<PAGE> 1
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED SEPTEMBER 30, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
KEMPER MUNICIPAL BOND FUND
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
OFFERING INVESTORS THE OPPORTUNITY FOR AS HIGH A LEVEL OF CURRENT INTEREST
INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAXES AS IS CONSISTENT WITH
PRESERVATION OF CAPITAL
KEMPER NATIONAL TAX-FREE
INCOME SERIES
". . . Despite an environment of rising interest rates,
municipal bonds held up well relative to government bonds. . . ."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
Economic Overview
5
Management Team
6
Performance Update
8
Terms to Know
10
Portfolio Statistics
13
Portfolio of Investments
37
Financial Statements
39
Notes to Financial Statements
45
Financial Highlights
49
Report of Independent Auditors
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER NATIONAL TAX-FREE
INCOME FUNDS TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1999
(UNADJUSTED FOR SALES CHARGE)
[BAR GRAPH]
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CLASS A -2.75%
CLASS B -3.48%
CLASS C -3.47%
LIPPER MUNICIPAL BOND FUNDS CATEGORY AVERAGE* -3.07%
- --------------------------------------------------------------------------------
</TABLE>
[BAR GRAPH]
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CLASS A -0.79%
CLASS B -1.48%
CLASS C -1.56%
LIPPER INTERMEDIATE MUNICIPAL BOND
FUNDS CATEGORY AVERAGE* -0.76%
- --------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
*LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES
IN NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT
OF SALES CHARGES; IF SALES CHARGE HAD BEEN INCLUDED, RESULTS MAY HAVE BEEN
LESS FAVORABLE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/99 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER MUNICIPAL BOND FUND
CLASS A $9.60 $10.61
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
CLASS B $9.58 $10.58
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
CLASS C $9.62 $10.62
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
AS OF AS OF
9/30/99 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER INTERMEDIATE MUNICIPAL
BOND FUND CLASS A $10.00 $10.53
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL
BOND FUND CLASS B $10.00 $10.52
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL
BOND FUND CLASS C $10.00 $10.53
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER NATIONAL TAX-FREE INCOME
FUNDS LIPPER RANKINGS AS OF 9/30/99*
- --------------------------------------------------------------------------------
COMPARED WITH ALL OTHER FUNDS IN THE
GENERAL MUNICIPAL DEBT AND INTERMEDIATE
MUNICIPAL DEBT LIPPER CATEGORIES
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
#111 of #166 of #163 of
1-YEAR 258 funds 258 funds 258 funds
- --------------------------------------------------------------------------------
#30 of #109 of #106 of
5-YEAR 158 funds 158 funds 158 funds
- --------------------------------------------------------------------------------
#16 of
10-YEAR 75 funds N/A N/A
- --------------------------------------------------------------------------------
#7 of
15-YEAR 43 funds N/A N/A
- --------------------------------------------------------------------------------
#6 of
20-YEAR 24 funds N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND AND YIELD REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLES SHOW PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE
FUNDS AS OF SEPTEMBER 30, 1999.
- --------------------------------------------------------------------------------
MUNICIPAL BOND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ONE-YEAR INCOME: $0.4824 $0.3986 $0.3994
- --------------------------------------------------------------------------------
SEPTEMBER DIVIDEND: $0.0394 $0.0330 $0.0335
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 4.41% 3.28% 3.31%
- --------------------------------------------------------------------------------
SEC YIELD+: 4.36% 3.73% 3.82%
- --------------------------------------------------------------------------------
TAX EQUIVALENT
YIELD: 7.01% 5.21% 5.27%
- --------------------------------------------------------------------------------
</TABLE>
Based on a marginal federal income tax rate of 37.1%
- --------------------------------------------------------------------------------
INTERMEDIATE MUNICIPAL BOND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ONE-YEAR INCOME: $0.4187 $0.3380 $0.3401
- --------------------------------------------------------------------------------
SEPTEMBER DIVIDEND: $0.0342 $0.0277 $0.0280
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 3.74% 3.11% 3.15%
- --------------------------------------------------------------------------------
SEC YIELD+: 3.77% 3.06% 3.09%
- --------------------------------------------------------------------------------
TAX EQUIVALENT
YIELD: 5.95% 4.95% 5.01%
- --------------------------------------------------------------------------------
</TABLE>
Based on a marginal federal income tax rate of 37.1%
+CURRENT ANNUALIZED DISTRIBUTION RATE IS THE LATEST MONTHLY DIVIDEND SHOWN AS AN
ANNUALIZED PERCENTAGE OF NET ASSET VALUE ON SEPTEMBER 30, 1999. DISTRIBUTION
RATE SIMPLY MEASURES THE LEVEL OF DIVIDENDS AND IS NOT A COMPLETE MEASURE OF
PERFORMANCE. THE SEC YIELD IS NET INVESTMENT INCOME PER SHARE EARNED OVER THE
MONTH ENDED SEPTEMBER 30, 1999, SHOWN AS AN ANNUALIZED PERCENTAGE OF THE
MAXIMUM OFFERING PRICE ON THAT DATE. THE SEC YIELD IS COMPUTED IN ACCORDANCE
WITH THE STANDARDIZED METHOD PRESCRIBED BY THE SECURITIES AND EXCHANGE
COMMISSION. TAX EQUIVALENT YIELD IS BASED ON THE FUND'S YIELD AND THE 37.1%
FEDERAL TAX RATE. INCOME MAY BE SUBJECT TO STATE AND LOCAL TAXES, AND FOR SOME
INVESTORS, A PORTION MAY BE SUBJECT TO THE ALTERNATIVE MINIMUM TAX. YIELDS AND
DISTRIBUTION RATES ARE HISTORICAL AND WILL FLUCTUATE.
<PAGE> 3
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
Markets have been aquiver about inflation risks. Growth in the United States
continues to exceed most expectations. Labor markets are visibly tight. These
are the precursors to inflation -- everybody knows it.
Everybody except us, that is. We don't buy it in principle, and reality is
proving our theory correct.
First, let's look at growth. The traditional economic view is that growth
causes inflation. Today, we're seeing exactly the opposite: Low inflation is
causing growth. Low inflation keeps interest rates down, and low interest rates
spur investment by making borrowing money cheap. Investment allows companies to
add capacity, keeping competition fierce. As a result, companies aren't raising
prices; they're competing for business by keeping goods attractive and prices
low. That's true for the old economy, in which consumers are buying t-shirts,
and the new economy, in which consumers are buying Internet services. Everywhere
they look, consumers see bargains -- in the malls, in the auto showrooms, at the
mortgage companies.
As for tight labor markets, the traditional economic view is that tight labor
markets -- i.e., many "help-wanted" signs -- forces companies to pay a premium
for talent. That, in turn, forces companies to raise their prices in order to
protect their profits. And raising prices results in inflation. In contrast, we
believe that tight labor markets won't cause wages to surge. Why?
To start with, temporary agencies have proliferated, accounting for 2.2
percent of jobs, up from 0.5 percent in the early 1980s. They get just the right
amount and type of labor to the right spot at the right time to get the job
done.
Immigration also keeps a lid on wage rates, since it replenishes the work
force much faster than births. Immigration is at its highest level ever; an
amazing 10 percent of the population is foreign-born. Nearly 1 million people
enter the United States legally each year, and another 300,000 just show up.
When they get here, they look for jobs. And often, they're willing to accept
lower-paying jobs than the average citizen.
Finally, and perhaps most importantly, wage rates are kept in check by
executives' intense profit focus. Payroll is a company's biggest expense. When
payroll skyrockets, profits decline -- and that would be bad for a CEO who
promised Wall Street double-digit earnings growth from now to the end of time.
If investors are disappointed in earnings growth, they sell their stock. And
when they sell their stock, the stock options that are an essential part of many
executives' compensation are as valuable as scrap paper.
Supporting our theory are two distinct and important sets of data which were
released in late October: The Bureau of Economic Analysis (BEA) released its
third-quarter estimate of gross domestic product (GDP), the value of all goods
and services produced in the United States, and the Bureau of Labor Statistics
(BLS) released its employment cost index (ECI), which measures what employers
pay for their workers' wages, salaries and benefits.
GDP grew at a 4.8 percent rate in the third quarter, up sharply from the
revised 1.9 percent second-quarter pace and just slightly above the consensus
estimate of 4.7 percent.
At the same time, however, the ECI rose by 0.8 percent in the July-September
period, down from a 1.1 percent increase in the second quarter. The
third-quarter gain also was lower than the 0.9 percent increase forecast by
economists in a Reuters poll. (The report, by the way, is said to be one of the
favorites of Federal Reserve Chairman Alan Greenspan, who uses it as a key
indicator of inflation pressures in the world's largest economy.)
In essence, then, the U.S. economy posted its strongest growth so far this
year in the third quarter, while wage costs remained tame. The combination of
strong consumer demand and the lowest unemployment in a generation just isn't
igniting wage-driven inflation.
These figures tell us that the Fed won't have inflation as an excuse to raise
interest rates for a third time this year when it meets on Nov. 16 to decide
whether to raise key interest rates for the third time this year.
But more importantly, if these numbers prove anything, it's that conventional
wisdom that growth causes inflation should be turned on its head. The Fed, in
deciding to
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 (10/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate 1 6.1 5.2 4.5 6.0
Prime rate 2 8.25 7.75 8.25 8.5
Inflation rate 3* 2.6 1.8 1.4 2.2
The U.S. dollar 4 -0.9 -0.5 1.1 7.6
Capital goods orders 5* 5.25 5.5 8.6 4.6
Industrial production 5* 2.4 2.0 2.65 6.1
Employment growth 6 2.2 2.3 2.4 2.7
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF 9/30/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
target growth itself, wants the country to slow down to prevent an inflation
outbreak. This is a dangerous game. If it succeeds in slowing growth, inflation
could easily disappear or turn into deflation. Real rates that are already high
would turn punitive. Credit quality would deteriorate rudely. Only rapid growth
can ensure that companies and consumers can continue to pay their bills.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
Scudder Kemper Investments Economics Group
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF OCTOBER 28, 1999, AND MAY NOT ACTUALLY COME TO PASS.
THIS INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS
AN INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
MANAGEMENT TEAM
KEMPER NATIONAL TAX-FREE INCOME SERIES
PORTFOLIO MANAGEMENT TEAM
[BRENNAN PHOTO]
ELEANOR R. BRENNAN IS CO-LEAD PORTFOLIO MANAGER OF KEMPER MUNICIPAL BOND FUND.
SHE JOINED SCUDDER KEMPER INVESTMENTS, INC. IN MARCH 1995 AND IS A VICE
PRESIDENT.
[CAGGIANO PHOTO]
MATTHEW J. CAGGIANO IS A PORTFOLIO MANAGER FOR KEMPER MUNICIPAL BOND FUND. HE IS
A CHARTERED FINANCIAL ANALYST AND JOINED THE FIRM IN 1991.
[CONDON PHOTO]
PHILIP G. CONDON IS CO-LEAD PORTFOLIO MANAGER OF KEMPER MUNICIPAL BOND FUND AND
PORTFOLIO MANAGER OF KEMPER INTERMEDIATE MUNICIPAL BOND FUND. HE JOINED SCUDDER
KEMPER INVESTMENTS IN 1983.
[GOODFIELD PHOTO]
ASHTON P. GOODFIELD IS LEAD PORTFOLIO MANAGER OF KEMPER INTERMEDIATE MUNICIPAL
BOND FUND. A SENIOR VICE PRESIDENT AND CHARTERED FINANCIAL ANALYST, SHE JOINED
SCUDDER KEMPER INVESTMENTS IN 1990.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
5
<PAGE> 6
PERFORMANCE UPDATE
AS THE FISCAL YEAR BEGAN, INVESTOR FOCUS SHIFTED FROM TURBULENCE OVERSEAS TO
STRONG ECONOMIC GROWTH IN THE UNITED STATES. FEARS OF POTENTIALLY HIGHER
INFLATION PUSHED INTEREST RATES UP AND BOND PRICES DOWN THROUGHOUT THE FUNDS'
FISCAL YEAR. IN THE FOLLOWING Q&A, THE MANAGEMENT TEAM DISCUSSES THE MARKET'S
PERFORMANCE AND THEIR INVESTMENT STRATEGY.
Q BEFORE WE GET INTO THE PERFORMANCE OF THE FUNDS, COULD YOU PROVIDE SOME
BACKGROUND ON HOW GOVERNMENT BONDS PERFORMED OVER THE LAST 12 MONTHS?
A The last 12 months were characterized by a nearly continuous rise in
interest rates across all maturities. At the very start of the fiscal year last
fall, the market was in the grip of a "flight to quality" brought on by
turbulence in international markets. Russia had defaulted on part of its debt,
Asian economies and currency markets were battered by uncertainty, and the
stability of Latin American markets was coming into question. Added to this,
much of Europe was converting to the euro at year-end. For nervous investors,
about the only safe bet in town was U.S. Treasury bonds. As a result, money
poured into the U.S. Treasury market, and the demand pushed yields down to
historically low levels. In fact, for much of October 1998, the yield on 30-year
U.S. Treasury bonds was actually below 5 percent for the first time in recent
memory.
To help combat the uncertainty and ward off a worsening of the situation,
the Federal Reserve cut interest rates three times in the last quarter of 1998.
The Fed's plan, in part, was to inject liquidity into the global financial
system by stimulating the U.S. economy -- and thereby other economies -- and
make the yields on foreign bonds look more attractive in comparison with U.S.
securities.
Q DID THE FED'S PLAN WORK?
A Yes, it did. In fact, it worked almost TOO well. Investors gained
confidence that foreign economies could bring their problems under control, and
assets shifted from the U.S. to other markets. At the same time, some investors
feared that the Fed's stimulus, which was uncharacteristically applied during a
time of strong U.S. economic growth, would ignite inflation. Both these factors
acted to push interest rates up in the U.S. from the end of October 1998 to the
end of September 1999. As the fiscal year came to a close, the Federal Reserve
was compelled to put the brakes on the U.S. economy by raising rates on June 30
and again August 24.
Because bond prices fall when interest rates rise, these last 12 months
have been a challenging period for bond investors. It's been tough to try to
create positive returns for shareholders when fighting the constant headwind of
rising rates. This difficulty is reflected in the returns of bond indices. For
example, the Lehman Brothers Aggregate Bond Index*, which is a broad proxy for
the bond market as a whole, declined 0.37 percent for the 12-month period ended
September 30, 1999. High-quality corporate bonds experienced similar
performance, with the Lipper A-Rated Bond Fund Average* posting a -1.68 percent
return. Longer-term bonds were hit hardest; the Lehman Brothers Long-Term
Government Bond Index* was down 7.64 percent for the same period.
* THE LEHMAN AGGREGATE BOND INDEX IS A TOTAL RETURN INDEX INCLUDING FIXED-RATE
DEBT ISSUES RATED INVESTMENT-GRADE OR BETTER. IT CONTAINS GOVERNMENT,
CORPORATE AND MORTGAGE SECURITIES AND IS GENERALLY CONSIDERED REPRESENTATIVE
OF THE MARKET FOR INVESTMENT-GRADE BONDS AS A WHOLE. LIPPER A-RATED BOND FUND
AVERAGE IS AN AVERAGE OF THE TOTAL RETURN PERFORMANCE OF THE 25 LARGEST FUNDS
IN LIPPER ANALYTICAL SERVICES A-RATED BOND FUND CATEGORY. THE LEHMAN BROTHERS
LONG-TERM GOVERNMENT BOND INDEX IS A TOTAL RETURN INDEX GENERALLY CONSIDERED
REPRESENTATIVE OF THE MARKET FOR TREASURIES AND GOVERNMENT AGENCY SECURITIES
WITH MATURITIES GREATER THAN TEN YEARS.
Q HOW DID MUNICIPAL BONDS FARE IN COMPARISON?
A Despite an environment of rising interest rates, municipal bonds held up
well relative to government bonds. The Lehman Brothers Municipal Bond Index*
managed to end the period down 0.70 percent. Certainly, a negative total return
is nothing to cheer about, but in comparison with how long-term government bonds
performed, municipals held their own.
* THE LEHMAN BROTHERS MUNICIPAL BOND INDEX INCLUDES APPROXIMATELY 15,000 BONDS.
TO BE INCLUDED IN THE INDEX, A MUNICIPAL BOND MUST MEET THE FOLLOWING
CRITERIA: A MINIMUM CREDIT RATING OF BBB, ISSUED AS A PART OF AN ISSUE OF AT
LEAST $50 MILLION, ISSUED WITHIN THE LAST FIVE YEARS, AND A MATURITY OF AT
LEAST TWO YEARS. BONDS SUBJECT TO ALTERNATIVE MINIMUM TAX, VARIABLE RATE BONDS
AND ZERO COUPON BONDS ARE EXCLUDED FROM THE INDEX.
6
<PAGE> 7
PERFORMANCE UPDATE
Q WHY DID MUNICIPAL BONDS HOLD UP BETTER THAN THE LONG-TERM GOVERNMENT BOND
MARKET?
A The turbulence had less of an impact because several factors were
operating in favor of municipal bonds. The primary one was a positive
supply/demand situation. Municipal bond issuance in 1999 through September was
down more than 20 percent from the same period last year. With demand remaining
strong and fewer bonds from which to choose, investors were willing to settle
for slightly less yield, and that helped provide a ceiling on how far up yields
would go and, therefore, how far down prices would go.
Second, municipal bond yields were very attractive compared with government
bond yields. Usually, a municipal bond will yield about 10 to 15 percent less
than a similar-maturity government bond, because the tax advantage of a
municipal is discounted in its price. But when government bond yields were so
low, A-rated municipal bonds actually OUTYIELDED 30-year Treasuries, which is
very unusual. As a result, a lot of "crossover buyers" -- investors who wouldn't
normally buy municipal bonds -- entered the market and helped boost demand.
According to THE BOND BUYER Revenue Bond Index (see Terms To Know on page
8), A-rated municipal bonds at the end of September yielded nearly THE SAME as a
similar-maturity treasury bond -- a very attractive value when you consider the
tax advantage that municipal bonds offer.
Finally, a solid credit situation has helped support municipal bond prices.
The economy is growing well, and that translates to solid tax revenues for
municipalities. A good revenue stream means an increase in high-quality bonds,
which tend to have lower yields because buyers don't need to be compensated to
take extra risk.
Q HOW DID THE FUNDS PERFORM SPECIFICALLY?
A As did nearly all municipal bond funds, our funds lagged the -0.70 percent
return registered by the Lehman Brothers Municipal Index for the 12-month period
ended September 30. Mutual funds tended to lag the index because funds have to
contend with trading charges and operating expenses that an index does not.
Normally, our active management can take advantage of discrepancies in the
market to overcome this difference. But a challenging market like that of the
past year requires shifting and restructuring just to stay even.
Overall, the funds performed in line with their peer groups. For the fiscal
year, Kemper Municipal Bond Fund returned -2.75 percent (Class A shares,
unadjusted for any sales charge), which was slightly better than the Lipper
General Municipal Debt Average of -3.07 percent. Kemper Intermediate Municipal
Bond Fund, by virtue of its shorter maturity, declined less. It finished the
fiscal year with a -0.79 percent return (Class A shares, unadjusted for any
sales charge), and performed in line with the Lipper Intermediate Municipal Debt
Fund Average return of -0.76 percent.
On an absolute basis, it wasn't a year to write home about, but on a
relative basis, we held our own.
Q YOU'VE SAID IN THE PAST THAT YOU NORMALLY MANAGE THE FUNDS BY KEEPING
CLOSE TO A NEUTRAL DURATION AND THEN TRYING TO TAKE ADVANTAGE OF DISLOCATIONS IN
THE MARKET TO INCREMENTALLY BOOST RETURNS. DID YOU DO ANYTHING IN ADDITION TO
THAT DURING THE COURSE OF THE YEAR?
A We've been concentrating purchases in the five- to 12-year maturity range.
For the last several months, this area of the yield curve appeared to offer the
best trade-off of risk and return. Another thing we've been doing is selectively
selling bonds and taking losses to help offset gains in other areas. Our goal is
to neutralize any big taxable capital gain distribution to our shareholders at
the end of the year. We believe we've been successful at that. And one added
advantage is that we can reinvest the proceeds of our bond sales at today's
higher rates.
Q WHAT'S YOUR OUTLOOK FOR THE MUNICIPAL MARKET FROM HERE?
A We think municipals should perform relatively well for several reasons.
First, the municipal market should continue to be more stable than the
government and corporate bond markets. As the fiscal year drew to a close, it
appeared that investors were expecting the Federal Reserve to raise rates at
least once more. If the Fed does tighten, Treasuries and corporate bonds would
likely remain volatile as most investors try to interpret the ramifications of
higher rates on both the domestic and global economies. Meanwhile, municipal
investors tend not to pay close attention to global markets or corporate
profits. They are typically more reliable buyers,
7
<PAGE> 8
PERFORMANCE UPDATE
and their steady demand should help dampen volatility in the municipal bond
market.
Second, the municipal market continues to offer attractive value, with
long-maturity yields still attractive relative to Treasuries. As we mentioned,
A-rated municipal bonds now yield nearly the same as similar-maturity
Treasuries, even without factoring in the tax advantage. Third, strong municipal
finances should help alleviate credit concerns. And finally, issuance has so far
remained more than 20 percent below last year's levels, and that lack of supply
should help support prices.
For these reasons, we think that municipal bonds will continue to offer
fixed-income investors an attractive option.
TERMS TO KNOW
BOND RATINGS Grades assigned by credit-rating agencies to corporate and
municipal debt securities, based on the borrower's expected ability to repay.
The higher the grade, the lower the interest rate a borrower will usually pay.
The two major credit rating firms are Moody's Investors Service, Inc. and
Standard & Poor's.
DURATION A measure, in years, of the interest rate sensitivity of a portfolio,
incorporating time-to-maturity and coupon size. The longer a portfolio's
duration, the greater its sensitivity to interest-rate changes.
REVENUE BOND INDEX (RBI) The RBI is the average yield on 25 revenue bonds with
30-year maturities generally rated single "A," compiled by THE BOND BUYER, a
newspaper that reports on the municipal bond market.
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.
8
<PAGE> 9
PERFORMANCE UPDATE
KEMPER MUNICIPAL BOND FUND
[BAR GRAPH]
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
FOR PERIODS ENDED SEPTEMBER 30, 1999 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER MUNICIPAL BOND FUND CLASS A -7.12% 5.39% 6.66% 7.33% (since 4/20/76)
- ----------------------------------------------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND CLASS B -6.19 5.29 N/A 4.71 (since 5/31/94)
- ----------------------------------------------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND CLASS C -3.47 5.51 N/A 4.95 (since 5/31/94
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND CLASS A
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class A shares from 04/30/76 to
09/30/99
<TABLE>
<CAPTION>
KEMPER MUNICIPAL BOND LEHMAN BROTHERS
FUND CLASS A(1) MUNICIPAL BOND INDEX(+) CONSUMER PRICE INDEX(++)
--------------------- -------------------- ----------------------
<S> <C> <C> <C>
4/30/76 9550.00 10000.00 10000.00
10436.00 11695.00 10363.00
11220.00 12424.00 11064.00
11020.00 11861.00 12063.00
10871.00 11790.00 13668.00
9368.00 10739.00 15363.00
8431.00 9641.00 16736.00
12065.00 13581.00 17384.00
12/31/83 13785.00 14675.00 18044.00
15208.00 16223.00 18758.00
18427.00 19473.00 19465.00
21943.00 23234.00 19685.00
22620.00 23583.00 20553.00
24575.00 25978.00 21455.00
27353.00 28780.00 22453.00
29174.00 30881.00 23823.00
12/31/91 32902.00 34630.00 24553.00
35768.00 37683.00 25258.00
40488.00 42312.00 25960.00
38258.00 40140.00 26655.00
45270.00 47129.00 27312.00
46776.00 49216.00 28239.00
51152.00 53740.00 28720.00
54099.00 57222.00 29183.00
9/30/99 52609.00 56486.00 29824.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND CLASS B
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class A shares from 05/31/94 to
9/30/99
<TABLE>
<CAPTION>
KEMPER MUNICIPAL BOND LEHMAN BROTHERS
FUND CLASS B(1) MUNICIPAL BOND INDEX(+) CONSUMER PRICE INDEX(++)
--------------------- --------------------- ----------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9744.00 9868.00 10149.00
12/31/95 11444.00 11586.00 10400.00
11707.00 12099.00 10753.00
12/31/97 12688.00 13211.00 10936.00
13307.00 14067.00 11112.00
9/30/99 12776.00 13886.00 11356.00
</TABLE>
[LINE GRAPH]
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND CLASS C
- --------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class A shares from 05/31/94 to
09/30/99
<TABLE>
<CAPTION>
KEMPER MUNICIPAL BOND LEHMAN BROTHERS
FUND CLASS C MUNICIPAL BOND INDEX(+) CONSUMER PRICE INDEX(++)
--------------------- --------------------- ----------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9776.00 9868.00 10149.00
12/31/95 11484.00 11586.00 10400.00
11762.00 12099.00 10753.00
12/31/97 12755.00 13211.00 10936.00
13378.00 14067.00 11112.00
9/30/99 12940.00 13886.00 11356.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH
MORE OR LESS THAN ORIGINAL COST.
* AVERAGE ANNUAL TOTAL RETURN AND TOTAL RETURN MEASURE NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM PORTFOLIO INVESTMENTS OVER THE PERIODS
SPECIFIED, ASSUMING REINVESTMENT OF DIVIDENDS AND, WHERE INDICATED,
ADJUSTMENT FOR THE MAXIMUM SALES CHARGE. THE MAXIMUM SALES CHARGE FOR CLASS A
SHARES IS 4.5%. FOR CLASS B SHARES, THE MAXIMUM CONTINGENT DEFERRED SALES
CHARGE IS 4%. CLASS C SHARES HAVE NO SALES ADJUSTMENT, BUT REDEMPTIONS WITHIN
ONE YEAR OF PURCHASE MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF
1%. SHARE CLASSES INVEST IN THE SAME UNDERLYING PORTFOLIO. AVERAGE ANNUAL
RETURN REFLECTS ANNUALIZED CHANGE, WHILE TOTAL RETURN REFLECTS AGGREGATE
CHANGE. DURING THE PERIODS NOTED, SECURITIES PRICES FLUCTUATED. FOR
ADDITIONAL INFORMATION, SEE THE PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION AND THE FINANCIAL HIGHLIGHTS AT THE END OF THIS REPORT.
(1)PERFORMANCE INCLUDES REINVESTMENT OF DIVIDENDS AND ADJUSTMENT FOR THE MAXIMUM
SALES CHARGE FOR CLASS A SHARES AND THE CONTINGENT DEFERRED SALES CHARGE IN
EFFECT AT THE END OF THE PERIOD FOR CLASS B SHARES. IN COMPARING KEMPER
MUNICIPAL BOND FUND WITH THE LEHMAN BROTHERS MUNICIPAL BOND INDEX, YOU SHOULD
NOTE THAT THE FUND'S PERFORMANCE REFLECTS THE MAXIMUM SALES CHARGE, WHILE NO
SUCH CHARGES ARE REFLECTED IN THE PERFORMANCE OF THE INDEX.
+ THE LEHMAN BROTHERS MUNICIPAL BOND INDEX INCLUDES APPROXIMATELY 15,000 BONDS.
TO BE INCLUDED IN THE INDEX, A MUNICIPAL BOND MUST MEET THE FOLLOWING
CRITERIA: A MINIMUM CREDIT RATING OF BBB, ISSUED AS A PART OF AN ISSUE OF AT
LEAST $50 MILLION, ISSUED WITHIN THE LAST FIVE YEARS, AND A MATURITY OF AT
LEAST TWO YEARS. BONDS SUBJECT TO ALTERNATIVE MINIMUM TAX, VARIABLE RATE
BONDS AND ZERO COUPON BONDS ARE EXCLUDED FROM THE INDEX. SOURCE IS CDA
WIESENBERGER.
++ THE CONSUMER PRICE INDEX IS A STATISTICAL MEASURE OF CHANGE, OVER TIME, IN
THE PRICES OF GOODS AND SERVICES IN MAJOR EXPENDITURE GROUPS FOR ALL URBAN
CONSUMERS. IT IS GENERALLY CONSIDERED TO BE A MEASURE OF INFLATION. SOURCE IS
CDA WEISENBERGER.
9
<PAGE> 10
PORTFOLIO STATISTICS
KEMPER MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION* ON 9/30/99 ON 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 66% 69%
- --------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 19 18
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURED BONDS 13 13
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS 2 --
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 09/30/99 ON 09/30/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
QUALITY ON 9/30/99 ON 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 64% 63%
- --------------------------------------------------------------------------------
AA 12 13
- --------------------------------------------------------------------------------
A 5 11
- --------------------------------------------------------------------------------
BBB 10 10
- --------------------------------------------------------------------------------
BB 1 --
- --------------------------------------------------------------------------------
NOT RATED 8 3
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 09/30/99 ON 09/30/98
- --------------------------------------------------------------------------------
YEARS TO MATURITY ON 9/30/99 ON 9/30/98
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
1-10 YEARS 46% 17%
- --------------------------------------------------------------------------------
11-20 YEARS 46 50
- --------------------------------------------------------------------------------
+21 YEARS 8 33
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 09/30/99 ON 09/30/98
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ON 9/30/99 ON 9/30/98
- -------------------------------------------------------------------------------
<S> <C> <C>
AVERAGE MATURITY 13.7 years 16.3 years
- -------------------------------------------------------------------------------
</TABLE>
* PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
10
<PAGE> 11
PERFORMANCE UPDATE
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
- -------------------------------------------------------------------------------
FOR PERIODS ENDED SEPTEMBER 30, 1999 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR LIFE OF CLASS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS A -3.54% 5.50% (since 11/1/94)
- -------------------------------------------------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS B -4.34 4.91 (since 11/1/94)
- -------------------------------------------------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS C -1.56 5.30 (since 11/1/94)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
- -------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS A
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class A shares from 11/30/94 to
9/30/99
<TABLE>
<CAPTION>
KEMPER INTERMEDIATE
MUNICIPAL BOND FUND LEHMAN BROTHERS
CLASS A(1) MUNICIPAL BOND INDEX(+) CONSUMER PRICE INDEX(++)
------------------- --------------------- ----------------------
<S> <C> <C> <C>
11/30/94 9721.00 10000.00 10000.00
9917.00 10224.00 10000.00
12/31/95 11314.00 12004.00 10247.00
11700.00 12536.00 10595.00
12/31/97 12576.00 13688.00 10775.00
13235.00 14575.00 10949.00
9/30/99 13088.00 14388.00 11189.00
</TABLE>
[LINE GRAPH]
- -------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS B
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class B shares from 11/30/94 to
9/30/99
<TABLE>
<CAPTION>
KEMPER INTERMEDIATE
MUNICIPAL BOND FUND LEHMAN BROTHERS
CLASS B(1) MUNICIPAL BOND INDEX(+) CONSUMER PRICE INDEX(++)
------------------- --------------------- ----------------------
<S> <C> <C> <C>
11/30/94 10000.00 10000.00 10000.00
10193.00 10224.00 10000.00
12/31/95 11516.00 12004.00 10247.00
11826.00 12536.00 10595.00
12/31/97 12602.00 13688.00 10775.00
13167.00 14575.00 10949.00
9/30/99 12748.00 14388.00 11189.00
</TABLE>
[LINE GRAPH]
- -------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS C
- -------------------------------------------------------------------------------
Growth of an assumed $10,000 investment in Class C shares from 11/30/94 to
9/30/99
<TABLE>
<CAPTION>
KEMPER INTERMEDIATE
MUNICIPAL BOND FUND LEHMAN BROTHERS
CLASS C(1) MUNICIPAL BOND INDEX(+) CONSUMER PRICE INDEX(++)
------------------- --------------------- ----------------------
<S> <C> <C> <C>
11/30/94 10000.00 10000.00 10000.00
10196.00 10224.00 10000.00
12/31/95 11534.00 12004.00 10247.00
11833.00 12536.00 10595.00
12/31/97 12626.00 13688.00 10775.00
13184.00 14575.00 10949.00
9/30/99 12964.00 14388.00 11189.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
*AVERAGE ANNUAL TOTAL RETURN AND TOTAL RETURN MEASURE NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM PORTFOLIO INVESTMENTS OVER THE PERIODS
SPECIFIED, ASSUMING REINVESTMENT OF DIVIDENDS AND, WHERE INDICATED,
ADJUSTMENT FOR THE MAXIMUM SALES CHARGE. THE MAXIMUM SALES CHARGE FOR CLASS
A SHARES IS 2.75%. FOR CLASS B SHARES, THE MAXIMUM CONTINGENT DEFERRED
SALES CHARGE IS 4%. CLASS C SHARES HAVE NO SALES ADJUSTMENT, BUT
REDEMPTIONS WITHIN ONE YEAR OF PURCHASE MAY BE SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE OF 1%. SHARE CLASSES INVEST IN THE SAME UNDERLYING
PORTFOLIO. AVERAGE ANNUAL RETURN REFLECTS ANNUALIZED CHANGE, WHILE TOTAL
RETURN REFLECTS AGGREGATE CHANGE. DURING THE PERIODS NOTED, SECURITIES
PRICES FLUCTUATED. FOR ADDITIONAL INFORMATION, SEE THE PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION AND THE FINANCIAL HIGHLIGHTS AT THE END
OF THIS REPORT.
(1)PERFORMANCE INCLUDES REINVESTMENT OF DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A SHARES AND THE CONTINGENT DEFERRED SALES
CHARGE IN EFFECT AT THE END OF THE PERIOD FOR CLASS B SHARES. IN COMPARING
THE KEMPER INTERMEDIATE MUNICIPAL BOND FUND TO THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX, YOU SHOULD NOTE THAT THE FUND'S PERFORMANCE REFLECTS
THE MAXIMUM SALES CHARGE, WHILE NO SUCH CHARGES ARE REFLECTED IN THE
PERFORMANCE OF THE INDEX.
+THE LEHMAN BROTHERS MUNICIPAL BOND INDEX INCLUDES APPROXIMATELY 15,000
BONDS. TO BE INCLUDED IN THE INDEX, A MUNICIPAL BOND MUST MEET THE
FOLLOWING CRITERIA: A MINIMUM CREDIT RATING OF BBB, ISSUED AS A PART OF AN
ISSUE OF AT LEAST $50 MILLION, ISSUED WITHIN THE LAST FIVE YEARS, AND A
MATURITY OF AT LEAST TWO YEARS. BONDS SUBJECT TO ALTERNATIVE MINIMUM TAX,
VARIABLE RATE BONDS AND ZERO COUPON BONDS ARE EXCLUDED FROM THE INDEX.
SOURCE IS CDA WIESENBERGER.
++THE CONSUMER PRICE INDEX IS A STATISTICAL MEASURE OF CHANGE, OVER TIME, IN
THE PRICES OF GOODS AND SERVICES IN MAJOR EXPENDITURE GROUPS FOR ALL URBAN
CONSUMERS. IT IS GENERALLY CONSIDERED TO BE A MEASURE OF INFLATION. SOURCE
IS CDA WIESENBERGER.
11
<PAGE> 12
PORTFOLIO STATISTICS
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION* ON 9/30/99 ON 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 60% 68%
- --------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 21 19
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURED BONDS 15 13
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS 4 --
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 9/30/99 ON 9/30/98
QUALITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 9/30/99 ON 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 66% 62%
- --------------------------------------------------------------------------------
AA 13 12
- --------------------------------------------------------------------------------
A 3 4
- --------------------------------------------------------------------------------
BBB 12 13
- --------------------------------------------------------------------------------
NOT RATED 6 9
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 9/30/99 ON 9/30/98
YEARS TO MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 9/30/99 ON 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
1-10 YEARS 85% 68%
- --------------------------------------------------------------------------------
11-20 YEARS 15 32
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 9/30/99 ON 9/30/98
AVERAGE MATURITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ON 9/30/99 ON 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
6.6 years 7.0 years
- -------------------------------------------------------------------------------
</TABLE>
* PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
KEMPER MUNICIPAL BOND FUND
Investment Portfolio as of September 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM MUNICIPAL INVESTMENTS--2.0%
- ---------------------------------------------------------------------------------------------------------------------
ALASKA
Valdez, AK, Marine Terminal Revenue, Exxon Pipeline
Project B, 3.750%, 12/01/2033* $ 7,900 $ 7,900
- ---------------------------------------------------------------------------------------------------------------------
NEW YORK
Long Island, NY, Power Authority New York Electricity,
Revenue, Series 6, 3.750%, 05/01/2033* 21,500 21,500
- ---------------------------------------------------------------------------------------------------------------------
TEXAS
Harris County, TX, Health Facilities, Revenue, Saint
Lukes Episcopal Hospital, Series A, 3.800%,
02/15/2027* 10,000 10,000
Harris County, TX, Health Facilities, Revenue, Saint
Lukes Episcopal Hospital, Series B, 3.800%,
02/15/2027* 8,000 8,000
Texas, Sabine River Pollution Authority, Revenue, Series
C, 4.300%, 06/01/2030* 7,575 7,575
----------------------------------------------------------------------------------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $54,975) 54,975
----------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS--98.0%
- ---------------------------------------------------------------------------------------------------------------------
ALABAMA
Birmingham, AL, Jefferson Civic Center, Special Tax
Revenue, 7.400%, 01/01/2008 12,000 12,274
- ---------------------------------------------------------------------------------------------------------------------
ALASKA
Anchorage, AK, Electric Utilities Revenue, 6.500%,
12/01/2015 (c) 5,000 5,545
North Slope Borough, AK, General Obligation, Series
1997A, Zero Coupon, 06/30/2008 (c) 23,700 15,150
North Slope Borough, AK, General Obligation, Series A,
Zero Coupon, 06/30/2009 (c) 18,500 11,162
- ---------------------------------------------------------------------------------------------------------------------
ARIZONA
Coconino County, AZ, Industrial Development Authority,
Revenue, Guidance Center Income Project, Prerefunded
6/01/2001, 9.250%, 06/01/2011 (b) 540 589
Phoenix, AZ, General Obligation, Partially Prerefunded,
6.375%, 07/01/2013 7,400 7,863
Phoenix, AZ, Street & Highway User Revenue, Prerefunded
7/1/2002, 6.250%, 07/01/2011 (b) 10,000 10,606
Salt River Project Arizona Agricultural Improvement,
Revenue, Series C, 6.250%, 01/01/2019 8,000 8,336
- ---------------------------------------------------------------------------------------------------------------------
ARKANSAS
Jonesboro, AR, Residential Housing, Revenue, St Bernards
Regional Medical Center, Series A, 5.800%,
07/01/2012 (c) 4,025 4,143
North Little Rock, AR, Electric Revenue, Series A,
6.500%, 07/01/2010 (c) 19,750 22,006
North Little Rock, AR, Electric Revenue, Series A,
6.500%, 07/01/2015 (c) 13,080 14,511
- ---------------------------------------------------------------------------------------------------------------------
CALIFORNIA
Foothill Eastern, CA, Corridor Agency, Revenue, Series
A, Prerefunded 01/01/2010, 6.000%, 01/01/2016 (b) 20,400 22,250
Foothill Eastern, CA, Corridor Agency, Revenue, Series
A, Prerefunded 01/01/2007, 6.500%, 01/01/2032 (b) 19,975 22,259
Foothill Eastern, CA, Corridor Agency, Revenue, Series
A, Prerefunded 01/01/2007, 6.000%, 01/01/2034 (b) 14,200 15,445
Los Angeles, CA, Department of Water & Power, Revenue,
5.500%, 10/15/2012 5,000 5,146
Murrieta Valley, CA, University School District, General
Obligation, Series A, Zero Coupon, 09/01/2012 (c) 4,240 2,142
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Murrieta Valley, CA, University School District, General
Obligation, Series A, Zero Coupon, 09/01/2014 (c) $ 4,235 $ 1,870
San Diego, CA, Industrial Development Revenue, Series A,
6.100%, 09/01/2019 (c) 14,600 15,198
San Diego, CA, Unified School District, General
Obligation, Series A, Zero Coupon, 07/01/2014 (c) 3,420 1,524
San Joaquin Hills, CA, Transportation, Revenue, Series
A, Zero Coupon, 01/15/2013 (c) 35,295 17,215
San Joaquin Hills, CA, Transportation, Revenue, Series
A, Zero Coupon, 01/15/2014 (c) 14,905 6,793
- ---------------------------------------------------------------------------------------------------------------------
COLORADO
Arapahoe County, CO, Capital Improvements, Revenue,
Series E, Prerefunded 08/31/2005, 7.000%,
08/31/2026 (b) 25,525 29,229
Colorado Health Facilities Authority Revenue, Covenant
Retirement Community Project, 6.750%, 12/01/2015 1,750 1,848
Colorado Health Facilities Authority Revenue, Covenant
Retirement Community Project, 6.750%, 12/01/2025 4,150 4,295
Colorado Housing Finance Authority Revenue, Single
Family, Series C, 7.650%, 08/01/2022 240 243
Colorado Metropolitan Waste & Water Reclamation,
Revenue, Series B, 6.000%, 04/01/2010 11,505 11,898
Colorado Public Highway Authority Revenue, Series B,
Zero Coupon, 09/01/2012 (c) 5,500 2,715
Colorado Public Highway Authority Revenue, Series B,
Zero Coupon, 09/01/2013 (c) 10,000 4,611
Colorado Public Highway Authority Revenue, Series A,
5.750%, 09/01/2014 (c) 13,700 14,165
Colorado Public Highway Authority Revenue, Series B,
Zero Coupon, 09/01/2014 (c) 11,295 4,869
Colorado Public Highway Authority Revenue, Series B,
Zero Coupon, 09/01/2015 (c) 21,500 8,693
Colorado Public Highway Authority Revenue, Series B,
Zero Coupon, 09/01/2017 (c) 5,000 1,776
Colorado Public Highway Authority Revenue, Series B,
Zero Coupon, 09/01/2018 (c) 12,000 3,994
Denver, CO, City and County Airport Revenue, Series A,
7.400%, 11/15/2005 1,250 1,371
Denver, CO, City and County Airport Revenue, Series A,
7.500%, 11/15/2006 1,000 1,103
Denver, CO, City and County Airport Revenue, Series A,
Prerefunded 11/15/2002, 7.500%, 11/15/2012 (b) 5,940 6,601
Denver, CO, City and County Airport Revenue, Series B,
7.250%, 11/15/2012 12,715 13,629
Denver, CO, City and County Airport Revenue, Series B,
Prerefunded 11/15/2002, 7.250%, 11/15/2012 (b) 3,260 3,593
Denver, CO, City and County Airport Revenue, Series A,
5.600%, 11/15/2020 6,200 6,090
Denver, CO, City and County Airport Revenue, Series C,
6.750%, 11/15/2022 5,180 5,354
Denver, CO, City and County Airport Revenue, Series C,
Prerefunded 11/15/2002, 6.750%, 11/15/2022 (b) 1,380 1,501
Denver, CO, City and County Airport Revenue, Series A,
8.500%, 11/15/2023 4,270 4,514
Denver, CO, City and County Airport Revenue, Series A,
8.750%, 11/15/2023 5,880 6,410
Denver, CO, City and County Airport Revenue, Series A,
7.500%, 11/15/2023 5,945 6,555
Denver, CO, City and County Airport Revenue, Series A,
Prerefunded 11/15/2000, 8.500%, 11/15/2023 (b) 405 433
Denver, CO, City and County Airport Revenue, Series A,
Prerefunded 11/15/2001, 8.750%, 11/15/2023 (b) 2,120 2,352
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Denver, CO, City and County Airport Revenue, Series A,
Prerefunded 11/15/2004, 7.500%, 11/15/2023 (b) $ 1,240 $ 1,422
Denver, CO, City and County Airport Revenue, Series A,
Prerefunded 11/15/2002, 7.250%, 11/15/2002 (b) 2,750 3,033
Denver, CO, City and County Airport Revenue, Series A,
Prerefunded 11/15/2002, 7.250%, 11/15/2002 (b) 7,000 7,722
Denver, CO, City and County School Districts, General
Obligation, Series A, Zero Coupon, 12/01/2008 10,250 6,436
Denver, CO, City and County School Districts, General
Obligation, Series A, 6.500%, 06/01/2010 3,225 3,597
Denver, CO, City and County School Districts, General
Obligation, Series A, 6.500%, 12/01/2010 3,000 3,363
Douglas County, CO, School District, General Obligation,
7.000%, 12/15/2013 (c) 10,000 11,632
Douglas County, CO, School District, General Obligation,
Series A, 6.500%, 12/15/2016 (c) 715 772
Eagle Garfield & Routt Counties, CO, General Obligation,
5.250%, 12/01/2015 (c) 5,000 4,859
El Paso County, CO, School District, General Obligation,
Series A, 6.000%, 12/01/2018 (c) 2,725 2,877
Thornton, CO, General Obligation, Zero Coupon,
12/01/2008 (c) 5,000 3,139
- ---------------------------------------------------------------------------------------------------------------------
CONNECTICUT
Connecticut State Development Authority, Revenue, Pierce
Memorial Baptist Home, Prerefunded 10/01/2000, 9.250%,
10/01/2018 (b) 1,140 1,232
Greenwich, CT, Housing Authority Revenue, Revenue,
Series A, 6.350%, 09/01/2027 2,640 2,592
- ---------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA
District of Columbia, Inverse Floating Rate Bond,
11.000%, 06/01/2012** 20,620 20,620
District of Columbia, General Obligation, Series B,
6.300%, 06/01/2010 4,500 4,798
District of Columbia, General Obligation, Series A,
5.500%, 06/01/2012 (c) 6,520 6,550
District of Columbia, General Obligation, Series B,
5.500%, 06/01/2012 (c) 41,240 41,430
District of Columbia, General Obligation, Series B,
6.000%, 06/01/2013 (c) 5,325 5,581
District of Columbia, General Obligation, Series B,
6.000%, 06/01/2015 (c) 2,600 2,709
District of Columbia, General Obligation, Series B,
6.000%, 06/01/2017 (c) 2,730 2,825
District of Columbia Redevelopment Land Agency, Revenue,
5.625%, 11/01/2010 5,105 5,189
District of Columbia Water & Sewer Authority, Inverse
Floating Rate Bond, Series 13, 7.875%, 10/01/2013** 1,210 1,350
District of Columbia Water & Sewer Authority, Inverse
Floating Rate Bond, Series 14, 7.873%, 10/01/2014** 1,970 2,185
District of Columbia Water & Sewer Authority, Inverse
Floating Rate Bond, Series 15, 7.870%, 10/01/2015** 3,565 3,935
District of Columbia Water & Sewer Authority, Inverse
Floating Rate Bond, Series 16, 7.870%, 10/01/2016** 2,750 3,017
- ---------------------------------------------------------------------------------------------------------------------
FLORIDA
Broward County, FL, Resource Recovery, Revenue, Broward
Waste Energy Project, 7.950%, 12/01/2008 2,945 3,048
Broward County, FL, Resource Recovery, Revenue, Broward
Waste Energy Project, 7.950%, 12/01/2008 8,720 9,026
Florida State Division Board Finance Department,
Revenue, Department Environmental
Protection-Preservation 2000, Series A, 5.375%,
07/01/2010 (c) 24,265 24,921
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Florida State Division Board Finance Department, Series
A, Inverse Floating Rate Bond, 6.630%, 07/01/2011** $11,000 $ 11,430
Greater Orlando, FL, Aviation Authority, Revenue, Series
A, 5.250%, 10/01/2013 (c) 5,300 5,154
Hillsborough County, FL, Industrial Development,
Revenue, Tampa Electric Project, 8.000%, 05/01/2022 10,000 11,017
Jacksonville, FL, Health Facilities A, Revenue, 11.500%,
10/01/2012 85 134
Jacksonville, FL, Health Facilities A, Revenue,
Prerefunded 10/01/2003, 11.500%, 10/01/2012 (b) 10 13
Jacksonville, FL, Health Facilities A, Revenue,
Prerefunded 10/01/2004, 11.500%, 10/01/2012 (b) 35 46
Jacksonville, FL, Health Facilities A, Revenue,
Prerefunded 10/01/2005, 11.500%, 10/01/2012 (b) 40 54
Jacksonville, FL, Health Facilities A, Revenue,
Prerefunded 10/01/2006, 11.500%, 10/01/2012 (b) 15 21
Lakeland, FL, Electric & Water Revenue, Zero Coupon,
10/01/2009 (c) 2,000 1,199
Miami Dade County, FL, Revenue, Series A, Zero Coupon,
10/01/2014 (c) 2,445 1,038
Miami Dade County, FL, School District, General
Obligation, 5.375%, 08/01/2013 (c) 5,000 5,048
Orange County, FL, Health Facilities Authority Revenue,
Orlando Regional Healthcare, Series A, 6.250%,
10/01/2016 (c) 1,000 1,078
Orange County, FL, Health Facilities Authority, Revenue,
Orlando Regional Healthcare, 6.250%, 10/01/2021 (c) 6,000 6,422
Orlando, FL, Utility Water and Electricity Revenue,
6.750%, 10/01/2017 3,500 3,993
Palm Beach County, FL, Solid Waste Authority Revenue,
Series A, Zero Coupon, 10/01/2013 20,000 9,242
Sunrise, FL, Utility System Revenue, Inverse Floating
Rate Bond, 6.956%, 10/01/2018** 5,000 4,971
Tampa, FL, Solid Waste System Revenue, Series B, 5.250%,
10/01/2014 (c) 4,400 4,234
Tampa, FL, Solid Waste System Revenue, Series B, 5.250%,
10/01/2015 (c) 2,420 2,305
- ---------------------------------------------------------------------------------------------------------------------
GEORGIA
Atlanta, GA, Water & Wastewater Revenue, Series A,
5.500%, 11/01/2015 (c) 11,240 11,341
Atlanta, GA, Water & Wastewater Revenue, Series A,
5.500%, 11/01/2019 (c) 8,000 7,928
Chatham County, GA, School District, General Obligation,
Prerefunded 08/01/2001, 6.150%, 08/01/2010 (b) 7,300 7,692
Fulton County, GA, Housing Authority Single, Revenue,
6.550%, 03/01/2018 235 243
Fulton County, GA, Housing Authority Single, Revenue,
Series A, 6.600%, 03/01/2028 3,635 3,775
Georgia Municipal Electric Authority Power Revenue,
Revenue, Series V, 6.600%, 01/01/2018 (c) 5,000 5,576
Georgia Municipal Electric Authority Power Revenue,
Revenue, Series W, 6.600%, 01/01/2018 3,500 3,903
Georgia State Housing & Financial Authority Revenue,
Single Family Mortgage, 6.250%, 12/01/2028 14,510 14,900
Metropolitan Atlanta, GA, Rapid Transportation, Revenue,
Second Indenture, Series A, 5.625%, 07/01/2020 (c) 12,000 11,897
</TABLE>
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HAWAII
Hawaii State, HI, Inverse Floating Rate Bond, 6.956%,
03/01/2014** $ 6,195 $ 6,140
Hawaii State, HI, General Obligation, Series C, 5.750%,
09/01/2014 5,000 5,088
Hawaii State, HI, General Obligation, Series C, 5.800%,
09/01/2015 5,000 5,085
- ---------------------------------------------------------------------------------------------------------------------
ILLINOIS
Chicago, IL, General Obligation, 5.500%, 01/01/2014 (c) 7,400 7,425
Chicago, IL, Board of Education, Certificates of
Participation, Series A, 6.250%, 01/01/2009 (c) 6,735 7,272
Chicago, IL, Board of Education, General Obligation,
Chicago School Reform, Series B, Zero Coupon,
12/01/2009 (c) 6,750 3,953
Chicago, IL, Board of Education, Certificates of
Participation, Series A, 6.250%, 01/01/2011 (c) 10,000 10,836
Chicago, IL, Board of Education, General Obligation,
Chicago School Reform, 6.250%, 12/01/2012 (c) 2,500 2,712
Chicago, IL, Board of Education, General Obligation,
Chicago School Reform, Series A, Zero Coupon,
12/01/2012 (c) 3,500 1,682
Chicago, IL, Board of Education, General Obligation,
Chicago School Reform, Series A, Zero Coupon,
12/01/2013 (c) 6,645 2,980
Chicago, IL, Board of Education, General Obligation,
Chicago School Reform, Series A, Zero Coupon,
12/01/2014 (c) 2,000 838
Chicago, IL, Board of Education, General Obligation,
Chicago School Reform, 6.000%, 12/01/2016 (c) 5,000 5,015
Chicago, IL, Board of Education, Certificates of
Participation, Series A, 6.000%, 01/01/2020 (c) 3,000 3,113
Chicago, IL, Gas Supply Revenue, Peoples Gas & Coke
Company, Series A, 8.100%, 05/01/2020 8,250 8,588
Chicago, IL, O'Hare International Airport Revenue,
General Airport, Series A, 6.375%, 01/01/2012 (c) 15,000 15,911
Chicago, IL, O'Hare International Airport Revenue,
Series A, 6.000%, 01/01/2012 5,000 5,096
Chicago, IL, O'Hare International Airport Revenue,
International Terminal, 6.750%, 01/01/2018 (c) 23,350 24,711
Chicago, IL, Skyway Toll Bridge, Revenue, 5.375%,
01/01/2011 (c) 5,380 5,414
Chicago, IL, Tax Allocation, Central Station Project,
Series A, Prerefunded 01/01/2005, 8.900%,
01/01/2011 (b) 1,610 1,796
Chicago, IL, Water Revenue, Zero Coupon, 11/01/2012 (c) 6,350 3,067
Cook County, IL, Capital Improvements, General
Obligation, 6.500%, 11/15/2013 (c) 21,220 23,449
Cook County, IL, Capital Improvements, General
Obligation, 6.500%, 11/15/2014 (c) 18,560 20,458
Harvard, IL, Multifamily Housing Revenue, Northfield
Court, 8.800%, 06/01/2008 3,780 3,960
Illinois Development Financial Authority, General
Obligation, Debt Restructure-East St Louis, 7.500%,
11/15/2013 3,750 4,122
Illinois Development Financial Authority Hospital
Revenue, Revenue, Adventist Health System, 5.500%,
11/15/2020 10,000 9,093
Illinois Development Financial Authority Pollution,
Revenue, Commonwealth Edison Company Project, Series
D, 6.750%, 03/01/2015 16,780 18,302
Illinois Health Facilities Authority Revenue, South
Suburban, 7.000%, 02/15/2009 4,695 5,209
Illinois Health Facilities Authority Revenue, South
Suburban Hospital, Prerefunded 02/15/2002, 7.000%,
02/15/2009 (b) 3,055 3,289
</TABLE>
17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Illinois Health Facilities Authority Revenue, Rush-
Presbyterian-St Lukes-A, 5.250%, 11/15/2012 (c) $ 7,650 $ 7,490
Illinois Health Facilities Authority Revenue, Rush-
Presbyterian-St Lukes-A, 5.250%, 11/15/2013 (c) 7,760 7,493
Illinois Health Facilities Authority Revenue, Rush-
Presbyterian-St Lukes-A, 5.250%, 11/15/2014 (c) 4,180 3,989
Illinois Health Facilities Authority Revenue, Health
Care Facilities-Northwestern Medical, Prerefunded
11/15/2004, 6.500%, 11/15/2015 (b) 3,900 4,304
Illinois Metropolitan Pier & Exposition, Revenue,
McCormick Place Exposition, Series A, Zero Coupon,
06/15/2008 (c) 7,890 5,041
Illinois Metropolitan Pier & Exposition, Revenue,
McCormick Place Exposition, Series A, Zero Coupon,
06/15/2013 (c) 20,390 9,449
Illinois Metropolitan Pier & Exposition, Revenue,
McCormick Place Exposition Project, 5.750%,
12/15/2014 (c) 3,460 3,516
Illinois Metropolitan Pier & Exposition, Revenue,
McCormick Place Exposition, Series A, Zero Coupon,
06/15/2015 (c) 10,000 4,061
Illinois Metropolitan Pier & Exposition, Revenue,
McCormick, Series A, Zero Coupon, 12/15/2015 (c) 10,000 3,946
Illinois Metropolitan Pier & Exposition, Revenue,
McCormick, Series A, Zero Coupon, 12/15/2017 (c) 8,375 2,900
Illinois Metropolitan Pier & Exposition, Revenue,
McCormick Place Exposition, Zero Coupon, 06/15/2018 7,250 2,421
Illinois Regional Transportation Authority, Revenue,
Series A, 6.700%, 11/01/2021 (c) 25,800 28,999
Lake, Cook, Kane and McHenry Counties, IL, General
Obligation, 6.300%, 12/01/2017 (c) 1,885 2,033
St Charles, IL, Multifamily Housing, Revenue, Housing-
Wessel Court Project, 7.600%, 04/01/2024 3,735 3,802
University Park, IL, Tax Allocation, Governors Gateway
Industrial Park, 8.500%, 12/01/2011 2,690 2,971
Will County, IL, Community Unit School District, General
Obligation, Series B, Zero Coupon, 11/01/2015 (c) 8,000 3,179
Will County, IL, Forest Preserves District, General
Obligation, Series B, Zero Coupon, 12/01/2011 (c) 4,145 2,147
Will County, IL, Forest Preserves District, General
Obligation, Series B, Zero Coupon, 12/01/2012 (c) 2,480 1,200
Will County, IL, Forest Preserves District, General
Obligation, Series B, Zero Coupon, 12/01/2013 (c) 12,030 5,433
Will County, IL, Forest Preserves District, General
Obligation, Series B, Zero Coupon, 12/01/2014 (c) 10,255 4,327
Will County, IL, Forest Preserves District, General
Obligation, Series B, Zero Coupon, 12/01/2015 (c) 5,730 2,266
- ---------------------------------------------------------------------------------------------------------------------
INDIANA
Fort Wayne, IN, Hospital Authority, Revenue, Parkview
Health Systems Inc Project, 5.000%, 11/15/2013 (c) 4,810 4,493
Indiana Health Facilities Financing Authority Hospital,
Revenue, Fayette Memorial Hospital Project, 7.200%,
10/01/2022 1,800 1,888
Indiana Transportation Financial Authority Highway
Revenue, Series A, 7.250%, 06/01/2015 4,000 4,714
Marion County, IN, Hospital Authority Revenue, Hospital
Facilities, 8.625%, 10/01/2012 7,195 7,340
- ---------------------------------------------------------------------------------------------------------------------
IOWA
Iowa Financial Authority Hospital Facility Revenue,
Trinity Regional Hospital Project, Prerefunded
07/01/2002, 7.000%, 07/01/2022 (b) 12,000 13,001
Iowa Financial Authority Single Family Revenue, 7.900%,
11/01/2022 1,460 1,492
</TABLE>
18
<PAGE> 19
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KENTUCKY
Hopkins County, KY, Hospital Revenue, Revenue, Trover
Clinic Found, 6.625%, 11/15/2011 (c) $ 4,000 $ 4,233
Kenton County, KY, Airport Board Revenue, Cincinnati
Northern Kentucky, Series A, 6.300%, 03/01/2015 (c) 6,250 6,546
Kentucky State Topeka Authority Toll Road Revenue,
Series A, 8.500%, 07/01/2004 85 85
- ---------------------------------------------------------------------------------------------------------------------
LOUISIANA
Jefferson Parish, LA, School Board, Revenue, 6.250%,
02/01/2008 (c) 11,000 11,631
Louisiana Public Facilities Authority Revenue, Centenary
College Louisiana Project, Prerefunded 02/01/2008,
5.750%, 02/01/2012 (b) 1,000 1,059
Louisiana Public Facilities Authority Revenue, Centenary
College Louisiana Project, Prerefunded 02/01/2008,
5.900%, 02/01/2017 (b) 1,000 1,069
New Orleans, LA, General Obligation, 5.500%,
12/01/2021 (c) 9,500 9,326
- ---------------------------------------------------------------------------------------------------------------------
MAINE
Maine Health & Higher Educational Facilities, Revenue,
Series B, 7.100%, 07/01/2014 2,750 3,097
- ---------------------------------------------------------------------------------------------------------------------
MARYLAND
Gaithersburg, MD, Economic Development, Revenue, First
Mortgage-Asbury Methodist, Prerefunded 01/01/2000,
7.850%, 01/01/2020 (b) 4,000 4,119
Maryland State Health & Higher Educational Facilities,
Revenue, Doctors County Hospital, 5.750%, 07/01/2013 6,785 6,414
Maryland State Stadium Sports Authority Facilities,
Revenue, Series D, 7.600%, 12/15/2019 17,200 17,660
Northeast Maryland Waste Disposal Authority Revenue,
Southwest Resource Recovery System, 7.200%,
01/01/2006 (c) 1,500 1,668
- ---------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS
Massachusetts Bay Transportation Authority, Revenue,
General Transportation, Series A, 5.875%, 03/01/2015 9,965 10,408
Massachusetts Bay Transportation Authority, Revenue,
Series B, 6.200%, 03/01/2016 12,950 13,812
Massachusetts Municipal Wholesale Electric Company,
Revenue, Series B, 6.750%, 07/01/2011 17,500 18,643
Massachusetts Municipal Wholesale Electric Company,
Revenue, Series B, 6.750%, 07/01/2017 3,945 4,114
Massachusetts Municipal Wholesale Electric Company,
Revenue, Series A, 6.000%, 07/01/2018 5,610 5,725
Massachusetts Municipal Wholesale Electric Company,
Revenue, Series C, 6.625%, 07/01/2018 10,000 10,386
Massachusetts State, General Obligation, Series B,
6.500%, 08/01/2011 5,940 6,270
Massachusetts State, Revenue, Federal Highway, Series A,
Zero Coupon, 12/15/2014 27,680 11,775
Massachusetts State Development Financial Agency,
Revenue, Health Care Facilities, Series A, 7.100%,
07/01/2032 3,000 2,981
Massachusetts State Port Authority Revenue, 13.000%,
07/01/2013 1,500 2,368
Massachusetts State Port Authority Revenue, Series B,
5.500%, 07/01/2015 (c) 3,025 2,967
Massachusetts State Turnpike Metropolitan Authority,
Revenue, Series C, Zero Coupon, 01/01/2018 (c) 10,000 3,509
Massachusetts State Turnpike Metropolitan Authority,
Revenue, Series C, Zero Coupon, 01/01/2019 (c) 5,500 1,816
Massachusetts State Turnpike Metropolitan Authority,
Revenue, Series C, Zero Coupon, 01/01/2020 (c) 12,750 3,958
</TABLE>
19
<PAGE> 20
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MICHIGAN
Battle Creek, MI, Downtown Development, Tax Allocation,
Prerefunded 05/01/2004, 7.600%, 05/01/2016 (b) $ 3,800 $ 4,324
Detroit, MI, General Obligation, Series A, 5.375%,
04/01/2010 (c) 2,295 2,333
Detroit, MI, General Obligation, Series A, Prerefunded
04/01/2005, 6.700%, 04/01/2010 (b) 2,500 2,770
Detroit, MI, General Obligation, Series B, 6.250%,
04/01/2010 3,410 3,619
Detroit, MI, City School District, General Obligation,
Series C, 5.250%, 05/01/2016 (c) 245 237
Michigan Higher Educational Facilities Authority,
Revenue, Calvin College Project, 5.550%, 06/01/2017 1,465 1,378
Michigan Municipal Bond Authority Revenue, Clean Water
Revolving Fund, 5.625%, 10/01/2013 12,745 12,933
Michigan Municipal Bond Authority Revenue, Clean Water
Revolving Fund, 5.750%, 10/01/2014 4,515 4,594
Michigan State Building Authority Revenue, Series I,
6.750%, 10/01/2011 9,750 10,353
Michigan State Hospital Financial Authority Revenue,
Gratiot Community Hospital, 6.100%, 10/01/2007 2,250 2,299
Michigan State Strategic Fund Limited, Revenue, 5.750%,
11/15/2018 1,400 1,284
Michigan State Trunk Line, Revenue, Series A, 5.500%,
11/01/2017 7,000 6,925
Tawas City, MI, Hospital Financial Authority, Revenue,
Series A, 5.600%, 02/15/2013 2,875 2,710
- ---------------------------------------------------------------------------------------------------------------------
MINNESOTA
New Hope, MN, Housing & Health, Revenue, Minnesota
Masonic Home North Ridge, 5.900%, 03/01/2019 1,335 1,247
New Hope, MN, Housing & Health, Revenue, Minnesota
Masonic Home North Ridge, 5.875%, 03/01/2029 2,700 2,457
St Louis Park, MN, Hospital Revenue, Series A, 7.250%,
07/01/2015 (c) 6,650 6,945
- ---------------------------------------------------------------------------------------------------------------------
MISSISSIPPI
Jones County, MS, Hospital Revenue, South Central
Regional Medical Center, 5.500%, 12/01/2017 2,055 1,898
- ---------------------------------------------------------------------------------------------------------------------
MISSOURI
Clarence Cannon, MO, Wholesale Water Revenue, 6.000%,
05/15/2020 10,000 9,550
Missouri State Health & Educational Facilities, Revenue,
Christian Health Services, Series B, Prerefunded
02/15/2001, 6.875%, 02/15/2013 (b) 7,000 7,387
Missouri State Health & Educational Facilities, Revenue,
Lutheran Senior Services, 5.750%, 02/01/2017 3,250 3,142
Sikeston, MO, Electric Revenue, 6.200%, 06/01/2010 (c) 6,870 7,500
St Louis County, MO, Regional Convention, Revenue,
Series B, Prerefunded 08/15/2003, 7.000%, 08/15/2011 4,380 4,783
St Louis County, MO, Regional Convention, Revenue,
Series C, 7.900%, 08/15/2021 240 257
St Louis County, MO, Regional Convention, Revenue,
Series C, Prerefunded 08/15/2003, 7.900%,
08/15/2021 (b) 4,760 5,345
St Louis, MO, Tax Increment Revenue, Tax Allocation,
Series A, 10.000%, 08/01/2010 7,675 9,257
- ---------------------------------------------------------------------------------------------------------------------
MONTANA
Montana State Housing Board, Revenue, Single Family
Mortgage, Series A-2, 6.150%, 06/01/2030 9,780 9,885
</TABLE>
20
<PAGE> 21
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEBRASKA
Nebraska Investment Finance Authority Single, Revenue,
Series A, 6.700%, 09/01/2026 $ 3,520 $ 3,632
Nebraska Investment Finance Authority Single, Revenue,
Series C, 6.300%, 09/01/2028 2,980 3,044
Nebraska Public Power District Revenue, Series A,
5.250%, 01/01/2012 (c) 4,000 3,973
Omaha, NE, Public Power Revenue, Series B, 6.200%,
02/01/17 4,700 5,036
Scotts Bluff County, NE, Hospital Authority, Revenue,
6.450%, 12/15/2004 2,325 2,429
Scotts Bluff County, NE, Hospital Authority, Revenue,
Prerefunded 12/15/2002, 6.450%, 12/15/2004 (b) 1,675 1,793
- ---------------------------------------------------------------------------------------------------------------------
NEVADA
Clark County, NV, School District, General Obligation,
Inverse Floating Rate Bond, 6.956%, 06/15/2013** 8,000 8,191
Clark County, NV, School District, General Obligation,
Series B, 5.500%, 06/15/2015 (c) 5,000 4,935
Humboldt County, NV, Pollution Control, Revenue, Idaho
Power Company Project, 8.300%, 12/01/2014 9,650 10,958
Reno, NV, Redevelopment Agency Tax Allocation, Series E,
Prerefunded 9/1/2003, 5.650%, 09/01/2013 (b) 3,145 3,298
Reno, NV, Redevelopment Agency Tax Allocation, Series E,
Prerefunded 9/1/2003, 5.750%, 09/01/2017 (b) 4,020 4,230
- ---------------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE
New Hampshire Higher Educational & Health Facilities,
Revenue, Havenwood Heritage Heights, 7.350%,
01/01/2018 2,500 2,635
New Hampshire Higher Educational & Health Facilities,
Revenue, Havenwood Heritage Heights, 7.450%,
01/01/2025 4,000 4,203
- ---------------------------------------------------------------------------------------------------------------------
NEW JERSEY
Atlantic City, NJ, Board of Education, General
Obligation, 6.000%, 12/01/2013 (c) 4,600 4,915
Atlantic City, NJ, Board of Education, General
Obligation, 6.100%, 12/01/2014 (c) 4,500 4,835
Elizabeth, NJ, General Obligation, Zero Coupon,
08/01/2005 (c) 6,250 4,749
Essex County, NJ, Improvement Authority Revenue,
Property & Equipment Project, 6.500%, 12/01/2012 (c) 4,050 4,340
Essex County, NJ, Improvement Authority Revenue, Jail &
Youth Housing Projects, Prerefunded 12/01/2004,
6.900%, 12/01/2014 (b) 2,645 2,982
Jersey City, NJ, Sewer Authority Sewer, Revenue, 4.500%,
01/01/2019 (c) 13,000 10,994
New Jersey Economic Development Authority, Revenue,
Series A, 5.875%, 05/01/2014 (c) 5,000 5,170
New Jersey Economic Development Authority, Revenue,
Series A, 6.000%, 05/01/2016 (c) 3,000 3,109
New Jersey Economic Development Authority, Revenue,
United Methodist Homes New Jersey Obligation, 5.750%,
07/01/2029 9,500 8,682
New Jersey Economic Development Authority Revenue,
Harrogate Incorporation, Series A, 5.875%, 12/01/2026 1,000 930
New Jersey Health Care Facilities, Revenue, Atlantic
City Medical Center, Series C, 6.800%, 07/01/2011 6,840 7,275
New Jersey Health Care Facilities, Revenue, West Jersey
Health Systems, Prerefunded 07/01/2002, 6.125%,
07/01/2012 (b) 11,000 11,730
New Jersey Health Care Facilities, Revenue, Southern
Ocean County Hospital, Series A, 6.125%, 07/01/2013 3,735 3,708
New Jersey State Transportation Trust Fund Authority,
Revenue, Series A, 5.500%, 06/15/2010 5,295 5,470
</TABLE>
21
<PAGE> 22
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New Jersey State Transportation Trust Fund Authority,
Revenue, Series B, 5.500%, 06/15/2015 (c) $ 4,420 $ 4,417
New Jersey State Transportation Trust Fund Authority,
Inversed Floating Rate Bond, 6.057%, 06/15/2017** 10,830 9,163
New Jersey State Transportation Trust Fund Authority,
Revenue, Series A, 5.750%, 06/15/2020 6,000 6,090
New Jersey State Turnpike Authority, Revenue, 10.375%,
01/01/2003 1,840 2,035
New Jersey State Turnpike Authority, Revenue, Series A,
6.200%, 01/01/2012 10,000 10,506
New Jersey State Turnpike Authority, Inverse Floating
Rate Bond, 9.055%, 01/01/2016** 20,500 25,156
New Jersey State Turnpike Authority, Revenue, Series A,
6.500%, 01/01/2016 42,775 47,631
New Jersey State Turnpike Authority, Revenue, Series C,
6.500%, 01/01/2016 7,660 8,530
Salem County, NJ, Industrial Pollution, Revenue, Public
Services Electric & Gas Company, 6.200%,
08/01/2030 (c) 20,000 20,816
- ---------------------------------------------------------------------------------------------------------------------
NEW MEXICO
Albuquerque, NM, Hospital Revenue, Southwest Community
Health Services, 10.000%, 08/01/2003 675 758
Albuquerque, NM, Hospital Revenue, Southwest Community
Health Services, Prerefunded 08/01/2008, 10.125%,
08/01/2012 (b) 4,000 5,171
Los Alamos County, NM, Utility Income, Revenue, Series
A, 6.100%, 07/01/2010 (c) 4,400 4,666
New Mexico Mortgage Finance Authority, Revenue, Series
E-2, 6.800%, 03/01/2031 7,500 8,113
Socorro, NM, Hospital System Revenue, Southwest
Community Health Services, 10.000%, 08/01/2003 905 1,017
- ---------------------------------------------------------------------------------------------------------------------
NEW YORK
Long Island, NY, Power Authority New York Electricity,
Revenue, 5.250%, 04/01/2010 (c) 19,400 19,579
Monroe County, NY, Airport Authority, Revenue, Greater
Rochester International, 5.750%, 01/01/2014 (c) 4,015 4,135
Monroe County, NY, Airport Authority, Revenue, Greater
Rochester International, 5.750%, 01/01/2015 (c) 5,035 5,171
Monroe County, NY, Airport Authority, Revenue, Greater
Rochester International, 5.875%, 01/01/2016 (c) 3,835 3,969
New York & New Jersey, Port Authority, Revenue, Series
8, 6.500%, 10/15/2008 5,390 5,693
New York & New Jersey, Port Authority, Revenue, Series
6, 6.000%, 07/01/2013 6,555 6,754
New York & New Jersey, Port Authority, Revenue, Series
6, 6.000%, 07/01/2015 2,500 2,552
New York & New Jersey, Port Authority Special
Obligation, Revenue, Continental/Eastern Project,
Laguardia, 9.125%, 12/01/2015 3,150 3,344
New York City, NY, Transitional Finance Authority,
Revenue, Series A, 5.250%, 11/15/2013 4,500 4,423
New York City, NY, Industrial Development Agency
Revenue, USTA National Tennis Center Project, 6.600%,
11/15/2011 3,000 3,292
New York Metropolitan Transportation Authority, Inverse
Floating Rate Bond, Series A, 6.236%, 07/01/2011** 5,000 4,921
New York Metropolitan Transportation Authority, Inverse
Floating Rate Bond, Series B, 6.236%, 07/01/2011** 2,500 2,342
New York Metropolitan Transportation Authority, Revenue,
Series Q, 5.125%, 07/01/2012 (c) 7,750 7,594
New York Metropolitan Transportation Authority, Revenue,
Series O, 6.250%, 07/01/2012 (c) 6,000 6,537
</TABLE>
22
<PAGE> 23
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New York Metropolitan Transportation Authority, Revenue,
Series A, 6.000%, 04/01/2020 (c) $ 5,000 $ 5,245
New York State Dormitory Authority, Special Activity
School Districts, Revenue, 5.250%, 07/01/2011 (c) 2,545 2,537
New York State Dormitory Authority, City University,
Revenue, 5.750%, 07/01/2013 (c) 5,500 5,731
New York State Dormitory Authority, Revenue, State
University Educational Facilities, Prerefunded
05/15/2002, 7.250%, 05/15/2018 (b) 440 481
New York State Dormitory Authority, Revenue, State
University Educational Facilities, Prerefunded
05/15/2002, 7.250%, 05/15/2018 (b) 3,370 3,681
New York State Dormitory Authority Revenue, Mental
Health Services Facilities, Series C, 5.125%,
02/15/2011 (c) 5,770 5,682
New York State Dormitory Authority Revenue, City
University System, 6.000%, 07/01/2014 (c) 7,000 7,434
New York State Dormitory Authority Revenue, City
University Systems, 5.000%, 07/01/2016 (c) 5,500 5,035
New York State Environment Facilities Corporation
Revenue, Pollution Control, Prerefunded 06/15/2004,
6.875%, 06/15/2014 (b) 6,815 7,585
New York State Environmental Facilities Corporation,
State Water Pollution Control, Revolving Fund Revenue,
Series A, 7.250%, 06/15/2010 480 512
New York State Environmental Facilities Corporation,
State Water Pollution, Revolving Fund Revenue, Series
A, Prerefunded 06/15/2001, 7.250%, 06/15/2010 (b) 4,520 4,839
New York State Environmental Facilities Corporation
Revenue, Pollution Control, Series C, 7.200%,
03/15/2011 2,500 2,578
New York State Environmental Facilities Corporation
Revenue, Pollution Control, 6.875%, 06/15/2014 4,560 4,982
New York State Local Assistance Corporation, Revenue,
Series B, Prerefunded 04/01/2001, 7.375%,
04/01/2012 (b) 2,675 2,853
New York State Local Assistance Corporation, Revenue,
Series B, Prerefunded 04/01/2001, 7.500%,
04/01/2020 (b) 7,000 7,478
New York State Medical Care Facilities Financial Agency
Revenue, Series D, 6.450%, 02/15/2009 3,550 3,784
New York State Medical Care Facilities Financial Agency
Revenue, Series D, Prerefunded 02/15/2003, 6.450%,
02/15/2009 (b) 4,685 5,061
New York State Medical Care Facilities Financial Agency
Revenue, Prerefunded 02/15/2000, 7.750%,
08/15/2010 (b) 980 1,013
New York State Medical Care Facilities Financial Agency
Revenue, Prerefunded 02/15/2000, 7.750%,
08/15/2010 (b) 2,955 3,058
New York State Medical Care Facilities Financial Agency
Revenue, Series A, Prerefunded 02/15/2005, 6.750%,
08/15/2014 (b) 8,000 8,938
New York State Thruway Authority, Inverse Floating Rate
Bond, 6.680%, 04/01/2010** 15,870 16,534
New York State Thruway Authority Revenue, Local Highway
& Bridge, 5.625%, 04/01/2012 (c) 5,470 5,615
New York State Thruway Authority Revenue, Local Highway
& Bridge, Series B, 5.375%, 04/01/2013 (c) 17,750 17,683
New York State Thruway Authority Revenue, Local Highway
& Bridge, 5.500%, 04/01/2016 (c) 3,010 2,970
New York State Thruway Authority Revenue, Local Highway
& Bridge, 5.500%, 04/01/2017 (c) 5,000 4,898
New York State Urban Development Corporation,
Correctional Facilities Service Contract Revenue,
Series B, 5.250%, 01/01/2012 3,150 3,120
</TABLE>
23
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PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New York State Urban Development Corporation, State
Facilities, Revenue, 5.600%, 04/01/2015 $ 4,655 $ 4,629
New York State Urban Development Corporation Revenue,
State Facilities, 5.700%, 04/01/2020 3,600 3,581
New York, NY, General Obligation, Series D, 8.000%,
08/01/2000 7,745 8,014
New York, NY, General Obligation, Series D, 8.000%,
08/01/2000 250 258
New York, NY, General Obligation, Prerefunded
11/15/2001, 8.400%, 11/15/2005 (b) 4,250 4,674
New York, NY, General Obligation, Series F, 8.400%,
11/15/2005 235 257
New York, NY, General Obligation, Series F, 8.400%,
11/15/2006 625 683
New York, NY, General Obligation, Series F, Prerefunded
11/15/2001, 8.400%, 11/15/2006 (b) 6,375 7,011
New York, NY, General Obligation, Series H, 7.000%,
02/01/2007 240 256
New York, NY, General Obligation, Series H, Prerefunded
2/1/2002, 7.000%, 02/01/2007 (b) 2,760 2,965
New York, NY, General Obligation, Series F, Prerefunded
11/15/2001, 8.400%, 11/15/2007 (b) 6,335 6,967
New York, NY, General Obligation, Series F, Prerefunded
11/15/2001, 8.400%, 11/15/2008 (b) 11,000 12,098
New York, NY, General Obligation, Series G,
Zero Coupon, 08/01/2009 (c) 19,100 11,605
New York, NY, General Obligation, Series F, Prerefunded
11/15/2001, 8.400%, 11/15/2009 (b) 1,050 1,155
New York, NY, Certificate of Participation, City
Transportation Authority, Triborough Bridge, Series A,
5.625%, 01/01/2010 3,260 3,386
New York, NY, General Obligation, Series J, 5.250%,
05/15/2011 10,000 9,850
New York, NY, General Obligation, Series H, 5.500%,
08/01/2012 6,960 6,956
New York, NY, General Obligation, Series H, 5.500%,
08/01/2013 10,665 10,557
New York, NY, General Obligation, Series F, 5.250%,
08/01/2015 5,000 4,769
New York, NY, General Obligation, Series A, 7.750%,
08/15/2015 92 99
New York, NY, General Obligation, Series A, Prerefunded
08/15/2001, 7.750%, 08/15/2015 (b) 3,408 3,679
New York, NY, General Obligation, Series J, 5.875%,
02/15/2019 16,060 16,059
New York, NY, City Industrial Development Agency
Revenue, USTA National Tennis Center Project, 6.500%,
11/15/2010 (c) 3,485 3,809
New York, NY, City Municipal Water Financial Authority,
Revenue, Water & Sewer Systems, 7.000%, 06/15/2015 740 782
New York, NY, City Municipal Water Financial Authority,
Revenue, Water & Sewer Systems, Prerefunded
06/15/2001, 7.000%, 06/15/2015 (b) 230 243
New York, NY, City Municipal Water Financial Authority,
Revenue, Water & Sewer Systems, Prerefunded
06/15/2001, 7.000%, 06/15/2015 (b) 530 560
New York, NY, City Transitional Financial Authority
Revenue, Series C, 5.000%, 05/01/2018 4,875 4,427
New York, NY, City Transportation Authority, Certificate
of Participation, Metropolitan Transportation
Authority Triborough, Series A, 5.625%, 01/01/2011 6,040 6,243
</TABLE>
24
<PAGE> 25
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NORTH CAROLINA
Durham County, NC, Certificates of Participation, Jail
Facilities & Computer Equipment Project, Prerefunded
05/01/2001, 6.625%, 05/01/2014 (b) $ 5,500 $ 5,812
North Carolina Eastern Municipal Power Agency Revenue,
Series B, 6.000%, 01/01/2022 18,775 19,418
North Carolina Municipal Power Agency Revenue, Catawba
Electric, Series A, 5.500%, 01/01/2014 (c) 3,660 3,654
North Carolina State, General Obligation, Public School
Building, 4.600%, 04/01/2012 10,000 9,374
North Carolina State, General Obligation, Public School
Building, 4.600%, 04/01/2013 16,500 15,218
- ---------------------------------------------------------------------------------------------------------------------
NORTH DAKOTA
North Dakota State Financial Agency Revenue, Single
Family Mortgage, Series A, 8.050%, 01/01/2024 510 523
- ---------------------------------------------------------------------------------------------------------------------
OHIO
Clermont County, OH, Hospital Facilities Revenue, Mercey
Health Center, Series A, Prerefunded 09/01/2001,
7.500%, 09/01/2019 (b) 2,280 2,419
Cleveland, OH, Public Power Systems Revenue, Series A,
7.000%, 11/15/2017 850 905
Cleveland, OH, Waterworks Revenue, Series B, 6.500%,
01/01/2011 385 409
Cleveland, OH, Waterworks Revenue, Series B, Prerefunded
1/1/2002, 6.500%, 01/01/2011 (b) 4,195 4,474
Cleveland-Cuyahoga County, OH, Port Development Revenue,
C&P Docks Project, 6.000%, 03/01/2007 1,250 1,238
Cuyahoga County, OH, Hospital Revenue, Meridia Health
System, Prerefunded 8/15/2005, 6.250%, 08/15/2014 (b) 7,050 7,749
Dublin, OH, City School District, General Obligation,
Zero Coupon, 12/01/2010 (c) 500 279
Green Springs, OH, Health Care, Revenue, St Francis
Health Care Center Project, Series A, 7.000%,
05/15/2014 4,235 3,929
Green Springs, OH, Health Care, Revenue, St Francis
Health Care Center Project, Series A, 7.125%,
05/15/2025 4,405 4,009
Lucas County, OH, Health Facilities Revenue, Ohio
Presbyterian, Series A, 6.625%, 07/01/2014 2,000 2,078
Lucas County, OH, Health Facilities Revenue, Ohio
Presbyterian, Series A, 6.750%, 07/01/2020 2,000 2,087
Marion County, OH, Health Care Facilities, Revenue,
Church Homes Project, 6.375%, 11/15/2010 3,950 3,972
Marion County, OH, Health Care Facilities, Revenue,
Church Homes Project, 6.300%, 11/15/2015 2,950 2,947
Ohio Housing Finance Agency, GNMA Single Family Mortgage
Revenue, Prerefunded 01/15/2013,
Zero Coupon, 01/15/2015 (b) 3,360 1,315
Ohio Housing Financial Agency Revenue, Single Family
Mortgage, Zero Coupon, Prerefunded 07/15/2013,
01/15/2015 (b) 3,515 1,407
Ohio State, General Obligation, Zero Coupon, 09/01/2007 7,125 4,822
Ohio State Building Authority, Revenue, Juvenile
Correction Facilities, 5.250%, 10/01/2011 (c) 8,385 8,410
Ohio State Building Authority, Revenue, Adult
Correctional Facilities, Series A, 5.500%,
10/01/2012 (c) 5,705 5,797
Ohio State Building Authority, Revenue, Adult
Correctional Facilities, 5.600%, 04/01/2015 3,340 3,361
Ohio State Water Development Authority, Revenue, Bay
Shore Project, Series A, 5.875%, 09/01/2020 1,550 1,465
Springdale, OH, Hospital Facilities Revenue, 6.000%,
11/01/2018 1,250 1,232
Toledo, OH, Waterworks Revenue, 4.750%, 11/15/2017 (c) 1,000 885
</TABLE>
25
<PAGE> 26
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Willoughby, OH, Industrial Development Revenue, Series
A, 6.875%, 07/01/2016 $ 2,250 $ 2,379
Worthington, OH, City School District, General
Obligation, 6.375%, 12/01/2012 6,210 6,583
- ---------------------------------------------------------------------------------------------------------------------
OKLAHOMA
Oklahoma Development Finance Authority, Revenue,
Hillcrest Healthcare Systems, Series A, 5.625%,
08/15/2029 23,500 20,864
Oklahoma Valley View Hospital Authority Revenue, 6.000%,
08/15/2014 2,695 2,615
Oklahoma Valley View Hospital Authority, Revenue,
5.750%, 08/15/2006 3,905 3,906
Woodward, OK, Municipal Authority Hospital, Revenue,
6.450%, 11/01/2014 2,070 2,099
- ---------------------------------------------------------------------------------------------------------------------
OREGON
Oregon State Department of Administrative Services
Revenue, Lottery, Series A, 5.250%, 04/01/2010 (c) 10,500 10,640
Portland, OR, Portland Airport, Inverse Floating Rate
Bond, Series A, 7.200%, 07/01/2010** 2,390 2,559
Portland, OR, Portland Airport, Inverse Floating Rate
Bond, Series B, 7.200%, 07/01/2011** 2,530 2,658
Portland, OR, Portland Airport, Inverse Floating Rate
Bond, Series C, 7.200%, 07/01/2012** 2,675 2,784
Portland, OR, Portland Airport, Inverse Floating Rate
Bond, Series D, 7.200%, 07/01/2013** 2,675 2,626
- ---------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA
Allegheny County, PA, Airport, Inverse Floating Rate
Bond, Series A, 7.407%, 01/01/2010** (c) 3,000 3,228
Allegheny County, PA, Airport, Inverse Floating Rate
Bond, Series B, 7.407%, 01/01/2011** (c) 1,500 1,601
Allegheny County, PA, Airport, Inverse Floating Rate
Bond, Series C, 7.416%, 01/01/2014** (c) 3,160 3,310
Allegheny County, PA, Airport, Inverse Floating Rate
Bond, Series D, 7.407%, 01/01/2013** (c) 5,250 5,449
Armstrong County, PA, Hospital Authority, Revenue, St
Francis Medical Center Project, Series A, 6.250%,
06/01/2013 (c) 11,350 11,970
Erie, PA, General Obligation, Series B, Zero Coupon,
11/15/2007 (c) 2,205 1,465
Erie, PA, General Obligation, Series B, Zero Coupon,
11/15/2008 (c) 5,055 3,161
Hazleton, PA, Health Services Authority Hospital,
Revenue, Hazelton-St Joseph Medical Center, 6.125%,
07/01/2016 3,780 3,670
Jeannette, PA, Health Service Authority, Revenue,
Jeannette District Memorial Hospital, Series A,
6.000%, 11/01/2018 945 935
Lehigh County, PA, General Purpose Authority, Revenue,
Lehigh Valley Hospital, Series A, Prerefunded
07/01/2002, 6.500%, 07/01/2010 (b) 6,000 6,450
Mckean County, PA, Hospital Authority, Revenue, Bradford
Hospital, 5.950%, 10/01/2008 2,800 2,878
Mckean County, PA, Hospital Authority, Revenue, Bradford
Hospital, 6.100%, 10/01/2020 5,500 5,508
Montgomery County, PA, Industrial Development Authority,
Revenue, Retirement-Life Communities, 5.250%,
11/15/2028 4,000 3,469
New Castle, PA, Area Hospital Authority, Revenue,
Jameson Memorial Hospital, 6.000%, 07/01/2010 (c) 845 899
Pennsylvania Convention Center Authority Revenue, Series
A, 6.700%, 09/01/2014 3,750 4,018
Pennsylvania Convention Center Authority Revenue,
6.750%, 09/01/2019 8,775 9,405
Pennsylvania Intergovernmental Cooperational Authority,
Inverse Floating Rate Bond, 6.370%, 06/15/2013** 2,225 2,137
</TABLE>
26
<PAGE> 27
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pennsylvania Intergovernmental Cooperational Authority,
Inverse Floating Rate Bond, 6.370%, 06/15/2014** $ 2,500 $ 2,348
Pennsylvania Intergovernmental Cooperational Authority,
Inverse Floating Rate Bond, 6.370%, 06/15/2015** 2,250 2,075
Pennsylvania State Higher Educational Facility, Revenue,
Ursinus College, 5.850%, 01/01/2017 1,475 1,447
Pennsylvania State Higher Educational Facility, Revenue,
Ursinus College, 5.900%, 01/01/2027 3,400 3,357
Pennsylvania State Industrial Development Authority,
Revenue, Series A, Prerefunded 01/01/2011, 7.000%,
01/01/2011 (b) 5,000 5,334
Philadelphia, PA, Gas Works Revenue, Series 13,
Prerefunded 06/15/2001, 7.700%, 06/15/2011 (b) 5,485 5,908
Philadelphia, PA, Gas Works Revenue, Series 13,
Prerefunded 06/15/2001, 7.700%, 06/15/2011 (b) 2,515 2,705
Philadelphia, PA, Gas Works Revenue, Series 14, 6.375%,
07/01/2014 21,045 21,524
Philadelphia, PA, Gas Works Revenue, Series 14,
Prerefunded 07/01/2003, 6.375%, 07/01/2014 (b) 10,035 10,845
Philadelphia, PA, Gas Works Revenue, Series 13,
Prerefunded 06/15/2001, 7.700%, 06/15/2021 (b) 6,850 7,378
Philadelphia, PA, Municipal Authority Revenue, Series D,
6.250%, 07/15/2013 2,500 2,561
Philadelphia, PA, Municipal Authority Revenue, Series D,
6.300%, 07/15/2017 2,300 2,355
Philadelphia, PA, Municipal Authority Revenue,
Prerefunded 04/01/2000, 7.800%, 04/01/2018 (b) 3,635 3,709
- ---------------------------------------------------------------------------------------------------------------------
PUERTO RICO
Puerto Rico Public Financial Corporation, Revenue,
Series A, 5.375%, 06/01/2017 (c) 8,850 8,697
- ---------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA
Charleston County, SC, Certificates of Participation,
Series B, 6.875%, 06/01/2014 (c) 240 262
Charleston County, SC, Certificates of Participation,
Series B, Prerefunded 06/01/2004, 6.875%,
06/01/2014 (b) 4,875 5,442
Charleston County, SC, Certificates of Participation,
Series B, 7.000%, 06/01/2019 (c) 115 126
Charleston County, SC, Certificates of Participation,
Series B, Prerefunded 06/01/2004, 7.000%,
06/01/2019 (b) 2,385 2,675
Darlington County, SC, Pollution Control Revenue, Power
and Light, 6.600%, 11/01/2010 (c) 7,500 8,106
Grand Strand, SC, Water & Sewer Authority, Revenue,
6.375%, 06/01/2012 (c) 5,000 5,527
South Carolina State Public Services Authority, Revenue,
Series A, 6.250%, 01/01/2022 7,000 7,248
South Carolina Transportation Infrastructure, Revenue,
Series A, 5.500%, 10/01/2011 (c) 5,595 5,732
South Carolina Transportation Infrastructure, Revenue,
Series A, 5.500%, 10/01/2012 (c) 6,085 6,183
</TABLE>
27
<PAGE> 28
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TENNESSEE
Metropolitan Nashville, TN, Airport Authority, Revenue,
5.000%, 07/01/2014 (c) $ 4,560 $ 4,298
Metropolitan Nashville, TN, Airport Authority, Revenue,
Series C, 6.600%, 07/01/2015 (c) 5,250 5,534
Shelby County, TN, General Obligation, Zero Coupon,
08/01/2012 3,410 1,704
Shelby County, TN, General Obligation, Zero Coupon,
08/01/2013 3,440 1,609
Shelby County, TN, General Obligation, Zero Coupon,
08/01/2014 4,965 2,179
Tennessee Housing Development Agency Mortgage Financial,
Revenue, Series A, 7.050%, 07/01/2020 17,770 18,492
Tennessee Housing Development Agency Mortgage Financial,
Revenue, Series A, 7.125%, 07/01/2026 3,615 3,763
- ---------------------------------------------------------------------------------------------------------------------
TEXAS
Abilene, TX, Health Facilities Development Corporation
Revenue, Retirement Facilities, 5.875%, 11/15/2018 3,250 3,019
Austin, TX, Bergstrom Landhost Enterprises, Revenue,
Series A, 6.750%, 04/01/2027 17,785 17,018
Austin, TX, Utility Systems Revenue, 6.000%,
11/15/2013 (c) 9,500 10,101
Austin, TX, Water, Sewer and Electric Revenue, 14.000%,
11/15/2001 20 22
Austin, TX, Water, Sewer and Electric Revenue, 14.000%,
11/15/2001 195 223
Austin, TX, Water, Sewer and Electric Revenue, 14.000%,
11/15/2001 1,825 2,014
Boerne, TX, Independent School District, General
Obligation, Zero Coupon, 02/01/2014 (c) 2,785 1,232
Boerne, TX, Independent School District, General
Obligation, Zero Coupon, 02/01/2016 (c) 3,285 1,277
Dallas, TX, Waterworks and Sewer Systems Revenue,
5.000%, 10/01/2017 4,325 3,948
Ector County, TX, Hospital District Hospital, Revenue,
Prerefunded 04/15/2002, 7.300%, 04/15/2012 (b) 550 599
El Paso, TX, Independent School District, General
Obligation, Zero Coupon, 08/15/2011 3,600 1,871
Georgetown, TX, Higher Education Finance, Revenue,
Southwestern University Project, 6.250%, 02/15/2009 840 885
Grapevine-Colleyville, TX, Independent, General
Obligation, Zero Coupon, 08/15/2007 6,065 4,086
Grapevine-Colleyville, TX, Independent, General
Obligation, Zero Coupon, 08/15/2009 6,360 3,813
Grapevine-Colleyville, TX, Independent, General
Obligation, Zero Coupon, 08/15/2010 2,160 1,216
Grapevine-Colleyville, TX, Independent, General
Obligation, Zero Coupon, 08/15/2011 4,830 2,551
Grapevine-Colleyville, TX, Independent, General
Obligation, Zero Coupon, 08/15/2013 1,000 462
Harris County, TX, Revenue, Toll Road, Prerefunded
8/1/2001, 6.750%, 08/01/2014 (b) 15,000 15,819
Harris County, TX, Hospital District, Revenue, 7.400%,
02/15/2010 (c) 6,940 7,970
Houston, TX, Airport System Revenue, Inverse Floating
Rate Bond, 6.410%, 07/01/2011** 8,010 7,713
Houston, TX, Higher Education Finance Corporation,
Revenue, University of Saint Thomas Project, 7.250%,
12/01/2007 1,445 1,517
Houston, TX, Independent School District, General
Obligation, Series A, Zero Coupon, 02/15/2010 (c) 8,500 4,915
Houston, TX, Independent School District, General
Obligation, Series A, Zero Coupon, 02/15/2011 (c) 3,750 2,016
</TABLE>
28
<PAGE> 29
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Houston, TX, Independent School District, General
Obligation, Series A, Zero Coupon, 02/15/2015 (c) $26,000 $ 10,682
Lower Colorado River Authority, TX, Revenue, Series A,
5.875%, 05/15/2016 19,500 19,807
Lubbock, TX, Health Facilities Development, Revenue,
Saint Joseph Health Systems, 5.250%, 07/01/2013 2,000 1,936
Lubbock, TX, Health Facilities Development, Revenue,
Saint Joseph Health Systems, 5.250%, 07/01/2014 2,500 2,395
Rio Grande Valley, TX, Health Facilities Development,
Revenue, Series B, 6.400%, 08/01/2012 (c) 3,700 3,923
Round Rock, TX, Independent School District, General
Obligation, Zero Coupon, 08/01/2008 5,020 3,195
San Antonio, TX, Electric & Gas, Revenue, Series A,
5.250%, 02/01/2012 5,000 4,962
Texas General Obligation, 7.000%, 09/15/2012 9,963 10,378
Texas Housing Agency Mortgage Revenue, Series A, 7.150%,
09/01/2012 715 747
Texas State, General Obligation, Public Financial
Authority, Zero Coupon, 10/01/2013 4,000 1,851
Texas State, General Obligation, Water Financial
Assistance, A & C, 5.000%, 08/01/2014 7,570 7,178
Texas State, General Obligation, Public Financial
Authority, Zero Coupon, 10/01/2014 6,000 2,605
Texas State, General Obligation, Amt-Veterans Land,
6.400%, 12/01/2024 8,550 8,870
Texas State Department Housing & Community Affairs,
Revenue, Series A, 6.400%, 01/01/2027 3,350 3,480
Texas State Turnpike Authority Dallas North, Revenue,
President George Bush Turnpike, Zero Coupon,
01/01/2010 (c) 3,000 1,746
Texas Water Development Board Revenue, Series A, 5.625%,
07/15/2011 1,500 1,549
Texas Water Development Board Revenue, Series A, 5.750%,
07/15/2013 2,000 2,005
Texas Water Development Board Revenue, Series A, 5.750%,
07/15/2014 3,500 3,575
Texas, Sabine River Pollution Authority, Revenue,
Southwestern Electric Power, 6.100%, 04/01/2018 30,200 30,690
Titus County, TX, Hospital District Revenue, Revenue,
6.125%, 08/15/2013 6,700 6,616
Travis County, TX, Housing Financial Corporation
Revenue, Series A, 7.000%, 12/01/2011 280 292
Waxahachie, TX, Independent School District, General
Obligation, Zero Coupon, 08/15/2009 3,120 1,870
Waxahachie, TX, Independent School District, General
Obligation, Zero Coupon, 08/15/2012 4,120 2,036
Waxahachie, TX, Independent School District, General
Obligation, Zero Coupon, 08/15/2013 2,060 951
- ---------------------------------------------------------------------------------------------------------------------
UTAH
Intermountain Power Agency Utah Power, Inverse Floating
Rate Bond, 6.456%, 07/01/2012** 3,000 2,947
Intermountain Power Agency Utah Power, Inverse Floating
Rate Bond, 6.456%, 07/01/2014** 3,500 3,286
Intermountain Power Agency Utah Power, Revenue, Series
B, 5.750%, 07/01/2019 (c) 33,910 33,768
Utah State Housing Financial Agency, Revenue, Series D,
8.625%, 01/01/2019 (c) 80 80
West Valley City, UT, Excise Tax Revenue, Revenue,
10.625%, 07/01/2004 660 766
</TABLE>
29
<PAGE> 30
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VIRGIN ISLANDS
Virgin Islands Public Financial Authority Revenue,
Series A, Prerefunded 10/01/2002, 7.250%,
10/01/2018(b) $ 3,000 $ 3,329
- ---------------------------------------------------------------------------------------------------------------------
VIRGINIA
Richmond, VA, General Obligation, Series B, 6.250%,
01/15/2018 2,665 2,752
Washington DC Metropolitan, VA, Airport Revenue, Series
A, 7.600%, 10/01/2014 3,000 3,148
- ---------------------------------------------------------------------------------------------------------------------
WASHINGTON
King County, WA, General Obligation, Sewer, Series B,
6.625%, 12/01/2015 9,845 10,804
King County, WA, General Obligation, Sewer, Series C,
6.250%, 01/01/2032 8,995 9,537
Spokane County, WA, School District, General Obligation,
Series B, Zero Coupon, 12/01/2014 (c) 2,500 1,047
Washington State Public Power Supply, Series C, 5.375%,
07/01/2015 5,410 5,237
- ---------------------------------------------------------------------------------------------------------------------
WISCONSIN
Kenosha, WI, General Obligation, Series B,
Zero Coupon, 10/15/2008 (c) 6,885 4,283
New London, WI, School District, General Obligation,
5.250%, 04/01/2011 (c) 1,700 1,691
Southeast Wisconsin Professional, Revenue, Series A,
5.500%, 12/15/2014 (c) 4,160 4,179
Southeast Wisconsin Professional, Revenue, Series A,
5.500%, 12/15/2015 (c) 2,000 2,005
Southeast Wisconsin Professional, Revenue, Series A,
5.500%, 12/15/2016 (c) 4,965 4,951
Southeast Wisconsin Professional, Revenue, Series A,
5.500%, 12/15/2017 (c) 2,405 2,384
Wisconsin State Health & Educational Facilities,
Revenue, Series B, 5.625%, 02/15/2029 4,125 3,671
Wisconsin State Transportation Revenue, Series A,
5.500%, 07/01/2014 7,915 7,950
Wisconsin State Transportation Revenue, Series A,
5.500%, 07/01/2016 8,575 8,523
- ---------------------------------------------------------------------------------------------------------------------
WYOMING
Wyoming Community Development Authority, Revenue, Single
Family Mortgage, Series B, 8.125%, 06/01/2021 310 318
Wyoming Community Development Authority Housing,
Revenue, Series 2, 6.350%, 06/01/2029 4,285 4,384
----------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS TOTAL
(Cost $2,709,101) 2,746,696
----------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $2,764,076) (a) $2,801,671
----------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 31
PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $2,764,082. At September 30,
1999, net unrealized appreciation for all securities based on tax cost was
$37,589. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$93,084 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $55,495.
(b) Prerefunded: Bonds which are prerefunded are collateralized by U.S. Treasury
securities which are held in escrow and are used to pay principal and
interest on tax-exempt issues and to retire the bonds in full at the
earliest refunding date.
(c) Bond is insured by one of these companies: AMBAC, Capital Guaranty, FGIC,
FSA or MBIA/BIG.
* Floating rate and monthly, weekly, or daily demand notes are securities
whose yields vary with a designated market index or market rate, such as the
coupon-equivalent of the Treasury bill rate. Variable rate demand notes are
securities whose yields are periodically reset at levels that are generally
comparable to tax-exempt commercial paper. These securities are payable on
demand within seven calendar days and normally incorporate an irrevocable
letter of credit from a major bank. These notes are carried, for purposes of
calculating average-weighted maturity, at the longer of the period remaining
until the next rate change or to the extent of the demand period.
** Inverse floating rate notes are instruments whose yields may change based on
the change in the relationship between long-term and short-term interest
rates and which exhibit added interest rate sensitivity compared to other
bonds with a similar maturity. These securities are shown at their rate as
of September 30, 1999.
Transactions in written options during the year ended September 30, 1999 were
(in thousands):
<TABLE>
<CAPTION>
OPTIONS ON
TREASURY BONDS
-----------------------
PREMIUMS
CONTRACTS RECEIVED($)
--------- -----------
<S> <C> <C>
Outstanding at September 30, 1998.......................... -- --
Written.................................................... 3 805
Closed..................................................... (3) (805)
---- ----
Outstanding at September 30, 1999.......................... -- --
==== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<PAGE> 32
PORTFOLIO OF INVESTMENTS
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
Investment Portfolio as of September 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM MUNICIPAL INVESTMENTS--.4%
- ---------------------------------------------------------------------------------------------------------------------
WASHINGTON
Washington Health Care Facilities Authority, Variable Rate
Demand Bond, Series 1985 D, 3.75%, 10/01/2005* (Cost:
$100) $ 100 $ 100
- ---------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS--99.6%
- ---------------------------------------------------------------------------------------------------------------------
ALASKA
Alaska Student Loan Corp., Revenue, Series A, 5.550%,
07/01/2010 (c) 200 201
- ---------------------------------------------------------------------------------------------------------------------
ARIZONA
Arizona State University, Revenue, Series A, 6.500%,
07/01/2001 85 88
Arizona Transportation Board, Highway Revenue, Series B,
6.100%, 07/01/2002 70 73
Coconino County, AZ, Industrial Development Authority,
Revenue, Guidance Center Income Project, Prerefunded
06/01/2001, 9.250%, 06/01/2011 (b) 275 300
Phoenix, AZ, Civic Improvement Corporation, Revenue, 6.375%,
07/01/2005 495 536
- ---------------------------------------------------------------------------------------------------------------------
ARKANSAS
North Little Rock, AR, Electrical Revenue, Series A, 6.000%,
07/01/2001 (c) 20 21
North Little Rock, AR, Electrical Revenue, Series A, 6.150%,
07/01/2003 (c) 275 292
- ---------------------------------------------------------------------------------------------------------------------
CALIFORNIA
California Central Valley Financing Authority, Revenue,
Carson Ice Project, 6.000%, 07/01/2009 250 257
Sacramento, CA, Cogeneration, Revenue, Procter & Gamble
Project, 7.000%, 07/01/2004 200 219
San Joaquin Hills, CA, Transportation, Revenue, Series A,
Zero Coupon, 01/15/2012 (c) 825 430
- ---------------------------------------------------------------------------------------------------------------------
COLORADO
Arapahoe County, CO, Capital Improvements, Revenue, Series
E, Prerefunded 08/31/2005, 6.900%, 08/31/2015 (b) 300 342
- ---------------------------------------------------------------------------------------------------------------------
CONNECTICUT
Connecticut State, General Obligation, Series B, 5.950%,
11/15/2000 5 5
- ---------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA
District of Columbia, General Obligation, Series B, 5.500%,
06/01/2010 (c) 1,000 1,021
District of Columbia Redevelopment Land Agency, Revenue,
5.625%, 11/01/2010 160 163
- ---------------------------------------------------------------------------------------------------------------------
FLORIDA
Broward County, FL, School District, General Obligation,
6.000%, 02/15/2004 70 74
Hillsborough County, FL, Aviation Authority Revenue, Tampa
International Airport, Series A, Prerefunded 10/01/1999,
6.900%, 10/01/2011 (b) 5 5
Orlando, FL, Special Assessment Revenue, Conroy Road
Interchange Project, Series B, 5.250%, 05/01/2005 225 218
- ---------------------------------------------------------------------------------------------------------------------
GEORGIA
Atlanta, GA, Airport Facilities Revenue, 6.500%,
01/01/2013 (c) 70 73
- ---------------------------------------------------------------------------------------------------------------------
HAWAII
Hawaii State, General Obligation, Series B, 7.250%,
11/01/2000 145 150
- ---------------------------------------------------------------------------------------------------------------------
ILLINOIS
Chicago, IL, Emergency Telephone System, General Obligation,
5.250%, 01/01/2012 (c) 500 498
Illinois Health Facilities Authority Revenue, Franciscan
Sisters Health Care, ETM, 6.250%, 09/01/2002** 350 368
McHenry & Lake Counties, IL, Certificate of Participation,
6.125%, 12/01/2003 (c) 85 90
</TABLE>
32
<PAGE> 33
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INDIANA Johnson County, IN, Hospital Association, Revenue, 6.500%,
07/01/2002 (c) $ 300 $ 316
Purdue University, Indiana University Revenue, Student Fee
Service, Prerefunded 01/01/2005, 6.700%, 07/01/2015 (b) 250 279
- ---------------------------------------------------------------------------------------------------------------------
KENTUCKY Lexington, KY, Fayette Urban County, Revenue, University of
Kentucky Alumni Association Income Project, Prerefunded
11/01/2004, 6.500%, 11/01/2009 (b) 300 332
- ---------------------------------------------------------------------------------------------------------------------
LOUISIANA Louisiana State, General Obligation, ETM, Series A, 7.000%,
05/01/2001** 300 313
- ---------------------------------------------------------------------------------------------------------------------
MAINE Maine Health & Higher Educational Facilities, Revenue, ETM,
Series B, 6.300%, 07/01/2004** 135 145
Maine Health & Higher Educational Facilities, Revenue,
Series B, 6.300%, 07/01/2004 (c) 25 27
Maine Health & Higher Educational Facilities, Revenue,
Series B, Prerefunded 07/01/2004, 6.500%, 07/01/2006 (b) 100 110
- ---------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS Massachusetts Bay Transportation Authority, Revenue, 6.500%,
03/01/2004 5 5
Massachusetts Bay Transportation Authority, Revenue, Series
A, Prerefunded 03/01/2000, 7.625%, 03/01/2015 (b) 115 119
Massachusetts State, General Obligation, Series D,
Prerefunded 07/01/2001, 7.000%, 07/01/2007 (b) 200 213
Massachusetts State, General Obligation, Series D,
Prerefunded 07/01/2001, 7.000%, 07/01/2007 (b) 75 80
Massachusetts State Water Pollution, Revenue, Series A,
6.200%, 02/01/2010 45 48
- ---------------------------------------------------------------------------------------------------------------------
MICHIGAN Chippewa Valley, MI, School District, General Obligation,
7.000%, 05/01/2001 (c) 350 365
Detroit, MI, General Obligation, Series A, Prerefunded
04/01/2005, 6.700%, 04/01/2010 (b) 300 332
Grand Rapids, MI, Downtown Development Revenue, Tax
Allocation, 6.200%, 06/01/2004 (c) 175 187
Michigan Higher Educational Student Loan, Revenue, 5.400%,
06/01/2006 (c) 250 255
Michigan Higher Educational Student Loan, Revenue, 5.750%,
06/01/2013 (c) 250 251
Michigan State Building Authority Revenue, ETM, Series I,
6.250%, 10/01/2000** 5 5
Michigan State Building Authority Revenue, Series I, 6.500%,
10/01/2004 160 174
Michigan State Hospital Financial Authority Revenue, Gratiot
Community Hospital, 6.100%, 10/01/2007 350 358
- ---------------------------------------------------------------------------------------------------------------------
MISSOURI Missouri State Health & Educational Facilities, Revenue,
Lake Of The Ozarks General Hospital, 5.500%, 02/15/2001 200 202
Missouri State Health & Educational Facilities, Revenue,
Lake Of The Ozarks General Hospital, 6.000%, 02/15/2006 300 306
- ---------------------------------------------------------------------------------------------------------------------
NEBRASKA Nebraska Public Power District Revenue, Nuclear Facility,
5.700%, 01/01/2004 50 52
- ---------------------------------------------------------------------------------------------------------------------
NEVADA Clark County, NV, Highway Improvement Revenue, Motor Vehicle
Fuel Tax, 5.625%, 07/01/2002 (c) 70 72
Nevada State, General Obligation, Series A, 5.900%,
05/01/2001 250 257
- ---------------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE New Hampshire Higher Educational & Health Facilities,
Revenue, Havenwood Heritage Heights, 7.100%, 01/01/2006 165 170
</TABLE>
33
<PAGE> 34
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW JERSEY Middlesex County, NJ, Utilities Authority, Revenue, 6.100%,
12/01/2001 (c) $ 300 $ 312
New Jersey Economic Development Authority, Transportation
Project, Revenue, Series A, 5.500%, 05/01/2007 (c) 500 522
New Jersey Transportation Trust Fund, Revenue, Series B,
6.500%, 06/15/2011 (c) 225 252
- ---------------------------------------------------------------------------------------------------------------------
NEW YORK Long Island, NY, Power Authority New York Electricity,
Revenue, Series A, 5.500%, 12/01/2013 (c) 1,000 1,015
New York & New Jersey, Port Authority Special Obligation,
Revenue, Special Project, JFK Terminal 6, 6.250%,
12/01/2008 (c) 500 543
New York City, NY, General Obligation, Series B1, 6.500%,
08/15/2002 65 69
New York City, NY, General Obligation, Series D, 5.750%,
08/01/2003 110 115
New York City, NY, General Obligation, ETM, Series B1,
6.500%, 08/15/2002** 25 27
New York City, NY, Industrial Development Agency, Civil
Facilities Revenue, USTA National Tennis Center, 6.100%,
11/15/2004 (c) 200 215
New York Local Assistance Corp., Revenue, Series A,
Prerefunded 04/01/2001, 7.000%, 04/01/2016 (b) 100 106
New York Tollway Authority Service Contract, Local Highway &
Bridges, Revenue, 6.000%, 04/01/2002 265 275
Niagara Falls, NY, Water Treatment Plant, General
Obligation, AMT, 6.400%, 11/01/2004 (c) 100 108
- ---------------------------------------------------------------------------------------------------------------------
OHIO Athens County, OH, Economic Development, Revenue, Ohio
Athens Inc. Project, 6.250%, 11/01/2011 220 224
Cleveland, OH, Waterworks Revenue, Series A, 6.125%,
01/01/2003 (c) 450 473
Lucas County, OH, Health Facilities Revenue, Ohio
Presbyterian, Series A, 6.100%, 07/01/2006 300 309
Marion County, OH, Health Care Facilities, Revenue, Church
Homes Project, 6.300%, 11/15/2015 250 250
Ohio Building Authority, Adult Correctional Building Fund
Revenue, Series A, 6.125%, 10/01/2010 400 428
Ohio Gateway Economic Development Corp., Revenue, Cuyahoga
County Annual Gateway, 7.500%, 09/01/2005 400 424
Ohio Higher Educational Facilities Revenue, University of
Findlay Project, 5.750%, 09/01/2007 375 383
Ohio Water Development Authority Revenue, Pure Water
Improvement Project, 5.750%, 12/01/2003 (c) 5 5
Ohio Water Development Authority Revenue, Water Development
Community Assistance, 5.500%, 06/01/2008 (c) 300 312
- ---------------------------------------------------------------------------------------------------------------------
OKLAHOMA Muskogee County, OK, General Obligation, 6.000%,
05/01/2001 (c) 10 10
Oklahoma Valley View Hospital Authority, Revenue, 5.750%,
08/15/2006 315 315
Woodward, OK, Municipal Authority Hospital, Revenue, 5.600%,
11/01/2004 270 273
</TABLE>
34
<PAGE> 35
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PENNSYLVANIA Allegheny County, PA, Hospital Development Authority, Magee-
Womens Hospital, Revenue, 6.250%, 10/01/2008 (c) $ 300 $ 320
Hazelton, PA, Health Services Authority Hospital, Revenue,
Hazelton-St Joseph Medical Center, 5.850%, 07/01/2006 220 224
Pennsylvania Higher Educational Facilities, College &
University Revenue, Ursinus College, 5.500%, 01/01/2007 265 269
Pennsylvania Intergovernmental Cooperative Authority, City
of Philadelphia Funding Program, Special Tax, ETM, 6.000%,
06/15/2002** 285 295
Philadelphia, PA, Gas Works Revenue, Series 13, Prerefunded
06/15/2001, 7.700%, 06/15/2021 (b) 120 129
- ---------------------------------------------------------------------------------------------------------------------
PUERTO RICO Puerto Rico Housing Bank & Financial Agency, Revenue,
Portfolio I, 5.900%, 04/01/2010 160 165
- ---------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA York County, SC, School District Number 4, General
Obligation, 7.000%, 03/01/2004 (c) 460 505
- ---------------------------------------------------------------------------------------------------------------------
TEXAS Fort Worth, TX, Water & Sewer Revenue, Series B, 5.900%,
02/15/2001 80 82
Harris County, TX, General Obligation, Criminal Justice
Center, 7.500%, 10/01/2004 200 226
Harris County, TX, General Obligation, Criminal Justice
Center, 7.500%, 10/01/2005 200 229
Houston, TX, Higher Education Finance Corporation, Revenue,
University of Saint Thomas Project, 7.250%, 12/01/2007 100 105
Killeen, TX, Independent School District, General
Obligation, 5.500%, 02/15/2006 1,000 1,041
North Richland Hills, TX, General Obligation, 6.000%,
02/15/2002 (c) 195 202
San Antonio, TX, Electric & Gas, Revenue, Series A, 5.125%,
02/01/2009 1,000 1,006
Texas State, Public Finance Authority Building Revenue,
Series B, 5.875%, 02/01/2002 (c) 210 217
Texas Trinity River Authority, Ten Mile Creek, Revenue,
5.500%, 08/01/2002 (c) 70 72
Texas Water Development Board Revenue, Series A, 5.500%,
07/15/2008 1,000 1,040
Waxahachie, TX, Independent School District, General
Obligation, Zero Coupon, 08/15/2009 650 390
- ---------------------------------------------------------------------------------------------------------------------
VIRGINIA Arlington County, VA, Industrial Development Authority,
Revenue, Arlington Hospital, Series A, Prerefunded
09/01/2001, 7.125%, 09/01/2021 (b) 90 97
Richmond, VA, General Obligation, Series A, Prerefunded
01/15/2000, 6.875%, 01/15/2010 (b) 100 103
- ---------------------------------------------------------------------------------------------------------------------
WASHINGTON Tacoma, WA, Electric System Revenue, 5.800%, 01/01/2004 (c) 70 73
----------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS
(Cost $23,714) 24,152
----------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO
(Cost $23,814) (a) $24,252
----------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 36
PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $23,814. At September 30, 1999,
the net unrealized appreciation for all securities based on tax cost was
$438. This consisted of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$615 and aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over market value of $177.
(b) Prerefunded: Bonds which are prerefunded are collateralized by U.S. Treasury
securities which are held in escrow and are used to pay principal and
interest on tax-exempt issues and to retire the bonds in full at the
earliest refunding date.
(c) Bond is insured by one of these companies: AMBAC, Capital Guaranty, FGIC,
FSA or MBIA/BIG.
* Floating rate and monthly, weekly, or daily demand notes are securities
whose yields vary with a designated market index or market rate, such as the
coupon-equivalent of the Treasury bill rate. Variable rate demand notes are
securities whose yields are periodically reset at levels that are generally
comparable to exempt commercial paper. These securities are payable on
demand within seven calendar days and normally incorporate an irrevocable
letter of credit from a major bank. These notes are carried, for purposes of
calculating average weighted maturity, at the longer of the period remaining
until the next rate change or to the extent of the demand period.
** ETM: Bonds bearing the description ETM (escrowed to maturity) are
collateralized by U.S. Treasury securities which are held in escrow by a
trustee and used to pay principal and interest on bonds so designated.
The accompanying notes are an integral part of the financial statements
36
<PAGE> 37
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL MUNICIPAL
FUND FUND
<S> <C> <C>
- ------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------
Investment securities, at value, (cost: $2,764,076 and
$23,814) $2,801,671 24,252
- ------------------------------------------------------------------------------------------
Cash 2,200 879
- ------------------------------------------------------------------------------------------
Receivable for investments sold 51,055 45
- ------------------------------------------------------------------------------------------
Interest receivable 42,968 367
- ------------------------------------------------------------------------------------------
Receivable for fund shares sold 8,885 4
- ------------------------------------------------------------------------------------------
TOTAL ASSETS 2,906,779 25,547
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------
Payable for investments purchased 84,867 --
- ------------------------------------------------------------------------------------------
Dividends payable 2,843 22
- ------------------------------------------------------------------------------------------
Payable for fund shares redeemed 5,439 6
- ------------------------------------------------------------------------------------------
Accrued management fee 811 10
- ------------------------------------------------------------------------------------------
Other accrued expenses 616 46
- ------------------------------------------------------------------------------------------
Total liabilities 94,576 84
- ------------------------------------------------------------------------------------------
NET ASSETS, AT VALUE $2,812,203 25,463
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments $ 37,595 438
- ------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) (44,461) (262)
- ------------------------------------------------------------------------------------------
Paid-in capital 2,819,069 25,287
- ------------------------------------------------------------------------------------------
NET ASSETS, AT VALUE $2,812,203 25,463
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
NET ASSETS VALUE
- ------------------------------------------------------------------------------------------
CLASS A SHARES
Net assets applicable to shares outstanding $2,728,300 $17,774
- ------------------------------------------------------------------------------------------
Shares outstanding 284,064 1,778
- ------------------------------------------------------------------------------------------
Net asset value and redemption price per share
(net assets / shares outstanding) $ 9.60 $ 10.00
- ------------------------------------------------------------------------------------------
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) $ 10.05 $ 10.28
- ------------------------------------------------------------------------------------------
CLASS B SHARES
Net assets applicable to shares outstanding $ 74,524 $ 5,328
- ------------------------------------------------------------------------------------------
Shares outstanding 7,779 533
- ------------------------------------------------------------------------------------------
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
(net assets / shares outstanding) $ 9.58 $ 10.00
- ------------------------------------------------------------------------------------------
CLASS C SHARES
Net assets applicable to shares outstanding $ 9,379 $ 2,361
- ------------------------------------------------------------------------------------------
Shares outstanding 975 236
- ------------------------------------------------------------------------------------------
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
(net assets / shares outstanding) $ 9.62 $ 10.00
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
37
<PAGE> 38
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL MUNICIPAL
FUND FUND
<S> <C> <C>
- --------------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------------
Interest $ 168,305 1,406
- --------------------------------------------------------------------------------------
Expenses:
Management fee 12,538 150
- --------------------------------------------------------------------------------------
Administrator's fee 5,482 64
- --------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 2,269 18
- --------------------------------------------------------------------------------------
Trustees' fees and expenses 70 10
- --------------------------------------------------------------------------------------
Reports to shareholders 529 12
- --------------------------------------------------------------------------------------
Auditing 116 1
- --------------------------------------------------------------------------------------
Legal 17 1
- --------------------------------------------------------------------------------------
Registration fees 8 --
- --------------------------------------------------------------------------------------
Distribution fees 669 56
- --------------------------------------------------------------------------------------
Other 51 12
- --------------------------------------------------------------------------------------
Total expenses 21,749 324
- --------------------------------------------------------------------------------------
NET INVESTMENT INCOME 146,556 1,082
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments 1,473 (163)
- --------------------------------------------------------------------------------------
Futures (1,276) --
- --------------------------------------------------------------------------------------
Written options 615 --
- --------------------------------------------------------------------------------------
Total realized gain (loss) 812 (163)
- --------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments (226,279) (1,225)
- --------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (225,467) (1,388)
- --------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ (78,911) (306)
- --------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED SEPTEMBER 30,
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL
MUNICIPAL FUND FUND
----------------------- -----------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
OPERATIONS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ 146,556 157,912 1,082 966
- ----------------------------------------------------------------------------------------------------------
Net realized gain (loss) 812 56,655 (163) 85
- ----------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) (226,279) 55,759 (1,225) 555
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (78,911) 270,326 (306) 1,606
- ----------------------------------------------------------------------------------------------------------
Distribution to shareholders from net investment income (146,556) (157,912) (1,082) (966)
- ----------------------------------------------------------------------------------------------------------
Distribution to shareholders from net realized gains (73,330) (66,970) (64) (140)
- ----------------------------------------------------------------------------------------------------------
Total dividends to shareholders (219,886) (224,882) (1,146) (1,106)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from fund share
transactions (109,643) (41,022) 1,742 2,784
- ----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS (408,440) 4,422 290 3,284
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------------
Beginning of year 3,220,643 3,216,221 25,173 21,889
- ----------------------------------------------------------------------------------------------------------
END OF YEAR $2,812,203 3,220,643 25,463 25,173
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF
THE FUND Kemper Municipal Bond Fund (Municipal Fund) and
Kemper Intermediate Municipal Bond Fund
(Intermediate Municipal Fund), collectively the
funds are a diversified series of Kemper National
Tax-Free Income Trust (the "Corporation" or
"Trust") which is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"),
as an open-end management investment company
organized as a Massachusetts business trust.
The funds offer multiple classes of shares. Class A
shares are offered to investors subject to an
initial sales charge. Class B shares are offered
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 offered 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 within one
year of purchase. Class C shares do not convert
into another class. Class I shares (none issued at
September 30, 1999) 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.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of each fund have
equal rights with respect to voting subject to
class specific arrangements.
Each fund's financial statements are prepared in
accordance with generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the funds in the
preparation of their financial statements.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at
value. Portfolio debt securities purchased with an
original maturity greater than sixty days are
valued by pricing agents approved by the officers
of the trust, whose quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the
calculated mean between the most recent bid and
asked quotation supplied by a bona fide market
maker shall be used. Money market instruments
purchased with an original maturity of sixty days
or less are valued at amortized cost. All other
securities are valued at their fair value as
determined in good faith by the Valuation Committee
of the Board of Trustees.
OPTIONS. An option contract is a contract in which
the writer of the option grants the buyer of the
option the right to purchase from (call option), or
sell to (put option), the writer a designated
instrument at a specified price within a specified
period of time. Certain options, including options
on indices, will require cash settlement by the
fund if the option is exercised. During the period,
the Municipal Fund purchased put options on
securities as a hedge against potential adverse
price movements in the value of portfolio assets.
In addition,
39
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS
during the period, the Municipal Fund wrote put
options on securities as a temporary substitute for
purchasing selected investments and to enhance
potential gain.
The liability representing the fund's obligation
under an exchange traded written option or
investment in a purchased option is valued at the
last sale price or, in the absence of a sale, the
mean between the closing bid and asked prices or at
the most recent asked price (bid for purchased
options) if no bid and asked price are available.
Over-the-counter written or purchased options are
valued using dealer supplied quotations. Gain or
loss is recognized when the option contract expires
or is closed.
If the fund writes a covered call option, the fund
foregoes, in exchange for the premium, the
opportunity to profit during the option period from
an increase in the market value of the underlying
security above the exercise price. If the Fund
writes a put option it accepts the risk of a
decline in the market value of the underlying
security below the exercise price. Over-the-
counter options have the risk of the potential
inability of counterparties to meet the terms of
their contracts. The fund's maximum exposure to
purchased options is limited to the premium
initially paid. In addition, certain risks may
arise upon entering into option contracts including
the risk that an illiquid secondary market will
limit the fund's ability to close out an option
contract prior to the expiration date and that a
change in the value of the option contract may not
correlate exactly with changes in the value of the
securities or currencies hedged.
FUTURES CONTRACTS. A futures contract is an
agreement between a buyer or seller and an
established futures exchange or its clearinghouse
in which the buyer or seller agrees to take or make
a delivery of a specific amount of a financial
instrument at a specified price on a specific date
(settlement date). During the period, the Municipal
Fund purchased interest rate futures to manage the
duration of the portfolio. In addition, the
Municipal Fund also sold interest rate futures to
hedge against declines in the value of portfolio
securities.
Upon entering into a futures contract, the fund is
required to deposit with a financial intermediary
an amount ("initial margin") equal to a certain
percentage of the face value indicated in the
futures contract. Subsequent payments ("variation
margin") are made or received by the fund dependent
upon the daily fluctuations in the value of the
underlying security and are recorded for financial
reporting purposes as unrealized gains or losses by
the fund. When entering into a closing transaction,
the fund will realize a gain or loss equal to the
difference between the value of the futures
contract to sell and the futures contract to buy.
Futures contracts are valued at the most recent
settlement price.
Certain risks may arise upon entering into futures
contracts, including the risk that an illiquid
secondary market will limit the fund's ability to
close out a futures contract prior to the
settlement date and that a change in the value of a
futures contract may not correlate exactly with the
changes in the value of the securities or
currencies hedged. When utilizing futures contracts
to hedge, the Fund gives up the opportunity to
profit from favorable price movements in the hedged
positions during the term of the contract.
FEDERAL INCOME TAXES. Each fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated
40
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS
investment companies and to distribute all of its
taxable and tax-exempt income to its shareholders.
Accordingly, the funds paid no federal income taxes
and no federal income tax provision was required.
At September 30, 1999, the Intermediate Municipal
Fund had a net tax basis capital loss carryforward
of approximately $22,000, which may be applied
against any realized net taxable gains of each
succeeding year until fully utilized or until
September 30, 2007, the expiration date, whichever
occurs first. In addition, from November 1, 1998
through September 30, 1999, the Municipal Fund and
the Intermediate Municipal Fund incurred
approximately $34,656,000 and $175,000,
respectively, of net realized capital losses. As
permitted by tax regulations, the funds intend to
elect to defer these losses and treat them as
arising in the fiscal year ended September 30,
2000.
DISTRIBUTION OF INCOME AND GAINS. All of the net
investment of each fund is declared as a daily
dividend and is distributed to shareholders
monthly. Net realized gains from investment
transactions, in excess of available capital loss
carryforwards, would be taxable to the funds if not
distributed, and, therefore, will be distributed to
shareholders at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the funds may periodically
make reclassifications among certain of its capital
accounts without impacting the net asset value of
each fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Realized gains and losses from
investment transactions are recorded on an
identified cost basis. All premiums and original
issue discounts are amortized/accreted for both tax
and financial reporting purposes.
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.
- --------------------------------------------------------------------------------
3 TRANSACTIONS
WITH AFFILIATES MANAGEMENT AGREEMENT. Each fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper). The Municipal Fund pays a monthly
investment management fee of 1/12 of the annual
rate of .45% of the first $250 million of average
daily net assets declining to .32% of average daily
net assets in excess of $12.5 billion. The
Municipal Fund paid a management fee of $12,538,000
for the year ended September 30, 1999.
The Intermediate Municipal Fund pays a monthly
investment management fee of 1/12 of the annual
rate of .55% of the first $250 million of average
daily net assets declining to .40% of average daily
net assets in excess of $12.5 billion. The
Intermediate Municipal Fund paid a management fee
of $150,000 for the year ended September 30, 1999.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The trust has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI).
41
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS
Underwriting commissions paid in connection with
the distribution of each fund's Class A shares for
the year ended September 30, 1999 are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
RETAINED BY KDI
---------------
<S> <C>
Municipal fund $325,000
Intermediate Municipal fund 8,000
</TABLE>
For services under the distribution services
agreement, each fund pays KDI a fee of .75% of
average daily net assets of Class B and Class C
shares pursuant to separate Rule 12b-1 plans for
the Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sales of Class B and Class C shares of each fund.
In addition, KDI receives any contingent deferred
sales charges (CDSC) from redemptions of Class B
and Class C shares. Distribution fees and CDSC for
the year ended September 30, 1999 are as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES
AND CDSC
RECEIVED BY KDI UNPAID FEES
----------------- -----------
<S> <C> <C>
Municipal Fund $876,000 $47,000
Intermediate Municipal Fund 112,000 8,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The trust has an
administrative services agreement with KDI. For
providing information and administrative services
to shareholders, each fund pays KDI a fee at an
annual rate of up to .25% of average daily net
assets of each class. KDI in turn has various
agreements with financial services firms that
provide these services and pays these firms based
on assets of fund accounts the firms service.
Administrative services fees (ASF) paid for the
year ended September 30, 1999 are as follows:
<TABLE>
<CAPTION>
ASF PAID BY THE ASF PAID BY
FUND TO KDI UNPAID ASF KDI TO AFFILIATES
--------------- ---------- -----------------
<S> <C> <C> <C>
Municipal Fund $5,482,000 $167,000 $13,000
Intermediate Municipal Fund 64,000 18,000 --
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the trust's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the trust. Under the agreement,
for the year ended September 30, 1999, KSvC
received fees are as follows:
<TABLE>
<CAPTION>
SHAREHOLDER
SERVICES UNPAID FEES
----------- -----------
<S> <C> <C>
Municipal Fund $1,577,000 $169,000
Intermediate Municipal Fund 14,000 0
</TABLE>
OFFICERS AND TRUSTEES. Certain officers or trustees
of the trust are also officers or directors of
Scudder Kemper. For the year ended September 30,
1999, the trust made no payments to its officers
and incurred trustees' fees and expenses
aggregating $80,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the year ended September 30, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL FUND MUNICIPAL FUND
-------------- --------------
<S> <C> <C>
Purchases $2,082,682 $9,174
Proceeds from sales 2,318,274 7,895
</TABLE>
The aggregate face value of futures contracts
opened and closed during the year ended September
30, 1999 was $1,936,263,000 for the Municipal Fund.
42
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 LINE OF CREDIT The Municipal Fund and Intermediate Municipal Fund
and several Kemper funds (the "Participants") share
in a $750 million revolving credit facility for
temporary or emergency purposes, including the
meeting of redemption requests that otherwise might
require the untimely disposition of securities. The
Participants are charged an annual commitment fee
which is allocated pro rate among each of the
Participants. Interest is calculated based on the
market rates at the time of the borrowing. Each
fund may borrow up to a maximum of 33 percent of
its net assets under the agreement.
- --------------------------------------------------------------------------------
6 CAPITAL SHARE
TRANSACTIONS The following tables summarize the activity in
capital shares of the funds (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1999 1998
MUNICIPAL -------------------------- ---------------------------
FUND SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 122,765 $ 1,246,825 93,268 $ 974,757
---------------------------------------------------------------------------------------
Class B 2,130 21,741 2,704 28,166
---------------------------------------------------------------------------------------
Class C 7,786 79,161 4,263 44,493
---------------------------------------------------------------------------------------
Class I -- -- -- --
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 13,879 140,559 13,684 141,785
---------------------------------------------------------------------------------------
Class B 334 3,377 273 2,821
---------------------------------------------------------------------------------------
Class C 43 440 31 327
---------------------------------------------------------------------------------------
Class I -- -- -- --
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
SHARES REDEEMED
Class A (148,146) (1,504,342) (113,073) (1,180,570)
---------------------------------------------------------------------------------------
Class B (1,801) (18,075) (1,101) (12,098)
---------------------------------------------------------------------------------------
Class C (7,801) (79,330) (3,866) (40,395)
---------------------------------------------------------------------------------------
Class I -- -- (30) (308)
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 286 2,942 351 3,667
---------------------------------------------------------------------------------------
Class B (286) (2,941) (352) (3,667)
---------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
FROM CAPITAL SHARE
TRANSACTIONS $ (109,643) $ (41,022)
---------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 44
Notes to FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1999 1998
INTERMEDIATE --------------------- --------------------
MUNICIPAL FUND SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 1,154 $ 11,795 817 $ 8,500
------------------------------------------------------------------------------
Class B 283 2,938 178 1,841
------------------------------------------------------------------------------
Class C 228 2,384 56 578
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 57 589 57 587
------------------------------------------------------------------------------
Class B 12 121 12 128
------------------------------------------------------------------------------
Class C 5 49 2 19
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES REDEEMED
Class A (1,254) (12,728) (677) (7,029)
------------------------------------------------------------------------------
Class B (258) (2,677) (122) (1,295)
------------------------------------------------------------------------------
Class C (72) (729) (53) (545)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 2 22 13 112
------------------------------------------------------------------------------
Class B (2) (22) (13) (112)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $ 1,742 $ 2,784
------------------------------------------------------------------------------
</TABLE>
44
<PAGE> 45
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION> --------------------------------------
CLASS A
--------------------------------------
YEAR ENDED SEPTEMBER 30,
MUNICIPAL FUND 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $10.61 10.46 10.18 10.15 9.69
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income .48 .52 .54 .55 .55
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.76) .37 .36 .06 .50
- ---------------------------------------------------------------------------------
Total from investment operations (.28) .89 .90 .61 1.05
- ---------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .48 .52 .54 .55 .55
- ---------------------------------------------------------------------------------
Distribution from net realized gain .25 .22 .08 .03 .04
- ---------------------------------------------------------------------------------
Total dividends .73 .74 .62 .58 .59
- ---------------------------------------------------------------------------------
Net asset value, end of period $ 9.60 10.61 10.46 10.18 10.15
- ---------------------------------------------------------------------------------
TOTAL RETURN (2.75)% 8.84 9.15 6.00 11.15
- ---------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------
Expenses .69% .68 .68 .66 .66
- ---------------------------------------------------------------------------------
Net investment income 4.86% 4.97 5.29 5.35 5.63
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> --------------------------------------
CLASS B
--------------------------------------
YEAR ENDED SEPTEMBER 30,
MUNICIPAL FUND 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $10.58 10.44 10.15 10.13 9.67
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income .40 .43 .45 .46 .46
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.75) .36 .37 .05 .50
- ---------------------------------------------------------------------------------
Total from investment operations (.35) .79 .82 .51 .96
- ---------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .40 .43 .45 .46 .46
- ---------------------------------------------------------------------------------
Distribution from net realized gain .25 .22 .08 .03 .04
- ---------------------------------------------------------------------------------
Total dividends .65 .65 .53 .49 .50
- ---------------------------------------------------------------------------------
Net asset value, end of period $ 9.58 10.58 10.44 10.15 10.13
- ---------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (3.48)% 7.84 8.32 4.97 10.17
- ---------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------
Expenses 1.53% 1.52 1.55 1.54 1.55
- ---------------------------------------------------------------------------------
Net investment income 4.02% 4.13 4.42 4.47 4.74
- ---------------------------------------------------------------------------------
</TABLE>
45
<PAGE> 46
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION> ------------------------------------------
CLASS C
------------------------------------------
YEAR ENDED SEPTEMBER 30,
MUNICIPAL FUND 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------
Net asset value, beginning of period $10.62 10.47 10.18 10.16 9.69
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .40 .43 .46 .46 .47
- -------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.75) .37 .37 .05 .51
- -------------------------------------------------------------------------------------
Total from investment operations (.35) .80 .83 .51 .98
- -------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .40 .43 .46 .46 .47
- -------------------------------------------------------------------------------------
Distribution from net realized gain .25 .22 .08 .03 .04
- -------------------------------------------------------------------------------------
Total dividends .65 .65 .54 .49 .51
- -------------------------------------------------------------------------------------
Net asset value, end of period $ 9.62 10.62 10.47 10.18 10.16
- -------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (3.47)% 7.93 8.34 4.99 10.32
- -------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------
Expenses 1.54% 1.52 1.53 1.51 1.51
- -------------------------------------------------------------------------------------
Net investment income 4.01% 4.13 4.44 4.50 4.78
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $2,812,203 3,220,643 3,126,221 3,321,546 3,510,648
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 70% 65 77 97 86
- -----------------------------------------------------------------------------------------------------------
</TABLE>
NOTES FOR MUNICIPAL FUND:
Total return does not reflect the effect of any sales charges.
46
<PAGE> 47
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION> --------------------------------------------------
CLASS A
--------------------------------------------------
NOVEMBER 1,
YEAR ENDED SEPTEMBER 30, 1994 TO
------------------------------ SEPTEMBER 30,
INTERMEDIATE MUNICIPAL FUND 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.53 10.31 10.06 10.18 9.50
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .42 .45 .46 .46 .45
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.50) .29 .29 (.04) .68
- ---------------------------------------------------------------------------------------------
Total from investment operations (.08) .74 .75 .42 1.13
- ---------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .42 .45 .46 .46 .45
- ---------------------------------------------------------------------------------------------
Distribution from net realized gain .03 .07 .04 .08 --
- ---------------------------------------------------------------------------------------------
Total dividends .45 .52 .50 .54 .45
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $10.00 10.53 10.31 10.06 10.18
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (.79)% 7.34 7.62 4.15 12.08
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses absorbed by the fund .96% .96 .96 .92 .55
- ---------------------------------------------------------------------------------------------
Net investment income 4.15% 4.35 4.55 4.45 5.00
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses .96% .96 .96 1.04 1.05
- ---------------------------------------------------------------------------------------------
Net investment income 4.15% 4.35 4.55 4.33 4.50
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> --------------------------------------------------
CLASS B
--------------------------------------------------
NOVEMBER 1,
YEAR ENDED SEPTEMBER 30, 1994 TO
------------------------------ SEPTEMBER 30,
INTERMEDIATE MUNICIPAL FUND 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.52 10.31 10.06 10.18 9.50
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .34 .37 .38 .38 .36
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.49) .28 .29 (.04) .68
- ---------------------------------------------------------------------------------------------
Total from investment operations (.15) .65 .67 .34 1.04
- ---------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .34 .37 .38 .38 .36
- ---------------------------------------------------------------------------------------------
Distribution from net realized gain .03 .07 .04 .08 --
- ---------------------------------------------------------------------------------------------
Total dividends .37 .44 .42 .46 .36
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $10.00 10.52 10.31 10.06 10.18
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (1.48)% 6.38 6.78 3.34 11.13
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses absorbed by the fund 1.76% 1.76 1.76 1.71 1.42
- ---------------------------------------------------------------------------------------------
Net investment income 3.35% 3.55 3.75 3.66 4.13
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses 1.76% 1.76 1.76 1.83 1.92
- ---------------------------------------------------------------------------------------------
Net investment income 3.35% 3.55 3.75 3.54 3.63
- ---------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 48
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION> --------------------------------------------------
CLASS C
--------------------------------------------------
NOVEMBER 1,
YEAR ENDED SEPTEMBER 30, 1994 TO
------------------------------ SEPTEMBER 30,
INTERMEDIATE MUNICIPAL FUND 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.53 10.31 10.06 10.19 9.50
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .34 .37 .39 .38 .38
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.50) .29 .29 (.05) .69
- ---------------------------------------------------------------------------------------------
Total from investment operations (.16) .66 .68 .33 1.07
- ---------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .34 .37 .39 .38 .38
- ---------------------------------------------------------------------------------------------
Distribution from net realized gain .03 .07 .04 .08 --
- ---------------------------------------------------------------------------------------------
Total dividends .37 .44 .43 .46 .38
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $10.00 10.53 10.31 10.06 10.19
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (1.56)% 6.55 6.77 3.26 11.43
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses absorbed by the fund 1.72% 1.73 1.73 1.65 1.28
- ---------------------------------------------------------------------------------------------
Net investment income 3.39% 3.58 3.78 3.72 4.27
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses 1.72% 1.73 1.73 1.77 1.78
- ---------------------------------------------------------------------------------------------
Net investment income 3.39% 3.58 3.78 3.60 3.77
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -------------------------------------------------------------------------------------------------
NOVEMBER 1,
YEAR ENDED SEPTEMBER 30, 1994 TO
---------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in
thousands) $25,463 25,173 21,889 21,901 16,169
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 30% 14 80 80 60
- -------------------------------------------------------------------------------------------------
</TABLE>
NOTES FOR INTERMEDIATE MUNICIPAL FUND:
Scudder Kemper agreed to waive the management fee of the Intermediate Municipal
Fund from its inception, November 1, 1994, through April 30, 1995. Thereafter,
the management fee was gradually reinstated through April 30, 1996. "Other
ratios to average net assets" are computed without the waiver of management fee.
Total return does not reflect the effect of any sales charges.
FEDERAL TAX STATUS OF 1999 DIVIDENDS FOR BOTH FUNDS
Municipal and Intermediate Municipal Funds paid distributions of $0.16 and $0.01
per share, respectively, from net long-term capital gains during the year ended
September 30, 1999, of which 100% and 100% represent 20% rate gains,
respectively.
Pursuant to Section 852 of the Internal Revenue Code, the Municipal Fund
designated $22,535,000 as capital gain dividends for its year ended September
30, 1999, of which 100% represents 20% rate gains.
Of the dividends paid from net investment income by each fund for the taxable
year ended September 30, 1999, 100% are designated as exempt interest dividends
for federal income tax purposes. However, a portion of the dividends may be
includable in the alternative minimum tax calculation.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Kemper Fund account, please call 1-800-621-1048.
48
<PAGE> 49
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER NATIONAL TAX-FREE INCOME SERIES
We have audited the accompanying statement of assets and liabilities,
including the portfolios of investments, of Kemper Municipal Bond Fund and
Kemper Intermediate Municipal Bond Fund, comprising the Kemper National Tax-Free
Income Series (the Trust) as of September 30, 1999, the related statements of
operations for the year then ended and changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
fiscal periods since 1995. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
September 30, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the above mentioned Funds of Kemper National Tax-Free Income Series at
September 30, 1999, the results of their operations, the changes in their net
assets and the financial highlights for each of the fiscal periods referred to
above, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 15, 1999
49
<PAGE> 50
NOTES
50
<PAGE> 51
NOTES
51
<PAGE> 52
TRUSTEES&OFFICERS
TRUSTEES OFFICERS
JOHN W. BALLANTINE MARK S. CASADY MAUREEN E. KANE
Trustee President Assistant Secretary
LEWIS A. BURNHAM PHILLIP J. COLLORA CAROLINE PEARSON
Trustee Vice President and Assistant Secretary
Secretary
DONALD L. DUNAWAY BRENDA LYONS
Trustee JOHN R. HEBBLE Assistant Treasurer
Treasurer
ROBERT B. HOFFMAN
Trustee ANN M. MCCREARY
Vice President
DONALD R. JONES
Trustee ASHTON P. GOODFIELD
Vice President
THOMAS W. LITTAUER
Trustee and Vice President ROBERT C. PECK, JR.
Vice President
SHIRLEY D. PETERSON
Trustee KATHRYN L. QUIRK
Vice President
CORNELIA SMALL
Trustee LINDA J. WONDRACK
Vice President
WILLIAM P. SOMMERS
Trustee
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LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
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SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
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CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
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TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania
Kansas City, MO 64105
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INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
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PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
KEMPER FUNDS LOGO
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Tax-Free Income Funds prospectus.
KNTIS - 2(11/23/99) 1094280
