<PAGE> 1
Kemper National Tax-Free
Income Series
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
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
"...We correctly identified the value that long-term interest rates had
achieved...and began to lengthen the portfolios' average duration..."
Kemper Municipal
Bond Fund
Kemper Intermediate
Municipal Bond Fund
[Kemper Mutual Funds Logo]
<PAGE> 2
Table of
Contents
3
Terms to Know
4
General
Economic Overview
6
Performance Update
9
Portfolio Statistics
12
Portfolio of
Investments
29
Report of
Independent Auditors
30
Financial Statements
33
Notes to
Financial Statements
37
Financial Highlights
At A Glance
Kemper National Tax-Free Income Funds Total Returns (unadjusted for sales
charge):
- - Kemper Municipal Bond Fund returns are for the year ended
September 30, 1995.
- - Kemper Intermediate Municipal Bond Fund returns are for the period from
November 1, 1994 through September 30, 1995.
Lipper Municipal
Bond Funds
Category
Class A Class B Class C Average*
- -------------------------------------------------------------------------------
11.15% 10.17% 10.32% 9.84%
- -------------------------------------------------------------------------------
Lipper Intermediate
Municipal
Bond Funds
Category
Class A Class B Class C Average*
- -------------------------------------------------------------------------------
12.08% 11.13% 11.43% 9.84%
- -------------------------------------------------------------------------------
Net Asset Value
As of As of
9/30/95 9/30/94
- -------------------------------------------------------------------------------
Kemper Municipal Bond Fund
Fund Class A $10.15 $9.69
- -------------------------------------------------------------------------------
Kemper Municipal Bond
Fund Class B $10.13 $9.67
- -------------------------------------------------------------------------------
Kemper Municipal Bond
Fund Class C $10.16 $9.69
- -------------------------------------------------------------------------------
Net Asset Value As of As of
9/30/95 11/1/94
- -------------------------------------------------------------------------------
Kemper Intermediate Municipal
Bond Fund Class A $10.18 $9.50
- -------------------------------------------------------------------------------
Kemper Intermediate Municipal
Bond Fund Class B $10.18 $9.50
- -------------------------------------------------------------------------------
Kemper Intermediate Municipal
Bond Fund Class C $10.19 $9.50
- -------------------------------------------------------------------------------
Kemper Municipal Bond Fund
Lipper Rankings
Compared to all other funds in the Lipper
Municipal Bond Fund category*
Class A Class B Class C
- -------------------------------------------------------------------------------
1-year #31 of 213 funds #77 of 213 funds #66 of 213 funds
- -------------------------------------------------------------------------------
5-year #14 of 98 funds N/A N/A
- -------------------------------------------------------------------------------
10-year #8 of 54 funds N/A N/A
- -------------------------------------------------------------------------------
15-year #6 of 31 funds N/A N/A
- -------------------------------------------------------------------------------
Returns are historical and do not represent future performance. Returns and
net asset value fluctuate. Shares are redeemable at current net asset value,
which may be 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. Lipper rankings are not available for Kemper Intermediate
Muncipal Bond Fund.
Dividend and Yield Review
The following tables show per share dividend
and yield information for the funds as of
September 30, 1995.
Municipal Fund A Shares B Shares C Shares
- ------------------------------------------------------------------------------
1 Year Income: $0.5536 $0.4630 $0.4692
- ------------------------------------------------------------------------------
September
Dividend: $0.0462 $0.0383 $0.0378
- ------------------------------------------------------------------------------
Annualized
Distribution Rate+: 5.46% 4.54% 4.46%
- -------------------------------------------------------------------------------
SEC Yield+: 4.93% 4.31% 4.27%
- ------------------------------------------------------------------------------
Tax Equivalent Yield: 7.84% 6.85% 6.79%
Based on a marginal federal income tax rate of 37.1%
- ------------------------------------------------------------------------------
Intermediate
Municipal Fund A Shares B Shares C Shares
- ------------------------------------------------------------------------------
11 Months Income: $0.4458 $0.3613 $0.3786
- ------------------------------------------------------------------------------
September
Dividend: $0.0386 $0.0324 $0.0356
- ------------------------------------------------------------------------------
Annualized
Distribution Rate+: 4.55% 3.82% 4.19%
- -------------------------------------------------------------------------------
SEC Yield+:
(after expense
waiver) 4.23% 3.75% 3.98%
- -------------------------------------------------------------------------------
SEC Yield+:
(before expense
waiver) 3.69% 3.19% 3.42%
- -------------------------------------------------------------------------------
Tax Equivalent Yield: 6.72% 5.96% 6.33%
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, 1995.
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, 1995 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.
<PAGE> 3
About Your Report
Shareholder Reports Revised
Your funds annual report is your best source for tracking the progress of your
investment. This report includes several changes that have been made in
an effort to provide additional information to you as well as explain
significant changes to the fund over the last fiscal year. In addition, the
performance update includes commentary from your fund's portfolio manager or
management team on what might be expected in the coming months.
Specifically, your report now includes:
- - Terms you need to know related to your fund
- - A look at your fund's portfolio composition and how it has changed
- - The quality and the years to maturity of the fund's underlying investments
If you have any comments about the revised format or if you have
suggestions for additional changes, please write to:
Kemper Mutual Funds
Shareholder Communications
120 South LaSalle Street
Chicago, IL 60603
Terms to Know
DERIVATIVE SECURITIES Instruments that derive their value from an
underlying security. Financial futures and option contracts, long
recognized as risk-managing tools, fall into this category. In recent
years a number of exotic derivatives were created as a means of enhancing
returns in a declining interest rate environment. Some of these products can
entail a high degree of risk and can be prone to significant price volatility.
DURATION Duration is a measure of the interest rate sensitivity of a
fixed-income portfolio incorporating the time to maturity and coupon size.
The longer the duration, the greater the interest rate risk.
REVENUE BOND INDEX ("RBI") The average yield on 25 revenue bonds with
30-year maturities, compiled by The Bond Buyer, the newspaper of the
municipal bond industry.
TOTAL RETURN A fund's total return figure measures both the net
investment income and any realized and unrealized appreciation or
depreciation of the underlying investments in its portfolio for the period,
assuming the reinvestment of all dividends. It represents the aggregate
percentage or dollar value change over the period.
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.
3
<PAGE> 4
[Photo of Stephen B. Timbers]
GENERAL ECONOMIC OVERVIEW
Stephen B. Timbers is chief executive and chief investment officer of
Kemper Financial Services, Inc. (KFS). KFS and its affiliates manage
approximately $63 billion in assets, including $44 billion in retail
mutual funds. Timbers is a graduate of Yale University and holds an M.B.A.
from Harvard University.
DEAR SHAREHOLDER,
Investors enjoyed generally positive performance in both the fixed
income and stock markets in the first 10 months of 1995. At this point in the
year, the returns of most leading securities markets worldwide are
significantly higher than they were at the same time in 1994.
We have an excellent environment for financial assets. After
several quarters of robust growth, the United States economy seems to be
growing at a pace that investors find comfortable. Contrary to isolated
reports that caused some observers to become concerned, the economy is in
no jeopardy of recession. Its health was confirmed with the news that the
economy grew (as measured by real gross domestic product [GDP]) at an annual
rate of 4.2% in the third quarter. This follows much lower growth in the
first two quarters, as the economy was adjusting to the Federal Reserve
Board's series of interest rate increases. The slowdown, in fact, was
acknowledged by the Fed when it eased short-term rates by a small but symbolic
25 basis points in July. Now we know that the economy was rebounding from July
through September.
The economy's continued growth without a corresponding increase in
inflation is very encouraging. Although we are well along in the economic
cycle and at a point when prices often start hiking up, inflationary
pressures have actually been reduced somewhat.
Will the Federal Reserve Board adjust interest rates again? As of
this date -- which precedes any resolution on the federal budget issue --
we doubt that the Fed has motivation to either ease or (which would be even
less likely) raise interest rates. Our forecast calls for lower growth
ranging between 2% to 3% for the next few quarters, with the momentum likely
to come from exports and nonresidential construction.
MARKET OUTLOOK
Slow growth and low inflation is the optimal combination for investors
in the fixed income markets, and we expect them to continue to perform well.
We believe that the opportunities for common stock investors will be
increasingly concentrated in higher quality investments. After hitting new
highs and showing considerable strength for most of the year, the stock market
showed some vulnerability when it took a tumble in the summer. The market
recovered after a brief period and has gained ground since. But such a sudden,
severe mini-correction served to remind investors that the current bull
market will inevitably come to an end someday and that some sectors may even
be overextended today.
As we view the remainder of the year, companies cannot necessarily
count on the economy to provide above-average earnings support. Rather,
stocks that have proven themselves with a pattern of consistent earnings are
likely to attract investor support. Specifically, sectors that produce more
consistent earnings, such as health care, consumer nondurables, selected
technology and selected capital goods can be expected to do well. Picking the
right sectors to invest in will be the key challenge for equity investors
during the next few quarters.
International investing continues to be quite complex. After sinking
to its post-World War II low in April, the value of the U.S. dollar has gained
strength against most foreign currencies. While a stronger dollar favors the
U.S. economy because it reduces the cost of American imports and attracts
foreign capital, a strong dollar in relation to a local currency has the
effect of devaluing a foreign investment. The value of the dollar and the
attractiveness of U.S. investments to foreign investors will be key factors
in the next few months.
4
<PAGE> 5
General Economic Overview
Economic Guideposts
Economic activity is a key influence on investment performance and
shareholder decision-making. Periods of recession or boom, inflation or
deflation, credit expansion or credit crunch have a significant impact on
mutual fund performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The
10-year Treasury rate and the prime rate are prevailing interest rates. The
other data report year-to-year percentage changes.
<TABLE>
<CAPTION>
Now (10/31/95) 6 months ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 6.04 6.63 7.96 5.72
Prime rate(3) 8.75 9 8.15 6
Inflation rate(3)(*) 2.54 3.05 2.68 2.75
The U.S. Dollar(4) -1.05 -10.02 -5.65 1.23
Capital goods orders(5)(*) 11.72 9.44 18.9 19.12
Industrial production(6)(*) 3.03 3.84 6.08 3.50
Employment growth(7) 1.80 2.30 3.25 2.47
</TABLE>
(*) Data as of September 30, 1995
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best
borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the
last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on corporate profits and equity performance.
(7) An influence on family income and retail sales.
Source: Economics Department, Kemper Financial Services, Inc.
We are in the midst of a global recovery, and the same fundamentals
that have driven markets higher in the U.S. can be found in many foreign
countries currently. However, leading international economies continue to
lag the U.S. Japan and Germany, whose economies typically follow U.S.
growth, are not as robust as in past cycles. Moreover, conditions in
emerging market countries underline the importance of careful research and
experience in understanding how these markets work.
Political leadership also has some bearing on the progress of the
economy and the state of the financial markets. In the months preceding a
presidential election year, it has been common for incumbents to attempt to
stimulate growth. Given our Republican Congress and Democratic President,
however, we do not consider this as likely this time.
With the rest of the country, we are closely following political
initiatives to produce a balanced federal budget. This is a political wild
card, but we would expect both the stock and fixed-income markets to react
with enthusiasm if progress can be made.
With that as an economic backdrop, we encourage you to read the
following detailed report of your fund, including a question-and-answer
interview with your fund's portfolio manager. Thank you for your continued
support. We appreciate the opportunity to serve your investment needs.
Sincerely,
Stephen B. Timbers
Stephen B. Timbers
Chief Investment and Executive Officer
November 6, 1995
5
<PAGE> 6
Performance Update
[Photo of Chris Mier]
CHRIS MIER, PORTFOLIO MANAGER OF KEMPER MUNICIPAL BOND FUND AND KEMPER
INTERMEDIATE MUNICIPAL BOND FUND, DISCUSSES THE IMPACT OF CHANGING INTEREST
RATES AND THE POSSIBILITY OF TAX REFORM ON THE MUNICIPAL BOND MARKET.
Chris Mier joined Kemper Financial Services, Inc. in 1986 and is now
senior vice president and portfolio manager of the Kemper Municipal Bond Fund
and the Kemper Intermediate Municipal Fund. Mr. Mier received his B.A. degree
in Economics from the University of Michigan and went on to receive his M.M.
in Finance from the Kellogg Graduate School of Management at Northwestern
University.
Q. DURING THE FUNDS' FISCAL YEAR WE SAW INTEREST RATES INCREASE AND THEN
DECLINE. HOW DID THESE MOVEMENTS INFLUENCE THE MUNICIPAL BOND MARKET?
A. The Fed consistently raised short-term interest rates through 1994 in an
effort to slow economic growth and offset perceived inflationary
pressures. The result was the worst year for the bond markets in decades. The
Bond Buyers Revenue Bond Index (RBI) peaked at 7.37% on November 17. At that
point, the market began to rally on the belief that the Fed's actions were
effectively bringing economic growth down to its target rate of 2.5%, and that
the tightening process was near completion. The rally continued from
mid-November to early June, perpetuated by first quarter 1995 data that
verified positive but slower growth and continued low inflation. By June 8, the
RBI had declined to 5.94% -- 143 basis points below November's peak.
From June through August, economic data -- fairly strong auto sales, an
increase in consumer spending and a general leveling of inventories --
suggested that the economy was poised to pick up again. This prompted interest
rates to rise again, with the RBI reaching 6.44% in mid-August. Since then,
yields have traded at a fairly narrow range with a downward trend as the
market has attempted to discern just how strong the economy is and how well
inflation has been contained.
Q. HOW DID THIS ENVIRONMENT AFFECT YOUR INVESTMENT STRATEGY?
A. We correctly identified the value that long-term interest rates had
achieved in November of 1994 and began to lengthen the portfolios' average
durations. First, we reduced the hedges we had on the portfolios and then
reduced our cash positions with purchases of long-term bonds. These moves
allowed the funds to participate in the market rally early in 1995.
Q. WHAT OTHER FACTORS INFLUENCED THE MARKET?
A. Among the more significant factors were:
- - Reduced supply. This has been a peak year in terms of bonds being
called. Meanwhile, the volume of new issues coming to market in 1995 has been
well below that of 1994, and those figures were significantly down from 1993.
So we have more bonds leaving the market than there are bonds being issued.
At
6
<PAGE> 7
Performance Update
the same time, however, demand has slowed as well.
- - Derivatives. The use of derivative securities became a big concern as
certain units of government suffered losses on derivatives in their
portfolios. Kemper has not used exotic derivative securities to enhance yield.
However, this issue had an adverse impact throughout the municipal bond
market.
- - Increased scrutiny of new issues. The Securities and Exchange
Commission increased its level of scrutiny with regard to the operations of
the municipal market. This has included looking at new issue disclosure, price
transparency and other technical concerns.
- - Tax reform. The possibility of tax reform raised questions as to the
future relative tax advantage of municipal bonds.
Q. TAX REFORM HAS BEEN GETTING A LOT OF ATTENTION IN WASHINGTON AND IN THE
MEDIA. DID THIS HAVE AN IMPACT ON THE FUNDS, AND DO YOU EXPECT THIS TO BE AN
ONGOING ISSUE?
A. This became a concern in April and May and continued periodically
throughout the summer. During that time municipal bond prices adjusted by
about 10 percentage points relative to Treasuries, so the market has
already discounted some of the potential impact of tax reform.
This issue is probably going to impact the market through the 1996
election and, quite possibly, beyond. It's a very uncertain issue, subject to
a lot of variables. Obviously, we can't see into the future so there's really
no way to predict what kind of reform, if any, will take place or when it
might be enacted. But it's probably safe to expect that any kind of reform
won't be implemented until 1997 at the earliest. Nevertheless, it will continue
to generate media interest.
Q. HOW DID THE FUNDS PERFORM DURING THE PERIOD?
A. We achieved some very competitive rates of return relative to our
peers, as shown in our Lipper Rankings and the Lipper category comparisons
(see page 2). Looking back, we probably could have gained a bit more by
extending our durations earlier in the year. But the returns we posted for
the period are certainly competitive and, if we err, we'd prefer to err on
the side of caution.
Q. WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A. Generally very constructive. We anticipate continued slow but positive
economic growth with inflation remaining in control. That's a good environment
for the bond markets. We also expect some positive action in Congress with
regard to deficit reduction. For the municipal bond market in particular, we
expect continued low levels of new supply. Although the number of bonds
maturing and being called should decline in 1996, new issue volume should
continue to be relatively moderate.
As I said, we think the market has substantially discounted the potential
of tax reform, at least on the long-end. Should the market overreact or
over-discount events as they unfold, we may well see some attractive buying
opportunities.
7
<PAGE> 8
Performance Update
Average Annual Total Returns*
For periods ended September 30, 1995 (adjusted for the maximum sales charge)
<TABLE>
<CAPTION>
Life of
1-year 5-year 10-year class
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kemper Municipal Bond Fund A 6.11% 8.13% 9.12% 7.77% (Since 4/20/76)
- -------------------------------------------------------------------------------
Kemper Municipal Bond Fund B 7.17% N/A N/A 4.30% (Since 5/31/94)
- -------------------------------------------------------------------------------
Kemper Municipal Bond Fund C 10.32% N/A N/A 6.79% (Since 5/31/94)
- -------------------------------------------------------------------------------
</TABLE>
Growth of an assumed $10,000 investment in Kemper Municipal Bond Fund
Class A from 1/1/80 through 9/30/95
<TABLE>
<CAPTION>
Kemper
Municipal Bond Lehman Bros. Consumer
Class A(1) Municipal Bond Index(+) Price Index(++)
<S> <C> <C> <C>
1/1/80 $10,000 $10,000 $10,000
12/31/83 12,107 12,446 13,207
12/31/86 19,271 19,704 14,407
12/31/89 24,022 24,411 16,441
12/31/92 31,413 31,959 18,501
9/30/95 37,725 38,385 19,974
</TABLE>
Growth of an assumed $10,000 investment in Kemper Municipal Bond Fund
Class B from 5/31/94 through 9/30/95
<TABLE>
<CAPTION>
Kemper
Municipal Bond Lehman Bros. Consumer
Class B(1) Municipal Bond Index(+) Price Index(++)
<S> <C> <C> <C>
5/31/94 $10,000 $10,000 $10,000
12/31/94 9,743 9,864 10,190
9/30/95 10,880 11,126 10,386
</TABLE>
Growth of an assumed $10,000 investment in Kemper Municipal Bond Fund
Class C from 5/31/94 through 9/30/95
<TABLE>
<CAPTION>
Kemper
Municipal Bond Lehman Bros. Consumer
Class C(1) Municipal Bond Index(+) Price Index(++)
<S> <C> <C> <C>
5/31/94 $10,000 $10,000 $10,000
12/31/94 9,776 9,864 10,190
9/30/95 10,919 11,126 10,386
</TABLE>
Returns are historical and do not represent future performance. Returns
and net asset value fluctuate. Shares are redeemable at current net asset
value, which may be more or less than original cost.
(*) Average annual total return measures net investment income and capital gain
or loss from portfolio investments, assuming reinvestment of all dividends and
for A Shares adjustment for the maximum sales charge of 4.5% and for B Shares
adjustment for the applicable contingent deferred sales charge of 3%. The
maximum contingent deferred sales charge is 4%. There is no sales charge for C
Shares. Average annual return reflects annualized 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 A Shares and the contingent deferred sales charge in
effect at the end of the period for B Shares. In comparing the 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 5
years, and have a maturity of at least 2 years. Bonds subject to alternative
minimum tax, variable rate bonds and zero coupon bonds are excluded from the
index. Source is Towers Data Systems.
(++) 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 Towers Data Systems.
8
<PAGE> 9
Portfolio Statistics
PORTFOLIO COMPOSITION
On 9/30/95 On 9/30/94
- -------------------------------------------------------------------------------
Revenue bonds 85% 83%
- -------------------------------------------------------------------------------
General obligation bonds 9 12
- -------------------------------------------------------------------------------
Cash and equivalents 6 5
- -------------------------------------------------------------------------------
100% 100%
Revenue bonds
General obligation bonds
Cash and equivalents
[Pie Chart] [Pie Chart]
On 9/30/95 On 9/30/94
- -------------------------------------------------------------------------------
QUALITY
On 9/30/95 On 9/30/94
- -------------------------------------------------------------------------------
AAA 48% 46%
- -------------------------------------------------------------------------------
AA 13 20
- -------------------------------------------------------------------------------
A 15 18
- -------------------------------------------------------------------------------
BBB 20 12
- -------------------------------------------------------------------------------
BB 1 1
- -------------------------------------------------------------------------------
Not rated 3 3
- -------------------------------------------------------------------------------
100% 100%
[Pie Chart] [Pie Chart]
AAA
AA
A
BBB
BB
Not rated
On 9/30/95 On 9/30/94
- -------------------------------------------------------------------------------
9
<PAGE> 10
Portfolio Statistics
YEARS TO MATURITY
On 9/30/95 On 9/30/94
- -------------------------------------------------------------------------------
1-10 years 9% 10%
- -------------------------------------------------------------------------------
10-20 years 46 56
- -------------------------------------------------------------------------------
20+ years 45 34
- -------------------------------------------------------------------------------
100% 100%
- -------------------------------------------------------------------------------
1-10 years
10-20 years
20+ years
[Pie Chart] [Pie Chart]
On 9/30/95 On 9/30/94
- -------------------------------------------------------------------------------
AVERAGE MATURITY
On 9/30/95 On 9/30/94
Average Maturity 18.7 years 15.5 years
- -------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
Total Returns*
Returns are historical and do not represent future performance. Returns
and net asset value fluctuate. Shares are redeemable at current net asset
value, which may be more or less than original cost.
* Total return measures net investment income and capital gain or loss
from portfolio investments, assuming reinvestment of all dividends and for A
Shares adjustment for the maximum sales charge of 2.75% and for B Shares
adjustment for the applicable contingent deferred sales charge of 3%. There
is no sales charge for C Shares. 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.
For period ended September 30, 1995 (adjusted for the maximum sales charge)
Life of
class
- -------------------------------------------------------------------------------
Kemper Intermediate Municipal Bond Fund A 8.98% (Since 11/1/94)
- -------------------------------------------------------------------------------
Kemper Intermediate Municipal Bond Fund B 7.13% (Since 11/1/94)
- -------------------------------------------------------------------------------
Kemper Intermediate Municipal Bond Fund C 11.43% (Since 11/1/94)
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
On 9/30/95 On 11/30/94
- -------------------------------------------------------------------------------
Revenue bonds 76% 15%
- -------------------------------------------------------------------------------
General obligation bonds 20 12
- -------------------------------------------------------------------------------
Cash and equivalents 4 73
- -------------------------------------------------------------------------------
100% 100%
[Pie Chart] [Pie Chart]
Revenue bonds
General obligation bonds
Cash and equivalents
On 9/30/95 On 11/30/94
- -------------------------------------------------------------------------------
10
<PAGE> 11
Portfolio Statistics
QUALITY
On 9/30/95 On 11/30/94
- -------------------------------------------------------------------------------
AAA 76% 70%
- -------------------------------------------------------------------------------
AA 9 22
- -------------------------------------------------------------------------------
A 2 5
- -------------------------------------------------------------------------------
BBB 13 3
- -------------------------------------------------------------------------------
100% 100%
[Pie Chart] [Pie Chart]
AAA
AA
A
BBB
On 9/30/95 On 11/30/94
- -------------------------------------------------------------------------------
YEARS TO MATURITY
On 9/30/95 On 11/30/94
- -------------------------------------------------------------------------------
1-10 years 73% 82%
- -------------------------------------------------------------------------------
10-20 years 27 14
- -------------------------------------------------------------------------------
20+ years -- 4
- -------------------------------------------------------------------------------
100% 100%
1-10 years
10-20 years
20+ years
[Pie Chart] [Pie Chart]
On 9/30/95 On 11/30/94
- -------------------------------------------------------------------------------
AVERAGE MATURITY
On 9/30/95 On 11/30/94
- -------------------------------------------------------------------------------
Average maturity 8.6 years 6.9 years
- -------------------------------------------------------------------------------
11
<PAGE> 12
Portfolio of Investments
KEMPER MUNICIPAL BOND FUND
September 30, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Issuer Principal amount Value
- -------------------------------------------------------------------------------------------------------------------------
ADVANCE REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL AND INTEREST BY
UNITED STATES GOVERNMENT SECURITIES
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
California - .3%
- ---------------------------------------------------------------------------------------------------------------------------
Riverside County, Riverside Juvenile Facilities Corp.,
Certificates of Participation, Rev., 8.00%, to be called
10-01-98 @ 102 $ 4,000 $ 4,497
---------------------------------------------------------------------------------------------------
San Bernardino County, County Center/Justice Center
and Capital Improvements, Rev., 7.60%, to be called
7-01-96 @ 102 6,955 7,287
---------------------------------------------------------------------------------------------------
11,784
Colorado - .3%
- ---------------------------------------------------------------------------------------------------------------------------
Colorado Springs, County Utility Rev., 6.75%,
to be called 11-15-01 @ 102 2,890 3,275
---------------------------------------------------------------------------------------------------
Health Facilities Auth., Vail Valley Medical Center,
Rev., 8.125%, to be called 6-01-99 @ 102 7,000 7,958
---------------------------------------------------------------------------------------------------
11,233
Connecticut - .5%
- ---------------------------------------------------------------------------------------------------------------------------
Health and Educational Facilities, Lawrence and Memorial
Hospital, Rev., 6.25%, to be called 7-01-02 @ 102 4,720 5,240
---------------------------------------------------------------------------------------------------
State, Gen. Oblg., 6.50%, to be called 3-15-02 @ 102 10,440 11,693
---------------------------------------------------------------------------------------------------
16,933
Florida - .0%
- ---------------------------------------------------------------------------------------------------------------------------
Jacksonville Health Facilities Auth., Baptist Medical Center,
Rev., 11.50%, to be called 11-13-95 through 10-01-06 @ 100 100 151
---------------------------------------------------------------------------------------------------
Georgia - .2%
- ---------------------------------------------------------------------------------------------------------------------------
Hospital Auth. of Fulton County, Northside Hospital,
Rev., 6.60%, to be called 10-01-02 @ 102 8,250 9,349
---------------------------------------------------------------------------------------------------
Illinois - .1%
- ---------------------------------------------------------------------------------------------------------------------------
Chicago, Tax Increment Allocation Bonds, Central Station, Rev.,
8.90%, to be called 1-01-05 @ 100 1,860 2,308
---------------------------------------------------------------------------------------------------
Indiana - .2%
- ---------------------------------------------------------------------------------------------------------------------------
Trustees of Purdue University, Purdue University Student Fees,
Rev., 6.75%, to be called 7-01-01 @ 102 6,300 7,102
---------------------------------------------------------------------------------------------------
Kentucky - .1%
- ---------------------------------------------------------------------------------------------------------------------------
Kenton County Airport Board, Greater Cincinnati International
Airport, Rev., 8.25%, to be called 3-1-98 @ 102 1,620 1,796
---------------------------------------------------------------------------------------------------
Maryland - .1%
- ---------------------------------------------------------------------------------------------------------------------------
Gaithersburg, First Mortgage Economic Dev., Asbury Methodist
Home Incorporated, Rev., 7.85%, to be called 1-01-00 @ 102 4,000 4,566
---------------------------------------------------------------------------------------------------
Massachusetts - .3%
- ---------------------------------------------------------------------------------------------------------------------------
Municipal Wholesale Electric Company, Power Supply System,
Rev., 6.75%, to be called 07-01-02 @ 102 9,150 10,415
---------------------------------------------------------------------------------------------------
Michigan - .0%
- ---------------------------------------------------------------------------------------------------------------------------
Building Auth., University of Michigan Adult General Hospital
Facility, Rev., 7.875%, to be called 12-01-96 @ 102 265 282
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Issuer Principal amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Missouri - .3%
- ---------------------------------------------------------------------------------------------------------------------------
Health and Educational Facilities,
Christian Health Services Dev. Corp.,
Rev., 6.875%, to be called 2-15-01 @ 102 $ 7,000 $ 7,885
---------------------------------------------------------------------------------------------------
St. Louis County, Regional Convention & Sports Complex Auth.,
Convention & Sports Facility, Rev., 7.00%,
to be called 8-15-03 @ 100 4,380 5,040
---------------------------------------------------------------------------------------------------
12,925
New Mexico - .2%
- ---------------------------------------------------------------------------------------------------------------------------
Albuquerque Southwest Community Health Services,
Rev., 10.125%, to be called 8-1-08 @ 100 4,000 5,354
---------------------------------------------------------------------------------------------------
New York - .8%
- ---------------------------------------------------------------------------------------------------------------------------
Dormitory Auth., State University Educational Facilities,
Rev., 7.25%, to be called 5-15-02 @102 3,810 4,454
---------------------------------------------------------------------------------------------------
Local Government Assistance Corp., Rev., 7.375%
and 7.50%, to be called 4-01-01 @ 102 9,675 11,238
---------------------------------------------------------------------------------------------------
Power Auth., Electrical Rev., 8.00%, to be called 1-01-98 @ 102 10,000 10,993
---------------------------------------------------------------------------------------------------
26,685
Ohio - .5%
- ---------------------------------------------------------------------------------------------------------------------------
Clermont County Hospital Facilities, Mercy Health Systems,
Rev., 7.50%:
to be called 9-01-01 @ 100 2,280 2,628
to be called 9-01-99 @ 102 7,720 8,727
---------------------------------------------------------------------------------------------------
Franklin County, Mount Carmel Health Hospital, Rev., 7.25%,
to be called 6-01-00 @ 102 5,495 6,227
---------------------------------------------------------------------------------------------------
17,582
Pennsylvania - 1.2%
- ---------------------------------------------------------------------------------------------------------------------------
Industrial Dev. Auth., Economic Dev., Rev., 7.00%, to be called
7-1-01 @ 102 5,000 5,675
---------------------------------------------------------------------------------------------------
Intergovernmental Cooperation Auth., City of
Philadelphia Funding Program, Rev., 6.80%,
to be called 6-15-02 @ 100 12,000 13,501
---------------------------------------------------------------------------------------------------
Philadelphia:
Gas Works Rev., 7.70%, to be called 6-15-01 @ 102 14,850 17,413
Municipal Auth., Criminal Justice Center, Rev., 7.80%,
to be called 4-01-98 through 4-01-00 @ 100 4000 4,545
---------------------------------------------------------------------------------------------------
41,134
South Carolina - .1%
- ---------------------------------------------------------------------------------------------------------------------------
Lancaster County Water and Sewer District, Waterworks and
Sewer System Improvement, Rev. 6.75%,
to be called 5-1-01 @ 102 3,000 3,374
---------------------------------------------------------------------------------------------------
Texas - .0%
- ---------------------------------------------------------------------------------------------------------------------------
Austin, Water, Sewer and Electric Rev., 14.00%, non-callable 65 85
---------------------------------------------------------------------------------------------------
Total Advance Refunded Obligations 5.2% 183,058
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
Issuer Principal amount Value
- ---------------------------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alabama - 2.1%
- ---------------------------------------------------------------------------------------------------------------------------
Birmingham-Jefferson Civic Center Auth., Capital Outlay,
Special Tax Rev., 7.40%, 2008 $12,000 $13,234
---------------------------------------------------------------------------------------------------
City of Mobile, Mobile Energy Services,
Industrial Dev. Board, Rev., 6.95%, 2020 22,000 22,708
---------------------------------------------------------------------------------------------------
Courtland, Champion International,
Industrial Dev. Board, Rev., 6.50%, 2025 20,000 19,894
---------------------------------------------------------------------------------------------------
Hoover, Gen. Oblg., 4.50% and 5.00%, 2013 and 2020 12,845 10,999
Universities:
---------------------------------------------------------------------------------------------------
Alabama at Birmingham, Hospital Rev., 5.00%, 2014 4,200 3,776
---------------------------------------------------------------------------------------------------
South Alabama, Hospital and Auxiliary Rev., 4.75%, 2010 4,000 3,578
---------------------------------------------------------------------------------------------------
74,189
Alaska - .2%
- ---------------------------------------------------------------------------------------------------------------------------
Energy Auth., Bradley Lake Hydroelectric Power,
Rev., 7.25%, 2016 4,675 3,154
---------------------------------------------------------------------------------------------------
North Slope Borough, Gen. Oblg., 13.00%, 1998 635 759
---------------------------------------------------------------------------------------------------
5,913
Arizona - 1.0%
- ---------------------------------------------------------------------------------------------------------------------------
City of Phoenix:
Gen. Oblg., 6.375%, 2013 7,400 7,678
User Streets and Highway User, Junior Lien, Rev., 6.25%, 2011 10,000 10,579
---------------------------------------------------------------------------------------------------
Coconino County, Industrial Dev. Auth., Health Care Institution,
The Guidance Center, Inc. Proj., Rev., 9.25%, 2011 930 996
---------------------------------------------------------------------------------------------------
Health Facilities Auth. Hospital System, Phoenix Baptist Hospital
and Medical Center, Inc. and Medical Environments, Inc.,
Rev., 6.25%, 2011 1,400 1,464
---------------------------------------------------------------------------------------------------
Maricopa County, Gen. Oblg., 4.80%, 2013 5,475 4,861
---------------------------------------------------------------------------------------------------
Salt River Proj., Agricultural Improvement and Power District,
Rev., 5.00%, 2016 11,900 10,708
---------------------------------------------------------------------------------------------------
36,286
Arkansas - 1.0%
- ---------------------------------------------------------------------------------------------------------------------------
North Little Rock, Electric System, Rev., 6.50%, 2010 and 2015 31,830 35,512
---------------------------------------------------------------------------------------------------
California - 4.7%
- ---------------------------------------------------------------------------------------------------------------------------
Central Valley Financing Auth., Cogeneration Proj., Carson Ice,
Rev., 6.00%, 2009 6,000 6,039
---------------------------------------------------------------------------------------------------
City of Loma Linda, Loma Linda University Medical Center Proj.,
Rev., 9.00%, 2012 2,500 2,576
---------------------------------------------------------------------------------------------------
City of Los Angeles:
Convention & Exhibit Center Auth., Lease Rev., 5.125%, 2013 9,040 8,338
Department of Water & Power, Electric Plant, Rev., 4.75%, 2009
through 2019 26,500 23,292
---------------------------------------------------------------------------------------------------
City of Santa Clara, Sports and Open Space Auth., Certificates of
Participation, 4.75%, 2014 5,000 4,361
---------------------------------------------------------------------------------------------------
Duarte, City of Hope National Medical Center, Certificates of
Participation, 6.00% and 6.25%, 2008 and 2023 23,255 22,442
---------------------------------------------------------------------------------------------------
Health Facilities Finance Auth., Catholic Health Facility,
Rev., 5.00%, 2021 11,120 9,696
---------------------------------------------------------------------------------------------------
Imperial Irrigation District, Certificates of Participation,
Electric System Proj., 6.75%, 2011 3,500 3,857
---------------------------------------------------------------------------------------------------
Los Angeles County:
Metropolitan Transportation Auth., Sales Tax Rev., 4.75% and
5.30%, 2018 and 2012 11,885 10,967
Public Works Financing Auth., Multi-Purpose Lease Rev.,
4.75%, 2013 21,000 18,201
Sanitation District Financing Auth., Rev., 5.00%, 2023 4,500 3,882
---------------------------------------------------------------------------------------------------
Rancho California, Water District Financing Auth., Rev.,
4.75%, 2021 17,500 14,683
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
Issuer Principal amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Regents of University of California, Multiple Purpose Proj.,
Rev., 4.75% to 5.125%, 2013 through 2023 $36,010 $ 31,813
---------------------------------------------------------------------------------------------------
Southern California Public Power Auth., Rev., 4.875%, 2020 3,000 2,574
---------------------------------------------------------------------------------------------------
162,721
Colorado - 7.5%
- ---------------------------------------------------------------------------------------------------------------------------
Adams County, Gen. Oblg., 6.125% and 6.20%, 2007 and 2008 6,910 7,331
---------------------------------------------------------------------------------------------------
Arapahoe County, Public Highway Auth., Rev., 6.95% and 7.00%,
2020 and 2026 80,700 83,443
---------------------------------------------------------------------------------------------------
City and County of Denver:
Airport System Rev., 5.70% to 8.75%, 2002 through 2025 89,430 94,830
Gen. Oblg., 5.125% and 6.50%, 2012 and 2010 12,225 12,465
---------------------------------------------------------------------------------------------------
City of Colorado Springs, Utilities System Improvement,
Rev., 5.125%, 2023 8,795 7,931
---------------------------------------------------------------------------------------------------
Douglas County School District #1, Douglas and Elbert Counties,
Gen. Oblg., 6.50%, 2016 16,665 17,898
---------------------------------------------------------------------------------------------------
Health Facilities Auth.:
Covenant Retirement Communities, Inc., Rev., 6.75%,
2015 and 2025 5,900 5,936
Kaiser Permanente Medical Care Program, Rev., 9.125%, 2015 8,575 8,782
Swedish Medical Center, Rev., 6.80% and 7.50%, 2023 and 2020 5,500 6,173
---------------------------------------------------------------------------------------------------
Housing Finance Auth., Single Family Mortgage Rev., 7.65%, 2022 825 865
---------------------------------------------------------------------------------------------------
Metropolitan Denver Sewerage Disposal, District No. 1,
Rev., 6.75%, 2012 5,540 5,697
---------------------------------------------------------------------------------------------------
Metropolitan Wastewater Reclamation District, Gen. Oblg.,
6.00%, 2010 11,505 11,791
---------------------------------------------------------------------------------------------------
263,142
Connecticut - .6%
- ---------------------------------------------------------------------------------------------------------------------------
Dev. Auth., Pierce Memorial Baptist Home, Rev., 9.25%, 2018 1,140 1,286
---------------------------------------------------------------------------------------------------
Resource Recovery Auth., Mid-Connecticut Systems,
Rev., 7.30%, 2012 4,790 5,097
---------------------------------------------------------------------------------------------------
Transportation Infrastructure Purposes, Special Tax Obligation,
Rev., 4.875% to 6.10%, 2008 through 2015 15,535 15,218
---------------------------------------------------------------------------------------------------
21,601
Delaware - .3%
- ---------------------------------------------------------------------------------------------------------------------------
Economic Dev. Auth., United Water Proj., Rev., 6.20%, 2025 12,000 12,073
---------------------------------------------------------------------------------------------------
District of Columbia - 1.6%
- ---------------------------------------------------------------------------------------------------------------------------
Georgetown University, Rev., 8.25%, 2018 11,410 12,712
---------------------------------------------------------------------------------------------------
Metropolitan Area Transit Auth., Gross Transit Rev., 5.25%, 2014 9,000 8,536
---------------------------------------------------------------------------------------------------
Metropolitan Washington Airports Auth., Airport System
Rev., 5.50% to 7.60%, 2014 through 2024 26,000 25,257
---------------------------------------------------------------------------------------------------
District, Gen. Oblg., 6.00% and 6.30%, 2013 and 2010 8,500 8,622
---------------------------------------------------------------------------------------------------
55,127
Florida - 6.0%
- ---------------------------------------------------------------------------------------------------------------------------
Board of Education, Gen. Oblg., 5.125% to 5.50%,
2016 through 2023 61,235 56,916
---------------------------------------------------------------------------------------------------
Broward County:
Airport System Rev., 7.625%, 2013 2,620 2,895
Waste Energy Company, Rev., 7.95%, 2008 13,745 15,395
---------------------------------------------------------------------------------------------------
Clay County, Single Family Housing, Rev., 6.55%, 2028 2,750 2,805
---------------------------------------------------------------------------------------------------
Dade County:
Gen. Oblg., 5.125%, 2014 3,915 3,628
Housing Financing Auth., Rev., 6.55%, 2027 3,550 3,628
---------------------------------------------------------------------------------------------------
Department of Transportation, Turnpike Rev., 5.00%, 2019 5,000 4,493
Greater Orlando Aviation Auth., Rev., 8.375%, 2016 3,065 3,443
---------------------------------------------------------------------------------------------------
Hillsborough County Industrial Dev. Auth., Tampa Electric,
Rev., 8.00%, 2022 10,000 11,939
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
Issuer Principal amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jacksonville Health Facilities Auth., Baptist Medical Center,
Rev., 11.50%, 2012 $ 85 $ 142
---------------------------------------------------------------------------------------------------
Manatee County, Public Utilities, Rev., 4.75% and 5.00%, 2013 24,625 22,393
---------------------------------------------------------------------------------------------------
Miami Beach Redev. Agcy., Tax Increment Rev., 5.875%, 2022 1,000 929
---------------------------------------------------------------------------------------------------
Municipal Power Agcy., All-Requirements Power Supply Proj.,
Rev., 5.10%, 2014 7,565 7,034
---------------------------------------------------------------------------------------------------
Orange County:
Health Facilities Auth., Rev., 5.50%, 2015 6,950 6,696
Sales Tax Rev., 5.375%, 2024 6,000 5,600
---------------------------------------------------------------------------------------------------
Orlando Utitlity, Community Water & Electric, Rev., 5.00%
and 5.25%, 2020 and 2023 13,500 12,162
---------------------------------------------------------------------------------------------------
Palm Beach County, Solid Waste Auth., Rev., 8.75%, 2010 13,755 15,086
---------------------------------------------------------------------------------------------------
Pasco County, Solid Waste Disposal and Resource Recovery,
Rev., 7.80%, 2011 13,730 15,182
---------------------------------------------------------------------------------------------------
Port Orange, Water and Sewer, Rev., 5.25%, 2021 5,000 4,639
---------------------------------------------------------------------------------------------------
Reedy Creek Improvement District, Utility Improvement,
Rev., 5.00%, 2014 8,330 7,649
---------------------------------------------------------------------------------------------------
St. Lucie County, Sales Tax Rev., 5.00%, 2019 4,495 4,037
---------------------------------------------------------------------------------------------------
Village Center Community Dev. District, Lake County,
Utility Rev., 5.00%, 2013 4,605 4,224
---------------------------------------------------------------------------------------------------
210,915
Georgia - 3.0%
- ---------------------------------------------------------------------------------------------------------------------------
Chatham County School District, Gen. Oblg., 6.15%, 2010 7,300 7,603
---------------------------------------------------------------------------------------------------
City of Atlanta, Water and Sewerage, Rev., 4.50% and 4.75%,
2018 and 2023 28,915 24,356
---------------------------------------------------------------------------------------------------
Fulton-DeKalb Hospital Auth., Rev., 6.55%, 2018 1,500 1,520
---------------------------------------------------------------------------------------------------
Fulton-DeKalb Housing Auth., Rev., 6.60%, 2028 23,100 23,432
---------------------------------------------------------------------------------------------------
Metropolitan Atlanta Rapid Transit Auth., Sales Tax Rev.,
5.125% and 6.70%, 2017 and 2012 11,520 11,387
---------------------------------------------------------------------------------------------------
Municipal Electric Auth.:
Power Rev., 4.75% to 8.125%, 2012 through 2019 33,955 33,197
Special Obligation, 6.60%, 2018 3,500 3,842
---------------------------------------------------------------------------------------------------
105,337
Illinois - 6.1%
- ---------------------------------------------------------------------------------------------------------------------------
Chicago:
Board of Education, Gen. Oblg., 6.00%
and 6.25%, 2008 through 2020 24,060 25,632
Gas Supply, Peoples Gas, Light and Coke Company,
Rev., 8.10%, 2020 8,250 9,364
O'Hare International Airport, General Rev., 5.00%
to 6.375%, 2012 through 2018 34,000 33,068
Skyway Toll Bridge Rev., 6.75%, 2014 and 2017 24,825 25,019
Wastewater Transmission, Rev., 5.375%, 2013 4,270 4,082
---------------------------------------------------------------------------------------------------
City of East St. Louis, Illinois Dev. Finance Auth.,
Debt Restructuring Rev., 7.50%, 2013 3,750 3,925
---------------------------------------------------------------------------------------------------
County of Cook, Gen. Oblg., 5.375% to 9.50%,
1996 through 2022 46,315 46,994
---------------------------------------------------------------------------------------------------
Dev. Finance Auth., Pollution Control, Commonwealth
Edison Company Proj., Rev., 6.75%, 2015 16,780 18,039
---------------------------------------------------------------------------------------------------
Freeport, Single Family Mortgage Rev., 7.40%, 2010 1,585 1,593
---------------------------------------------------------------------------------------------------
Harvard, Multifamily Housing, Northfield Court,
Rev., 8.80%, 2008 3,880 4,147
---------------------------------------------------------------------------------------------------
Health Facilities Auth.:
Northwestern Medical Faculty Foundation, Inc., Healthcare
Facilities Rev., 6.50%, 2015 3,900 4,085
Rush-Presbyterian-St. Luke's Medical Center Obligated
Group, Rev., 5.25%, 2020 6,000 5,391
South Suburban Hospital, Rev., 7.00%, 2009 7,750 8,196
---------------------------------------------------------------------------------------------------
Madison County, Gen. Oblg., 5.85%, 2013 3,500 3,534
---------------------------------------------------------------------------------------------------
Sports Facilities Auth., Rev., 7.875%, 2010 2,990 3,351
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
Issuer Principal amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
St. Charles, Wessel Court Proj., Multifamily Housing
Rev., 7.60%, 2024 $ 3,930 $3,999
---------------------------------------------------------------------------------------------------
State, Gen. Oblg., 5.875%, 2015 12,000 11,758
University Park, Governors Gateway Industrial Park,
Tax Increment Rev., 8.50%, 2011 3,000 3,173
---------------------------------------------------------------------------------------------------
215,350
Indiana - 5.0%
- ---------------------------------------------------------------------------------------------------------------------------
Hospital Auth. of Marion County, University Heights Hospital,
Rev., 8.625%, 2012 7,195 8,340
---------------------------------------------------------------------------------------------------
Health Facility Financing Auth., Fayette Memorial Hospital,
Hospital Rev., 7.20%, 2022 1,800 1,804
---------------------------------------------------------------------------------------------------
Indianapolis Airport Auth.:
Federal Express Corp. Proj., Rev., 7.10%, 2017 40,500 42,874
Local Public Improvement Bond, Transportation Rev., 6.60% to
6.75%, 2007 through 2014 14,000 15,358
United Airlines, Inc., Maintenance Center Proj.,
Rev., 6.50%, 2031 80,830 79,386
---------------------------------------------------------------------------------------------------
Toll Road Financing Auth., Rev., 6.875%, 2012 4,000 4,177
---------------------------------------------------------------------------------------------------
Transportation Financing Auth., Highway Rev., 5.75% and 7.25%,
2012 and 2015 7,000 7,705
---------------------------------------------------------------------------------------------------
Trustees of Purdue University, Purdue University Student Fees,
Rev., 6.70% and 6.75%, 2015 and 2009 14,500 15,649
---------------------------------------------------------------------------------------------------
175,293
Iowa - .4%
- ---------------------------------------------------------------------------------------------------------------------------
Finance Auth.:
GNMA Mortgage-Backed Securities Program, Single Family
Mortgage Rev., 7.90%, 2022 2,685 2,857
Trinity Regional Hospital Proj., Rev., 7.00%, 2022 12,000 12,084
---------------------------------------------------------------------------------------------------
14,941
Kentucky - 1.9%
- ---------------------------------------------------------------------------------------------------------------------------
Dev. Finance Auth., Baptist Hospital Inc., Rev.,
7.625%, 2011 2,000 2,218
---------------------------------------------------------------------------------------------------
Economic Dev. Finance Auth., Baptist Healthcare System Issue,
Hospital Rev., 5.00%, 2015 12,810 11,595
---------------------------------------------------------------------------------------------------
Hopkins County, The Trover Clinic Foundation,
Rev., 6.625%, 2011 4,000 4,310
---------------------------------------------------------------------------------------------------
Kenton County Airport Board, Greater Cincinnati
International Airport:
Airport, Rev., 8.25%, 2015 7,380 8,186
Delta Airlines, Rev., 6.125% and 7.125%,
2021 through 2022 36,395 34,697
---------------------------------------------------------------------------------------------------
Trimble County, Louisville Gas & Electric Company,
Rev., 7.75%, 2019 1,840 2,009
---------------------------------------------------------------------------------------------------
Turnpike Auth., Toll Road, Rev., 8.50%, 2004 2,025 2,129
---------------------------------------------------------------------------------------------------
65,144
Louisiana - .5%
- ---------------------------------------------------------------------------------------------------------------------------
Beauregard Parish, Boise Cascade Corp. Proj., Rev., 6.125%
and 6.30%, 2023 7,650 7,365
---------------------------------------------------------------------------------------------------
Parish School Board of the Parish of Jefferson, Sales Tax,
Rev., 6.25%, 2008 11,000 11,613
---------------------------------------------------------------------------------------------------
18,978
Maine - .1%
- ---------------------------------------------------------------------------------------------------------------------------
Health and Higher Education Facilities Auth., Rev., 7.10%, 2014 2,750 3,046
---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 18
Portfolio of Investments
<TABLE>
<CAPTION>
Issuer Principal amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maryland - 2.3%
- ---------------------------------------------------------------------------------------------------------------------------
City of Gaithersburg, First Mortgage Economic Dev., Asbury
Methodist Home Incorporated, Rev., 5.50%,
2015 and 2020 $15,500 $ 13,833
---------------------------------------------------------------------------------------------------
Community Dev. Administration, Department of Housing
and Community Dev., Rev., 7.85%, 2029 5,805 6,161
---------------------------------------------------------------------------------------------------
Energy Financing Administration, AES Warrior Run Proj.,
Rev., 7.40%, 2019 24,100 24,731
---------------------------------------------------------------------------------------------------
Health & Higher Educational Facilities Auth.:
Doctors' Community Hospital Proj., Rev., 5.50% and 5.75%,
2024 and 2013 12,785 11,076
Frederick Memorial Hospital Proj., Rev., 5.00%, 2018 4,000 3,557
---------------------------------------------------------------------------------------------------
Northeast Maryland Waste Disposal Auth., Southwest Resource
Recovery Facility, Rev., 7.20%, 2006 1,500 1,721
---------------------------------------------------------------------------------------------------
Stadium Auth., Sports Facilities Lease Rev., 7.60%, 2019 17,200 18,977
- ---------------------------------------------------------------------------------------------------------------------------
80,056
Massachusetts - 5.8%
- ---------------------------------------------------------------------------------------------------------------------------
Bay Transit Auth., General Transportation System, Rev.,
5.50% to 6.20%, 2012 through 2018 59,750 59,745
- ---------------------------------------------------------------------------------------------------------------------------
Municipal Wholesale Electric Company, Power Supply System,
Rev., 5.00% to 6.75%, 2011 through 2018 41,945 42,607
---------------------------------------------------------------------------------------------------
Port Auth., Rev., 5.00% and 13.00%, 2015 and 2013 8,190 8,689
---------------------------------------------------------------------------------------------------
South Essex Sewerage District, Gen. Oblg., 6.75%, 2013
and 2015 2,000 2,169
---------------------------------------------------------------------------------------------------
State, Gen. Oblg., 6.50%, 2011 17,300 18,473
---------------------------------------------------------------------------------------------------
Turnpike Auth., Rev., 5.00%, 2013 12,400 11,288
---------------------------------------------------------------------------------------------------
Water Pollution Abatement Trust, MWRA Loan Program,
Rev., 5.45%, 2013 5,000 4,826
---------------------------------------------------------------------------------------------------
Water Restoration Auth., Rev., 4.75% to 5.50%,
2013 through 2023 61,590 55,673
- ---------------------------------------------------------------------------------------------------------------------------
203,470
Michigan - 4.2%
- ---------------------------------------------------------------------------------------------------------------------------
Building Auth., Rev., 6.75%, 2011 9,750 10,522
---------------------------------------------------------------------------------------------------
City of Battle Creek and Calhoun County, Downtown Dev.
Auth., Tax Increment, Rev., 7.60%, 2016 3,800 4,128
---------------------------------------------------------------------------------------------------
City of Kalamazoo Hospital Finance Auth., Borgess Medical
Center, Rev., 5.00%, 2013 14,650 13,125
---------------------------------------------------------------------------------------------------
Detroit:
Convention Facility, Cobo Hall Expansion Proj.,
Rev., 5.25%, 2012 22,250 20,178
Gen. Oblg., 5.00% to 6.80%, 2010 through 2015 20,110 19,451
---------------------------------------------------------------------------------------------------
Hospital Finance Auth.:
Henry Ford Health System, Rev., 7.00%, 2010 11,000 11,784
McLaren Oblg. Group, Rev., 4.50%, 2021 28,215 22,207
Oakwood Hospital Obligated Group, Rev., 5.50%, 2013 8,000 7,630
Sisters of Mercy Health Corp., Rev., 7.50%, 2007 and 2013 9,000 9,780
---------------------------------------------------------------------------------------------------
Housing Dev. Auth., Rev., 5.70%, 2012 3,465 3,401
---------------------------------------------------------------------------------------------------
Jackson County Hospital Finance Auth., W.A. Foote Memorial
Hospital, Rev., 4.75%, 2015 4,260 3,689
---------------------------------------------------------------------------------------------------
Municipal Bond Auth., Local Government Loan Program,
Rev., 4.75%, 2009 7,225 6,669
---------------------------------------------------------------------------------------------------
Public Power Agcy., Rev., 5.00%, 2019 10,500 9,300
---------------------------------------------------------------------------------------------------
Charter County of Wayne, Airport, Rev., 5.25%, 2021 5,000 4,520
---------------------------------------------------------------------------------------------------
146,384
Minnesota - 1.1%
- ---------------------------------------------------------------------------------------------------------------------------
City of Minneapolis, Housing Redev. Auth.,
Health Care System, Rev., 4.75%, 2018 17,500 15,026
---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 19
Portfolio of Investments
<TABLE>
<CAPTION>
Issuer Principal amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
City of St. Louis Park, Methodist Hospital Proj.,
Rev., 7.25%, 2015 $6,650 $ 7,523
---------------------------------------------------------------------------------------------------
Housing Finance Agcy., Multifamily Mortgage Bonds,
Rev., 9.375%, 2018 550 577
---------------------------------------------------------------------------------------------------
Housing Finance Auth., Single Family Mortgage Bonds,
Rev., 7.90%, 2019 6,370 6,786
---------------------------------------------------------------------------------------------------
South Minnesota Municipal Power, Rev., 4.75%, 2016 10,000 8,640
---------------------------------------------------------------------------------------------------
38,552
Mississippi - .2%
- ---------------------------------------------------------------------------------------------------------------------------
Gulfport Hospital Facilities Auth., Gulfport Memorial
Hospital, Improvement, Rev., 6.125%, 2015 6,750 6,864
---------------------------------------------------------------------------------------------------
Missouri - 1.3%
- ---------------------------------------------------------------------------------------------------------------------------
Clarence Cannon Wholesale Water Commission, Water
Rev., 6.00%, 2020 10,000 9,366
---------------------------------------------------------------------------------------------------
Health and Education Facilities Auth., St. Louis University,
Rev., 4.75%, 2016 4,500 3,940
---------------------------------------------------------------------------------------------------
Kansas City Schools, Missouri School District Building Corp.,
Leasehold Rev., 5.00%, 2014 6,000 5,526
---------------------------------------------------------------------------------------------------
Regional Convention and Sports Complex Auth., Convention
and Sports Facility Proj., St. Louis County,
Rev., 5.50% and 7.90%, 2016 and 2021 10,000 10,160
---------------------------------------------------------------------------------------------------
Sikeston, Electric System, Rev., 6.20%, 2010 6,870 7,436
---------------------------------------------------------------------------------------------------
St. Louis, Scullin Redev. Proj., Tax Increment
Rev., 10.00%, 2010 8,990 10,448
---------------------------------------------------------------------------------------------------
46,876
Nebraska - .4%
- ---------------------------------------------------------------------------------------------------------------------------
Omaha Public Power District Electric System, Rev., 5.50%, 2014 8,150 7,867
---------------------------------------------------------------------------------------------------
Scotts Bluff County, Hospital Auth., West Medical Proj. Center,
Rev., 6.45%, 2004 4,535 4,963
---------------------------------------------------------------------------------------------------
12,830
Nevada - 1.1%
- ---------------------------------------------------------------------------------------------------------------------------
City of Reno, Redev. Agcy., Tax Allocation Rev., 5.65% and
5.75%, 2013 and 2017 7,165 6,611
---------------------------------------------------------------------------------------------------
Clarke County, Las Vegas-MaCarran International Airport,
Rev., 5.50%, 2025 16,310 15,035
---------------------------------------------------------------------------------------------------
Henderson, Healthcare Facilities, Rev., 5.00%, 2020 6,915 6,069
---------------------------------------------------------------------------------------------------
Humboldt County, Pollution Control, Idaho Power Company,
Rev., 8.30%, 2014 9,650 11,320
- ---------------------------------------------------------------------------------------------------------------------------
39,035
New Jersey - 2.7%
- ---------------------------------------------------------------------------------------------------------------------------
Camden County Municipal Utilities Auth., Rev., 8.25%, 2017 15,600 17,148
---------------------------------------------------------------------------------------------------
Essex County:
Improvement Auth., County Jail and Youth Housing Proj.,
Lease Rev., 6.90%, 2014 2,645 2,971
Property and Equipment Improvement Leasing Program,
Rev., 6.50%, 2012 4,050 4,356
---------------------------------------------------------------------------------------------------
Health Care Facilities Financing Auth.:
Atlantic City Medical Center, Rev., 6.80%, 2011 3,840 4,036
Southern Ocean County Hospital, Rev., 6.125% and 6.25%,
2013 and 2023 7,235 7,011
West Jersey Health System, Rev., 6.125%, 2012 11,000 11,341
---------------------------------------------------------------------------------------------------
Jersey City Sewer Auth., Rev., 4.50%, 2019 13,500 11,258
---------------------------------------------------------------------------------------------------
Transportation Auth., Rev., 5.50%, 2013 10,000 9,745
---------------------------------------------------------------------------------------------------
Turnpike Auth., Rev., 6.50% and 10.375%, 2016 and 2003 23,900 26,868
- ---------------------------------------------------------------------------------------------------------------------------
94,734
</TABLE>
19
<PAGE> 20
Portfolio of Investments
<TABLE>
<CAPTION>
Issuer Principal amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New Mexico - .3%
- ---------------------------------------------------------------------------------------------------------------------------
Albuquerque:
Health Care, Ltd. Proj., Rev., 9.75%, 2014 $ 1,430 $ 1,585
Southwest Community Health Services, Rev., 10.00%, 2003 990 1,311
---------------------------------------------------------------------------------------------------
Los Alamos County, Utility System, Rev., 6.10%, 2010 4,400 4,557
---------------------------------------------------------------------------------------------------
Socorro Hospital System, Southwest Community Health
Services, Rev., 10.00%, 2003 1,500 2,002
---------------------------------------------------------------------------------------------------
Truth or Consequences, Nursing Home Improvement,
Sierra Health Care, Inc., Rev., 9.75%, 2014 955 1,058
---------------------------------------------------------------------------------------------------
10,513
New York - 4.9%
- ---------------------------------------------------------------------------------------------------------------------------
Environmental Facilities Corp., State
Water Pollution Control, Revolving Fund Rev.,
6.875% to 7.25%, 2010 through 2014 18,875 20,961
---------------------------------------------------------------------------------------------------
Medical Care Facilities Finance Agcy.:
Hospital, Mortgage Rev., 6.75%, 2014 8,000 8,734
Hospital and Nursing Home, Rev., 6.45%, 2009 9,185 9,953
Mental Health Services Facilities Improvement, Rev.,
5.25% to 7.75%, 2010 through 2019 37,525 35,497
---------------------------------------------------------------------------------------------------
Metropolitan Transit Auth., Transit Facilities, Rev., 6.25%,
2014 6,000 6,189
---------------------------------------------------------------------------------------------------
New York City:
Gen. Oblg., 7.00% to 8.40%, 2000 through 2015 44,915 51,572
Industrial Dev. Auth., USTA National Tennis Center
Inc. Proj., Civil Facility Rev., 6.50% and 6.60%,
2010 and 2011 6,485 6,989
Municipal Water Finance Auth., Rev., 7.00%, 2015 1,500 1,663
---------------------------------------------------------------------------------------------------
Port Auth. of New York and New Jersey:
LaGuardia Airport Passenger Terminal, Special Obligation,
Rev., 9.125%, 2015 3,225 3,639
Rev., 5.20% and 6.50%, 2012 and 2008 7,390 7,663
---------------------------------------------------------------------------------------------------
Triborough Bridge and Tunnel Auth., Rev., 8.125%, 2012 14,000 15,517
---------------------------------------------------------------------------------------------------
Urban Dev. Corp., Correctional Facilities, Rev., 5.375%, 2012 3,500 3,359
- ---------------------------------------------------------------------------------------------------------------------------
171,736
North Carolina - 1.0%
- ---------------------------------------------------------------------------------------------------------------------------
Durham County, 1991 Jail Facilities and Computer Equipment
Financing Proj., Rev., 6.625%, 2014 5,500 5,806
---------------------------------------------------------------------------------------------------
Municipal Power Agcy. Number 1, Catawba Electric, Rev., 5.00%,
2015 and 2018 26,350 23,367
---------------------------------------------------------------------------------------------------
Raleigh-Durham Airport Auth., American Airlines, Inc.,
Rev., 9.625%, 2015 5,000 5,125
---------------------------------------------------------------------------------------------------
34,298
North Dakota - .0%
- ---------------------------------------------------------------------------------------------------------------------------
Housing Finance Agcy., Single Family Mortgage Program,
Rev., 8.05%, 2024 1,200 1,253
---------------------------------------------------------------------------------------------------
Ohio - 2.9%
- ---------------------------------------------------------------------------------------------------------------------------
Building Auth.:
State Correctional Facilities, Rev., 5.00%, 2012 7,000 6,359
Workers Compensation Facility, William Green Building,
Rev., 4.75%, 2014 13,230 11,463
---------------------------------------------------------------------------------------------------
City of Springdale, Hospital Facilities First Mortgage,
Southwestern Ohio Seniors Services, Rev., 6.00%, 2018 1,250 1,120
---------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER Principal Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cleveland:
Public Power System Improvement, First Mortgage
Rev., 7.00%, 2017 $ 850 $ 887
Water Works System, Rev., 5.50% and 6.50%, 2013 and 2011 7,380 7,660
---------------------------------------------------------------------------------------------------
Cuyahoga County, Merida Health System, Hospital
Rev., 6.25%, 2014 and 2024 9,470 9,629
---------------------------------------------------------------------------------------------------
Higher Education Facility Commission, Rev., 6.70%, 2003 6,725 7,356
---------------------------------------------------------------------------------------------------
Marion County Health Care Facilities and Improvement, United
Church Homes Proj., Rev., 6.30% and 6.375%, 2015 and 2010 5,350 5,246
---------------------------------------------------------------------------------------------------
Montgomery County, Miami Valley Hospital, Rev., 9.375%, 2005 3,000 3,089
---------------------------------------------------------------------------------------------------
Municipal Electric Generation Agcy., Rev., 5.375%, 2013 5,700 5,437
---------------------------------------------------------------------------------------------------
Muskingum County, Franciscan Health Advisory Services, Inc.,
Rev., 7.50%, 2012 7,470 7,755
---------------------------------------------------------------------------------------------------
Scioto County USHCSO-Portsmouth Proj., Hospital Facilities,
Rev., 7.625%, 2015 2,000 2,201
---------------------------------------------------------------------------------------------------
Village of Green Springs, St. Francis Health Care Centre Proj.,
Health Care Facilities Rev., 7.00% and 7.125%, 2014 and 2025 8,640 8,717
---------------------------------------------------------------------------------------------------
Water Dev. Auth.:
Philip Morris, Inc., Pollution Control, Rev., 7.25%, 2008 10,000 10,905
Safe Water, Rev., 5.00%, 2012 8,340 7,714
---------------------------------------------------------------------------------------------------
Worthington City School District, Gen. Oblg., 6.375%, 2012 6,210 6,532
---------------------------------------------------------------------------------------------------
102,070
PENNSYLVANIA - 5.9%
- ---------------------------------------------------------------------------------------------------------------------------
Armstrong County Hospital Auth., St. Francis Medical Center
Proj., Rev., 6.25%, 2013 11,350 11,646
---------------------------------------------------------------------------------------------------
City of Pittsburgh Public Finance Auth., Wastewater, Rev.,
4.75% and 6.50%, 2016 and 2013 13,335 12,654
---------------------------------------------------------------------------------------------------
Columbia County, First Association Proj., First Mortgage
Rev., 9.00%, 2014 1,970 2,102
---------------------------------------------------------------------------------------------------
Convention Center Auth., Rev., 6.70% and 6.75%,
2014 and 2019 12,525 13,060
---------------------------------------------------------------------------------------------------
Dauphin County Industrial Dev. Auth., Susquehanna Center
Nursing Facility, First Mortgage Rev., 10.45%, 2011 1,100 726
---------------------------------------------------------------------------------------------------
Delaware County, Industrial Dev. Auth., Rev., 6.35%, 2025 5,000 5,091
---------------------------------------------------------------------------------------------------
Industrial Dev. Auth., Economic Dev., Rev., 5.50%, 2014 7,240 7,012
---------------------------------------------------------------------------------------------------
Intergovernmental Cooperation Auth., Special Tax
Rev., 5.00%, 2022 14,055 12,228
---------------------------------------------------------------------------------------------------
Lehigh County, General Purpose Auth., Lehigh Valley Hospital
Inc., Rev., 6.50%, 2010 6,000 6,467
---------------------------------------------------------------------------------------------------
McKean County Hospital Auth., Bradford Hospital Proj.,
Rev., 6.00% and 6.10%, 2013 and 2020 5,500 5,031
---------------------------------------------------------------------------------------------------
Monroeville, Hospital Auth., Forbes Health,
Rev., 6.25%, 2015 3,650 3,513
---------------------------------------------------------------------------------------------------
Philadelphia:
Gas Works Rev., 5.250% to 6.375%, 2008 through 2024 40,455 39,549
Municipal Auth., Lease Rev., 6.125% to 6.30%,
2008 through 2017 8,800 8,855
Water & Wastewater, Rev., 5.00% to 5.75%, 2013 through 2023 68,735 64,532
---------------------------------------------------------------------------------------------------
Schuylkill County Industrial Dev. Auth., Schuylkill Energy
Resources Inc. Proj., Resource Recovery Rev., 6.50%, 2010 14,505 14,665
- ---------------------------------------------------------------------------------------------------------------------------
207,131
</TABLE>
21
<PAGE> 22
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER Principal Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SOUTH CAROLINA - .6%
- ---------------------------------------------------------------------------------------------------------------------------
Charleston County, Public Facilities Corp., Certificates of
Participation, 6.875% and 7.00%, 2014 and 2019 $ 7,615 $ 8,301
---------------------------------------------------------------------------------------------------
Darlington County, Carolina Power & Light Company Proj.,
Pollution Control, Rev., 6.60%, 2010 7,500 8,118
---------------------------------------------------------------------------------------------------
Grand Strand, Water and Sewer, Rev., 6.375%, 2012 5,000 5,439
---------------------------------------------------------------------------------------------------
21,858
TENNESSEE - .9%
- ---------------------------------------------------------------------------------------------------------------------------
Housing Dev. Agcy., Mortgage Finance Program, Rev., 7.05%
and 7.125%, 2020 and 2026 25,980 27,259
---------------------------------------------------------------------------------------------------
Metropolitan Nashville Airport Auth., Airport Improvement,
Rev., 6.60%, 2015 5,250 5,605
---------------------------------------------------------------------------------------------------
32,864
TEXAS - 6.3%
- ---------------------------------------------------------------------------------------------------------------------------
Austin:
Airport System Prior Lien, Rev., 6.20%, 2015 15,360 15,450
Water, Sewer and Electric Rev., 11.00% and 14.00%,
1996 and 2001 4,485 5,681
---------------------------------------------------------------------------------------------------
Brazoria County, Health Facilities Dev. Corp., Brazosport
Memorial Hospital, Rev., 5.50%, 2013 4,350 4,150
---------------------------------------------------------------------------------------------------
Brazos River Auth., Texas Utilities Electric Company
Proj., Rev., 8.125%, 2020 4,495 4,986
---------------------------------------------------------------------------------------------------
Dallas-Fort Worth International Airport Facility Improvement
Corp., American Airlines, Rev., 7.50%, 2025 19,000 20,031
---------------------------------------------------------------------------------------------------
Denton County, Gen. Oblg., 5.00%, 2012 5,200 4,762
---------------------------------------------------------------------------------------------------
Ector County, Hospital District, Rev., 7.30%, 2012 550 586
---------------------------------------------------------------------------------------------------
Georgetown Higher Education Finance Corp., Southwestern
University Proj., Rev., 6.25%, 2009 840 872
---------------------------------------------------------------------------------------------------
Gulf Coast Waste Disposal Auth., Champion International,
Rev., 6.875%, 2028 5,500 5,680
---------------------------------------------------------------------------------------------------
Harris County:
Hospital District, Mortgage Rev., 7.40%, 2010 6,940 8,246
Toll Road Senior Lien, Rev., 5.00%, 2016 7,650 6,923
Toll Road Unlimited Tax and Subordinate Lien,
Rev., 6.75%, 2014 15,000 16,045
---------------------------------------------------------------------------------------------------
Housing Agcy., Single Family Mortgage Rev., 7.15%, 2012 1,295 1,370
---------------------------------------------------------------------------------------------------
Houston:
Higher Education Finance Corp., University of St. Thomas,
Rev., 7.25%, 2007 1,445 1,530
Water and Sewer System Rev., 6.125%, 2015 19,770 20,165
---------------------------------------------------------------------------------------------------
Lower Neeches Valley Auth., Industrial Dev. Corp., Mobil Oil,
Rev., 6.40%, 2030 20,870 21,156
---------------------------------------------------------------------------------------------------
Lubbock Health Facilities Dev. Corp., Methodist Hospital
Proj., Rev., 5.50%, 2014 4,000 3,826
---------------------------------------------------------------------------------------------------
Matagorda County, Navigation District Number 1:
Central Power and Light Company, Pollution Control,
Rev., 7.875%, 2016 10,890 11,444
Houston Lighting and Power Company, Pollution
Control, Rev., 7.875%, 2016 13,735 14,329
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER Principal Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mc Allen, Health Facilities Dev. Corp., Rev., 5.00%, 2015 $ 5,800 $ 5,203
---------------------------------------------------------------------------------------------------
Northwest Independent School District, Unlimited Tax, School
Building Gen. Oblg., zero coupon, 2010 4,890 2,065
---------------------------------------------------------------------------------------------------
Rio Grande Valley, Health Facilities Dev. Corp., Golden Palms
Retirement and Health Center, Rev., 6.40%, 2012 3,700 3,862
---------------------------------------------------------------------------------------------------
Sabine River Auth., Texas Utilities Electric Company,
Rev., 8.125%, 2020 1,470 1,592
---------------------------------------------------------------------------------------------------
State Gen. Oblg., 7.00%, 2012 11,407 12,048
---------------------------------------------------------------------------------------------------
Tarrant County Water Control Improvement District
Number One, Water Rev., 4.50%, 2011 5,000 4,283
---------------------------------------------------------------------------------------------------
Titus County Hospital District, Improvement,
Rev., 6.125%, 2013 6,700 6,477
---------------------------------------------------------------------------------------------------
Travis County Housing Finance Corp., Residential Mortgage,
Senior Rev., 7.00%, 2011 465 500
---------------------------------------------------------------------------------------------------
Turnpike Auth., Dallas North Tollway, Rev., 4.75%,
2011 through 2014 13,400 11,814
---------------------------------------------------------------------------------------------------
West Side Calhoun County, Union Carbide Chemicals
Proj., Rev., 6.40%, 2023 4,955 4,860
---------------------------------------------------------------------------------------------------
219,936
UTAH - .3%
- ---------------------------------------------------------------------------------------------------------------------------
Davis County Solid Waste Management & Energy Recovery,
Special Service District, Rev., 6.125%, 2009 4,200 4,062
---------------------------------------------------------------------------------------------------
Housing Finance Agcy., Single Family Mortgage
Rev., 8.625%, 2019 1,040 1,099
---------------------------------------------------------------------------------------------------
Intermountain Power Agcy., Power Supply,
Rev., 7.50%, 2021 4,395 4,765
---------------------------------------------------------------------------------------------------
West Valley City, Salt Lake County Excise Tax, Rev.,
10.625%, 2004 1,000 1,281
---------------------------------------------------------------------------------------------------
11,207
VIRGINIA - .1%
- ---------------------------------------------------------------------------------------------------------------------------
City of Roanoke, Industrial Dev. Auth.,
Hospital Rev., 5.25%, 2025 4,650 4,204
---------------------------------------------------------------------------------------------------
WASHINGTON - 3.0%
- ---------------------------------------------------------------------------------------------------------------------------
Public Power Supply System:
Nuclear Proj. #2, Rev., 7.00%, 2012 57,355 63,083
Nuclear Proj. #3, Rev., 5.375%, 2015 41,410 38,479
---------------------------------------------------------------------------------------------------
Snohomish County, Gen. Oblg., 5.70%, 2012 5,140 5,123
---------------------------------------------------------------------------------------------------
106,685
WISCONSIN - .8%
- ---------------------------------------------------------------------------------------------------------------------------
Health and Education Facilities Auth.:
Aurora Health Care Group, Rev., 5.25%, 2012 and 2023 26,500 24,059
Wausau Hospitals, Inc., Proj., Rev., 6.625%, 2011 3,000 3,193
---------------------------------------------------------------------------------------------------
27,252
WYOMING - .1%
- ---------------------------------------------------------------------------------------------------------------------------
Community Dev. Auth., Single Family Mortgage Rev., 7.875%
and 8.125%, 2017 and 2021 2,570 2,715
---------------------------------------------------------------------------------------------------
PUERTO RICO - .5%
- ---------------------------------------------------------------------------------------------------------------------------
Electric Power Auth., Rev., 5.25%, 2021 7,300 6,604
---------------------------------------------------------------------------------------------------
Puerto Rico, Gen. Oblg., 5.375, 2022 5,250 4,975
---------------------------------------------------------------------------------------------------
University, Rev., 5.25%, 2025 5,000 4,639
---------------------------------------------------------------------------------------------------
16,218
VIRGIN ISLANDS - .1%
- ---------------------------------------------------------------------------------------------------------------------------
Public Finance Auth., Rev., 7.25%, 2018 3,000 3,183
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER Principal Amount Value
<S> <C> <C>
---------------------------------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS 88.8% $ 3,117,492
---------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS 94.0%
(COST: $3,137,796) 3,300,550
---------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS - 4.30% TO 5.00%
DUE OCT. 1995
District of Columbia $ 7,000 7,000
Florida Housing Finance Agcy. 300 300
Hillsborough County Industrial Dev. Auth., Florida 8,300 8,300
Louisiana Recovery District 7,400 7,400
Commonwealth of Massachusettes 9,050 9,050
New York City Gen. Oblg. 20,500 20,500
New York City Municipal Finance Auth. 36,100 36,100
New York State Energy Research and Dev. Auth. 18,600 18,600
Brazos River Auth. of Texas 11,300 11,300
Sabine River Auth. of Texas 3,200 3,200
---------------------------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS 3.5%
(COST $121,750) 121,750
---------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS 97.5%
(COST:$3,259,546) 3,422,300
---------------------------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES 2.5% 88,348
---------------------------------------------------------------------------------------------------
NET ASSETS-100% $3,510,648
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $3,259,546,000 for federal income tax
purposes at September 30, 1995, the gross unrealized appreciation was
$180,413,000, the aggregate gross unrealized depreciation was $17,659,000 and
the net unrealized appreciation of investments was $162,754,000.
See accompanying Notes to Financial statements.
24
<PAGE> 25
PORTFOLIO OF INVESTMENTS
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
September 30, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Issuer Principal amount Value
<S> <C> <C>
ADVANCE REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL
AND INTEREST BY UNITED STATES GOVERNMENT SECURITIES
- -------------------------------------------------------------------------------
Delaware - 1.0%
- -------------------------------------------------------------------------------
State, Gen. Oblg., 6.95%, to be
called 5-1-00 @ 102 $135 $ 152
- -------------------------------------------------------------------------------
Massachusetts - 1.8%
- -------------------------------------------------------------------------------
Bay Transportation Auth.,
Rev., 7.625%, to be called
3-1-00 @ 102 115 131
- -------------------------------------------------------------------------------
Water Restoration Auth., Rev., 7.00%
to be called 4-1-00 @ 102 145 162
- -------------------------------------------------------------------------------
293
New York - 1.7%
- -------------------------------------------------------------------------------
Dormitory Auth., State University
Educational Facilities,
Rev., 7.25%, to be called 5-15-00
at @ 102 145 165
- -------------------------------------------------------------------------------
Local Government Assistance Corp.,
Rev., 7.00% to be called 4-1-01 @ 102 100 114
- -------------------------------------------------------------------------------
279
Pennsylvania - .9%
- -------------------------------------------------------------------------------
Philadelphia Gas Works, Rev.,
7.70%, to be called 6-15-01 @ 102 120 141
- -------------------------------------------------------------------------------
Virginia - 1.3%
- -------------------------------------------------------------------------------
Arlington County Industrial Dev. Auth.,
The Arlington Hospital, Rev., 7.125%
to be called 9-1-01 @ 102 90 103
- -------------------------------------------------------------------------------
Richmond, Gen. Oblg., 6.875%,
to be called 1-15-00 @ 102 100 111
- -------------------------------------------------------------------------------
214
Washington - .7%
- -------------------------------------------------------------------------------
King County, Auburn School District
#408, Gen. Oblg., 7.00%, to be
called 12-1-00 @ 100 100 112
- -------------------------------------------------------------------------------
TOTAL ADVANCE REFUNDED OBLIGATIONS-7.4% 1,191
- -------------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS
- -------------------------------------------------------------------------------
Arizona - 1.1%
- -------------------------------------------------------------------------------
State University Board of Regents,
Rev., 6.50%, 2001 85 94
- -------------------------------------------------------------------------------
Transportation Board, Highway Rev.,
6.10%, 2002 70 76
- -------------------------------------------------------------------------------
170
Arkansas - 2.0%
- -------------------------------------------------------------------------------
North Little Rock, Electric System,
Rev., 6.00% and 6.15%, 2001 and 2003 295 323
- -------------------------------------------------------------------------------
California - 3.5%
- -------------------------------------------------------------------------------
Fresno, Water System, Water
Remediation Proj., Rev., 7.50%, 2004 160 190
- -------------------------------------------------------------------------------
Sacramento Cogeneration Auth.,
Procter & Gamble Proj.,
Rev., 7.00%, 2004 200 215
State, Gen. Oblg., 6.10%, 2001 150 162
- -------------------------------------------------------------------------------
567
Colorado - 1.9%
- -------------------------------------------------------------------------------
Arapahoe County, Capital
Improvement, Highway Rev.,
6.90%, 2015 300 309
- -------------------------------------------------------------------------------
Connecticut -.0%
- -------------------------------------------------------------------------------
State, Gen. Oblg., 5.95%,
2000 5 5
- -------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 26
Portfolio of Investments
<TABLE>
<CAPTION>
ISSUER Principal Amount Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
FLORIDA - 5.6%
- ---------------------------------------------------------------------------------------------------
Broward County School District, Gen. Oblg., 6.00%, 2004 $ 70 $ 75
---------------------------------------------------------------------------------
Department of Natural Resources, Preservation 2000,
Rev., 6.20%, 1999 80 85
---------------------------------------------------------------------------------
Hillsborough County Aviation Auth., Tampa International
Airport, Rev., 6.90%, 2011 5 5
---------------------------------------------------------------------------------
Lake County Resource Recovery, Industrial Dev.
Rev., 5.65%, 2005 200 195
---------------------------------------------------------------------------------
Miami Beach, Redevelopment Agency Tax, Incremental
Rev., 5.625%, 2009 250 243
---------------------------------------------------------------------------------
North Broward Hospital District, Rev., 6.125%, 2003 285 310
---------------------------------------------------------------------------------
913
GEORGIA - .9%
- ---------------------------------------------------------------------------------------------------
Atlanta International Airport, Rev., 6.50%, 2013 70 73
---------------------------------------------------------------------------------
Municipal Electric Power Auth., Rev., 6.00%, 2000 70 74
---------------------------------------------------------------------------------
147
HAWAII - 1.0%
- ---------------------------------------------------------------------------------------------------
State, Gen. Oblg., 7.25%, 2000 145 163
---------------------------------------------------------------------------------
ILLINOIS - 5.7%
- ---------------------------------------------------------------------------------------------------
Public Building Commission of Chicago, Rev.,
5.25%, 2004 450 459
---------------------------------------------------------------------------------
Health Facilities Auth., Franciscan Sisters Health Care Corp.
Proj., Rev., 6.25%, 2002 350 378
---------------------------------------------------------------------------------
McHenry and Lake County School District Number 15,
Certificates of Participation, Rev., 6.125%, 2003 85 93
---------------------------------------------------------------------------------
930
INDIANA - 2.0%
- ---------------------------------------------------------------------------------------------------
Johnson County Hospital Association,
Rev., 6.50%, 2002 300 329
---------------------------------------------------------------------------------
KENTUCKY - 5.4%
- ---------------------------------------------------------------------------------------------------
Lexington-Fayette Urban County, University of Kentucky
Alumni Association Commonwealth Library Proj.,
Rev., 6.50%, 2009 300 326
---------------------------------------------------------------------------------
Turnpike Auth. Economic Dev. Road Revitalization,
Rev., 5.30%, 2004 455 473
---------------------------------------------------------------------------------
University of Kentucky, Consolidated Educational Building,
Rev., 6.00%, 1999 70 73
---------------------------------------------------------------------------------
872
LOUISIANA - 2.1%
- ---------------------------------------------------------------------------------------------------
State, Gen. Oblg., 7.00%, 2001 300 337
---------------------------------------------------------------------------------
MAINE - 1.8%
- ---------------------------------------------------------------------------------------------------
Health and Higher Education Facilities Auth., Rev., 6.30% and
6.50%, 2004 and 2006 260 285
---------------------------------------------------------------------------------
MARYLAND - .5%
- ---------------------------------------------------------------------------------------------------
Howard County, Consolidated Public Improvement,
Gen. Oblg., 6.90%, 1999 70 76
---------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 27
PORTFOLIO OF INVESTMENTS
<TABLE>
Issuer Principal amount Value
<S> <C> <C> <C>
Massachusetts - 2.2%
- ---------------------------------------------------------------------------------------------------------------------------
Commonwealth, Gen. Oblg., 7.00%, 2007 $275 $304
---------------------------------------------------------------------------------------------------
Bay Transit Auth., Rev., 6.50%, 2004 5 6
---------------------------------------------------------------------------------------------------
Water Pollution Abatement Trust, SESD Loan Program,
Rev., 6.20%, 2010 45 48
---------------------------------------------------------------------------------------------------
358
Michigan - 6.8%
- ---------------------------------------------------------------------------------------------------------------------------
Detroit, Gen. Oblg., 6.70%, 2010 300 311
---------------------------------------------------------------------------------------------------
Grand Rapids, Downtown Dev. Auth., Rev., 6.20%, 2004 175 191
---------------------------------------------------------------------------------------------------
Macomb County, Chippewa Valley Schools, Gen. Oblg.,
7.00%, 2001 350 393
---------------------------------------------------------------------------------------------------
State Building Auth., Rev., 6.25% and 6.50%, 2000 and 2004 165 183
---------------------------------------------------------------------------------------------------
Oakland County, Birmingham CSO Drainage District,
Rev., 5.50%, 2002 25 26
---------------------------------------------------------------------------------------------------
1,104
Nebraska - .3%
- ---------------------------------------------------------------------------------------------------------------------------
Public Power District, Nuclear Facility, Rev., 5.70%, 2004 50 52
---------------------------------------------------------------------------------------------------
Nevada - 4.6%
- ---------------------------------------------------------------------------------------------------------------------------
Capital Improvement, Gen. Oblg., 5.90%, 2001 250 266
---------------------------------------------------------------------------------------------------
Clark County, Motor Vehicle Fuel Tax Rev., 5.625%, 2002 70 74
---------------------------------------------------------------------------------------------------
Washoe County, Gen. Oblg., 5.20%, 2003 400 411
---------------------------------------------------------------------------------------------------
751
New Jersey - 3.0%
- ---------------------------------------------------------------------------------------------------------------------------
Middlesex County Utility Auth., Solid Waste System,
Rev., 6.10%, 2001 300 326
---------------------------------------------------------------------------------------------------
State Transit System, Rev., 6.00%, 2001 150 161
---------------------------------------------------------------------------------------------------
487
New York - 9.4%
- ---------------------------------------------------------------------------------------------------------------------------
New York City:
Gen. Oblg., 5.75% and 6.50%, 2003 and 2002 200 206
Industrial Dev. Auth., USTA National Tennis Center
Inc. Proj., Rev., 6.10%, 2004 200 217
---------------------------------------------------------------------------------------------------
Dormitory Auth.:
College and University Education Loan, Rev., 5.70%, 2007 250 256
City University Construction, Rev., 5.40%, 2002 350 367
---------------------------------------------------------------------------------------------------
Metropolitian Transit Auth., Rev., 5.00%, 2003 350 359
---------------------------------------------------------------------------------------------------
Niagara Falls, Water Treatment Plant, Rev., 6.40%, 2004 100 110
---------------------------------------------------------------------------------------------------
1,515
Ohio - 5.4%
- ---------------------------------------------------------------------------------------------------------------------------
Cleveland Water Works System, Rev., 6.125%, 2003 450 488
---------------------------------------------------------------------------------------------------
Northeast Regional Sewer District, Wastewater Rev., 5.10%, 2007 250 248
---------------------------------------------------------------------------------------------------
Water Dev. Auth., Pure Water Improvement Proj., Rev.,
5.75%, 2003 5 5
---------------------------------------------------------------------------------------------------
State, Gen. Oblg., 5.50%, 2001 125 132
---------------------------------------------------------------------------------------------------
873
Oklahoma - .1%
- ---------------------------------------------------------------------------------------------------------------------------
Muskogee County, Gen. Oblg., 6.00%, 2001 10 11
---------------------------------------------------------------------------------------------------
Pennsylvania - 10.5%
- ---------------------------------------------------------------------------------------------------------------------------
Allegheny County Hospital Dev. Auth., Magee Women's Hospital,
Rev., 6.25%, 2008 300 317
---------------------------------------------------------------------------------------------------
McKean County Hospital Auth., Bradford Hospital,
Rev., 5.375%, 2003 350 337
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 28
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
Issuer Principal Amount Value
<S> <C> <C>
Intergovernmental Cooperation Auth., City of Philadelphia
Funding Program, Rev., 6.00%, 2002 $285 $ 306
---------------------------------------------------------------------------------------------------
Philadelphia:
Airport Marina, Rev., 5.30%, 2004 200 203
Gas Works Rev., 6.25%, 2008 150 157
Water, Wasterwater Rev., 6.25%, 2008 300 327
---------------------------------------------------------------------------------------------------
Schuylkill County Industrial Dev. Auth., Schuylkill Energy
Resources Inc., Rev., 6.50%, 2010 45 45
---------------------------------------------------------------------------------------------------
1,692
Texas - 7.9%
---------------------------------------------------------------------------------------------------
Austin Airport System, Prior Lien, Rev., 6.10%, 2011 400 409
---------------------------------------------------------------------------------------------------
Fort Worth, Water and Sewer Rev., 5.90%, 2001 80 85
---------------------------------------------------------------------------------------------------
Granbury Independent School District, Gen. Oblg., 5.00%, 2009 105 99
---------------------------------------------------------------------------------------------------
Houston Higher Education Finance Corp., University of
St. Thomas, Rev., 7.25%, 2007 100 107
---------------------------------------------------------------------------------------------------
San Antonio, Water Rev., 6.00%, 2001 255 273
---------------------------------------------------------------------------------------------------
Public Finance Auth., Building Rev., 5.875%, 2002 210 225
---------------------------------------------------------------------------------------------------
Trinity River Auth., Ten Mile Creek System, Rev., 5.50%, 2002 70 74
---------------------------------------------------------------------------------------------------
1,272
Washington - 2.6%
---------------------------------------------------------------------------------------------------
Public Power Supply System, Nuclear Proj. #2, Rev., 5.10%, 2004 350 349
---------------------------------------------------------------------------------------------------
Tacoma, Electric System, Rev., 5.80%, 2004 70 74
---------------------------------------------------------------------------------------------------
423
Puerto Rico - 2.2%
---------------------------------------------------------------------------------------------------
Bank and Finance Agency, Affordable Housing, Single
Family Mortgage Rev., 5.90%, 2010 250 251
---------------------------------------------------------------------------------------------------
Puerto Rico, Gen. Oblg., 5.50%, 2009 100 102
---------------------------------------------------------------------------------------------------
353
---------------------------------------------------------------------------------------------------
Total Other Municipal Obligations - 88.5% 14,317
---------------------------------------------------------------------------------------------------
Total Investments - 95.9%
(Cost:$14,797) 15,508
---------------------------------------------------------------------------------------------------
Cash and Other Assets, Less Liabilities - 4.1% 661
---------------------------------------------------------------------------------------------------
Net Assets 100% $16,169
---------------------------------------------------------------------------------------------------
</TABLE>
Note to Portfolio of Investments
Based on the cost of investments of $14,797,000 for federal income tax
purposes at September 30, 1995, the gross unrealized appreciation was
$713,000, the aggregate gross unrealized depreciation was $2,000, and the net
unrealized appreciation of investments was $711,000.
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 portfolio of investments, of the Kemper Municipal Bond Fund
and Kemper Intermediate Municipal Bond Fund, comprising the Kemper National
Tax-Free Income Series (the Trust) as of September 30, 1995, and the related
statements of operations for the year then ended and changes in net assets for
each of the two years in the period ended September 30, 1995 for the Kemper
Municipal Bond Fund, and for the period November 1, 1994 (initial public
offering) to September 30, 1995 for the Kemper Intermediate Municipal Bond
Fund, and the financial highlights for the fiscal periods since 1991. 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, 1995, by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the above mentioned Funds of Kemper National Tax-Free
Income Series at September 30, 1995, 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
October 27, 1995
29
<PAGE> 30
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL MUNICIPAL
FUND FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at value (Cost: $3,259,546 and $14,797) $ 3,422,300 15,508
- ------------------------------------------------------------------------------------------------
Cash 2,584 203
- ------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 6,703 227
- ------------------------------------------------------------------------------------------------
Investments sold 112,637 --
- ------------------------------------------------------------------------------------------------
Interest 55,450 254
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS 3,599,674 16,192
- ------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
Payable for:
Dividends 1,629 14
- ------------------------------------------------------------------------------------------------
Fund shares redeemed 10,540 --
- ------------------------------------------------------------------------------------------------
Investments purchased 74,583 --
- ------------------------------------------------------------------------------------------------
Management fee 1,256 2
- ------------------------------------------------------------------------------------------------
Administrative services fee 431 3
- ------------------------------------------------------------------------------------------------
Distribution services fee 22 2
- ------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 364 2
- ------------------------------------------------------------------------------------------------
Other 201 --
- ------------------------------------------------------------------------------------------------
Total liabilities 89,026 23
- ------------------------------------------------------------------------------------------------
NET ASSETS $ 3,510,648 16,169
- ------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
Paid-in capital $ 3,363,551 15,348
- ------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss)
on investments (15,657) 110
- ------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 162,754 711
- ------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 3,510,648 16,169
- ------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
CLASS A SHARES
Net assets applicable to shares outstanding $ 3,474,325 12,808
- ------------------------------------------------------------------------------------------------
Shares outstanding, no par value 342,298 1,258
- ------------------------------------------------------------------------------------------------
Net asset value and redemption price per
share (net assets / shares outstanding) $ 10.15 10.18
- ------------------------------------------------------------------------------------------------
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) $ 10.63 10.47
- ------------------------------------------------------------------------------------------------
CLASS B SHARES
Net assets applicable to shares outstanding $ 34,724 2,657
- ------------------------------------------------------------------------------------------------
Shares outstanding, no par value 3,429 261
- ------------------------------------------------------------------------------------------------
Net asset value and redemption price (subject
to contingent deferred sales charge) per
share (net assets / shares outstanding) $ 10.13 10.18
- ------------------------------------------------------------------------------------------------
CLASS C SHARES
Net assets applicable to shares outstanding $ 1,599 704
- ------------------------------------------------------------------------------------------------
Shares outstanding, no par value 157.4 69.1
- ------------------------------------------------------------------------------------------------
Net asset value and redemption price per
share (net assets / shares outstanding) $10.16 10.19
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
30
<PAGE> 31
Financial Statements
STATEMENT OF OPERATIONS
Year Ended September 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL MUNICIPAL
FUND FUND(A)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
NET INVESTMENT INCOME
Interest income $222,621 589
- -----------------------------------------------------------------------------------------------
Expenses:
Management fee 14,685 58
- -----------------------------------------------------------------------------------------------
Administration services fee 4,852 20
- -----------------------------------------------------------------------------------------------
Distribution services fee 189 19
- -----------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 3,065 16
- -----------------------------------------------------------------------------------------------
Professional fees 93 15
- -----------------------------------------------------------------------------------------------
Reports to shareholders 286 --
- -----------------------------------------------------------------------------------------------
Registration fees 47 1
- -----------------------------------------------------------------------------------------------
Trustees' fees and other 276 4
- -----------------------------------------------------------------------------------------------
Total expenses before expense waiver 23,493 133
- -----------------------------------------------------------------------------------------------
Less expenses waived and absorbed by investment manager -- 53
- -----------------------------------------------------------------------------------------------
Total expenses after expense waiver 23,493 80
- -----------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 199,128 509
- -----------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sales of investments
(including options purchased) (1,869) 110
- -----------------------------------------------------------------------------------------------
Net realized loss from futures transactions (3,984) --
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) (5,853) 110
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 178,553 711
- -----------------------------------------------------------------------------------------------
Net gain on investments 172,700 821
- -----------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $371,828 1,330
- -----------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from November 1, 1994 (initial public offering)
to September 30, 1995.
See accompanying Notes to Financial Statements.
31
<PAGE> 32
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL FUND
NOVEMBER 1,
MUNICIPAL FUND 1994 TO
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995
- ------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
<S> <C> <C> <C>
Net investment income $ 199,128 215,376 509
- ------------------------------------------------------------------------------------------
Net realized gain (loss) (5,853) 28,967 110
- ------------------------------------------------------------------------------------------
Change in net unrealized
appreciation 178,553 (396,629) 711
- ------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 371,828 (152,286) 1,330
- ------------------------------------------------------------------------------------------
Net equalization credits -- 1,505 --
- ------------------------------------------------------------------------------------------
Distribution from net
investment income (199,128) (218,505) (509)
- ------------------------------------------------------------------------------------------
Distribution from net
realized gain on investments (12,759) (121,549) --
- ------------------------------------------------------------------------------------------
Total dividends to shareholders (211,887) (340,054) (509)
- ------------------------------------------------------------------------------------------
Net increase (decrease) from
capital share transactions (366,290) 135,206 15,248
- ------------------------------------------------------------------------------------------
Total increase (decrease)
in net assets (206,349) (355,629) 16,069
- ------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------
BEGINNING OF PERIOD 3,716,997 4,072,626 100
END OF PERIOD $3,510,648 3,716,997 16,169
- ------------------------------------------------------------------------------------------
UNDISTRIBUTED NET
INVESTMENT INCOME -- 29,011 --
- ------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 33
Notes to Financial Statements
- -------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUNDS The Kemper National Tax-Free Income Series (the
Trust) is an open-end, management investment
company comprised of Kemper Municipal Bond Fund
(Municipal Fund) and Kemper Intermediate Muncipal
Bond Fund (Intermediate Municipal Fund). The
Intermediate Municipal Fund began offering shares
on November 1, 1994. The Trust is organized as a
business trust under the laws of Massachusetts.
The Funds currently offer three 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 or a contingent deferred sales charge but
are subject to higher ongoing expenses than
Class A shares and do not convert into another
class. The Funds may offer Class I shares (none
sold at September 30, 1995) to a limited group of
investors which are not subject to initial or
contingent deferred sales charges and have lower
ongoing expenses than other classes. Each share
of a Fund represents an identical interest in the
investments of the Fund and has the same rights.
- -------------------------------------------------------------------------------
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. Exchange traded options
are valued at the last sale price unless there is
no sale price, in which event prices provided by
market makers are used. Over-the-counter traded
options are valued based upon prices provided by
market makers. Financial futures and options
thereon are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Other
securities and assets are valued at fair value as
determined in good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Interest income is recorded on the
accrual basis and premiums and original issue
discount on securities are amortized. Realized
gains and losses from investment transactions are
reported on an identified cost basis.
EXPENSES. Expenses arising in connection with a
specific Fund are allocated to that Fund. Other
Trust expenses are allocated between 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 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 earlier of
3:00 p.m. Chicago time or the close of the
Exchange. The net asset value per share is
determined separately for each class by dividing
the Fund's net
33
<PAGE> 34
Notes to Financial Statements
assets attributable to that class by the number
of shares of the class outstanding.
FEDERAL INCOME TAXES AND DIVIDENDS TO
SHAREHOLDERS. Each Fund has complied with the
special provisions of the Internal Revenue Code
available to investment companies and therefore
no federal income tax provision is required.
Differences in dividends per share are due to
different class expenses. 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 then distributed monthly.
Distributions are determined in accordance with
income tax principles which may treat certain
transactions differently than generally accepted
accounting principles.
- -------------------------------------------------------------------------------
3 TRANSACTIONS MANAGEMENT AGREEMENT. The Trust has a management
WITH AFFILIATES agreement with Kemper Financial Services, Inc.
(KFS). The Municipal Fund pays a fee at an
annual rate of .45% of the first $250 million
of average daily net assets declining gradually
to .32% of average daily net assets in excess
of $12.5 billion. The Municipal Fund paid a
management fee of $14,685,000 for the year ended
September 30, 1995.
The Intermediate Municipal Fund pays a management
fee at an annual rate of .55% of the first
$250 million of average daily net assets declining
gradually to .40% of average daily net assets in
excess of $12.5 billion. The management fee for
the Intermediate Municipal Fund was waived and
absorbed by KFS until April 30, 1995. Thereafter
the management fee is being reinstated gradually.
For the period ended September 30, 1995, the
Intermediate Municipal Fund paid a management fee
of $5,000 after the waiver.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Trust has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). As principal underwriter for the Trust,
KDI retained commissions of $290,000 for the
period ended September 30, 1995 for sales of
Class A shares after allowing $2,021,000 as
commissions to firms of which $409,000 was paid
to firms affiliated with KDI. For distribution
services, the Trust pays KDI a fee of .75% of
average daily net assets of the Class B and
Class C shares. Pursuant to the agreement, KDI
enters into related selling group agreements
with various firms that provide distribution
services to investors. KDI compensates these
firms at various rates for sales of Class B and
Class C shares. During the period ended
September 30, 1995, the Trust incurred a
distribution services fee for Class B and Class
C shares of $208,000, and KDI paid $660,000 for
commissions and distribution fees to firms,
including $180,000 to firms affiliated with
KDI. In addition, KDI received $65,000 of
contingent deferred sales charges.
ADMINISTRATIVE SERVICES AGREEMENT. The Trust
has an administrative services agreement with
KDI. For providing information and administrative
services to shareholders, the Trust pays KDI a fee
at an annual rate of up to .25% of average daily
net assets. KDI in turn has various agreements
with financial services firms that provide these
services and pays these firms based on assets of
Trust accounts the firms service. For the
34
<PAGE> 35
Notes to Financial Statements
period ended September 30, 1995, the Trust
incurred an administrative services fee of
$4,872,000 and KDI paid $4,881,000 to firms,
including $942,000 that was paid to firms
affiliated with KDI.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to
a services agreement with the Trust's custodian
and transfer agent, Kemper Service Company (KSvC)
is the shareholder service agent of the Trust.
For the period ended September 30, 1995, the
custodian remitted shareholder services fees
of $1,910,000 to KSvC.
OFFICERS AND TRUSTEES. Certain officers or
trustees of the Trust are also officers or
directors of KFS. During the period ended
September 30, 1995, the Trust made no direct
payments to its officers and incurred trustees'
fees of $47,000 to independent trustees.
- -------------------------------------------------------------------------------
4 INVESTMENT For the period ended September 30, 1995,
TRANSACTIONS investment transactions (excluding short-term
instruments) are as follows (in thousands):
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL FUND MUNICIPAL FUND
---------------------------------------------------------------------------
<S> <C> <C>
Purchases $2,956,244 21,224
Proceeds from sales 3,380,112 6,537
</TABLE>
- -------------------------------------------------------------------------------
5 CAPITAL SHARE The following tables summarize the activity
TRANSACTIONS in capital shares of the Funds (in thousands):
MUNICIPAL FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994
------------------------------ -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 22,333 $219,677 50,713 $517,534
-------------------------------------------------------------------------------------
Class B 3,144 30,627 1,748 17,481
-------------------------------------------------------------------------------------
Class C 122 1,214 87 861
-------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 13,788 134,811 22,146 229,840
-------------------------------------------------------------------------------------
Class B 89 878 16 155
-------------------------------------------------------------------------------------
Class C 4 39 1 4
-------------------------------------------------------------------------------------
SHARES REDEEMED
Class A (76,431) (744,574) (62,190) (624,503)
-------------------------------------------------------------------------------------
Class B (861) (8,415) (628) (6,166)
-------------------------------------------------------------------------------------
Class C (56) (547) -- --
-------------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 68 666 11 109
-------------------------------------------------------------------------------------
Class B (68) (666) (11) (109)
-------------------------------------------------------------------------------------
NET INCREASE
(DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $(366,290) $135,206
=====================================================================================
</TABLE>
35
<PAGE> 36
Notes to Financial Statements
Intermediate Municipal Fund
<TABLE>
<CAPTION>
NOVEMBER 1, 1994 to
SEPTEMBER 30,1995
-------------------------
SHARES AMOUNT
- -------------------------------------------------------------------------
<S> <C> <C>
SHARES SOLD
Class A 1,703 $16,599
- -------------------------------------------------------------------------
Class B 313 3,046
- -------------------------------------------------------------------------
Class C 66 673
- -------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 32 320
- -------------------------------------------------------------------------
Class B 5 51
- -------------------------------------------------------------------------
Class C 2 16
- -------------------------------------------------------------------------
SHARES REDEEMED
Class A (481) (4,817)
- -------------------------------------------------------------------------
Class B (61) (610)
- -------------------------------------------------------------------------
Class C (3) (30)
- -------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL
SHARE TRANSACTIONS $15,248
- -------------------------------------------------------------------------
</TABLE>
36
<PAGE> 37
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
MUNICIPAL FUND 1995 1994 1993 1992 1991
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $9.69 10.95 10.29 10.05 9.40
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .55 .55 .61 .65 .69
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .50 (.92) .82 .35 .62
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations 1.05 (.37) 1.43 1.00 1.31
- -----------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS:
Distribution from net investment income .55 .56 .62 .63 .66
- -----------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .04 .33 .15 .13 --
- -----------------------------------------------------------------------------------------------------------------
TOTAL DIVIDENDS .59 .89 .77 .76 .66
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of year $10.15 9.69 10.95 10.29 10.05
- -----------------------------------------------------------------------------------------------------------------
Total return 11.15% (3.67) 14.50 10.36 14.36
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------------------------
Expenses .66% .60 .47 .48 .48
- -----------------------------------------------------------------------------------------------------------------
Net investment income 5.63 5.42 5.78 6.44 6.97
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B CLASS C
---------------------------------- --------------------------------
YEAR ENDED MAY 31, 1994 TO YEAR ENDED MAY 31, 1994 TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.67 9.95 9.69 9.95
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .46 .14 .47 .16
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .50 (.26) .51 (.26)
- -------------------------------------------------------------------------------------------------------------
Total from investment operations .96 (.12) .98 (.10)
- -------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .46 .16 .47 .16
- -------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .04 .04
- -------------------------------------------------------------------------------------------------------------
Total dividends .50 .16 .51 .16
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.13 9.67 10.16 9.69
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN 10.17% (1.24) 10.32 (1.03)
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------------------------
Expenses 1.55% 1.56 1.51 1.53
- -------------------------------------------------------------------------------------------------------------
Net investment income 4.74 4.55 4.78 4.56
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL DATA FOR ALL CLASSES
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $3,510,648 3,716,997 4,072,626 3,154,972 2,465,928
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 86% 50 52 32 29
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 38
Financial Highlights
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
NOVEMBER 1, 1994 (INITIAL PUBLIC OFFERING)
INTERMEDIATE MUNICIPAL FUND TO SEPTEMBER 30, 1995
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.50 9.50 9.50
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .45 .36 .38
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .68 .68 .69
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 1.13 1.04 1.07
- -----------------------------------------------------------------------------------------------------------
Less distribution from net investment income .45 .36 .38
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.18 10.18 10.19
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN 12.08% 11.13 11.43
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (A)
- -----------------------------------------------------------------------------------------------------------
Expenses absorbed by the Fund .55% 1.42 1.28
- -----------------------------------------------------------------------------------------------------------
Net investment income 5.00 4.13 4.27
- -----------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (A)
- -----------------------------------------------------------------------------------------------------------
Expenses 1.05% 1.92 1.78
- -----------------------------------------------------------------------------------------------------------
Net investment income 4.50 3.63 3.77
- -----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $16,169
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 60%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
NOTES: (a) KFS 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 is being gradually reinstated. "Other ratios to
average net assets" are computed without the undertaking to waive the
management fee.
Ratios have been determined on an annualized basis. Total return is not
annualized and does not reflect the effect of any sales charges.
FEDERAL TAX STATUS OF 1995 DIVIDENDS
All of the dividends paid from net investment income by the Funds constitute
tax-exempt interest that is not taxable for federal income tax purposes;
however, a portion of the dividends paid may be includable in the alternative
minimum tax calculation. A short-term capital gain dividend is taxable as
ordinary income, and a long-term capital gain dividend is taxable as a
long-term capital gain regardless of how long you have owned your shares.
38
<PAGE> 39
SHAREHOLDER MEETING
SPECIAL SHAREHOLDERS MEETING
On September 19, 1995 the results of the proxy solicitation were
announced at a joint special shareholders meeting. Shareholders of the Kemper
National Tax-Free Income Series were asked to vote on four separate issues:
election of nine Trustees to the Board of Trustees, ratification of Ernst &
Young LLP as independent auditors, approval investment management agreement
with Kemper Financial Services, Inc. or its successor on the same terms as the
current agreement and for Class B and Class C shareholders only, approval of a
new 12b-1 distribution plan with Kemper Distributors, Inc. or its successor on
the same terms as the current plan. We are pleased to report that all nominees
were elected and all other items were approved. Below are the results for each
issue:
* Election of Trustees
<TABLE>
<S> <C> <C>
FOR WITHHELD
David W. Belin 247,492,772 6,345,969
Lewis A. Burnham 247,645,075 6,193,665
Donald L. Dunaway 247,619,691 6,219,049
Robert B. Hoffman 247,645,075 6,193,665
Donald R. Jones 247,619,691 6,219,049
David B. Mathis 247,289,701 6,549,039
Shirley D. Peterson 247,238,933 6,599,807
William P. Sommers 247,543,539 6,295,201
Stephen B. Timbers 247,645,075 6,193,665
</TABLE>
* Ratification of the selection of Ernst & Young LLP as independent auditors
for the fund
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
243,201,036 2,666,128 5,736,995
</TABLE>
* Approval of new investment management agreement
<TABLE>
<CAPTION>
KEMPER MUNICIPAL BOND FUND KEMPER INTERMEDIATE MUNICIPAL
BOND FUND
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C> <C>
234,500,156 6,069,612 12,221,998 1,047,782 0 9,190
</TABLE>
* Approval of new 12b-1 distribution plan
<TABLE>
<CAPTION>
KEMPER MUNICIPAL BOND FUND KEMPER INTERMEDIATE MUNICIPAL
BOND FUND
<S> <C> <C> <C> <C> <C> <C>
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
Class B Shares 1,720,054 27,311 82,745 150,242 0 9,993
Class C Shares 54,400 1,055 929 66,958 0 0
</TABLE>
39
<PAGE> 40
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS J. PATRICK BEIMFORD, JR.
President and Trustee Vice President
DAVID W. BELIN CHRISTOPHER J. MIER
Trustee Vice President
LEWIS A. BURNHAM JOHN E. PETERS
Trustee Vice President
DONALD L. DUNAWAY PHILIP J. COLLORA
Trustee Vice President and
Secretary
ROBERT B. HOFFMAN
Trustee CHARLES F. CUSTER
Vice President and
DONALD R. JONES Assistant Secretary
Trustee
JEROME L. DUFFY
DAVID B. MATHIS Treasurer
Trustee
ELIZABETH C. WERTH
SHIRLEY D. PETERSON Assistant Secretary
Trustee
WILLIAM P. SOMMERS
Trustee
- --------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
800-621-1048
- --------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------
INVESTMENT MANAGER KEMPER FINANCIAL SERVICES,INC.
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
120 South LaSalle Street
Chicago, IL 60603
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KNTIS - 2 (11/95)
