% and 6.75%,
2014 and 2019 12,525 14,167
Hazelton-Saint Joseph Medical Center, Rev.,
6.125% and 6.20%, 2016 and 2026 6,705 7,271
Higher Educational Facilities Auth., College
Rev., 5.85% and 5.90%, 2017 and 2027 4,875 5,186
Jeannette City Health Services Auth., Rev.,
6.00%, 2018 945 1,006
McKean County Hospital Auth., Bradford Hospital
Proj., Rev., 5.95% and 6.10%, 2008 and 2020 8,300 8,920
</TABLE>
17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New Castle Area Hospital Auth., Rev., 6.00%, 2010 $ 845 $ 968
Philadelphia:
Gas Works Rev., 6.375%, 2014 31,080 34,211
Municipal Auth., Lease Rev., 6.25% and 6.30%,
2013 and 2017 4,800 5,170
Parking Auth., Airport Improvement Rev., 5.50%,
2018 6,250 6,645
School District, Gen. Oblg., 5.375%, 2027 15,000 15,591
Pittsburgh, Gen. Oblg., 5.00%, 2010 2,000 2,075
State University, Rev., 5.50%, 2016 10,840 11,204
----------------------------------------------------------------------------
138,712
- ---------------------------------------------------------------------------------------------------------------------
NEW MEXICO--2.8% Albuquerque:
Health Care, Ltd. Proj., Rev., 9.75%, 2014 1,345 1,395
Southwest Community Health Services, Rev.,
10.00%, 2003 805 925
Farmington, Pollution Control Rev., 5.70% to
6.40%, 2016 through 2023 71,795 77,922
Los Alamos County, Utility System, Rev., 6.10%,
2010 4,400 4,902
Severance, Tax, Rev., 4.75%, 2007 2,835 2,920
Socorro Hospital System, Southwest Community
Health Services, Rev., 10.00%, 2003 1,080 1,241
Truth or Consequences, Nursing Home Improvement,
Sierra Health Care, Inc., Rev., 9.75%, 2014 900 939
----------------------------------------------------------------------------
90,244
- ---------------------------------------------------------------------------------------------------------------------
OHIO--2.8% Air Quality, Rev., 6.10%, 2020 5,000 5,255
Building Auth., Highway Safety Building Fund
Proj., Rev., 5.60%, 2015 3,340 3,625
Butler County, Middletown Hospital, Hospital
Facilities Rev., 4.75%, 2018 2,500 2,398
City of Springdale, Hospital Facilities First
Mortgage, Southwestern Ohio Seniors Services,
Rev., 6.00%, 2018 1,250 1,315
Cleveland:
Public Power System Improvement, First
Mortgage, Rev., 7.00%, 2017 850 934
Waterworks Improvement First Mortgage, Rev.,
6.50%, 2011 4,580 5,011
Cuyahoga County, Port Auth., Rev., 6.00%, 2007 1,250 1,302
Dublin City School District, Gen. Oblg., zero
coupon, 2010 500 294
Gen. Oblg., zero coupon, 2007 7,125 4,983
Hamilton County, Recreational Facilities
Improvements, Rev., 5.375%, 2010 6,200 6,807
Lucas County Health Facilities Rev., 6.625% and
6.75%, 2014 and 2020 4,000 4,459
Marion County Health Care Facilities and
Improvement, United Church Homes Proj., Rev.,
6.375% and 6.30%, 2010 and 2015 6,900 7,367
Turnpike Commission, Rev., 5.25%, 2011 and 2013 5,500 5,904
USG Corp. Proj., Solid Waste Disposal Rev.,
5.60%, 2032 6,000 6,110
Village of Green Springs, St. Francis Health Care
Center Proj., Rev., 7.00% and 7.125%, 2014 and
2025 8,640 8,681
</TABLE>
18
<PAGE> 19
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Water Development Auth.:
Bay Shore Power Proj., Rev., 5.875%, 2020 $ 6,250 $ 6,432
Pollution Control, Rev., 6.10%, 2020 8,000 8,407
Willoughby Industrial Dev. Auth., Rev., 6.875%,
2016 2,250 2,537
Worthington City School District, Gen. Oblg.,
6.375%, 2012 6,210 6,818
----------------------------------------------------------------------------
88,639
- ---------------------------------------------------------------------------------------------------------------------
FLORIDA--2.7% Broward County, Waste Energy Company, Rev.,
7.95%, 2008 12,270 13,145
Citrus County, Pollution Control Rev., 6.35%,
2022 6,000 6,574
Dade County:
Gen. Oblg., zero coupon, 2014 3,445 1,598
Miami International Airport, Rev., 5.125%, 2014 4,100 4,222
School District, Gen. Oblg., 5.375%, 2013 5,000 5,501
Department of Transportation, Highway
Improvements, Gen. Oblg., 5.00%, 2022 2,200 2,212
Greater Orlando Aviation Auth., Rev., 5.125%,
2016 5,000 5,110
Hillsborough County, Industrial Dev. Auth., Tampa
Electric, Rev., 8.00%, 2022 10,000 11,615
Jacksonville Health Facilities Auth., Baptist
Medical Center, Rev., 11.50%, 2012 85 146
Orange County, Health Facilities Auth., Rev.,
6.25%, 2016 and 2021 7,000 8,426
Orlando Utilities Commission, Water and
Electrical Rev., 6.75%, 2017 3,500 4,362
Palm Beach County, Solid Waste Auth., Rev., zero
coupon, 2013 20,000 10,035
Sunrise County, Utility Systems Rev., 5.50% and
5.20%, 2018 and 2022 14,000 15,325
----------------------------------------------------------------------------
88,271
- ---------------------------------------------------------------------------------------------------------------------
WISCONSIN--2.5% Kenosha, Gen. Oblg., zero coupon, 2008 5,885 3,797
New London School District, Gen. Oblg., 5.00% and
5.25%, 2009 through 2012 8,555 8,930
Southeast Wisconsin Professional Baseball, Park
District, Rev., 5.50%, 2014 through 2021 35,795 39,599
Transportation Board, Rev., 5.50%, 2014 through
2016 24,850 27,346
----------------------------------------------------------------------------
79,672
- ---------------------------------------------------------------------------------------------------------------------
UTAH--2.0% Housing Finance Agcy., Single Family Mortgage
Rev., 8.625%, 2019 245 266
Intermountain Power Agcy., Power Supply System,
Rev., 5.25 to 7.50%, 2011 through 2021 57,985 62,657
West Valley City, Salt Lake County Excise Tax,
Rev., 10.625%, 2004 760 921
----------------------------------------------------------------------------
63,844
- ---------------------------------------------------------------------------------------------------------------------
MICHIGAN--1.6% Building Auth., Rev., 6.75%, 2011 9,750 10,653
Detroit:
Gen. Oblg., 5.375% and 6.25%, 2010 5,705 6,238
Water Supply System, Water Rev., 5.00%, 2027 6,750 6,752
Higher Education Facilities Auth., Calvin College
Proj., Rev., 5.55%, 2017 1,465 1,508
</TABLE>
19
<PAGE> 20
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hospital Finance Auth.:
Gratiot Community Hospital, Rev., 6.10%, 2007 $ 2,250 $ 2,451
McLaren Oblg. Group, Rev., 5.75% and 4.50%,
2018 and 2021 23,865 22,342
Tawas City, St. Joseph Health System, Rev.,
5.60%, 2013 3,000 3,053
----------------------------------------------------------------------------
52,997
- ---------------------------------------------------------------------------------------------------------------------
TENNESSEE--1.5% Housing Dev. Agcy., Mortgage Finance Program,
Rev., 7.05% and 7.125%, 2020 and 2026 23,800 25,750
Metropolitan Nashville Airport Auth., Airport
Improvement, Rev., 5.00% and 6.60%, 2012
through 2015 17,250 18,103
Shelby County, Gen. Oblg., zero coupon, 2012
through 2014 11,815 6,007
----------------------------------------------------------------------------
49,860
- ---------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--1.4% Gen. Oblg., 6.00%, 2013 through 2017 10,655 12,252
Metropolitan Washington Airports Auth., Airport
System Rev., 7.60%, 2014 3,000 3,259
Redevelopment Land Agcy., Sports Arena Special
Tax, Rev., 5.625%, 2010 8,120 8,580
Water and Sewer Auth., Rev., 6.00%, 2013 through
2016 18,500 21,384
----------------------------------------------------------------------------
45,475
- ---------------------------------------------------------------------------------------------------------------------
ARKANSAS--1.4% Jonesboro Residential Housing & Health Care
Facilities Board, Rev., 5.80%, 2012 4,025 4,464
North Little Rock, Electric System, Rev., 6.50%,
2010 and 2015 32,830 39,726
----------------------------------------------------------------------------
44,190
- ---------------------------------------------------------------------------------------------------------------------
GEORGIA--1.4% Chatham County School District, Gen. Oblg.,
6.15%, 2010 7,300 7,867
Fulton-DeKalb Hospital Auth., Rev., 6.55% and
6.60%, 2018 and 2028 3,870 4,120
Housing and Finance Auth., Rev., 6.25%, 2028 14,510 15,732
Metropolitan Atlanta Rapid Transit Auth., Rev.,
5.625%, 2020 5,000 5,393
Municipal Electric Auth., Power Rev., 6.60%, 2018 8,500 10,549
----------------------------------------------------------------------------
43,661
- ---------------------------------------------------------------------------------------------------------------------
PUERTO RICO--1.3% Commonwealth Highway and Transportation Auth.,
Rev., 6.25%, 2016 11,400 13,719
Industrial, Tourist Educational, Medical and
Environmental, Rev., 6.50%, 2026 9,190 10,070
Public Finance Corp., Rev., 5.375%, 2016 and 2017 16,895 18,547
----------------------------------------------------------------------------
42,336
</TABLE>
20
<PAGE> 21
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MISSOURI--1.3% Clarence Cannon Wholesale Water Commission, Water
Rev., 6.00%, 2020 $ 10,000 $ 10,433
Health and Educational Facilities Auth., Rev.,
5.00% and 5.75%, 2013 and 2017 10,845 11,216
Sikeston, Electric System, Rev., 6.20%, 2010 6,870 8,095
St. Louis:
Regional Convention & Sports Complex Auth.,
Rev., 7.90%, 2021 240 269
Scullin Redev. Proj., Tax Increment Rev.,
10.00%, 2010 8,050 10,325
----------------------------------------------------------------------------
40,338
- ---------------------------------------------------------------------------------------------------------------------
WASHINGTON--1.2% Gen. Oblg., 5.00%, 2022 10,000 10,013
King County, Gen. Oblg., 6.625% and 6.25%, 2015
and 2032 18,840 21,946
Public Power Supply System, Nuclear Proj. #3,
Rev., 5.375%, 2015 5,410 5,614
----------------------------------------------------------------------------
37,573
- ---------------------------------------------------------------------------------------------------------------------
ALASKA--1.1% Energy Auth., Bradley Lake Hydroelectric Power,
Rev., 7.25%, 2016 4,675 4,890
Municipality of Anchorage, Municipal Light and
Power, Electric Rev., 6.50%, 2015 5,000 6,116
North Slope Borough, Gen. Oblg., zero coupon,
2008 and 2009 35,700 23,169
----------------------------------------------------------------------------
34,175
- ---------------------------------------------------------------------------------------------------------------------
STATES LESS THAN AL, Birmingham-Jefferson Civic Center Auth.,
ONE PERCENT--10.3% Capital Outlay, Special Tax Rev., 7.40%, 2008 12,000 12,355
AL, Jefferson County, Sewer Rev., 5.375%, 2027 20,000 20,844
AZ, City of Phoenix, Gen. Oblg., 6.375%, 2013 7,400 8,182
AZ, City of Phoenix, Streets and Highway User,
Rev., 6.25%, 2011 10,000 10,961
AZ, Salt River Proj., Rev., 6.25%, 2019 8,000 8,649
CT, Dev. Auth., Pierce Memorial Baptist Home,
Rev., 9.25%, 2018 1,140 1,247
CT, Dev. Auth., Water Facilities Rev., 6.15%,
2035 7,200 7,955
CT, Greenwich Housing Auth., Rev., 6.35%, 2027 2,640 2,746
CT, Transportation Infrastructure Purposes,
Special Tax Obligation, Rev., 5.25%, 2015 3,650 3,882
HI, Gen. Oblg., Rev., 5.50%, 2014 12,390 13,406
IA, Finance Auth., GNMA Mortgage-Backed
Securities Program, Single Family Mortgage
Rev., 7.90%, 2022 1,890 1,982
IN, Health Facility Financing Auth., Fayette
Memorial Hospital, Rev., 7.20%, 2022 1,800 1,963
IN, Transportation Financing Auth., Highway Rev.,
7.25%, 2015 4,000 5,165
KY, Dev. Finance Auth., Baptist Hospital Inc.,
Rev., 7.625%, 2011 2,000 2,046
KY, Hopkins County, The Trover Clinic Foundation,
Rev., 6.625%, 2011 4,000 4,358
KY, Kenton County Airport Board, Greater
Cincinnati International Airport, Rev., 6.30%,
2015 6,250 7,053
KY, Turnpike Auth., Toll Road, Rev., 8.50%, 2004 780 783
LA, Centenary College of Louisiana Project, Rev.,
5.75% and 5.90%, 2012 and 2017 2,000 2,140
LA, New Orleans, Gen. Oblg., 5.125%, 2022 5,370 5,432
</TABLE>
21
<PAGE> 22
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LA, Parish School Board of the Parish of
Jefferson, Sales Tax, Gen. Oblg., 6.25%, 2008 $ 11,000 $ 11,990
MD, Community Dev. Administration, Department of
Housing and Community Dev., Rev., 7.85%, 2029 3,040 3,148
MD, Health & Higher Educational Facilities Auth.,
Doctors' Community Hospital Proj., Rev., 5.75%,
2013 6,785 6,987
MD, Northeast Maryland Waste Disposal Auth.,
Southwest Resource Recovery Facility, Rev.,
7.20%, 2006 1,500 1,747
MD, Stadium Auth., Sports Facilities Lease Rev.,
7.60%, 2019 17,200 18,277
ME, Health and Higher Education Facilities Auth.,
Rev., 7.10%, 2014 2,750 3,236
MN, City of St. Louis Park, Methodist Hospital
Proj., Rev., 7.25%, 2015 6,650 7,169
MN, Housing Finance Agcy., Single Family Mortgage
Bonds, Rev., 7.90%, 2019 5,500 5,636
MS, Jones County, South Central Regional Medical
Center Proj., Rev., 5.50%, 2017 2,055 2,080
MT, Board of Housing, Rev., 6.15%, 2030 10,420 11,128
NC, Eastern Municipal Power Agcy., Power System,
Rev., 6.00%, 2022 18,775 21,982
NC, Municipal Power Agcy., Catawba Electric,
Rev., 5.50%, 2014 3,660 4,037
ND, Housing Finance Agcy., Single Family Mortgage
Program, Rev., 8.05%, 2024 775 810
NE, Investment Finance Auth., Rev., 6.70% and
6.30%, 2026 and 2028 6,500 7,012
NE, Omaha Public Power District Electric System,
Rev., 6.20%, 2017 4,700 5,413
NE, Scotts Bluff County, Hospital Auth., West
Medical Proj. Center, Rev., 6.45%, 2004 4,535 4,852
NH, Higher Education and Health Facilities Auth.,
Havenwood -- Heritage Heights Issue, Rev.,
7.35% and 7.45%, 2018 and 2025 6,500 7,208
NV, Gen. Oblg., 5.00%, 2011 through 2015 28,160 29,116
NV, Humboldt County, Pollution Control, Idaho
Power Company, Rev., 8.30%, 2014 9,650 11,565
OK, Valley View Hospital Auth., Rev., 5.75% and
6.00%, 2006 and 2014 7,040 7,450
OK, Woodward Municipal Auth., Hospital Rev.,
6.45%, 2014 2,070 2,241
SC, Charleston County, Public Facilities Corp.,
Certificates of Participation, Rev., 6.875% and
7.00%, 2014 and 2019 355 407
SC, Darlington County, Carolina Power & Light
Company Proj., Pollution Control, Rev., 6.60%,
2010 7,500 8,381
SC, Grand Strand, Water and Sewer, Rev., 6.375%,
2012 5,000 6,009
SC, Santee Cooper, Public Service Auth., Rev.,
6.25%, 2022 7,000 7,938
VA, Richmond, Gen. Oblg., 6.25%, 2018 2,665 2,850
VA, Transportation Board, U.S. Route 58 Corridor,
Rev., 5.125%, 2019 2,100 2,127
VA, Virginia Railway Express Proj., Commuter
Railway Rev., 5.375%, 2013 3,220 3,492
</TABLE>
22
<PAGE> 23
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WY, Community Dev. Auth., Rev., 6.35%, 2029 $ 4,955 $ 5,362
WY, Community Dev. Auth., Single Family Mortgage
Rev., 8.125%, 2021 770 806
----------------------------------------------------------------------------
331,605
----------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--88.0% 2,836,094
----------------------------------------------------------------------------
----------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--99.3%
(Cost: $2,934,761) 3,198,635
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--3.90% to 4.25%
INSTRUMENTS--1.4%
Due--October 1998
(Cost: $44,700) 44,700 44,700
----------------------------------------------------------------------------
TOTAL INVESTMENTS--100.7%
(Cost: $2,979,461) 3,243,335
----------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(.7)% (22,692)
----------------------------------------------------------------------------
NET ASSETS--100% $3,220,643
----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $2,979,461,000 for federal income tax
purposes at September 30, 1998, the gross and net unrealized appreciation on
investments was $263,874,000.
See accompanying Notes to Financial Statements.
23
<PAGE> 24
PORTFOLIO OF INVESTMENTS
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS AT SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVANCE REFUNDED OBLIGATIONS SECURED
AS TO PRINCIPAL AND INTEREST BY UNITED
STATES GOVERNMENT SECURITIES
- ---------------------------------------------------------------------------------------------------------------------
Richmond, VA, Gen. Oblg., 6.875%, to be called
1-15-00 @ 102 $ 100 $ 106
Bay Transportation Auth., MA, Rev., 6.50%, to be
called 3-1-00 @ 102 5 6
Dormitory Auth., NY, State University Educational
Facility, Rev., 7.25%, to be called 5-15-00 @ 102 145 156
Local Assistance Corp., NY, Rev., 7.00%, to be called
4-1-01 @ 102 100 110
Coconino County, AZ, Industrial Development Auth.,
Health Care Rev., 9.25%, to be called 6-1-01 @ 102 285 326
Philadelphia, PA, Gas Works Rev., 7.70%, to be called
6-15-01 @ 102 120 135
Gen. Oblg., MA, 7.00%, to be called 7-1-01 @ 102 200 221
Arlington County, VA, Industrial Dev. Auth.,
Arlington Hospital, Rev., 7.125%, to be called
9-1-01 @ 102 90 100
Lexington-Fayette County, KY, Gen. Oblg., 6.50% to be
called 11-1-04 @ 102 300 348
Trustees of Purdue University, IN, Student Fees,
Rev., 6.70%, to be called 1-1-05 @ 103 250 294
Detroit, MI, Gen. Oblg., 6.70%, to be called 4-1-05 @
101 300 349
Arapahoe County, CO, Capital Improvement, Highway,
Rev., 6.90%, to be called 8-31-05 @ 103 300 361
----------------------------------------------------------------------------
TOTAL ADVANCE REFUNDED OBLIGATIONS--10.0% 2,512
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS
- ---------------------------------------------------------------------------------------------------------------------
NEW YORK--14.3% Long Island, Power Auth., Electric Systems Rev.,
5.50%, 2013 1,000 1,114
New York City:
Gen. Oblg., 5.75% to 6.50%, 2002 through 2003 200 218
Industrial Dev. Auth., USTA National Tennis Center
Inc. Proj., Rev., 6.10%, 2004 200 224
Niagara Falls, Water Treatment Plant, Rev., 6.40%,
2004 100 113
Port Auth. of New York and New Jersey, JFK
International Air Terminal LLC Proj., Rev., 6.25%,
2008 500 581
Thruway Auth., Local Highway and Bridge Service
Contract, Gen. Oblg. 6.00%, 2002 265 283
Triborough Bridge and Tunnel Auth., Rev., 5.125%,
2010 1,000 1,075
----------------------------------------------------------------------------
3,608
</TABLE>
24
<PAGE> 25
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OHIO--11.7% Building Auth., Adult Correctional Building Fund
Proj., Gen. Oblg., 6.125%, 2010 $ 400 $ 445
Cleveland:
Gateway Economic Dev. Corp., Rev., 7.50%, 2005 400 442
Water Works Systems, Rev., 6.125%, 2003 450 489
County of Athens, Inn-Ohio of Athens, Inc. Proj.,
Economic Dev. Rev., 6.25%, 2011 220 238
Higher Education Facility Commission, The University
Of Findlay 1996 Proj., Rev., 5.75%, 2007 375 410
Lucas County Health Facilities, Rev., 6.10%, 2006 300 329
Marion County, Health Care Facilities Refunding and
Improvement, United Church Homes, Inc. Proj., Rev.,
6.30%, 2015 250 266
Water Dev. Auth., Pure Water Improvement Proj., Rev.,
5.75% and 5.50%, 2003 and 2008 305 338
----------------------------------------------------------------------------
2,957
- ---------------------------------------------------------------------------------------------------------------------
TEXAS--7.6% Denison Hospital Auth., Texoma Medical Center Inc.
Proj., Rev., 5.90%, 2007 300 330
Fort Worth, Water and Sewer Rev., 5.90%, 2001 80 84
Harris County, Criminal Justice Center, Gen. Oblg.,
7.50%, 2004 and 2005 400 481
Houston Higher Education Finance Corp., University of
St. Thomas, Rev., 7.25%, 2007 100 110
North Richland Hills, Gen. Oblg., 6.00%, 2002 195 209
Public Finance Auth., Building Rev., 5.875%, 2002 210 224
Trinity River Auth., Ten Mile Creek System, Rev.,
5.50%, 2002 70 74
Waxahachie Independent School District, Gen. Oblg.,
zero coupon, 2009 650 407
----------------------------------------------------------------------------
1,919
- ---------------------------------------------------------------------------------------------------------------------
MICHIGAN--6.7% Grand Rapids, Downtown Dev. Auth., Rev., 6.20%, 2004 175 195
Higher Educational Facilities Auth., Rev., 5.40% and
5.75%, 2006 and 2013 500 540
Macomb County, Chippewa Valley Schools, Gen. Oblg.,
7.00%, 2001 350 378
State Building Auth., Rev., 6.25% to 6.50%, 2000
and 2004 165 187
State Hospital Finance Auth., Gratiot Community
Hospital, Rev., 6.10%, 2007 350 381
----------------------------------------------------------------------------
1,681
- ---------------------------------------------------------------------------------------------------------------------
CALIFORNIA--6.6% Central Valley Financing Auth., Carson Ice-Gen Proj.,
Cogeneration Proj. Rev., 6.00%, 2009 250 269
Fresno, Water System, Water Remediation Proj., Rev.,
7.50%, 2004 160 191
Los Angeles, Wastewater Systems, Rev., 5.00%, 2013 500 528
Sacramento Cogeneration Auth., Procter & Gamble
Proj., Rev., 7.00%, 2004 200 230
San Joaquin Hills Transportation Corridor Agcy., Toll
Road, Rev., zero coupon, 2012 825 449
----------------------------------------------------------------------------
1,667
</TABLE>
25
<PAGE> 26
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PENNSYLVANIA--5.9% Allegheny County Hospital Dev. Auth., Magee Women's
Hospital, Rev., 6.25%, 2008 $ 300 $ 330
Columbia County Industrial Dev. Auth., First Mortgage
Rev., 9.00%, 2014 290 326
Health Services Auth. of Hazleton, Hazleton-Saint
Joseph Medical Center, Rev., 5.85%, 2006 220 238
Higher Educational Facilities Auth., Rev., 5.50%,
2007 265 286
Intergovernmental Cooperation Auth., City of
Philadelphia Funding Program, Rev., 6.00%, 2002 285 303
----------------------------------------------------------------------------
1,483
- ---------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--3.2% Horry County School District, Gen. Oblg., 7.00%, 2002 250 274
York County School District, Gen. Oblg., 7.00%, 2004 460 529
----------------------------------------------------------------------------
803
- ---------------------------------------------------------------------------------------------------------------------
ILLINOIS--3.0% Health Facilities Auth., Franciscan Sisters Health
Care Corp. Proj., Rev., 6.25%, 2002 350 382
McHenry and Lake County School District Number 15,
Certificates of Participation, Rev., 6.125%, 2003 85 94
McHenry and Lake County School District Number 118,
School Improvements, Gen. Oblg., zero coupon, 2011 500 285
----------------------------------------------------------------------------
761
- ---------------------------------------------------------------------------------------------------------------------
ARIZONA--2.9% Phoenix Civic Improvement Corp., Water System Rev.,
6.375%, 2005 495 565
State University Board of Regents, Rev., 6.50%, 2001 85 91
Transportation Board, Highway Rev., 6.10%, 2002 70 76
----------------------------------------------------------------------------
732
- ---------------------------------------------------------------------------------------------------------------------
OKLAHOMA--2.7% Muskogee County, Gen. Oblg., 6.00%, 2001 10 11
Valley View Hospital Auth., Rev., 5.75%, 2006 350 369
Woodard Municipal Auth., Hospital, Rev., 5.60%, 2004 270 290
----------------------------------------------------------------------------
670
- ---------------------------------------------------------------------------------------------------------------------
NEW JERSEY--2.4% Middlesex County Utility Auth., Solid Waste System,
Rev., 6.10%, 2001 300 322
Transportation Auth., Rev., 6.50%, 2011 225 273
----------------------------------------------------------------------------
595
- ---------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--2.1% Bay Transportation Auth., Rev., 7.625%, 2015 115 124
Gen. Oblg., 6.25% and 7.00%, 2003 and 2007 325 360
Water Pollution Abatement Trust, SESD Loan Program,
Rev., 6.20%, 2010 45 50
----------------------------------------------------------------------------
534
- ---------------------------------------------------------------------------------------------------------------------
MISSOURI--2.1% State Health & Education Facilities Auth., Lake of
the Ozarks, General Hospital Rev., 5.50% and 6.00%,
2001 and 2006 500 530
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
UTAH--2.1% UT, Intermountain Power Agcy., Power Supply System,
Rev., 5.25%, 2012 500 530
----------------------------------------------------------------------------
</TABLE>
26
<PAGE> 27
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEVADA--1.3% Clark County, Motor Vehicle Fuel Tax Rev., 5.625%,
2002 $ 70 $ 74
Gen. Oblg., 5.90%, 2001 250 264
----------------------------------------------------------------------------
338
- ---------------------------------------------------------------------------------------------------------------------
INDIANA--1.3% Johnson County Hospital Association, Rev., 6.50%,
2002 300 327
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
LOUISIANA--1.3% Gen. Oblg., 7.00%, 2001 300 325
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
ARKANSAS--1.3% North Little Rock, Electric System, Rev., 6.00% and
6.15%, 2001 and 2003 295 324
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PUERTO RICO--1.2% Bank and Finance Agcy., Affordable Housing, Single
Family Mortgage Rev., 5.90%, 2010 165 175
Gen. Oblg., zero coupon, 2017 300 123
----------------------------------------------------------------------------
298
- ---------------------------------------------------------------------------------------------------------------------
MAINE--1.2% Health and Higher Education Facilities Auth., Rev.,
6.30% and 6.50%, 2004 and 2006 260 295
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE--1.1% Higher Education and Health Facilities Auth.,
Havenwood-Heritage Heights Issue, Rev., 7.10%, 2006 250 270
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--1.1% Redev. Land Agency, Sports Arena Special Tax, Rev.,
5.625%, 2010 250 264
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
STATES LESS THAN AK, Student Loan, Gen. Oblg., 5.55%, 2010 200 215
ONE PERCENT--3.5%
CT, State, Gen. Oblg. 5.95%, 2000 5 5
FL, Broward County School District, Gen. Oblg.,
6.00%, 2004 70 76
FL, Department of Natural Resources, Preservation
2000, Rev., 6.20%, 1999 80 82
FL, Hillsborough County Aviation Auth., Tampa
International Airport, Rev., 6.90%, 2011 5 5
GA, Atlanta International Airport, Rev., 6.50%, 2013 70 75
HI, State, Gen. Oblg., 7.25%, 2000 145 155
KY, University of Kentucky, Consolidated Educational
Building, Rev., 6.00%, 1999 70 71
MD, Howard County, Consolidated Public Improvement,
Gen. Oblg., 6.90%, 1999 70 72
NE, Public Power District, Nuclear Facility, Rev.,
5.70%, 2004 50 54
WA, Tacoma, Electric System, Rev., 5.80%, 2004 70 76
----------------------------------------------------------------------------
886
----------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--86.6% 21,797
----------------------------------------------------------------------------
----------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--96.6%
(Cost: $22,646) 24,309
----------------------------------------------------------------------------
</TABLE>
27
<PAGE> 28
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--4.10% to 4.25%
INSTRUMENTS--7.5%
Due--October 1998
NY, New York City, Municipal Water Finance Auth.,
Rev. $ 400 $ 400
Washington, D.C., Gen. Oblg. 400 400
Other 1,100 1,100
----------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--7.5%
(Cost: $1,900) 1,900
----------------------------------------------------------------------------
TOTAL INVESTMENTS--104.1%
(Cost: $24,546) 26,209
----------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(4.1)% (1,036)
----------------------------------------------------------------------------
NET ASSETS--100% $25,173
----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $24,546,000 for federal income tax purposes
at September 30, 1998, the gross and net unrealized appreciation on investments
was $1,663,000.
See accompanying Notes to Financial statements.
28
<PAGE> 29
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER NATIONAL TAX-FREE INCOME SERIES
We have audited the accompanying statement of assets and liabilities,
including the portfolios of investments, of Kemper Municipal Bond Fund and
Kemper Intermediate Municipal Bond Fund, comprising the Kemper National Tax-Free
Income Series (the Trust) as of September 30, 1998, 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 1994. These financial statements and financial highlights
are the responsibility of the Trust'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
September 30, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the above mentioned Funds of Kemper National Tax-Free Income Series at
September 30, 1998, the results of their operations, the changes in their net
assets and the financial highlights for each of the fiscal periods referred to
above, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 17, 1998
29
<PAGE> 30
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL MUNICIPAL
FUND FUND
<S> <C> <C>
- ------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------
Investments, at value
(Cost: $2,979,461 and $24,546) $3,243,335 26,209
- ------------------------------------------------------------------------------------------
Cash 2,217 28
- ------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 1,122 --
- ------------------------------------------------------------------------------------------
Investments sold 40,299 80
- ------------------------------------------------------------------------------------------
Interest 46,154 380
- ------------------------------------------------------------------------------------------
TOTAL ASSETS 3,333,127 26,697
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------------------------
Payable for:
Dividends 2,915 20
- ------------------------------------------------------------------------------------------
Fund shares redeemed 1,832 423
- ------------------------------------------------------------------------------------------
Investments purchased 105,805 1,052
- ------------------------------------------------------------------------------------------
Management fee 1,103 11
- ------------------------------------------------------------------------------------------
Administrative services fee 474 --
- ------------------------------------------------------------------------------------------
Distribution services fee 53 7
- ------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 138 3
- ------------------------------------------------------------------------------------------
Trustees' fees and other 164 8
- ------------------------------------------------------------------------------------------
Total liabilities 112,484 1,524
- ------------------------------------------------------------------------------------------
NET ASSETS $3,220,643 25,173
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------------------------
Paid-in capital $2,928,271 23,549
- ------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments 28,498 (39)
- ------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 263,874 1,663
- ------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $3,220,643 25,173
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------------------------
CLASS A SHARES
Net assets applicable to shares outstanding $3,132,270 19,140
- ------------------------------------------------------------------------------------------
Shares outstanding 295,280 1,819
- ------------------------------------------------------------------------------------------
Net asset value and redemption price per share
(net assets / shares outstanding) $ 10.61 10.53
- ------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 4.71%/2.83% of net asset value
or 4.50%/2.75% of offering price) $ 11.11 10.83
- ------------------------------------------------------------------------------------------
CLASS B SHARES
Net assets applicable to shares outstanding $ 78,323 5,245
- ------------------------------------------------------------------------------------------
Shares outstanding 7,402 498
- ------------------------------------------------------------------------------------------
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
(net assets / shares outstanding) $ 10.58 10.52
- ------------------------------------------------------------------------------------------
CLASS C SHARES
Net assets applicable to shares outstanding $ 10,050 788
- ------------------------------------------------------------------------------------------
Shares outstanding 947 75
- ------------------------------------------------------------------------------------------
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
(net assets / shares outstanding) $ 10.62 10.53
- ------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 31
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL MUNICIPAL
FUND FUND
<S> <C> <C>
- -----------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------
Interest income $180,219 1,236
- -----------------------------------------------------------------------------------------
Expenses:
Management fee 13,233 127
- -----------------------------------------------------------------------------------------
Administrative services fee 5,662 44
- -----------------------------------------------------------------------------------------
Distribution services fee 566 43
- -----------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 2,130 19
- -----------------------------------------------------------------------------------------
Professional fees 80 2
- -----------------------------------------------------------------------------------------
Reports to shareholders 526 13
- -----------------------------------------------------------------------------------------
Trustees' fees and other 110 22
- -----------------------------------------------------------------------------------------
Total expenses 22,307 270
- -----------------------------------------------------------------------------------------
NET INVESTMENT INCOME 157,912 966
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------
Net realized gain on sales of investments (including
options purchased) 59,375 85
- -----------------------------------------------------------------------------------------
Net realized loss from futures transactions (2,720) --
- -----------------------------------------------------------------------------------------
Net realized gain 56,655 85
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 55,759 555
- -----------------------------------------------------------------------------------------
Net gain on investments 112,414 640
- -----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $270,326 1,606
- -----------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL FUND MUNICIPAL FUND
---------------------------- ---------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ 157,912 171,592 966 927
- -----------------------------------------------------------------------------------------------------------
Net realized gain 56,655 66,635 85 139
- -----------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 55,759 47,959 555 479
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 270,326 286,186 1,606 1,545
- -----------------------------------------------------------------------------------------------------------
Distribution from net investment income (157,912) (171,592) (966) (927)
- -----------------------------------------------------------------------------------------------------------
Distribution from net realized gain (66,970) (25,654) (140) (73)
- -----------------------------------------------------------------------------------------------------------
Total dividends to shareholders (224,882) (197,246) (1,106) (1,000)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share
transactions (41,022) (194,265) 2,784 (557)
- -----------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 4,422 (105,325) 3,284 (12)
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------
Beginning of year 3,216,221 3,321,546 21,889 21,901
- -----------------------------------------------------------------------------------------------------------
END OF YEAR $3,220,643 3,216,221 25,173 21,889
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
31
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE The Kemper National Tax-Free Income Series (the
FUND Trust) is an open-end, management investment
company comprised of Kemper Municipal Bond Fund
(Municipal Fund) and Kemper Intermediate Municipal
Bond Fund (Intermediate Municipal Fund),
collectively the Funds. The Trust is organized as a
business trust under the laws of Massachusetts.
The Funds offer four classes of shares. Class A
shares are sold to investors subject to an initial
sales charge. Class B shares are sold without an
initial sales charge but are subject to higher
ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable on certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares (none issued at
September 30, 1998) are offered to a limited group
of investors, are not subject to initial or
contingent deferred sales charges and have lower
ongoing expenses than other classes. Differences in
class expenses will result in the payment of
different per share income dividends by class. All
shares of each Fund have equal rights with respect
to voting, dividends and assets, subject to class
specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT INVESTMENT VALUATION. Investments are stated at
ACCOUNTING POLICIES 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. 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.
EXPENSES. Expenses arising in connection with a
specific Fund are allocated to that Fund. Other
Trust expenses are allocated among the Funds in
proportion to their relative net assets.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the close of the Exchange. The net
asset value per share is determined separately for
each class by dividing the Fund's net assets
attributable to that class by the number of shares
of the class outstanding.
FEDERAL INCOME TAXES. Each Fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated
32
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS
investment companies, and to distribute all of its
taxable and tax-exempt income to its shareholders.
Accordingly, each Fund paid no federal income taxes
and no federal income tax provision was required.
DIVIDENDS TO SHAREHOLDERS. Each Fund declares and
records a daily dividend equal to its net
investment income for that day, to holders of
shares for which payment has been received. Income
dividends are distributed monthly. Net realized
capital gains, if any, will be distributed at least
annually. Dividends are determined in accordance
with income tax principles which may treat certain
transactions differently from generally accepted
accounting principles.
- --------------------------------------------------------------------------------
3 TRANSACTIONS MANAGEMENT AGREEMENT. Each Fund has a management
WITH AFFILIATES agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper). The Municipal Fund pays a monthly
investment management fee of 1/12 of the annual
rate of .45% of the first $250 million of average
daily net assets declining to .32% of average daily
net assets in excess of $12.5 billion. The
Municipal Fund paid a management fee of $13,233,000
for the year ended September 30, 1998.
The Intermediate Municipal Fund pays a monthly
investment management fee of 1/12 of the annual
rate of .55% of the first $250 million of average
daily net assets declining to .40% of average daily
net assets in excess of $12.5 billion. The
Intermediate Municipal Fund paid a management fee
of $127,000 for the year ended September 30, 1998.
ZURICH/B.A.T MERGER. On September 7, 1998, Zurich
Insurance Company (Zurich), majority owner of
Scudder Kemper, entered into an agreement with
B.A.T Industries p.l.c. (B.A.T) pursuant to which
the financial services businesses of B.A.T were
combined with Zurich's businesses to form a new
global insurance and financial services company
known as Zurich Financial Services. Upon
consummation of the transaction, each Fund's
investment management agreement with Scudder Kemper
was deemed to have been assigned and, therefore,
terminated. The Board of Trustees of each Fund has
approved new investment management agreements with
Scudder Kemper, which are substantially identical
to the former investment management agreements,
except for the dates of execution and termination.
The Board of Trustees of each Fund will seek
shareholder approval of the new investment
management agreements through a proxy solicitation
that is currently scheduled to conclude in
mid-December.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The Trust has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI). Underwriting commissions
paid in connection with the distribution of each
Fund's Class A shares for the year ended September
30, 1998 are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
COMMISSIONS ALLOWED BY KDI
RETAINED BY KDI TO FIRMS
--------------- --------------
<S> <C> <C>
Municipal Fund $291,000 1,764,000
Intermediate Municipal Fund $ 14,000 133,000
</TABLE>
For services under the distribution services
agreement, each Fund pays KDI a fee of .75% of
average daily net assets of Class B and Class C
shares pursuant to separate Rule 12b-1 plans for
the Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sales of Class B and Class C shares of each Fund.
In
33
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS
addition, KDI receives any contingent deferred
sales charges (CDSC) from redemptions of Class B
and Class C shares. Distribution fees, CDSC and
commissions related to Class B and Class C shares
for the year ended September 30, 1998 are as
follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES
RECEIVED BY KDI PAID BY KDI TO FIRMS
----------------- --------------------
<S> <C> <C>
Municipal Fund $663,000 778,000
Intermediate Municipal Fund 54,000 66,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Trust has an
administrative services agreement with KDI. For
providing information and administrative services
to shareholders, each Fund pays KDI a fee at an
annual rate of up to .25% of average daily net
assets of each class. KDI in turn has various
agreements with financial services firms that
provide these services and pays these firms based
on assets of Fund accounts the firms service.
Administrative services fees (ASF) paid for the
year ended September 30, 1998 are as follows:
<TABLE>
<CAPTION>
ASF PAID BY KDI
ASF PAID BY THE ----------------------------
TRUST TO KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
Municipal Fund $5,662,000 5,694,000 16,000
Intermediate Municipal Fund 44,000 57,000 --
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Trust's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Trust. Under the agreement,
for the year ended September 30, 1998, KSvC
received shareholder services fees as follows:
<TABLE>
<S> <C>
Municipal Fund $1,478,000
Intermediate Municipal Fund 10,000
</TABLE>
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of
Scudder Kemper. For the year ended September 30,
1998, the Trust made no direct payments to its
officers and incurred trustees' fees aggregating
$60,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT For the year ended September 30, 1998, investment
TRANSACTIONS transactions (excluding short-term instruments) are
as follows (in thousands):
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL FUND MUNICIPAL FUND
-------------- --------------
<S> <C> <C>
Purchases $2,114,956 6,296
Proceeds from sales 2,081,633 3,309
</TABLE>
34
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following tables summarize the activity in
TRANSACTIONS capital shares of the Funds (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1997
MUNICIPAL -------------------------- -----------------------
FUND SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 93,268 $ 974,757 36,543 $ 376,175
-----------------------------------------------------------------------------------
Class B 2,704 28,166 2,441 24,932
-----------------------------------------------------------------------------------
Class C 4,263 44,493 412 4,246
-----------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 13,684 141,785 13,029 133,574
-----------------------------------------------------------------------------------
Class B 273 2,821 176 1,799
-----------------------------------------------------------------------------------
Class C 31 327 18 182
-----------------------------------------------------------------------------------
SHARES REDEEMED
Class A (113,073) (1,180,570) (70,404) (723,896)
-----------------------------------------------------------------------------------
Class B (1,101) (12,098) (836) (8,563)
-----------------------------------------------------------------------------------
Class C (3,866) (40,395) (263) (2,714)
-----------------------------------------------------------------------------------
Class I (30) (308) -- --
-----------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 351 3,667 169 1,742
-----------------------------------------------------------------------------------
Class B (352) (3,667) (169) (1,742)
-----------------------------------------------------------------------------------
NET DECREASE FROM
CAPITAL SHARE
TRANSACTIONS $ (41,022) $(194,265)
-----------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1997
INTERMEDIATE -------------------- --------------------
MUNICIPAL FUND SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 817 $8,500 503 $5,105
-------------------------------------------------------------------------------
Class B 178 1,841 104 1,058
-------------------------------------------------------------------------------
Class C 56 578 35 355
-------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 57 587 51 512
-------------------------------------------------------------------------------
Class B 12 128 10 109
-------------------------------------------------------------------------------
Class C 2 19 2 24
-------------------------------------------------------------------------------
SHARES REDEEMED
Class A (677) (7,029) (623) (6,324)
-------------------------------------------------------------------------------
Class B (122) (1,295) (101) (1,028)
-------------------------------------------------------------------------------
Class C (53) (545) (36) (368)
-------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 13 112 1 10
-------------------------------------------------------------------------------
Class B (13) (112) (1) (10)
-------------------------------------------------------------------------------
NET INCREASE (DECREASE)
FROM CAPITAL SHARE
TRANSACTIONS $2,784 $ (557)
-------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 37
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------
MUNICIPAL FUND 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------
Net asset value, beginning of year $10.46 10.18 10.15 9.69 10.95
- ----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .52 .54 .55 .55 .55
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .37 .36 .06 .50 (.92)
- ----------------------------------------------------------------------------------------
Total from investment operations .89 .90 .61 1.05 (.37)
- ----------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .52 .54 .55 .55 .56
- ----------------------------------------------------------------------------------------
Distribution from net realized gain .22 .08 .03 .04 .33
- ----------------------------------------------------------------------------------------
Total dividends .74 .62 .58 .59 .89
- ----------------------------------------------------------------------------------------
Net asset value, end of year $10.61 10.46 10.18 10.15 9.69
- ----------------------------------------------------------------------------------------
TOTAL RETURN 8.84% 9.15 6.00 11.15 (3.67)
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses .68% .68 .66 .66 .60
- ----------------------------------------------------------------------------------------
Net investment income 4.97% 5.29 5.35 5.63 5.42
- ----------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 38
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS B SHARES
--------------------------------------------------
MAY 31
YEAR ENDED SEPTEMBER 30, TO
------------------------------ SEPTEMBER 30,
MUNICIPAL FUND 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.44 10.15 10.13 9.67 9.95
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .43 .45 .46 .46 .14
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .36 .37 .05 .50 (.26)
- ------------------------------------------------------------------------------------------------
Total from investment operations .79 .82 .51 .96 (.12)
- ------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .43 .45 .46 .46 .16
- ------------------------------------------------------------------------------------------------
Distribution from net realized gain .22 .08 .03 .04 --
- ------------------------------------------------------------------------------------------------
Total dividends .65 .53 .49 .50 .16
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $10.58 10.44 10.15 10.13 9.67
- ------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 7.84% 8.32 4.97 10.17 (1.24)
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------
Expenses 1.52% 1.55 1.54 1.55 1.56
- ------------------------------------------------------------------------------------------------
Net investment income 4.13% 4.42 4.47 4.74 4.55
- ------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 39
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------
YEAR ENDED SEPTEMBER 30, MAY 31 TO
------------------------------ SEPTEMBER 30,
MUNICIPAL FUND 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.47 10.18 10.16 9.69 9.95
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .43 .46 .46 .47 .16
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .37 .37 .05 .51 (.26)
- ---------------------------------------------------------------------------------------------
Total from investment operations .80 .83 .51 .98 (.10)
- ---------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .43 .46 .46 .47 .16
- ---------------------------------------------------------------------------------------------
Distribution from net realized gain .22 .08 .03 .04 --
- ---------------------------------------------------------------------------------------------
Total dividends .65 .54 .49 .51 .16
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $10.62 10.47 10.18 10.16 9.69
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 7.93% 8.34 4.99 10.32 (1.03)
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses 1.52% 1.53 1.51 1.51 1.53
- ---------------------------------------------------------------------------------------------
Net investment income 4.13% 4.44 4.50 4.78 4.56
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Net assets at end of year (in thousands) $3,220,643 3,216,221 3,321,546 3,510,648 3,716,997
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 65% 77 97 86 50
- ------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE FOR MUNICIPAL FUND:
Total return does not reflect the effect of any sales charges.
39
<PAGE> 40
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
------------------------------------------
YEAR ENDED SEPTEMBER NOVEMBER 1,
30, 1994 TO
---------------------- SEPTEMBER 30,
INTERMEDIATE MUNICIPAL FUND 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.31 10.06 10.18 9.50
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .45 .46 .46 .45
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .29 .29 (.04) .68
- ----------------------------------------------------------------------------------------------
Total from investment operations .74 .75 .42 1.13
- ----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .45 .46 .46 .45
- ----------------------------------------------------------------------------------------------
Distribution from net realized gain .07 .04 .08 --
- ----------------------------------------------------------------------------------------------
Total dividends .52 .50 .54 .45
- ----------------------------------------------------------------------------------------------
Net asset value, end of period $10.53 10.31 10.06 10.18
- ----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 7.34% 7.62 4.15 12.08
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------
Expenses absorbed by the Fund .96% .96 .92 .55
- ----------------------------------------------------------------------------------------------
Net investment income 4.35% 4.55 4.45 5.00
- ----------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------
Expenses .96% .96 1.04 1.05
- ----------------------------------------------------------------------------------------------
Net investment income 4.35% 4.55 4.33 4.50
- ----------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 41
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS B
--------------------------------------
YEAR ENDED SEPTEMBER NOVEMBER 1,
30, 1994 TO
---------------------- SEPTEMBER 30,
INTERMEDIATE MUNICIPAL FUND 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.31 10.06 10.18 9.50
- ------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .37 .38 .38 .36
- ------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .28 .29 (.04) .68
- ------------------------------------------------------------------------------------------
Total from investment operations .65 .67 .34 1.04
- ------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .37 .38 .38 .36
- ------------------------------------------------------------------------------------------
Distribution from net realized gain .07 .04 .08 --
- ------------------------------------------------------------------------------------------
Total dividends .44 .42 .46 .36
- ------------------------------------------------------------------------------------------
Net asset value, end of period $10.52 10.31 10.06 10.18
- ------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.38% 6.78 3.34 11.13
- ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------
Expenses absorbed by the Fund 1.76% 1.76 1.71 1.42
- ------------------------------------------------------------------------------------------
Net investment income 3.55% 3.75 3.66 4.13
- ------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------
Expenses 1.76% 1.76 1.83 1.92
- ------------------------------------------------------------------------------------------
Net investment income 3.55% 3.75 3.54 3.63
- ------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 42
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------
YEAR ENDED SEPTEMBER NOVEMBER 1,
30, 1994 TO
---------------------- SEPTEMBER 30,
INTERMEDIATE MUNICIPAL FUND 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.31 10.06 10.19 9.50
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .37 .39 .38 .38
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .29 .29 (.05) .69
- -----------------------------------------------------------------------------------------------
Total from investment operations .66 .68 .33 1.07
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .37 .39 .38 .38
- -----------------------------------------------------------------------------------------------
Distribution from net realized gain .07 .04 .08 --
- -----------------------------------------------------------------------------------------------
Total dividends .44 .43 .46 .38
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $10.53 10.31 10.06 10.19
- -----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.55% 6.77 3.26 11.43
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------
Expenses absorbed by the Fund 1.73% 1.73 1.65 1.28
- -----------------------------------------------------------------------------------------------
Net investment income 3.58% 3.78 3.72 4.27
- -----------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------
Expenses 1.73% 1.73 1.77 1.78
- -----------------------------------------------------------------------------------------------
Net investment income 3.58% 3.78 3.60 3.77
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------------------------
NOVEMBER 1,
YEAR ENDED SEPTEMBER 30, 1994 TO
------------------------- SEPTEMBER 30,
1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at end of period (in thousands) $25,173 21,889 21,901 16,169
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 14% 80 80 60
- --------------------------------------------------------------------------------------------------
</TABLE>
NOTES FOR INTERMEDIATE MUNICIPAL FUND:
Scudder Kemper agreed to waive the management fee of the Intermediate Municipal
Fund from its inception, November 1, 1994, through April 30, 1995. Thereafter,
the management fee was gradually reinstated through April 30, 1996. "Other
ratios to average net assets" are computed without the waiver of management fee.
Total return does not reflect the effect of any sales charges.
FEDERAL TAX STATUS OF 1998 DIVIDENDS FOR BOTH FUNDS
Municipal and Intermediate Municipal Funds paid distributions of $.11 and $.04
per share, respectively, from net long-term capital gains during the year ended
September 30, 1998, of which 36% and 25% represent 20% rate gains, respectively.
Pursuant to Section 852 of the Internal Revenue Code, Municipal and Intermediate
Municipal Funds designate $35,446,000 and $42,000, respectively, as capital gain
dividends for the year ended September 30, 1998, of which 100% represent 20%
rate gains.
Of the dividends paid from net investment income by each Fund for the taxable
year ended September 30, 1998, 100% are designated as exempt interest dividends
for federal income tax purposes. However, a portion of the dividends may be
includable in the alternative minimum tax calculation.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Kemper Fund account, please call 1-800-621-1048.
42
<PAGE> 43
43
NOTES
<PAGE> 44
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY ROBERT C. PECK, JR.
Chairman and Trustee President Vice President
DAVID W. BELIN PHILIP J. COLLORA KATHRYN L. QUIRK
Trustee Vice President, Vice President
Secretary and Treasurer
LEWIS A. BURNHAM LINDA J. WONDRACK
Trustee JOHN R. HEBBLE Vice President
Treasurer
DONALD L. DUNAWAY MAUREEN E. KANE
Trustee JERARD K. HARTMAN Assistant Secretary
Vice President
ROBERT B. HOFFMAN CAROLINE PEARSON
Trustee THOMAS W. LITTAUER Assistant Secretary
Vice President
DONALD R. JONES ELIZABETH C. WERTH
Trustee ANN M. MCCREARY Assistant Secretary
Vice President
SHIRLEY D. PETERSON BRENDA LYONS
Trustee CHRISTOPHER J. MIER Assistant Treasurer
Vice President
WILLIAM P. SOMMERS
Trustee M. ASHTON PATTON
Vice President
EDMOND D. VILLANI
Trustee
</TABLE>
<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 419557
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
..........................................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
KEMPER FUNDS LOGO Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Tax-Free Income Funds prospectus.
KNTIS - 2(11/98) 1059700
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
TRUSTEES&OFFICERS
