<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MARCH 31, 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
"...While other fixed income asset classes, such as
corporate bonds and Treasuries, often experienced
extreme volatility, municipal bonds remained
relatively stable. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
7
TERMS TO KNOW
8
PORTFOLIO STATISTICS
10
PORTFOLIO OF
INVESTMENTS
25
FINANCIAL STATEMENTS
27
NOTES TO
FINANCIAL STATEMENTS
31
FINANCIAL HIGHLIGHTS
35
SHAREHOLDERS' MEETING
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER NATIONAL TAX-FREE
INCOME FUNDS TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1999
(UNADJUSTED FOR ANY SALES CHARGE):
[BAR GRAPH]
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 0.51%
CLASS B 0.08%
CLASS C 0.08%
LIPPER GENERAL MUNICIPAL DEBT CATEGORY AVERAGE* 0.58%
</TABLE>
[BAR GRAPH]
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CLASS A 0.69%
CLASS B 0.37%
CLASS C 0.29%
LIPPER INTERMEDIATE MUNICIPAL DEBT CATEGORY AVERAGE* 0.97%
- --------------------------------------------------------------------------------
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE PERFORMANCE.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
*LIPPER ANALYTICAL SERVICES, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN
NET ASSET VALUE WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF
SALES CHARGES AND, IF THEY HAD, RESULTS MAY HAVE BEEN LESS FAVORABLE.
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AS OF AS OF
3/31/99 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER MUNICIPAL BOND FUND CLASS A $10.17 $10.61
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND CLASS B $10.14 $10.58
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND CLASS C $10.18 $10.62
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AS OF AS OF
3/31/99 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS A $10.36 $10.53
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS B $10.36 $10.52
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS C $10.36 $10.53
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER NATIONAL TAX-FREE INCOME FUNDS LIPPER RANKINGS AS OF 3/31/99*
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THEIR RESPECTIVE LIPPER CATEGORIES
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
#114 of #218 of #208 of
1-YEAR 252 funds 252 funds 252 funds
- --------------------------------------------------------------------------------
#37 of
5-YEAR 146 funds N/A N/A
- --------------------------------------------------------------------------------
#13 of
10-YEAR 75 funds N/A N/A
- --------------------------------------------------------------------------------
#8 of
15-YEAR 43 funds N/A N/A
- --------------------------------------------------------------------------------
#7 of
20-YEAR 24 funds N/A N/A
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
#118 of #134 of #131 of
1-YEAR 137 funds 137 funds 137 funds
- --------------------------------------------------------------------------------
#64 of #109 of #107 of
3-YEAR 117 funds 117 funds 117 funds
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND AND YIELD REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLES SHOW PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE FUNDS
AS OF MARCH 31, 1999.
- --------------------------------------------------------------------------------
KEMPER MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS CLASS CLASS
A B C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $.2397 $.1967 $.1957
- --------------------------------------------------------------------------------
MARCH DIVIDEND: $.0471 $.0387 $.0377
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 4.76% 3.93% 3.81%
- --------------------------------------------------------------------------------
SEC YIELD+: 3.85% 3.22% 3.16%
- --------------------------------------------------------------------------------
TAX EQUIVALENT YIELD: 6.12% 5.12% 5.02%
- --------------------------------------------------------------------------------
</TABLE>
BASED ON A MARGINAL FEDERAL INCOME TAX RATE OF 37.1%
- --------------------------------------------------------------------------------
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS CLASS CLASS
A B C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $.2104 $.1691 $.1698
- --------------------------------------------------------------------------------
MARCH DIVIDEND: $.0417 $.0336 $.0338
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 4.14% 3.33% 3.36%
- --------------------------------------------------------------------------------
SEC YIELD+: 3.30% 2.59% 2.62%
- --------------------------------------------------------------------------------
TAX EQUIVALENT YIELD: 5.25% 4.12% 4.17%
- --------------------------------------------------------------------------------
</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 MARCH 31, 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 MARCH 31, 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 A MARGINAL FEDERAL INCOME TAX
RATE OF 37.1%. INCOME MAY BE SUBJECT TO STATE AND LOCAL TAXES AND, FOR SOME
INVESTORS, A PORTION MAY BE SUBJECT TO THE ALTERNATIVE MINIMUM TAX. YIELDS AND
DISTRIBUTION RATES ARE HISTORICAL AND WILL FLUCTUATE.
<PAGE> 3
ECONOMIC OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN
PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER INVESTMENTS, HE WAS WITH
THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
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 $280 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:
Throughout April, investor enthusiasm drove the market to its second milestone
in a year -- the Dow Jones Industrial Average rose to 11,000 just a month after
it broke 10,000 for the first time. But those gains don't tell the whole story
- -- investors in the first four months of the year have endured significant
volatility. What drove the climb to 11,000 and what, at the same time, has led
to investor anxiety?
Driving the market, in part, was consumer confidence. In the first quarter of
1999, consumer spending surged 6.7 percent -- the largest rise in 11 years. The
market's rise seems to have buoyed consumer confidence, which rose for the sixth
consecutive month in April. And, the resilience of the economy has bolstered
more optimistic expectations for the next six months.
Inspiring consumer confidence also were the lowest levels of inflation in a
generation. As measured by the consumer price index (CPI), inflation has been
between 1 1/2 and 2 percent, compared to approximately 4 percent in the
beginning of the 1990s and 10-12 percent in the beginning of the 1980s. Still,
inflation worries have been seeping into the market. The growing conviction that
Asian and Latin American economies are recovering is raising commodity prices,
particularly oil. The price of West Texas Intermediate oil surged from less than
$12 in February to almost $19 in early May. That alone almost guarantees a rise
in the "headline" inflation rate this year, which is the rate of inflation as
measured by the entire CPI. But it's important to note that the Federal Reserve
Board looks primarily at the core inflation rate, which is the CPI minus food
and energy -- and the core inflation rate looks as if it will remain low at
about 2 percent this year.
Also contributing to consumer confidence, short-term and long-term interest
rates remained low over the first quarter, and can be expected to remain so.
Today's Fed policy is reactive, not proactive, which means that the Fed tends to
respond to inflation only when it picks up. Consequently, we expect no changes
in short-term interest rates during May and June, and there's only a small
chance that the Fed will raise interest rates in the second half of the year.
Moreover, the federal budget surplus continues to benefit from good revenue
gains (which are based on good income gains, especially from households), good
capital gains and continued restraint in federal spending. The surplus this year
is expected to approach $100 billion.
Such a positive environment is exactly what poses risk for investors, and is
key to understanding recent volatility in the market. A stronger economy has the
potential to feed inflation fears and drive up interest rates. Events on April
30 illustrated the domino effect of investors reacting to positive economic
news, which they consider troubling at this point, more than eight years into
the economic expansion. The steady stream of positive economy's news prompted a
sell-off in the markets based on fears that the strong pace of economic growth
will eventually lead to higher inflation. The benchmark 30-year Treasury bond
fell nearly 2 points (close to $20 for a bond with a $1,000 face amount) as the
yield shot up to 5.657 percent. It was the biggest one-day plunge in bonds in
two months. Bonds, in turn, pulled stocks lower.
Where can we expect to go from here? The fundamentals by which we judge the
health of the economy suggested continued growth as we moved into the second
quarter of 1999. For example, the gross domestic product (GDP), the value of all
goods and services produced in the U.S., rose at an annual rate of 4.5 percent
in the first quarter, following a tremendous fourth-quarter surge of 6 percent.
This is very much in line with what we've grown accustomed to over the past year
- -- over the four quarters of 1998, the U.S. economy expanded by 4.3 percent.
Some people aren't surprised at all by strong GDP growth that once would have
alarmed them. That's partially because we've grown accustomed to a strong
economy in the past three or four years. But it's also because we've been able
to absorb growth without driving up inflation. That's important for investors.
If prices were rising as the economy was growing, the Fed would most likely
raise short-term interest rates, which would change the financial market
outlook. But again, that isn't happening right now.
However, we do see some vulnerability. Trade is a weak spot in the economy
right now. Exports of U.S. goods and services dropped in the first quarter while
imports soared. This reflects the fact that the U.S. is one of the few countries
financially fit enough to buy goods produced elsewhere in the world. But for as
long as less vibrant international economies are unable to buy U.S. goods, the
profitability of U.S. companies trying to export will be challenged.
When you think about it, vulnerability in regard to the international economy
is nothing new. Globally, the outlook is slightly more positive than it was a
few months ago. For example, the European markets are slowing down, which will
most likely lead to the central bank lowering interest rates in order to boost
domestic spending. In many countries in Europe, there are no fixed-rate
mortgages, only adjustable-rate mortgages. When interest rates go down,
mortgages are reduced and homeowners
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]
(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 MARCH 31, 1999.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
spend money elsewhere. This has a huge impact on consumer spending, and will
help European equities in the long term. Additionally, the situation in Japan
remains unchanged. And, problems in the emerging markets haven't had the
negative impact many people expected -- both the Mexican and Brazilian stock
markets have actually risen in the past two months.
But don't forget that international crises have the potential to affect the
U.S. markets drastically. An increase in military spending on Kosovo by the 11
European Monetary Union (EMU) countries could force them to spend less in other
areas, which could have economic implications, including higher interest rates.
That's because many European countries have small economies and little leeway in
their budgets. Consequently, those countries finance unplanned military
expenditures by selling government bonds -- which, in Europe's small bond
market, typically raises interest rates.
The international situation alone, however, is by no means an indicator of a
U.S. slowdown -- and without any such indications, complacency may be our
greatest concern. It's easy to look at the current economic situation and behave
as if no risk exists. But when you see the market soaring and are tempted to
jump in, note that the bull market grew to records on the strength of just a few
dozen stocks, while most other stock prices were flat or actually declined.
In summary, there are concerns that the current economy is unsustainable and
we soon could see an abrupt end. In many cases, however, people are looking for
a slowdown because they are fearful growth will drive up inflation -- these are
particularly older investors who are accustomed to inflation accompanying
growth. But we currently just don't see the pressure toward inflation at all, so
there's no reason to want a slowdown. The best approach now, as in any market,
is to diversify and invest for the long term.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
/s/ JOHN E. SILVIA
John E. Silvia
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF DR. JOHN SILVIA AS OF MAY 5, 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
PERFORMANCE UPDATE
[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. PRIOR TO JOINING SCUDDER KEMPER, MS. BRENNAN WAS AN ASSISTANT
PORTFOLIO MANAGER FOR AN UNAFFILIATED INVESTMENT MANAGEMENT FIRM FROM 1993 TO
1995.
[CONDON PHOTO]
PHILIP G. CONDON IS CO-LEAD PORTFOLIO MANAGER OF KEMPER MUNICIPAL BOND FUND. HE
JOINED SCUDDER KEMPER INVESTMENTS IN 1983.
[GOODFIELD PHOTO]
ASHTON P. GOODFIELD HAS BEEN THE LEAD PORTFOLIO MANAGER OF THE KEMPER
INTERMEDIATE MUNICIPAL BOND FUND SINCE MARCH 1998. A SENIOR VICE PRESIDENT AND
CHARTERED FINANCIAL ANALYST, MS. GOODFIELD JOINED SCUDDER KEMPER INVESTMENTS IN
1990 AND IS A SENIOR VICE PRESIDENT.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
MUNICIPAL BONDS WERE IN THE EYE OF A HURRICANE DURING THE FIRST SIX MONTHS OF
THE FISCAL YEAR. AS INVESTOR FOCUS SHIFTED FROM TURBULENCE OVERSEAS TO
UNEXPECTEDLY STRONG ECONOMIC GROWTH IN THE U.S., GOVERNMENT BOND YIELDS
FLUCTUATED SUBSTANTIALLY. MUNICIPAL BONDS, HOWEVER, HELD THEIR GROUND IN THE
MIDST OF THE TURMOIL. BELOW, THE MANAGEMENT TEAM DISCUSSES THE MARKET'S
PERFORMANCE AND HOW THE FUNDS WERE POSITIONED IN RESPONSE.
Q HOW DID THE MUNICIPAL BOND MARKET PERFORM DURING THE LAST SIX MONTHS
RELATIVE TO OTHER FIXED-INCOME ASSET CLASSES?
A While other fixed income asset classes, such as corporate bonds and
Treasuries, often experienced extreme volatility, municipal bonds remained
relatively stable.
For example, the Lehman Brothers Municipal Bond Index gained 1.49 percent for
the six-month period ended March 31, 1999, while Lehman Brothers Government Bond
index fell 1.51 percent. In addition, the return for municipal bonds doesn't
take into account the tax advantage they offer. So municipal bonds were
obviously a good place to be if you were a fixed income investor, especially a
nervous one.
Q WHY WERE OTHER MARKETS SO VOLATILE?
A The volatility in other markets was primarily precipitated by events
outside the United States. Last summer, turbulence in foreign markets prompted a
massive flight-to-quality as global investors sought a safe haven for their
assets. Since U.S. government bonds were the obvious choice, billions of dollars
poured into the U.S. bond market. This demand pushed prices up and yields down,
particularly on Treasury bonds.
In early October, after several months of feverish price gains, U.S.
government bonds underwent a violent readjustment. Uncertainty regarding the
magnitude and sustainability of low inflation in the U.S., compounded by a
flight FROM quality in the Treasury market caused yields to rise. The Federal
Reserve easing on October 15, followed by two more easings, helped support
domestic asset markets.
Through March, the market was caught in the dynamic tension between a strong
domestic growth environment with low inflation and turbulent markets overseas.
In February, a strong economic report for the fourth quarter of 1998 indicating
6 percent annual growth substantiated investor concerns regarding fears of
higher interest rates in the U.S.
Q WHY DID MUNICIPAL BONDS SEEM TO BE IMMUNE TO ALL THIS?
A "Immune" is probably too strong a word. These changes affected the
municipal market of course, but they had less of an impact because different
forces were acting to limit a municipal rally when Treasury prices were rising,
but also limit a municipal sell-off when Treasury prices fell.
When the Treasury market was rallying, the municipal market's progress was
impeded by heavy issuance. The declining rate environment that characterized the
majority of 1998 increased the supply of municipal bonds in two ways:
1) New issues -- new bond offerings flooded the market
5
<PAGE> 6
PERFORMANCE UPDATE
as local governments tried to capitalize on low interest rates to beef up
infrastructure such as highways and water/sewer projects.
2) Refinancing bonds -- when rates decline, municipal issuers look to
refinance their debt, just like private homeowners refinance their
mortgages when rates fall. So municipal governments issued new
lower-yielding bonds to replace the higher-yielding ones.
In mid-1998, it looked as if it might be a record year for issuance. But as
volatility increased during the Fall, issuance slacked off. Fortunately, much of
the supply was sopped up by hedge funds and "crossover" buyers, primarily
investors who usually buy taxable bonds, but who recognized the outstanding
value in municipals. Such "non-traditional" buyers helped offset the glut of
issuance.
When Treasuries and other fixed income classes were being pummeled, two
factors helped support municipal bond prices. First, supply decreased
dramatically. Second, the previous dramatic yield decline on U.S. government
bonds had caused municipal bonds to actually OUTYIELD similar maturity
Treasuries (based on The Bond Buyer Revenue Bond Index). Historically, that's
very unusual. Because the tax-advantage of municipal bonds is typically "built
in" to the price, long-maturity municipal bonds typically yield about 80-90
percent of a similar maturity Treasury. So municipal bonds represented an
attractive value throughout the six-month period, which helped support prices
when the Treasury market was under pressure.
According to the Revenue Bond Index, municipals now yield about 94 percent of
what similar maturity Treasuries do -- that's less than in previous months, but
historically municipals are still very attractive.
Q HOW DID THE FUND RESPOND TO THE MARKET'S CONDITIONS?
A As always, we tried to add value in two ways. DURATION and ISSUE
SELECTION. DURATION. As you may know, duration is an indication of a portfolio's
sensitivity to changes in interest rates. If you expect the market to rally and
interest rates to go down, you want to lengthen duration to help the fund
participate as much as possible. If you expect interest rates to trend up, you
want to shorten duration to help lessen the negative effects.
Duration can dramatically impact fund performance, so we don't generally make
particularly big moves. We tend to stay close to a neutral duration (7-8 years
for Kemper Municipal Bond Fund, 5-5.5 years for Kemper Intermediate Municipal
Bond Fund) and make modest adjustments on either side of that.
Going into the fiscal year, oil prices were at new lows, commodity prices were
declining and inflationary concerns remained generally absent -- all good for
bonds. So the funds' durations were slightly long, which helped them participate
in the rally. However, when the market turned gloomy in October, our longer
durations hurt us a bit. During the remainder of the period, durations on the
funds were reduced closer to a neutral level.
ISSUE SELECTION. Through most of the period, we concentrated on purchasing
intermediate-maturity bonds, which right now provide about 90 percent of the
return of longer maturities, but can provide more consistent return potential
and entail substantially less potential risk. In light of the relatively flat
market, we have also focused largely on increasing income. There have been
opportunities in long-maturity BBB-rated paper and some below investment-grade
issues for Kemper Municipal Bond Fund. Both funds remain fully invested.
So far this fiscal year, these moves produced returns that were about "middle
of the pack" for Kemper Municipal Bond Fund's peer group (Class A shares,
unadjusted for any sales charge). But considering how volatile the markets have
been, we're fairly satisfied to keep pace, considering that the portfolios'
shorter duration should reduce their sensitivity to market gyrations. Kemper
Intermediate Municipal Bond Fund (Class A shares, unadjusted for any sales
charge), modestly underperformed its peer group due in part to its exposure to a
weakening health care sector.
Q HOW DO YOU VIEW THE ATTRACTIVENESS OF MUNICIPAL BONDS FOR THE REST OF THE
YEAR VERSUS OTHER TYPES OF BONDS?
A Despite strength in the economy, favorable inflation figures should keep
interest rates near current levels in the near future. Against that backdrop, we
believe the municipal market provides excellent value, with long-maturity yields
still attractive relative to Treasuries. Plus, strong municipal finances should
help reduce credit concerns. So far, issuance has also remained almost 20
percent below last year's levels, so continued strong demand should help support
prices. We think that municipal bonds currently offer an attractive alternative
relative to other fixed-income investments.
6
<PAGE> 7
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 and Poor's.
DURATION A measure 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 price of the fund's shares at the end of the period.
7
<PAGE> 8
PORTFOLIO STATISTICS
KEMPER MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION* ON 3/31/99 ON 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 78% 69%
- --------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 22 18
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURED -- 13
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/99 ON 9/30/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
QUALITY ON 3/31/99 ON 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 67% 63%
- --------------------------------------------------------------------------------
AA 13 13
- --------------------------------------------------------------------------------
A 8 11
- --------------------------------------------------------------------------------
BBB 7 10
- --------------------------------------------------------------------------------
BB 1 --
- --------------------------------------------------------------------------------
NOT RATED 4 3
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/99 ON 9/30/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEARS TO MATURITY ON 3/31/99 ON 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
1-10 YEARS 52% 17%
- --------------------------------------------------------------------------------
11-20 YEARS 39 50
- --------------------------------------------------------------------------------
21+ YEARS 9 33
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/99 ON 9/30/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE MATURITY ON 3/31/99 ON 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
15.2 years 16.3 years
- --------------------------------------------------------------------------------
</TABLE>
* Portfolio composition is subject to change.
8
<PAGE> 9
PORTFOLIO STATISTICS
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION* ON 3/31/99 ON 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 77% 68%
- --------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 23 19
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURED -- 13
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/99 ON 9/30/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
QUALITY ON 3/31/99 ON 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 67% 62%
- --------------------------------------------------------------------------------
AA 12 12
- --------------------------------------------------------------------------------
A 3 4
- --------------------------------------------------------------------------------
BBB 11 13
- --------------------------------------------------------------------------------
NOT RATED 7 9
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/99 ON 9/30/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEARS TO MATURITY ON 3/31/99 ON 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
1-10 YEARS 80% 68%
- --------------------------------------------------------------------------------
11-20 YEARS 20 32
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 3/31/99 ON 9/30/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE MATURITY ON 3/31/99 ON 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C>
7.0 years 7.0 years
- --------------------------------------------------------------------------------
</TABLE>
* Portfolio composition is subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
KEMPER MUNICIPAL BOND FUND
Portfolio of Investments at March 31, 1999 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADVANCE REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL
AND INTEREST BY UNITED STATES GOVERNMENT SECURITIES
- --------------------------------------------------------------------------------------------------------------------
Health Facilities Auth., CO, Vail Valley Medical Center,
Rev., 8.125%, to be called 6-1-99 @ 102 $ 7,000 $ 7,195
Clermont County Hospital Facilities, OH, Mercy Health
Systems, Rev., 7.50%, to be called 9-1-99 @ 102 7,720 8,012
Marion County, IN, Hospital Auth., Hospital Facilities
Rev., 8.625%, to be called 10-1-99 @ 102 7,195 7,531
Gaithersburg, MD, First Mortgage Economic Dev., Asbury
Methodist Home Incorporated, Rev., 7.85%, to be called
1-1-00 @ 102 4,000 4,211
Medical Care Facilities Finance Agcy., NY, Mental Health
Services, Rev., 7.75%, to be called 2-15-00 @ 102 2,955 3,129
Philadelphia, PA, Municipal Auth., Criminal Justice
Center Rev., 7.80%, to be called 4-1-00 @ 100 3,635 3,800
City of St. Louis Park, MN, Methodist Hospital Proj.,
Rev., 7.25%, to be called 7-1-00 @ 102 6,650 7,085
Dev. Auth., CT, Pierce Memorial Baptist Home, Rev.,
9.25%, to be called 10-1-00 @ 103 1,140 1,269
Health and Education Facilities Auth., MO, Christian
Health Services Dev. Corp., Rev., 6.875%, to be called
2-15-01 @ 102 7,000 7,547
Local Assistance Corp., NY, Rev., 7.375% and 7.50%, to be
called 4-1-01 @ 102 9,675 10,584
Durham County, NC, 1991 Jail Facilities and Computer
Equipment Financing Proj., Rev., 6.625%, to be called
5-1-01 @ 102 5,500 5,938
Coconino County, AZ, Industrial Development Auth., Health
Care Rev., 9.25%, to be called 6-1-01 @ 102 565 635
Environmental Facilities Corp., NY, State Water Pollution
Control, Revolving Fund Rev., 7.25%, to be called
6-15-01 @ 102 4,520 4,957
New York City, NY, Municipal Water Finance Auth., Rev.,
7.00%, to be called 6-15-01 @ 101 760 823
Philadelphia, PA, Gas Works Rev., 7.70%, to be called
6-15-01 @ 102 14,850 16,407
Industrial Development Auth., PA, Rev., 7.00%, to be
called 7-1-01 @ 102 5,000 5,462
Chatham County School District, GA, Gen. Oblg., 6.15%, to
be called 8-1-01 @ 102 7,300 7,852
Gen. Oblg., NY, 7.75%, to be called 8-15-01 @ 101.5 3,408 3,779
Clermont County Hospital Facilities, OH, Mercy Health
Systems, Rev., 7.50%, to be called 9-1-01 @ 100 2,280 2,484
Austin, TX, Water, Sewer and Electric Rev., 14.00%, to be
called 11-15-01 @ 100 50 53
City and County of Denver, CO, Airport System Rev.,
8.75%, to be called 11-15-01 @ 102 2,120 2,426
New York City, NY, Gen. Oblg., zero coupon to 8.40%, to
be called 11-15-01 @ 101 to 101.5 29,010 32,894
Chicago, IL, Central Station, Tax Increment Rev., 8.90%,
to be called 1-1-02 @ 102 1,610 1,930
Cleveland, OH, Waterworks Improvement First Mortgage,
Rev., 6.50%, to be called 1-1-02 @ 102 4,195 4,578
Gen. Oblg., NY, 7.00%, to be called 2-1-02 @ 101.5 2,640 2,906
Health Facilities Auth., IL, South Suburban Hospital,
Rev., 7.00% to be called 2-15-02 @ 102 3,055 3,370
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ector County, TX, Hospital District, Rev., 7.30%, to be
called 4-15-02 @ 102 $ 550 $ 615
Dormitory Auth., NY, State University Educational
Facility, Rev., 7.25%, to be called 5-15-02 @ 102 3,810 4,275
Gen. Oblg., D.C., 6.30% to be called 6-1-02 @ 102 4,500 4,914
City of Phoenix, AZ, Streets and Highway User, Rev.,
6.25%, to be called 7-1-02 @ 102 10,000 10,949
Finance Auth., IA, GNMA Mortgage-Backed Securities
Program, Single Family Mortgage Rev., 7.00%, to be
called 7-1-02 @ 102 12,000 13,342
Health Care Facilities Financing Auth., NJ, West Jersey
Health System, Rev., 6.125%, to be called 7-1-02 @ 102 11,000 12,017
Lehigh County, PA, General Purpose Auth., Lehigh Valley
Hospital Inc., Rev., 6.50%, to be called 7-1-02 @ 102 6,000 6,617
Public Finance Auth., V.I., Rev., 7.25%, to be called
10-1-02 @ 102 3,000 3,401
City and County of Denver, CO, Airport System Rev., 6.75%
to 8.50%, to be called 11-15-02 @ 102 20,735 23,547
Scotts Bluff County Hospital Authority, NE, Regional West
Medical Center, Rev., 6.45%, to be called 12-15-02 @
102 1,675 1,839
St. Louis, MO, Regional Convention & Sports Complex
Auth., Rev., 7.90%, to be called 8-1-03 @ 100 4,760 5,540
St. Louis, MO, Regional Convention & Sports Complex
Auth., Rev., 7.00%, to be called 8-15-03 @ 100 4,380 4,944
City of Reno, NV, Redev. Agcy., Tax Allocation Rev.,
5.65% and 5.75% to be called 9-1-03 @ 101 7,165 7,731
Jacksonville Health Facilities Auth., FL, Baptist Medical
Center, Rev., 11.50%, to be called 10-1-03 @ 100 10 13
City of Battle Creek and Calhoun County, MI, Downtown
Dev. Auth., Tax Increment Rev., 7.60%, to be called
5-1-04 @ 102 3,800 4,471
Charleston County, SC, Charleston Public Facilities
Corp., Certificates of Participation, Rev., 6.875% and
7.00%, to be called 6-1-04 @ 102 7,260 8,400
Environmental Facilities Corp., NY, State Water Pollution
Control, Revolving Fund Rev., 6.875%, to be called
6-15-04 @ 101.5 6,815 7,847
Metropolitan Transit Auth., NY, Transit Facilities, Rev.,
6.25%, to be called 7-1-04 @ 101.5 6,000 6,750
Jacksonville Health Facilities Auth., FL, Baptist Medical
Center, Rev., 11.50%, to be called 10-1-04 @ 100 35 48
City and County of Denver, CO, Airport System Rev.,
7.50%, to be called 11-15-04 @ 102 1,240 1,476
Health Facilities Auth., IL, Northwestern Medical Faculty
Foundation, Inc., Healthcare Facilities Rev., 6.50%, to
be called 11-15-04 @ 102 3,900 4,458
Essex County Improvement Auth., NJ, County Jail and Youth
Housing Proj., Lease Rev., 6.90%, to be called 12-1-04
@ 102 2,645 3,091
Medical Care Facilities Finance Agcy., NY, Hospital and
Nursing Home, Rev., 6.75%, to be called 2-15-05 @ 102 8,000 9,270
Detroit, MI, Gen. Oblg., 6.70%, to be called 4-1-05 @ 101 2,500 2,877
Cuyahoga County, OH, Meridia Health System, Hospital
Rev., 6.25%, to be called 8-15-05 @ 102 7,050 8,054
Arapahoe County, CO, Public Highway Auth., Rev., 7.00%,
to be called 8-31-05 @ 103 25,525 30,454
Jacksonville Health Facilities Auth., FL, Baptist Medical
Center, Rev., 11.50%, to be called 10-1-05 @ 100 40 57
Jacksonville Health Facilities Auth., FL, Baptist Medical
Center, Rev., 11.50%, to be called 10-1-06 @ 100 15 22
Albuquerque, NM, Southwest Community Health Services,
Rev., 10.125%, to be called 8-1-08 @ 100 4,000 5,412
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Housing Finance Agcy., OH, Single Family Mortgage Rev.,
zero coupon, to be called 1-15-13 @ 82 $ 3,360 $ 1,423
Housing Finance Agcy., OH, Single Family Mortgage Rev.,
zero coupon, to be called 7-15-13 @ 86 3,515 1,528
---------------------------------------------------------------------------------
TOTAL ADVANCE REFUNDED OBLIGATIONS--11.2% 352,239
---------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS
- --------------------------------------------------------------------------------------------------------------------
NEW YORK--10.6% Dormitory Auth., State University Educational Facility,
Rev., 5.00% to 6.00%, 2013 to 2017 38,655 40,340
Environmental Facilities Corp., State Water Pollution
Control, Revolving Fund Rev., 6.875% to 7.25%, 2010
through 2014 7,540 8,304
Gen. Oblg., 5.00% to 5.25%, 2013 through 2017 18,045 18,228
Long Island, Power Auth., Electric Systems Rev., 5.125%
to 5.50%, 2010 to 2022 77,530 79,816
Medical Care Facilities Finance Agcy.:
Hospital and Nursing Home, Rev., 6.45%, 2009 8,340 9,185
Mental Health Services Facility Improvement, Rev.,
7.75%, 2010 980 1,034
Metropolitan Transit Auth., Transit Facilities, Rev.,
5.125% to 6.00%, 2012 through 2020 27,835 29,422
(a)Metropolitan Transit Auth., Transit Facilities, Rev.,
5.53%, 2012 3,875 4,169
Nassau County, Gen. Oblg., 5.25%, 2013 1,620 1,713
New York City:
Gen. Oblg., zero coupon to 8.40%, 2000 through 2019 62,092 57,840
Industrial Dev. Auth., USTA National Tennis Center Inc.
Proj., Civil Facility Rev., 6.50% and 6.60%, 2010 and
2011 6,485 7,349
Municipal Water Finance Auth., Rev., 5.125% to 7.00%,
2015 through 2029 23,510 25,033
Transitional Finance Auth., Rev., 5.00% and 5.25%, 2011
and 2013 12,500 12,947
Port Auth. of New York and New Jersey, Rev., 6.00% to
9.125%, 2008 through 2015 17,595 19,103
Urban Dev. Corp., Correctional Facilities, Rev., 5.125%
to 5.70%, 2012 to 2020 16,620 17,557
---------------------------------------------------------------------------------
332,040
- --------------------------------------------------------------------------------------------------------------------
TEXAS--10.5% Abilene, Health Facilities Development Corp., Retirement
Facilities Rev., 5.875%, 2018 3,250 3,165
Arlington, School District, Gen. Oblg., 5.125%, 2013 and
2014 2,445 2,510
Austin:
City of Austin, TX, Rev., zero coupon, 2016 5,730 2,411
Combined Utility Systems Rev., 6.00% and 5.60%, 2013
and 2025 9,500 10,800
Water, Sewer and Electric Rev., 14.00%, 2001 2,305 2,620
Austin-Bergstrom, Landhorst Enterprises Inc., Airport
Hotel Rev., 6.75%, 2027 17,785 17,963
Bexar, Water Works Rev., 5.00%, 2022 5,000 4,916
Boerne, Independent School District, Gen. Oblg., zero
coupon, 2014 to 2016 8,855 3,982
Burkburnett, School District, Gen. Oblg., 5.00%, 2018 4,000 3,978
Cypress-Fairbanks, School District, Gen. Oblg., 5.00%,
2020 5,750 5,673
Dallas:
North Texas Tollway Auth., Rev., 5.00%, 2020 13,250 13,039
Special Tax Rev., 5.00%, 2020 10,000 9,864
Water Works and Sewer System, Rev., 5.00%, 2017 4,325 4,317
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Department of Housing and Community Affairs, Rev., 6.40%,
2027 $ 3,350 $ 3,593
El Paso, School District, Rev., zero coupon and 6.00%,
2011 and 2018 6,325 4,968
Fort Worth, Water and Sewer System, Rev., 5.00%, 2018 4,420 4,390
Gen. Oblg., 7.00%, 2012 9,963 10,278
Georgetown Higher Education Finance Corp., Southwestern
University Proj., Rev., 6.25%, 2009 840 912
Grapevine-Colleyville, School District, Rev., zero
coupon, 2007 to 2014 37,365 22,391
Harris County:
Gen. Oblg., 5.00%, 2014 3,235 3,276
Hospital District, Mortgage Rev., 7.40%, 2010 6,940 8,334
Toll Road Unlimited Tax and Subordinate Lien, Rev.,
6.75%, 2014 15,000 16,248
Health Facilities Dev., St. Joseph Hospital, Rev., 5.25%,
2012 to 2014 6,795 6,943
Housing Agcy., Single Family Mortgage Rev., 7.15%, 2012 785 803
Houston:
Airport System Rev., Sub Lien, 5.25%, 2011 16,025 16,675
Brazos River Authority, Rev., 5.125%, 2019 to 2020 15,330 15,305
Higher Education Finance Corp., University of St.
Thomas, Rev., 7.25%, 2007 1,445 1,563
School District, Gen. Oblg., zero coupon to 5.00%, 2010
to 2020 44,250 24,608
Water and Sewer Junior Lien, Rev., 5.50%, 2016 3,000 3,149
Irving, School District, Gen. Oblg., zero coupon, 2013 6,190 3,141
Killeen, School District, Gen. Oblg., 5.00%, 2018 6,500 6,480
Laredo, Gen. Oblg., 5.125%, 2014 3,180 3,239
Public Finance Auth., Gen. Oblg., zero coupon, 2012 and
2014 10,000 4,808
Rio Grande Valley, Health Facilities Dev. Corp., Golden
Palms Retirement and Health Center, Rev., 6.40%, 2012 3,700 4,019
Round Rock, School District, Gen. Oblg., zero coupon,
2008 5,020 3,305
Sabine River Auth., Texas Utilities Electric Company,
Rev., 6.10%, 2018 30,200 33,257
San Antonio, Electric and Gas Utility System, Rev.,
5.25%, 2014 1,500 1,557
Spring, Independent School District, Gen. Oblg., 5.30%,
2022 4,535 4,594
State Municipal Power Agency, Rev., zero coupon, 2013 and
2014 14,555 7,084
State Veteran's Land Bonds, Gen. Oblg., 6.40%, 2024 8,550 9,241
State Water Financial Assistance, Gen. Oblg., 5.00%, 2014 7,570 7,674
Titus County Hospital District Improvement, Rev., 6.125%,
2013 6,700 6,918
Travis County Housing Finance Corp., Residential
Mortgage, Senior Lien, Rev., 7.00%, 2011 290 309
Turnpike Auth., President George Bush Turnpike, Rev.,
zero coupon, 2010 3,000 1,819
Waxahachie Independent School Dist., Gen. Oblg., zero
coupon, 2009 through 2013 9,300 5,122
---------------------------------------------------------------------------------
331,241
- --------------------------------------------------------------------------------------------------------------------
ILLINOIS--9.1% Chicago:
Board of Education, Gen. Oblg., zero coupon to 6.25%,
2009 through 2027 54,960 43,151
Gas Supply, Peoples Gas, Light and Coke Company, Rev.,
8.10%, 2020 8,250 8,786
Gen. Oblg., 5.25% and 5.50%, 2014 and 2028 7,400 7,947
Water Rev., zero coupon, 2012 6,350 3,281
Cook County, Gen. Oblg., 6.50% , 2014 18,560 22,010
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a)Cook County, Gen. Oblg., 7.87% , 2013 $10,610 $ 14,454
Dev. Finance Auth.:
Adventist Health System/Sunbelt, Rev., 5.50%, 2020 10,000 9,887
McGaw YMCA-Evanston Proj., Rev., 7.50%, 2013 3,750 4,274
Pollution Control, Commonwealth Edison Company Proj.,
Rev., 6.75%, 2015 16,780 18,946
Harvard, Multifamily Housing, Northfield Court, Rev.,
8.80%, 2008 3,800 4,064
Health Facilities Auth.:
South Suburban Hospital, Rev., 7.00%, 2009 4,695 5,417
Rush-Presbyterian Hospital, Rev., 5.25%, 2012 to 2014 19,858 20,115
Lake Cook Community School District, Kane and McHenry
Counties, Gen. Oblg., 6.30%, 2017 1,885 2,181
Metropolitan Pier & Exposition Auth., McCormick Place
Expansion, Rev., zero coupon, 2008 through 2018 46,305 25,525
O'Hare International Airport:
General Rev., 6.00% and 6.375%, 2012 20,000 21,936
International Terminal, Special Rev., 6.75%, 2018 23,350 25,274
Regional Transportation Auth., Gen. Oblg., 6.70%, 2021 25,800 31,515
Sports Facilities Auth., Rev., 7.875%, 2010 2,990 3,075
St. Charles, Wessel Court Proj., Multifamily Housing
Rev., 7.60%, 2024 3,735 3,882
State Sales Tax Rev., 5.00%, 2017 4,070 4,058
University Park, Governors Gateway Industrial Park, Tax
Increment Rev., 8.50%, 2011 2,690 3,053
Will County, Community School District, Gen. Oblg., zero
coupon, 2015 8,000 3,465
---------------------------------------------------------------------------------
286,296
- --------------------------------------------------------------------------------------------------------------------
NEW JERSEY--6.2% Atlantic City, Board of Education, Gen. Oblg., 6.00% and
6.10%, 2013 and 2014 9,100 10,415
Economic Development Auth., Rev., 5.875%, 2026 1,000 1,019
Elizabeth, Gen. Oblg., zero coupon, 2005 and 2006 6,250 4,815
Essex County, Property and Equipment Improvement Leasing
Program, Rev., 6.50%, 2012 4,050 4,457
Health Care Facilities Financing Auth.:
Atlantic City Medical Center, Rev., 6.80%, 2011 6,840 7,456
Southern Ocean County Hospital, Rev., 6.125%, 2013 3,735 3,905
Jersey City Sewer Auth., Rev., 4.50%, 2019 13,000 12,135
Salem Pollution Control Financing Auth., Rev., 5.70% and
6.20%, 2028 and 2030 20,000 22,126
Transportation Trust Fund Auth., Gen. Oblg., 5.00% and
5.50%, 2017 and 2015 26,085 26,339
(a)Turnpike Auth., Rev., 7.93%, 2016 20,500 28,173
Turnpike Auth., Rev., 6.20% to 10.375%, 2003 through 2016 62,275 72,712
---------------------------------------------------------------------------------
193,552
- --------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--4.8% Allegheny County, Airport, Rev., 5.75%, 2013 and 2014 10,825 11,821
Armstrong County Hospital Auth., St. Francis Medical
Center Proj., Rev., 6.25%, 2013 11,350 12,254
Bethlehem, School District, Gen. Oblg., 5.00%, 2018 6,750 6,721
Columbia County, Industrial Dev. Auth., First Mortgage
Rev., 9.00%, 2014 1,555 1,604
Convention Center Auth., Rev., 6.70% and 6.75%, 2014 and
2019 12,525 13,937
Erie, Gen. Oblg., zero coupon, 2007 and 2008 7,260 4,798
Hazelton-Saint Joseph Medical Center, Rev., 6.125% and
6.20%, 2016 and 2026 3,780 3,954
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Health Services Auth., Jeannette District Memorial
Hospital, Rev., 6.00%, 2018 $ 945 $ 981
Higher Education Facilities, Ursinus College, Rev., 5.85%
and 5.90%, 2017 4,875 5,098
McKean County Hospital Auth., Bradford Hospital Proj.,
Rev., 5.95% and 6.10%, 2008 and 2020 8,300 8,754
Montgomery County, Retirement-Life Communities, Rev.,
5.25%, 2028 14,000 13,402
New Castle Area Hospital Auth., Rev., 6.00%, 2010 845 947
Philadelphia:
Gas Works Rev., 6.375%, 2014 31,080 33,905
Intergovernmental Coop. Auth., Funding Program, Special
Tax Rev., 5.25%, 2013 13,950 14,385
Municipal Auth., Lease Rev., 6.25% and 6.30%, 2013 and
2017 4,800 5,108
Parking Auth., Airport Improvement Rev., 5.50%, 2018 6,250 6,499
Southeastern Transportation Auth., Rev., 5.25%, 2012 and
2016 5,000 5,197
---------------------------------------------------------------------------------
149,365
- --------------------------------------------------------------------------------------------------------------------
CALIFORNIA--4.7% Alameda Transit Corridor Auth., Senior Lien, Rev.,
5.125%, 2018 5,500 5,597
Foothill/Eastern Transit Corridor Agcy., Tollroad Rev.,
5.00% to 6.50%, 2016 through 2035 54,575 59,989
Murrieta Valley School District, Gen. Oblg., zero coupon,
2012 and 2014 8,475 4,284
Public Works Board, Community Colleges, Lease Rev.,
5.25%, 2015 11,920 12,409
San Diego:
Industrial Dev. Auth., Rev., 6.10%, 2019 14,600 15,832
Water Utility System, Rev., 5.00%, 2021 5,000 4,970
San Francisco, International Airport Rev., 5.50%, 2014 4,065 4,328
San Joaquin Hills, Rev., zero coupon, 2013 through 2021 50,200 25,675
State, Gen. Oblg., 5.00%, 2017 14,460 14,542
---------------------------------------------------------------------------------
147,626
- --------------------------------------------------------------------------------------------------------------------
COLORADO--4.5% Arapahoe County, Public Highway Auth., Rev., zero coupon
to 5.75%, 2012 through 2025 72,815 39,394
(a)Arapahoe County, Public Highway Auth., Rev., 6.55%,
2014 6,850 8,343
City and County of Denver:
Airport System Rev., 5.60% to 8.75%, 2005 through 2023 42,440 46,632
Gen. Oblg., zero coupon to 6.50%, 2008 through 2010 16,475 14,044
Douglas County School District No. 1, Douglas and Elbert
Counties, Gen. Oblg., 7.00% and 6.50%, 2013 and 2016 10,715 13,242
Health Facilities Auth., Covenant Retirement Communities,
Inc., Rev., 6.75%, 2015 and 2025 5,900 6,559
Housing Finance Auth., Single Family Mortgage Rev.,
7.65%, 2022 345 358
Metropolitan Wastewater Reclamation District, Gen. Oblg.,
6.00%, 2010 11,505 12,176
---------------------------------------------------------------------------------
140,748
- --------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--4.0% Bay Transit Auth., General Transportation System, Rev.,
5.25% to 6.20%, 2015 through 2026 22,915 26,125
Consolidated Loan Series B, Gen. Oblg., zero coupon to
6.50%, 2011 through 2018 16,940 15,872
Federal Highway Improvements, Fuel Sales Tax Rev., zero
coupon, 2014 27,680 12,744
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Municipal Wholesale Electric Company, Power Supply
System, Rev., 6.00% to 6.75%, 2011 through 2018 $37,055 $ 39,934
Port Auth., Rev., 13.00%, 2013 1,500 2,502
State Anticipation Notes, Rev., 5.125%, 2013 and 2014 8,570 8,809
Turnpike Auth., Rev., zero coupon, 2015 through 2021 44,000 19,029
---------------------------------------------------------------------------------
125,015
- --------------------------------------------------------------------------------------------------------------------
FLORIDA--2.7% Broward County, Waste Energy Company, Rev., 7.95%, 2008 11,665 12,298
Dade County:
Gen. Oblg., zero coupon, 2014 3,445 1,590
Miami International Airport, Rev., 5.125%, 2014 4,100 4,170
School District, Gen. Oblg., 5.375%, 2013 5,000 5,373
Department of Transportation, Gen. Oblg., 5.00%, 2019 8,500 8,451
Greater Orlando Aviation Auth., Rev., 5.125%, 2016 5,000 5,024
Hillsborough County, Industrial Dev. Auth., Tampa
Electric, Rev., 8.00%, 2022 10,000 11,378
Jacksonville Health Facilities Auth., Baptist Medical
Center, Rev., 11.50%, 2012 85 143
Lakeland, Electric and Water System, Rev., zero coupon,
2009 2,000 1,246
Orange County, Health Facilities Auth., Rev., 6.25%, 2016
and 2021 7,000 8,138
Orlando Utilities Commission, Water and Electrical Rev.,
6.75%, 2017 3,500 4,247
Palm Beach County, Solid Waste Auth., Rev., zero coupon,
2013 20,000 9,912
(a)Sunrise, Utility System Rev., zero coupon, 2018 5,000 5,728
Tampa, Solid Waste System, Rev., 5.25%, 2014 and 2015 8,320 8,587
---------------------------------------------------------------------------------
86,285
- --------------------------------------------------------------------------------------------------------------------
OHIO--2.1% Building Auth.:
Highway Safety Building Fund Proj., Rev., 5.60%, 2015 3,340 3,549
Juvenile Correctional Facility Proj., Rev., 5.125% to
5.25%, 2014 to 2018 13,285 13,360
Butler County, Middletown Hospital, Hospital Facilities
Rev., 4.75%, 2018 2,500 2,344
City of Springdale, Hospital Facilities First Mortgage,
Southwestern Ohio Seniors Services, Rev., 6.00%, 2018 1,250 1,283
Cleveland:
Public Power System Improvement, First Mortgage, Rev.,
7.00%, 2017 850 929
Waterworks Improvement First Mortgage, Rev., 6.50%,
2011 385 419
Cuyahoga County, Port Auth., Rev., 6.00%, 2007 1,250 1,279
Dublin City School District, Gen. Oblg., zero coupon,
2010 500 292
Gen. Oblg., zero coupon, 2007 7,125 4,964
Hamilton County, Recreational Facilities Improvements,
Rev., 5.375%, 2010 6,200 6,641
Lucas County Health Facilities Rev., 6.625% and 6.75%,
2014 and 2020 4,000 4,361
Marion County Health Care Facilities and Improvement,
United Church Homes Proj., Rev., 6.375% and 6.30%, 2010
and 2015 6,900 7,239
Village of Green Springs, St. Francis Health Care Center
Proj., Rev., 7.00% and 7.125%, 2014 and 2025 8,640 8,451
Water Development Auth., Bay Shore Power Proj., Rev.,
5.875%, 2020 1,550 1,582
</TABLE>
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Willoughby Industrial Dev. Auth., Rev., 6.875%, 2016 $ 2,250 $ 2,481
Worthington City School District, Gen. Oblg., 6.375%,
2012 6,210 6,742
---------------------------------------------------------------------------------
65,916
- --------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA--2.0% Eastern Municipal Power Agcy., Power System, Rev., 6.00%,
2022 18,775 21,211
Municipal Power Agcy., Catawba Electric, Rev., 5.50%,
2014 3,660 3,955
Public School Buildings Proj., Gen. Oblg., 4.60%, 2012
and 2013 37,000 36,887
---------------------------------------------------------------------------------
62,053
- --------------------------------------------------------------------------------------------------------------------
WISCONSIN--1.8% Health and Educational Facilities Auth., Aurora Health
Care, Rev., 5.60%, 2029 11,500 11,335
Kenosha, Gen. Oblg., zero coupon, 2008 6,885 4,429
New London School District, Gen. Oblg., 5.00% to 5.25%,
2009 through 2012 8,555 8,823
Southeast Wisconson Professional Baseball, Park District,
Rev., 5.50%, 2014 through 2021 13,530 14,568
Transportation Board, Rev., 5.50%, 2014 through 2016 16,490 17,775
---------------------------------------------------------------------------------
56,930
- --------------------------------------------------------------------------------------------------------------------
MICHIGAN--1.6% Building Auth., Rev., 5.25% and 6.75%, 2014 and 2011 13,275 14,202
Detroit:
City School District, Gen. Oblg., 5.25%, 2012 to 2016 2,415 2,549
Gen. Oblg., 5.375% to 6.25%, 2010 5,705 6,180
Higher Education Facilities Auth., Calvin College Proj.,
Rev., 5.55%, 2017 1,465 1,480
Hospital Finance Auth.:
Gratiot Community Hospital, Rev., 6.10%, 2007 2,250 2,396
McLaren Oblg. Group, Rev., 5.75% and 4.50%, 2018 and
2021 23,865 21,701
Tawas City, St. Joseph Health System, Rev., 5.60%, 2013 2,875 2,858
---------------------------------------------------------------------------------
51,366
- --------------------------------------------------------------------------------------------------------------------
TENNESSEE-- 1.6% Housing Dev. Agcy., Mortgage Finance Program, Rev., 7.05%
and 7.125%, 2020 and 2026 23,800 25,528
Metropolitan Nashville Airport Auth., Airport
Improvement, Rev., 5.00% to 6.60%, 2012 through 2015 17,250 17,779
Shelby County, Gen. Oblg., zero coupon, 2012 through 2014 11,815 5,894
---------------------------------------------------------------------------------
49,201
- --------------------------------------------------------------------------------------------------------------------
MISSOURI-- 1.5% Clarence Cannon Wholesale Water Commission, Water Rev.,
6.00%, 2020 10,000 10,182
Health and Educational Facilities Auth., Rev., 5.00% and
5.75%, 2013 and 2017 10,845 11,031
Sikeston, Electric System, Rev., 6.20%, 2010 6,870 7,928
St. Louis:
Regional Convention & Sports Complex Auth., Rev.,
7.90%, 2021 240 264
Scullin Redev. Proj., Tax Increment Rev., 10.00%, 2010 8,050 10,140
St. Louis International Airport, Rev., 5.125%, 2013 6,385 6,578
---------------------------------------------------------------------------------
46,123
- --------------------------------------------------------------------------------------------------------------------
UTAH--1.4% Housing Finance Agcy., Single Family Mortgage Rev.,
8.625%, 2019 160 162
Intermountain Power Agcy., Power Supply System, Rev.,
5.75%, 2019 33,910 36,279
</TABLE>
17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a)Intermountain Power Agcy., Power Supply System, Rev.,
5.725%, 2012 and 2014 $ 6,500 $ 6,964
West Valley City, Salt Lake County Excise Tax, Rev.,
10.625%, 2004 760 901
---------------------------------------------------------------------------------
44,306
- --------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--1.4% Gen. Oblg., 6.00%, 2013 through 2017 10,655 11,969
Metropolitan Washington Airports Auth., Airport System
Rev., 7.60%, 2014 3,000 3,222
Redevelopment Land Agcy., Sports Arena Special Tax, Rev.,
5.625%, 2010 6,760 7,020
Water and Sewer Auth., Rev., 6.00%, 2013 through 2016 19,000 21,388
---------------------------------------------------------------------------------
43,599
- --------------------------------------------------------------------------------------------------------------------
ARKANSAS--1.4% Jonesboro Residential Housing & Health Care Facilities
Board, Rev., 5.80%, 2012 4,025 4,370
North Little Rock, Electric System, Rev., 6.50%, 2010 and
2015 32,830 38,791
---------------------------------------------------------------------------------
43,161
- --------------------------------------------------------------------------------------------------------------------
NEVADA--1.2% Gen. Oblg., 5.00%, 2011 through 2022 27,075 27,317
Humboldt County, Pollution Control, Idaho Power Company,
Rev., 8.30%, 2014 9,650 11,334
---------------------------------------------------------------------------------
38,651
- --------------------------------------------------------------------------------------------------------------------
ALASKA--1.2% Energy Auth., Bradley Lake Hydroelectric Power, Rev.,
7.25%, 2016 4,675 4,816
Matanuska-Susitna Borough, Gen. Oblg., 5.25%, 2011 to
2014 4,315 4,488
Municipality of Anchorage, Municipal Light and Power,
Electric Rev., 6.50%, 2015 5,000 5,958
North Slope Borough, Gen. Oblg., zero coupon, 2008 and
2009 35,700 23,088
---------------------------------------------------------------------------------
38,350
- --------------------------------------------------------------------------------------------------------------------
GEORGIA--1.2% Fulton-DeKalb Hospital Auth., Rev., 6.55% and 6.60%, 2018
and 2028 3,870 4,079
Housing and Finance Auth., Rev., 6.25%, 2028 14,510 15,570
Metropolitan Atlanta Rapid Transit Auth., Rev., 5.10% and
5.625%, 2020 8,040 8,303
Municipal Electric Auth., Power Rev., 6.60%, 2018 8,500 10,150
---------------------------------------------------------------------------------
38,102
- --------------------------------------------------------------------------------------------------------------------
WASHINGTON--1.1% Grant County, Public Utility Dist., Electric Rev., 5.25%,
2014 5,900 6,108
King County, Gen. Oblg., 6.625% and 6.25%, 2015 and 2032 18,840 21,520
Public Power Supply System, Nuclear Proj. #3, Rev.,
5.375%, 2015 5,410 5,545
---------------------------------------------------------------------------------
33,173
- --------------------------------------------------------------------------------------------------------------------
OKLAHOMA--1.0% Development Financing Auth., Hillcrest Healthcare System,
Rev., 5.625%, 2029 23,500 23,403
Valley View Hospital Auth., Rev., 5.75% and 6.00%, 2006
and 2014 7,040 7,295
Woodward Municipal Auth., Hospital Rev., 6.45%, 2014 2,070 2,189
---------------------------------------------------------------------------------
32,887
</TABLE>
18
<PAGE> 19
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STATES LESS THAN ONE AL, Birmingham-Jefferson Civic Center Auth., Capital
PERCENT--7.9% Outlay, Special Tax Rev., 7.40%, 2008 $12,000 $ 12,280
AZ, City of Phoenix, Gen. Oblg., 6.375%, 2013 7,400 8,058
AZ, Salt River Proj., Rev., 6.25%, 2019 8,000 8,591
CT, Greenwich Housing Auth., Rev., 6.35%, 2027 2,640 2,723
HI, City and County of Honolulu, Wastewater System, Rev.,
zero coupon, 2011 to 2015 16,980 8,390
(a)HI, Gen. Oblg., 6.15%, 2014 6,195 6,867
IA, Finance Auth., GNMA Mortgage-Backed Securities
Program, Single Family Mortgage Rev., 7.90%, 2022 1,630 1,687
IN, Fort Wayne, Hospital Auth., Rev., 5.00%, 2013 4,810 4,846
IN, Health Facility Financing Auth., Fayette Memorial
Hospital, Rev., 7.20%, 2022 1,800 1,934
IN, Transportation Financing Auth., Highway Rev.,
7.25%, 2015 4,000 5,006
IN, Trustees of Purdue University, Student Fees, Rev.,
5.25%, 2010 to 2103 3,660 3,878
KY, Hopkins County, The Trover Clinic Foundation, Rev.,
6.625%, 2011 4,000 4,327
KY, Kenton County Airport Board, Greater Cincinnati
International Airport, Rev., 6.30%, 2015 6,250 6,989
KY, Turnpike Auth., Toll Road, Rev., 8.50%, 2004 780 703
LA, Centenary College of Louisiana Project, Rev., 5.75%
and 5.90%, 2012 and 2017 2,000 2,091
LA, Jefferson, Special Sales Tax Rev., zero coupon, 2014
to 2016 17,265 7,517
LA, New Orleans, Gen. Oblg., 5.125% to 5.50%, 2012 to
2022 16,370 17,119
LA, Parish School Board of the Parish of Jefferson, Sales
Tax, Gen. Oblg., 6.25%, 2008 11,000 11,893
MD, Health & Higher Educational Facilities Auth.,
Doctors' Community Hospital Proj., Rev., 5.75%, 2013 6,785 6,931
MD, Northeast Maryland Waste Disposal Auth., Southwest
Resource Recovery Facility, Rev., 7.20%, 2006 1,500 1,723
MD, Stadium Auth., Sports Facilities Lease Rev., 7.60%,
2019 17,200 18,023
ME, Health and Higher Education Facilities Auth., Rev.,
7.10%, 2014 2,750 3,197
MN, New Hope, Housing and Health Care Facilities Auth.,
Rev., 5.875% and 5.90%, 2029 and 2019 4,035 4,002
MS, Jones County, South Central Regional Medical Center
Proj., Rev., 5.50%, 2017 2,055 2,028
MT, Board of Housing, Rev., 6.15%, 2030 10,420 11,024
ND, Housing Finance Agcy., Single Family Mortgage
Program, Rev., 8.05%, 2024 605 627
NE, Investment Finance Auth., Rev., 6.70% and 6.30%, 2026
and 2028 6,500 6,953
NE, Omaha Public Power District Electric System, Rev.,
6.20%, 2017 4,700 5,387
NE, Scotts Bluff County Hospital Authority, Regional West
Medical Center, Rev., 6.45%, 2004 2,325 2,493
NH, Higher Education and Health Facilities Auth.,
Havenwood - Heritage Heights Issue, Rev., 7.35% and
7.45%, 2018 and 2025 6,500 7,088
NM, Farmington, Pollution Control Rev., 5.70% to 6.40%,
2016 through 2023 9,000 9,601
NM, Health Care, Ltd. Proj., Rev., 9.75%, 2014 1,310 1,358
NM, Los Alamos County, Utility System, Rev., 6.10%, 2010 4,400 4,856
NM, Socorro Hospital System, Southwest Community Health
Services, Rev., 10.00%, 2003 1,080 1,239
NM, Southwest Community Health Services, Rev., 10.00%,
2003 805 924
</TABLE>
19
<PAGE> 20
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OR
ISSUER NUMBER OF CONTRACTS VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NM, Truth or Consequences, Nursing Home Improvement,
Sierra Health Care, Inc., Rev., 9.75%, 2014 $ 875 $ 904
SC, Charleston County, Public Facilities Corp.,
Certificates of Participation, Rev., 6.875% and 7.00%,
2014 and 2019 355 402
SC, Darlington County, Carolina Power & Light Company
Proj., Pollution Control, Rev., 6.60%, 2010 7,500 8,321
SC, Grand Strand, Water and Sewer, Rev., 6.375%, 2012 5,000 5,872
SC, Santee Cooper, Public Service Auth., Rev., 6.25%,
2022 7,000 7,812
VA, Henrico County, Sewer and Water System, Rev., 5.25%,
2012 1,000 1,052
VA, Richmond, Gen. Oblg., 6.25%, 2018 2,665 2,825
VA, State Public School Financing Auth., Rev., 5.00%,
2015 5,275 5,327
WY, Community Dev. Auth., Rev., 6.35%, 2029 4,755 5,093
WY, Community Dev. Auth., Single Family Mortgage Rev.,
8.125%, 2021 550 571
PR, Public Finance Corp., Rev., 5.375%, 2016 and 2017 8,850 9,445
---------------------------------------------------------------------------------
249,977
---------------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--85.5% 2,685,963
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--96.7%
(Cost: $2,868,288) 3,038,202
---------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MONEY MARKET
INSTRUMENTS--3.3% Yield--3.00% to 3.45%
Due--April 1999
(Cost: $102,710) 102,710 102,710
- --------------------------------------------------------------------------------------------------------------------
LONG PUT OPTION U.S. Treasury Bond Futures
May 1999, 120
(Cost: $950) 1,037cts. 1,329
---------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $2,971,948) 3,142,241
---------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Inverse floating rate notes (instruments whose yields have an inverse
relationship to benchmark interest rates.)
Based on the cost of investments of $2,971,948,000 for federal income tax
purposes at March 31, 1999, the gross unrealized appreciation was $177,643,000,
the gross unrealized depreciation was $7,350,000 and the net unrealized
appreciation on investments was $170,293,000.
See accompanying Notes to Financial Statements.
20
<PAGE> 21
PORTFOLIO OF INVESTMENTS
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
Portfolio of Investments at March 31, 1999 (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVANCE REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL AND
INTEREST BY UNITED STATES GOVERNMENT SECURITIES
- --------------------------------------------------------------------------------------------------------------------
Richmond, VA, Gen. Oblg., 6.875%, to be called 1-15-00 @
102 $ 100 $ 105
Bay Transportation Auth., MA, Rev., 7.625%, to be called
3-1-00 @ 102 115 122
Local Assistance Corp., NY, Rev., 7.00%, to be called
4-1-01 @ 102 100 109
Coconino County, AZ, Industrial Development Auth., Health
Care Rev., 9.25%, to be called 6-1-01 @ 102 285 320
Philadelphia, PA, Gas Works Rev., 7.70%, to be called
6-15-01 @ 102 120 133
Gen. Oblg., MA, 7.00%, to be called 7-1-01 @ 102 275 300
Arlington County, VA, Industrial Dev. Auth., Arlington
Hospital, Rev., 7.125%, to be called 9-1-01 @ 102 90 99
Health and Higher Education Facilities Auth., ME, Rev.,
6.50% to be called 7-1-04 @ 102 100 114
Lexington-Fayette County, KY, Gen. Oblg., 6.50% to be
called 11-1-04 @ 102 300 344
Trustees of Purdue University, IN, Student Fees, Rev.,
6.70%, to be called 1-1-05 @ 103 250 289
Detroit, MI, Gen. Oblg., 6.70%, to be called 4-1-05 @ 101 300 345
Arapahoe County, CO, Capital Improvement, Highway, Rev.,
6.90% to be called 8-31-05 @ 103 300 356
---------------------------------------------------------------------------------
TOTAL ADVANCE REFUNDED OBLIGATIONS--9.4% 2,636
---------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS
- --------------------------------------------------------------------------------------------------------------------
NEW YORK--12.6% Long Island, Power Auth., Electric Systems Rev., 5.50%,
2013 1,000 1,085
New York City:
Gen. Oblg., 5.75% to 6.50%, 2002 through 2003 200 215
Industrial Dev. Auth., USTA National Tennis Center Inc.
Proj., Rev., 6.10%, 2004 200 222
Niagara Falls, Water Treatment Plant, Rev., 6.40%, 2004 100 112
Port Auth., of New York and New Jersey, JFK International
Air Terminal LLC Proj., Rev., 6.10%, 2004 500 571
Thruway Auth., Local Highway and Bridge Service Contract,
Gen. Oblg., 6.00%, 2002 265 280
Triborough Bridge and Tunnel Auth., Rev., 5.125%, 2010 1,000 1,054
---------------------------------------------------------------------------------
3,539
</TABLE>
21
<PAGE> 22
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OHIO--10.4% Building Auth., Adult Correctional Building Fund Proj.,
Gen. Oblg., 6.125%, 2010 $ 400 $ 441
Cleveland:
Gateway Economic Dev. Corp., Rev., 7.50%, 2005 400 435
Water Works Systems, Rev., 6.125%, 2003 450 485
County of Athens, Inn-Ohio of Athens, Inc. Proj.,
Economic Dev. Rev., 6.25%, 2011 220 232
Higher Education Facility Commission, The University Of
Findlay 1996 Proj., Rev., 5.75%, 2007 375 402
Lucas County Health Facilities, Rev., 6.10%, 2006 300 323
Marion County, Health Care Facilities Refunding and
Improvement, United Church Homes, Inc. Proj., Rev.,
6.30%, 2015 250 262
Water Dev. Auth., Pure Water Improvement Proj., Rev.,
5.75% and 5.50%, 2003 and 2008 305 331
---------------------------------------------------------------------------------
2,911
- --------------------------------------------------------------------------------------------------------------------
TEXAS--9.3% Fort Worth, Water and Sewer Rev., 5.90%, 2001 80 83
Harris County, Criminal Justice Center, Gen. Oblg.,
7.50%, 2004 and 2005 400 472
Houston Higher Education Finance Corp., University of St.
Thomas, Rev., 7.25%, 2007 100 108
North Richland Hills, Gen. Oblg., 6.00%, 2002 195 207
Public Finance Auth., Building Rev., 5.875%, 2002 210 222
San Antonio, Electric and Gas System, Rev., 5.125%, 2009 1,000 1,054
Trinity River Auth., Ten Mile Creek System, Rev., 5.50%,
2002 70 74
Waxahachie Independent School District, Gen. Oblg., zero
coupon, 2009 650 405
---------------------------------------------------------------------------------
2,625
- --------------------------------------------------------------------------------------------------------------------
MICHIGAN--5.9% Grand Rapids, Downtown Dev. Auth., Rev., 6.20%, 2004 175 194
Higher Educational Facilities Auth., Rev., 5.40% and
5.75%, 2006 and 2013 500 531
Macomb County, Chippewa Valley Schools, Gen. Oblg.,
7.00%, 2001 350 374
State Building Auth., Rev., zero coupon to 6.25%, 2000
through 2007 165 185
State Hospital Finance Auth., Gratiot Community Hospital,
Rev., 6.10%, 2007 350 373
---------------------------------------------------------------------------------
1,657
- --------------------------------------------------------------------------------------------------------------------
CALIFORNIA--5.2% Central Valley Financing Auth., Carson Ice-Gen Proj.,
Cogeneration Proj. Rev., 6.00%, 2009 250 267
Los Angeles, Wastewater Systems, Rev., 5.00%, 2013 500 516
Sacramento Cogeneration Auth., Procter & Gamble Proj.,
Rev., 7.00%, 2004 200 226
San Joaquin Hills Transportation Corridor Agcy., Toll
Road, Rev., zero coupon, 2012 825 455
---------------------------------------------------------------------------------
1,464
</TABLE>
22
<PAGE> 23
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FLORIDA--5.1% Broward County School District, Gen., Oblg., 6.00%, 2004 $ 70 $ 75
Department of Natural Resources, Preservation 2000, Rev.,
6.20%, 1999 80 81
Hillsborough County Aviation Auth., Tampa International
Airport, Rev., 6.90%, 2011 5 5
Orlando, Conroy Rd Interchange, Rev., 5.25%, 2005 250 248
Tampa Health System - Catholic Health, Rev., 5.00%, 2001 1,000 1,034
---------------------------------------------------------------------------------
1,443
- --------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--5.1% Allegheny County Hospital Dev. Auth., Magee Women's
Hospital, Rev., 6.25%, 2008 300 328
Columbia County Industrial Dev. Auth., First Mortgage
Rev., 9.00%, 2014 290 299
Health Services Auth. of Hazleton, Hazleton-Saint Joseph
Medical Center, Rev., 5.85%, 2006 220 234
Higher Educational Facilities Auth., Rev., 5.50%, 2007 265 280
Intergovernmental Cooperation Auth., City of Philadelphia
Funding Program, Rev., 6.00%, 2002 285 301
---------------------------------------------------------------------------------
1,442
- --------------------------------------------------------------------------------------------------------------------
ILLINOIS--4.6% Chicago Emergency Telephone System, Gen. Oblg., 5.25%,
2012 500 524
Health Facilities Auth., Franciscan Sisters Health Care
Corp. Proj., Rev., 6.25%, 2002 350 378
McHenry and Lake County School District Number 15,
Certificates of Participation, Rev., 6.125%, 2003 85 93
McHenry and Lake County School District Number 118,
School Improvements, Gen. Oblg., zero coupon, 2011 500 284
---------------------------------------------------------------------------------
1,279
- --------------------------------------------------------------------------------------------------------------------
NEW MEXICO--3.8% Rio Rancho Water and Wastewater System, Rev., 5.25%, 2007 1,000 1,069
- --------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--2.8% Horry County School District, Gen. Oblg., 7.00%, 2002 250 271
York County School District, Gen. Oblg., 7.00%, 2004 460 522
---------------------------------------------------------------------------------
793
- --------------------------------------------------------------------------------------------------------------------
ARIZONA--2.6% Phoenix Civic Improvement Corp., Water System Rev.,
6.375%, 2005 495 557
State University Board of Regents, Rev., 6.50%, 2001 85 90
Transportation Board, Highway Rev., 6.10%, 2002 70 75
---------------------------------------------------------------------------------
722
- --------------------------------------------------------------------------------------------------------------------
HAWAII--2.4% City and County of Honolulu, Gen. Oblg., 5.00%, 2007 500 525
Gen. Oblg., 7.25%, 2000 145 153
---------------------------------------------------------------------------------
678
- --------------------------------------------------------------------------------------------------------------------
OKLAHOMA--2.3% Muskogee County, Gen. Oblg., 6.00%, 2001 10 10
Valley View Hospital Auth., Rev., 5.75%, 2006 350 362
Woodard Municipal Auth., Hospital, Rev., 5.60%, 2004 270 286
---------------------------------------------------------------------------------
658
- --------------------------------------------------------------------------------------------------------------------
NEW JERSEY--2.1% Middlesex County Utility Auth., Solid Waste System, Rev.,
6.10%, 2001 300 320
Transportation Auth., Rev., 6.50%, 2011 225 266
---------------------------------------------------------------------------------
586
</TABLE>
23
<PAGE> 24
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ISSUER PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MISSOURI--1.9% State Health & Education Facilities Auth., Lake of the
Ozarks, General Hospital Rev., 5.50% and 6.00%, 2001
and 2006 $ 500 $ 522
- --------------------------------------------------------------------------------------------------------------------
UTAH--1.9% Intermountain Power Agcy., Power Supply System, Rev.,
5.25%, 2012 500 519
- --------------------------------------------------------------------------------------------------------------------
NEVADA--1.2% Clark County, Motor Vehicle Fuel Tax Rev., 5.625%, 2002 70 74
Gen. Oblg., 5.90%, 2001 250 262
---------------------------------------------------------------------------------
336
- --------------------------------------------------------------------------------------------------------------------
INDIANA--1.2% Johnson County Hospital Association, Rev., 6.50%, 2002 300 324
- --------------------------------------------------------------------------------------------------------------------
ARKANSAS--1.1% North Little Rock, Electric System, Rev., 6.00% and
6.15%, 2001 and 2003 295 321
- --------------------------------------------------------------------------------------------------------------------
LOUISIANA--1.1% Gen. Oblg., 7.00%, 2001 300 321
- --------------------------------------------------------------------------------------------------------------------
STATES LESS THAN ONE AK, Student Loan, Gen. Oblg., 5.55%, 2010 200 212
PERCENT--4.8% CT, State, Gen. Oblg. 5.95%, 2000 5 5
D.C., Redev. Land Agency, Sports Arena Special Tax, Rev.,
5.625%, 2010 210 218
GA, Atlanta International Airport, Rev., 6.50%, 2013 70 74
KY, University of Kentucky, Consolidated Educational
Building, Rev., 6.00%, 1999 70 70
MA, Bay Transportation Auth., Rev., 6.50%, 2004 5 6
MA, Water Pollution Abatement Trust, SESD Loan Program,
Rev., 6.20%, 2010 45 50
MD, Howard County, Consolidated Public Improvement, Gen.
Oblg., 6.90%, 1999 70 70
ME, Health and Higher Education Facilities Auth., Rev.,
6.30%, 2004 160 178
NE, Public Power District, Nuclear Facility, Rev., 5.70%,
2004 50 53
NH, Higher Education and Health Facilities Auth.,
Havenwood-Heritage Heights Issue, Rev., 7.10%, 2006 165 175
WA, Tacoma, Electric System, Rev., 5.80%, 2004 70 76
P.R., Bank of Finance Agcy., Affordable Housing, Single
Family Mortgage Rev., 5.90%, 2010 165 174
---------------------------------------------------------------------------------
1,361
---------------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--87.4% 24,570
---------------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--96.8%
(Cost: $25,960) 27,206
---------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--3.10% to 3.15%
INSTRUMENTS--3.2% Due--April 1999
(Cost: $900) 900 900
---------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $26,860) $ 28,106
---------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $26,860,000 for federal income tax purposes
at March 31, 1999, the gross unrealized appreciation was $1,259,000, the gross
unrealized depreciation was $13,000 and the net unrealized appreciation was
$1,246,000.
See accompanying Notes to Financial statements.
24
<PAGE> 25
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL MUNICIPAL
FUND FUND
- ------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------
Investments, at value
(Cost: $2,971,948 and $26,860) $3,142,241 28,106
- ------------------------------------------------------------------------------------------
Cash 127 --
- ------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 15,495 467
- ------------------------------------------------------------------------------------------
Investments sold 1,139 154
- ------------------------------------------------------------------------------------------
Interest 43,475 418
- ------------------------------------------------------------------------------------------
TOTAL ASSETS 3,202,477 29,145
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------------------------
Cash overdraft -- 16
- ------------------------------------------------------------------------------------------
Payable for:
Dividends 2,473 18
- ------------------------------------------------------------------------------------------
Fund shares redeemed 2,410 375
- ------------------------------------------------------------------------------------------
Investments purchased 86,369 1,047
- ------------------------------------------------------------------------------------------
Management fee 951 24
- ------------------------------------------------------------------------------------------
Administrative services fee 353 12
- ------------------------------------------------------------------------------------------
Distribution services fee 52 12
- ------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 219 5
- ------------------------------------------------------------------------------------------
Trustees' fees and other 618 29
- ------------------------------------------------------------------------------------------
Total liabilities 93,445 1,538
- ------------------------------------------------------------------------------------------
NET ASSETS $3,109,032 27,607
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ------------------------------------------------------------------------------------------
Paid-in capital $2,948,783 26,418
- ------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (10,044) (57)
- ------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 170,293 1,246
- ------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $3,109,032 27,607
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------------------------
CLASS A SHARES
Net assets applicable to shares outstanding $3,014,678 19,863
- ------------------------------------------------------------------------------------------
Shares outstanding 296,563 1,917
- ------------------------------------------------------------------------------------------
Net asset value and redemption price per share
(net assets / shares outstanding) $ 10.17 10.36
- ------------------------------------------------------------------------------------------
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) $ 10.65 10.65
- ------------------------------------------------------------------------------------------
CLASS B SHARES
Net assets applicable to shares outstanding $ 82,462 4,957
- ------------------------------------------------------------------------------------------
Shares outstanding 8,133 478
- ------------------------------------------------------------------------------------------
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
(net assets / shares outstanding) $ 10.14 10.36
- ------------------------------------------------------------------------------------------
CLASS C SHARES
Net assets applicable to shares outstanding $ 11,892 2,787
- ------------------------------------------------------------------------------------------
Shares outstanding 1,168 269
- ------------------------------------------------------------------------------------------
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
(net assets / shares outstanding) $ 10.18 10.36
- ------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 26
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended March 31, 1999 (unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL MUNICIPAL
FUND FUND
- -----------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------
Interest income $ 84,902 689
- -----------------------------------------------------------------------------------------
Expenses:
Management fee 6,443 74
- -----------------------------------------------------------------------------------------
Administrative services fee 2,820 29
- -----------------------------------------------------------------------------------------
Distribution services fee 339 27
- -----------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 1,055 9
- -----------------------------------------------------------------------------------------
Professional fees 63 --
- -----------------------------------------------------------------------------------------
Reports to shareholders 247 4
- -----------------------------------------------------------------------------------------
Trustees' fees and other 65 16
- -----------------------------------------------------------------------------------------
Total expenses 11,032 159
- -----------------------------------------------------------------------------------------
NET INVESTMENT INCOME 73,870 530
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------
Net realized gain on sales of investments (including
options purchased) 34,793 46
- -----------------------------------------------------------------------------------------
Net realized loss from futures transactions (5) --
- -----------------------------------------------------------------------------------------
Net realized gain 34,788 46
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments (93,581) (417)
- -----------------------------------------------------------------------------------------
Net loss on investments (58,793) (371)
- -----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 15,077 159
- -----------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
Six months ended March 31, 1999 (unaudited) and year ended September 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL FUND MUNICIPAL FUND
-------------------------- ----------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ 73,870 157,912 530 966
- -------------------------------------------------------------------------------------------------------------
Net realized gain 34,788 56,655 46 85
- -------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (93,581) 55,759 (417) 555
- -------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 15,077 270,326 159 1,606
- -------------------------------------------------------------------------------------------------------------
Distribution from net investment income (73,870) (157,912) (530) (966)
- -------------------------------------------------------------------------------------------------------------
Distribution from net realized gain (73,330) (66,970) (64) (140)
- -------------------------------------------------------------------------------------------------------------
Total dividends to shareholders (147,200) (224,882) (594) (1,106)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share
transactions 20,512 (41,022) 2,869 2,784
- -------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (111,611) 4,422 2,434 3,284
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------------
Beginning of period 3,220,643 3,216,221 25,173 21,889
- -------------------------------------------------------------------------------------------------------------
END OF PERIOD $3,109,032 3,220,643 27,607 25,173
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
26
<PAGE> 27
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 the investment portfolios comprising the
Kemper National Tax-Free Income Series (the trust).
The trust is an open-end management investment
company organized as a business trust under the
laws of Massachusetts.
The funds offer four classes of shares. Class A
shares are sold to investors subject to an initial
sales charge. Class B shares are sold without an
initial sales charge but are subject to higher
ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable on certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares (none issued at
March 31, 1999) are offered to a limited group of
investors, are not subject to initial or contingent
deferred sales charges and generally have lower
ongoing expenses than other classes. Differences in
class expenses will result in the payment of
different per share income dividends by class. All
shares of each fund have equal rights with respect
to voting, dividends and assets, subject to class
specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at
value. Portfolio debt securities with remaining
maturities greater than sixty days are valued by
pricing agents approved by the officers of the
fund, 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. An exchange-traded options contract
on securities, futures and other financial
instruments is valued at its most recent sale price
on such exchange. Lacking any sales, the options
contract is valued at the calculated mean. Lacking
any calculated mean, the options contract is valued
at the most recent bid quotation in the case of a
purchased options contract, or the most recent
asked quotation in the case of a written options
contract. An options contract on securities and
other financial instruments traded over-the-counter
is valued at the most recent bid quotation in the
case of a purchased options contract and at the
most recent asked quotation in the case of a
written options contract. All other securities are
valued at their fair value as determined in good
faith by the Valuation Committee of the Board of
Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis and includes premium and original
issue discount amortization on fixed income
securities. Realized gains and losses from
investment transactions are reported on an
identified cost basis.
EXPENSES. Expenses arising in connection with a
specific fund are allocated to that fund. Other
trust expenses are allocated among the funds in
proportion to their relative net assets.
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading, the net asset value per share is
determined as of the close of the Exchange. The net
asset value per share is determined separately for
each class by dividing the fund's net assets
attributable to that class by the number of shares
of the class outstanding.
FEDERAL INCOME TAXES. Each fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable and tax-exempt income to its
shareholders. Accordingly, each fund paid no
federal income taxes and no federal income tax
provision was required.
DIVIDENDS TO SHAREHOLDERS. Each fund declares and
records a daily dividend equal to its net
investment income for that day, to holders of
shares for which payment has been received. Income
dividends are distributed monthly. Net realized
capital gains, if any, will be distributed at least
annually. Dividends are determined in accordance
with income tax principles which may treat certain
transactions differently from generally accepted
accounting principles.
- --------------------------------------------------------------------------------
3 TRANSACTIONS
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 $6,443,000
for the six months ended March 31, 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 $74,000 for the six months ended March 31, 1999.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The trust has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI). Underwriting commissions
paid in connection with the distribution of each
fund's Class A shares for the six months ended
March 31, 1999 are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
RETAINED BY KDI
---------------
<S> <C>
Municipal Fund $211,000
Intermediate Municipal Fund 41,000
</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
28
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS
Class B and Class C shares. Distribution fees and
CDSC for the six months ended March 31, 1999 are as
follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES
AND CDSC
RECEIVED BY KDI
------------------
<S> <C>
Municipal Fund $422,000
Intermediate Municipal Fund 76,000
</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 six
months ended March 31, 1999 are as follows:
<TABLE>
<CAPTION>
ASF PAID BY THE ASF PAID BY
FUND TO KDI KDI TO AFFILIATES
--------------- -----------------
<S> <C> <C>
Municipal Fund $2,820,000 7,000
Intermediate Municipal Fund 29,000 --
</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 six months ended March 31, 1999, KSvC
received shareholder services fees as follows:
<TABLE>
<S> <C>
Municipal Fund $ 799,000
Intermediate Municipal Fund 7,000
</TABLE>
OFFICERS AND TRUSTEES. Certain officers or trustees
of the trust are also officers or directors of
Scudder Kemper. For the six months ended March 31,
1999, the trust made no payments to its officers
and incurred trustees' fees aggregating $40,000 to
independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT
TRANSACTIONS For the six months ended March 31, 1999, investment
transactions (excluding short-term instruments) are
as follows (in thousands):
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL FUND MUNICIPAL FUND
-------------- --------------
<S> <C> <C>
Purchases $1,217,389 4,445
Proceeds from sales 1,315,163 1,177
</TABLE>
29
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE
TRANSACTIONS The following tables summarize the activity in
capital shares of the funds (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
---------------------- -------------------------
MUNICIPAL FUND SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 67,360 $ 700,766 93,268 $ 974,757
--------------------------------------------------------------------------------
Class B 1,423 14,759 2,704 28,166
--------------------------------------------------------------------------------
Class C 4,084 42,348 4,263 44,493
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 9,356 96,032 13,684 141,785
--------------------------------------------------------------------------------
Class B 233 2,388 273 2,821
--------------------------------------------------------------------------------
Class C 30 306 31 327
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (75,644) (786,086) (113,073) (1,180,570)
--------------------------------------------------------------------------------
Class B (714) (9,575) (1,101) (12,098)
--------------------------------------------------------------------------------
Class C (3,893) (40,426) (3,866) (40,395)
--------------------------------------------------------------------------------
Class I -- -- (30) (308)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 211 2,200 351 3,667
--------------------------------------------------------------------------------
Class B (211) (2,200) (352) (3,667)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE)
FROM CAPITAL SHARE
TRANSACTIONS $ 20,512 $ (41,022)
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
INTERMEDIATE -------------------- --------------------
MUNICIPAL FUND SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 241 $2,511 817 $ 8,500
------------------------------------------------------------------------------
Class B 172 1,801 178 1,841
------------------------------------------------------------------------------
Class C 193 2,021 56 578
------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 30 317 57 587
------------------------------------------------------------------------------
Class B 6 66 12 128
------------------------------------------------------------------------------
Class C 3 27 2 19
------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (173) (1,796) (677) (7,029)
------------------------------------------------------------------------------
Class B (198) (2,061) (122) (1,295)
------------------------------------------------------------------------------
Class C (2) (17) (53) (545)
------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 67 694 13 112
------------------------------------------------------------------------------
Class B (67) (694) (13) (112)
------------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL SHARE TRANSACTIONS $2,869 $ 2,784
------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 31
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------
CLASS A
----------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, ---------------------------------
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 .24 .52 .54 .55 .55
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.19) .37 .36 .06 .50
- ---------------------------------------------------------------------------------------------
Total from investment operations .05 .89 .90 .61 1.05
- ---------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .24 .52 .54 .55 .55
- ---------------------------------------------------------------------------------------------
Distribution from net realized gain .25 .22 .08 .03 .04
- ---------------------------------------------------------------------------------------------
Total dividends .49 .74 .62 .58 .59
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $10.17 10.61 10.46 10.18 10.15
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) .51% 8.84 9.15 6.00 11.15
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses .68% .68 .68 .66 .66
- ---------------------------------------------------------------------------------------------
Net investment income 4.76% 4.97 5.29 5.35 5.63
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------
CLASS B
----------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, ---------------------------------
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 .20 .43 .45 .46 .46
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.19) .36 .37 .05 .50
- ---------------------------------------------------------------------------------------------
Total from investment operations .01 .79 .82 .51 .96
- ---------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .20 .43 .45 .46 .46
- ---------------------------------------------------------------------------------------------
Distribution from net realized gain .25 .22 .08 .03 .04
- ---------------------------------------------------------------------------------------------
Total dividends .45 .65 .53 .49 .50
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $10.14 10.58 10.44 10.15 10.13
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) .08% 7.84 8.32 4.97 10.17
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses 1.52% 1.52 1.55 1.54 1.55
- ---------------------------------------------------------------------------------------------
Net investment income 3.92% 4.13 4.42 4.47 4.74
- ---------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 32
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
----------------------------------------------
CLASS C
----------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, -----------------------------
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 .20 .43 .46 .46 .47
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.19) .37 .37 .05 .51
- ---------------------------------------------------------------------------------------------
Total from investment operations .01 .80 .83 .51 .98
- ---------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .20 .43 .46 .46 .47
- ---------------------------------------------------------------------------------------------
Distribution from net realized gain .25 .22 .08 .03 .04
- ---------------------------------------------------------------------------------------------
Total dividends .45 .65 .54 .49 .51
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $10.18 10.62 10.47 10.18 10.16
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) .08% 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 3.90% 4.13 4.44 4.50 4.78
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, -------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $3,109,032 3,220,643 3,216,221 3,321,546 3,510,648
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 80% 65 77 97 86
- -------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE FOR MUNICIPAL FUND: Total return does not reflect the effect of any sales
charges. Data for the six months ended March 31, 1999 is unaudited.
32
<PAGE> 33
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------------
CLASS A
------------------------------------------------------
SIX MONTHS NOVEMBER 1,
ENDED YEAR ENDED SEPTEMBER 30, 1994 TO
MARCH 31, ------------------------ 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 .21 .45 .46 .46 .45
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.14) .29 .29 (.04) .68
- -----------------------------------------------------------------------------------------------------
Total from investment operations .07 .74 .75 .42 1.13
- -----------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .21 .45 .46 .46 .45
- -----------------------------------------------------------------------------------------------------
Distribution from net realized gain .03 .07 .04 .08 --
- -----------------------------------------------------------------------------------------------------
Total dividends .24 .52 .50 .54 .45
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $10.36 10.53 10.31 10.06 10.18
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 69% 7.34 7.62 4.15 12.08
- -----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------
Expenses .97% .96 .96 .92 .55
- -----------------------------------------------------------------------------------------------------
Net investment income 4.14% 4.35 4.55 4.45 5.00
- -----------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------
Expenses .97% .96 .96 1.04 .55
- -----------------------------------------------------------------------------------------------------
Net investment income 4.14% 4.35 4.55 4.33 5.00
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------
CLASS B
------------------------------------------------------
SIX MONTHS NOVEMBER 1,
ENDED YEAR ENDED SEPTEMBER 30, 1994 TO
MARCH 31, ------------------------ 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 .17 .37 .38 .38 .36
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.13) .28 .29 (.04) .68
- -----------------------------------------------------------------------------------------------------
Total from investment operations .04 .65 .67 .34 1.04
- -----------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .17 .37 .38 .38 .36
- -----------------------------------------------------------------------------------------------------
Distribution from net realized gain .03 .07 .04 .08 --
- -----------------------------------------------------------------------------------------------------
Total dividends .20 .44 .42 .46 .36
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $10.36 10.52 10.31 10.06 10.18
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) .37% 6.38 6.78 3.34 11.13
- -----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------
Expenses 1.78% 1.76 1.76 1.71 1.42
- -----------------------------------------------------------------------------------------------------
Net investment income 3.33% 3.55 3.75 3.66 4.13
- -----------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------
Expenses 1.78% 1.76 1.76 1.83 1.92
- -----------------------------------------------------------------------------------------------------
Net investment income 3.33% 3.55 3.75 3.54 3.63
- -----------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 34
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------------
CLASS C
------------------------------------------------------
SIX MONTHS NOVEMBER 1,
ENDED YEAR ENDED SEPTEMBER 30, 1994 TO
MARCH 31, ------------------------ 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 .17 .37 .39 .38 .38
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.14) .29 .29 (.05) .69
- -----------------------------------------------------------------------------------------------------
Total from investment operations .03 .66 .68 .33 1.07
- -----------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .17 .37 .39 .38 .38
- -----------------------------------------------------------------------------------------------------
Distribution from net realized gain .03 .07 .04 .08 --
- -----------------------------------------------------------------------------------------------------
Total dividends .20 .44 .43 .46 .38
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $10.36 10.53 10.31 10.06 10.19
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) .29% 6.55 6.77 3.26 11.43
- -----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------
Expenses 1.73% 1.73 1.73 1.65 1.28
- -----------------------------------------------------------------------------------------------------
Net investment income 3.38% 3.58 3.78 3.72 4.27
- -----------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------------
Expenses 1.73% 1.73 1.73 1.77 1.78
- -----------------------------------------------------------------------------------------------------
Net investment income 3.38% 3.58 3.78 3.60 3.77
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------------------------------
SIX MONTHS NOVEMBER 1,
ENDED YEAR ENDED SEPTEMBER 30, 1994 TO
MARCH 31, ------------------------ SEPTEMBER 30,
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $27,607 25,173 21,889 21,901 16,169
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 9% 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. Data for the six
months ended March 31, 1999 is unaudited.
34
<PAGE> 35
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held. Kemper Municipal
Bond Fund shareholders were asked to vote on two separate issues: approval of
the new Investment Management Agreement between the fund and Scudder Kemper
Investments, Inc., and to modify or eliminate certain policies and to eliminate
the shareholder approval requirement as to certain other matters. The following
are the results.
1) Approval of the new Investment Management Agreement between the fund and
Scudder Kemper Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
200,512,906 3,927,150 8,589,271
</TABLE>
2) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
Investment objectives
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
147,965,960 9,884,573 15,931,390 39,247,404
</TABLE>
Investment policies
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
147,971,141 9,875,672 15,935,110 39,247,404
</TABLE>
Diversification
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
148,309,125 9,537,688 15,935,110 39,247,404
</TABLE>
Borrowing
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
148,079,899 9,766,914 15,935,110 39,247,404
</TABLE>
Senior securities
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
148,358,088 9,486,745 15,937,090 39,247,404
</TABLE>
Concentration
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
148,294,312 9,552,501 15,935,110 39,247,404
</TABLE>
Underwriting of securities
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
148,334,567 9,509,342 15,938,013 39,247,404
</TABLE>
Investment in real estate
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
148,287,626 9,556,283 15,938,013 39,247,404
</TABLE>
Purchase of commodities
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
148,061,120 9,785,693 15,935,110 39,247,404
</TABLE>
Lending
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
148,185,037 9,661,776 15,935,110 39,247,404
</TABLE>
Margin purchases and short sales
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
147,372,876 10,473,937 15,935,110 39,247,404
</TABLE>
Pledging of assets
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
147,766,278 10,080,535 15,935,110 39,247,404
</TABLE>
Purchases of options and warrants
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
147,934,672 9,912,141 15,935,110 39,247,404
</TABLE>
Investment other than in accordance with objectives and policies
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
147,243,007 10,603,805 15,935,110 39,247,404
</TABLE>
35
<PAGE> 36
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held and adjourned to
January 15, 1999. Kemper Intermediate Municipal Bond Fund shareholders were
asked to vote on two separate issues: approval of the new Investment Management
Agreement between the fund and Scudder Kemper Investments, Inc., and to modify
or eliminate certain policies and to eliminate the shareholder approval
requirement as to certain other matters. The following are the results.
1) Approval of the new Investment Management Agreement between the fund and
Scudder Kemper Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,453,071 4,802 57,315
</TABLE>
2) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
Investment objectives
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,232,166 33,039 92,040
</TABLE>
Investment policies
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,237,318 27,886 92,040
</TABLE>
Diversification
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,248,979 16,225 92,040
</TABLE>
Borrowing
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,245,968 19,237 92,040
</TABLE>
Senior securities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,248,979 16,225 92,040
</TABLE>
Concentration
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,248,394 16,810 92,040
</TABLE>
Underwriting of securities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,248,979 16,225 92,040
</TABLE>
Investment in real estate
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,248,979 16,225 92,040
</TABLE>
Purchase of commodities
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,248,394 16,810 92,040
</TABLE>
Lending
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,245,383 19,822 92,040
</TABLE>
Margin purchases and short sales
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,247,726 17,479 92,040
</TABLE>
Pledging of assets
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,248,394 16,810 92,040
</TABLE>
Purchases of options and warrants
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,236,734 28,471 92,040
</TABLE>
Investment other than in accordance with objectives and policies
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
1,231,457 33,748 92,040
</TABLE>
36
<PAGE> 37
NOTES
37
<PAGE> 38
NOTES
38
<PAGE> 39
NOTES
39
<PAGE> 40
TRUSTEES&OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY KATHRYN L. QUIRK
Chairman and Trustee President Vice President
LEWIS A. BURNHAM PHILIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President and Secretary Vice President
DONALD L. DUNAWAY JOHN R. HEBBLE MAUREEN E. KANE
Trustee Treasurer Assistant Secretary
ROBERT B. HOFFMAN ANN M. MCCREARY CAROLINE PEARSON
Trustee Vice President Assistant Secretary
THOMAS W. LITTAUER ASHTON P. GOODFIELD ELIZABETH C. WERTH
Trustee and Vice President Vice President Assistant Secretary
DONALD R. JONES ROBERT C. PECK, JR. BRENDA LYONS
Trustee Vice President Assistant Treasurer
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND STATE STREET BANK AND TRUST COMPANY
TRANSFER AGENT 225 Franklin Street
Boston, MA 02109
INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
- --------------------------------------------------------------------------------
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 - 3(5/24/99) 1074030
