<PAGE> 1
KEMPER
NATIONAL TAX-FREE
INCOME SERIES
SEMIANNUAL REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED MARCH 31, 1997
Offering investors the opportunity for as high a level of current interest
income that is exempt from federal income taxes as is consistent with
preservation of capital kemper municipal bond fund kemper intermediate municipal
bond fund
" . . . we began to shorten the
durations of the funds to prepare
for any rise in rates . . ."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Performance Update
6
Terms to Know
7
Portfolio Statistics
11
Portfolio of Investments
25
Financial Statements
27
Notes to Financial Statements
32
Financial Highlights
AT A GLANCE
- -------------------------------------------------------------------------------
KEMPER NATIONAL TAX-FREE INCOME
SERIES TOTAL RETURNS
- -------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1997
(UNADJUSTED FOR ANY SALES CHARGE)
- -------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
[BAR GRAPH]
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 2.25%
CLASS B 1.80%
CLASS C 1.92%
LIPPER GENERAL
MUNICIPAL DEBT
CATEGORY AVERAGE* 1.95%
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
[BAR GRAPH]
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 2.35%
CLASS B 1.87%
CLASS C 1.94%
LIPPER INTERMEDIATE
MUNICIPAL DEBT
CATEGORY AVERAGE* 2.03%
- -------------------------------------------------------------------------------
</TABLE>
* 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. The funds are compared to their respective Lipper categories as
follows: General Municipal Debt and Intermediate Municipal Debt.
Returns and rankings 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
3/31/97 9/30/96
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER MUNICIPAL BOND FUND
CLASS A $10.06 $10.18
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
CLASS B $10.03 $10.15
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
CLASS C $10.07 $10.18
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
3/31/97 9/30/96
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER INTERMEDIATE
MUNICIPAL BOND FUND CLASS A $10.03 $10.06
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE
MUNICIPAL BOND FUND CLASS B $10.02 $10.06
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE
MUNICIPAL BOND FUND CLASS C $10.03 $10.06
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER NATIONAL TAX-FREE INCOME SERIES
LIPPER RANKINGS
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THEIR RESPECTIVE LIPPER CATEGORIES
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1-YEAR #91 OF #176 OF #169 OF
228 FUNDS 228 FUNDS 228 FUNDS
- --------------------------------------------------------------------------------
5-YEAR #18 OF N/A N/A
103 FUNDS
- --------------------------------------------------------------------------------
10-YEAR #8 OF N/A N/A
65 FUNDS
- --------------------------------------------------------------------------------
15-YEAR #5 OF N/A N/A
35 FUNDS
- --------------------------------------------------------------------------------
20-YEAR #4 OF N/A N/A
17 FUNDS
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
1-YEAR #55 OF #118 OF #112 OF
139 FUNDS 139 FUNDS 139 FUNDS
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND AND YIELD REVIEW
- --------------------------------------------------------------------------------
The following tables show per share dividend and yield information for the funds
as of March 31, 1997.
<TABLE>
<CAPTION>
MUNICIPAL BOND CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $0.2724 $0.2267 $0.2291
- --------------------------------------------------------------------------------
MARCH DIVIDEND: $0.0449 $0.0377 $0.0381
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 5.35% 4.51% 4.54%
- --------------------------------------------------------------------------------
SEC YIELD+: 4.62% 3.95% 3.96%
- --------------------------------------------------------------------------------
TAX EQUIVALENT YIELD: 7.34% 6.28% 6.30%
BASED ON A MARGINAL FEDERAL INCOME TAX RATE OF
37.1%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL BOND CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $0.2323 $0.1935 $0.1910
- --------------------------------------------------------------------------------
MARCH DIVIDEND: $0.0388 $0.0322 $0.0320
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 4.64% 3.85% 3.82%
- --------------------------------------------------------------------------------
SEC YIELD+: 4.08% 3.41% 3.37%
- --------------------------------------------------------------------------------
TAX EQUIVALENT YIELD: 6.49% 5.42% 5.36%
BASED ON A MARGINAL FEDERAL INCOME TAX RATE OF
37.1%
- --------------------------------------------------------------------------------
</TABLE>
+ Current annualized distribution rate is the latest monthly dividend shown as
an annualized percentage of net asset value on March 31, 1997. 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 March 31, 1997 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
ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER OF
ZURICH KEMPER INVESTMENTS, INC. (ZKI). ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $79 BILLION IN ASSETS, INCLUDING $42 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM HARVARD
UNIVERSITY.
DEAR SHAREHOLDER,
The agreement between the White House and Republican leaders in Congress to
balance the federal budget has effectively ended the market correction that
began in the first quarter. Such sudden progress on balancing the budget, an
initiative that the bond market was anticipating resolution on more than one
year ago, is positive news.
The next several weeks will find Congress and the Clinton administration
negotiating toward a final agreement. Unlike previous failed proposals that
sought to balance the budget principally by increasing income taxes, the current
plan -- which starts from the base of a relatively small deficit -- proposes to
slow the growth of federal spending. As such, its prospects are promising.
Natural skeptics are waiting to see specific legislation to see if the
agreement has teeth. While we are optimistic, we need to temper our enthusiasm.
Much of the good news associated with a balanced budget was quickly discounted
in the higher prices in the stock and bond markets.
Of particular interest to equity investors is the agreement to reduce the
maximum tax rate on capital gains. Although details of the reduction are yet to
be known, the prospect of more favorable tax treatment on gains will have the
short-term effect of supporting stocks -- investors can be expected to postpone
selling until they can qualify for the lower tax rate. With equity sales
essentially "frozen" until the effective date is known, the stock market should
have a considerable underpinning. Once an effective date is determined, we would
expect the pent-up selling to occur once that date is reached. However, then we
shall enjoy the long-term positive effect of the lower tax rate on gains.
Talk of a balanced budget has shifted the spotlight away from the Federal
Reserve Board's upward pressure on interest rates. Having declined to raise
rates in May, the Fed may still act again at a later date. However, this action
may be the last for a while because the economy seems to be slowing down in the
second quarter, after the rapid 5.6 percent growth in the first quarter of the
year. An economic slowdown would reduce the threat of inflation and reduce the
need for further rate hikes by the Fed.
In fact, a review of the standard measures of the economy shows little to be
concerned about. As has been the pattern for more than five years, a few strong
quarters followed by a few weak quarters have produced an overall 2 percent to 3
percent rate of growth in gross domestic product (GDP). Job creation and the
unemployment rate are consistent with a moderately expanding economy. Corporate
profits continue to grow at an expected 4 to 5 percent rate in 1997. The
Consumer Price Index continues to track at a 2.5 percent to 3.0 percent rate.
Just as we see a limited downside to today's rising interest rate environment,
so is there a limited upside in the near future. The effect of higher rates will
have to work itself through the economy. Higher rates have significant
implications for corporate profitability, debt issuance, credit extension and
international trade. Post-correction cash flows into the financial markets will
be a subject of great scrutiny. One of the factors driving the stock market to
its recent all-time high was the unprecedented high level of investment through
mutual funds, 401(k)s and qualified contribution plans. It is realistic to
expect that, on the margin, some of that cash will find a home in short-term,
liquid investments while the stock market sorts itself out.
Leadership in the stock market has been quite narrow and concentrated for the
past six months in large, multinational companies with familiar consumer brand
names. The recent rally after the announcement of a balanced budget agreement
suggests that once monetary policy is also more certain, leadership may broaden
to include small capitalization stocks.
Higher interest rates are, of course, anathema to the fixed-income market.
However, bond investors in the last few weeks have been cheered by the balanced
budget proposal and by expectations that interest rates would not go much
higher. We expect the bond market to trade in a very narrow range -- with long-
3
<PAGE> 4
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
- --------------------------------------------------------------------------------
Economic activity is a key influence on investment performance and shareholder
decision-making. Periods of recession or boom, inflation or deflation, credit
expansion or credit crunch have a significant impact on mutual fund
performance.
The following are some significant economic guideposts and their
investment rationale that may help your investment decision-making. The
10-year Treasury rate and the prime rate are prevailing interest rates. The
other data report year-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (4/30/97) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.69 6.53 6.51 7.06
PRIME RATE(2)* 8.3 8.25 8.25 9
INFLATION RATE(3)* 2.79 2.99 2.83 3.05
THE U.S. DOLLAR(4) 9.32 3.46 8.51 -10.02
CAPITAL GOOD ORDERS(5)* 6.34 7.46 7.42 9.96
INDUSTRIAL PRODUCTION(5)* 5.62 3.27 2.57 3.37
EMPLOYMENT GROWTH(6) 2.23 2.2 2.07 2.79
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and
the value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
* Data as of March 31, 1997.
SOURCE: ECONOMICS DEPARTMENT, ZURICH KEMPER INVESTMENTS, INC.
term interest rates no lower than 6.75 percent and no higher than 7.25 percent.
One positive effect of the stock market correction was the widening of spreads
available on high yield bonds. As a consequence, high yield bonds today are more
reasonably priced.
A natural response to increased volatility in the U.S. equity market is to
look abroad. In fact, the valuations of many international markets are more
attractive than the U.S. However, the weak German and Japanese economies make it
difficult to identify many exciting near-term opportunities without careful
research.
Our recommendation to shareholders is to stay the course and to fight the
temptation to try to time when and where you should be invested. Financial
assets react much quicker today to events. Volatility has returned to the market
and with it heightened uncertainty. Now is the time to rely on your financial
representative for the expertise and the long-term investing discipline that he
or she can provide.
With this commentary as an economic backdrop, we encourage you to read the
following detailed report of your fund, including an interview with your fund's
portfolio management. Thank you for your continued support. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
STEPHEN B. TIMBERS
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
Zurich Kemper Investments, Inc.
May 21, 1997
4
<PAGE> 5
PERFORMANCE UPDATE
[MIER PHOTO]
CHRIS MIER JOINED ZURICH KEMPER INVESTMENTS, INC. IN 1986 AND IS NOW SENIOR VICE
PRESIDENT AND PORTFOLIO MANAGER OF KEMPER MUNICIPAL BOND FUND AND KEMPER
INTERMEDIATE MUNICIPAL BOND FUND. MIER RECEIVED A B.A. DEGREE IN ECONOMICS FROM
THE UNIVERSITY OF MICHIGAN AND RECEIVED AN M.M. IN FINANCE FROM KELLOGG GRADUATE
SCHOOL OF MANAGEMENT AT NORTHWESTERN UNIVERSITY. HE IS A CHARTERED FINANCIAL
ANALYST.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
FOR MOST OF THE SIX-MONTH REPORTING PERIOD, THE MUNICIPAL MARKET FOCUSED ON
WHETHER OR NOT AN INTEREST RATE INCREASE BY THE FEDERAL RESERVE BOARD WOULD
OCCUR. THE MARKET'S QUESTION WAS ANSWERED IN MARCH WHEN THE FED INCREASED
SHORT-TERM RATES BY 0.25 PERCENT. PORTFOLIO MANAGER CHRIS MIER EXPLAINS HOW THE
FUNDS IN KEMPER NATIONAL TAX-FREE INCOME SERIES PERFORMED IN THE UNCERTAIN
MARKET AND HOW HE PREPARED THE FUNDS FOR THE RATE INCREASE.
Q HOW DID THE FUNDS PERFORM DURING THE FIRST SIX MONTHS OF THE FISCAL YEAR?
A The funds performed relatively well -- the Class A shares (unadjusted for
sales charge) of both outperformed the average six-month returns of their
respective Lipper Analytical peer groups (general municipal debt and
intermediate municipal debt categories). Most of the funds' returns reflected
income from the bonds in the portfolios with some level of price appreciation.
Q MUNICIPAL BOND YIELDS HAVE FLUCTUATED QUITE A BIT DURING THE LAST SIX
MONTHS. WHAT IMPACT DID THIS HAVE ON THE MARKET?
A During the first five months of the period, yields in the municipal market
fluctuated, but tended to be range-bound. At the end of February, yields were
somewhat lower than they had been at the start of the period. This had a
modestly positive effect on prices of municipal securities.
The rise and fall of interest rates was partly based on the market's changing
expectations about whether or not the Federal Reserve Board (the Fed) would move
to raise short-term interest rates. It was assumed that the Fed would raise
short-term rates if there was an indication of the economy growing too quickly
and a possible emergence of inflation. We witnessed swings in the market
throughout the period on the heels of sometimes conflicting economic reports.
However, in March, with accumulating evidence of strong first quarter growth,
the Fed did raise short-term interest rates by 0.25 percent. In reaction to this
tightening, market yields rose and overall bond performance suffered, erasing
some of the gains achieved earlier in the period. The municipal bond market did,
however, outperform the Treasury bond market as interest rates rose.
Q WHEN DID YOU BEGIN TO ANTICIPATE THE FEDERAL RESERVE BOARD INTERVENTION?
A Throughout the period, we closely monitored economic data releases and
managed the funds more defensively as time progressed.
In January, we began to believe that growth in the economy would exceed market
expectations and we were concerned about the potential for wage inflation.
Therefore, we began to shorten the durations of the
5
<PAGE> 6
PERFORMANCE UPDATE
funds to prepare for any rise in rates. Remember, the shorter a fund's duration,
the less sensitive it is to interest rate changes. As a result of the funds'
shorter durations, they were able to outperform the average of their peers as
interest rates jumped in March.
Q BESIDES ALTERING DURATION, WHAT OTHER TYPES OF ADJUSTMENTS DID YOU MAKE TO
THE FUNDS?
A In addition to duration adjustments, we added A-rated and BBB-rated bonds
on a selective basis. These bonds offered higher coupon rates than some of the
funds' higher quality and insured issues. We also continued to focus on
maintaining or improving call protection on issues within the portfolios.
We also continued to favor essential service revenue bonds--bonds used to
finance basic governmental services such as water and sewers, transportation and
education among other things.
Q ARE MUNICIPAL BOND FUNDS A GOOD INVESTMENT IN THE CURRENT ECONOMIC
ENVIRONMENT?
A Municipal bonds may play an important role in rounding out a
well-diversified portfolio of investments. The tax-exempt income that municipal
bond funds provide could be especially helpful now as many investors may be
under-invested in tax-exempt assets. Municipal bonds and equities are both
important components of a balanced portfolio. If your exposure to municipal
bonds has declined on a relative basis, now may be the right time to review your
long-term goals and rebalance your portfolio of investments.
Q WHAT'S YOUR OUTLOOK FOR THE MUNICIPAL MARKET?
A We anticipate that in order for the Fed to slow growth to its target rate
of around 2 1/2 percent, it may need to continue to increase short-term rates.
This may rattle the bond market, but if the rate hikes are successful in slowing
the economy and warding off inflation, the moves will ultimately be positive for
bond investors. Municipal supply should remain close to 1996 levels or even
below. We plan to manage the funds cautiously until interest rates stabilize.
TERMS TO KNOW
DURATION Duration is a measure of the interest rate sensitivity of a
fixed-income investment or portfolio. The longer the duration, the greater the
interest rate risk.
REVENUE BOND INDEX (RBI) RBI is the average yield on 25 revenue bonds with
30-year maturities compiled by The Bond Buyer, a newspaper that covers the
municipal bond market.
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for the period. Total return assumes the
reinvestment of all dividends and 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.
6
<PAGE> 7
PORTFOLIO STATISTICS
KEMPER MUNICIPAL BOND FUND
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
ON 3/31/97 ON 9/30/96
- ----------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 69% 74%
- ----------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 14 15
- ----------------------------------------------------------------------------
U.S. GOVERNMENT SECURED 9 9
- ----------------------------------------------------------------------------
CASH AND EQUIVALENTS 8 2
- ----------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/97 ON 9/30/96
QUALITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
ON 3/31/97 ON 9/30/96
- ----------------------------------------------------------------------------
<S> <C> <C>
AAA 50% 58%
- ----------------------------------------------------------------------------
AA 11 9
- ----------------------------------------------------------------------------
A 10 11
- ----------------------------------------------------------------------------
BBB 23 18
- ----------------------------------------------------------------------------
BB 2 --
- ----------------------------------------------------------------------------
NOT RATED 4 4
- ----------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/97 ON 9/30/96
* Portfolio composition is subject to change.
7
<PAGE> 8
PORTFOLIO STATISTICS
YEARS TO MATURITY
<TABLE>
<CAPTION>
ON 3/31/97 ON 9/30/96
<S> <C> <C>
1-10 YEARS 12% 11%
- ----------------------------------------------------------------------------
11-20 YEARS 44 53
- ----------------------------------------------------------------------------
21 + YEARS 44 36
- ----------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/97 ON 9/30/96
<TABLE>
<CAPTION>
AVERAGE MATURITY 17.1 YEARS 17.6 YEARS
- ----------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
8
<PAGE> 9
PORTFOLIO STATISTICS
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO COMPOSITION*
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ON 3/31/97 ON 9/30/96
- -------------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 62% 70%
- -------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 22 25
- -------------------------------------------------------------------------------
U.S. GOVERNMENT SECURED 6 3
- -------------------------------------------------------------------------------
CASH AND EQUIVALENTS 10 2
- -------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/97 ON 9/30/96
QUALITY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ON 3/31/97 ON 9/30/96
- -------------------------------------------------------------------------------
<S> <C> <C>
AAA 49% 62%
- -------------------------------------------------------------------------------
AA 17 16
- -------------------------------------------------------------------------------
A 4 4
- -------------------------------------------------------------------------------
BBB 20 16
- -------------------------------------------------------------------------------
NOT RATED 10 2
- -------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/97 ON 9/30/96
* Portfolio composition is subject to change.
9
<PAGE> 10
PORTFOLIO STATISTICS
YEARS TO MATURITY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ON 3/31/97 ON 9/30/96
- -------------------------------------------------------------------------------
<S> <C> <C>
1-10 YEARS 74% 78%
- -------------------------------------------------------------------------------
11-20 YEARS 26 22
- -------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/97 ON 9/30/96
AVERAGE MATURITY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ON 3/31/97 ON 9/30/96
- -------------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 7.2 YEARS 9.1 YEARS
- -------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
KEMPER MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVANCE REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL AND
INTEREST BY UNITED STATES GOVERNMENT SECURITIES
- --------------------------------------------------------------------------------------------------------------------
Gen. Oblg. NY:
7.75% to be called 08-15-01 @ 102 $ 3,285 $ 3,720
8.40% to be called 11-15-01 @ 102 27,540 32,045
------------------------------------------------------------------------------------
Local Government Assistance Corp., NY, Rev., 7.375% and
7.50%, to be called 04-01-01 @ 102 9,675 10,829
------------------------------------------------------------------------------------
Power Auth., NY, Electrical Rev., 8.00%, to be called
01-01-98 @ 102 10,000 10,502
------------------------------------------------------------------------------------
Dormitory Auth., NY, State University Educational
Facilities, Rev., 7.25%, to be called 05-15-02 @ 102 3,810 4,299
------------------------------------------------------------------------------------
Mental Health Services, NY, Facilities Improvement, Rev.,
7.75%, to be called 08-15-00 @ 102 1,965 2,168
------------------------------------------------------------------------------------
Municipal Water Finance Auth., NY, Water and Sewer
System, Rev., 7.00%, to be called 06-15-01 @ 101 760 833
------------------------------------------------------------------------------------
Public Power Supply System, WA, Nuclear Proj. #2, Rev.,
7.00%, to be called 07-01-00 @ 102 47,355 51,570
------------------------------------------------------------------------------------
Philadelphia, PA:
Gas Works Rev., 7.70%, to be called 06-15-01 @ 102 14,850 16,741
Municipal Auth., PA, Criminal Justice Center Rev.,
7.80%:
to be called 04-01-98 @ 102 365 386
to be called 04-01-00 @ 100 3,635 3,962
------------------------------------------------------------------------------------
Industrial Dev. Auth., PA, Economic Dev., Rev., 7.00%, to
be called 07-01-01 @ 102 5,000 5,491
------------------------------------------------------------------------------------
City and County of Denver, CO, Airport System Rev., 7.25%
and 7.50%, to be called 11-15-02 @ 102 15,690 17,872
------------------------------------------------------------------------------------
Health Facilities Auth., CO, Vail Valley Medical Center,
Rev., 8.125%, to be called 06-01-99 @ 102 7,000 7,642
------------------------------------------------------------------------------------
Skyway Toll Bridge, IL, Rev., 6.75%, to be called
01-01-04 @ 102 15,400 17,086
------------------------------------------------------------------------------------
Chicago, IL, Tax Increment Allocation Bonds, Central
Station, Rev., 8.90%, to be called 01-01-02 @ 102 1,745 2,081
------------------------------------------------------------------------------------
Clermont County Hospital Facilities, OH, Mercy Health
Systems, Rev., 7.50%:
to be called 09-01-99 @ 102 2,280 2,527
to be called 09-01-01 @ 100 7,720 8,406
------------------------------------------------------------------------------------
Franklin County, OH, Mount Carmel Health Hospital, Rev.,
7.25%, to be called 06-01-00 @ 102 5,495 6,010
------------------------------------------------------------------------------------
Scioto County, OH, USHCSO-Portsmouth Proj., Hospital
Facilities, Rev., 7.625%, to be called 05-15-98 @ 102 2,000 2,118
------------------------------------------------------------------------------------
Hospital Finance Auth., MI, Henry Ford Health System,
Rev., 7.00%, to be called 07-01-00 @ 102 11,000 11,965
------------------------------------------------------------------------------------
Detroit, MI, Gen. Oblg., 6.80%, to be called 04-01-05 @
101 3,000 3,378
------------------------------------------------------------------------------------
Palm Beach County, FL, Solid Waste Auth., Rev., 8.75%, to
be called 07-01-97 @ 103 13,755 14,333
------------------------------------------------------------------------------------
Jacksonville Health Facilities Auth., FL, Baptist Medical
Center, Rev., 11.50%, to be called 10-01-03 to 10-01-06
@ 100 100 144
------------------------------------------------------------------------------------
Camden County, NJ, Municipal Utility Auth., Rev., 8.25%,
to be called 12-01-97 @ 102 9,485 9,945
------------------------------------------------------------------------------------
Essex County Improvement Auth., NJ, County Jail and Youth
Housing Proj., Lease Rev., 6.90%, to be called 12-01-04
@ 102 2,645 3,010
------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Health and Educational Facilities Auth., MO, Christian
Health Services Dev. Corp., Rev., 6.875%, to be called
02-15-01 @ 102 $ 7,000 $ 7,654
--------------------------------------------------------------------------------
St. Louis County, MO, Regional Convention & Sports
Complex Auth., Rev., 7.00%, to be called 08-15-03 @ 100 4,380 4,892
--------------------------------------------------------------------------------
Charleston County, SC, Charleston Public Facilities
Corp., Certificates of Participation, Rev., 6.875% and
7.00%, to be called 06-01-01 @ 102 7,260 8,232
--------------------------------------------------------------------------------
Lancaster County Water and Sewer District, SC, Waterworks
and Sewer System Improvement,
Rev., 6.75%, to be called 05-01-01 @ 102 3,000 3,275
--------------------------------------------------------------------------------
Hospital Auth. of Marion County, IN, University Heights
Hospital, Rev., 8.625%, to be called 10-01-99 @ 102 7,195 8,022
--------------------------------------------------------------------------------
Albuquerque Southwest Community Health Services, NM,
Rev., 10.125%, to be called 08-01-08 @ 100 4,000 5,129
--------------------------------------------------------------------------------
Gaithersburg, MD, First Mortgage Economic Dev., Asbury
Methodist Home Incorporated, Rev., 7.85%,
to be called 01-01-00 @ 102 4,000 4,390
--------------------------------------------------------------------------------
Riverside County, CA, Riverside Juvenile Facilities
Corp., Certificates of Participation, Rev., 8.00%, to
be called
10-01-98 @ 102 4,000 4,306
--------------------------------------------------------------------------------
Kenton County Airport Board, KY, Greater Cincinnati
Int'l. Airport, Rev., 8.25%, to be called 03-01-98 @
102 1,620 1,715
--------------------------------------------------------------------------------
Ector County, TX, Hospital District, Rev., 7.30%, to be
called 04-15-02 @ 102 550 619
--------------------------------------------------------------------------------
Austin TX, Water, Sewer and Electric Rev., 14.00%, to be
called 11-15-01 @ 100 105 126
--------------------------------------------------------------------------------
TOTAL ADVANCE REFUNDED OBLIGATIONS--9.4% 297,423
- ----------------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS
- ----------------------------------------------------------------------------------------------------------------
NEW YORK--8.2% Dormitory Auth., State University Educational Facility,
Rev., 5.75% and 6.00%, 2010 through 2014 37,100 37,606
--------------------------------------------------------------------------------
Environmental Quality, Gen. Oblg., 6.50%, 2011 4,260 4,600
--------------------------------------------------------------------------------
Environmental Facilities Corp., State Water Pollution
Control, Revolving Fund Rev., 6.875% to 7.25%, 2010
through 2014 18,875 20,959
--------------------------------------------------------------------------------
Medical Care Facilities Finance Agcy.:
Hospital, Mortgage Rev., 6.75%, 2014 8,000 8,685
Hospital and Nursing Home, Rev., 6.45%, 2009 8,755 9,360
Mental Health Services Facilities Improvement, Rev.,
7.75%, 2010 1,970 2,153
--------------------------------------------------------------------------------
Metropolitan Transit Auth., Transit Facilities, Rev.,
6.25% and 6.00%, 2014 and 2020 11,000 11,472
--------------------------------------------------------------------------------
New York City:
Gen. Oblg., 5.875% to 8.40%, 2000 through 2026 107,600 104,980
Industrial Dev. Auth., USTA National Tennis Center Inc.
Proj., Civil Facility Rev., 6.50% and 6.60%, 2010 and
2011 6,485 7,024
Municipal Water Finance Auth., Rev., 7.00%, 2015 740 799
--------------------------------------------------------------------------------
Port Auth. of New York and New Jersey:
LaGuardia Airport Passenger Terminal, Special
Obligation, Rev., 9.125%, 2015 3,150 3,573
Rev., 6.00% to 6.50%, 2008 through 2015 14,445 15,009
--------------------------------------------------------------------------------
Triborough Bridge and Tunnel Auth., Rev., 8.125%, 2012 14,000 14,675
--------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Urban Dev. Corp., Correctional Facilities, Rev., 5.375%
to 5.70%, 2015 through 2025 $ 23,155 $ 21,451
--------------------------------------------------------------------------------
262,346
- ----------------------------------------------------------------------------------------------------------------
ILLINOIS--7.8% Chicago:
Board of Education, Gen. Oblg., 6.00% and 6.25%, 2009
through 2020 27,235 28,695
Gas Supply, Peoples Gas, Light and Coke Company, Rev.,
8.10%, 2020 8,250 9,049
--------------------------------------------------------------------------------
City of East St. Louis, Illinois Dev. Finance Auth., Debt
Restructuring Rev., 7.50%, 2013 3,750 4,100
--------------------------------------------------------------------------------
County of Cook, Gen. Oblg., 6.50% and 6.60%, 2012
through 2022 69,595 75,544
--------------------------------------------------------------------------------
Dev. Finance Auth.:
Pollution Control, Commonwealth Edison Company Proj.,
Rev., 6.75%, 2015 16,780 18,222
Catholic Health Partners Services Rev., 5.30%, 2018 10,350 9,362
--------------------------------------------------------------------------------
Freeport, Single Family Mortgage Rev., 7.40%, 2010 1,305 1,309
--------------------------------------------------------------------------------
Harvard, Multifamily Housing, Northfield Court, Rev.,
8.80%, 2008 3,855 4,088
--------------------------------------------------------------------------------
Health Facilities Auth.:
Northwestern Medical Faculty Foundation, Inc.,
Healthcare Facilities Rev., 6.50%, 2015 3,900 4,115
South Suburban Hospital, Rev., 7.00%, 2009 7,750 8,642
--------------------------------------------------------------------------------
O'Hare International Airport:
General Rev., 6.00% and 6.375%, 2012 20,000 20,873
International Terminal, Special Rev., 6.75%, 2018 23,350 24,828
--------------------------------------------------------------------------------
Regional Transportation Auth., Gen. Oblg., 6.70%, 2021 25,800 29,021
--------------------------------------------------------------------------------
Sports Facilities Auth., Rev., 7.875%, 2010 2,990 3,232
--------------------------------------------------------------------------------
St. Charles, Wessel Court Proj., Multifamily Housing
Rev., 7.60%, 2024 3,895 3,973
--------------------------------------------------------------------------------
University Park, Governors Gateway Industrial Park, Tax
Increment Rev., 8.50%, 2011 2,865 3,121
--------------------------------------------------------------------------------
248,174
- ----------------------------------------------------------------------------------------------------------------
COLORADO--6.6% Adams County, Gen. Oblg., 6.125%, 2007 4,280 4,517
--------------------------------------------------------------------------------
Arapahoe County, Public Highway Auth., Rev., 6.95% and
7.00%, 2020 and 2026 105,525 112,314
--------------------------------------------------------------------------------
City and County of Denver:
Airport System Rev., 6.55% to 8.75%, 2002 through 2023 52,065 56,892
Gen. Oblg., 6.50%, 2010 6,225 6,906
--------------------------------------------------------------------------------
Douglas County School District No. 1, Douglas and Elbert
Counties, Gen. Oblg., 7.00% and 6.50%, 2013 and 2016 10,715 12,355
--------------------------------------------------------------------------------
Health Facilities Auth., Covenant Retirement Communities,
Inc., Rev., 6.75%, 2015 and 2025 5,900 6,082
--------------------------------------------------------------------------------
Housing Finance Auth., Single Family Mortgage Rev.,
7.65%, 2022 660 689
--------------------------------------------------------------------------------
Metropolitan Wastewater Reclamation District, Gen. Oblg.,
6.00%, 2010 11,505 11,786
--------------------------------------------------------------------------------
211,541
- ----------------------------------------------------------------------------------------------------------------
TEXAS--6.5% Austin:
Combined Utility Systems Rev., 6.00%, 2013 9,500 9,944
Water, Sewer and Electric Rev., 14.00%, 2001 2,895 3,678
--------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Brazos River Auth., Texas Utilities Electric Company
Proj., Rev., 8.125%, 2020 $ 4,495 $ 4,887
--------------------------------------------------------------------------------
Conroe Independent School Dist., Rev., 5.25%, 2021 4,850 4,457
--------------------------------------------------------------------------------
Dallas-Fort Worth International Airport, Facility
Improvement, Rev., 6.00%, 2014 6,590 6,477
--------------------------------------------------------------------------------
Denison Hospital Auth., Rev., 6.125%, 2012 and 2027 3,000 2,926
--------------------------------------------------------------------------------
Department of Housing and Community Affairs, Rev., 6.40%,
2027 3,350 3,399
--------------------------------------------------------------------------------
Georgetown Higher Education Finance Corp., Southwestern
University Proj., Rev., 6.25%, 2009 840 871
--------------------------------------------------------------------------------
Gulf Coast Waste Disposal Auth., Rev., 6.875%, 2028 12,750 13,258
--------------------------------------------------------------------------------
Harris County:
Hospital District, Mortgage Rev., 7.40%, 2010 6,940 8,171
Toll Road Unlimited Tax and Subordinate Lien, Rev.,
6.75%, 2014 15,000 16,194
--------------------------------------------------------------------------------
Housing Agcy., Single Family Mortgage Rev., 7.15%, 2012 870 903
--------------------------------------------------------------------------------
Houston:
Higher Education Finance Corp., University of St.
Thomas, Rev., 7.25%, 2007 1,445 1,532
Water and Sewer Junior Lien, Rev., 6.20% and 5.25%,
2020 and 2022 22,270 21,504
--------------------------------------------------------------------------------
Port Arthur Airport and Marina Improvement, Gen. Oblg.,
6.125%, 2019 9,000 9,100
--------------------------------------------------------------------------------
Red River Auth., Pollution Control Rev., 6.00%, 2020 14,150 14,200
--------------------------------------------------------------------------------
Rio Grande Valley, Health Facilities Dev. Corp., Golden
Palms Retirement and Health Center, Rev., 6.40%, 2012 3,700 3,879
--------------------------------------------------------------------------------
Sabine River Auth., Texas Utilities Electric Company,
Rev., 6.10% and 8.125%, 2018 and 2020 31,670 32,197
--------------------------------------------------------------------------------
State, Gen. Oblg., 7.00%, 2012 10,739 10,733
--------------------------------------------------------------------------------
State Veteran's Land Bonds, Gen. Oblg., 6.40%, 2024 8,550 8,882
--------------------------------------------------------------------------------
Titus County Hospital District Improvement, Rev., 6.125%,
2013 6,700 6,611
--------------------------------------------------------------------------------
Travis County Housing Finance Corp., Residential
Mortgage, Senior Rev., 7.00%, 2011 375 396
--------------------------------------------------------------------------------
Turnpike Auth., Dallas North Tollway System, Rev., 5.00%,
2025 25,410 22,508
--------------------------------------------------------------------------------
206,707
- ----------------------------------------------------------------------------------------------------------------
CALIFORNIA--6.0% City of Los Angeles, Department of Water & Power,
Electric Plant, Rev., 4.75%, 2012 and 2017 8,650 7,613
--------------------------------------------------------------------------------
City of Santa Clara, Sports and Open Space Auth.,
Certificates of Participation, Rev., 4.75%, 2014 5,000 4,382
--------------------------------------------------------------------------------
Department of Corrections, Rev., 5.40%, 2009 8,060 8,091
--------------------------------------------------------------------------------
Foothill/Eastern Transit Corridor Agcy., Tollroad Rev.,
zero coupon to 6.50%, 2016 through 2035 106,575 62,901
--------------------------------------------------------------------------------
Harbor Department of Los Angeles, Rev., 5.375%, 2023 20,500 18,745
--------------------------------------------------------------------------------
Imperial Irrigation District, Certificates of
Participation, Electric System Proj., Rev., 6.75%, 2011 3,500 3,857
--------------------------------------------------------------------------------
Los Angeles County, Metropolitan Sales Tax Rev., 6.00%,
2020 18,865 18,978
--------------------------------------------------------------------------------
Metropolitan Water District of Southern California, Rev.,
5.00%, 2027 27,750 24,438
--------------------------------------------------------------------------------
Orange County, Recovery Certificates of Participation,
Rev., 5.60% and 5.70%, 2009 and 2010 19,425 19,724
--------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Regents of University of California, Multiple Purpose
Proj., Rev., 4.875% , 2019 $ 7,100 $ 6,103
--------------------------------------------------------------------------------
San Diego Industrial Dev. Auth., Rev., 6.10%, 2019 14,600 14,751
--------------------------------------------------------------------------------
189,583
- ----------------------------------------------------------------------------------------------------------------
NEW JERSEY--5.8% Camden County, Municipal Utilities Auth., Rev., 8.25%,
2017 6,115 6,404
--------------------------------------------------------------------------------
Essex County, Property and Equipment Improvement Leasing
Program, Rev., 6.50%, 2012 4,050 4,346
--------------------------------------------------------------------------------
Health Care Facilities Financing Auth.:
Atlantic City Medical Center, Rev., 6.80%, 2011 6,840 7,309
Southern Ocean County Hospital, Rev., 6.125%, 2013 3,735 3,739
West Jersey Health System, Rev., 6.125%, 2012 11,000 11,389
--------------------------------------------------------------------------------
Jersey City Sewer Auth., Rev., 4.50%, 2019 13,000 10,737
--------------------------------------------------------------------------------
North Hudson Sewerage Auth., Rev., 5.125%, 2022 7,300 6,690
--------------------------------------------------------------------------------
Salem Pollution Control Financing Auth., Rev., 6.20%,
2030 20,000 20,547
--------------------------------------------------------------------------------
Turnpike Auth., Rev., 6.20% to 10.375%, 2003 through 2016 103,950 113,772
--------------------------------------------------------------------------------
184,933
- ----------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--3.7% Allegheny County, Environmental Improvement Rev., 6.10%,
2018 and 2020 11,640 11,596
--------------------------------------------------------------------------------
Armstrong County Hospital Auth., St. Francis Medical
Center Proj., Rev., 6.25%, 2013 11,350 11,776
--------------------------------------------------------------------------------
Bethlehem Area School District, Gen. Oblg., 6.00%, 2016 9,500 9,607
--------------------------------------------------------------------------------
Columbia County, Industrial Dev. Auth., First Mortgage
Rev., 9.00%, 2014 1,600 1,698
--------------------------------------------------------------------------------
Convention Center Auth., Rev., 6.70% and 6.75%,
2014 and 2019 12,525 13,287
--------------------------------------------------------------------------------
Hazelton-Saint Joseph Medical Center, Rev.,
6.125% and 6.20%, 2016 and 2026 6,705 6,566
--------------------------------------------------------------------------------
Higher Educational Facilities Auth., College Rev.,
5.85% and 5.90%, 2017 and 2027 4,875 4,657
--------------------------------------------------------------------------------
Jenrette City Health Services Auth., Rev., 6.00%, 2018 945 930
--------------------------------------------------------------------------------
Lehigh County, General Purpose Auth., Lehigh Valley
Hospital Inc., Rev., 6.50%, 2010 6,000 6,438
--------------------------------------------------------------------------------
McKean County Hospital Auth., Bradford Hospital Proj.,
Rev., 5.95% and 6.10%, 2008 and 2020 8,300 8,083
--------------------------------------------------------------------------------
Monroeville, Hospital Auth., Forbes Health System, Rev.,
6.25%, 2015 6,375 6,448
--------------------------------------------------------------------------------
Philadelphia:
Gas Works Rev., 6.375%, 2014 31,080 32,081
Municipal Auth., Lease Rev., 6.25% and 6.30%,
2013 and 2017 4,800 4,794
--------------------------------------------------------------------------------
117,961
- ----------------------------------------------------------------------------------------------------------------
MISSOURI--3.4% Clarence Cannon Wholesale Water Commission, Water Rev.,
6.00%, 2020 10,000 9,337
--------------------------------------------------------------------------------
Environmental Improvement and Energy Resources Auth.,
Pollution Control Rev., 5.25%, 2009 5,000 4,947
--------------------------------------------------------------------------------
Health and Educational Facilities Auth., Rev., 5.125%,
2016 5,000 4,645
--------------------------------------------------------------------------------
Kansas City Municipal Assistance, Leasehold -H- Roe
Bartle, Rev., 5.00%, 2020 22,235 20,028
--------------------------------------------------------------------------------
Lake of the Ozarks Community Bridge Corp., Bridge System,
Rev., 6.25% and 6.40%, 2016 and 2025 15,550 15,050
--------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sikeston, Electric System, Rev., 6.20% and 5.00%,
2010 and 2022 $ 33,320 $ 31,018
----------------------------------------------------------------------------------------
St. Louis:
Gen. Oblg., 7.90%, 2021 5,000 5,826
Scullin Redev. Proj., Tax Increment Rev., 10.00%, 2010 8,705 10,350
----------------------------------------------------------------------------------------
Water Pollution Control, Rev., 5.75%, 2014 5,980 6,072
----------------------------------------------------------------------------------------
107,273
- ------------------------------------------------------------------------------------------------------------------------
MARYLAND--2.6% City of Gaithersburg, Economic Dev., Asbury Methodist
Home Incorporated, First Mortgage Rev., 5.50%, 2015 and
2020 15,500 14,680
----------------------------------------------------------------------------------------
Community Dev. Administration, Department of Housing and
Community Dev., Rev., 7.85%, 2029 4,040 4,105
----------------------------------------------------------------------------------------
Energy Financing Administration, AES Warrior Run Proj.,
Rev., 7.40%, 2019 24,100 25,282
----------------------------------------------------------------------------------------
Health & Higher Educational Facilities Auth., Doctors'
Community Hospital Proj., Rev., 5.50% and 5.75%,
2024 and 2013 19,885 18,299
----------------------------------------------------------------------------------------
Northeast Maryland Waste Disposal Auth., Southwest
Resource Recovery Facility, Rev., 7.20%, 2006 1,500 1,694
----------------------------------------------------------------------------------------
Stadium Auth., Sports Facilities Lease Rev., 7.60%, 2019 17,200 18,693
----------------------------------------------------------------------------------------
82,753
- ------------------------------------------------------------------------------------------------------------------------
FLORIDA--2.5% Alachua County, Public Improvement, Rev., 5.125%, 2021 5,000 4,553
----------------------------------------------------------------------------------------
Broward County:
Airport System Rev., 7.625%, 2013 2,620 2,783
Waste Energy Company, Rev., 7.95%, 2008 12,815 13,931
----------------------------------------------------------------------------------------
Citrus County, Pollution Control Rev., 6.35%, 2022 7,000 7,292
----------------------------------------------------------------------------------------
Department of Environmental Protection, Rev., 5.00%, 2020 11,500 10,274
----------------------------------------------------------------------------------------
Greater Orlando Aviation Auth., Rev., 8.375%, 2016 3,065 3,274
----------------------------------------------------------------------------------------
Hillsborough County Industrial Dev. Auth., Tampa
Electric, Rev., 8.00%, 2022 10,000 11,550
----------------------------------------------------------------------------------------
Jacksonville Health Facilities Auth., Baptist Medical
Center, Rev., 11.50%, 2012 85 137
----------------------------------------------------------------------------------------
Orange County Health Facilities Auth., Rev.,
6.25%, 2016 and 2021 7,000 7,500
----------------------------------------------------------------------------------------
Orlando Utilities Commission, Water and Electrical Rev.,
6.75%, 2017 3,500 3,976
----------------------------------------------------------------------------------------
Pasco County, Solid Waste Disposal and Resource Recovery,
Rev., 7.80%, 2011 13,730 14,486
----------------------------------------------------------------------------------------
79,756
- ------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--2.5% Bay Transit Auth., General Transportation System, Rev.,
5.875% and 6.20%, 2015 and 2016 22,915 23,826
----------------------------------------------------------------------------------------
Consolidated Loan Series B, Gen. Oblg., 6.50%, 2011 5,940 6,387
----------------------------------------------------------------------------------------
Municipal Wholesale Electric Company, Power Supply
System, Rev., 6.00% to 6.75%, 2011 through 2018 37,055 38,780
----------------------------------------------------------------------------------------
Port Auth., Rev., 13.00%, 2013 1,500 2,512
----------------------------------------------------------------------------------------
Water Restoration Auth., Rev., 6.00%, 2020 8,000 8,042
----------------------------------------------------------------------------------------
79,547
- ------------------------------------------------------------------------------------------------------------------------
NEW MEXICO--2.3% Albuquerque:
Health Care, Ltd. Proj., Rev., 9.75%, 2014 1,375 1,458
Southwest Community Health Services, Rev., 10.00%, 2003 900 1,089
----------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Farmington, Pollution Control Rev., 6.30% to 6.40%,
2016 through 2023 $ 62,795 $ 63,048
--------------------------------------------------------------------------------------
Los Alamos County, Utility System, Rev., 6.10%, 2010 4,400 4,587
--------------------------------------------------------------------------------------
Socorro Hospital System, Southwest Community Health
Services, Rev., 10.00%, 2003 1,370 1,657
--------------------------------------------------------------------------------------
Truth or Consequences, Nursing Home Improvement, Sierra
Health Care, Inc., Rev., 9.75%, 2014 920 975
--------------------------------------------------------------------------------------
72,814
- ----------------------------------------------------------------------------------------------------------------------
OHIO--2.2% Building Auth., Workers Compensation Facility, William
Green Building, Rev., 4.75%, 2014 10,230 9,043
--------------------------------------------------------------------------------------
City of Springdale, Hospital Facilities First Mortgage,
Southwestern Ohio Seniors Services, Rev., 6.00%, 2018 1,250 1,227
--------------------------------------------------------------------------------------
Cleveland, Public Power System Improvement, First
Mortgage Rev., 7.00%, 2017 850 891
--------------------------------------------------------------------------------------
Cuyahoga County:
Merida Health System, Hospital Rev., 6.25%, 2014 7,050 7,192
Port Auth., Rev., 6.00%, 2007 1,250 1,221
--------------------------------------------------------------------------------------
Higher Education Facility Commission, Rev., 6.70%, 2003 6,725 7,194
--------------------------------------------------------------------------------------
Lucas County Health Facilities, Rev., 6.625% and 6.75%,
2014 and 2020 4,000 3,999
--------------------------------------------------------------------------------------
Marion County Health Care Facilities and Improvement,
United Church Homes Proj., Rev., 6.375% and 6.30%, 2010
and 2015 6,900 6,933
--------------------------------------------------------------------------------------
North Olmstead City, Gen. Oblg., 6.20%, 2011 300 324
--------------------------------------------------------------------------------------
University of Cincinnati, University Center Project,
Rev., 5.125%, 2024 10,075 9,182
--------------------------------------------------------------------------------------
Village of Green Springs, St. Francis Health Care Center
Proj., Rev., 7.00% and 7.125%, 2014 and 2025 8,640 8,749
--------------------------------------------------------------------------------------
Waterworks First Mortgage, Rev., 6.50%, 2011 4,580 4,888
--------------------------------------------------------------------------------------
Willoughby Industrial Dev. Auth., Rev., 6.875%, 2016 2,250 2,275
--------------------------------------------------------------------------------------
Worthington City School District, Gen. Oblg., 6.375%,
2012 6,210 6,604
--------------------------------------------------------------------------------------
69,722
- ----------------------------------------------------------------------------------------------------------------------
KENTUCKY--1.8% Dev. Finance Auth., Baptist Hospital Inc., Rev., 7.625%,
2011 2,000 2,120
--------------------------------------------------------------------------------------
Hopkins County, The Trover Clinic Foundation, Rev.,
6.625%, 2011 4,000 4,283
--------------------------------------------------------------------------------------
Kenton County Airport Board, Greater Cincinnati
International Airport, Rev., 6.30% to 8.25%, 2015 and
2021 44,300 46,672
--------------------------------------------------------------------------------------
Trimble County, Louisville Gas & Electric Company, Rev.,
7.75%, 2019 1,840 1,919
--------------------------------------------------------------------------------------
Turnpike Auth., Toll Road, Rev., 8.50%, 2004 780 799
--------------------------------------------------------------------------------------
55,793
- ----------------------------------------------------------------------------------------------------------------------
MICHIGAN--1.7% Building Auth., Rev., 6.75%, 2011 9,750 10,445
--------------------------------------------------------------------------------------
City of Battle Creek and Calhoun County, Downtown Dev.
Auth., Tax Increment Rev., 7.60%, 2016 3,800 4,308
--------------------------------------------------------------------------------------
Detroit, Gen. Oblg., 6.25% and 6.70%, 2010 5,910 6,105
--------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hospital Finance Auth.:
Gratiot Community Hospital, Rev., 6.10%, 2007 $ 2,250 $ 2,289
Sisters of Mercy Health Corp., Rev., 7.50%, 2007 and
2013 9,000 9,381
McLaren Oblg. Group, Rev., 5.375% and 4.50%,
2013 and 2021 28,185 22,884
------------------------------------------------------------------------------------
55,412
- --------------------------------------------------------------------------------------------------------------------
INDIANA--1.7% Health Facility Financing Auth., Fayette Memorial
Hospital, Rev., 7.20%, 2022 1,800 1,874
------------------------------------------------------------------------------------
Indianapolis Airport Auth., Maintenance Center Proj.,
Rev., 6.50%, 2031 21,100 21,426
------------------------------------------------------------------------------------
Industrial Dev. Finance Auth., Environmental Improvement,
Rev., 6.15% and 6.25%, 2022 and 2030 11,300 11,285
------------------------------------------------------------------------------------
Transportation Financing Auth., Highway Rev., 7.25%, 2015 4,000 4,723
------------------------------------------------------------------------------------
Trustees of Purdue University, Student Fees, Rev.,
6.75% and 6.70%, 2009 and 2015 14,500 15,819
------------------------------------------------------------------------------------
55,127
- --------------------------------------------------------------------------------------------------------------------
NEVADA--1.5% City of Reno, Redev. Agcy., Tax Allocation Rev.,
5.65% and 5.75%, 2013 and 2017 7,165 6,563
------------------------------------------------------------------------------------
Clark County School District, Gen. Oblg., 6.00%,
2014 and 2015 22,185 22,638
------------------------------------------------------------------------------------
Henderson, Healthcare Facilities Rev., 5.00%, 2020 6,915 6,050
------------------------------------------------------------------------------------
Humboldt County, Pollution Control, Idaho Power Company,
Rev., 8.30%, 2014 9,650 11,212
------------------------------------------------------------------------------------
46,463
- --------------------------------------------------------------------------------------------------------------------
ALABAMA--1.4% Birmingham-Jefferson Civic Center Auth., Capital Outlay,
Special Tax Rev., 7.40%, 2008 12,000 12,745
------------------------------------------------------------------------------------
City of Mobile, Mobile Energy Services, Industrial Dev.
Board, Rev., 6.95%, 2020 22,000 23,173
------------------------------------------------------------------------------------
Hoover, Gen. Oblg., 4.50%, 2013 8,545 7,396
------------------------------------------------------------------------------------
43,314
- --------------------------------------------------------------------------------------------------------------------
GEORGIA--1.3% Chatham County School District, Gen. Oblg., 6.15%, 2010 7,300 7,584
------------------------------------------------------------------------------------
City of Atlanta, Water and Sewerage, Rev., 4.50%, 2018 16,000 13,246
------------------------------------------------------------------------------------
Fulton-DeKalb Hospital Auth., Rev., 6.55% and 6.60%,
2018 and 2028 4,430 4,503
------------------------------------------------------------------------------------
Municipal Electric Auth.:
Power Rev., 8.125% and 6.60%, 2017 and 2018 11,000 11,841
Special Obligation, 6.60%, 2018 3,500 3,891
------------------------------------------------------------------------------------
41,065
- --------------------------------------------------------------------------------------------------------------------
WASHINGTON--1.3% King County, Gen. Oblg., 6.25%, 2032 23,995 24,721
------------------------------------------------------------------------------------
Public Power Supply System, Nuclear Proj. #3, Rev.,
5.375%, 2015 16,910 15,871
------------------------------------------------------------------------------------
40,592
- --------------------------------------------------------------------------------------------------------------------
ARKANSAS--1.2% Jonesboro Residential Housing & Health Care Facilities
Board, Rev., 5.80%, 2012 4,025 4,096
------------------------------------------------------------------------------------
North Little Rock, Electric System, Rev., 6.50%, 2010 and
2015 31,830 35,361
------------------------------------------------------------------------------------
39,457
- --------------------------------------------------------------------------------------------------------------------
TENNESSEE--1.0% Housing Dev. Agcy., Mortgage Finance Program, Rev.,
7.05% and 7.125%, 2020 and 2026 25,980 26,958
------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Metropolitan Nashville Airport Auth., Airport
Improvement, Rev., 6.60%, 2015 $ 5,250 $ 5,633
--------------------------------------------------------------------------------
32,591
- ----------------------------------------------------------------------------------------------------------------
MINNESOTA--1.0% City of Minneapolis, Housing Redev. Auth., Health Care
System, Rev., 4.75%, 2018 22,200 18,826
--------------------------------------------------------------------------------
City of St. Louis Park, Methodist Hospital Proj., Rev.,
7.25%, 2015 6,650 7,286
--------------------------------------------------------------------------------
Housing Finance Agcy., Single Family Mortgage Bonds,
Rev., 7.90%, 2019 5,710 5,936
--------------------------------------------------------------------------------
32,048
- ----------------------------------------------------------------------------------------------------------------
STATES LESS THAN AZ, City of Phoenix:
ONE PERCENT--8.5% Gen. Oblg., 6.375%, 2013 7,400 7,898
Streets and Highway User, Rev., 6.25%, 2011 10,000 10,446
--------------------------------------------------------------------------------
AZ, Cocinino County, Industrial Dev. Auth., Health Care
Institution, The Guidance Center, Inc. Proj., Rev.,
9.25%, 2011 600 658
--------------------------------------------------------------------------------
AZ, Salt River Proj. Rev., 6.25%, 2019 8,000 8,259
--------------------------------------------------------------------------------
NC, Durham County, 1991 Jail Facilities and Computer
Equipment Financing Proj., Rev., 6.625%, 2014 5,500 5,708
--------------------------------------------------------------------------------
NC, Eastern Municipal Power Agcy., Power System, Rev.,
6.00%, 2022 18,775 19,452
--------------------------------------------------------------------------------
CT, Dev. Auth.:
Pierce Memorial Baptist Home, Rev., 9.25%, 2018 1,140 1,250
Water Facilities Rev., 6.15% and 6.00%, 2035 and 2036 16,950 16,687
--------------------------------------------------------------------------------
CT, Transportation Infrastructure Purposes, Special Tax
Obligation, Rev., 6.10%, 2012 5,450 5,683
--------------------------------------------------------------------------------
LA, Centenary College of Louisiana Project, Rev.,
5.75% and 5.90%, 2012 and 2017 2,000 1,936
--------------------------------------------------------------------------------
LA, New Orleans Public Improvement, Rev., 5.25%, 2016 8,400 7,857
--------------------------------------------------------------------------------
LA, Parish School Board of the Parish of Jefferson, Sales
Tax, Rev., 6.25%, 2008 11,000 11,646
--------------------------------------------------------------------------------
SC, Charleston County, Public Facilities Corp.,
Certificates of Participation, Rev., 6.875% and 7.00%,
2014 and 2019 355 392
--------------------------------------------------------------------------------
SC, Darlington County, Carolina Power & Light Company
Proj., Pollution Control, Rev., 6.60%, 2010 7,500 8,166
--------------------------------------------------------------------------------
SC, Grand Strand, Water and Sewer, Rev., 6.375%, 2012 5,000 5,505
--------------------------------------------------------------------------------
SC, Santee Cooper, Public Service Auth., Rev., 6.25%,
2022 7,000 7,206
--------------------------------------------------------------------------------
VA, Richmond, Gen. Oblg., 6.25% and 5.00%, 2018 and 2021 14,490 13,334
--------------------------------------------------------------------------------
VA, Upper Occoquan Sewage Auth., Rev., 5.00%, 2025 5,500 4,874
--------------------------------------------------------------------------------
UT, Housing Finance Agcy., Single Family Mortgage Rev.,
8.625%, 2019 650 671
--------------------------------------------------------------------------------
UT, Intermountain Power Agcy., Power Supply System, Rev.,
5.00% and 7.50%, 2021 14,770 13,820
--------------------------------------------------------------------------------
UT, West Valley City, Salt Lake County Excise Tax, Rev.,
10.625%, 2004 925 1,138
--------------------------------------------------------------------------------
IA, Finance Auth.:
GNMA Mortgage-Backed Securities Program, Single Family
Mortgage Rev., 7.90%, 2022 2,215 2,315
Trinity Regional Hospital Proj., Rev., 7.00%, 2022 12,000 12,773
--------------------------------------------------------------------------------
NE, Investment Finance Auth., Rev., 6.70%, 2026 3,520 3,633
--------------------------------------------------------------------------------
NE, Omaha Public Power District Electric System, Rev.,
6.20%, 2017 4,700 5,040
--------------------------------------------------------------------------------
NE, Scotts Bluff County, Hospital Auth., West Medical
Proj. Center, Rev., 6.45%, 2004 4,535 4,814
--------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
--------------------------------------------------------------------------------
<S> <C> <C> <C>
AK, Energy Auth., Bradley Lake Hydroelectric Power, Rev.,
7.25%, 2016 $ 4,675 $ 5,007
--------------------------------------------------------------------------------
AK, Municipality of Anchorage, Municipal Light and Power,
Electric Rev., 6.50%, 2015 5,000 5,459
--------------------------------------------------------------------------------
AK, North Slope Borough, Gen. Oblg., 13.00%, 1998 635 683
--------------------------------------------------------------------------------
OK, Valley View Hospital Auth., Rev., 5.75% and 6.00%,
2006 and 2014 7,040 6,879
--------------------------------------------------------------------------------
OK, Woodward Municipal Auth., Hospital Rev., 6.45%, 2014 2,070 2,076
--------------------------------------------------------------------------------
NH, Higher Education and Health Facilities Auth.,
Havenwood-Heritage Heights Issue, Rev., 7.35% and
7.45%, 2018 and 2025 6,500 6,550
--------------------------------------------------------------------------------
WI, Health and Education Facilities Auth., Wausau
Hospitals, Inc., Proj., Rev., 6.625%, 2011 3,000 3,190
--------------------------------------------------------------------------------
ME, Health and Higher Education Facilities Auth., Rev.,
7.10%, 2014 2,750 3,069
--------------------------------------------------------------------------------
WY, Community Dev. Auth., Single Family Mortgage Rev.,
7.875% and 8.125%, 2017 and 2021 1,720 1,771
--------------------------------------------------------------------------------
ND, Housing Finance Agcy., Single Family Mortgage
Program, Rev., 8.05%, 2024 980 1,011
--------------------------------------------------------------------------------
D.C., Gen. Oblg., 6.30%, 2010 4,500 4,660
--------------------------------------------------------------------------------
D.C., Georgetown University, Rev., 8.25%, 2018 11,410 12,050
--------------------------------------------------------------------------------
D.C., Metropolitan Washington Airports Auth., Airport
System Rev., 7.60%, 2014 3,000 3,270
--------------------------------------------------------------------------------
D.C., Redev. Land Agcy., Sports Arena Special Tax, Rev.,
5.625%, 2010 9,850 9,435
--------------------------------------------------------------------------------
P.R., Commonwealth Highway and Transportation Auth.,
Highway, Rev., 6.25%, 2016 11,400 12,300
--------------------------------------------------------------------------------
P.R., Industrial, Tourist Educational, Medical, and
Environmental, Rev., 6.50%, 2026 9,190 9,417
--------------------------------------------------------------------------------
V.I., Public Finance Auth., Rev., 7.25%, 2018 3,000 3,243
--------------------------------------------------------------------------------
271,231
--------------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--82.5% 2,626,197
--------------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--91.9%
(Cost: $2,814,734) 2,923,626
--------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--2.05% to 3.95%
INSTRUMENTS Due--April 1997
--------------------------------------------------------------------------------
TX, Brazos Utilities, Rev. 41,500 41,500
--------------------------------------------------------------------------------
Others 156,030 156,030
--------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--6.2%
(Cost: $197,529) 197,530
--------------------------------------------------------------------------------
TOTAL INVESTMENTS--98.1%
(Cost: $3,012,263) 3,121,156
--------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--1.9% 60,947
--------------------------------------------------------------------------------
NET ASSETS--100% $3,182,103
--------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $3,012,263,000 for federal income tax
purposes at March 31, 1997, the gross unrealized appreciation was $125,077,000
the gross unrealized depreciation was $16,184,000 and the net unrealized
appreciation on investments was $108,893,000.
See accompanying Notes to Financial Statements.
20
<PAGE> 21
PORTFOLIO OF INVESTMENTS
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS AT MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVANCE REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL AND
INTEREST BY UNITED STATES GOVERNMENT SECURITIES
- ------------------------------------------------------------------------------------------------------------------
Gen. Oblg., MA, 7.00%, to be called 07-01-01 @ 102 $ 200 $ 220
----------------------------------------------------------------------------------
Bay Transportation Auth., MA, Rev., 7.625%, to be called
03-01-00 @ 102 115 127
----------------------------------------------------------------------------------
North Broward, FL, Hospital District, Rev., 6.125%, to be
called 01-01-02 @ 102 285 305
----------------------------------------------------------------------------------
Dormitory Auth., NY, State University Educational
Facilities, Rev., 7.25%, to be called 05-15-00 @ 102 145 159
----------------------------------------------------------------------------------
Local Government Assistance Corp., NY, Rev., 7.00%, to be
called 04-01-01 @ 102 100 110
----------------------------------------------------------------------------------
Richmond, VA, Gen. Oblg., 6.875%, to be called 01-15-00 @
102 100 108
----------------------------------------------------------------------------------
Arlington County, VA, Industrial Dev. Auth., Arlington
Hospital, Rev., 7.125%, to be called 09-01-01 @ 102 90 100
----------------------------------------------------------------------------------
Philadelphia, PA, Gas Works Rev., 7.70%, to be called
06-15-01 @ 102 120 135
----------------------------------------------------------------------------------
TOTAL ADVANCE REFUNDED OBLIGATIONS--6.4% 1,264
- ------------------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS
- ------------------------------------------------------------------------------------------------------------------
OHIO--13.1% Building Auth., Adult Correctional Building Fund Proj., Gen.
Oblg., 6.125%, 2010 400 419
----------------------------------------------------------------------------------
Cleveland Water Works Systems, Rev., 6.125%, 2003 450 477
----------------------------------------------------------------------------------
County of Athens, Inn-Ohio of Athens, Inc. Proj., Economic
Dev. Rev., 6.25%, 2011 220 218
----------------------------------------------------------------------------------
Health Care Facilities Refunding and Improvement, United
Church Homes, Inc. Proj., Rev., 6.30%, 2015 250 249
----------------------------------------------------------------------------------
Higher Education Facility Commission, The University Of
Findlay 1996 Proj., Rev., 5.75%, 2007 375 369
----------------------------------------------------------------------------------
Lake County Detention Center, Gen. Oblg., 6.75%, 2005 500 560
----------------------------------------------------------------------------------
Lucas County Health Facilities, Rev., 6.10%, 2006 300 301
----------------------------------------------------------------------------------
Water Dev. Auth., Pure Water Improvement Proj., Rev., 5.75%,
2003 5 5
----------------------------------------------------------------------------------
2,598
- ------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--10.9% Allegheny County Hospital Dev. Auth., Magee Women's
Hospital, Rev., 6.25%, 2008 300 317
----------------------------------------------------------------------------------
Columbia County Industrial Dev. Auth., First Mortgage, Rev.,
9.00%, 2014 300 318
----------------------------------------------------------------------------------
Health Services Auth. of Hazleton, Hazleton-Saint Joseph
Medical Center, Rev., 5.85%, 2006 220 220
----------------------------------------------------------------------------------
Higher Educational Facilities Auth., Rev., 5.50%, 2007 265 261
----------------------------------------------------------------------------------
Intergovernmental Cooperation Auth., City of Philadelphia
Funding Program, Rev., 6.00%, 2002 285 301
----------------------------------------------------------------------------------
McKean County Hospital Auth., Bradford Hospital, Proj.,
Rev., 5.375%, 2003 350 345
----------------------------------------------------------------------------------
Monroeville Hospital Auth., Forbes Health System, Rev.,
5.75%, 2005 400 402
----------------------------------------------------------------------------------
2,164
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MICHIGAN--7.1% Detroit, Gen. Oblg., 6.70%, 2010 $ 300 $ 316
------------------------------------------------------------------------------
Grand Rapids, Downtown Dev. Auth., Rev., 6.20%, 2004 175 188
------------------------------------------------------------------------------
Macomb County, Chippewa Valley Schools, Gen. Oblg., 7.00%,
2001 350 380
------------------------------------------------------------------------------
State Building Auth., Rev., 6.25% and 6.50%, 2000 and 2004 165 180
------------------------------------------------------------------------------
State Hospital Finance Auth., Gratiot Community Hospital,
Rev., 6.10%, 2007 350 356
------------------------------------------------------------------------------
1,420
- --------------------------------------------------------------------------------------------------------------
TEXAS--6.3% Denison Hospital Auth., Texoma Medical Center Inc. Proj.,
Rev., 5.90%, 2007 300 299
------------------------------------------------------------------------------
Fort Worth, Water and Sewer Rev., 5.90%, 2001 80 83
------------------------------------------------------------------------------
Harris County, Criminal Justice Center, Gen. Oblg., 7.50%,
2004 and 2005 400 465
------------------------------------------------------------------------------
Houston Higher Education Finance Corp., University of St.
Thomas, Rev., 7.25%, 2007 100 106
------------------------------------------------------------------------------
Public Finance Auth., Building Rev., 5.875%, 2002 210 220
------------------------------------------------------------------------------
Trinity River Auth., Ten Mile Creek System, Rev., 5.50%,
2002 70 72
------------------------------------------------------------------------------
1,245
- --------------------------------------------------------------------------------------------------------------
ARIZONA--5.2% Industrial Dev. Auth. of Cocinino County, The Guidance
Center, Inc. Proj., Health Care Institute, Rev., 9.25%,
2011 305 334
------------------------------------------------------------------------------
Phoenix Civic Improvement Corp., Water System Rev., 6.375%,
2005 495 537
------------------------------------------------------------------------------
State University Board of Regents, Rev., 6.50%, 2001 85 91
------------------------------------------------------------------------------
Transportation Board, Highway Rev., 6.10%, 2002 70 74
------------------------------------------------------------------------------
1,036
- --------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--4.0% Horry County School District, Gen. Oblg., 7.00%, 2002 250 273
------------------------------------------------------------------------------
York County School District, Gen. Oblg., 7.00%, 2004 460 515
------------------------------------------------------------------------------
788
- --------------------------------------------------------------------------------------------------------------
CALIFORNIA--3.3% Central Valley Financing Auth., Carson Ice-Gen Proj.,
Cogeneration Proj. Rev., 6.00%, 2009 250 251
------------------------------------------------------------------------------
Fresno, Water System, Water Remediation Proj., Rev., 7.50%,
2004 160 185
------------------------------------------------------------------------------
Sacramento Cogeneration Auth., Procter & Gamble Proj., Rev.,
7.00%, 2004 200 217
------------------------------------------------------------------------------
653
- --------------------------------------------------------------------------------------------------------------
NEW JERSEY--3.2% Middlesex County Utility Auth., Solid Waste System, Rev.,
6.10%, 2001 300 318
------------------------------------------------------------------------------
Wastewater Treatment Trust, Rev., 6.50%, 2003 300 327
------------------------------------------------------------------------------
645
- --------------------------------------------------------------------------------------------------------------
OKLAHOMA--3.1% Muskogee County, Gen. Oblg., 6.00%, 2001 10 10
------------------------------------------------------------------------------
Valley View Hospital Auth., Rev., 5.75%, 2006 350 345
------------------------------------------------------------------------------
Woodard Municipal Auth., Hospital, Rev., 5.60%, 2004 270 271
------------------------------------------------------------------------------
626
</TABLE>
22
<PAGE> 23
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW YORK--2.7% New York City:
Gen. Oblg., 6.50% and 5.75%, 2002 and 2003 $ 200 $ 207
Industrial Dev. Auth., USTA National Tennis Center Inc.
Proj., Rev., 6.10%, 2004 200 213
------------------------------------------------------------------------------
Niagara Falls, Water Treatment Plant, Rev., 6.40%, 2004 100 109
------------------------------------------------------------------------------
529
- --------------------------------------------------------------------------------------------------------------
ILLINOIS--2.3% Health Facilities Auth., Franciscan Sisters Health Care
Corp. Proj., Rev., 6.25%, 2002 350 372
------------------------------------------------------------------------------
McHenry and Lake County School District Number 15,
Certificates of Participation, Rev., 6.125%, 2003 85 91
------------------------------------------------------------------------------
463
- --------------------------------------------------------------------------------------------------------------
KENTUCKY--2.0% Lexington-Fayette Urban County, University of Kentucky
Alumni Association, Commonwealth Library Proj., Rev.,
6.50%, 2009 300 326
------------------------------------------------------------------------------
University of Kentucky, Consolidated Educational Building,
Rev., 6.00%, 1999 70 72
------------------------------------------------------------------------------
398
- --------------------------------------------------------------------------------------------------------------
WASHINGTON--1.8% King County School District, Mercer Island, Gen. Oblg.,
6.50%, 2006 250 275
------------------------------------------------------------------------------
Tacoma, Electric System, Rev., 5.80%, 2004 70 73
------------------------------------------------------------------------------
348
- --------------------------------------------------------------------------------------------------------------
NEVADA--1.7% Clark County, Motor Vehicle Fuel Tax Rev., 5.625%, 2002 70 73
------------------------------------------------------------------------------
State, Gen. Oblg., 5.90%, 2001 250 261
------------------------------------------------------------------------------
334
- --------------------------------------------------------------------------------------------------------------
ARKANSAS--1.6% North Little Rock, Electric System, Rev., 6.00% and 6.15%,
2001 and 2003 295 315
- --------------------------------------------------------------------------------------------------------------
COLORADO--1.6% Arapahoe County, Capital Improvement, Highway Rev., 6.90%,
2015 300 319
- --------------------------------------------------------------------------------------------------------------
INDIANA--1.6% Johnson County Hospital Association, Rev., 6.50%, 2002 300 322
- --------------------------------------------------------------------------------------------------------------
LOUISIANA--1.6% State, Gen. Oblg., 7.00%, 2001 300 325
- --------------------------------------------------------------------------------------------------------------
MISSOURI--1.5% State Health & Education Facilities Auth., Lake of the
Ozarks, General Hospital Rev., 6.00%, 2006 300 305
- --------------------------------------------------------------------------------------------------------------
DISTRICT OF Redev. Land Agency, Sports Arena Special Tax, Rev.,
COLUMBIA--1.4% 5.625%, 2010 300 287
- --------------------------------------------------------------------------------------------------------------
MAINE--1.4% Health and Higher Education Facilities Auth., Rev., 6.30%
and 6.50%, 2004 and 2006 260 281
- --------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE--1.3% Higher Education and Health Facilities Auth.,
Havenwood-Heritage Heights Issue, Rev., 7.10%, 2006 250 252
- --------------------------------------------------------------------------------------------------------------
PUERTO RICO--1.3% Bank and Finance Agcy., Affordable Housing, Single Family
Mortgage Rev., 5.90%, 2010 250 250
- --------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATES LESS THAN FL, Broward County School District, Gen., Oblg., 6.00%, 2004 $ 70 $ 74
ONE PERCENT--3.3% ----------------------------------------------------------------------------------
FL, Department of Natural Resources, Preservation 2000,
Rev., 6.20%, 1999 80 83
----------------------------------------------------------------------------------
FL, Hillsborough County Aviation Auth., Tampa International
Airport, Rev., 6.90%, 2011 5 5
----------------------------------------------------------------------------------
HI, State, Gen. Oblg., 7.25%, 2000 145 157
----------------------------------------------------------------------------------
MA, Bay Transit Auth., Rev., 6.50%, 2004 5 5
----------------------------------------------------------------------------------
MA, Commonwealth, Gen. Oblg., 7.00%, 2007 75 83
----------------------------------------------------------------------------------
MA, Water Pollution Abatement Trust, SESD Loan Program,
Rev., 6.20%, 2010 45 47
----------------------------------------------------------------------------------
MD, Howard County, Consolidated Public Improvement, Gen.
Oblg., 6.90%, 1999 70 74
----------------------------------------------------------------------------------
GA, Atlanta International Airport, Rev., 6.50%, 2013 70 73
----------------------------------------------------------------------------------
NE, Public Power District, Nuclear Facility, Rev., 5.70%,
2004 50 52
----------------------------------------------------------------------------------
CT, State, Gen. Oblg., 5.95%, 2000 5 5
----------------------------------------------------------------------------------
658
----------------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--83.3% 16,561
----------------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--89.7%
(Cost: $17,311) 17,825
----------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--3.70% to 3.85%
INSTRUMENTS Due--April 1997
----------------------------------------------------------------------------------
TX, Brazos Utilities, Rev. 1,200 1,200
----------------------------------------------------------------------------------
Others 800 800
----------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--10.1%
(Cost: $2,000) 2,000
----------------------------------------------------------------------------------
TOTAL INVESTMENTS--99.8%
(Cost: $19,311) 19,825
----------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--.2% 46
----------------------------------------------------------------------------------
NET ASSETS--100% $19,871
----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $19,311,000 for federal income tax purposes
at March 31, 1997, the gross unrealized appreciation was $534,000, the gross
unrealized depreciation was $20,000, and the net unrealized appreciation of
investments was $514,000.
See accompanying Notes to Financial Statements.
24
<PAGE> 25
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL MUNICIPAL
FUND FUND
<S> <C> <C>
- --------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------
Investments, at value
(Cost: $3,012,263 and $19,311) $3,121,156 19,825
- --------------------------------------------------------------------------------------------
Cash 2,272 46
- --------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 449 --
- --------------------------------------------------------------------------------------------
Investments sold 25,051 7
- --------------------------------------------------------------------------------------------
Interest 50,425 338
- --------------------------------------------------------------------------------------------
TOTAL ASSETS 3,199,353 20,216
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------------------------
Payable for:
Dividends 4,357 19
- --------------------------------------------------------------------------------------------
Fund shares redeemed 2,049 --
- --------------------------------------------------------------------------------------------
Investments purchased 8,805 301
- --------------------------------------------------------------------------------------------
Management fee 1,114 9
- --------------------------------------------------------------------------------------------
Administrative services fee 436 4
- --------------------------------------------------------------------------------------------
Distribution services fee 34 2
- --------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 198 --
- --------------------------------------------------------------------------------------------
Trustees' fees and other 257 10
- --------------------------------------------------------------------------------------------
Total liabilities 17,250 345
- --------------------------------------------------------------------------------------------
NET ASSETS $3,182,103 19,871
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------------------------
Paid-in capital $3,061,997 19,333
- --------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 11,213 24
- --------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 108,893 514
- --------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $3,182,103 19,871
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------------------------
CLASS A SHARES
Net assets applicable to shares outstanding $3,128,413 15,151
- --------------------------------------------------------------------------------------------
Shares outstanding 311,081 1,511
- --------------------------------------------------------------------------------------------
Net asset value and redemption price per share
(net assets / shares outstanding) $10.06 10.03
- --------------------------------------------------------------------------------------------
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) $10.53 10.31
- --------------------------------------------------------------------------------------------
CLASS B SHARES
Net assets applicable to shares outstanding $48,792 3,892
- --------------------------------------------------------------------------------------------
Shares outstanding 4,863 388
- --------------------------------------------------------------------------------------------
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
(net assets / shares outstanding) $10.03 10.02
- --------------------------------------------------------------------------------------------
CLASS C SHARES
Net assets applicable to shares outstanding $4,600 828
- --------------------------------------------------------------------------------------------
Shares outstanding 457 83
- --------------------------------------------------------------------------------------------
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
(net assets / shares outstanding) $10.07 10.03
- --------------------------------------------------------------------------------------------
CLASS I SHARES
Net assets applicable to shares outstanding $298 --
- --------------------------------------------------------------------------------------------
Shares outstanding 30 --
- --------------------------------------------------------------------------------------------
Net asset value and redemption price per share
(net assets / shares outstanding) $10.06 --
- --------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 26
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL MUNICIPAL
FUND FUND
- --------------------------------------------------------------------------------------
<S> <C> <C>
NET INVESTMENT INCOME
- --------------------------------------------------------------------------------------
Interest income $ 98,765 594
- --------------------------------------------------------------------------------------
Expenses:
Management fee 6,825 59
- --------------------------------------------------------------------------------------
Administrative services fee 2,651 24
- --------------------------------------------------------------------------------------
Distribution services fee 191 19
- --------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,350 6
- --------------------------------------------------------------------------------------
Professional fees 73 --
- --------------------------------------------------------------------------------------
Reports to shareholders 233 2
- --------------------------------------------------------------------------------------
Trustees' fees and other 86 10
- --------------------------------------------------------------------------------------
Total expenses 11,409 120
- --------------------------------------------------------------------------------------
NET INVESTMENT INCOME 87,356 474
- --------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------------------------------------------
Net realized gain on sales of investments (including
options purchased) 37,084 132
- --------------------------------------------------------------------------------------
Net realized gain from futures transactions 1,952 15
- --------------------------------------------------------------------------------------
Net realized gain 39,036 147
- --------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (51,263) (115)
- --------------------------------------------------------------------------------------
Net gain (loss) on investments (12,227) 32
- --------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 75,129 506
- --------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED MARCH 31, 1997
AND YEAR ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
MUNICIPAL FUND INTERMEDIATE MUNICIPAL FUND
------------------------------ ------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ 87,356 184,051 474 815
- -------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 39,036 21,987 147 (26)
- -------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (51,263) (2,598) (115) (82)
- -------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 75,129 203,440 506 707
- -------------------------------------------------------------------------------------------------------------
Distribution from net investment income (87,356) (184,051) (474) (815)
- -------------------------------------------------------------------------------------------------------------
Distribution from net realized gain (25,655) (8,498) (73) (134)
- -------------------------------------------------------------------------------------------------------------
Total dividends to shareholders (113,011) (192,549) (547) (949)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share
transactions (101,561) (199,993) (1,989) 5,974
- -------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (139,443) (189,102) (2,030) 5,732
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------------
Beginning of period 3,321,546 3,510,648 21,901 16,169
- -------------------------------------------------------------------------------------------------------------
END OF PERIOD $3,182,103 3,321,546 19,871 21,901
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
26
<PAGE> 27
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 Municipal
Bond Fund (Intermediate Municipal Fund). The Trust
is organized as a business trust under the laws of
Massachusetts.
The Funds offer four classes of shares. Class A
shares are sold to investors subject to an initial
sales charge. Class B shares are sold without an
initial sales charge but are subject to higher
ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable on certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares are offered to a
limited group of investors, are not subject to
initial or contingent deferred sales charges and
have lower ongoing expenses than other classes.
Differences in class expenses will result in the
payment of different per share income dividends by
class. All shares of each Fund have equal rights
with respect to voting, dividends and assets,
subject to class specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are stated at
value. Fixed income securities are valued by using
market quotations, or independent pricing services
that use prices provided by market makers or
estimates of market values obtained from yield data
relating to instruments or securities with similar
characteristics. Exchange traded financial futures
and options are valued at the settlement price
established each day by the board of trade or
exchange on which they are traded. Over-the-counter
traded options are valued based upon prices
provided by market makers. Other securities and
assets are valued at fair value as determined in
good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Interest income is recorded on the
accrual basis and includes premium and original
discount amortization on fixed income securities.
Realized gains and losses from investment
transactions are reported on an identified cost
basis.
EXPENSES. Expenses arising in connection with a
specific Fund are allocated to that Fund. Other
Trust expenses are allocated 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 and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the earlier of
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
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 assets attributable to that class by
the number of shares of the class outstanding.
FEDERAL INCOME TAXES. Each Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies for the six
months ended March 31, 1997
DIVIDENDS TO SHAREHOLDERS. Each Fund declares and
records a daily dividend equal to its net
investment income for that day, to holders of
shares for which payment has been received. Income
dividends are distributed monthly. Net realized
capital gains, if any, will be distributed at least
annually. Dividends are determined in accordance
with income tax principles which may treat certain
transactions differently than generally accepted
accounting principles.
- --------------------------------------------------------------------------------
3 TRANSACTIONS WITH
AFFILIATES MANAGEMENT AGREEMENT. The Trust has a management
agreement with ZKI. The Municipal Fund pays a fee
at an annual rate of .45% of the first $250 million
of average daily net assets declining to .32% of
average daily net assets in excess of $12.5
billion. The Municipal Fund paid a management fee
of $6,825,000 for the six months ended March 31,
1997.
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 to
.40% of average daily net assets in excess of $12.5
billion. The Intermediate Municipal Fund paid a
management fee of $59,000 for the six months ended
March 31, 1997.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Trust has an underwriting and distribution
services agreement with Zurich Kemper Distributors,
Inc. (ZKDI) (formerly known as Kemper Distributors,
Inc.). Underwriting commissions paid in connection
with the distribution of the Trust's Class A shares
are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
ALLOWED BY ZKDI
COMMISSIONS ----------------------------
RETAINED BY ZKDI TO ALL FIRMS TO AFFILIATES
----------------- ------------ -------------
<S> <C> <C> <C>
Six months ended March 31, 1997 $153,000 878,000 6,000
</TABLE>
For services under the distribution services
agreement, the Trust pays ZKDI a fee of .75% of
average daily net assets of Class B and Class C
shares. Pursuant to the agreement, ZKDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares of each Fund. In addition, ZKDI receives any
contingent deferred sales charges (CDSC) from
redemptions of Class B and Class C shares.
Distribution fees and commissions paid in
connection with the
28
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS
sale of each Fund's Class B and Class C shares and
the CDSC received in connection with the redemption
of such shares are as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES
AND CDSC COMMISSIONS AND
RECEIVED BY DISTRIBUTION FEES
ZKDI PAID BY ZKDI TO FIRMS
------------------ ---------------------
<S> <C> <C>
Six months ended March 31, 1997 $269,000 338,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Trust has an
administrative services agreement with ZKDI. For
providing information and administrative services
to shareholders, each Fund pays ZKDI a fee at an
annual rate of up to .25% of average daily net
assets of each class. ZKDI in turn has various
agreements with financial services firms that
provide these services and pays these firms based
on assets of Fund accounts the firms service.
Administrative services fees (ASF) paid are as
follows:
<TABLE>
<CAPTION>
ASF PAID BY ZKDI
ASF PAID BY THE -----------------------------
TRUST TO ZKDI TO ALL FIRMS TO AFFILIATES
--------------- ------------- -------------
<S> <C> <C> <C>
Six months ended March 31, 1997 $2,675,000 2,700,000 9,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Trust's transfer agent,
Zurich Kemper Service Company (ZKSvC) is the
shareholder service agent of the Trust (formerly
known as Kemper Service Company). Under the
agreement, ZKSvC received shareholder services fees
of $862,000 for the six months ended March 31,
1997.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of ZKI.
For the six months ended March 31, 1997, the Trust
made no direct payments to its officers and
incurred trustees' fees of $27,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended March 31, 1997, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL FUND MUNICIPAL FUND
-------------- --------------
<S> <C> <C>
Purchases $1,112,628 9,382
Proceeds from sales 1,430,323 13,124
</TABLE>
29
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following tables summarize the activity in
capital shares of the Funds (in thousands):
MUNICIPAL FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1997 SEPTEMBER 30, 1996
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 7,226 $ 73,913 18,784 $ 193,179
--------------------------------------------------------------------------------
Class B 929 9,494 2,551 26,035
--------------------------------------------------------------------------------
Class C 132 1,352 313 3,200
--------------------------------------------------------------------------------
Class I -- -- 30 300
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 6,812 69,530 11,427 117,176
--------------------------------------------------------------------------------
Class B 92 940 120 1,229
--------------------------------------------------------------------------------
Class C 9 95 10 104
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (24,707) (252,567) (50,863) (521,777)
--------------------------------------------------------------------------------
Class B (387) (3,950) (1,767) (18,134)
--------------------------------------------------------------------------------
Class C (36) (368) (128) (1,305)
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 37 384 67 687
--------------------------------------------------------------------------------
Class B (37) (384) (67) (687)
--------------------------------------------------------------------------------
NET DECREASE FROM
CAPITAL SHARE TRANSACTIONS $(101,561) $(199,993)
--------------------------------------------------------------------------------
</TABLE>
INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1997 SEPTEMBER 30, 1996
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 225 $ 2,302 782 $ 7,959
--------------------------------------------------------------------------------
Class B 34 341 239 2,415
--------------------------------------------------------------------------------
Class C 27 266 59 593
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 28 277 49 458
--------------------------------------------------------------------------------
Class B 6 61 8 86
--------------------------------------------------------------------------------
Class C 1 14 2 21
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (420) (4,274) (413) (4,178)
--------------------------------------------------------------------------------
Class B (82) (829) (76) (774)
--------------------------------------------------------------------------------
Class C (14) (147) (61) (606)
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 1 6 1 3
--------------------------------------------------------------------------------
Class B (1) (6) (1) (3)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $ (1,989) $ 5,974
--------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 31
- --------------------------------------------------------------------------------
6
FINANCIAL FUTURES
CONTRACTS The Funds have entered into exchange traded
financial futures contracts on U.S. Treasury
securities in order to help protect themselves from
anticipated market conditions and, as such, bear
the risk that arises from entering into these
contracts.
At the time a Fund enters into a futures contract,
it is required to make a margin deposit with its
custodian. Subsequently, gain or loss is recognized
and payments are made on a daily basis between the
Fund and its broker as the market value of the
futures contract fluctuates. At March 31, 1997, the
market value of assets pledged by the Funds to
cover margin requirements for open futures
positions was $5,829,000 and $62,000 for the
Municipal Fund and the Intermediate Municipal Fund,
respectively. The Funds also had liquid securities
in their portfolios in excess of the face amount of
the following short Treasury Note futures open at
March 31, 1997:
<TABLE>
<CAPTION>
FACE EXPIRATION GAIN AT
FUND AMOUNT MONTH 3/31/97
-----------------------------------------------------------------
<S> <C> <C> <C>
Municipal Fund $169,401,000 June '97 $1,867,000
-----------------------------------------------------------------
Intermediate
Municipal Fund 1,067,000 June '97 12,000
-----------------------------------------------------------------
</TABLE>
31
NOTES TO FINANCIAL STATEMENTS
<PAGE> 32
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------
CLASS A
------------------------------------------
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
------------------------------------------
MUNICIPAL FUND 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------
Net asset value, beginning of period $10.18 10.15 9.69 10.95 10.29
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .27 .55 .55 .55 .61
- -------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.05) .06 .50 (.92) .82
- -------------------------------------------------------------------------------------
Total from investment operations .22 .61 1.05 (.37) 1.43
- -------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .27 .55 .55 .56 .62
- -------------------------------------------------------------------------------------
Distribution from net realized gain .07 .03 .04 .33 .15
- -------------------------------------------------------------------------------------
Total dividends .34 .58 .59 .89 .77
- -------------------------------------------------------------------------------------
Net asset value, end of period $10.06 10.18 10.15 9.69 10.95
- -------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 2.25% 6.00 11.15 (3.67) 14.50
- -------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------
Expenses .68% .66 .66 .60 .47
- -------------------------------------------------------------------------------------
Net investment income 5.33% 5.35 5.63 5.42 5.78
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------
CLASS B
--------------------------------------------------
SIX MONTHS MAY 31
ENDED YEAR ENDED TO
MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------
1997 1996 1995 1994
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.15 10.13 9.67 9.95
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .23 .46 .46 .14
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.05) .05 .50 (.26)
- ---------------------------------------------------------------------------------------------------
Total from investment operations .18 .51 .96 (.12)
- ---------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .23 .46 .46 .16
- ---------------------------------------------------------------------------------------------------
Distribution from net realized gain .07 .03 .04 --
- ---------------------------------------------------------------------------------------------------
Total dividends .30 .49 .50 .16
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $10.03 10.15 10.13 9.67
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.80% 4.97 10.17 (1.24)
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------------
Expenses 1.56% 1.54 1.55 1.56
- ---------------------------------------------------------------------------------------------------
Net investment income 4.45% 4.47 4.74 4.55
- ---------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 33
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------- ------------------------------
CLASS C CLASS I
------------------------------------------- ------------------------------
SIX MONTHS YEAR ENDED MAY 31 SIX MONTHS APRIL 19
ENDED SEPTEMBER 30, TO ENDED TO
MARCH 31, ------------- SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1997 1996 1995 1994 1997 1996
- ------------------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------- ------------------------------
Net asset value, beginning of period $10.18 10.16 9.69 9.95 10.18 10.11
- ------------------------------------------------------------------------------------- ------------------------------
Income from investment operations:
Net investment income .23 .46 .47 .16 .28 .24
- ------------------------------------------------------------------------------------- ------------------------------
Net realized and unrealized gain (loss) (.04) .05 .51 (.26) (.05) .07
- ------------------------------------------------------------------------------------- ------------------------------
Total from investment operations .19 .51 .98 (.10) .23 .31
- ------------------------------------------------------------------------------------- ------------------------------
Less dividends:
Distribution from net investment income .23 .46 .47 .16 .28 .24
- ------------------------------------------------------------------------------------- ------------------------------
Distribution from net realized gain .07 .03 .04 -- .07 --
- ------------------------------------------------------------------------------------- ------------------------------
Total dividends .30 .49 .51 .16 .35 .24
- ------------------------------------------------------------------------------------- ------------------------------
Net asset value, end of period $10.07 10.18 10.16 9.69 10.06 10.18
- ------------------------------------------------------------------------------------- ------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.92% 4.99 10.32 (1.03) 2.30 3.10
- ------------------------------------------------------------------------------------- ------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------- ------------------------------
Expenses 1.53% 1.51 1.51 1.53 .57 .56
- ------------------------------------------------------------------------------------- ------------------------------
Net investment income 4.48% 4.50 4.78 4.56 5.44 5.60
- ------------------------------------------------------------------------------------- ------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, --------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $3,182,103 3,321,546 3,510,648 3,716,997 4,072,626
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 70% 97 86 50 52
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE FOR BOTH FUNDS:
Total return does not reflect the effect of any sales charges.
33
<PAGE> 34
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------------
CLASS A
------------------------------------------------------
SIX MONTHS YEAR NOVEMBER 1,
ENDED ENDED 1994 TO
MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
INTERMEDIATE MUNICIPAL FUND 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.06 10.18 9.50
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .23 .46 .45
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .01 (.04) .68
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations .24 .42 1.13
- --------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .23 .46 .45
- --------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .04 .08 --
- --------------------------------------------------------------------------------------------------------------------
Total dividends .27 .54 .45
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.03 10.06 10.18
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 2.35% 4.15 12.08
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------------
Expenses absorbed by the Fund .93% .92 .55
- --------------------------------------------------------------------------------------------------------------------
Net investment income 4.58% 4.45 5.00
- --------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------------
Expenses 93% 1.04 1.05
- --------------------------------------------------------------------------------------------------------------------
Net investment income 4.58% 4.33 4.50
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------
CLASS B
------------------------------------------------------
SIX MONTHS YEAR NOVEMBER 1,
ENDED ENDED 1994 TO
MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.06 10.18 9.50
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .38 .36
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) -- (.04) .68
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations .19 .34 1.04
- --------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .19 .38 .36
- --------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .04 .08 --
- --------------------------------------------------------------------------------------------------------------------
Total dividends .23 .46 .36
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.02 10.06 10.18
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.87% 3.34 11.13
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------------
Expenses absorbed by the Fund 1.70% 1.71 1.42
- --------------------------------------------------------------------------------------------------------------------
Net investment income 3.81% 3.66 4.13
- --------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------------
Expenses 1.70% 1.83 1.92
- --------------------------------------------------------------------------------------------------------------------
Net investment income 3.81% 3.54 3.63
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 35
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------------
CLASS C
-------------------------------------------------------
SIX MONTHS YEAR NOVEMBER 1,
ENDED ENDED 1994 TO
MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.06 10.19 9.50
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .38 .38
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .01 (.05) .69
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations .20 .33 1.07
- --------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .19 .38 .38
- --------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .04 .08 --
- --------------------------------------------------------------------------------------------------------------------
Total dividends .23 .46 .38
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.03 10.06 10.19
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.94% 3.26 11.43
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------------
Expenses absorbed by the Fund 1.74% 1.65 1.28
- --------------------------------------------------------------------------------------------------------------------
Net investment income 3.77% 3.72 4.27
- --------------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------------------
Expenses 1.74% 1.77 1.78
- --------------------------------------------------------------------------------------------------------------------
Net investment income 3.77% 3.60 3.77
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR NOVEMBER 1,
ENDED ENDED 1994 TO
MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net assets at end of period (in thousands) $19,871 21,901 16,169
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 89% 80 60
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE FOR INTERMEDIATE MUNICIPAL FUND:
ZKI agreed to waive the management fee of the Intermediate Municipal Fund from
its inception, November 1, 1994, through April 30, 1995. Thereafter, the
management fee was gradually reinstated through April 30, 1996. "Other ratios to
average net assets" are computed without the undertaking to waive the management
fee.
35
<PAGE> 36
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS J. PATRICK BEIMFORD, JR.
President and Trustee Vice President
DAVID W. BELIN CHARLES R. MANZONI, JR.
Trustee Vice President
LEWIS A. BURNHAM CHRISTOPHER J. MIER
Trustee Vice President
DONALD L. DUNAWAY JOHN E. NEAL
Trustee Vice President
ROBERT B. HOFFMAN PHILIP J. COLLORA
Trustee Vice President and
Secretary
DONALD R. JONES
Trustee JEROME L. DUFFY
Treasurer
DOMINIQUE P. MORAX
Trustee ELIZABETH C. WERTH
Assistant Secretary
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
- --------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT ZURICH KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th
Kansas City, MO 64105
- --------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
PRINCIPAL UNDERWRITER ZURICH KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL
60606
www.kemper.com
[RECYCLED LOGO]
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Tax-Free Income Funds prospectus.
KNTIS - 3 (5/97) 1031800
Printed in the U.S.A. [KEMPER FUNDS LOGO]
