<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED MARCH 31, 2000
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
"... Shrinking new supplies of municipal debt created intense competition for
attractively priced securities with solid credit characteristics and
above-average income and total return prospects. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
MANAGEMENT TEAM
6
PERFORMANCE UPDATE
8
TERMS TO KNOW
9
PORTFOLIO STATISTICS
13
PORTFOLIO OF INVESTMENTS
41
FINANCIAL STATEMENTS
45
NOTES TO FINANCIAL STATEMENTS
49
FINANCIAL HIGHLIGHTS
AT A GLANCE
KEMPER NATIONAL TAX-FREE
INCOME FUNDS TOTAL RETURNS
FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 2000 (UNADJUSTED FOR ANY SALES
CHARGE):
KEMPER MUNICIPAL BOND FUND
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER MUNICIPAL BOND KEMPER MUNICIPAL BOND LIPPER GENERAL MUNICIPAL
KEMPER MUNICIPAL BOND FUND CLASS A FUND CLASS B FUND CLASS C DEBT CATEGORY AVERAGE*
---------------------------------- --------------------- --------------------- ------------------------
<S> <C> <C> <C>
2.03 1.62 1.63 1.22
</TABLE>
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER INTERMEDIATE KEMPER INTERMEDIATE LIPPER INTERMEDIATE
MUNICIPAL BOND FUND MUNICIPAL BOND FUND MUNICIPAL DEBT CATEGORY
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS A CLASS B CLASS C AVERAGE*
----------------------------------------------- ------------------- ------------------- -----------------------
<S> <C> <C> <C>
1.13 0.73 0.74 1.32
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE PERFORMANCE.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
*LIPPER, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN NET ASSET VALUE
WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF SALES CHARGES; IF
SALES CHARGES HAD BEEN INCLUDED, RESULTS MIGHT HAVE BEEN LESS FAVORABLE.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
3/31/00 9/30/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER MUNICIPAL BOND FUND
CLASS A $9.54 $9.60
.........................................................
KEMPER MUNICIPAL BOND FUND
CLASS B $9.52 $9.58
.........................................................
KEMPER MUNICIPAL BOND FUND
CLASS C $9.56 $9.62
.........................................................
</TABLE>
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
3/31/00 9/30/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER INTERMEDIATE MUNICIPAL
BOND FUND CLASS A $9.89 $10.00
.........................................................
KEMPER INTERMEDIATE MUNICIPAL
BOND FUND CLASS B $9.89 $10.00
.........................................................
KEMPER INTERMEDIATE MUNICIPAL
BOND FUND CLASS C $9.89 $10.00
.........................................................
</TABLE>
KEMPER MUNICIPAL BOND FUND
LIPPER RANKINGS AS OF 3/31/00*
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER MUNICIPAL BOND DEBT CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
....................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #67 of 270 funds #117 of 270 funds #116 of 270 funds
....................................................................................
5-YEAR #32 of 179 funds #127 of 179 funds #124 of 179 funds
....................................................................................
10-YEAR #14 of 83 funds N/A N/A
....................................................................................
15-YEAR #7 of 48 funds N/A N/A
....................................................................................
20-YEAR #7 of 30 funds N/A N/A
....................................................................................
</TABLE>
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
LIPPER RANKINGS AS OF 3/31/00*
COMPARED WITH ALL OTHER FUNDS IN THE LIPPER INTERMEDIATE MUNICIPAL BOND DEBT
CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
....................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #65 of 126 funds #97 of 126 funds #95 of 126 funds
....................................................................................
3-YEAR #62 of 113 funds #103 of 113 funds #102 of 113 funds
....................................................................................
5-YEAR #49 of 101 funds #97 of 101 funds #94 of 101 funds
....................................................................................
</TABLE>
DIVIDEND AND YIELD REVIEW
THE FOLLOWING TABLES SHOW PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE
FUNDS AS OF MARCH 31, 2000.
KEMPER MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
................................................................................................
<S> <C> <C> <C> <C> <C>
SIX-MONTHS INCOME: $ 0.0298 $ 0.0299 $ 0.0302
................................................................................................
MARCH DIVIDEND: $ 0.0448 $ 0.0381 $ 0.0383
................................................................................................
ANNUALIZED
DISTRIBUTION RATE+: 5.05% 4.50% 4.51%
................................................................................................
SEC YIELD+: 4.71% 4.14% 4.10%
................................................................................................
TAX EQUIVALENT YIELD: 8.03% 7.16% 7.17%
................................................................................................
</TABLE>
Based on a marginal federal income tax rate of 37.1%
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
................................................................................................
<S> <C> <C> <C> <C> <C>
SIX-MONTHS INCOME: $ 0.0270 $ 0.0271 $ 0.0270
................................................................................................
MARCH DIVIDEND: $ 0.0403 $ 0.0336 $ 0.0339
................................................................................................
ANNUALIZED
DISTRIBUTION RATE+: 4.46% 3.82% 3.85%
................................................................................................
SEC YIELD+: 4.18% 3.53% 3.56%
................................................................................................
TAX EQUIVALENT YIELD: 7.08% 6.07% 6.13%
................................................................................................
</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, 2000. 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, 2000, 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
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
ECONOMIC OVERVIEW
DEAR KEMPER FUNDS SHAREHOLDER,
As spring moves along towards summer, there isn't much to complain about. For
all the yammering about the "new" economy, the old economy is doing pretty well.
Consumers may hanker for a new GPS handset or a Palm Pilot, but they lust after
a suburban mansion with a garage big enough to hold their luxury car and SUV --
and state and local governments are laying old-fashioned asphalt almost as fast
as businesses are building the information superhighway. Satisfying both old and
new desires got the economy off to a fast start in the new century -- GDP growth
rose at an annual rate of more than 5 percent in the first quarter. Even with a
modest slowdown possible in the second half, growth for the year 2000 is likely
to be close to 5 percent.
So everyone is happy, right? Well, almost everyone. Consumers seldom have felt
so confident; businesspeople seldom have behaved so expansively. But there's
still one grump: Federal Reserve Board Chairman Alan Greenspan, who's become
increasingly worried that rapid growth will bring on inflation.
Despite Greenspan's attempt to slow spending by raising interest rates,
consumers are still splurging, and they show no signs of stopping. We know this
because shoppers are buying the big-ticket items they usually purchase early in
a cycle -- items such as personal computers, mobile phones, jewelry, fancy
kitchen appliances, exercise equipment and big boats.
Why are consumers still buying despite Greenspan's attempts to slow their
splurging? There are three answers: deflation, wealth and easy credit.
Falling prices have made big-ticket items almost irresistible. Since 1997,
prices of kitchen appliances have fallen 4.5 percent, TVs and VCRs 16 percent
and sporting equipment 6.5 percent. Even auto showrooms no longer produce
sticker shock, and drivers have responded with gusto, buying a record 16.9
million cars and light trucks in 1999. 2000 is likely to be the first year in
which automotive sales top 17 million.
Some of that spending has been made possible by stock market gains: Wall
Street has handed out windfalls to almost anyone holding equities in the past
few years. But consumers who don't own stocks are also spending, thanks to a
decade of debt. Young, poor or new to America? In the 1990s, it didn't matter;
lenders still loved you. While high-income families have been borrowing less,
those lower on the income scale have been borrowing more.
But it's not just consumers that Greenspan is concerned about; businesses are
splurging as well. During 1999, businesses increased spending on computers and
peripherals by 35 percent and spending on communications equipment by 25 percent
(both after adjusting for price declines). Far from slowing down this year, we
expect investment in these two categories to accelerate -- to 40 percent growth
for computers and 30 percent growth for communications equipment.
And just like consumers, businesses are borrowing to buy. You may think that
with booming sales, entrepreneurs are cash-rich. But while 1999 saw economy-wide
earnings jump 10 percent and profits of Standard and Poor's (S&P) 500 companies
leap nearly 14 percent, internal cash covered less than 84 percent of capital
spending. With the exception of 1998, that's the lowest on record. Last year
alone, corporate debt shot up by more than 11 percent to $560 billion. New
economy companies are no exception; they have more debt than most people
realize, issuing more than half of all convertible bonds.
All this debt could cause problems. Although we've increased our 2001
inflation outlook to nearly 3 percent -- an entire percentage point higher than
our prediction three months ago -- we're not particularly worried about
inflation. It's the heavy borrowing we're concerned about. Debt continues to
exceed income growth, and when Greenspan succeeds in slowing the economy with
higher interest rates (which he will succeed in doing), all of the debt American
consumers and businesses are taking on could be tricky to handle. Private
financial obligations must be paid with personal income and corporate profits.
When the economy slows, personal income stagnates and corporate profits often
fall -- which makes it harder to pay off those debts. Consumers and businesses
may have to sell their assets to pay off the debt, and they may risk going into
default.
That being the case, a gradual economic slowdown may be in everyone's best
interest. But "gradual" is the key. Both the old and new economy have a lot
riding on the Fed's ability to rein in growth softly and smoothly, because
abrupt slowdowns encourage consumers and businesses to sell assets -- and
perhaps risk bankruptcy -- to pay off debt, as described above.
3
<PAGE> 4
ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES.
THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (3/31/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.00 6.10 5.20 5.60
Prime rate (2) 9.00 8.25 7.75 8.50
Inflation rate (3)* 3.70 2.60 1.80 1.40
The U.S. dollar (4) 1.10 -0.90 -0.50 4.10
Capital goods orders (5)* 10.10 4.70 5.50 11.50
Industrial production (5)* 5.10 3.50 3.10 5.30
Employment growth (6) 2.30 2.20 2.30 2.60
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF 2/29/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
A gradual slowdown seems to be what the Fed is seeking, but for all of
Greenspan's semi-tough talk, some indicators suggest that monetary policy has
actually been lax. Broad money and credit creation have vastly exceeded economic
activity since 1995, and no central bank can allow that to continue indefinitely
without creating inflation. If we begin to see higher core inflation, the Fed
will have to deal with all that money it's created in a less gradualist
manner -- and that could get tricky. Financial turmoil accompanied each of the
Fed's last two efforts to slow the economy down. In 1994, there was a bond
market meltdown that resulted in a Mexican debt crisis. After a more timid Fed
tightening in 1997, crises in Asia were followed by problems with Russian debt,
Brazilian debt and a large American hedge fund. We don't think this is a
coincidence: The global debt market is so vast and interconnected that it's
highly vulnerable to a rise in the cost of its basic raw material -- short-term
funds.
Let's hope, then, that the Fed can slow the economy without upsetting the
financial applecart, because that could affect everyone. After all, the old
economy and the new economy are wedded in many ways. Much of the money that
flows to IPOs is available because mature industries have borrowed to carry out
mergers and share buybacks. Old economy companies are the biggest customers of
new economy products. And e-commerce sites are all about moving traditional
goods over old-fashioned highways. Despite a lot of talk about old and new,
we're all in this economy together.
Sincerely,
Scudder Kemper Investments Economics Group
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF MAY 8, 2000, AND MAY NOT ACTUALLY COME TO PASS. THIS
INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS AN
INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
MANAGEMENT TEAM
KEMPER NATIONAL TAX-FREE INCOME SERIES
PORTFOLIO MANAGEMENT TEAM
[BRENNAN PHOTO]
ELEANOR R. BRENNAN IS CO-LEAD PORTFOLIO MANAGER OF KEMPER MUNICIPAL BOND FUND.
SHE JOINED SCUDDER KEMPER INVESTMENTS, INC. IN MARCH 1995 AND IS A VICE
PRESIDENT.
[CONDON PHOTO]
PHILIP G. CONDON IS CO-LEAD PORTFOLIO MANAGER OF KEMPER MUNICIPAL BOND FUND AND
PORTFOLIO MANAGER OF KEMPER INTERMEDIATE MUNICIPAL BOND FUND. HE JOINED SCUDDER
KEMPER INVESTMENTS IN 1983.
[GOODFIELD PHOTO]
ASHTON P. GOODFIELD IS LEAD PORTFOLIO MANAGER OF KEMPER INTERMEDIATE MUNICIPAL
BOND FUND. A SENIOR VICE PRESIDENT AND CHARTERED FINANCIAL ANALYST, SHE JOINED
SCUDDER KEMPER INVESTMENTS IN 1990.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
5
<PAGE> 6
PERFORMANCE UPDATE
MUNICIPAL BONDS HAVE FACED A TOUGH ENVIRONMENT SINCE SEPTEMBER 1999. THE FEDERAL
RESERVE BOARD OPEN MARKET COMMITTEE RAISED SHORT-TERM INTEREST RATES THREE
TIMES, WHILE THE TREASURY DEPARTMENT ANNOUNCED A DEBT BUYBACK PLAN, PROMPTING AN
INVERSION OF THE U.S. TREASURY YIELD CURVE. BELOW, THE MANAGEMENT TEAM DISCUSSES
THE MARKET'S PERFORMANCE AND HOW EACH FUND IS POSITIONED FOR THE COMING MONTHS.
Q HOW DID THE MUNICIPAL BOND MARKET PERFORM DURING THE FIRST SIX MONTHS OF
FISCAL YEAR 2000?
A It was a challenging period for all fixed-income markets, and
particularly so for tax-exempt debt. Although long-term interest rates were
unchanged between September 30, 1999, and March 31, 2000, short-term and
intermediate rates rose 10 to 50 basis points (0.10 percent to 0.50 percent).
Market yields rose 25 to 33 basis points (0.25 to 0.33 percent) between
September and December, then declined approximately 25 basis points over the
next three months. During the period, the Federal Reserve expressed a resolve to
head off inflationary pressures as commodity prices rebounded, the nation's
unemployment rate reached 30-year lows and consumer spending was brisk. Strong
U.S. economic growth prompted the Federal Reserve Board Open Market Committee to
raise its short-term interest-rate target three times by an additional 75 basis
points (0.75 percent) to 6.00 percent. In the municipal bond market, the
overriding challenge was to preserve capital as bond prices and investor demand
fell.
Shrinking new supplies of municipal debt created intense competition for
attractively priced securities with solid credit characteristics and
above-average income and total return prospects. As of the end of March, new
issuance in calendar year 2000 was down 27 percent from year-earlier levels,
according to THE BOND BUYER.
Q HOW DID YOU POSITION KEMPER MUNICIPAL BOND FUND AND KEMPER INTERMEDIATE
MUNICIPAL BOND FUND BETWEEN SEPTEMBER 1999 AND MARCH 2000?
A Each fund's average duration target (see Portfolio Statistics on page 9)
ranged from neutral to slightly less than most of the funds' peers during the
period. This, along
KEMPER MUNICIPAL BOND FUND
Income from a $100,000 Investment 1995 to 2000 (Class A Shares)
[LINE CHART]
<TABLE>
<CAPTION>
INCOME
------
<S> <C>
3/31/95 0
3/31/96 5504
3/31/97 5733
3/31/98 6033
3/31/99 6043
3/31/00 6336
</TABLE>
SOURCE: WIESENBERGER(R)
EACH BAR REPRESENTS INCOME DISTRIBUTIONS FOR THE 12-MONTH PERIODS ENDED MARCH 31
OF EACH YEAR AND ASSUMES CONTINUOUS REINVESTMENT OF DISTRIBUTIONS. THE CHART
ASSUMES A $100,000 INITIAL INVESTMENT ON MARCH 31, 1995, RESULTING IN A NET
INVESTMENT OF $96,500. THE MAXIMUM SALES CHARGE OF 4.5% IS REDUCED TO 3.5% ON
INVESTMENTS OF $100,000 OR MORE.
KEMPER INTERMEDIATE
MUNICIPAL BOND FUND
Income from a $100,000 Investment 1994 to 2000 (Class A Shares)
[LINE CHART]
<TABLE>
<CAPTION>
INCOME
------
<S> <C>
11/1/94 0.00
3/31/95 2065.00
3/31/96 5977.00
3/31/97 5155.00
3/31/98 5406.00
3/31/99 5512.00
3/31/00 5581.00
</TABLE>
SOURCE: WIESENBERGER(R)
EACH BAR REPRESENTS INCOME DISTRIBUTIONS FOR THE 12-MONTH PERIODS ENDED MARCH 31
OF EACH YEAR AND ASSUMES CONTINUOUS REINVESTMENT OF DISTRIBUTIONS. THE CHART
ASSUMES A $100,000 INITIAL INVESTMENT ON APRIL 20, 1976, RESULTING IN A NET
INVESTMENT OF $97,500. THE MAXIMUM SALES CHARGE OF 2.75% IS REDUCED TO 2.50% ON
INVESTMENTS OF $100,000 OR MORE.
6
<PAGE> 7
PERFORMANCE UPDATE
with curve positioning and security structure selection, helped the Kemper
Municipal Bond Fund preserve capital to a greater extent than its peers in a
climate of rapidly rising interest rates (see At a Glance on page 2). Both
funds' returns were lower than the 2.12% percent return of the Lehman Brothers
Municipal Bond Index* for the six months ended March 31, 2000. Duration can
dramatically impact fund performance, so we don't make big "bets" on the
direction of interest rates.
To increase income and total return potential, we focused on issue selection
and curve placement. We added some lower-quality bonds as the income
differential (spreads) between high-quality and lower-quality securities grew
for most of the period. This strategy helped Kemper Municipal Bond Fund
outperform the average of its peers for the six months ended March 31, 2000, as
shown on page 2. Kemper Intermediate Municipal Bond Fund underperformed its peer
group, in part because when the bond market rallied in March the fund was
underweighted in bonds in the 12-year to 15-year maturity range, which did
exceptionally well as the municipal yield flattened. As of the end of March 31,
2000, municipal bonds rated BBB -- the lowest level of investment-grade
bonds -- generally yielded more than 100 basis points more than
comparable-sector AAAs.
* THE LEHMAN BROTHERS MUNICIPAL BOND INDEX INCLUDES APPROXIMATELY 15,000 BONDS.
TO BE INCLUDED IN THE INDEX, A MUNICIPAL BOND MUST MEET THE FOLLOWING
CRITERIA: A MINIMUM CREDIT RATING OF BBB, ISSUED AS A PART OF AN ISSUE OF AT
LEAST $50 MILLION, ISSUED WITHIN THE LAST FIVE YEARS, AND A MATURITY OF AT
LEAST TWO YEARS. BONDS SUBJECT TO ALTERNATIVE MINIMUM TAX, VARIABLE-RATE
BONDS AND ZERO-COUPON BONDS ARE EXCLUDED FROM THE INDEX. INVESTORS CANNOT
INVEST IN THE INDEX.
Q DURING FEBRUARY 2000, THE TREASURY ANNOUNCED PLANS TO BUY BACK SOME
LONG-TERM DEBT AND HOLD FEWER AUCTIONS. WHAT WERE THE SHORT-TERM CONSEQUENCES OF
THIS ACTION ON MUNICIPAL BONDS, AND WHAT DO YOU BELIEVE MAY BE THE LONG-TERM
EFFECT?
A February's Treasury news generated a welcome rally after five straight
months of depressed municipal bond prices. The Treasury said it plans to buy
back 30-year government bonds and reduce auctions all along the maturity
spectrum.
In January and February, the municipal bond yield curve -- the difference in
income potential between short-term and long-term securities -- was steep
compared with Treasuries. We used this development to reposition the portfolios
with more longer-term bonds selling at a discount. We believe this helped the
funds capture additional income and total return potential in February and
March, when the municipal bond market rallied. In our view, long-term municipal
securities offered compelling value on a tax-adjusted basis. As of March 31,
some 70 percent of Kemper Municipal Bond Fund's portfolio was invested in
securities with AAA ratings, the highest quality available. Kemper Intermediate
Municipal Bond Fund has invested 58 percent of assets in AAA-rated bonds as of
March 31, a slightly lower percentage than six months earlier.
Usually, intermediate and long-term bonds provide more income potential than
securities maturing in a year or less since they involve more interest-rate
risk. This pattern held true for both Treasuries and municipal bonds in the
autumn and winter of 1999. However, as the new millennium began, the Treasury
yield curve inverted, so that by March 31, 2000, one-year Treasury bills had
higher yields than 30-year bonds. While the municipal yield curve flattened
during the period, it did not invert. Long-term municipal bond yields reached a
historically attractive ratio -- providing nearly 98 percent of the yield of
comparable-maturity Treasuries. Long-maturity municipal bonds typically yield
about 85 to 90 percent of a similar-maturity Treasury.
Q IS A STRONG U.S. ECONOMY BAD NEWS FOR MUNICIPAL BONDS?
A Not necessarily. In fact, to the extent that the Fed can contain
inflation, and investors believe that consumer prices will not accelerate,
strong economic growth is positive because it enhances the ability of municipal
debt issuers to meet their obligations. The fourth calendar quarter of 1999 was
the 17th consecutive quarter in which bond rating upgrades exceeded downgrades,
according to Standard & Poor's (S&P CreditWeek 2/21/00).
The funds' portfolios contained bonds from many states and U.S. territories as
of March 31, providing an element of diversification for the funds. As of March
31, 2000, New York was the largest state allocation for Kemper Municipal Bond
Fund (14.46 percent of net assets) and second largest for Kemper Intermediate
Municipal Bond Fund (10.98 percent). Last year, as a result of a booming New
York City economy, the state's general obligation bonds were upgraded by rating
agencies, helping to enhance the fund's total return.
7
<PAGE> 8
PERFORMANCE UPDATE
Ohio was the largest state allocation within Kemper Intermediate Municipal
Bond Fund (12.14 percent of net assets) as of March 31. In a recent report,
Standard & Poor's said the state has had "strong economic performance and
sizable reserve levels."
Q WHAT'S YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET FOR THE BALANCE OF
FISCAL YEAR 2000?
A Since it is widely expected that the Fed will need to raise interest
rates by as much as 50 basis points by the summer of 2000, municipal bonds face
a challenging environment. Still, we believe the municipal market provides
excellent value, with yields of longer-maturity municipals still near those of
Treasuries, and tax-equivalent yields near double-digit levels for investors in
the highest brackets. In January, in fact, municipal bond yields, as measured by
THE BOND BUYER'S Revenue Bond Index, reached 6.35 percent, the highest level
since August 1995. In our view, a robust U.S. economy enhances municipal
finances, and that should continue to help bolster municipal credit ratings.
Finally, if the equity and taxable bond markets remain as volatile as they have
been this past winter, we think it could provide a catalyst for renewed
enthusiasm for tax-exempt debt as a way to diversify a portfolio.
TERMS TO KNOW
DISCOUNTS AND PREMIUMS Par value is the principal value that an investor may
receive when a bond matures. If a bond's price is lower than par, it is selling
at a discount. If a bond's price is higher than par, it is said to be trading at
a premium.
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.
INVERTED YIELD CURVE A market phenomenon in which intermediate-term bonds
(securities with one- to 10-year maturities) have higher income potential and
current yields than long-term bonds (securities with 10- to 30-year maturities).
Historically it has occurred during a period of rising short-term interest rates
and been viewed as an indicator of a future economic slowdown.
REVENUE BOND INDEX (RBI) RBI is the average yield on 25 revenue bonds with
30-year maturities rated A1 and compiled by THE BOND BUYER, a newspaper that
reports on the municipal bond market.
8
<PAGE> 9
PORTFOLIO STATISTICS
KEMPER MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION ON 3/31/00 ON 9/30/99
<S> <C> <C> <C> <C>
REVENUE BONDS 63% 66%
................................................................................
GENERAL OBLIGATION BONDS 18 19
................................................................................
U.S. GOVERNMENT SECURED 16 13
................................................................................
CASH AND EQUIVALENTS 3 2
--------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
QUALITY ON 3/31/00 ON 9/30/99
<S> <C> <C> <C> <C>
AAA 70% 64%
................................................................................
AA 13 12
................................................................................
A 5 5
................................................................................
BBB 6 10
................................................................................
BB 1 1
................................................................................
NOT RATED 5 8
--------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
9
<PAGE> 10
PORTFOLIO STATISTICS
KEMPER MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEARS TO MATURITY ON 3/31/00 ON 9/30/99
<S> <C> <C> <C> <C>
1-10 YEARS 45% 46%
................................................................................
11-20 YEARS 46 46
................................................................................
21+ YEARS 9 8
--------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
TOP FIVE STATE ALLOCATIONS ON 3/31/00
<S> <C> <C> <C> <C>
NEW YORK 14.46%
................................................................................
TEXAS 9.58
................................................................................
ILLINOIS 9.36
................................................................................
NEW JERSEY 7.73
................................................................................
COLORADO 7.58
--------------------------------------------------------------------------------
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
AVERAGE MATURITY ON 3/31/00 ON 9/30/99
<S> <C> <C> <C> <C>
13.2 years 13.7 years
-------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO STATISTICS
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION* ON 3/31/00 ON 9/30/99
<S> <C> <C> <C> <C>
REVENUE BONDS 65% 60%
................................................................................
GENERAL OBLIGATION BONDS 19 21
................................................................................
U.S. GOVERNMENT SECURED 15 15
................................................................................
CASH AND EQUIVALENTS 1 4
--------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
QUALITY ON 3/31/00 ON 9/30/99
<S> <C> <C> <C> <C>
AAA 58% 66%
................................................................................
AA 18 13
................................................................................
A 5 3
................................................................................
BBB 12 12
................................................................................
NOT RATED 7 6
--------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
11
<PAGE> 12
PORTFOLIO STATISTICS
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEARS TO MATURITY ON 3/31/00 ON 9/30/99
<S> <C> <C> <C> <C>
1-10 YEARS 76% 85%
................................................................................
11-20 YEARS 24 15
--------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
TOP FIVE STATE ALLOCATIONS ON 3/31/00
<S> <C> <C> <C> <C>
OHIO 12.14%
................................................................................
NEW YORK 10.98
................................................................................
PENNSYLVANIA 10.10
................................................................................
TEXAS 9.69
................................................................................
MICHIGAN 7.38
--------------------------------------------------------------------------------
100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
AVERAGE MATURITY ON 3/31/00 ON 9/30/99
<S> <C> <C> <C> <C>
6.8 years 6.6 years
-------------------------------------------------------------------------------
</TABLE>
* Portfolio composition is subject to change.
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
KEMPER MUNICIPAL BOND FUND
Investment Portfolio at March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
SHORT-TERM MUNICIPAL INVESTMENTS--2.9% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
ALABAMA
Phoenix County, AL, Industrial Development
Board of Environmental Impact Revenue,
Mead Coated Board Project, Series A,
Daily Demand Note, 4.100%, 06/01/2028* $ 1,300,000 $ 1,300,000
---------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA
District of Columbia, General Fund Recovery
Series B-3, Daily Demand Note, 4.100%,
06/01/2003* 3,500,000 3,500,000
---------------------------------------------------------------------------------------------------------------------
INDIANA
Jasper County, IN, Pollution Control
Revenue, Northern Indiana Public Service,
Daily Demand Note, 4.000%, 08/01/2010* 5,800,000 5,800,000
---------------------------------------------------------------------------------------------------------------------
NEW YORK
Long Island, NY, Power Authority New York
Electricity, Revenue, Series 6, 4.000%,
05/01/2033* 23,000,000 23,000,000
New York State Job Development Authority,
Special Purpose, Series B1-21, Daily
Demand Note, 4.000%, 03/01/2005* 1,485,000 1,485,000
---------------------------------------------------------------------------------------------------------------------
TEXAS
Brazos River Authority, Texas Utilities
Electric Company Project, Pollution
Control Revenue, Series 1996B, Daily
Demand Note, 4.150%, 06/01/2030* 2,000,000 2,000,000
Harris County, TX, Health Facilities
Authority Revenue, St. Lukes Episcopal
Hospital, Series A, Daily Demand Note,
4.100%, 02/15/2027* 8,000,000 8,000,000
Harris County, TX, Health Facilities
Revenue, St. Lukes Episcopal Hospital,
Series B, 4.100%, 02/15/2027* 13,660,000 13,660,000
North Central, TX, Health Facilities
Development Corp., Presbyterian Medical
Center, 1995 Series D, Daily Demand Note,
4.100%, 12/01/2015* 2,200,000 2,200,000
North Central, TX, Health Facilities
Development Corp., Presbyterian Medical
Center, Daily Demand Note, Series C,
4.100%, 12/01/2015* 5,900,000 5,900,000
---------------------------------------------------------------------------------------------------------------------
WYOMING
Platte County, WY, Pollution Control
Revenue, Daily Demand Note, 4.100%,
07/01/2014* 9,600,000 9,600,000
----------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL INVESTMENTS TOTAL
(Cost: $76,445,000) 76,445,000
----------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS--97.1%
ALABAMA
Birmingham, AL, Jefferson Civic Center,
Special Tax Revenue, 7.400%,
01/01/2008 (c) 12,000,000 12,036,960
</TABLE>
The accompanying notes are an integral part of the financial statements. 13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
ALASKA
Anchorage, AK, Electric Utilities Revenue,
6.500%, 12/01/2015 (c) $ 5,000,000 $ 5,601,450
North Slope Borough, AK, General
Obligation, Series 1997A, Zero Coupon,
06/30/2008 (c) 21,935,000 14,144,127
North Slope Borough, AK, General
Obligation, Series A, Zero Coupon,
06/30/2009 (c) 18,500,000 11,260,395
---------------------------------------------------------------------------------------------------------------------
ARIZONA
Coconino County, AZ, Industrial Development
Authority, Revenue, Guidance Center
Income Project, Prerefunded 6/1/2001,
9.250%, 06/01/2011 (b) 540,000 574,484
Phoenix, AZ, General Obligation, Partially
Prerefunded, 6.375%, 07/01/2013 (b) 7,400,000 7,758,308
Phoenix, AZ, Street & Highway User Revenue,
Prerefunded 07/01/2002, 6.250%,
07/01/2011 (b) 10,000,000 10,462,700
Salt River Project, Arizona Agricultural
Improvement, Revenue, Series C, 6.250%,
01/01/2019 8,000,000 8,179,600
---------------------------------------------------------------------------------------------------------------------
ARKANSAS
Jonesboro, AR, Residential Housing,
Revenue, St Bernards Regional Medical
Center, Series A, 5.800%, 07/01/2012 (c) 4,025,000 4,172,677
North Little Rock, AR, Electric Revenue,
Series A, 6.500%, 07/01/2010 19,750,000 21,892,480
North Little Rock, AR, Electric Revenue,
Series A, 6.500%, 07/01/2015 13,080,000 14,655,224
---------------------------------------------------------------------------------------------------------------------
CALIFORNIA
Foothills Eastern Corridor Agency,
California Toll Road Revenue, Series A,
Zero Coupon, 01/01/2017*** 5,000,000 1,958,350
Foothills Eastern Corridor Agency,
California Toll Road Revenue, Series A,
Prerefunded 01/01/2007, 6.000%,
01/01/2034 (b) 8,400,000 9,047,304
Foothills Eastern Corridor Agency,
California Toll Road Revenue, Series A,
Prerefunded 01/01/2010, 6.000%,
01/01/2016 (b) 20,400,000 22,096,464
Foothills Eastern Corridor Agency,
California Toll Road Revenue, Series A,
Prerefunded 01/01/2007, 6.500%,
01/01/2032 (b) 19,975,000 22,086,957
Foothills Eastern Corridor Agency,
California Toll Road Revenue, 5.000%,
01/01/2035 (c) 7,850,000 7,065,549
Murrieta Valley, CA, University School
District, General Obligation, Series A,
Zero Coupon, 09/01/2014 4,235,000 1,938,444
San Diego, CA, Industrial Development
Revenue, 6.897%, 09/01/2019** 7,300,000 7,629,960
San Diego, CA, Unified School District,
General Obligation, Series A, Zero
Coupon, 07/01/2014 (c) 3,420,000 1,579,595
San Joaquin Hills, CA, Transportation,
Revenue, Series A, Zero Coupon,
01/15/2013 35,295,000 17,866,329
San Joaquin Hills, CA, Transportation,
Revenue, Series A, Zero Coupon,
01/15/2014 14,905,000 7,048,873
Ukiah, CA, Unified School District, Zero
Coupon, 08/01/2015 (c) 2,000,000 859,440
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
COLORADO
Arapahoe County, CO, Capital Improvements,
Revenue, Series E, Prerefunded 8/31/2005,
7.000%, 08/31/2026 (b) $25,525,000 $ 28,681,421
Colorado Health Facilities Authority
Revenue, Covenant Retirement Community
Project, 6.750%, 12/01/2015 1,750,000 1,795,500
Colorado Health Facilities Authority
Revenue, Covenant Retirement Community
Project, 6.750%, 12/01/2025 4,150,000 4,172,866
Colorado Housing Finance Authority Revenue,
Single Family, Series C, 7.650%,
08/01/2022 200,000 203,816
Colorado Metropolitan Waste & Water
Reclamation, Revenue, Series B, 6.000%,
04/01/2010 11,505,000 11,745,570
Colorado Public Highway Authority Revenue,
Series A, 5.750%, 09/01/2014 (c) 13,700,000 14,308,280
Colorado Public Highway Authority Revenue,
Series B, Zero Coupon, 09/01/2014 (c) 11,295,000 5,044,573
Colorado Public Highway Authority Revenue,
Series A, 5.000%, 09/01/2015 (c) 11,395,000 10,756,424
Colorado Public Highway Authority Revenue,
Series B, Zero Coupon, 09/01/2051 (c) 21,500,000 8,985,280
Colorado Public Highway Authority Revenue,
Series B, Zero Coupon, 09/01/2017 (c) 5,000,000 1,831,600
Colorado Public Highway Authority Revenue,
Series B, Zero Coupon, 09/01/2018 (c) 12,000,000 4,112,520
Colorado Public Highway Authority Revenue,
Capital Appreciation, Series B, Zero
Coupon, 09/01/2022 (c) 4,500,000 1,193,265
Denver, CO, City and County Airport
Revenue, Series A, 7.400%, 11/15/2005 1,250,000 1,363,287
Denver, CO, City and County Airport
Revenue, Series A, 7.500%, 11/15/2006 1,000,000 1,085,450
Denver, CO, City and County Airport
Revenue, Series A, Prerefunded
11/15/2012, 7.500%, 11/15/2012 (b) 5,940,000 6,453,335
Denver, CO, City and County Airport
Revenue, Series B, 7.250%, 11/15/2012 12,715,000 13,411,782
Denver, CO, City and County Airport
Revenue, Series B, Prerefunded
11/15/2012, 7.250%, 11/15/2012 (b) 3,260,000 3,515,943
Denver, CO, City and County Airport
Revenue, Series C, 6.750%, 11/15/2022 5,180,000 5,238,689
Denver, CO, City and County Airport
Revenue, Series C, Prerefunded
11/15/2022, 6.750%, 11/15/2022 (b) 1,380,000 1,471,535
Denver, CO, City and County Airport
Revenue, Series A, 8.500%, 11/15/2023 4,270,000 4,436,445
Denver, CO, City and County Airport
Revenue, Series A, Prerefunded
11/15/2000, 8.500%, 11/15/2023 (b) 405,000 423,355
Denver, CO, City and County Airport
Revenue, Series A, Prerefunded
11/15/2001, 8.750%, 11/15/2023 (b) 2,120,000 2,293,692
Denver, CO, City and County Airport
Revenue, Series A, Prerefunded
11/15/2004, 7.500%, 11/15/2023 (b) 1,240,000 1,390,821
Denver, CO, City and County Airport
Revenue, Series A, Prerefunded
11/15/2025, 7.250%, 11/15/2025 (b) 2,750,000 2,968,735
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Denver, CO, City and County Airport
Revenue, Series A, Prerefunded
11/15/2025, 7.250%, 11/15/2025 (b) $ 7,000,000 $ 7,556,780
Denver, CO, City and County Airport
Revenue, Series E, 5.250%, 11/15/2023 (c) 19,435,000 18,032,765
Denver, CO, City and County Airport,
Unrefunded Balance, Revenue, Series A,
8.750%, 11/15/2023 5,880,000 6,287,484
Denver, CO, City and County Airport,
Unrefunded Balance, Revenue, Series A,
7.500%, 11/15/2023 5,945,000 6,446,699
Denver, CO, City and County School
Districts, General Obligation, Series A,
6.500%, 06/01/2010 3,225,000 3,586,200
Denver, CO, City and County School
Districts, General Obligation, Series A,
6.500%, 12/01/2010 3,000,000 3,353,790
Douglas County, CO, School District,
General Obligation, 7.000%, 12/15/2013
(c) 10,000,000 11,688,500
Douglas County, CO, School District,
General Obligation, Series A, 6.500%,
12/15/2016 (c) 715,000 760,903
Thornton, CO, General Obligation, Zero
Coupon, 12/01/2008 (c) 5,000,000 3,182,850
---------------------------------------------------------------------------------------------------------------------
CONNECTICUT
Bridgeport, CT, Series A, 6.000%,
07/15/2014 (c) 5,535,000 5,823,761
Connecticut State, Series E, 6.000%,
03/15/2012 7,300,000 7,872,320
Connecticut State Development Authority,
Revenue, Pierce Memorial Baptist Home,
Prerefunded 10/01/2000, 9.250%,
10/01/2018 (b) 1,140,000 1,199,896
Greenwich, CT, Housing Authority Revenue,
Series A, 6.350%, 09/01/2027 2,640,000 2,468,268
---------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA
District of Columbia, Inverse Floating Rate
Bond, 11.000%, 12/07/2008** 20,620,000 21,045,184
District of Columbia, General Obligation,
Series B, Prerefunded 6/1/2010, 6.300%,
06/01/2010 (b) 4,500,000 4,723,875
District of Columbia, General Obligation,
Series B, 6.000%, 06/01/2015 (c) 2,600,000 2,736,448
District of Columbia, General Obligation,
Series B, 6.000%, 06/01/2017 (c) 2,730,000 2,872,369
District of Columbia General Obligation,
Series A, 5.250%, 06/01/2027 (c) 9,500,000 8,576,980
District of Columbia Redevelopment Land
Agency, Revenue, 5.625%, 11/01/2010 5,105,000 5,152,987
District of Columbia Water & Sewer
Authority, Inverse Floating Rate Bond,
Series 13, 7.875%, 10/01/2013** 1,210,000 1,370,688
District of Columbia Water & Sewer
Authority, Inverse Floating Rate Bond,
Series 14, 7.873%, 10/01/2014** 1,970,000 2,225,233
District of Columbia Water & Sewer
Authority, Inverse Floating Rate Bond,
Series 15, 7.870%, 10/01/2015** 3,565,000 3,996,401
District of Columbia Water & Sewer
Authority, Inverse Floating Rate Bond,
Series 16, 7.870%, 10/01/2016** 2,750,000 3,073,400
</TABLE>
16 The accompanying notes are an integral part of the financial statements.
<PAGE> 17
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
FLORIDA
Broward County, FL, Resource Recovery,
Waste Energy Company, Revenue, 7.950%,
12/01/2008 $ 8,220,000 $ 8,485,013
Broward County, FL, Resource Recovery,
Waste Energy Company, Revenue, 7.950%,
12/01/2008 2,780,000 2,869,627
Florida State Board of Education Lottery
Revenue, Series A, 5.750%, 07/01/2012 6,530,000 6,858,002
Florida State Department of Environmental
Protection and Preservation Revenue,
Series A, 5.750%, 07/01/2010 (c) 10,000,000 10,527,200
Greater Orlando, FL, Aviation Authority,
Revenue, Series A, 5.250%, 10/01/2013 (c) 5,300,000 5,202,109
Hillsborough County, FL, Industrial
Development, Revenue, Tampa Electric
Project, 8.000%, 05/01/2022 10,000,000 10,889,000
Jacksonville, FL, Health Facilities A,
Revenue, 11.500%, 10/01/2012*** 85,000 132,976
Jacksonville, FL, Health Facilities A,
Revenue, Prerefunded 10/01/2012, 11.500%,
10/01/2012 (b) 10,000 12,108
Jacksonville, FL, Health Facilities A,
Revenue, Prerefunded 10/01/2012, 11.500%,
10/01/2012 (b) 35,000 44,154
Jacksonville, FL, Health Facilities A,
Revenue, Prerefunded 10/01/2012, 11.500%,
10/01/2012 (b) 40,000 52,378
Jacksonville, FL, Health Facilities A,
Revenue, Prerefunded 10/01/2012, 11.500%,
10/01/2012 (b) 15,000 20,308
Lee County, FL, Airport Revenue, Series 14,
7.790%, 10/01/2013** 3,960,000 4,380,552
Lee County, FL, Airport Revenue, Series 14,
8.040%, 10/01/2015** 1,500,000 1,662,180
Lee County, FL, Airport Revenue, Series 14,
7.790%, 10/01/2020** 1,410,000 1,481,854
Miami-Dade County, FL, Revenue, Series A,
Zero Coupon, 10/01/2014 (c) 2,195,000 969,597
Miami-Dade County, FL, Special Obligation,
Refunded, Series A, Zero Coupon,
10/01/2022 (c) 7,000,000 1,797,320
Orange County, FL, Health Facilities,
Revenue, 6.250%, 10/01/2016 (c)*** 710,000 774,141
Orange County, FL, Health Facilities,
Revenue, 6.250%, 10/01/2018 290,000 316,866
Orange County, FL, Health Facilities
Authority, Revenue, Orlando Regional
Healthcare, 6.250%, 10/01/2021 6,000,000 6,464,400
Orlando, FL, Utilities Commission Water and
Electricity, Revenue, 6.750%, 10/01/2017 3,500,000 3,986,395
Palm Beach County, FL, Solid Waste
Authority Revenue, Series A, Zero Coupon,
10/01/2013 (c) 20,000,000 9,570,200
Sunrise, FL, Utilities System Revenue,
Refunded, 5.500%, 10/01/2018 (c) 10,000,000 10,052,000
Tampa, FL, Solid Waste System Revenue,
Series B, 5.250%, 10/01/2014 (c) 4,400,000 4,250,576
Tampa, FL, Solid Waste System Revenue,
Series B, 5.250%, 10/01/2015 (c) 2,420,000 2,312,504
</TABLE>
The accompanying notes are an integral part of the financial statements. 17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
GEORGIA
Atlanta, GA, Airport Revenue, General
Obligation, Series B, 5.625%, 01/01/2009
(c) $ 4,170,000 $ 4,271,831
Atlanta, GA, Airport Revenue, Refunded,
General Obligation, Series A, 5.500%,
01/01/2009 (c) 4,805,000 4,934,831
Atlanta, GA, Airport Revenue, General
Obligation, Series B, 5.750%, 01/01/2010
(c) 4,240,000 4,379,581
Atlanta, GA, Airport Revenue, Refunded,
General Obligation, Series A, 5.500%,
01/01/2010 (c) 2,330,000 2,391,442
Atlanta, GA, Airport Revenue, General
Obligation, Series B, 5.750%, 01/01/2011
(c) 1,590,000 1,641,150
Atlanta, GA, Water & Wastewater Revenue,
Series A, 5.500%, 11/01/2019 (c) 13,000,000 12,976,210
Chatham County, GA, School District,
General Obligation, Prerefunded
08/01/2001, 6.150%, 08/01/2010 (b) 7,300,000 7,595,212
Forsyth County, GA, School District,
6.000%, 02/01/2016 3,000,000 3,143,580
Fulton County, GA, Housing Authority
Single, Revenue, 6.550%, 03/01/2018 175,000 178,687
Fulton County, GA, Housing Authority
Single, Revenue, Series A, 6.600%,
03/01/2028 2,660,000 2,752,142
Georgia Municipal Electric Authority, Power
Revenue, Series V, 6.600%, 01/01/2018 (c) 5,000,000 5,639,100
Georgia Municipal Electric Authority, Power
Revenue, Series W, 6.600%, 01/01/2018 (c) 3,500,000 3,947,370
Georgia State, Series C, 5.750%, 09/01/2013 4,600,000 4,885,430
Georgia State Housing & Financial Authority
Revenue, Single Family Mortgage, 6.250%,
12/01/2028 14,510,000 14,833,283
Metropolitan Atlanta Rapid Transportation
Authority, Revenue, Second Indenture,
Series A, 5.625%, 07/01/2020 7,500,000 7,472,325
State of Georgia, General Obligation,
5.500%, 09/01/2014 5,485,000 5,653,006
---------------------------------------------------------------------------------------------------------------------
HAWAII
State of Hawaii, Inverse Floating Rate
Bond, 6.956%, 03/01/2014** 6,195,000 6,259,428
State of Hawaii, General Obligation, Series
C, 5.750%, 09/01/2014 (c) 5,000,000 5,145,300
State of Hawaii, General Obligation, Series
C, 5.800%, 09/01/2015 (c) 5,000,000 5,142,300
---------------------------------------------------------------------------------------------------------------------
ILLINOIS
Chicago, IL, Capital Appreciation, City
Colleges, Zero Coupon, 01/01/2016 (c) 22,000,000 8,953,780
Chicago, IL, Capital Appreciation, City
Colleges, Zero Coupon, 01/01/2017 20,000,000 7,625,800
Chicago, IL, Board of Education,
Certificates of Participation, Series A,
6.250%, 01/01/2009 (c) 6,735,000 7,238,643
Chicago, IL, Board of Education, General
Obligation, Chicago School Reform, Series
B, Zero Coupon, 12/01/2009 (c) 6,750,000 3,995,055
Chicago, IL, Board of Education,
Certificates of Participation, Series A,
6.250%, 01/01/2011, (c) 10,000,000 10,885,500
Chicago, IL, Board of Education, General
Obligation, Chicago School Reform, Series
A, Zero Coupon, 12/01/2012 (c) 3,500,000 1,755,985
</TABLE>
18 The accompanying notes are an integral part of the financial statements.
<PAGE> 19
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Chicago, IL, Board of Education, General
Obligation, Chicago School Reform, Series
A, Zero Coupon, 12/01/2013 (c) $ 6,645,000 $ 3,132,121
Chicago, IL, Board of Education, General
Obligation, Chicago School Reform, Series
A, Zero Coupon, 12/01/2014 (c) 2,000,000 883,360
Chicago, IL, Board of Education, General
Obligation, Chicago School Reform,
6.000%, 12/01/2016 (c) 5,000,000 5,144,050
Chicago, IL, Board of Education,
Certificates of Participation, Series A,
6.000%, 01/01/2020 (c) 3,000,000 3,125,520
Chicago, IL, Gas Supply Revenue, Peoples
Gas & Coke Company, Series A, 8.100%,
05/01/2020 8,250,000 8,441,152
Chicago, IL, O'Hare International Airport
Revenue Series A, 6.375%, 01/01/2012 (c) 15,000,000 15,769,050
Chicago, IL, O'Hare International Airport
Revenue, Series A, 6.000%, 01/01/2012 5,000,000 5,065,450
Chicago, IL, O'Hare International Airport
Revenue, 6.750%, 01/01/2018 (c) 23,350,000 24,331,167
Chicago, IL, Tax Allocation, Central
Station Project, Series A, Prerefunded
01/01/2005, 8.900%, 01/01/2011 (b) 1,530,000 1,665,527
Chicago, IL, Water Revenue, Zero Coupon,
11/01/2012 (c) 6,350,000 3,188,652
Cook County, IL, Rites-PA 591, 10.685%,
11/15/2013** 10,610,000 13,133,695
Cook County, IL, Capital Improvements,
General Obligation, 6.500%, 11/15/2014
(c) 18,560,000 20,754,720
Illinois Development Financial Authority,
General Obligation, Debt Restructure-East
St Louis, 7.500%, 11/15/2013 3,750,000 4,045,837
Illinois Development Financial Authority,
Pollution Revenue, Commonwealth Edison
Company Project, Series D, 6.750%,
03/01/2015 (c) 16,780,000 17,940,169
Illinois Development Financial Authority
Hospital Revenue, Adventist Health
System, 5.500%, 11/15/2020 10,000,000 8,136,500
Illinois Health Facilities Authority
Revenue, South Suburban Hospital, 7.000%,
02/15/2009*** 4,695,000 5,129,006
Illinois Health Facilities Authority
Revenue, South Suburban Hospital,
Prerefunded 2/15/2002, 7.000%, 02/15/2009
(b) 3,055,000 3,229,379
Illinois Health Facilities Authority
Revenue, Health Care
Facilities-Northwestern Medical,
Prerefunded 11/15/2004, 6.500%,
11/15/2015 (b) 3,900,000 4,219,917
Illinois Regional Transportation Authority,
11.142%, 11/01/2021** 12,900,000 15,930,984
Lake, Cook, Kane and McHenry Counties, IL,
General Obligation, 6.300%, 12/01/2017
(c) 1,885,000 2,048,731
Metropolitan Pier & Exposition Authority of
Illinois, Dedicated State Tax,
Prerefunded, Capital Appreciation, Series
A, Zero Coupon, 06/15/2008 (b), (c),*** 1,220,000 794,232
Metropolitan Pier & Exposition Authority of
Illinois, Dedicated State Tax, Unrefunded
Balance, Capital Appreciation, Series A,
Zero Coupon, 06/15/2008 (c) 6,670,000 4,324,895
</TABLE>
The accompanying notes are an integral part of the financial statements. 19
<PAGE> 20
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Metropolitan Pier & Exposition Authority of
Illinois, Revenue, Mccormick Place
Exposition, Series A, Zero Coupon,
06/15/2013 $20,390,000 $ 9,857,749
Metropolitan Pier & Exposition Authority of
Illinois, Revenue, Mccormick Place
Exposition, 5.750%, 12/15/2014 (c) 3,460,000 3,565,253
Metropolitan Pier & Exposition Authority of
Illinois, Revenue, Mccormick Place
Exposition, Series A, Zero Coupon,
06/15/2015 (c) 10,000,000 4,242,000
Metropolitan Pier & Exposition Authority of
Illinois, Revenue, Mccormick Place
Exposition, Series A, Zero Coupon,
12/15/2015 (c) 10,000,000 4,124,000
Metropolitan Pier & Exposition Authority of
Illinois, Revenue, Mccormick Place
Exposition, Zero Coupon, 06/15/2018 7,250,000 2,519,810
St. Charles, IL, Multifamily Housing
Revenue, Housing-Wessel Court Project,
7.600%, 04/01/2024 3,680,000 3,708,851
University Park, IL, Tax Allocation,
Governors Gateway Industrial Park,
8.500%, 12/01/2011 2,570,000 2,796,186
Will County, IL, Community Unit School
District, General Obligation, Series B,
Zero Coupon, 11/01/2015 8,000,000 3,322,080
Will County, IL, Forest Preserves District,
General Obligation, Series B, Zero
Coupon, 12/01/2011 (c) 4,145,000 2,203,482
Will County, IL, Forest Preserves District,
General Obligation, Series B, Zero
Coupon, 12/01/2012 (c) 2,480,000 1,239,653
Will County, IL, Forest Preserves District,
General Obligation, Series B, Zero
Coupon, 12/01/2013 (c) 12,030,000 5,647,724
Will County, IL, Forest Preserves District,
General Obligation, Series B, Zero
Coupon, 12/01/2014 (c) 10,255,000 4,510,046
Will County, IL, Forest Preserves District,
General Obligation, Series B, Zero
Coupon, 12/01/2015 (c) 5,730,000 2,357,494
---------------------------------------------------------------------------------------------------------------------
INDIANA
Fort Wayne, IN, Hospital Authority,
Revenue, Parkview Health Systems Inc.
Project, 5.000%, 11/15/2013 4,810,000 4,500,188
Indiana Health Facilities Financing
Authority, Hospital Revenue, Fayette
Memorial Hospital Project, 7.200%,
10/01/2022 1,800,000 1,799,010
Indiana Transportation Financial Authority,
Highway Revenue, Series A, 7.250%,
06/01/2015 4,000,000 4,706,560
---------------------------------------------------------------------------------------------------------------------
IOWA
Iowa Financial Authority, Hospital Facility
Revenue, Trinity Regional Hospital
Project, Prerefunded 07/01/2002, 7.000%,
07/01/2022 (b) 12,000,000 12,738,120
Iowa Financial Authority, Single Family
Revenue, 7.900%, 11/01/2022 1,155,000 1,179,740
</TABLE>
20 The accompanying notes are an integral part of the financial statements.
<PAGE> 21
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
KENTUCKY
Hopkins County, KY, Hospital Revenue,
Trover Clinic Found, 6.625%,
11/15/2011 (c) $ 4,000,000 $ 4,172,520
Kenton County, KY, Airport Board Revenue,
Cincinnati Northern Kentucky, Series A,
6.300%, 03/01/2015 (c) 6,250,000 6,568,187
---------------------------------------------------------------------------------------------------------------------
LOUISIANA
Jefferson Parish, LA, School Board,
Revenue, 6.250%, 02/01/2008 (c) 11,000,000 11,451,880
Louisiana Public Facilities Authority
Revenue, Centenary College Louisiana
Project, Prerefunded 02/01/2008, 5.750%,
02/01/2012 (b) 1,000,000 1,044,580
Louisiana Public Facilities Authority
Revenue, Centenary College Louisiana
Project, Prerefunded 02/01/2008, 5.900%,
02/01/2017 (b) 1,000,000 1,054,150
---------------------------------------------------------------------------------------------------------------------
MAINE
Maine Health & Higher Educational
Facilities, Revenue, Series B, 7.100%,
07/01/2014 2,750,000 3,031,325
---------------------------------------------------------------------------------------------------------------------
MARYLAND
Maryland Economic Development Corporation,
Chesapeake Bay Conference, Series 1999B,
7.750%, 12/01/2031 30,000,000 29,663,400
Maryland State Health & Higher Educational
Facilities, Revenue, Doctors County
Hospital, 5.750%, 07/01/2013 6,785,000 5,939,793
Northeast Maryland Waste Disposal Authority
Revenue, Southwest Resource Recovery
System, 7.200%, 01/01/2006 (c) 1,500,000 1,636,875
---------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS
Massachusetts Bay Transportation Authority,
Revenue, General Transportation, Series
A, 5.875%, 03/01/2015 10,075,000 10,608,068
Massachusetts Bay Transportation Authority,
General Transportation Revenue, Series B,
6.200%, 03/01/2016 12,950,000 14,053,469
Massachusetts Municipal Wholesale Electric
Company, Revenue, Series B, 6.750%,
07/01/2011 17,500,000 18,321,800
Massachusetts Municipal Wholesale Electric
Company, Revenue, Series B, 6.750%,
07/01/2017 3,945,000 4,038,496
Massachusetts Municipal Wholesale Electric
Company, Revenue, Series A, 6.000%,
07/01/2018 5,610,000 5,656,843
Massachusetts Municipal Wholesale Electric
Company, Revenue, Series C, 6.625%,
07/01/2018 10,000,000 10,135,000
Massachusetts State Development Financial
Agency, Revenue, Health Care Facilities,
Series A, 7.100%, 07/01/2032 3,000,000 2,816,520
Massachusetts State Port Authority Revenue,
13.000%, 07/01/2013*** 1,500,000 2,309,985
Massachusetts State Port Authority Revenue,
Series B, 5.500%, 07/01/2015 3,025,000 3,004,672
Massachusetts State Turnpike Metropolitan
Authority, Revenue, Series C, Zero
Coupon, 01/01/2018 10,000,000 3,662,300
Massachusetts State Turnpike Metropolitan
Authority, Revenue, Series C, Zero
Coupon, 01/01/2019 5,500,000 1,886,170
</TABLE>
The accompanying notes are an integral part of the financial statements. 21
<PAGE> 22
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
{ Massachusetts State Turnpike Metropolitan
Authority, Revenue, Series C, Zero
Coupon, 01/01/2020 $12,750,000 $ 4,106,137
State of Massachusetts, General Obligation,
Series B, 6.500%, 08/01/2011 5,940,000 6,190,252
State of Massachusetts, Revenue, Federal
Highway, Series A, Zero Coupon,
12/15/2014 27,680,000 12,251,722
---------------------------------------------------------------------------------------------------------------------
MICHIGAN
Battle Creek, MI, Downtown Development, Tax
Allocation, Prerefunded 05/01/2004,
7.600%, 05/01/2016 (b) 3,800,000 4,227,348
Detroit, MI, General Obligation, Series A,
Prerefunded 04/01/2005, 6.700%,
04/01/2010 (b) 2,500,000 2,718,800
Detroit, MI, General Obligation, Series B,
6.250%, 04/01/2010 3,410,000 3,567,747
Michigan Higher Educational Facilities
Authority, Revenue, Calvin College
Project, 5.550%, 06/01/2017 1,465,000 1,349,573
Michigan Municipal Bond Authority Revenue,
Clean Water Revolving Fund, 5.625%,
10/01/2013 12,745,000 13,059,801
Michigan State Building Authority Revenue,
Series I, 6.750%, 10/01/2011 9,750,000 10,204,350
Michigan State Hospital Financial Authority
Revenue, Gratiot Community Hospital,
6.100%, 10/01/2007 2,250,000 2,216,722
Michigan State Hospital Financial Authority
Revenue, 7.800%, 07/15/2008** 5,000,000 5,450,700
Michigan State Hospital Financial Authority
Revenue, 8.300%, 07/15/2008** 5,000,000 5,625,500
Michigan State Strategic Fund Limited,
Revenue, 5.750%, 11/15/2018 1,400,000 1,137,472
Michigan State Trunk Line, Revenue, Series
A, 5.500%, 11/01/2017 7,000,000 6,980,120
Tawas City, MI, Hospital Financial
Authority, Revenue, Series A, ETM,
5.600%, 02/15/2013*** 2,735,000 2,787,785
---------------------------------------------------------------------------------------------------------------------
MINNESOTA
Minneapolis and Saint Paul, MN,
Metropolitan Airport Community Airport
Revenue, Series B, 5.250%, 01/01/2019 (c) 3,700,000 3,470,896
New Hope, MN, Housing & Health, Revenue,
Minnesota Masonic Home North Ridge,
5.900%, 03/01/2019 1,335,000 1,134,550
New Hope, MN, Housing & Health, Revenue,
Minnesota Masonic Home North Ridge,
5.875%, 03/01/2029 2,700,000 2,207,358
St Louis Park, MN, Hospital Revenue, Series
A, 7.250%, 07/01/2015 6,650,000 6,832,675
University of Minnesota, Series A, 5.750%,
07/01/2017 3,240,000 3,364,092
University of Minnesota, Series A, 5.750%,
07/01/2018 6,760,000 6,995,924
---------------------------------------------------------------------------------------------------------------------
MISSISSIPPI
Jones County, MS, Hospital Revenue, South
Central Regional Medical Center, 5.500%,
12/01/2017 2,055,000 1,740,421
</TABLE>
22 The accompanying notes are an integral part of the financial statements.
<PAGE> 23
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
MISSOURI
Clarence Cannon, MO, Wholesale Water
Revenue, 6.000%, 05/15/2020 $10,000,000 $ 9,383,700
Missouri State Health & Educational
Facilities, Revenue, Christian Health
Services, Series B, Prerefunded
02/15/2001, 6.875%, 02/15/2013 (b) 7,000,000 7,294,210
Missouri State Health & Educational
Facilities, Revenue, Lutheran Senior
Services, 5.750%, 02/01/2017 3,250,000 2,888,275
Sikeston, MO, Electric Revenue, 6.200%,
06/01/2010 6,870,000 7,500,185
St Louis County, MO, Regional Convention,
Revenue, Series B, Prerefunded
08/15/2003, 7.000%, 08/15/2011 (b) 4,380,000 4,682,746
St Louis County, MO, Regional Convention,
Revenue, Series C, 7.900%, 08/15/2021 240,000 253,373
St Louis County, MO, Regional Convention,
Revenue, Series C, Prerefunded
08/15/2003, 7.900%, 08/15/2021 (b) 4,760,000 5,218,483
St Louis, MO, Tax Increment Revenue, Tax
Allocation, Series A, 10.000%, 08/01/2010 7,675,000 9,094,952
---------------------------------------------------------------------------------------------------------------------
MONTANA
Montana State Housing Board, Revenue,
Single Family Mortgage, Series A-2,
6.150%, 06/01/2030 6,965,000 6,992,372
---------------------------------------------------------------------------------------------------------------------
NEBRASKA
Nebraska Investment Finance Authority
Single, Revenue, Series A, 6.700%,
09/01/2026 3,520,000 3,589,837
Omaha, NE, Public Power Revenue, Series B,
6.200%, 02/01/2017*** 4,700,000 5,053,440
Scotts Bluff County, NE, Hospital
Authority, Revenue, 6.450%, 12/15/2004 1,755,000 1,811,529
Scotts Bluff County, NE, Hospital
Authority, Revenue, Prerefunded
12/15/2002, 6.450%, 12/15/2004 (b) 1,675,000 1,762,669
---------------------------------------------------------------------------------------------------------------------
NEVADA
Clark County, NV, Industrial Development
Revenue, Refunded, Nevada Power Company
Project, Series B, 5.900%, 10/01/2030 5,000,000 4,384,000
Humboldt County, NV, Pollution Control,
Revenue, Idaho Power Company Project,
8.300%, 12/01/2014 9,650,000 10,743,248
Reno, NV, Redevelopment Agency Tax
Allocation, Series E, Prerefunded
09/01/2003, 5.650%, 09/01/2013 (b) 3,145,000 3,245,388
Reno, NV, Redevelopment Agency Tax
Allocation, Series E, Prerefunded
09/01/2003, 5.750%, 09/01/2017 (b) 4,020,000 4,160,821
---------------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE
New Hampshire Higher Educational & Health
Facilities, Revenue, Havenwood Heritage
Heights, 7.350%, 01/01/2018 2,500,000 2,552,750
New Hampshire Higher Educational & Health
Facilities, Revenue, Havenwood Heritage
Heights, 7.450%, 01/01/2025 4,000,000 4,072,200
---------------------------------------------------------------------------------------------------------------------
NEW JERSEY
Atlantic City, NJ, Board of Education,
General Obligation, 6.000%, 12/01/2013
(c) 4,600,000 4,958,754
Atlantic City, NJ, Board of Education,
General Obligation, 6.100%,
12/01/2014 (c) 4,500,000 4,877,370
Elizabeth, NJ, General Obligation, Zero
Coupon, 08/01/2005 (c) 6,250,000 4,771,625
</TABLE>
The accompanying notes are an integral part of the financial statements. 23
<PAGE> 24
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Essex County, NJ, Improvement Authority
Revenue, Property & Equipment Project,
6.500%, 12/01/2012 (c) $ 4,050,000 $ 4,275,261
Essex County, NJ, Improvement Authority
Revenue, Jail & Youth Housing Projects,
Prerefunded 12/1/2004, 6.900%, 12/01/2014
(b), (c) 2,645,000 2,914,023
Jersey City, NJ, Sewer Authority Sewer,
Revenue, 4.500%, 01/01/2019 (c) 13,000,000 11,115,780
New Jersey Economic Development Authority,
Revenue, Series A, 5.875%, 05/01/2014 (c) 5,000,000 5,210,400
New Jersey Economic Development Authority,
Revenue, Series A, 6.000%, 05/01/2016 (c) 3,000,000 3,124,440
New Jersey Economic Development Authority,
Economic Development Revenue, United
Methodist Homes, 5.500%, 07/01/2019 2,500,000 2,034,975
New Jersey Economic Development Authority,
Revenue, United Methodist Homes, 5.750%,
07/01/2029 9,500,000 7,590,880
New Jersey Economic Development Authority
Revenue, Harrogate Inc., Series A,
5.875%, 12/01/2026 1,000,000 854,720
New Jersey Health Care Facilities, Revenue,
Atlantic City Medical Center, Series C,
6.800%, 07/01/2011 6,840,000 7,168,388
New Jersey Health Care Facilities, Revenue,
West Jersey Health Systems, Prerefunded
07/01/2002, 6.125%, 07/01/2012 (b) 11,000,000 11,534,270
New Jersey Health Care Facilities, Revenue,
Southern Ocean County Hospital, Series A,
6.125%, 07/01/2013 3,735,000 3,456,780
New Jersey State Transportation Trust Fund
Authority, Transportation System, Series
A, 5.625%, 06/15/2014** 2,000,000 2,068,180
New Jersey State Transportation Trust Fund
Authority, Residual Certificates, Series
224, 7.440%, 06/15/2016 11,000,000 11,715,990
New Jersey State Transportation Trust Fund
Authority, Transportation System, Series
A, 5.000%, 06/15/2017 21,660,000 20,268,778
New Jersey State Turnpike Authority,
Revenue, 10.375%, 01/01/2003*** 1,450,000 1,588,069
New Jersey State Turnpike Authority,
Revenue, Series A, 6.200%, 01/01/2012 10,000,000 10,388,900
New Jersey State Turnpike Authority,
Revenue, 9.139%, 01/01/2016 (c),** 21,170,000 26,001,841
New Jersey State Turnpike Authority,
Revenue, 9.139%, 01/01/2016 (c),** 3,830,000 4,704,159
New Jersey State Turnpike
Authority,Revenue, Series A, 6.500%,
01/01/2016 (c) 45,720,000 50,937,566
---------------------------------------------------------------------------------------------------------------------
NEW MEXICO
Albuquerque, NM, Hospital Revenue,
Southwest Community Health Services,
10.000%, 08/01/2003*** 675,000 736,850
Albuquerque, NM, Hospital Revenue,
Southwest Community Health Services,
Prerefunded 08/01/2008, 10.125%,
08/01/2012 (b) 4,000,000 5,043,040
Los Alamos County, NM, Utility Income,
Revenue, Series A, 6.100%, 07/01/2010 (c) 4,400,000 4,601,432
</TABLE>
24 The accompanying notes are an integral part of the financial statements.
<PAGE> 25
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
New Mexico Mortgage Finance Authority,
Revenue, Series E-2, 6.800%, 03/01/2031 $ 7,500,000 $ 7,981,200
Socorro, NM, Hospital System Revenue,
Southwest Community Health Services,
10.000%, 08/01/2003*** 905,000 987,925
---------------------------------------------------------------------------------------------------------------------
NEW YORK
Long Island Power Authority, Electric
System Revenue, General Obligation,
Series A, 5.125%, 12/01/2016 5,000,000 4,752,200
Metropolitan Transportation Authority of
New York, Transportation Facilities
Revenue, Series C, 5.125%, 07/01/2011 (c) 10,000,000 9,906,500
Monroe County, NY, Airport Authority,
Airport Revenue, 8.928%, 01/01/2014** 2,005,000 2,125,861
Monroe County, NY, Airport Authority,
Airport Revenue, 8.925%, 01/01/2015** 2,515,000 2,653,275
Monroe County, NY, Airport Authority,
Airport Revenue, 9.215%, 01/01/2016** 1,915,000 2,066,706
New York & New Jersey Port Authority,
Revenue, Series 8, 6.500%, 10/15/2008 5,390,000 5,606,948
New York & New Jersey Port Authority,
Revenue, Series 6, 6.000%, 07/01/2013 6,555,000 6,776,035
New York & New Jersey Port Authority,
Revenue, Series 6, 6.000%, 07/01/2015 2,500,000 2,560,950
New York & New Jersey Port Authority,
Special Obligation, Revenue, Continental/
Eastern Project, Laguardia, 9.125%,
12/01/2015 3,150,000 3,280,914
New York City, NY, Transitional Finance
Authority, Revenue, Series A, 5.250%,
11/15/2013 4,500,000 4,458,735
New York City, NY, Industrial Development
Agency Revenue, USTA National Tennis
Center Project, 6.600%, 11/15/2011 3,000,000 3,231,840
New York Metropolitan Transportation
Authority, Inverse Floating Rate Bond,
Series B, 6.236%, 07/01/2011** 2,500,000 2,382,200
New York Metropolitan Transportation
Authority, Revenue, Series Q, 5.125%,
07/01/2012 (c) 7,750,000 7,618,017
New York Metropolitan Transportation
Authority, Revenue, Series O, 6.250%,
07/01/2014 6,000,000 6,407,520
New York Metropolitan Transportation
Authority, Revenue, Series A, 6.000%,
04/01/20 5,000,000 5,260,450
New York State Dormitory Authority, City
University, Revenue, 5.750%, 07/01/2013
(c) 5,500,000 5,794,635
New York State Dormitory Authority,
Revenue, State University Educational
Facilities, Revenue, Prerefunded
05/15/2002, 7.250%, 05/15/2018 (b) 440,000 470,862
New York State Dormitory Authority,
Revenue, State University Educational
Facilities, Revenue, Prerefunded
05/15/02, 7.250%, 05/15/2018 (b) 3,370,000 3,606,372
New York State Dormitory Authority Revenue,
Mental Health Services Facilities, Series
C, 5.125%, 02/15/2011 (c) 5,770,000 5,712,819
</TABLE>
The accompanying notes are an integral part of the financial statements. 25
<PAGE> 26
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
New York State Dormitory Authority Revenue,
City University System, 6.000%,
07/01/2014 (c) $ 7,000,000 $ 7,517,860
New York State Dormitory Authority Revenue,
City University Systems, 5.000%,
07/01/2016 (c) 5,000,000 4,669,550
New York State Dormitory Authority Revenue,
State Universities Educational
Facilities, Series B, 5.000%, 05/15/2018
(c) 7,000,000 6,454,070
New York State Environment Facilities
Corporation Revenue, Pollution Control,
Prerefunded 06/15/2004, 6.875%,
06/15/2014 (b) 6,815,000 7,424,057
New York State Environmental Facilities
Corporation, State Water Pollution
Control, Revolving Fund Revenue, Series
A, 7.250%, 06/15/2010 480,000 504,101
New York State Environmental Facilities
Corporation, State Water Pollution,
Revolving Fund Revenue, Series A,
Prerefunded 06/15/2001, 7.250%,
06/15/2010 (b) 4,520,000 4,756,848
New York State Environmental Facilities
Corporation Revenue, Pollution Control,
Series C, 7.200%, 03/15/2011 2,500,000 2,555,425
New York State Environmental Facilities
Corporation Revenue, Pollution Control,
6.875%, 06/15/2014 4,560,000 4,890,007
New York State Local Assistance
Corporation, Revenue, Series B,
Prerefunded 04/01/2001, 7.375%,
04/01/2012 (b) 2,675,000 2,809,044
New York State Local Assistance
Corporation, Revenue, Series B,
Prerefunded 04/01/2001, 7.500%,
04/01/2020 (b) 7,000,000 7,359,310
New York State Medical Care Facilities
Financial Agency Revenue, Series D,
Prerefunded 02/15/2003, 6.450%,
02/15/2009 (b) 8,125,000 8,601,044
New York State Medical Care Facilities
Financial Agency Revenue, Prerefunded
02/15/2000, 7.750%, 08/15/2010 (b) 980,000 1,002,256
New York State Medical Care Facilities
Financial Agency Revenue, Series A,
Prerefunded 02/15/2005, 6.750%,
08/15/2014 (b) 8,000,000 8,773,200
New York State Thruway Authority, Service
Contract Revenue, Local Highway &
Bridges, Series A, 5.375%, 04/01/2010 (c) 31,740,000 32,305,289
New York State Thruway Authority Revenue,
Local Highway & Bridge, 5.625%,
04/01/2012 (c) 5,470,000 5,646,681
New York State Thruway Authority Revenue,
Local Highway & Bridge, Series B, 5.375%,
04/01/2013 (c) 17,750,000 17,859,163
New York State Thruway Authority Revenue,
Local Highway & Bridge, 5.500%,
04/01/2017 (c) 4,000,000 3,980,360
New York State Urban Development
Corporation, Correctional Facilities
Service Contract Revenue, Series B,
5.250%, 01/01/2012 (c) 3,150,000 3,137,432
</TABLE>
26 The accompanying notes are an integral part of the financial statements.
<PAGE> 27
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
New York State Urban Development
Corporation, State Facilities, Revenue,
5.600%, 04/01/2015 $ 4,655,000 $ 4,677,996
New York State Urban Development
Corporation, State Facilities, Revenue,
5.700%, 04/01/2020 3,600,000 3,590,208
New York, NY, General Obligation, Series D,
8.000%, 08/01/2000 (b),*** 7,745,000 7,843,129
New York, NY, General Obligation, Series D,
8.000%, 08/01/2000 250,000 253,130
New York, NY, General Obligation,
Prerefunded 11/15/2001, 8.400%,
11/15/2005 (b) 4,250,000 4,562,205
New York, NY, General Obligation, Series F,
8.400%, 11/15/2005 235,000 251,079
New York, NY, General Obligation, Series F,
8.400%, 11/15/2006 625,000 667,762
New York, NY, General Obligation, Series F,
Prerefunded 11/15/2001, 8.400%,
11/15/2006 (b) 6,375,000 6,843,307
New York, NY, General Obligation, Series H,
7.000%, 02/01/2007 240,000 251,705
New York, NY, General Obligation, Series H,
Prerefunded 02/01/2002, 7.000%,
02/01/2007 (b) 2,760,000 2,909,785
New York, NY, General Obligation, Series F,
Prerefunded 11/15/2001, 8.400%,
11/15/2007 (b) 6,335,000 6,800,369
New York, NY, General Obligation, Series F,
Prerefunded 11/15/2001, 8.400%,
11/15/2008 (b) 11,000,000 11,808,060
New York, NY, General Obligation, Series G,
Zero Coupon, 08/01/2009 (c) 19,100,000 11,727,209
New York, NY, General Obligation, Series F,
Prerefunded 11/15/2001, 8.400%,
11/15/2009 (b) 1,050,000 1,127,133
New York, NY, General Obligation, Series J,
5.250%, 05/15/2011 10,000,000 9,904,000
New York, NY, General Obligation, Series H,
5.500%, 08/01/2013 5,000,000 5,021,100
New York, NY, General Obligation, Series F,
5.250%, 08/01/2015 (c) 5,000,000 4,868,700
New York, NY, General Obligation, Series A,
7.750%, 08/15/2015 92,000 96,881
New York, NY, General Obligation, Series A,
Prerefunded 08/15/2001, 7.750%,
08/15/2015 (b) 3,408,000 3,604,233
New York, NY, Series C, 5.388%, 11/15/2017
(c) 4,000,000 3,923,880
New York, NY, Series G, 5.000%, 08/01/2018 4,750,000 4,277,042
New York, NY, General Obligation, Series J,
5.875%, 02/15/2019 16,060,000 16,149,133
New York, NY, City Industrial Development
Agency Revenue, USTA National Tennis
Center Project, 6.500%, 11/15/2010 3,485,000 3,740,137
New York, NY, City Municipal Water
Financial Authority, Revenue, Water &
Sewer Systems, 7.000%, 06/15/2015 740,000 769,607
New York, NY, City Municipal Water
Financial Authority, Revenue, Water &
Sewer Systems, Prerefunded 06/15/2001,
7.000%, 06/15/2015 (b) 230,000 239,202
</TABLE>
The accompanying notes are an integral part of the financial statements. 27
<PAGE> 28
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
New York, NY, City Municipal Water
Financial Authority, Revenue, Water &
Sewer Systems, Prerefunded 06/15/2001,
7.000%, 06/15/2015 (b) $ 530,000 $ 551,205
New York, NY, City Transitional Financial
Authority Revenue, Series C, 5.000%,
05/01/2018 4,875,000 4,490,168
---------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA
Durham County, NC, Certificates of
Participation, Jail Facilities & Computer
Equipment Project, Prerefunded
08/01/2008, 6.625%, 05/01/2014 (b) 5,500,000 5,740,020
North Carolina Eastern Municipal Power
Agency Revenue, Series B, 6.000%,
01/01/2022 18,775,000 19,339,564
North Carolina Municipal Power Agency
Revenue, Catawba Electric, Series A,
5.500%, 01/01/2014 3,660,000 3,668,418
State of North Carolina, General
Obligation, Public School Building,
4.600%, 04/01/2012 10,000,000 9,342,900
State of North Carolina, General
Obligation, Public School Building,
4.600%, 04/01/2013 16,500,000 15,236,265
---------------------------------------------------------------------------------------------------------------------
NORTH DAKOTA
North Dakota State Financial Agency
Revenue, Single Family Mortgage, Series
A, 8.050%, 01/01/2024 480,000 488,453
---------------------------------------------------------------------------------------------------------------------
OHIO
Clermont County, OH, Hospital Facilities
Revenue, Mercy Health Center, Series A,
Prerefunded 09/01/2019, 7.500%,
09/01/2019 (b), (c) 2,280,000 2,372,044
Cleveland, OH, Public Power System Revenue,
Prerefunded, Series A, 7.000%, 11/15/2017
(b) 510,000 538,371
Cleveland, OH, Public Power System Revenue,
Unrefunded Balance, Series A, 7.000%,
11/15/2017 340,000 357,272
Cleveland, OH, Waterworks Revenue, Series
B, 6.500%, 01/01/2011 (c) 385,000 403,110
Cleveland, OH, Waterworks Revenue, Series
B, Prerefunded 01/01/2002, 6.500%,
01/01/2011 (b), (c) 4,195,000 4,401,394
Cleveland-Cuyahoga County, OH, Port
Development Revenue, C&P Docks Project,
6.000%, 03/01/2007 1,205,000 1,163,343
Cuyahoga County, OH, Hospital Revenue,
Meridia Health System, Prerefunded
08/15/2005, 6.250%, 08/15/2014 (b) 7,050,000 7,604,765
Dublin, OH, City School District, General
Obligation, Zero Coupon, 12/01/2010 (c) 500,000 282,930
Green Springs, OH, Health Care, Revenue, St
Francis Health Care Center Project,
Series A, 7.000%, 05/15/2014 4,235,000 3,709,267
Green Springs, OH, Health Care, Revenue, St
Francis Health Care Center Project,
Series A, 7.125%, 05/15/2025 4,405,000 3,723,855
Lucas County, OH, Health Facilities
Revenue, Ohio Presbyterian, Series A,
6.625%, 07/01/2014 2,000,000 1,932,760
</TABLE>
28 The accompanying notes are an integral part of the financial statements.
<PAGE> 29
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Lucas County, OH, Health Facilities
Revenue, Ohio Presbyterian, Series A,
6.750%, 07/01/2020 $ 2,000,000 $ 1,913,760
Marion County, OH, Health Care Facilities,
Revenue, Church Homes Project, 6.375%,
11/15/2010 3,720,000 3,535,414
Marion County, OH, Health Care Facilities,
Revenue, Church Homes Project, 6.300%,
11/15/2015 2,950,000 2,676,152
Ohio Housing Finance Agency, GNMA Single
Family Mortgage Revenue, Prerefunded
01/15/2013, Zero Coupon, 01/15/2015 (b) 3,360,000 1,366,008
Ohio Housing Finance Agency, Single Family
Mortgage Revenue, Zero Coupon,
Prerefunded 07/15/2013, 01/15/2015 (b) 3,515,000 1,461,713
Ohio State Building Authority, Revenue,
Adult Correctional Facilities, Series A,
5.500%, 10/01/2012 5,705,000 5,830,567
Ohio State Water Development Authority,
Revenue, Bay Shore Project, Series A,
5.875%, 09/01/2020 3,550,000 2,929,212
Springdale, OH, Hospital Facilities
Revenue, 6.000%, 11/01/2018 1,250,000 1,120,463
State of Ohio, General Obligation, Zero
Coupon, 09/01/2007 7,125,000 4,868,940
Toledo, OH, Waterworks Revenue, 4.750%,
11/15/2017 (c) 1,000,000 896,710
Willoughby, OH, Industrial Development
Revenue, Series A, 6.875%, 07/01/2016 2,250,000 2,202,368
Worthington, OH, City School District,
General Obligation, 6.375%, 12/01/2012 6,210,000 6,498,020
---------------------------------------------------------------------------------------------------------------------
OKLAHOMA
Grand River Dam Authority Revenue,
Refunded, 6.250%, 06/01/2011 (c) 32,250,000 35,360,835
Oklahoma Valley View Hospital Authority,
Revenue, 5.750%, 08/15/2006 3,905,000 3,786,600
Oklahoma Valley View Hospital Authority,
Revenue, 6.000%, 08/15/2014 2,695,000 2,442,775
Woodward, OK, Municipal Authority, Hospital
Revenue, 6.450%, 11/01/2014 2,070,000 1,952,590
---------------------------------------------------------------------------------------------------------------------
OREGON
Portland, OR, Portland Airport, Inverse
Floating Rate Bond, Series A, 7.200%,
07/01/2010** 2,390,000 2,582,921
Portland, OR, Portland Airport, Inverse
Floating Rate Bond, Series B, 7.200%,
07/01/2011** 2,530,000 2,709,832
Portland, OR, Portland Airport, Inverse
Floating Rate Bond, Series C, 7.200%,
07/01/2012** 2,675,000 2,839,513
Portland, OR, Portland Airport, Inverse
Floating Rate Bond, Series D, 7.200%,
07/01/2013** 2,675,000 2,701,536
---------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA
Allegheny County, PA, Airport, Inverse
Floating Rate Bond, Series A, 7.407%,
01/01/2010** 3,000,000 3,196,020
Allegheny County, PA, Airport, Inverse
Floating Rate Bond, Series B, 7.407%,
01/01/2011** 1,500,000 1,593,150
Allegheny County, PA, Airport, Inverse
Floating Rate Bond, Series C, 7.416%,
01/01/2013** 3,160,000 3,329,060
</TABLE>
The accompanying notes are an integral part of the financial statements. 29
<PAGE> 30
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Allegheny County, PA, Airport, Inverse
Floating Rate Bond, Series D, 7.407%,
01/01/2014** $ 5,250,000 $ 5,484,675
Armstrong County, PA, Hospital Authority,
Revenue, St Francis Medical Center
Project, Series A, 6.250%, 06/01/2013 (c) 11,350,000 11,766,659
Erie, PA, General Obligation, Series B,
Zero Coupon, 11/15/2007 2,205,000 1,478,849
Erie, PA, General Obligation, Series B,
Zero Coupon, 11/15/2008 5,055,000 3,179,595
Hazleton, PA, Health Services Authority,
Hospital Revenue, Hazelton-St Joseph
Medical Center, 6.125%, 07/01/2016 3,780,000 3,342,805
Jeannette, PA, Health Service Authority,
Revenue, Jeannette District Memorial
Hospital, Series A, 6.000%, 11/01/2018 945,000 840,785
Lehigh County, PA, General Purpose
Authority, Revenue, Lehigh Valley
Hospital, Series A, Prerefunded
07/01/2002, 6.500%, 07/01/2010 (b)(c) 6,000,000 6,336,240
Mckean County, PA, Hospital Authority,
Revenue, Bradford Hospital, 5.950%,
10/01/2008 2,800,000 2,837,576
Mckean County, PA, Hospital Authority,
Revenue, Bradford Hospital, 6.100%,
10/01/2020 5,500,000 5,374,985
Montgomery County, PA, Industrial
Development Authority, Revenue,
Retirement-Life Communities, 5.250%,
11/15/2028 4,000,000 3,117,360
New Castle, PA, Area Hospital Authority,
Revenue, Jameson Memorial Hospital,
6.000%, 07/01/2010 845,000 892,945
Pennsylvania Convention Center Authority
Revenue, Series A, 6.700%, 09/01/2014 3,750,000 3,906,675
Pennsylvania Convention Center Authority
Revenue, 6.750%, 09/01/2019 8,775,000 9,071,156
Pennsylvania Intergovernmental
Cooperational Authority, Inverse Floating
Rate Bond, 6.370%, 06/15/2013** 2,225,000 2,176,629
Pennsylvania Intergovernmental
Cooperational Authority, Inverse Floating
Rate Bond, 6.370%, 06/15/2014** 2,500,000 2,399,150
Pennsylvania Intergovernmental
Cooperational Authority, Inverse Floating
Rate Bond, 6.370%, 06/15/2015** 2,250,000 2,118,915
Pennsylvania State Higher Educational
Facility, Revenue, Ursinus College,
5.850%, 01/01/2017 1,475,000 1,429,865
Pennsylvania State Higher Educational
Facility, Revenue, Ursinus College,
5.900%, 01/01/2027 3,400,000 3,222,282
Pennsylvania State Industrial Development
Authority, Revenue, Series A, Prerefunded
01/01/2011, 7.000%, 01/01/2011 (b) 5,000,000 5,249,100
Philadelphia, PA, Gas Works Revenue, Series
13, Prerefunded 06/15/2011, 7.700%,
06/15/2011 (b) 5,485,000 5,799,236
Philadelphia, PA, Gas Works Revenue, Series
13, Prerefunded 06/15/2011, 7.700%,
06/15/2011 (b) 2,515,000 2,655,714
Philadelphia, PA, Gas Works Revenue, Series
14, 6.375%, 07/01/2014 21,045,000 21,464,637
</TABLE>
30 The accompanying notes are an integral part of the financial statements.
<PAGE> 31
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Philadelphia, PA, Gas Works Revenue, Series
14, Prerefunded 07/01/2003, 6.375%,
07/01/2014 (b) $10,035,000 $ 10,648,339
Philadelphia, PA, Gas Works Revenue, Series
13, Prerefunded 06/15/2001, 7.700%,
06/15/2021 (b) 6,850,000 7,242,437
Philadelphia, PA, Municipal Authority
Revenue, Series D, 6.250%, 07/15/2013 2,500,000 2,527,700
Philadelphia, PA, Municipal Authority
Revenue, Series D, 6.300%, 07/15/2017 2,300,000 2,309,959
Philadelphia, PA, Municipal Authority
Revenue, Prerefunded 04/01/2000, 7.800%,
04/01/2018 (b) 3,635,000 3,635,000
State of Pennsylvania, First Series,
5.000%, 03/01/2017 3,000,000 2,781,480
---------------------------------------------------------------------------------------------------------------------
PUERTO RICO
Puerto Rico Commonwealth, Rites, 10.574%,
07/01/2013 (c),** 2,500,000 2,926,650
---------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA
Charleston County, SC, Certificates of
Participation, Series B, 6.875%,
06/01/2014 (c) 240,000 257,758
Charleston County, SC, Certificates of
Participation, Series B, Prerefunded
06/01/2004, 6.875%, 06/01/2014 (b), (c) 4,875,000 5,327,644
Charleston County, SC, Certificates of
Participation, Series B, 7.000%,
06/01/2019 (c) 115,000 123,592
Charleston County, SC, Certificates of
Participation, Series B, Prerefunded
06/01/2004, 7.000%, 06/01/2019 (b), (c) 2,385,000 2,617,585
Darlington County, SC, Pollution Control
Revenue, Power and Light, 6.600%,
11/01/2010 (c) 7,500,000 7,977,525
Grand Strand, SC, Water & Sewer Authority,
Revenue, 6.375%, 06/01/2012 5,000,000 5,548,200
South Carolina Jobs and Economic
Development Authority, Hospital
Facilities Revenue, 7.375%, 12/15/2021 3,000,000 2,953,320
South Carolina State Public Services
Authority, Revenue, Series A, 6.250%,
01/01/2022 7,000,000 7,226,660
---------------------------------------------------------------------------------------------------------------------
TENNESSEE
Metropolitan Nashville, TN, Airport
Authority, Revenue, 5.000%, 07/01/2014 4,560,000 4,342,898
Metropolitan Nashville, TN, Airport
Authority, Revenue, Series C, 6.600%,
07/01/2015 5,250,000 5,461,470
Shelby County, TN, General Obligation, Zero
Coupon, 08/01/2012 3,410,000 1,752,672
Shelby County, TN, General Obligation, Zero
Coupon, 08/01/2013 3,440,000 1,664,375
Shelby County, TN, General Obligation, Zero
Coupon, 08/01/2014 4,965,000 2,255,947
Tennessee Housing Development Agency
Mortgage Financial, Revenue, Series A,
7.050%, 07/01/2020 17,770,000 18,265,428
Tennessee Housing Development Agency
Mortgage Financial, Revenue, Series A,
7.125%, 07/01/2026 2,240,000 2,302,899
</TABLE>
The accompanying notes are an integral part of the financial statements. 31
<PAGE> 32
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
TEXAS
Abilene, TX, Health Facilities Development
Corporation Revenue, Retirement
Facilities, 5.875%, 11/15/2018 $ 3,250,000 $ 2,757,333
Austin, TX, Bergstrom Landhost Enterprises,
Revenue, Series A, 6.750%, 04/01/2027 17,785,000 16,338,190
Austin, TX, Utility Systems Revenue,
6.000%, 11/15/2013 (c) 9,500,000 10,200,910
Austin, TX, Water, Sewer and Electric
Revenue, 14.000%, 11/15/2001*** 20,000 21,276
Austin, TX, Water, Sewer and Electric
Revenue, 14.000%, 11/15/2001 195,000 213,605
Austin, TX, Water, Sewer and Electric
Revenue, 14.000%, 11/15/2001 1,415,000 1,524,394
Boerne, TX, Independent School District,
General Obligation, Zero Coupon,
02/01/2014 2,785,000 1,283,328
Boerne, TX, Independent School District,
General Obligation, Zero Coupon,
02/01/2016 3,285,000 1,326,516
Ector County, TX, Hospital District,
Hospital Revenue, Prerefunded 04/15/2012,
7.300%, 04/15/2012 (b) 550,000 587,395
El Paso, TX, Independent School District,
General Obligation, Zero Coupon,
08/15/2011 3,600,000 1,923,120
Georgetown, TX, Higher Education Finance,
Revenue, Southwestern University Project,
6.250%, 02/15/2009 840,000 871,702
Grapevine-Colleyville, TX, General
Obligation, Zero Coupon, 08/15/2007 6,065,000 4,121,349
Grapevine-Colleyville, TX, General
Obligation, Zero Coupon, 08/15/2009 6,360,000 3,845,828
Grapevine-Colleyville, TX, General
Obligation, Zero Coupon, 08/15/2010 2,160,000 1,232,885
Grapevine-Colleyville, TX, General
Obligation, Zero Coupon, 08/15/2011 4,830,000 2,597,381
Grapevine-Colleyville, TX, General
Obligation, Zero Coupon, 08/15/2013 1,000,000 474,710
Harris County, TX, Revenue, Toll Road,
Prerefunded 08/01/2001, 6.750%,
08/01/2014 (b) 15,000,000 15,669,000
Houston, TX, Airport System Revenue, Series
B, 5.250%, 07/01/2011 (c) 16,020,000 15,798,123
Houston, TX, Airport System Revenue,
Refunded, Series A, 6.000%, 07/01/2014
(c) 5,030,000 5,202,630
Houston, TX, Higher Education Finance
Corporation, Revenue, University of Saint
Thomas Project, 7.250%, 12/01/2007 1,445,000 1,507,872
Houston, TX, Independent School District,
General Obligation, Series A, Zero
Coupon, 02/15/2010 8,500,000 4,922,690
Houston, TX, Independent School District,
General Obligation, Series A, Zero
Coupon, 02/15/2011 3,750,000 2,044,050
Houston, TX, Independent School District,
General Obligation, Series A, Zero
Coupon, 02/15/2015 26,000,000 11,125,400
Houston, TX, Water & Sewer System Revenue,
Capital Appreciation, Refunded, Series A,
Zero Coupon, 12/01/2019 (c) 20,000,000 6,301,200
</TABLE>
32 The accompanying notes are an integral part of the financial statements.
<PAGE> 33
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Lubbock, TX, Health Facilities Development,
Revenue, Saint Joseph Health Systems,
5.250%, 07/01/2014 $ 2,500,000 $ 2,371,150
Rio Grande Valley, TX, Health Facilities
Development, Revenue, Series B, 6.400%,
08/01/2012 3,700,000 3,873,789
Round Rock, TX, Independent School
District, General Obligation, Zero
Coupon, 08/01/2008 5,020,000 3,222,689
State of Texas, General Obligation, Public
Financial Authority, Zero Coupon,
10/01/2013 4,000,000 1,915,320
State of Texas, General Obligation, Water
Financial Assistance, A & C, 5.000%,
08/01/2014 (c) 7,570,000 7,222,688
State of Texas, General Obligation, Public
Financial Authority, Zero Coupon,
10/01/2014 6,000,000 2,697,540
State of Texas, General Obligation, Amt-
Veterans Land, 6.400%, 12/01/2024 8,550,000 8,734,595
Texas General Obligation, 7.000%,
09/15/2012 9,536,791 9,855,224
Texas Housing Agency Mortgage Revenue,
Series A, 7.150%, 09/01/2012 685,000 709,441
Texas Municipal Power Agency Revenue,
Capital Appreciation, Refunded, Zero
Coupon, 09/01/2017 (c) 5,000,000 1,837,800
Texas State Department Housing & Community
Affairs, Revenue, Series A, 6.400%,
01/01/2027 3,350,000 3,410,166
Texas State Turnpike Authority Dallas
North, Revenue, President George Bush
Turnpike, Zero Coupon, 01/01/2010 3,000,000 1,777,650
Texas Water Development Board Revenue,
Series A, 5.750%, 07/15/2014 3,500,000 3,599,820
Texas Water Development Board Revenue,
5.250%, 07/15/2017 10,000,000 9,620,000
Texas Water Development Board Revenue,
Revolving Fund, Series A, 5.750%,
07/15/2017 3,800,000 3,852,858
Texas, Sabine River Pollution Authority,
Revenue, Southwestern Electric Power,
6.100%, 04/01/2018 30,200,000 31,029,896
Titus County, TX, Hospital District
Revenue, Revenue, 6.125%, 08/15/2013 6,700,000 6,198,304
Travis County, TX, Housing Financial
Corporation Revenue, Series A, 7.000%,
12/01/2011 250,000 257,868
Waxahachie, TX, Independent School
District, General Obligation, Zero
Coupon, 08/15/2009 3,120,000 1,893,528
Waxahachie, TX, Independent School
District, General Obligation, Zero
Coupon, 08/15/2012 4,120,000 2,092,878
Waxahachie, TX, Independent School
District, General Obligation, Zero
Coupon, 08/15/2013 2,060,000 982,991
---------------------------------------------------------------------------------------------------------------------
UTAH
Utah State Housing Financial Agency,
Revenue, Series D, 8.625%, 01/01/2019 55,000 56,414
West Valley City, UT, Excise Tax Revenue,
10.625%, 07/01/2004 (c)*** 660,000 742,540
</TABLE>
The accompanying notes are an integral part of the financial statements. 33
<PAGE> 34
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
VIRGIN ISLANDS
Virgin Islands Public Financial Authority
Revenue, Series A, Prerefunded
10/01/2002, 7.250%, 10/01/2018 (b) $ 3,000,000 $ 3,252,660
---------------------------------------------------------------------------------------------------------------------
VIRGINIA
Fairfax County, VA, Economic Development
Authority Revenue, Retirement Community,
Series A, 7.500%, 10/01/2029 7,100,000 6,887,284
Richmond, VA, General Obligation, Series B,
6.250%, 01/15/2018 2,665,000 2,715,422
Virginia Commonwealth Transportation Board,
Transportation Revenue, U.S Route 58
Corridor Development Program, Series B,
5.250%, 05/15/2016 9,165,000 8,945,407
Virginia Commonwealth Transportation Board,
Transportation Revenue, U.S Route 58
Corridor Development Program, Series B,
5.250%, 05/15/2017 9,645,000 9,342,726
Virginia State Resources Authority, Clean
Water Revenue, Revolving Fund, 6.000%,
10/01/2016 2,715,000 2,843,148
Washington DC Metropolitan, VA, Airport
Revenue, Series A, 7.600%, 10/01/2014 3,000,000 3,100,440
---------------------------------------------------------------------------------------------------------------------
WASHINGTON
King County, WA, General Obligation, Series
B, 6.625%, 12/01/2015 9,845,000 10,785,788
Spokane County, WA, School District,
General Obligation, Series B, Zero
Coupon, 12/01/2014 (c) 2,500,000 1,093,225
Washington State Public Power Supply,
Series C, 5.375%, 07/01/2015 5,410,000 5,283,027
---------------------------------------------------------------------------------------------------------------------
WISCONSIN
Kenosha, WI, General Obligation, Series B,
Zero Coupon, 10/15/2008 (c) 6,885,000 4,324,882
Wisconsin State Health & Educational
Facilities, Revenue, Series B, 5.625%,
02/15/2029 7,225,000 5,840,762
Wisconsin State Health & Educational
Facilities Authority, Revenue Bond,
Aurora Health Care Inc., Series A,
5.600%, 02/15/2029 17,800,000 14,328,822
---------------------------------------------------------------------------------------------------------------------
WYOMING
Wyoming Community Development Authority,
Revenue, Single Family Mortgage, Series
B, 8.125%, 06/01/2021 250,000 255,130
Wyoming Community Development Authority
Housing, Revenue, Series 2, 6.350%,
06/01/2029 4,090,000 4,140,512
----------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS TOTAL
(Cost: $2,491,881,869) 2,548,612,311
----------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100%
(Cost $2,568,326,869) $2,625,057,311
----------------------------------------------------------------------------------
</TABLE>
34 The accompanying notes are an integral part of the financial statements.
<PAGE> 35
PORTFOLIO OF INVESTMENTS
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost for federal tax purposes was $2,568,326,869. At March 31, 2000,
net unrealized appreciation for all securities based on tax cost was
$56,730,442 . This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $93,222,687 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$36,492,245.
(b) Prerefunded: Bonds which are prerefunded are collateralized by U.S.
Treasury securities which are held in escrow and are used to pay principal
and interest on tax-exempt issues and to retire the bonds in full at the
earliest refunding date.
(c) Bond is insured by one of these companies: AMBAC, FGIC, Capital Guaranty,
FSA, or MBIA/BIG.
* Floating rate and monthly, weekly, or daily demand notes are securities
whose yields vary with a designated market index or market rate, such as the
coupon-equivalent of the U.S. Treasury bill rate. Variable rate demand notes
are securities whose yields are periodically reset at levels that are
generally comparable to tax-exempt commercial paper. These securities are
payable on demand within seven calendar days and normally incorporate an
irrevocable letter of credit from a major bank. These notes are carried, for
purposes of calculating average weighted maturity, at the longer of the
period remaining until the next rate change or to the extent of the demand
period.
** Inverse floating rate notes are instruments whose yields may change based on
the change in the relationship between long-term and short-term interest
rates and which exhibit added interest rate sensitivity compared to other
bonds with a similar maturity. These securities are shown at their rate as
of March 31, 2000.
*** ETM: Bonds bearing the description ETM (escrowed to maturity) are
collateralized by U.S. Treasury securities which are held in escrow by a
trustee and used to pay principal and interest on bonds so designated.
The accompanying notes are an integral part of the financial statements. 35
<PAGE> 36
PORTFOLIO OF INVESTMENTS
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
Portfolio of Investments at March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
LONG-TERM MUNICIPAL INVESTMENTS--100% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
ALASKA
Alaska Student Loan Corp., Revenue, Series A,
5.550%, 07/01/2010 $ 200,000 $ 200,988
---------------------------------------------------------------------------------------------------------------------
ARIZONA
Arizona Agriculture Improvement & Power
District, Electrical System Revenue, Series
A, 6.500%, 01/01/2007 500,000 517,600
Arizona State University, Revenue, Series A,
6.500%, 07/01/2001 85,000 87,104
Arizona Transportation Board, Highway Revenue,
Series B, 6.100%, 07/01/2002 70,000 72,192
Coconino County, AZ, Industrial Development
Authority, Revenue, Guidance Center Income
Project, Prerefunded 6/1/2001, 9.250%,
06/01/2011 (b) 275,000 292,562
Phoenix, AZ, Civic Improvement Corporation,
Revenue, 6.375%, 07/01/2005 495,000 527,922
---------------------------------------------------------------------------------------------------------------------
ARKANSAS
North Little Rock, AR, Electrical Revenue,
Series A, 6.000%, 07/01/2001 (c) 20,000 20,365
North Little Rock, AR, Electrical Revenue,
Series A, 6.150%, 07/01/2003 (c) 275,000 286,234
---------------------------------------------------------------------------------------------------------------------
CALIFORNIA
California Central Valley Financing Authority,
Revenue, Carson Ice Project, 6.000%,
07/01/2009 250,000 254,298
Sacramento, CA, Cogeneration, Revenue, Procter
& Gamble Project, 7.000%, 07/01/2004 200,000 212,804
San Joaquin Hills, CA, Transportation Corridor
Agency, Toll Road Revenue, Capital
Appreciation, Series 1997 A, Zero Coupon,
01/15/2012 (c) 825,000 445,030
---------------------------------------------------------------------------------------------------------------------
COLORADO
Arapahoe County, CO, Capital Improvements,
Revenue, Series E, Prerefunded 08/31/2005,
6.900%, 08/31/2015 (b) 300,000 335,685
---------------------------------------------------------------------------------------------------------------------
CONNECTICUT
Connecticut State, General Obligation, Series
B, 5.950%, 11/15/2000 5,000 5,057
---------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA
District of Columbia, General Obligation,
Series B, 5.500%, 06/01/2010 1,000,000 1,019,030
District of Columbia Redevelopment Land
Agency, Revenue, 5.625%, 11/01/2010 160,000 161,504
---------------------------------------------------------------------------------------------------------------------
FLORIDA
Broward County, FL, School District, General
Obligation, 6.000%, 02/15/2004 70,000 72,808
Orlando, FL, Special Assessment Revenue,
Conroy Road Interchange Project, Series B,
5.250%, 05/01/2005 225,000 215,082
---------------------------------------------------------------------------------------------------------------------
GEORGIA
Atlanta, GA, Airport Facilities Revenue,
6.500%, 01/01/2013 (c) 70,000 72,171
---------------------------------------------------------------------------------------------------------------------
HAWAII
Hawaii State, General Obligation, Series B,
7.250%, 11/01/2000 145,000 147,520
---------------------------------------------------------------------------------------------------------------------
ILLINOIS
Illinois Health Facilities Authority Revenue,
Franciscan Sisters Health Care, ETM, 6.250%,
09/01/2002 (c)* 350,000 362,016
McHenry & Lake Counties, IL, Certificate of
Participation, 6.125%, 12/01/2003 (c) 85,000 88,928
</TABLE>
36 The accompanying notes are an integral part of the financial statements.
<PAGE> 37
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
LONG-TERM MUNICIPAL INVESTMENTS--100% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
INDIANA
Johnson County, IN, Hospital Association,
Revenue, 6.500%, 07/01/2002 $ 300,000 $ 310,887
Purdue University, Indiana University Revenue,
Student Fee Service, Prerefunded 01/01/2005,
6.700%, 07/01/2015 (b) 250,000 274,520
---------------------------------------------------------------------------------------------------------------------
KENTUCKY
Lexington, KY, Fayette Urban County, Revenue,
University of Kentucky Alumni Association
Income Project, Prerefunded, 11/01/2004,
6.500%, 11/01/2009 (b)(c) 300,000 325,248
---------------------------------------------------------------------------------------------------------------------
LOUISIANA
Louisiana State, General Obligation, ETM,
Series A, 7.000%, 05/01/2001 * 300,000 308,508
---------------------------------------------------------------------------------------------------------------------
MAINE
Maine Health & Higher Educational Facilities,
Revenue, ETM, Series B, 6.300%, 07/01/2004 * 135,000 142,547
Maine Health & Higher Educational Facilities,
Revenue, Series B, 6.300%, 07/01/2004 25,000 26,368
Maine Health & Higher Educational Facilities,
Revenue, Series B, Prerefunded 7/01/2004,
6.500%, 07/01/2006 (b) 100,000 107,830
---------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS
Massachusetts Bay Transportation Authority,
Revenue, 6.500%, 03/01/2004 5,000 5,290
Massachusetts State Water Pollution, Revenue,
Series A, 6.200%, 02/01/2010 45,000 47,498
State of Massachusetts, General Obligation,
Series D, Prerefunded 07/01/2001, 7.000%,
07/01/2007 (b) 200,000 210,266
State of Massachusetts, General Obligation,
Series D, Prerefunded 07/01/2001, 7.000%,
07/01/2007 (b) 75,000 78,831
---------------------------------------------------------------------------------------------------------------------
MICHIGAN
Chippewa Valley, MI, School District, General
Obligation, 7.000%, 05/01/2001 350,000 359,839
Detroit, MI, General Obligation, Series A,
Prerefunded 4/1/2005, 6.700%, 04/01/2010 (b) 300,000 326,256
Grand Rapids, MI, Downtown Development
Revenue, Tax Allocation, 6.200%, 06/01/2004
(c) 175,000 183,769
Michigan Higher Educational Student Loan,
Revenue, 5.400%, 06/01/2006 250,000 251,608
Michigan State Building Authority Revenue,
ETM, Series I, 6.250%, 10/01/2000 * 5,000 5,053
Michigan State Building Authority Revenue,
Series I, 6.500%, 10/01/2004 160,000 170,326
Michigan State Hospital Financial Authority
Revenue, Gratiot Community Hospital, 6.100%,
10/01/2007 350,000 344,823
---------------------------------------------------------------------------------------------------------------------
MISSOURI
Missouri State Health & Educational
Facilities, Revenue, Lake Of The Ozarks
General Hospital, 5.500%, 02/15/2001 200,000 200,214
Missouri State Health & Educational
Facilities, Revenue, Lake Of The Ozarks
General Hospital, 6.000%, 300,000 296,985
---------------------------------------------------------------------------------------------------------------------
NEBRASKA
Nebraska Public Power District Revenue,
Nuclear Facility, 5.700%, 01/01/2004 50,000 51,376
---------------------------------------------------------------------------------------------------------------------
NEVADA
Clark County, NV, Highway Improvement Revenue,
Motor Vehicle Fuel Tax, 5.625%, 07/01/2002 70,000 71,399
Nevada State, General Obligation, Series A,
5.900%, 05/01/2001 250,000 254,075
</TABLE>
The accompanying notes are an integral part of the financial statements. 37
<PAGE> 38
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
LONG-TERM MUNICIPAL INVESTMENTS--100% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
NEW HAMPSHIRE
New Hampshire Higher Educational & Health
Facilities, Revenue, Havenwood Heritage
Heights, 7.100%, 01/01/2006 $ 165,000 $ 166,457
---------------------------------------------------------------------------------------------------------------------
NEW JERSEY
New Jersey Transportation Trust Fund, Revenue,
Series B, 6.500%, 06/15/2011 (c) 225,000 251,921
---------------------------------------------------------------------------------------------------------------------
NEW YORK
Long Island, NY, Power Authority New York
Electricity, Revenue, Series A, 5.500%,
12/01/2013 1,000,000 1,024,580
New York & New Jersey, Port Authority Special
Obligation, Revenue, Special Project, JFK
Terminal 6, 6.250%, 12/01/2008 (c) 500,000 540,015
New York City, NY, General Obligation, Series
D, 5.750%, 08/01/2003 110,000 112,818
New York City, NY, General Obligation, Series
B1, 6.500%, 08/15/2002 65,000 67,393
New York City, NY, General Obligation, ETM,
Series B1, 6.500%, 08/15/2002 * 25,000 26,005
New York City, NY, Industrial Development
Agency, Civil Facilities Revenue, USTA
National Tennis Center, 6.100%, 11/15/2004 200,000 209,916
New York Local Assistance Corp., Revenue,
Series A, Prerefunded 04/01/2001, 7.000%,
04/01/2016 (b) 100,000 104,648
New York Tollway Authority Service Contract,
Local Highway & Bridges, Revenue, 6.000%,
04/01/2002 265,000 270,666
Niagara Falls, NY, Water Treatment Plant,
General Obligation, 6.400%, 11/01/2004 (c) 100,000 105,520
---------------------------------------------------------------------------------------------------------------------
OHIO
Athens County, OH, Economic Development,
Revenue, Ohio Athens Inc. Project, 6.250%,
11/01/2011 * 220,000 211,838
Cleveland, OH, Waterworks Revenue, Series A,
6.125%, 01/01/2003 450,000 465,912
Lucas County, OH, Health Facilities Revenue,
Ohio Presbyterian, Series A, 6.100%,
07/01/2006 300,000 295,236
Marion County, OH, Health Care Facilities,
Revenue, Church Homes Project, 6.300%,
11/15/2015 250,000 226,793
Ohio Building Authority, Adult Correctional
Building Fund Revenue, Series A, 6.125%,
10/01/2010 400,000 419,840
Ohio Gateway Economic Development Corp.,
Revenue, Cuyahoga County Annual Gateway,
7.500%, 09/01/2005 400,000 420,004
Ohio Higher Educational Facilities Revenue,
University of Findlay Project, 5.750%,
09/01/2007 375,000 376,211
Ohio Water Development Authority Revenue,
Water Development Community Assistance,
5.500%, 06/01/2008 300,000 309,834
Ohio Water Development Authority Revenue, Pure
Water Improvement Project, 5.750%,
12/01/2003 (c) 5,000 5,172
---------------------------------------------------------------------------------------------------------------------
OKLAHOMA
Muskogee County, OK, General Obligation,
6.000%, 05/01/2001 10,000 10,174
Oklahoma Valley View Hospital Authority,
Revenue, 5.750%, 08/15/2006 315,000 305,449
</TABLE>
38 The accompanying notes are an integral part of the financial statements.
<PAGE> 39
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
LONG-TERM MUNICIPAL INVESTMENTS--100% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Woodward, OK, Municipal Authority, Hospital
Revenue, 5.600%, 11/01/2004 $ 270,000 $ 265,459
---------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA
Allegheny County, PA, Hospital Development
Authority, Magee-Womens Hospital, Revenue,
6.250%, 10/01/2008 (c) 300,000 315,027
Hazelton, PA, Health Services Authority
Hospital, Revenue, Hazelton-St Joseph
Medical Center, 5.850%, 07/01/2006 220,000 216,682
Pennsylvania Higher Educational Facilities,
College & University Revenue, Ursinus
College, 5.500%, 01/01/2007 265,000 266,383
Pennsylvania Intergovernmental Cooperative
Authority, City of Philadelphia Funding
Program, Special Tax, ETM, 6.000%,
06/15/2002 (c)* 285,000 290,689
Philadelphia, PA, Gas Works Revenue, Series
13, Prerefunded 6/15/2001, 7.700%,
06/15/2021 (b) 120,000 126,875
Philadelphia, PA, School District, General
Obligation, Series C, 5.750%, 03/01/2011 (c) 500,000 521,665
State of Pennsylvania, First Series, 6.000%,
01/15/2013 500,000 530,790
---------------------------------------------------------------------------------------------------------------------
PUERTO RICO
Puerto Rico Housing Bank & Financial Agency,
Revenue, Portfolio I, 5.900%, 04/01/2010 * 160,000 165,195
---------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA
York County, SC, School District Number 4,
General Obligation, 7.000%, 03/01/2004 (c) 460,000 495,296
---------------------------------------------------------------------------------------------------------------------
TEXAS
Fort Worth, TX, Water & Sewer Revenue, Series
B, 5.900%, 02/15/2001 80,000 81,137
Harris County, TX, General Obligation,
Criminal Justice Center, 7.500%, 10/01/2005 200,000 223,990
Houston, TX, Higher Education Finance
Corporation, Revenue, University of Saint
Thomas Project, 7.250%, 12/01/2007 100,000 104,351
North Richland Hills, TX, General Obligation,
6.000%, 02/15/2002 195,000 199,479
Texas State, Public Finance Authority Building
Revenue, Series B, 5.875%, 02/01/2002 210,000 214,399
Texas Trinity River Authority, Ten Mile Creek,
Revenue, 5.500%, 08/01/2002 70,000 71,227
Travis County, TX, Health Facilities
Development Corp., Ascension Health Credit,
Revenue, Series A, 5.750%, 11/15/2010 (c) 1,000,000 1,039,010
Waxahachie, TX, Independent School District,
General Obligation, Zero Coupon, 08/15/2009 400,000 242,760
---------------------------------------------------------------------------------------------------------------------
VIRGINIA
Arlington County, VA, Industrial Development
Authority, Revenue, Arlington Hospital,
Series A, Prerefunded 09/01/2001, 7.125%,
09/01/2021 (b) 90,000 94,916
---------------------------------------------------------------------------------------------------------------------
WASHINGTON
Tacoma, WA, Electric System Revenue, 5.800%,
01/01/2004 (c) 70,000 72,164
Washington Public Power Supply System, Revenue
Refunding, Nuclear Project #2, Series A,
6.300%, 07/01/2012 1,000,000 1,081,380
---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100%
(Cost $21,989,491) (a) $22,295,692
----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 39
<PAGE> 40
PORTFOLIO OF INVESTMENTS
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost for federal tax purposes was $21,989,491. At March 31, 2000, net
unrealized appreciation for all securities based on tax cost was $306,201.
This consisted of aggregate gross unrealized appreciation for all securities
in which there was an excess of market value over tax cost of $431,513 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $125,312.
(b) Prerefunded: Bonds which are prerefunded are collateralized by U.S. Treasury
securities which are held in escrow and are used to pay principal and
interest on tax-exempt issues and to retire the bonds in full at the
earliest refunding date.
(c) Bond is insured by one of these companies: AMBAC, FGIC, Capital Guaranty,
FSA, or MBIA/BIG.
* ETM: Bonds bearing the description ETM (escrowed to maturity) are
collateralized by U.S. Treasury securities which are held in escrow by a
trustee and used to pay principal and interest on bonds so designated.
40 The accompanying notes are an integral part of the financial statements.
<PAGE> 41
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
as of March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL MUNICIPAL
FUND FUND
<S> <C> <C>
ASSETS
Investments in securities, at value,
(Cost: $2,568,326,869 and $21,989,491) $2,625,057,311 22,295,692
----------------------------------------------------------------------------------------------
Cash 4,393,621 171,701
----------------------------------------------------------------------------------------------
Receivable for investments sold 58,316,103 --
----------------------------------------------------------------------------------------------
Interest receivable 41,523,522 385,296
----------------------------------------------------------------------------------------------
Receivable for Fund shares sold 294,814 1,413
----------------------------------------------------------------------------------------------
Other assets (28,622) 1,693
----------------------------------------------------------------------------------------------
TOTAL ASSETS 2,729,556,749 22,855,795
----------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 77,311,796 --
----------------------------------------------------------------------------------------------
Dividends payable 2,359,742 18,297
----------------------------------------------------------------------------------------------
Payable for Fund shares redeemed 3,538,985 70,459
----------------------------------------------------------------------------------------------
Accrued management fee 646,633 18,429
----------------------------------------------------------------------------------------------
Other accrued expenses and payables 727,242 9,788
----------------------------------------------------------------------------------------------
Total liabilities 84,584,398 116,973
----------------------------------------------------------------------------------------------
NET ASSETS, AT VALUE $2,644,972,351 22,738,822
----------------------------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Undistributed net investment income (loss) $ (4) --
----------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
securities 56,730,442 306,201
----------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) (82,740,441) (405,969)
----------------------------------------------------------------------------------------------
Paid-in-capital 2,670,982,354 22,838,590
----------------------------------------------------------------------------------------------
NET ASSETS, AT VALUE $2,644,972,351 22,738,822
----------------------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE
CLASS A SHARES
Net assets applicable to shares outstanding $2,562,912,111 16,002,711
----------------------------------------------------------------------------------------------
Shares outstanding 268,557,200 1,617,785
----------------------------------------------------------------------------------------------
Net asset value and redemption price per share
(Net assets/shares outstanding) $9.54 9.89
----------------------------------------------------------------------------------------------
Maximum offering price per share (100/95.5 of $9.54 and
$9.89 respectively)
(Net assets/shares outstanding) $9.99 10.36
----------------------------------------------------------------------------------------------
CLASS B SHARES
Net assets applicable to shares outstanding $ 69,756,973 5,345,818
----------------------------------------------------------------------------------------------
Shares outstanding 7,328,324 540,566
----------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
(subject to contingent deferred sales charge) per share
(Net assets/shares outstanding) $9.52 9.89
----------------------------------------------------------------------------------------------
CLASS C SHARES
Net assets applicable to shares outstanding $ 12,303,267 1,390,293
----------------------------------------------------------------------------------------------
Shares outstanding 1,287,115 140,525
----------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
(subject to contingent deferred sales charge) per share
(Net assets/shares outstanding) $9.56 9.89
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 41
<PAGE> 42
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended March 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL MUNICIPAL
FUND FUND
<S> <C> <C>
NET INVESTMENT INCOME
Interest $80,284,524 646,864
-------------------------------------------------------------------------------------------
Expenses: Management fee 5,526,843 64,891
-------------------------------------------------------------------------------------------
Services to shareholders 1,029,614 8,588
-------------------------------------------------------------------------------------------
Custodian fees 26,035 900
-------------------------------------------------------------------------------------------
Distribution fees 302,435 26,761
-------------------------------------------------------------------------------------------
Administrative services fees 2,464,733 28,229
-------------------------------------------------------------------------------------------
Auditing 37,556 950
-------------------------------------------------------------------------------------------
Legal 8,280 450
-------------------------------------------------------------------------------------------
Trustees' fees and expenses 32,072 10,000
-------------------------------------------------------------------------------------------
Reports to shareholders 241,595 20,730
-------------------------------------------------------------------------------------------
Registration fees 31,806 13,820
-------------------------------------------------------------------------------------------
Other 48,868 (17,467)
-------------------------------------------------------------------------------------------
Total expenses, before expenses reductions 9,749,837 157,852
-------------------------------------------------------------------------------------------
Expense reductions (117,959) (15,896)
-------------------------------------------------------------------------------------------
Total expenses, after expenses reductions 9,631,878 141,956
-------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 70,652,646 504,908
-------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from investments (38,279,441) (143,968)
-------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments 19,135,853 (131,675)
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (19,143,588) (275,643)
-------------------------------------------------------------------------------------------
NET INCREASES (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $51,509,058 229,265
-------------------------------------------------------------------------------------------
</TABLE>
42 The accompanying notes are an integral part of the financial statements.
<PAGE> 43
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MUNICIPAL FUND INTERMEDIATE MUNICIPAL FUND
------------------------------------ ----------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR
MARCH 31, ENDED MARCH 31, ENDED
2000 SEPTEMBER 30, 2000 SEPTEMBER 30,
(UNAUDITED) 2000 (UNAUDITED) 2000
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ 70,652,646 146,556,257 504,908 1,081,923
---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) (38,279,441) 812,316 (143,968) (162,926)
---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) on investment
transactions during the period 19,135,853 (226,279,168) (131,675) (1,224,849)
---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 51,509,058 (78,910,595) 229,265 (305,852)
---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A (68,821,922) (142,947,373) (371,775) (828,811)
---------------------------------------------------------------------------------------------------------------
Class B (1,611,894) (3,200,677) (100,776) (171,236)
---------------------------------------------------------------------------------------------------------------
Class C (218,834) (408,186) (32,359) (81,876)
---------------------------------------------------------------------------------------------------------------
From net realized gains
Class A -- (71,196,593) -- (47,819)
---------------------------------------------------------------------------------------------------------------
Class B -- (1,901,540) -- (11,192)
---------------------------------------------------------------------------------------------------------------
Class C -- (231,742) -- (5,638)
---------------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 423,557,061 1,350,668,652 9,050,722 17,139,273
---------------------------------------------------------------------------------------------------------------
Reinvestment of distributions 44,116,777 144,375,917 326,660 760,026
---------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (615,761,125) (1,604,687,543) (11,825,918) (16,156,752)
---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from Fund share transactions (148,087,287) (109,642,974) (2,448,536) 1,742,547
---------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (167,230,879) (408,439,680) (2,724,181) 290,123
---------------------------------------------------------------------------------------------------------------
Net assets at beginning of period 2,812,203,230 3,220,642,910 25,463,003 25,172,880
---------------------------------------------------------------------------------------------------------------
Net assets at end of period
(including undistributed net
investment income (loss) of $(4)
$0, $0 and $0, respectively) $2,644,972,351 2,812,203,230 22,738,822 25,463,003
---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 43
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Kemper Municipal Bond Fund ("Municipal Fund") and
Kemper Intermediate Municipal Bond Fund
("Intermediate Municipal Fund"), collectively the
Funds are a diversified series of Kemper National
Tax-Free Income Trust (the "Corporation" or
"Trust") which is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"),
as an open end, diversified management investment
company organized as a Massachusetts business
trust.
The Funds offer multiple classes of shares. Class A
shares are offered to investors subject to an
initial sales charge. Class B shares are offered
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are offered without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Class I shares (none sold
through March 31, 2000) are offered to a limited
group of investors, are not subject to initial or
contingent deferred sales charges and have lower
ongoing expenses than other classes.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of each Fund have
equal rights with respect to voting subject to
class specific arrangements.
Each Fund's financial statements are prepared in
accordance with generally accepted accounting
principles which require the use of management
estimates. The policies described below are
followed consistently by the Funds in the
preparation of their financial statements.
SECURITY VALUATION. Portfolio debt securities
purchased with an original maturity greater than
sixty days are valued by pricing agents approved by
the officers of the Trust, whose quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the most
recent bid quotation supplied by a bona fide market
maker shall be used. Money market instruments
purchased with an original maturity of sixty days
or less are valued at amortized cost. All other
securities are valued at their fair value as
determined in good faith by the Valuation Committee
of the Board of Trustees.
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 income to its shareholders.
Accordingly, the Funds paid no federal income taxes
and no federal income tax provision was required.
At September 30, 1999, the Intermediate Municipal
Fund had a net tax basis capital loss carryforward
of approximately $22,000, which may be applied
against any realized net taxable capital gains of
each succeeding year until fully
44
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS
utilized or until September 30, 2007, the
expiration date. In addition, from November 1, 1998
through September 30, 1999, the Municipal Fund
incurred approximately $34,656,000 and $175,000,
respectively, of net realized capital losses. As
permitted by tax regulations, the Funds intend to
elect to defer these losses and treat them as
arising in the fiscal year ended September 30,
2000.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made annually.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital
accounts without impacting the net asset value of
the Fund.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Realized gains and losses
from investment transactions are recorded on an
identified cost basis. All discounts are accreted
for both tax and financial reporting purposes.
EXPENSES. Expenses arising in connection with a
specific Fund are allocated to that Fund. Other
Trust expenses are allocated between the Funds in
proportion to their relative net assets.
--------------------------------------------------------------------------------
2 PURCHASE & SALES OF
SECURITIES For the six months ended March 31, 2000, investment
transactions (excluding short-term instruments) are
as follows:
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL FUND MUNICIPAL FUND
-------------- --------------
<S> <C> <C>
Purchases $741,044,242 $3,640,745
Proceeds from sales 926,470,606 5,198,847
</TABLE>
--------------------------------------------------------------------------------
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 incurred a management
fee of $5,526,843 for the six months ended March
31, 2000.
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 incurred a management
fee of $64,891 for the six months ended March 31,
2000.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The Trust has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. ("KDI"). Underwriting
commissions retained by KDI in connection with the
45
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS
distribution of Class A shares for the six months
ended March 31, 2000 are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
RETAINED BY KDI
---------------
<S> <C>
Municipal Fund $61,209
Intermediate Municipal Fund 3,002
</TABLE>
For services under the distribution services
agreement, each Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares pursuant to separate Rule 12b-1 plans for
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. In addition,
KDI receives any contingent deferred sales charge
("CDSC") from redemptions of Class B and Class C
shares. Distribution fees and CDSC received by KDI
for the six months ended March 31, 2000 are as
follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES
AND CDSC
RETAINED BY KDI UNPAID FEES
----------------- -----------
<S> <C> <C>
Municipal Fund $428,649 $40,222
Intermediate Municipal Fund 36,587 4,310
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Trust has an
administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C 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 paid by KDI
for the six months ended March 31, 2000 are as
follows:
<TABLE>
<CAPTION>
ASF PAID BY THE ASF PAID BY
FUND TO KDI UNPAID ASF KDI TO AFFILIATES
--------------- ----------- -----------------
<S> <C> <C> <C>
Municipal Fund $2,464,733 $ 0 $5,637
Intermediate Municipal
Fund 28,229 8,869 0
</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, 2000, KSvC
received fees as follows:
<TABLE>
<CAPTION>
SHAREHOLDER
SERVICES UNPAID FEES
----------- -----------
<S> <C> <C>
Municipal Fund $721,875 $391,461
Intermediate Municipal Fund 6,324 6,324
</TABLE>
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of
Scudder Kemper. During the six months ended March
31, 2000, the Trust made no payments to is officers
and incurred trustees' fees of $42,072 to
independent trustees.
46
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Funds:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999
MUNICIPAL ---------------------------- -------------------------------
FUND SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 39,433,048 $ 371,067,550 122,765,000 $ 1,246,825,109
--------------------------------------------------------------------------------------
Class B 989,194 $ 9,343,243 2,130,000 21,741,000
--------------------------------------------------------------------------------------
Class C 4,583,141 $ 43,146,269 7,786,000 79,161,000
--------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDEND:
Class A 4,559,856 43,017,699 13,879,000 140,558,917
--------------------------------------------------------------------------------------
Class B 101,443 953,787 334,000 3,377,000
--------------------------------------------------------------------------------------
Class C 15,389 145,291 43,000 440,000
--------------------------------------------------------------------------------------
SHARES REDEEMED
Class A (59,613,927) (561,917,151) (148,146,000) (1,504,342,000)
--------------------------------------------------------------------------------------
Class B (1,426,644) (13,413,953) (1,801,000) (18,075,000)
--------------------------------------------------------------------------------------
Class C (4,286,604) (40,430,022) (7,801,000) (79,330,000)
--------------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 114,701 $ 1,075,466 286,000 2,942,000
--------------------------------------------------------------------------------------
Class B (114,834) (1,075,466) (288,000) (2,941,000)
--------------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARES TRANSACTIONS $(148,087,287) $ (109,642,974)
--------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
INTERMEDIATE MARCH 31, 2000 SEPTEMBER 30, 1999
MUNICIPAL -------------------------- ---------------------------
FUND SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 800,403 $ 7,925,127 817,000 $ 11,817,273
-----------------------------------------------------------------------------------
Class B 95,697 945,849 178,000 2,938,000
-----------------------------------------------------------------------------------
Class C 18,263 179,746 56,000 2,384,000
-----------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDEND:
Class A 24,676 243,487 57,000 590,026
-----------------------------------------------------------------------------------
Class B 6,147 60,669 12,000 121,000
-----------------------------------------------------------------------------------
Class C 2,280 22,504 2,000 49,000
-----------------------------------------------------------------------------------
SHARES REDEEMED
Class A (985,056) (9,743,678) (677,000) (12,750,752)
-----------------------------------------------------------------------------------
Class B (94,291) (930,330) (122,000) (2,677,000)
-----------------------------------------------------------------------------------
Class C (116,223) (1,151,910) (53,000) (729,000)
-----------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 2 22 13,000 112,000
-----------------------------------------------------------------------------------
Class B (2) (22) (13,000) (112,000)
-----------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARES TRANSACTIONS $(2,448,536) $ 1,742,547
-----------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
5 EXPENSE OFF-SET
ARRANGEMENTS Each Fund has entered into arrangements with its
custodian and transfer agent whereby credits
realized as a result of uninvested cash balances
were used to reduce a portion of the Fund's
expenses. During the period, each Fund's custodian
and transfer agent fees were reduced under these
arrangements as follows:
<TABLE>
<CAPTION>
TRANSFER
CUSTODY AGENT
------- --------
<S> <C> <C>
Municipal Fund $20,751 $97,208
Intermediate Municipal Fund 404 761
</TABLE>
--------------------------------------------------------------------------------
6 LINE OF CREDIT The Funds and several Kemper Funds (the "the
Participants") share in a $750 million revolving
credit facility for temporary or emergency
purposes, including the meeting of redemptions
requests that otherwise might require the untimely
disposition of securities. The Participants are
changed an annual commitment fee which is allocated
pro rata among each of the Participants. Interest
is calculated based on the market rates at the time
of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under this
agreement.
48
<PAGE> 49
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
THE PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
CLASS A
SIX MONTHS
ENDED
MARCH 31,
---------- YEAR ENDED SEPTEMBER 30,
2000 ---------------------------------------------------------
MUNICIPAL FUND (UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.60 10.61 10.46 10.18 10.15 9.69
---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (c) 0.25 0.48 0.52 0.54 0.55 0.55
---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (0.06) (0.76) 0.37 0.36 0.06 0.50
---------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.19 (0.28) 0.89 0.90 0.61 1.05
---------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.25) (0.48) (0.52) (0.54) (0.55) (0.55)
---------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (0.25) (0.22) (0.08) (0.03) (0.04)
---------------------------------------------------------------------------------------------------------------------
Total distributions (0.25) (0.73) (0.74) (0.62) (0.58) (0.59)
---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.54 9.60 10.61 10.46 10.18 10.15
---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN % (A)(B) 2.03** (2.75) 8.84 9.15 6.00 11.15
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 2,562,912 2,728,300 3,132,270 3,149,137 3,274,349 3,474,325
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions % .70* 0.69 0.68 0.68 0.66 0.66
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions % .69* 0.69 0.68 0.68 0.66 0.66
---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) % 5.27* 4.86 4.97 5.29 5.35 5.63
---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 57* 70 65 77 97 86
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
SIX MONTHS
ENDED
MARCH 31,
---------- YEAR ENDED SEPTEMBER 30,
2000 ------------------------------------------
MUNICIPAL FUND (UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.58 10.58 10.44 10.15 10.13 9.67
------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (c) 0.21 0.40 0.43 0.45 0.46 0.46
------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (0.06) (0.75) 0.36 0.37 0.05 0.50
------------------------------------------------------------------------------------------------------
Total from investment operations 0.15 (0.35) 0.79 0.82 0.51 0.96
------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.21) (0.40) (0.43) (0.45) (0.46) (0.46)
------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (0.25) (0.22) (0.08) (0.03) (0.04)
------------------------------------------------------------------------------------------------------
Total distributions (0.21) (0.65) (0.65) (0.53) (0.49) (0.50)
------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.52 9.58 10.58 10.44 10.15 10.13
------------------------------------------------------------------------------------------------------
TOTAL RETURN % (A)(B) 1.62** (3.48) 7.84 8.32 4.97 10.17
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 69,757 74,524 78,323 61,336 43,313 34,724
------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions % 1.52* 1.53 1.52 1.55 1.54 1.55
------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions % 1.51* 1.53 1.52 1.55 1.54 1.55
------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) % 4.48* 4.02 4.13 4.42 4.47 4.74
------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 57* 70 65 77 97 86
------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE> 50
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
SIX MONTHS
ENDED
MARCH 31,
---------- YEAR ENDED SEPTEMBER 30,
2000 -----------------------------------------------
MUNICIPAL FUND (UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.62 10.62 10.47 10.18 10.16 9.69
-----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (c) 0.21 0.40 0.43 0.46 0.46 0.47
-----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (0.06) (0.75) 0.37 0.37 0.05 0.51
-----------------------------------------------------------------------------------------------------------
Total from investment operations 0.15 (0.35) 0.80 0.83 0.51 0.98
-----------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.21) (0.40) (0.43) (0.46) (0.46) (0.47)
-----------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (0.25) (0.22) (0.08) (0.03) (0.04)
-----------------------------------------------------------------------------------------------------------
Total distributions (0.21) (0.65) (0.65) (0.54) (0.49) (0.51)
-----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.56 9.62 10.62 10.47 10.18 10.16
-----------------------------------------------------------------------------------------------------------
TOTAL RETURN % (A)(B) 1.63** (3.47) 7.93 8.34 4.99 10.32
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 12,303 9,379 10,050 5,438 3,583 1,599
-----------------------------------------------------------------------------------------------------------
Ratio of expenses before expenses reductions
% 1.54* 1.54 1.52 1.53 1.51 1.51
-----------------------------------------------------------------------------------------------------------
Ratio of expenses after expenses reductions % 1.52* 1.54 1.52 1.53 1.51 1.51
-----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) % 4.51* 4.01 4.13 4.44 4.50 4.78
-----------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 57* 70 65 77 97 86
-----------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 51
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
SIX MONTHS NOVEMBER 1,
ENDED 1994 TO
MARCH 31, SEPTEMBER 30,
YEAR ENDED SEPTEMBER 30,
---------- --------------------------------- -------------
INTERMEDIATE MUNICIPAL FUND
2000 1999 1998 1997 1996 1995
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 10.53 10.31 10.06 10.18 9.50
-------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (c) 0.22 0.42 0.45 0.46 0.46 0.45
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (0.11) (0.50) 0.29 0.29 (0.04) 0.68
-------------------------------------------------------------------------------------------------------------
Total from investment operations 0.11 (0.08) 0.74 0.75 0.42 1.13
-------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.22) (0.42) (0.45) (0.46) (0.46) (0.45)
-------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (0.03) (0.07) (0.04) (0.08) --
-------------------------------------------------------------------------------------------------------------
Total distributions (0.22) (0.45) (0.52) (0.50) (0.54) (0.45)
-------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.89 10.00 10.53 10.31 10.06 10.18
-------------------------------------------------------------------------------------------------------------
TOTAL RETURN % (A)(B) 1.13** (0.79) 7.34 7.62 4.15 12.08**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 16,003 17,774 19,140 16,591 16,869 12,808
-------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions % 1.08* 0.96 0.96 0.96 1.04 1.05*
-------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions % 0.95* 0.96 0.96 0.96 0.92 0.55*
-------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) % 4.46* 4.15 4.35 4.55 4.45 5.00*
-------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 31* 30 14 80 80 60*
-------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
SIX MONTHS NOVEMBER 1,
ENDED 1994 TO
MARCH 31, SEPTEMBER 30,
YEAR ENDED SEPTEMBER 30,
---------- ------------------------------ -------------
INTERMEDIATE MUNICIPAL FUND
2000 1999 1998 1997 1996 1995
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 10.52 10.31 10.06 10.18 9.50
----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (c) 0.18 0.34 0.37 0.38 0.38 0.36
----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (0.11) (0.49) 0.28 0.29 (0.04) 0.68
----------------------------------------------------------------------------------------------------------
Total from investment operations 0.07 (0.15) 0.65 0.67 0.34 1.04
----------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.18) (0.34) (0.37) (0.38) (0.38) (0.36)
----------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (0.03) (0.07) (0.04) (0.08) --
----------------------------------------------------------------------------------------------------------
Total distributions (0.18) (0.37) (0.44) (0.42) (0.46) (0.36)
----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.89 10.00 10.52 10.31 10.06 10.18
----------------------------------------------------------------------------------------------------------
TOTAL RETURN % (A)(B) .73** (1.48) 6.38 6.78 3.34 11.13**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 5,346 5,328 5,245 4,571 4,333 2,657
----------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions % 1.88* 1.76 1.76 1.76 1.83 1.92*
----------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions % 1.75* 1.76 1.76 1.76 1.71 1.42*
----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) % 3.68* 3.35 3.55 3.75 3.66 4.13*
----------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 31* 30 14 80 80 60*
----------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 52
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
SIX MONTHS NOVEMBER 1,
ENDED 1994 TO
MARCH 31, SEPTEMBER 30,
YEAR ENDED SEPTEMBER 30,
---------- ------------------------------ -------------
INTERMEDIATE MUNICIPAL FUND
2000 1999 1998 1997 1996 1995
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 10.53 10.31 10.06 10.19 9.50
----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (c) 0.18 0.34 0.37 0.39 0.38 0.38
----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (0.11) (0.50) 0.29 0.29 (0.05) 0.69
----------------------------------------------------------------------------------------------------------
Total from investment operations 0.07 (0.16) 0.66 0.68 0.33 1.07
----------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.18) (0.34) (0.37) (0.39) (0.38) (0.38)
----------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (0.03) (0.07) (0.04) (0.08) --
----------------------------------------------------------------------------------------------------------
Total distributions (0.18) (0.37) (0.44) (0.43) (0.46) (0.38)
----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.89 10.00 10.53 10.31 10.06 10.19
----------------------------------------------------------------------------------------------------------
TOTAL RETURN % (A)(B) .74** (1.56) 6.55 6.77 3.26 11.43**
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 1,390 2,361 788 727 699 704
----------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions % 1.88* 1.72 1.73 1.73 1.77 1.78*
----------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions % 1.76* 1.72 1.73 1.73 1.65 1.28*
----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) % 3.68* 3.39 3.58 3.78 3.72 4.27*
----------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 31* 30 14 80 80 60*
----------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not Annualized
(a) Total return does not reflect the effect of sales charges.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Based on monthly average shares outstanding during the period.
52
<PAGE> 53
NOTES
53
<PAGE> 54
NOTES
54
<PAGE> 55
NOTES
55
<PAGE> 56
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JOHN W. BALLANTINE MARK S. CASADY LINDA J. WONDRACK
Trustee President Vice President
LEWIS A. BURNHAM PHILLIP J. COLLORA MAUREEN E. KANE
Trustee Vice President and Assistant Secretary
Secretary
LINDA C. COUGHLIN CAROLINE PEARSON
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
DONALD L. DUNAWAY BRENDA LYONS
Trustee ELEANOR R. BRENNAN Assistant Treasurer
Vice President
ROBERT B. HOFFMAN
Trustee PHILIP C. CONDON
Vice President
DONALD R. JONES
Trustee ANN M. MCCREARY
Vice President
THOMAS W. LITTAUER
Trustee and Vice President ASHTON P. GOODFIELD
Vice President
SHIRLEY D. PETERSON
Trustee KATHRYN L. QUIRK
Vice President
WILLIAM P. SOMMERS
Trustee
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
.............................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
.............................................................................................
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania
Kansas City, MO 64105
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza
Chicago, IL 60606
www.kemper.com
</TABLE>
[KEMPER FUNDS LOGO] Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Tax-Free Income Funds prospectus.
KNTIS - 3(5/25/00) 1111830
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
