<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED SEPTEMBER 30, 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
"... As of September 30, 2000, Kemper Municipal Bond Fund's one-, three-, five-
and 10-year results ranked within the top 20 percent of its peer group. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
7
MANAGEMENT TEAM
8
PERFORMANCE UPDATE
10
TERMS TO KNOW
12
PORTFOLIO STATISTICS
16
PORTFOLIO OF INVESTMENTS
43
FINANCIAL STATEMENTS
46
FINANCIAL HIGHLIGHTS
50
NOTES TO FINANCIAL STATEMENTS
55
REPORT OF INDEPENDENT AUDITORS
56
TAX INFORMATION
AT A GLANCE
KEMPER NATIONAL TAX-FREE
INCOME FUNDS TOTAL RETURNS
FOR THE YEAR ENDED SEPTEMBER 30, 2000 (UNADJUSTED FOR SALES CHARGE)
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER MUNICIPAL BOND KEMPER MUNICIPAL BOND LIPPER MUNICIPAL BOND
KEMPER MUNICIPAL BOND FUND CLASS A FUND CLASS A FUND CLASS A FUNDS CATEGORY AVERAGE*
---------------------------------- --------------------- --------------------- -----------------------
<S> <C> <C> <C>
5.7 4.74 4.74 4.74
</TABLE>
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER INTERMEDIATE KEMPER INTERMEDIATE LIPPER INTERMEDIATE
MUNICIPAL BOND FUND MUNICIPAL BOND FUND MUNICIPAL BOND FUNDS
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS A CLASS B CLASS C CATEGORY AVERAGE*
----------------------------------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C>
4.19 3.38 3.41 4.62
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH CHANGING MARKET
CONDITIONS, SO THAT WHEN REDEEMED, SHARES MAY BE WORTH MORE OR LESS THAN THEIR
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. RETURNS
AND RANKINGS ARE HISTORICAL AND DO NOT REFLECT FUTURE PERFORMANCE.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
9/30/00 9/30/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER MUNICIPAL BOND FUND
CLASS A $9.63 $9.60
.........................................................
KEMPER MUNICIPAL BOND FUND
CLASS B $9.60 $9.58
.........................................................
KEMPER MUNICIPAL BOND FUND
CLASS C $9.64 $9.62
.........................................................
</TABLE>
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
9/30/00 9/30/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER INTERMEDIATE MUNICIPAL
BOND FUND CLASS A $9.97 $10.00
.........................................................
KEMPER INTERMEDIATE MUNICIPAL
BOND FUND CLASS B $9.97 $10.00
.........................................................
KEMPER INTERMEDIATE MUNICIPAL
BOND FUND CLASS C $9.97 $10.00
.........................................................
</TABLE>
KEMPER MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
....................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #43 of 263 funds #149 of 263 funds #149 of 263 funds
....................................................................................
3-YEAR #41 of 225 funds #145 of 225 funds #142 of 225 funds
....................................................................................
5-YEAR #35 of 183 funds #134 of 183 funds #127 of 183 funds
....................................................................................
10-YEAR #13 of 83 funds n/a n/a
....................................................................................
</TABLE>
KEMPER INTERMEDIATE MUNICIPAL
BOND FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..........................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #88 of 122 funds #109 of 122 funds #108 of 122 funds
..........................................................................................
3-YEAR #70 of 115 funds #107 of 115 funds #106 of 115 funds
..........................................................................................
5-YEAR #63 of 99 funds #96 of 99 funds #95 of 99 funds
..........................................................................................
</TABLE>
DIVIDEND AND YIELD REVIEW
THE FOLLOWING TABLES SHOW PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE
FUNDS AS OF SEPTEMBER 30, 2000.
MUNICIPAL BOND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
................................................................................................
<S> <C> <C> <C> <C> <C>
ONE-YEAR INCOME: $ 0.4968 $ 0.4185 $ 0.4208
................................................................................................
SEPTEMBER DIVIDEND: $ 0.0391 $ 0.0328 $ 0.0328
................................................................................................
ANNUALIZED
DISTRIBUTION RATE+: 4.87% 4.10% 4.08%
................................................................................................
SEC YIELD+: 4.41% 3.78% 3.76%
................................................................................................
TAX EQUIVALENT YIELD: 7.01% 6.01% 5.98%
................................................................................................
BASED ON A MARGINAL FEDERAL INCOME TAX RATE OF 37.1%
................................................................................................
</TABLE>
INTERMEDIATE MUNICIPAL BOND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
................................................................................................
<S> <C> <C> <C> <C> <C>
ONE-YEAR INCOME: $ 0.4367 $ 0.3592 $ 0.3620
................................................................................................
SEPTEMBER DIVIDEND: $ 0.0337 $ 0.0276 $ 0.0279
................................................................................................
ANNUALIZED
DISTRIBUTION RATE+: 4.06% 3.32% 3.36%
................................................................................................
SEC YIELD+: 3.78% 3.07% 3.10%
................................................................................................
TAX EQUIVALENT YIELD: 6.01% 4.88% 4.93%
................................................................................................
BASED ON A MARGINAL FEDERAL INCOME TAX RATE OF 37.1%
................................................................................................
</TABLE>
+CURRENT ANNUALIZED DISTRIBUTION RATE IS THE LATEST MONTHLY DIVIDEND SHOWN AS AN
ANNUALIZED PERCENTAGE OF NET ASSET VALUE ON SEPTEMBER 30, 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 SEPTEMBER 30, 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 THE 37.1% FEDERAL TAX RATE.
INCOME MAY BE SUBJECT TO STATE AND LOCAL TAXES, AND FOR SOME INVESTORS, A
PORTION MAY BE SUBJECT TO THE ALTERNATIVE MINIMUM TAX. YIELDS AND DISTRIBUTION
RATES ARE HISTORICAL AND WILL FLUCTUATE.
<PAGE> 3
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
Times have been good. During the first half of 2000, the global economy grew
faster than it has in over a decade. All regions participated. The United
States, of course, was still powering ahead. The growth rate in Europe was
nearly 4 percent. Asia fed off an electronics boom and a revitalized China.
South America got a boost from an improved credit rating. New money pumped up
energy producers from Mexico to the Middle East.
Now for the bad news, which is that the best news is probably behind us.
Global growth peaked in the spring, and in the United States, at least, the
slowdown was abrupt. After 6 percent growth in the year ending June 30, the
economy grew at a rate of just 2.7 percent during the summer. It seems that
expensive energy, currency volatility and more widespread profit problems, are
bringing the exuberant global economy, including the United States, to heel.
Let's explore these factors in more detail.
OIL, OIL, TOIL AND TROUBLE
Although oil prices have receded somewhat, everyone's still jittery, and with
good reason: Of the seven recessions since World War II, six were preceded by a
spike in crude oil prices.
Oil prices have already been strong enough for long enough to crimp growth,
and they're biting the rest of the world even harder than the United States. But
there are two factors working to our advantage. First, oil prices are still
historically low. Oil is slightly more than $30 per barrel today, but it peaked
at over $75 per barrel back in 1980 (stated in today's dollars). Second, our
dependence on oil has decreased: The United States uses only roughly half as
much oil to produce a unit of GDP as it did thirty years ago. This gives us hope
that the economy can escape recession this time around.
What would make us worry more? Outright energy shortages or a political
crisis. If either happens, the odds of a recession occurring would rise steeply.
People panic or become excessively cautious when they have to fret. Can I fill
up my oil tank? Will there be a war? Their loss of confidence can be much more
devastating than price increases alone.
CURRENCY CONCERNS
Currency turmoil is a second danger to the economy. Central bankers have
intervened to halt the euro's decline, and they're right that the euro is
fundamentally undervalued. But intervention is a hazardous game. Let's hope they
don't convince the markets that the euro should rise a lot very quickly. A
suddenly weak dollar might make Europeans think about selling all those American
stocks and bonds they've been buying, and would greatly complicate the Fed's
inflation fight.
BUSINESS: BIG PLANS BUT PROFIT DISAPPOINTMENTS
Profit warnings escalated late this summer, and we believe there's fire amid
that smoke.
Sure, businesses have had a voracious appetite for money -- and until very
recently, corporate treasurers were finding it easily: Banks increased business
lending by 10.8 percent in the past year. Bond markets have suddenly become a
lot more picky, especially for low-quality credits, but money is still available
for investment grade borrowers. Capital goods orders reflect executives'
enthusiasm -- they've been accelerating since early in the year, and in
September were up more than 20 percent compared to a year ago.
Still, we expect total capital spending to slow, from this year's estimated 14
percent to 12.5 percent in 2001. The reason? A profit squeeze is about to take
some of the edge off executives' animal spirits.
We've always been more cautious than Wall Street about 2001 profits, and our
forecast hasn't changed. Profits are likely to be flat to down next year for
several reasons. First, the growth slowdown will make it harder to keep up the
productivity gains that have kept labor costs under control. Second, interest
expense will surge thanks to higher rates and all that new debt. Third,
depreciation costs are escalating. And finally, the excessively weak euro and
higher oil costs will sap earnings.
3
<PAGE> 4
ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES.
THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (10/31/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
-------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.70 6.00 6.10 4.50
Prime rate (2) 9.50 9.00 8.25 8.25
Inflation rate (3)* 3.50 3.80 2.60 1.40
The U.S. dollar (4) 11.30 1.10 -0.90 1.10
Capital goods orders (5)* 22.70 13.30 4.70 8.60
Industrial production (5)* 5.70 5.40 3.50 3.70
Employment growth (6) 1.80 2.50 2.30 2.50
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF 9/30/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
SAVING GRACES: FISCAL POLICY AND CONSUMER SPENDING
While growth has peaked and is now slowing, we can be thankful that growth
probably won't slow too much, thanks in part to a more stimulative fiscal policy
and consumer spending.
Fiscal policy is likely to be more stimulative. Of course, most economists
agree that the last thing this pumped-up economy needs is another shot of
stimulants -- too much stimulus, after all, is widely believed to cause
inflation. But economists weren't running for office; politicians were. And
inflation risk was about the last thing on the mind of either candidate in the
heat of election campaigning. They wanted to win votes, and the time-tested way
to do so was to make promises. Although we didn't have the name of the winner as
of press time, neither candidate seems to be planning a lot of fiscal
restraint -- but the good news is that neither candidate's plan is likely to be
enacted until 2002 at the earliest.
Second, consumers continue to spend, spend, spend. The personal savings rate
keeps falling, from an already low 2.2 percent last year to a nearly invisible
0.1 percent this year. Critics of this admittedly squishy statistic claim it
doesn't adequately capture households' growing wealth. As it turns out, however,
the average American not only doesn't save much, but he's not getting wealthier
in leaps and bounds, either.
Net worth for the median family where the head of the household is over 45
(and where thoughts are presumably beginning to turn to retirement), rose less
than $13,000 between 1995 and 1998. That's less than a 12 percent gain during
the same three years the stock market nearly doubled and the market value of
owner-occupied homes jumped 21 percent. Why didn't the average family get richer
in that time? Because they were borrowing and spending like crazy. House values
were up 21 percent -- but mortgage debt rose even faster, by 25 percent!
Consumers' profligacy worries many financial professionals. Some people aren't
saving enough for retirement because they have inflated expectations of future
investment returns. Other people aren't saving enough for retirement because
they don't realize just how much money they'll need. Either way, people aren't
saving.
Still, no one wants consumers to change their profligate ways too fast. After
all, hearty consumer spending is a prime reason America's growth has stayed on a
fast track so far. Most economists would like to see shoppers be a bit more
moderate -- but only a bit. If Americans suddenly turned thrifty, the economy
would lurch into reverse.
4
<PAGE> 5
ECONOMIC OVERVIEW
Luckily, there's little chance of that happening, unless lenders get cold
feet. So far, they're hot to trot. In the past year, mortgage lending by banks
rocketed nearly 17 percent while loans to consumers jumped 10 percent. Brokers
are selling the loans banks don't want on their balance sheets to mortgage pools
and the asset-backed securities market, where eager non-bank lenders are
snapping them up. In the past year, these markets provided $625 billion of new
credit, a leap of more than 12 percent.
With so much money at their disposal, consumers didn't stay out of the
shopping centers and restaurants for long. Consumer spending growth jumped up to
4.5 percent in the summer, and we expect it to stay well above 3 percent through
2001.
OMINOUS SIGNS?
Decelerations are always tricky, to be sure. But barring some unexpected
shock, overall economic growth should to pop back into the 3.5 percent to 4
percent range in 2001. Why? Borrowing costs a little more than it did last year,
but money is still freely available for most borrowers. Capital goods orders are
strong, so there's a lot of life left in business spending. Shoppers are a
little pickier, but they're still more interested in visiting the mall than in
filling their piggy banks. And after the election, no matter who wins, fiscal
policy is likely to be more stimulative than it has been for years. The price to
pay will likely be a rise in core inflation (inflation excluding food and
energy). We expect it to hit 3 percent next year, up from its recent rate of 2.5
percent. We believe we'll make it safely through 2001, but investors should keep
their hands on the wheel and their eyes peeled.
Sincerely,
Kemper Distributors, Inc.
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 NOVEMBER 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.
5
<PAGE> 6
ECONOMIC OVERVIEW
(THIS PAGE INTENTIONALLY LEFT BLANK)
6
<PAGE> 7
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.
BRENNAN JOINED THE FIRM IN 1995 AND IS A SENIOR VICE PRESIDENT. SHE RECEIVED HER
B.A. IN ECONOMICS FROM URSINUS COLLEGE AND AN M.S. IN FINANCE FROM DREXEL
UNIVERSITY.
[CONDON PHOTO]
PHILIP G. CONDON IS CO-LEAD PORTFOLIO MANAGER OF KEMPER MUNICIPAL BOND FUND AND
KEMPER INTERMEDIATE MUNICIPAL BOND FUND. HE HAS 24 YEARS OF PROFESSIONAL
INVESTMENT EXPERIENCE AND JOINED THE FIRM IN 1983 AS A FIXED-INCOME ANALYST.
[ASHTON PHOTO]
ASHTON P. GOODFIELD IS CO-LEAD PORTFOLIO MANAGER FOR KEMPER INTERMEDIATE
MUNICIPAL BOND FUND. SHE IS A SENIOR VICE PRESIDENT WITH 14 YEARS OF
PROFESSIONAL INVESTMENT EXPERIENCE. SHE JOINED SCUDDER KEMPER INVESTMENTS, INC.
IN 1986.
[CAGGIANO PHOTO]
MATTHEW J. CAGGIANO IS A PORTFOLIO MANAGER FOR KEMPER MUNICIPAL BOND FUND. HE IS
A CHARTERED FINANCIAL ANALYST AND JOINED THE FIRM IN 1991.
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, AND SHOULD NOT BE CONSIDERED AS A RECOMMENDATION OF ANY SPECIFIC
SECURITY.
7
<PAGE> 8
PERFORMANCE UPDATE
PRUDENT CURVE POSITIONING IN A RISING-INTEREST-RATE ENVIRONMENT HELPED EACH FUND
DELIVER ATTRACTIVE RESULTS. BELOW, THE MANAGEMENT TEAM DISCUSSES THE MUNICIPAL
BOND MARKET'S PERFORMANCE AND HOW KEMPER MUNICIPAL BOND FUND AND KEMPER
INTERMEDIATE MUNICIPAL BOND FUND FARED IN FISCAL YEAR 2000.
Q HOW DID THE MUNICIPAL BOND MARKET BEHAVE DURING FISCAL YEAR 2000?
A During the 12 months ended September 30, 2000, interest rates fluctuated
sharply. Short-term rates generally rose while long-term rates fell. Strong U.S.
economic growth prompted the Federal Reserve Board Open Market Committee to
raise its short-term interest-rate target by 125 basis points (1.25 percentage
points) to 6.50 percent during the period. By early autumn, inflationary
pressures appeared to ebb following a period that saw commodity prices move
upward while the nation's unemployment rate fell to 30-year lows.
In the municipal bond market, the initial challenge was to preserve capital as
bond prices and investor demand fell. However, by the spring of 2000, municipal
bond prices rebounded as U.S. economic growth slowed to a more sustainable pace.
Throughout the year, credit quality held firm in many states. Rating services
upgraded New York and California municipal debt, states that were among the
largest bond issuers.
Shrinking new supplies of municipal debt created intense competition for
attractively priced securities with above-average income and total return
prospects. As of September 30, 2000, the volume of new issuance was down 19.1
percent from the previous years earlier levels.
Municipal bond yields fluctuated substantially during fiscal year 2000. The
yield of THE BOND BUYER Revenue Bond Index, an unmanaged group of municipal
bonds that vary in quality and maturity (see Terms To Know, on page 10), hit a
five-year high of 6.35 percent in January. Bond prices then began to rise, and
by September 30, the index' yield had fallen to 5.85 percent. Within the funds,
we took advantage of a major shift in the shape of the municipal yield curve at
the end of calendar year 1999 to increase income potential and build more call
protection. We had been slightly underweighted in discount bonds at the start of
fiscal year 2000, and this helped the fund's performance last autumn.
Q HOW DID KEMPER MUNICIPAL BOND FUND AND KEMPER INTERMEDIATE MUNICIPAL BOND
FUND PERFORM BETWEEN SEPTEMBER 30, 1999, AND SEPTEMBER 30, 2000?
A We are pleased to report that as of September 30, 2000, Kemper Municipal
Bond Fund's one-, three-, five- and 10-year results ranked within the top 20
percent of its peer group (for A class shares, unadjusted for a sales charge),
as shown in the table on page 2. Overall, it was a good year for Kemper
Municipal Bond Fund and a difficult year for Kemper Intermediate Municipal Bond
Fund. Kemper Municipal Bond Fund's 5.70 percent 12-month total return (as of
September 30, 2000, for Class A shares, unadjusted for a sales charge) outpaced
the average of the fund's peers by more than 90 basis points (0.90 percent). The
fund's unmanaged benchmark, the Lehman Brothers Municipal Bond index, was up
6.17 percent for the period.* Kemper Intermediate Municipal Bond Fund's results
were less than the average return of its peer group and benchmark for the 12
months ended September 30, 2000. This was attributable in part to the
intermediate fund's positioning in bonds that while somewhat higher yielding,
provided less-than-average total returns.
* THE LEHMAN BROTHERS MUNICIPAL BOND INDEX AND LEHMAN BROTHERS FIVE-YEAR
MUNICIPAL BOND INDEX INCLUDE BONDS THAT VARY IN QUALITY AND MATURITY. TO BE
INCLUDED IN EITHER 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. INVESTORS CANNOT INVEST IN EITHER INDEX.
INDEX RETURNS DO NOT REFLECT THE EXPENSES OF OPERATING AN ACTIVELY MANAGED
MUTUAL FUND.
Q WAS THERE MUCH OF A DIFFERENCE IN THE PERFORMANCE OF BONDS AMONG VARIOUS
STATES?
A New York's general obligation bonds were upgraded during fiscal year 2000
amid strength in the state's economy, helping support bond prices. New issuance
also fell. As of September 30, 2000, New York was the largest state allocation
within Kemper Municipal Bond Fund, followed by New Jersey. New York was also the
third largest allocation within Kemper Intermediate Municipal Bond Fund. New
York City and northern New Jersey are thriving thanks to Wall Street, increased
global trade and strong real estate markets. Within New York and New Jersey, we
focused on bonds maturing within a 14- to 18-year range. Within Kemper
Intermediate
8
<PAGE> 9
PERFORMANCE UPDATE
Municipal Bond Fund, Ohio was the largest state allocation. Many Ohio
municipalities issue bonds in the shorter maturity range, an area of the yield
curve that did not do particularly well last year, especially in comparison with
bonds with longer maturities.
Q HOW ABOUT PERFORMANCE WITHIN SECTORS OR CREDIT QUALITY LEVELS?
A We did not see many major differences in bond sector performance in fiscal
year 2000. Overall, high-quality general obligation bonds tended to be the most
sensitive to changes in interest rates, while certain hospital issues faced
credit problems. Kemper Intermediate Municipal Bond Fund's lackluster results
were attributable in part to an overweighting in nonrated hospital bonds
relative to the market as a whole. This area suffered amid continuing regulatory
and revenue concerns. Given the prospects for the slowing U.S. economy, we also
began to see notes of caution for the future within the industrial development
bond sector.
During the past year, we increased the percentage of Kemper Municipal Bond
Fund's portfolio invested in bonds rated AAA and reduced the fund's positioning
in nonrated securities, as shown in the Quality tables. Within Kemper
Intermediate Municipal Bond Fund, we slightly increased the percentage of
securities rated AA.
Q THIS PAST WINTER, THE TREASURY BEGAN BUYING BACK SOME LONG-TERM DEBT AND
HELD FEWER AUCTIONS. WHAT EFFECT DID THIS HAVE ON MUNICIPAL BONDS?
A The Treasury buyback news helped generate a welcome rally after several
months of depressed municipal bond prices. In February, the Treasury said it
plans to buy back 30-year government bonds and reduce auctions all along the
maturity spectrum.
This past winter, the difference in income potential between short-term and
long-term municipal securities was steep compared with Treasuries. We used this
development to reposition Kemper Municipal Bond Fund with more longer-term bonds
selling at a discount. This helped the fund capture additional total return
potential as the market rebounded in the spring. Given Kemper Intermediate
Municipal Bond Fund's investment mandate, we had less flexibility to adjust the
portfolio.
Q WHAT'S YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET?
A The environment for municipal bonds has improved substantially since
mid-1999. First, we do not believe the Federal Reserve will need to raise
interest rates further in the coming months, since U.S. economic growth has
moderated. At the same time, overall municipal bond credit quality remains
solid, especially in comparison with U.S. corporate bonds. The July 31(st) issue
of Standard & Poor's Credit Week said, "It is reasonable to be optimistic that
the United States' recent good economic fortune is shaping public policy in a
way that will support the rise in state and local government credit quality for
years to come."
Even though bond prices have risen, we still believe the municipal market
provides compelling long-term value. Tax-equivalent yields were at attractive
levels for investors in the highest brackets as of September 30, 2000. We are
hopeful that more equity investors will look to municipal bonds to reduce income
taxes and portfolio volatility.
Finally, we think it worth noting that the 6.17 percent return of the Lehman
Brothers Municipal Bond index outpaced the 4.64 percent total return of the Dow
Jones Industrial Average* for the 12 months ended September 30, 2000. While such
an occurrence is rare and is unlikely to be repeated over the long term, we
think it illustrates the continuing valuable role that municipal bonds can play
in a diverse portfolio.
* DOW JONES INDUSTRIAL AVERAGE IS A PRICE WEIGHTED INDEX OF 30 OF THE LARGEST,
MOST WIDELY HELD STOCKS TRADED ON THE NYSE. THE INDEX REPRESENTS PRINCIPAL
ONLY AND DOES NOT INCLUDE THE EFFECT OF REIMBURSEMENTS. THE INDEX IS THE SUM
OF THE CURRENT MARKET PRICE OF THE 30 STOCKS DIVIDED BY A NUMBER THAT HAS BEEN
ADJUSTED TO TAKE INTO ACCOUNT STOCK SPLITS AND CHANGES IN STOCK COMPOSITION.
THIS INDEX REPRESENTS ASSET TYPES WHICH ARE SUBJECT TO RISK, INCLUDING LOSS OF
PRINCIPAL. SOURCE: WIESENBERGER(R)
BOND RATING A grade assigned by a credit-rating agency to a corporate or
municipal debt security, based on the borrower's expected ability to repay. The
higher the grade, the lower the interest rate a borrower will usually pay. The
two major credit-rating firms are Moody's In-
<TABLE>
<CAPTION>
U.S. ECONOMIC AND BOND MARKET SNAPSHOT AS OF 9/30/00
<S> <C> <C> <C>
PERSONAL INCOME GROWTH RATE 1995-2000 6.13%
................................................................................
10-YEAR AAA GO BOND YIELD 4.82
................................................................................
VOLUME OF MUNICIPAL BOND ISSUANCE -19.1
................................................................................
UNEMPLOYMENT RATE 3.9
--------------------------------------------------------------------------------
</TABLE>
SOURCES: BLOOMBERG BUSINESS NEWS, THE BOND BUYER, U.S. DEPARTMENT OF LABOR.
YIELD SHOWN IS NOT INTENDED TO PRESENT THE YIELDS OR AVERAGE QUALITY OF ANY
KEMPER FUND. BOND ISSUANCE REFLECTS DATA FOR NINE MONTHS ENDED SEPTEMBER 2000.
9
<PAGE> 10
PERFORMANCE UPDATE
vestors Service, Inc. and Standard & Poor's.
DURATION A measure, in years, of the interest-rate sensitivity of a portfolio,
incorporating time-to-maturity and coupon size. The longer a portfolio's
duration, the greater its sensitivity to interest-rate changes.
REVENUE BOND INDEX (RBI) The RBI is the average yield on 25 revenue bonds with
30-year maturities generally rated single "A," compiled by THE BOND BUYER, a
daily newspaper that reports on the municipal bond market.
YIELD A fund's yield is a measure of the net investment income per share earned
over a specific one-month or 30-day period expressed as an annualized percentage
of the maximum offering price of the fund's shares at the end of the period.
10
<PAGE> 11
PERFORMANCE UPDATE
KEMPER NATIONAL TAX-FREE FUND
AVERAGE ANNUAL TOTAL RETURNS*
For periods ended September 30, 2000 (adjusted for the maximum sales charge)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER MUNICIPAL BOND FUND CLASS A 0.96% 4.33% 6.70% 7.26% (since 4/20/76)
.........................................................................................................
KEMPER MUNICIPAL BOND FUND CLASS B 1.74 4.23 n/a 4.84 (since 5/31/94)
.........................................................................................................
KEMPER MUNICIPAL BOND FUND CLASS C 4.74 4.42 n/a 4.92 (since 5/31/94)
.........................................................................................................
</TABLE>
KEMPER MUNICIPAL BOND FUND CLASS A
Growth of an assumed $10,000 investment in Class A
(since 4/20/76)
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER MUNICIPAL BOND LEHMAN BROTHERS U.S. CONSUMER PRICE
FUND CLASS A1 MUNICIPAL BOND INDEX+ INDEX++
--------------------- --------------------- -------------------
<S> <C> <C> <C>
4/30/76 9550.00 10000.00 10000.00
10436.00 11695.00 10374.00
11220.00 12424.00 11070.00
11020.00 11861.00 12068.00
10871.00 11790.00 13672.00
9368.00 10739.00 15383.00
8431.00 9641.00 16756.00
12065.00 13581.00 17398.00
12/31/83 13785.00 14675.00 18057.00
15208.00 16223.00 18770.00
18427.00 19473.00 19483.00
21943.00 23234.00 19697.00
22620.00 23583.00 20570.00
24575.00 25978.00 21480.00
27353.00 28780.00 22478.00
12/31/90 29174.00 30881.00 23850.00
32902.00 34630.00 24581.00
35768.00 37683.00 25294.00
40488.00 42312.00 25989.00
38258.00 40140.00 26684.00
45270.00 47129.00 27362.00
46776.00 49216.00 28271.00
51152.00 53740.00 28752.00
54099.00 57222.00 29216.00
52128.00 56043.00 30000.00
9/30/00 55606.00 59973.00 30808.00
</TABLE>
KEMPER MUNICIPAL BOND FUND CLASS B
Growth of an assumed $10,000 investment in Class B
(since 5/31/94)
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER MUNICIPAL BOND LEHMAN BROTHERS U.S. CONSUMER PRICE
FUND CLASS B1 MUNICIPAL BOND INDEX+ INDEX++
--------------------- --------------------- -------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9904.00 9942.00 10034.00
9876.00 10007.00 10129.00
9744.00 9868.00 10149.00
10429.00 10561.00 10264.00
10622.00 10816.00 10339.00
10880.00 11126.00 10386.00
11444.00 11586.00 10407.00
3/31/96 11165.00 11446.00 10556.00
11190.00 11534.00 10624.00
11422.00 11799.00 10698.00
11707.00 12099.00 10753.00
11628.00 12070.00 10847.00
12014.00 12486.00 10868.00
12368.00 12862.00 10929.00
12688.00 13211.00 10936.00
12822.00 13363.00 10997.00
6/30/98 12941.00 13566.00 11051.00
13338.00 13983.00 11092.00
13307.00 14067.00 11112.00
13348.00 14192.00 11186.00
13004.00 13948.00 11268.00
12872.00 13886.00 11383.00
12729.00 13777.00 11410.00
13080.00 14181.00 11607.00
13197.00 14396.00 11688.00
9/30/00 13482.00 14743.00 11718.00
</TABLE>
KEMPER MUNICIPAL BOND FUND CLASS C
Growth of an assumed $10,000 investment in Class C
(since 5/31/94)
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER MUNICIPAL BOND LEHMAN BROTHERS U.S. CONSUMER PRICE
FUND CLASS C1 MUNICIPAL BOND INDEX+ INDEX++
--------------------- --------------------- -------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9934.00 9942.00 10034.00
9897.00 10007.00 10129.00
9776.00 9868.00 10149.00
10463.00 10561.00 10264.00
10659.00 10816.00 10339.00
10919.00 11126.00 10386.00
11484.00 11586.00 10407.00
3/31/96 11206.00 11446.00 10556.00
11233.00 11534.00 10624.00
11464.00 11799.00 10698.00
11762.00 12099.00 10753.00
11685.00 12070.00 10847.00
12078.00 12486.00 10868.00
12422.00 12862.00 10929.00
12755.00 13211.00 10936.00
12877.00 13363.00 10997.00
6/30/98 13009.00 13566.00 11051.00
13408.00 13983.00 11092.00
13378.00 14067.00 11112.00
13418.00 14192.00 11186.00
13072.00 13948.00 11268.00
12940.00 13886.00 11383.00
12785.00 13777.00 11410.00
13151.00 14181.00 11607.00
13269.00 14396.00 11688.00
9/30/00 13554.00 14743.00 11718.00
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES
REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE WITH CHANGING
MARKET CONDITIONS, SO THAT WHEN
REDEEMED, SHARES MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.
* THE MAXIMUM SALES CHARGE FOR CLASS A
SHARES IS 4.5%. FOR CLASS B SHARES,
THE MAXIMUM CONTINGENT DEFERRED SALES
CHARGE IS 4%. CLASS C SHARES HAVE NO
SALES ADJUSTMENT, BUT REDEMPTIONS
WITHIN ONE YEAR OF PURCHASE MAY BE
SUBJECT TO A CONTINGENT DEFERRED SALES
CHARGE OF 1%. SHARE CLASSES INVEST IN
THE SAME UNDERLYING PORTFOLIO. DURING
THE PERIODS NOTED, SECURITIES PRICES
FLUCTUATED. FOR ADDITIONAL
INFORMATION, SEE THE PROSPECTUS,
STATEMENT OF ADDITIONAL INFORMATION
AND FINANCIAL HIGHLIGHTS AT THE END OF
THIS REPORT.
(1)PERFORMANCE INCLUDES REINVESTMENT OF
DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A
SHARES AND THE CONTINGENT DEFERRED
SALES CHARGE IN EFFECT AT THE END OF
THE PERIOD FOR CLASS B SHARES. WHEN
REVIEWING THE PERFORMANCE CHART,
PLEASE NOTE THAT THE INCEPTION DATE
FOR THE LEHMAN BROTHERS MUNICIPAL
BOND INDEX IS JANUARY 1, 1980. AS A
RESULT, WE ARE NOT ABLE TO
ILLUSTRATE THE LIFE OF FUND
PERFORMANCE (SINCE APRIL 20, 1976)
FOR KEMPER MUNICIPAL BOND FUND. IN
COMPARING KEMPER MUNICIPAL BOND FUND
WITH THE LEHMAN BROTHERS MUNICIPAL
BOND INDEX, YOU SHOULD NOTE THAT THE
FUND'S PERFORMANCE REFLECTS THE
MAXIMUM SALES CHARGE, WHILE NO SUCH
CHARGES ARE REFLECTED IN THE
PERFORMANCE OF THE INDEX.
+THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX INCLUDES APPROXIMATELY 15,000
BONDS. TO BE INCLUDED IN THE INDEX, A
MUNICIPAL BOND MUST MEET THE FOLLOWING
CRITERIA: A MINIMUM CREDIT RATING OF
BBB, ISSUED AS A PART OF AN ISSUE OF
AT LEAST $50 MILLION, ISSUED WITHIN
THE LAST FIVE YEARS, AND A MATURITY OF
AT LEAST TWO YEARS. BONDS SUBJECT TO
ALTERNATIVE MINIMUM TAX, VARIABLE-RATE
BONDS AND ZERO-COUPON BONDS ARE
EXCLUDED FROM THE INDEX. SOURCE:
WIESENBERGER(R).
++THE U.S. CONSUMER PRICE INDEX IS A
STATISTICAL MEASURE OF CHANGE, OVER
TIME, IN THE PRICES OF GOODS AND
SERVICES IN MAJOR EXPENDITURE GROUPS
FOR ALL URBAN CONSUMERS. IT IS
GENERALLY CONSIDERED TO BE A MEASURE
OF INFLATION. SOURCE: WIESENBERGER(R).
11
<PAGE> 12
PORTFOLIO STATISTICS
KEMPER MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION* ON 9/30/00 ON 9/30/99
<S> <C> <C> <C> <C>
REVENUE BONDS 65% 66%
................................................................................
GENERAL OBLIGATION BONDS 19 19
................................................................................
U.S. GOVERNMENT SECURED BONDS 16 13
................................................................................
CASH AND EQUIVALENTS 0 2
--------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
QUALITY ON 9/30/00 ON 9/30/99
<S> <C> <C> <C> <C>
AAA 68% 64%
................................................................................
AA 13 12
................................................................................
A 6 5
................................................................................
BBB 7 10
................................................................................
BB 1 1
................................................................................
NOT RATED 5 8
--------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
12
<PAGE> 13
PORTFOLIO STATISTICS
KEMPER MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
TOP FIVE STATE ALLOCATIONS ON 9/30/00
<S> <C> <C> <C> <C>
NEW YORK 11.26%
................................................................................
NEW JERSEY 9.38
................................................................................
TEXAS 8.43
................................................................................
COLORADO 7.97
................................................................................
ILLINOIS 7.58
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ON 9/30/00 ON 9/30/99
<S> <C> <C> <C> <C>
DURATION 7.8 years 7.7 years
................................................................................
AVERAGE MATURITY 13.1 years 13.7 years
--------------------------------------------------------------------------------
</TABLE>
*PORTFOLIO COMPOSITION AND HOLDINGS ARE SUBJECT TO CHANGE.
13
<PAGE> 14
PERFORMANCE UPDATE
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIOD ENDED SEPTEMBER 30, 2000 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR LIFE OF CLASS
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS A 1.36% 3.87% 5.28% (since 11/1/94)
............................................................................................................
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS B 0.39 3.47 4.79 (since 11/1/94)
............................................................................................................
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS C 3.41 3.64 4.98 (since 11/1/94)
............................................................................................................
</TABLE>
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from 11/30/94 to 9/30/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER INTERMEDIATE
MUNICIPAL BOND FUND LEHMAN BROTHERS U.S. CONSUMER PRICE
CLASS A(1) MUNICIPAL BOND INDEX+ INDEX++
------------------- --------------------- -------------------
<S> <C> <C> <C>
11/30/94 9721.00 10000.00 10000.00
9917.00 10224.00 10000.00
10432.00 10942.00 10114.00
10691.00 11206.00 10187.00
10970.00 11528.00 10234.00
11314.00 12004.00 10254.00
11206.00 11860.00 10401.00
6/30/96 11235.00 11950.00 10468.00
11424.00 12225.00 10541.00
11700.00 12536.00 10595.00
11693.00 12506.00 10688.00
11991.00 12937.00 10708.00
12292.00 13327.00 10768.00
12576.00 13688.00 10775.00
12715.00 13846.00 10835.00
6/30/98 12855.00 14056.00 10888.00
13195.00 14488.00 10929.00
13235.00 14575.00 10949.00
13284.00 14704.00 11022.00
13044.00 14452.00 11102.00
13088.00 14388.00 11216.00
13048.00 14275.00 11242.00
13236.00 14693.00 11436.00
13397.00 14915.00 11516.00
9/30/00 13637.00 15276.00 11545.00
</TABLE>
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS B
Growth of an assumed $10,000 investment in Class B
shares from 11/30/94 to 9/30/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER INTERMEDIATE
MUNICIPAL BOND FUND LEHMAN BROTHERS U.S. CONSUMER PRICE
CLASS B(1) MUNICIPAL BOND INDEX+ INDEX++
------------------- --------------------- -------------------
<S> <C> <C> <C>
11/30/94 10000.00 10000.00 10000.00
10193.00 10224.00 10000.00
10694.00 10942.00 10114.00
10935.00 11206.00 10187.00
11196.00 11528.00 10234.00
11516.00 12004.00 10254.00
11394.00 11860.00 10401.00
6/30/96 11402.00 11950.00 10468.00
11570.00 12225.00 10541.00
11826.00 12536.00 10595.00
11786.00 12506.00 10688.00
12064.00 12937.00 10708.00
12353.00 13327.00 10768.00
12602.00 13688.00 10775.00
12728.00 13846.00 10835.00
6/30/98 12841.00 14056.00 10888.00
13141.00 14488.00 10929.00
13167.00 14575.00 10949.00
13189.00 14704.00 11022.00
12926.00 14452.00 11102.00
12944.00 14388.00 11216.00
12880.00 14275.00 11242.00
13038.00 14693.00 11436.00
13172.00 14915.00 11516.00
9/30/00 13283.00 15276.00 11545.00
</TABLE>
KEMPER INTERMEDIATE MUNICIPAL BOND FUND CLASS C
Growth of an assumed $10,000 investment in Class C
shares from 11/30/94 to 9/30/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER INTERMEDIATE
MUNICIPAL BOND FUND LEHMAN BROTHERS U.S. CONSUMER PRICE
CLASS C(1) MUNICIPAL BOND INDEX+ INDEX++
------------------- --------------------- -------------------
<S> <C> <C> <C>
11/30/94 10000.00 10000.00 10000.00
10196.00 10224.00 10000.00
10690.00 10942.00 10114.00
10933.00 11206.00 10187.00
11213.00 11528.00 10234.00
11534.00 12004.00 10254.00
11404.00 11860.00 10401.00
6/30/96 11407.00 11950.00 10468.00
11578.00 12225.00 10541.00
11833.00 12536.00 10595.00
11803.00 12506.00 10688.00
12080.00 12937.00 10708.00
12360.00 13327.00 10768.00
12626.00 13688.00 10775.00
12740.00 13846.00 10835.00
6/30/98 12856.00 14056.00 10888.00
13170.00 14488.00 10929.00
13184.00 14575.00 10949.00
13208.00 14704.00 11022.00
12944.00 14452.00 11102.00
12964.00 14388.00 11216.00
12901.00 14275.00 11242.00
13060.00 14693.00 11436.00
13195.00 14915.00 11516.00
9/30/00 13406.00 15276.00 11545.00
</TABLE>
PERFORMANCE IS HISTORICAL AND INCLUDES
REINVESTMENT OF DIVIDENDS AND CAPITAL
GAINS. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE WITH CHANGING
MARKET CONDITIONS, SO THAT WHEN
REDEEMED, SHARES MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.
*THE MAXIMUM SALES CHARGE FOR CLASS A
SHARES IS 4.5%. FOR CLASS B SHARES,
THE MAXIMUM CONTINGENT DEFERRED SALES
CHARGE IS 4%. CLASS C SHARES HAVE NO
SALES ADJUSTMENT, BUT REDEMPTIONS
WITHIN ONE YEAR OF PURCHASE MAY BE
SUBJECT TO A CONTINGENT DEFERRED SALES
CHARGE OF 1%. SHARE CLASSES INVEST IN
THE SAME UNDERLYING PORTFOLIO. DURING
THE PERIODS NOTED, SECURITIES PRICES
FLUCTUATED. FOR ADDITIONAL
INFORMATION, SEE THE PROSPECTUS,
STATEMENT OF ADDITIONAL INFORMATION
AND FINANCIAL HIGHLIGHTS AT THE END OF
THIS REPORT.
(1)PERFORMANCE INCLUDES REINVESTMENT OF
DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A
SHARES AND THE CONTINGENT DEFERRED
SALES CHARGE IN EFFECT AT THE END OF
THE PERIOD FOR CLASS B SHARES. IN
COMPARING THE KEMPER INTERMEDIATE
MUNICIPAL BOND FUND WITH THE LEHMAN
BROTHERS MUNICIPAL BOND INDEX, YOU
SHOULD NOTE THAT THE FUND'S
PERFORMANCE REFLECTS THE MAXIMUM
SALES CHARGE, WHILE NO SUCH CHARGES
ARE REFLECTED IN THE PERFORMANCE OF
THE INDEX.
+THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX INCLUDES APPROXIMATELY 15,000
BONDS. TO BE INCLUDED IN THE INDEX, A
MUNICIPAL BOND MUST MEET THE FOLLOWING
CRITERIA: A MINIMUM CREDIT RATING OF
BBB, ISSUED AS A PART OF AN ISSUE OF
AT LEAST $50 MILLION, ISSUED WITHIN
THE LAST FIVE YEARS, AND A MATURITY OF
AT LEAST TWO YEARS. BONDS SUBJECT TO
ALTERNATIVE MINIMUM TAX, VARIABLE RATE
BONDS AND ZERO-COUPON BONDS ARE
EXCLUDED FROM THE INDEX. SOURCE:
WIESENBERGER(R).
++THE U.S. CONSUMER PRICE INDEX IS A
STATISTICAL MEASURE OF CHANGE, OVER
TIME, IN THE PRICES OF GOODS AND
SERVICES IN MAJOR EXPENDITURE GROUPS
FOR ALL URBAN CONSUMERS. IT IS
GENERALLY CONSIDERED TO BE A MEASURE
OF INFLATION. SOURCE: WIESENBERGER(R).
14
<PAGE> 15
PORTFOLIO STATISTICS
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION* ON 9/30/00 ON 9/30/99
<S> <C> <C> <C> <C>
REVENUE BONDS 65% 60%
................................................................................
GENERAL OBLIGATION BONDS 19 21
................................................................................
U.S. GOVERNMENT SECURED BONDS 15 15
................................................................................
CASH AND EQUIVALENTS 1 4
--------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
QUALITY ON 9/30/00 ON 9/30/99
<S> <C> <C> <C> <C>
AAA 61% 66%
................................................................................
AA 18 13
................................................................................
A 1 3
................................................................................
BBB 13 12
................................................................................
NOT RATED 7 6
--------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
TOP FIVE STATE ALLOCATIONS ON 9/30/00
<S> <C> <C> <C>
OHIO 12.00%
................................................................................
PENNSYLVANIA 11.24
................................................................................
NEW YORK 10.44
................................................................................
MICHIGAN 8.22
................................................................................
TEXAS 7.75
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ON 9/30/00 ON 9/30/99
<S> <C> <C> <C> <C>
DURATION 4.8 years 4.9 years
................................................................................
AVERAGE MATURITY 6.6 years 6.6 years
--------------------------------------------------------------------------------
</TABLE>
* Portfolio composition and holdings are subject to change.
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
KEMPER MUNICIPAL BOND FUND
Portfolio of Investments at September 30, 2000
<TABLE>
<CAPTION>
SHORT-TERM MUNICIPAL INVESTMENTS--0.5% PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
CALIFORNIA
Los Angeles, CA, Regional Airport
Improvement Lease, Series 1985, Daily
Demand Note, 5.500%, 12/01/2025* $ 200,000 $ 200,000
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
ILLINOIS
Chicago, IL, O'Hare International Airport,
American Airlines, 1983 Series B, Daily
Demand Note, 5.600%, 12/01/2017* 4,100,000 4,100,000
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
MICHIGAN
University of Michigan, University Revenue,
Series 1995A, Daily Demand Bond, 5.550%,
12/01/2027* 5,000,000 5,000,000
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA
Lehigh County, PA, General Purpose
Authority, Hospital Revenue, Lehigh Valley
Hospital, Series A, Daily Demand Note,
5.4500%, 07/01/2028 2,000,000 2,000,000
-----------------------------------------------------------------------------------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $11,300,000) 11,300,000
-----------------------------------------------------------------------------------
<CAPTION>
LONG-TERM MUNICIPAL INVESTMENTS--99.5%
<S> <C> <C> <C> <C> <C>
ALABAMA
Birmingham, AL, Jefferson Civic Center,
Special Tax Revenue, 7.400%, 01/01/2008
(c) 12,000,000 12,060,360
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
ALASKA
Anchorage, AK, Electric Utilities Revenue,
6.500%, 12/01/2015 (c) 5,000,000 5,650,500
North Slope Borough, AK, General Obligation,
Series 1997A, Zero Coupon, 06/30/2008 (c) 21,935,000 14,844,731
-----------------------------------------------------------------------------------
20,495,231
-----------------------------------------------------------------------------------------------------------------------
ARIZONA
Coconino County, AZ, Industrial Development
Authority, Revenue, Guidance Center Income
Project, Prerefunded 06/01/2001, 9.250%,
06/01/2011 (b) 515,000 536,960
Phoenix, AZ, General Obligation, Partially
Prerefunded 07/01/2002, 6.375%, 07/01/2013
(b) 7,400,000 7,739,734
Phoenix, AZ, Street & Highway User Revenue,
Prerefunded 07/01/2002, 6.250%, 07/01/2011
(b) 10,000,000 10,445,200
Salt River Project, Arizona Agricultural
Improvement, Revenue, Series C, 6.250%,
01/01/2019 7,000,000 7,236,530
-----------------------------------------------------------------------------------
25,958,424
-----------------------------------------------------------------------------------------------------------------------
ARKANSAS
Jonesboro, AR, Residential Housing, Revenue,
St Bernards Regional Medical Center,
Series A, 5.800%, 07/01/2012 (c) 4,025,000 4,190,951
North Little Rock, AR, Electric Revenue,
Series A, 6.500%, 07/01/2010 19,750,000 22,134,813
North Little Rock, AR, Electric Revenue,
Series A, 6.500%, 07/01/2015 13,080,000 14,750,447
-----------------------------------------------------------------------------------
41,076,211
</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> <C>
@CALIFORNIA
Foothill/Eastern Corridor Agency, CA, Toll
Road Revenue, Series A, Prerefunded
01/01/2010, 6.000%, 01/01/2016 (b) $20,400,000 $ 22,685,820
Foothill/Eastern Corridor Agency, CA, Toll
Road Revenue, Series A, Prerefunded
01/01/2007, 6.500%, 01/01/2032 (b) 19,975,000 22,309,079
Foothill/Eastern Corridor Agency, CA, Toll
Road Revenue, Series A, Prerefunded
01/01/2007, 6.000%, 01/01/2034 (b) 8,400,000 9,158,520
Foothill/Eastern Corridor Agency, CA, Toll
Road Revenue, 5.000%, 01/01/2035 (c) 7,850,000 7,232,284
Foothill/Eastern Corridor Agency, CA, Toll
Road Revenue, Series A, Zero Coupon,
01/01/2017*** 5,000,000 2,055,100
Murrieta Valley, CA, University School
District, General Obligation, Series A,
Zero Coupon, 09/01/2014 4,235,000 2,054,144
San Diego, CA, Industrial Development
Revenue, 7.495%, 09/01/2019** 7,300,000 7,946,707
San Diego, CA, Unified School District,
General Obligation, Series A, Zero Coupon,
07/01/2014 3,420,000 1,673,269
San Joaquin Hills, CA, Transportation,
Revenue, Series A, Zero Coupon, 01/15/2013 35,295,000 18,742,704
San Joaquin Hills, CA, Transportation,
Revenue, Series A, Zero Coupon, 01/15/2014 14,905,000 7,411,511
State of California, General Obligation,
5.750%, 05/01/2010 10,000,000 10,919,600
Ukiah, CA, Unified School District, Zero
Coupon, 08/01/2015 2,000,000 909,040
-----------------------------------------------------------------------------------
113,097,778
-----------------------------------------------------------------------------------------------------------------------
COLORADO
Arapahoe County, CO, Capital Improvements,
Revenue, Series E, Prerefunded 08/31/2005,
7.000%, 08/31/2026 (b) 25,525,000 28,799,602
Arapahoe E-470 Public Highway, Zero Coupon,
09/01/2020 (c) 7,000,000 2,210,670
Colorado Dept Trans Revenue, 6.000%,
06/15/2010 (c) 10,000,000 10,853,200
Colorado Health Facilities Authority
Revenue, Covenant Retirement Community
Project, 6.750%, 12/01/2015 1,750,000 1,795,185
Colorado Health Facilities Authority
Revenue, Covenant Retirement Community
Project, 6.750%, 12/01/2025 4,150,000 4,192,870
Colorado Metropolitan Waste & Water
Reclamation, Revenue, Series B, 6.000%,
04/01/2010 11,505,000 11,687,354
Colorado Public Highway Authority Revenue,
Series A, 5.750%, 09/01/2014 (c) 13,700,000 14,488,161
Colorado Public Highway Authority Revenue,
Series B, Zero Coupon, 09/01/2014 (c) 11,295,000 5,270,925
Colorado Public Highway Authority Revenue,
Series B, Zero Coupon, 09/01/2015 (c) 21,500,000 9,402,595
Colorado Public Highway Authority Revenue,
Series B, Zero Coupon, 09/01/2017 (c) 5,000,000 1,915,800
Colorado Public Highway Authority Revenue,
Series B, Zero Coupon, 09/01/2018 (c) 12,000,000 4,314,360
</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> <C>
Colorado Public Highway Authority Revenue,
Capital Appreciation, Series B, Zero
Coupon, 09/01/2022 (c) $ 4,500,000 $ 1,249,785
Denver, CO, City and County Airport
Revenue, Series A, 7.400%, 11/15/2005 1,250,000 1,375,563
Denver, CO, City and County Airport
Revenue, Series A, 7.500%, 11/15/2006 1,000,000 1,094,680
Denver, CO, City and County Airport
Revenue, Series A, Prerefunded
11/15/2002, 7.500%, 11/15/2012 (b) 5,940,000 6,408,488
Denver, CO, City and County Airport
Revenue, Series B, 7.250%, 11/15/2012(b) 12,715,000 13,442,298
Denver, CO, City and County Airport
Revenue, Series B, Prerefunded
11/15/2002, 7.250%, 11/15/2012 (b) 3,260,000 3,497,328
Denver, CO, City and County Airport
Revenue, Series C, 6.750%, 11/15/2022
(b) 5,180,000 5,406,055
Denver, CO, City and County Airport
Revenue, Series C, Prerefunded
11/15/2002, 6.750%, 11/15/2022 (b) 1,380,000 1,466,912
Denver, CO, City and County Airport
Revenue, Series A, 8.500%, 11/15/2023
(b) 4,270,000 4,376,195
Denver, CO, City and County Airport
Revenue, Series A, Prerefunded
11/15/2000, 8.500%, 11/15/2023 (b) 405,000 415,093
Denver, CO, City and County Airport
Revenue, Series A, Prerefunded
11/15/2001, 8.750%, 11/15/2023 (b) 2,120,000 2,260,323
Denver, CO, City and County Airport
Revenue, Series A, Prerefunded
11/15/2004, 7.500%, 11/15/2023 (b) 1,240,000 1,392,508
Denver, CO, City and County Airport
Revenue, Series A, Prerefunded
11/15/2002, 7.250%, 11/15/2025 (b) 2,750,000 2,953,115
Denver, CO, City and County Airport
Revenue, Series A, Prerefunded
11/15/2002, 7.250%, 11/15/2025 7,000,000 7,517,020
Denver, CO, City and County Airport
Revenue, Series E, 5.250%, 11/15/2023 10,000,000 9,394,500
Denver, CO, City and County Airport,
Unrefunded Balance, Revenue, Series A,
8.750%, 11/15/2023 5,880,000 6,238,327
Denver, CO, City and County Airport,
Unrefunded Balance, Revenue, Series A,
7.500%, 11/15/2023 5,945,000 6,490,513
Denver, CO, City and County School
Districts, General Obligation, Series A,
6.500%, 06/01/2010 3,225,000 3,617,128
Denver, CO, City and County School
Districts, General Obligation, Series A,
6.500%, 12/01/2010 3,000,000 3,387,090
Douglas County, CO, School District,
General Obligation, 7.000%, 12/15/2013
(c) 10,000,000 11,803,800
Douglas County, CO, School District,
General Obligation, Series A, 6.500%,
12/15/2016 (c) 715,000 765,929
E-470 Pub Hwy Auth Colo Rev Revenue, Zero
Coupon, 09/01/2024 (c) 20,000,000 4,896,200
</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> <C>
E-470 Pub Hwy Auth Colo Rev Revenue, Zero
Coupon, 09/01/2024 (c) $10,000,000 $ 2,448,100
E-470 Pub Hwy Auth Colo Rev Revenue, Zero
Coupon, 09/01/2025 (c) 20,000,000 4,616,600
E-470 Pub Hwy Auth Colo Rev Revenue, Zero
Coupon, 09/01/2034 15,200,000 1,217,976
---------------------------------------------------------------------------------
202,662,248
------------------------------------------------------------------------------------------------------------------------
CONNECTICUT
Bridgeport, CT, Series A, 6.000%,
07/15/2014 (c) 5,535,000 5,893,502
Connecticut Special Tax Obligation
Transportation Special Tax Series 10,
5.500%, 09/01/2013 7,480,000 7,705,746
Connecticut State, Series E, 6.000%,
03/15/2012 7,300,000 7,967,512
Connecticut State General Obligation
Series B, 5.750%, 06/15/2013 11,260,000 11,827,279
Connecticut State General Obligation
Series B, 5.875%, 06/15/2014 5,000,000 5,283,650
Connecticut State Development Authority,
Revenue, Pierce Memorial Baptist Home,
Prerefunded 10/01/2000, 9.250%,
10/01/2018 (b) 1,140,000 1,174,474
Greenwich, CT, Housing Authority Revenue,
Series A, 6.350%, 09/01/2027 2,640,000 2,484,715
---------------------------------------------------------------------------------
42,336,878
------------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA
District of Columbia, Inverse Floating
Rate Bond, 5.140%, 06/01/2012** 20,620,000 21,671,414
District of Columbia, General Obligation,
Series B, Prerefunded 06/01/2002,
6.300%, 06/01/2010 (b) 4,500,000 4,712,670
District of Columbia Redevelopment Land
Agency, Revenue, Series 1996, 5.625%,
11/01/2010 5,105,000 5,141,041
District of Columbia Water & Sewer
Authority, Inverse Floating Rate Bond,
Series 13, 6.120%, 10/01/2013** 1,210,000 1,392,529
District of Columbia Water & Sewer
Authority, Inverse Floating Rate Bond,
Series 14, 6.120%, 10/01/2014** 1,970,000 2,263,806
District of Columbia Water & Sewer
Authority, Inverse Floating Rate Bond,
Series 15, 6.120%, 10/01/2015** 3,565,000 4,071,016
District of Columbia Water & Sewer
Authority, Inverse Floating Rate Bond,
Series 16, 6.120%, 10/01/2016** 2,750,000 3,109,783
---------------------------------------------------------------------------------
42,362,259
------------------------------------------------------------------------------------------------------------------------
FLORIDA
Broward County, FL, Resource Recovery
Waste Energy Company, Revenue, 7.950%,
12/01/2008 8,220,000 8,482,465
Broward County, FL, Resource Recovery,
Waste Energy Company, Revenue, 7.950%,
12/01/2008 2,780,000 2,868,765
Florida St Dept Environmental Protection
Preservation Revenue, 5.750%, 07/01/2012 10,000,000 10,595,900
Florida State Board of Education Lottery
Revenue, Series A, 5.750%, 07/01/2012
(c) 6,530,000 6,919,123
Greater Orlando, FL, Aviation Authority,
Revenue, Series A, 5.250%, 10/01/2013 5,300,000 5,204,547
</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> <C>
Highlands County, FL, Health Facilities
Authority Revenue, Adventist Health
Systems, 5.250%, 11/15/2028 $ 5,300,000 $ 4,198,342
Hillsborough County, FL, Industrial
Development, Revenue, Tampa Electric
Project, 8.000%, 05/01/2022 10,000,000 10,714,300
Jacksonville, FL, Health Facilities A,
Revenue, 11.500%, 10/01/2012*** 85,000 133,232
Jacksonville, FL, Health Facilities A,
Revenue, Prerefunded 10/01/2003,
11.500%, 10/01/2012 (b) 10,000 11,908
Jacksonville, FL, Health Facilities A,
Revenue, Prerefunded 10/01/2004,
11.500%, 10/01/2012 (b) 35,000 43,676
Jacksonville, FL, Health Facilities A,
Revenue, Prerefunded 10/01/2005,
11.500%, 10/01/2012 (b) 40,000 52,016
Jacksonville, FL, Health Facilities A,
Revenue, Prerefunded 10/01/2006,
11.500%, 10/01/2012 (b) 15,000 20,240
Lee County, FL, Airport Revenue, Series
14, 6.110%, 10/01/2013** 3,960,000 4,482,443
Lee County, FL, Airport Revenue, Series
14, 6.360%, 10/01/2015** 1,500,000 1,700,520
Lee County, FL, Airport Revenue, Series
14, 6.110%, 10/01/2020** 1,410,000 1,528,807
Miami-Dade County, FL, Revenue, Series A,
Zero Coupon, 10/01/2014 (c) 2,195,000 996,991
Miami-Dade County, FL, Special Obligation,
Refunded, Series A, Zero Coupon,
10/01/2022 (c) 7,000,000 1,879,710
Orange County, FL, Health Facilities,
Revenue, 6.250%, 10/01/2016*** 710,000 779,339
Orange County, FL, Health Facilities,
Revenue, 6.250%, 10/01/2016 (c) 290,000 319,313
Orange County, FL, Health Facilities
Authority, Revenue, Orlando Regional
Healthcare, 6.250%, 10/01/2021 6,000,000 6,560,340
Orlando, FL, Utilities Commission Water
and Electricity, Revenue, 6.750%,
10/01/2017 3,500,000 4,001,970
Palm Beach County, FL, Solid Waste
Authority Revenue, Series A, Zero
Coupon, 10/01/2013 (c) 20,000,000 9,982,600
Sunrise, FL, Utilities System Revenue,
Refunded, 5.500%, 10/01/2018 (c) 10,000,000 10,154,600
Tampa, FL, Solid Waste System Revenue,
Series B, 5.250%, 10/01/2014 (c) 1,400,000 1,365,448
Tampa, FL, Solid Waste System Revenue,
Series B, 5.250%, 10/01/2015 (c) 2,420,000 2,338,349
---------------------------------------------------------------------------------
95,334,944
------------------------------------------------------------------------------------------------------------------------
GEORGIA
Atlanta, GA, Airport Revenue, General
Obligation, Series B, 5.625%, 01/01/2009 4,170,000 4,351,312
Atlanta, GA, Airport Revenue, General
Obligation, Series B, 5.750%, 01/01/2010 4,240,000 4,461,710
Atlanta, GA, Airport Revenue, General
Obligation, Series B, 5.750%, 01/01/2011 1,590,000 1,665,779
Atlanta, GA, Water & Wastewater Revenue,
Series A, 5.500%, 11/01/2019 (c) 13,000,000 13,083,460
</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> <C>
Chatham County, GA, School District,
General Obligation, Prerefunded
08/01/2001, 6.150%, 08/01/2010 (b) $ 7,300,000 $ 7,546,667
Fulton County, GA, Housing Authority
Single, Revenue, 6.550%, 03/01/2018 175,000 178,658
Fulton County, GA, Housing Authority
Single, Revenue, Series A, 6.600%,
03/01/2028 2,660,000 2,746,716
Georgia Municipal Electric Authority,
Power Revenue, Series W, 6.600%,
01/01/2018 (c) 3,500,000 3,959,200
Georgia State, Series C, 5.750%,
09/01/2013 4,600,000 4,918,504
Georgia State, Series D, 5.750%,
10/01/2013 5,000,000 5,266,250
Georgia State Housing & Financial
Authority Revenue, Single Family
Mortgage, 6.250%, 12/01/2028 12,450,000 12,724,274
Georgia State, General Obligation Series
A, 6.250%, 04/01/2011 4,350,000 4,829,631
Georgia State, General Obligation Series
C, 6.000%, 07/01/2011 13,480,000 14,677,833
State of Georgia, General Obligation,
5.500%, 09/01/2014 5,485,000 5,704,345
---------------------------------------------------------------------------------
86,114,339
------------------------------------------------------------------------------------------------------------------------
HAWAII
State of Hawaii, General Obligation,
Series C, 5.750%, 09/01/2014 5,000,000 5,169,850
State of Hawaii, General Obligation,
Series C, 5.800%, 09/01/2015 5,000,000 5,174,450
---------------------------------------------------------------------------------
10,344,300
------------------------------------------------------------------------------------------------------------------------
ILLINOIS
Chicago, IL, Capital Appreciation, City
Colleges, Zero Coupon, 01/01/2017 (c) 20,000,000 7,958,400
Chicago, IL, Board of Education,
Certificates of Participation, Series A,
6.250%, 01/01/2009 6,735,000 7,309,967
Chicago, IL, Board of Education, General
Obligation, Chicago School Reform,
Series B, Zero Coupon, 12/01/2009 (c) 7,615,000 4,734,093
Chicago, IL, Board of Education,
Certificates of Participation, Series A,
6.250%, 01/01/2011 (b) 10,000,000 10,988,300
Chicago, IL, Board of Education, General
Obligation, Chicago School Reform,
Series A, Zero Coupon,12/01/2012 (c) 3,500,000 1,834,105
Chicago, IL, Board of Education, General
Obligation, Chicago School Reform,
Series A, Zero Coupon, 12/01/2014 (c) 2,000,000 916,840
Chicago, IL, Board of Education, General
Obligation, Chicago School Reform,
6.000%, 12/01/2016 (c) 5,000,000 5,194,000
Chicago, IL, O'Hare International Airport
Revenue, Series A, 6.375%, 01/01/2012
(c) 15,000,000 15,990,750
Chicago, IL, O'Hare International Airport
Revenue, Series A, 6.000%, 01/01/2012 5,000,000 5,103,650
Chicago, IL, O'Hare International Airport
Revenue, 6.750%, 01/01/2018 23,350,000 24,250,843
Chicago, IL, O'Hare International Airport,
Special Facilities Revenue, United
Airlines Project, Series 1999A, 5.350%,
09/01/2016 3,000,000 2,620,320
Chicago, IL, Tax Allocation, Central
Station Project, Series A, Prerefunded
01/01/2005, 8.900%, 01/01/2011 1,530,000 1,641,185
</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> <C>
Chicago, IL, Water Revenue, Zero Coupon,
11/01/2012 (c) $ 6,350,000 $ 3,354,134
Cook County, IL, Rites-PA 591, 7.210%,
11/15/2013** 10,610,000 13,306,638
Cook County, IL, Capital Improvements,
General Obligation, 6.500%, 11/15/2014
(c) 18,560,000 20,902,086
Illinois Development Financial Authority,
General Obligation, Debt
Restructure-East St Louis, 7.500%,
11/15/2013 3,750,000 4,070,888
Illinois Development Financial Authority,
Pollution Revenue, Commonwealth Edison
Company Project, Series D, 6.750%,
03/01/2015 (c) 16,780,000 18,162,840
Illinois Development Financial Authority,
Hospital Revenue, Adventist Health
System, 5.500%, 11/15/2020 10,000,000 8,355,000
Illinois Health Facilities Authority
Revenue, South Suburban Hospital,
7.000%, 02/15/2009 (b) 4,695,000 5,163,937
Illinois Health Facilities Authority
Revenue, South Suburban Hospital,
Prerefunded 02/15/2002, 7.000%,
02/15/2009*** 3,055,000 3,209,827
Illinois Health Facilities Authority
Revenue, Health Care
Facilities-Northwestern Medical,
Prerefunded 11/15/2004, 6.500%,
11/15/2015 (b) 3,900,000 4,242,381
Illinois Regional Transportation
Authority, 7.610%, 11/01/2021** 12,900,000 16,787,673
Lake, Cook, Kane, and McHenry Counties,
IL, General Obligation, 6.300%,
12/01/2017 (c) 1,885,000 2,076,516
St. Charles, IL, Multifamily Housing
Revenue, Housing-Wessel Court Project,
7.600%, 04/01/2024 3,680,000 3,711,317
University Park, IL, Tax Allocation,
Governors Gateway Industrial Park,
8.500%, 12/01/2011 2,570,000 2,787,653
Will County, IL, Community Unit School
District, General Obligation, Series B,
Zero Coupon, 11/01/2015 8,000,000 3,466,480
Will County, IL, Forest Preserves
District, General Obligation, Series B,
Zero Coupon, 12/01/2011 4,145,000 2,323,148
Will County, IL, Forest Preserves
District, General Obligation, Series B,
Zero Coupon, 12/01/2012 (c) 2,480,000 1,304,207
Will County, IL, Forest Preserves
District, General Obligation, Series B,
Zero Coupon, 12/01/2013 (c) 12,030,000 5,924,655
Will County, IL, Forest Preserves
District, General Obligation, Series B,
Zero Coupon, 12/01/2014 (c) 10,255,000 4,720,582
---------------------------------------------------------------------------------
212,412,415
------------------------------------------------------------------------------------------------------------------------
INDIANA
Indiana Health Facilities Financing
Authority, Hospital Revenue, Fayette
Memorial Hospital Project, 7.200%,
10/01/2022 1,800,000 1,782,360
Indiana Transportation Financial
Authority, Highway Revenue, Series A,
7.250%, 06/01/2015 4,000,000 4,745,120
---------------------------------------------------------------------------------
6,527,480
</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> <C>
IOWA
Iowa Financial Authority, Hospital
Facility Revenue, Trinity Regional
Hospital Project, Prerefunded
07/01/2002, 7.000%, 07/01/2022 (b) $12,000,000 $ 12,681,000
---------------------------------------------------------------------------------
12,681,000
------------------------------------------------------------------------------------------------------------------------
KENTUCKY
Hopkins County, KY, Hospital Revenue,
Trover Clinic Found, 6.625%, 11/15/2011
(c) 4,000,000 4,153,080
Kenton County, KY, Airport Board Revenue,
Cincinnati Northern Kentucky, Series A,
6.300%, 03/01/2015 (c) 6,250,000 6,599,938
Kentucky Economic Development Finance
Authority Health Systems Series C, Zero
Coupon, 10/01/2012 (c) 13,670,000 10,586,185
Kentucky Economic Development Authority
Systems, Series C, Zero Coupon,
10/01/2016* 6,500,000 4,921,410
Kentucky Economic Development Finance
Authority Health Systems Series C, Zero
Coupon, 10/01/2013 (c) 5,000,000 3,868,550
Kentucky Economic Development Finance
Authority Health Systems Revenue, Series
C, Zero Coupon, 10/01/2011 (c) 10,295,000 7,990,361
---------------------------------------------------------------------------------
38,119,524
------------------------------------------------------------------------------------------------------------------------
LOUISIANA
Jefferson Parish, LA, School Board,
Revenue, 6.250%, 02/01/2008 (c) 11,000,000 11,419,760
Louisiana Public Facilities Authority
Revenue, Centenary College Louisiana
Project, Prerefunded 02/01/2008, 5.750%,
02/01/2012 (b) 1,000,000 1,059,760
Louisiana Public Facilities Authority
Revenue, Centenary College Louisiana
Project, Prerefunded 02/01/2008, 5.900%,
02/01/2017 (b) 1,000,000 1,068,910
---------------------------------------------------------------------------------
13,548,430
------------------------------------------------------------------------------------------------------------------------
MAINE
Maine Health & Higher Educational
Facilities, Revenue, Series B, 7.100%,
07/01/2014 (b) 2,750,000 3,033,250
Maine Turnpike Authority, 5.625%,
07/01/2017 4,350,000 4,402,113
---------------------------------------------------------------------------------
7,435,363
------------------------------------------------------------------------------------------------------------------------
MARYLAND
Maryland Economic Development Corporation,
Chesapeake Bay Conference, Series 1999B,
7.750%, 12/01/2031 30,000,000 30,121,800
Maryland General Obligation, 5.750%,
08/01/2013 18,565,000 19,677,972
Maryland Health & Educational Facilities
Authority, 6.750%, 07/01/2030 3,000,000 3,084,810
Maryland State Health & Higher Educational
Facilities, Revenue, Doctors County
Hospital, 5.750%, 07/01/2013 6,785,000 6,023,859
Northeast Maryland Waste Disposal
Authority Revenue, Southwest Resource
Recovery System, Series 1993, 7.200%,
01/01/2006 (c) 1,500,000 1,635,720
---------------------------------------------------------------------------------
60,544,161
</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> <C>
MASSACHUSETTS
Massachusetts Bay Transportation
Authority, Revenue, General
Transportation, Series A, 5.875%,
03/01/2015 $10,075,000 $ 10,711,136
Massachusetts Bay Transportation
Authority, General Transportation
Revenue, Series B, 6.200%, 03/01/2016 12,950,000 14,145,415
Massachusetts Municipal Wholesale Electric
Company, Revenue, Series B, 6.750%,
07/01/2011 17,500,000 18,288,550
Massachusetts Municipal Wholesale Electric
Company, Revenue, Series B, 6.750%,
07/01/2017 3,945,000 4,070,057
Massachusetts Municipal Wholesale Electric
Company, Revenue, Series A, 6.000%,
07/01/2018 5,610,000 5,658,078
Massachusetts Municipal Wholesale Electric
Company, Revenue, Series C, 6.625%,
07/01/2018 10,000,000 10,224,700
Massachusetts Port Authority Revenue,
Series B, 5.500%, 07/01/2015 (c) 3,025,000 3,073,824
Massachusetts State Development Financial
Agency, Revenue, Health Care Facilities,
Series 1999 A, 7.100%, 07/01/2032 2,990,000 2,766,079
Massachusetts State Port Authority
Revenue, 13.000%, 07/01/2013*** 1,500,000 2,320,575
Massachusetts State Turnpike Metropolitan
Authority, Revenue, Series C, Zero
Coupon, 01/01/2018 10,000,000 3,810,700
Massachusetts State Turnpike Metropolitan
Authority, Revenue, Series C, Zero
Coupon, 01/01/2019 5,500,000 1,967,900
Massachusetts State Turnpike Metropolitan
Authority, Revenue, Series C, Zero
Coupon, 01/01/2020 7,000,000 2,345,420
State of Massachusetts, General
Obligation, Series B, 6.500%, 08/01/2011 5,940,000 6,146,593
State of Massachusetts, Revenue, Federal
Highway, Series A, Zero Coupon,
12/15/2014 27,680,000 12,749,685
---------------------------------------------------------------------------------
98,278,712
------------------------------------------------------------------------------------------------------------------------
MICHIGAN
Battle Creek, MI, Downtown Development,
Tax Allocation, Prerefunded 05/01/2004,
7.600%, 05/01/2016 (b) 3,800,000 4,234,188
Detroit, MI, General Obligation, Series A,
Prerefunded 04/01/2005, 6.700%,
04/01/2010 (b) 2,500,000 2,732,350
Detroit, MI, General Obligation, Series B,
6.250%, 04/01/2010 3,410,000 3,560,381
Michigan St Hosp Fin Auth Revenue, 6.000%,
11/15/2013 (c) 10,000,000 10,466,600
Michigan St Hosp Fin Auth Revenue, 6.250%,
11/15/2014 (c) 10,000,000 10,595,600
Michigan State Building Authority Revenue,
Series I, 6.750%, 10/01/2011 9,750,000 10,134,540
Michigan State Hospital Financial
Authority Revenue, Gratiot Community
Hospital, 6.100%, 10/01/2007 2,250,000 2,232,090
Michigan State Strategic Fund Limited,
Revenue, 5.750%, 11/15/2018 1,400,000 1,180,662
</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> <C>
Michigan State Trunk Line, Revenue, Series
A, 5.500%, 11/01/2017 $ 7,000,000 $ 7,080,990
Tawas City, MI, Hospital Financial
Authority, Revenue, Series A, 5.600%,
02/15/2013*** 2,735,000 2,748,866
Wayne Charter County, MI, Detroit-Metro
Wayne County, Revenue, 5.000%,
12/01/2022 (c) 16,305,000 14,473,949
---------------------------------------------------------------------------------
69,440,216
------------------------------------------------------------------------------------------------------------------------
MINNESOTA
Minneapolis and Saint Paul, MN,
Metropolitan Airport Community Airport
Revenue, Series B, 5.250%, 01/01/2019
(c) 3,700,000 3,482,255
Minnesota Public Facility & Water, 5.250%,
03/01/2015 5,000,000 4,942,550
New Hope, MN, Housing & Health, Revenue,
Minnesota Masonic Home North Ridge,
5.900%, 03/01/2019 1,335,000 1,147,219
New Hope, MN, Housing & Health, Revenue,
Minnesota Masonic Home North Ridge,
5.875%, 03/01/2029 2,700,000 2,213,946
University of Minnesota, Series A, 5.750%,
07/01/2017 3,240,000 3,394,775
University of Minnesota, Series A, 5.750%,
07/01/2018 6,760,000 7,047,097
---------------------------------------------------------------------------------
22,227,842
------------------------------------------------------------------------------------------------------------------------
MISSISSIPPI
Jones County, MS, Hospital Revenue, South
Central Regional Medical Center, 5.500%,
12/01/2017 2,055,000 1,807,331
---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
MISSOURI
Clarence Cannon, MO, Wholesale Water
Revenue, 6.000%, 05/15/2020 10,000,000 9,658,400
Missouri State Health & Educational
Facilities, Revenue, Christian Health
Services, Series B, Prerefunded
02/15/2001, 6.875%, 02/15/2013 (b) 7,000,000 7,202,090
Missouri State Health & Educational
Facilities, Revenue, Lutheran Senior
Services, 5.750%, 02/01/2017 3,250,000 2,986,945
Sikeston, MO, Electric Revenue, 6.200%,
06/01/2010 6,870,000 7,575,961
St Louis County, MO, Regional Convention,
Revenue, Series B, Prerefunded
08/15/2003, 7.000%, 08/15/2011 (b) 4,380,000 4,669,124
St Louis County, MO, Regional Convention,
Revenue, Series C, 7.900%, 08/15/2021
(b) 240,000 253,152
St Louis County, MO, Regional Convention,
Revenue, Series C, Prerefunded
08/15/2003, 7.900%, 08/15/2021 (b) 4,760,000 5,189,352
St Louis, MO, Tax Increment Revenue, Tax
Allocation, Series A, 10.000%,
08/01/2010 7,260,000 8,629,454
---------------------------------------------------------------------------------
46,164,478
------------------------------------------------------------------------------------------------------------------------
MONTANA
Montana State Housing Board, Revenue,
Single Family Mortgage, Series A-2,
6.150%, 06/01/2030 (b) 2,405,000 2,431,936
---------------------------------------------------------------------------------
2,431,936
</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> <C>
NEBRASKA
Nebraska Investment Finance Authority
Single, Revenue, Series A, 6.700%,
09/01/2026 $ 3,520,000 $ 3,589,485
Omaha, NE, Public Power Revenue, Series B,
6.200%, 02/01/2017*** 4,700,000 5,080,371
Scotts Bluff County, NE, Hospital
Authority, Revenue, 6.450%, 12/15/2004 1,755,000 1,783,536
Scotts Bluff County, NE, Hospital
Authority, Revenue, Prerefunded
12/15/2002, 6.450%, 12/15/2004 (b) 1,675,000 1,759,119
---------------------------------------------------------------------------------
12,212,511
------------------------------------------------------------------------------------------------------------------------
NEVADA
Clark County, NV, Industrial Development
Revenue, Refunded, Nevada Power Company
Project, Series B, 5.900%, 10/01/2030 5,000,000 4,456,250
Humboldt County, NV, Pollution Control,
Revenue, Idaho Power Company Project,
8.300%, 12/01/2014 9,650,000 10,760,908
Nevada Las Vegas Monorail, 7.375%,
01/01/2040 8,000,000 7,669,760
Reno, NV, Redevelopment Agency Tax
Allocation, Series E, Prerefunded
09/01/2003, 5.650%, 09/01/2013 (b) 3,145,000 3,258,692
Reno, NV, Redevelopment Agency Tax
Allocation, Series E, Prerefunded
09/01/2003, 5.750%, 09/01/2017 (b) 4,020,000 4,176,177
---------------------------------------------------------------------------------
30,321,787
------------------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE
New Hampshire Higher Educational & Health
Facilities, Revenue, Havenwood Heritage
Heights, 7.350%, 01/01/2018 2,500,000 2,538,100
New Hampshire Higher Educational & Health
Facilities, Revenue, Havenwood Heritage
Heights, 7.450%, 01/01/2025 4,000,000 4,049,480
---------------------------------------------------------------------------------
6,587,580
------------------------------------------------------------------------------------------------------------------------
NEW JERSEY
Atlantic City, NJ, Board of Education,
General Obligation, 6.000%, 12/01/2013
(c) 4,600,000 4,995,508
Atlantic City, NJ, Board of Education,
General Obligation, 6.100%, 12/01/2014
(c) 4,500,000 4,923,540
Essex County, NJ, Improvement Authority
Revenue, Property & Equipment Project,
6.500%, 12/01/2012 4,050,000 4,263,921
Essex County, NJ, Improvement Authority
Revenue, Jail & Youth Housing Projects,
Prerefunded 12/01/2004, 6.900%,
12/01/2014 (b) 2,645,000 2,922,302
Jersey City, NJ, Sewer Authority Sewer,
Revenue, 4.500%, 01/01/2019 (c) 13,000,000 11,236,420
New Jersey Economic Development Authority,
Revenue, Series A, 5.875%, 05/01/2014
(c) 5,000,000 5,257,650
New Jersey Economic Development Authority,
Economic Development Revenue, United
Methodist Homes, 5.500%, 07/01/2019 2,500,000 2,013,450
New Jersey Economic Development Authority,
Revenue, United Methodist Homes, 5.750%,
07/01/2029 9,500,000 7,484,385
New Jersey Economic Development Authority
Revenue, Harrogate Inc., Series A,
5.875%, 12/01/2026 1,000,000 847,850
</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> <C>
New Jersey Health Care Facilities,
Revenue, Atlantic City Medical Center,
Series C, 6.800%, 07/01/2011 $ 6,840,000 $ 7,153,888
New Jersey Health Care Facilities,
Revenue, West Jersey Health Systems,
Prerefunded 07/01/2002, 6.125%,
07/01/2012 (b) 11,000,000 11,513,480
New Jersey Health Care Facilities,
Revenue, Southern Ocean County Hospital,
Series A, 6.125%, 07/01/2013 3,735,000 3,524,794
New Jersey State Transportation Trust Fund
Authority, Transportation System, Series
A, 5.625%, 06/15/2014 3,555,000 3,715,722
New Jersey State Transportation Trust Fund
Authority, Residual Certificates, Series
224, 7.010%, 06/15/2016** 11,000,000 11,848,320
New Jersey State Transportation Trust Fund
Authority, Transportation System, Series
A, 5.000%, 06/15/2017 21,660,000 20,632,233
New Jersey State Turnpike Authority,
Revenue, 10.375%, 01/01/2003 (c)*** 1,450,000 1,555,502
New Jersey State Turnpike Authority
Revenue, 7.010%, 01/01/2010 (c)** 11,100,000 12,650,781
New Jersey State Turnpike Authority
Revenue, 7.160%, 01/01/2011 (c)** 12,140,000 14,240,220
New Jersey State Turnpike Authority,
Revenue, Series A, 6.200%, 01/01/2012 10,000,000 10,402,900
New Jersey State Turnpike Authority
Revenue, 6.000%, 01/01/2012 (c) 7,000,000 7,599,480
New Jersey State Turnpike Authority
Revenue, 6.000%, 01/01/2013 (c) 5,000,000 5,417,750
New Jersey State Turnpike Authority,
Revenue, 5.918%, 01/01/2016 (c)** 21,170,000 26,364,060
New Jersey State Turnpike Authority,
Revenue, 5.809%, 01/01/2016 (c)** 3,830,000 4,769,691
New Jersey State Turnpike Authority,
Revenue, Series A, 6.500%, 01/01/2016
(c) 45,720,000 51,329,367
---------------------------------------------------------------------------------
236,663,214
------------------------------------------------------------------------------------------------------------------------
NEW MEXICO
Albuquerque, NM, Hospital Revenue,
Southwest Community Health Services,
10.000%, 08/01/2003*** 525,000 573,983
Albuquerque, NM, Hospital Revenue,
Southwest Community Health Services,
Prerefunded 08/01/2008, 10.125%,
08/01/2012 (b) 4,000,000 5,038,440
Los Alamos County, NM, Utility Income,
Revenue, Series A, 6.100%, 07/01/2010
(c) 4,400,000 4,658,324
New Mexico Mortgage Finance Authority,
Revenue, Series E-2, 6.800%, 03/01/2031 7,440,000 8,006,333
Socorro, NM, Hospital System Revenue,
Southwest Community Health Services,
10.000%, 08/01/2003*** 710,000 776,335
---------------------------------------------------------------------------------
19,053,415
------------------------------------------------------------------------------------------------------------------------
NEW YORK
Long Island Power Authority Zero Coupon,
06/01/2008 (c) 14,500,000 9,952,945
Long Island Power Authority, Electric
System Revenue, General Obligation,
Series A, 5.125%, 12/01/2016 (c) 5,000,000 4,829,000
Long Island Power Authority Electric
System Revenue, Zero Coupon, 06/01/2009
(c) 8,000,000 5,206,400
</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> <C>
Metropolitan Transportation Authority of
New York, Transportation Facilities
Revenue, Series C, 5.125%, 07/01/2011
(c) $10,000,000 $ 10,079,900
Metropolitan Transportation Authority of
New York, Transit Facilities Revenue,
Series 1998 C, 5.125%, 07/01/2013 (c) 5,000,000 4,967,250
Monroe County, NY, Airport Authority,
Airport Revenue, 5.746%, 01/01/2014** 2,005,000 2,176,849
Monroe County, NY, Airport Authority,
Airport Revenue, 5.761%, 01/01/2015** 2,515,000 2,705,788
Monroe County, NY, Airport Authority,
Airport Revenue, 6.015%, 01/01/2016** 1,915,000 2,087,867
New York & New Jersey Port Authority,
Revenue, Series 8, 6.500%, 10/15/2008 5,390,000 5,585,388
New York & New Jersey Port Authority,
Revenue, Series 6, 6.000%, 07/01/2013 6,555,000 6,826,311
New York & New Jersey Port Authority,
Revenue, Series 6, 6.000%, 07/01/2015 2,500,000 2,583,375
New York & New Jersey Port Authority,
Special Obligation, Revenue,
Continental/ Eastern Project, Laguardia,
9.125%, 12/01/2015 3,150,000 3,230,451
New York City, NY, Industrial Development
Agency Revenue, USTA National Tennis
Center Project, 6.600%, 11/15/2011 3,000,000 3,244,440
New York Metropolitan Transportation
Authority, Revenue, Series Q, 5.125%,
07/01/2012 (c) 7,750,000 7,762,943
New York Metropolitan Transportation
Authority, Revenue, Series O, 6.250%,
07/01/2012 6,000,000 6,435,840
New York Metropolitan Transportation
Authority, Revenue, Series A, 6.000%,
04/01/2020 5,000,000 5,337,150
New York State Dormitory Authority, City
University, Revenue, 5.750%, 07/01/2013 5,500,000 5,845,015
New York State Dormitory Authority,
Revenue, State University Educational
Facilities, Revenue, Prerefunded
05/15/2002, 7.250%, 05/15/2018 (b) 440,000 467,694
New York State Dormitory Authority,
Revenue, State University Educational
Facilities, Revenue, Prerefunded
05/15/2002, 7.250%, 05/15/2018 (b) 3,370,000 3,582,108
New York State Dormitory Authority
Revenue, City University System, 6.000%,
07/01/2014 7,000,000 7,591,430
New York State Dormitory Authority
Revenue, State Universities Educational
Facilities, Series B, 5.000%, 05/15/2018 7,000,000 6,551,440
New York State Environment Facilities
Corporation Revenue, Pollution Control,
Prerefunded 06/15/2004, 6.875%,
06/15/2014 (b) 6,815,000 7,443,684
New York State Environmental Facilities
Corporation, State Water Pollution
Control, Revolving Fund Revenue, Series
A, 7.250%, 06/15/2010 480,000 498,322
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 4,699,851
</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> <C>
New York State Environmental Facilities
Corporation Revenue, Pollution Control,
Series C, 7.200%, 03/15/2011 $ 2,500,000 $ 2,554,650
New York State Environmental Facilities
Corporation Revenue, Pollution Control,
6.875%, 06/15/2014 4,560,000 4,913,263
New York State Local Assistance
Corporation, Revenue, Series B,
Prerefunded 04/01/2001, 7.375%,
04/01/2012 (b) 2,675,000 2,768,117
New York State Local Assistance
Corporation, Revenue, Series B,
Prerefunded 04/01/2001, 7.500%,
04/01/2020 (b) 7,000,000 7,248,010
New York State Medical Care Facilities
Financial Agency Revenue, Series D,
Prerefunded 02/15/2003, 6.450%,
02/15/2009 (b) 8,015,000 8,482,194
New York State Medical Care Facilities
Financial Agency Revenue, Prerefunded
02/15/2000, 7.750%, 08/15/2010 (b) 805,000 837,723
New York State Medical Care Facilities
Financial Agency Revenue, Series A,
Prerefunded 02/15/2005, 6.750%,
08/15/2014 (b) 8,000,000 8,820,640
New York State Thruway Authority Revenue,
Local Highway & Bridge, 5.625%,
04/01/2012 (c) 5,470,000 5,719,159
New York State Urban Development
Corporation, State Facilities, Revenue,
5.600%, 04/01/2015 4,655,000 4,747,309
New York State Urban Development
Corporation, State Facilities, Revenue,
5.700%, 04/01/2020 3,600,000 3,627,468
New York, NY, General Obligation,
Prerefunded 11/15/2001, 8.400%,
11/15/2005 (b) 4,295,000 4,547,245
New York, NY, General Obligation, Series
F, 8.400%, 11/15/2005 190,000 200,372
New York, NY, General Obligation, Series
F, 8.400%, 11/15/2006 560,000 590,570
New York, NY, General Obligation, Series
F, Prerefunded 11/15/2001, 8.400%,
11/15/2006 (b) 6,440,000 6,818,221
New York, NY, General Obligation, Series
H, 7.000%, 02/01/2007 240,000 250,243
New York, NY, General Obligation, Series
H, Prerefunded 02/01/2002, 7.000%,
02/01/2007 (b) 2,760,000 2,891,072
New York, NY, General Obligation, Series
F, Prerefunded 11/15/2001, 8.400%,
11/15/2007 (b) 6,335,000 6,707,055
New York, NY, General Obligation, Series
F, Prerefunded 11/15/2001, 8.400%,
11/15/2008 (b) 11,000,000 11,646,030
New York, NY, General Obligation, Series
G, Zero Coupon, 08/01/2009 19,100,000 12,328,095
New York, NY, General Obligation, Series
F, Prerefunded 11/15/2001, 8.400%,
11/15/2009 (b) 1,050,000 1,111,667
New York, NY, General Obligation, Series
A, 7.750%, 08/15/2015 92,000 95,713
</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> <C>
New York, NY, General Obligation, Series
A, Prerefunded 08/15/2001, 7.750%,
08/15/2015 (b) $ 3,408,000 $ 3,557,373
New York, NY, Series G, 5.000%, 08/01/2018 4,750,000 4,407,953
New York, NY, General Obligation, Series
J, 5.875%, 02/15/2019 16,060,000 16,288,855
New York, NY, City Industrial Development
Agency Revenue, USTA National Tennis
Center Project, 6.500%, 11/15/2010 3,485,000 3,741,810
New York, NY, City Municipal Water
Financial Authority, Revenue, Water &
Sewer Systems, 7.000%, 06/15/2015 740,000 760,986
New York, NY, City Municipal Water
Financial Authority, Revenue, Water &
Sewer Systems, Prerefunded 06/15/2001,
7.000%, 06/15/2015 (b) 230,000 236,523
New York, NY, City Municipal Water
Financial Authority, Revenue, Water &
Sewer Systems, Prerefunded 06/15/2001,
7.000%, 06/15/2015 (b) 530,000 545,031
New York, NY, City Transitional Financial
Authority Revenue, Series C, 5.000%,
05/01/2018 5,000,000 4,674,800
---------------------------------------------------------------------------------
250,809,588
------------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA
Durham County, NC, Certificates of
Participation, Jail Facilities &
Computer Equipment Project, Prerefunded
05/01/2001, 6.625%, 05/01/2014 (b) 5,500,000 5,678,750
North Carolina Eastern Municipal Power
Agency Revenue, Series B, 6.000%,
01/01/2022 18,775,000 19,759,561
State of North Carolina, General
Obligation, Public School Building,
4.600%, 04/01/2013 16,500,000 15,518,415
---------------------------------------------------------------------------------
40,956,726
------------------------------------------------------------------------------------------------------------------------
NORTH DAKOTA
North Dakota State Financial Agency
Revenue, Single Family Mortgage, Series
A, 8.050%, 01/01/2024 450,000 456,566
---------------------------------------------------------------------------------
456,566
------------------------------------------------------------------------------------------------------------------------
OHIO
Clermont County, OH, Hospital Facilities
Revenue, Mercy Health Center, Series A,
Prerefunded 09/01/2001, 7.500%,
09/01/2019 (b) 2,205,000 2,265,902
Cleveland, OH, Public Power System
Revenue, Series A, Prerefunded
11/15/2001 7.000%, 11/15/2017 (b) 510,000 534,082
Cleveland, OH, Public Power System
Revenue, Unrefunded Balance, Series A,
7.000%, 11/15/2017 340,000 354,195
Cleveland, OH, Waterworks Revenue, Series
B, 6.500%, 01/01/2011 (c) 385,000 401,158
Cleveland, OH, Waterworks Revenue, Series
B, Prerefunded 01/01/2002, 6.500%,
01/01/2011 (b) 4,195,000 4,378,154
Cleveland-Cuyahoga County, OH, Port
Development Revenue, C&P Docks Project,
6.000%, 03/01/2007 1,205,000 1,170,019
</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> <C>
Cuyahoga County, OH, Hospital Revenue,
Meridia Health System, Prerefunded
8/15/2005, 6.250%, 08/15/2014 (b) $ 7,050,000 $ 7,667,228
Green Springs, OH, Health Care, Revenue,
St. Francis Health Care Center Project,
Series A, 7.000%, 05/15/2014 4,235,000 3,615,165
Green Springs, OH, Health Care, Revenue,
St. Francis Health Care Center Project,
Series A, 7.125%, 05/15/2005 4,405,000 3,591,617
Lucas County, OH, Health Facilities
Revenue, Ohio Presbyterian, Series A,
6.625%, 07/01/2014 2,000,000 1,947,040
Lucas County, OH, Health Facilities
Revenue, Ohio Presbyterian, Series A,
6.750%, 07/01/2020 2,000,000 1,897,560
Marion County, OH, Health Care Facilities,
Revenue, Church Homes Project, 6.375%,
11/15/2010 3,720,000 3,519,455
Marion County, OH, Health Care Facilities,
Revenue, Church Homes Project, 6.300%,
11/15/2015 2,950,000 2,659,720
Ohio Housing Finance Agency, GNMA Single
Family Mortgage Revenue, Prerefunded
1/15/2013, Zero Coupon, 01/15/2015 (b) 3,360,000 1,425,514
Ohio Housing Finance Agency, Single Family
Mortgage Revenue, Prerefunded
07/15/2013, Zero Coupon, 01/15/2015 3,515,000 1,526,318
Ohio State Building Authority Adult
Correctional -- A, 5.750%, 04/01/2011 2,865,000 3,037,731
Ohio State Building Authority Adult
Correctional -- A, 5.750%, 04/01/2012 2,400,000 2,524,656
Ohio State Building Authority, 5.750%,
04/01/2013 1,000,000 1,043,670
Ohio State Water Development Authority,
Revenue, Bay Shore Project, Series A,
5.875%, 09/01/2020 3,550,000 2,843,160
Springdale, OH, Hospital Facilities
Revenue, 6.000%, 11/01/2018 1,250,000 1,135,863
State of Ohio, General Obligation, Zero
Coupon, 09/01/2007 5,000,000 3,566,700
Toledo, OH, Waterworks Revenue, 4.750%,
11/15/2017 (c) 1,000,000 898,430
Willoughby, OH, Industrial Development
Revenue, Series A, 6.875%, 07/01/2016 2,250,000 2,185,538
Worthington, OH, City School District,
General Obligation, 6.375%, 12/01/2012 6,210,000 6,483,054
---------------------------------------------------------------------------------
60,671,929
------------------------------------------------------------------------------------------------------------------------
OKLAHOMA
Grand River Dam Authority Revenue,
Refunded, 6.250%, 06/01/2011 (c) 32,250,000 35,704,943
Oklahoma Valley View Hospital Authority,
Revenue, 5.750%, 08/15/2006 3,435,000 3,353,934
Oklahoma Valley View Hospital Authority,
Revenue, 6.000%, 08/15/2014 2,695,000 2,453,474
Woodward, OK, Municipal Authority,
Hospital Revenue, 6.450%, 11/01/2014 2,070,000 1,969,771
---------------------------------------------------------------------------------
43,482,122
</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> <C>
OREGON
Oregon Transnational Highway Revenue,
5.750%, 11/15/2015 $ 1,435,000 $ 1,485,569
Oregon Transnational Highway Revenue,
5.750%, 11/15/2016 3,140,000 3,235,770
Portland, OR, Portland Airport, Inverse
Floating Rate Bond, Series A, 5.673%,
07/01/2010** 2,390,000 2,654,262
Portland, OR, Portland Airport, Inverse
Floating Rate Bond, Series B, 5.661%,
07/01/2011** 2,530,000 2,766,024
Portland, OR, Portland Airport, Inverse
Floating Rate Bond, Series C, 5.661%,
07/01/2012** 2,675,000 2,882,901
Portland, OR, Portland Airport, Inverse
Floating Rate Bond, Series D, 5.672%,
07/01/2013** 2,675,000 2,740,992
---------------------------------------------------------------------------------
15,765,518
------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA
Allegheny County, PA, Airport, Inverse
Floating Rate Bond, Series A, 5.720%,
01/01/2010** 3,000,000 3,277,590
Allegheny County, PA, Airport, Inverse
Floating Rate Bond, Series B, 5.720%,
01/01/2011** 1,500,000 1,635,675
Allegheny County, PA, Airport, Inverse
Floating Rate Bond, Series C, 5.729%,
01/01/2013** 3,160,000 3,404,710
Allegheny County, PA, Airport, Inverse
Floating Rate Bond, Series D, 5.720%,
01/01/2014** 5,250,000 5,618,918
Armstrong County, PA, Hospital Authority,
Revenue, St Francis Medical Center
Project, Series A, 6.250%, 06/01/2013
(c) 11,350,000 11,807,859
Erie, PA, General Obligation, Series B,
Zero Coupon, 11/15/2007 (c) 2,205,000 1,548,572
Erie, PA, General Obligation, Series B,
Zero Coupon, 11/15/2008 (c) 5,055,000 3,343,781
Hazleton, PA, Health Services Authority,
Hospital Revenue, Hazelton-St Joseph
Medical Center, 6.125%, 07/01/2016 3,780,000 3,420,068
Jeannette, PA, Health Service Authority,
Revenue, Jeannette District Memorial
Hospital, Series A, 6.000%, 11/01/2018 945,000 845,265
Lehigh County, PA, General Purpose
Authority, Revenue, Lehigh Valley
Hospital, Series A, Prerefunded
07/01/2002, 6.500%, 07/01/2010 (b) 6,000,000 6,316,560
Mckean County, PA, Hospital Authority,
Revenue, Bradford Hospital, 5.950%,
10/01/2008 2,800,000 2,874,480
Montgomery County, PA, Industrial
Development Authority, Revenue,
Retirement-Life Communities, 5.250%,
11/15/2028 4,000,000 3,289,560
New Castle, PA, Area Hospital Authority,
Revenue, Jameson Memorial Hospital,
6.000%, 07/01/2010 845,000 908,519
Pennsylvania Convention Center Authority
Revenue, Series A, 6.700%, 09/01/2014 3,750,000 3,915,938
Pennsylvania Convention Center Authority
Revenue, 6.750%, 09/01/2019 8,775,000 9,060,977
</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> <C>
Pennsylvania Intergovernmental
Cooperational Authority, Inverse
Floating Rate Bond, 4.620%, 06/15/2013** $ 2,225,000 $ 2,226,157
Pennsylvania Intergovernmental
Cooperational Authority, Inverse
Floating Rate Bond, 4.620%, 06/15/2014
(c)** 2,500,000 2,453,850
Pennsylvania Intergovernmental
Cooperational Authority, Inverse
Floating Rate Bond, 4.620%, 06/15/2015
(c)** 2,250,000 2,183,940
Pennsylvania State Higher Educational
Facility, Revenue, Ursinus College,
5.850%, 01/01/2017 1,475,000 1,435,662
Pennsylvania State Higher Educational
Facility, Revenue, Ursinus College,
5.900%, 01/01/2027 3,400,000 3,212,796
Pennsylvania State Industrial Development
Authority, Revenue, Series A,
Prerefunded 07/01/2001, 7.000%,
01/01/2011 (b) 5,000,000 5,193,950
Philadelphia, PA, Gas Works Revenue,
Series 13, Prerefunded 06/15/2001,
7.700%, 06/15/2011 (b) 5,485,000 5,718,332
Philadelphia, PA, Gas Works Revenue,
Series 13, Prerefunded 06/15/2001,
7.700%, 06/15/2011 (b) 2,515,000 2,620,001
Philadelphia, PA, Gas Works Revenue,
Series 14, 6.375%, 07/01/2014 21,045,000 21,526,089
Philadelphia, PA, Gas Works Revenue,
Series 14, Prerefunded 07/01/2003,
6.375%, 07/01/2014 (b) 10,035,000 10,671,319
Philadelphia, PA, Gas Works Revenue,
Series 13, Prerefunded 06/15/2001,
7.700%, 06/15/2021 (b) 6,850,000 7,141,399
Philadelphia, PA, Municipal Authority
Revenue, Series D, 6.250%, 07/15/2013 2,500,000 2,528,550
Philadelphia, PA, Municipal Authority
Revenue, Series D, 6.300%, 07/15/2017 2,300,000 2,306,325
---------------------------------------------------------------------------------
130,486,842
------------------------------------------------------------------------------------------------------------------------
PUERTO RICO
Puerto Rico Commonwealth, Rites, 7.246%,
07/01/2013 (c)** 2,500,000 3,019,175
---------------------------------------------------------------------------------
3,019,175
------------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA
Charleston County, SC, Certificates of
Participation, Series B, 6.875%,
06/01/2014 240,000 259,034
Charleston County, SC, Certificates of
Participation, Series B, Prerefunded
06/01/2004, 6.875%, 06/01/2014 (b) 4,875,000 5,334,859
Charleston County, SC, Certificates of
Participation, Series B, 7.000%,
06/01/2019 115,000 124,476
Charleston County, SC, Certificates of
Participation, Series B, Prerefunded
06/01/2004, 7.000%, 06/01/2019 (b) 2,385,000 2,619,517
Darlington County, SC, Pollution Control
Revenue, Power and Light, 6.600%,
11/01/2010 (c) 7,500,000 7,964,025
Grand Strand, SC, Water & Sewer Authority,
Revenue, 6.375%, 06/01/2012 5,000,000 5,578,450
</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> <C>
South Carolina Jobs and Economic
Development Authority, Hospital
Facilities Revenue, 7.375%, 12/15/2021 $ 3,000,000 $ 3,062,460
South Carolina State Public Services
Authority, Revenue, Series A, 6.250%,
01/01/2022 7,000,000 7,329,070
---------------------------------------------------------------------------------
32,271,891
------------------------------------------------------------------------------------------------------------------------
TENNESSEE
Metropolitan Nashville, TN, Airport
Authority, Revenue, Series C, 6.600%,
07/01/2015 5,250,000 5,423,460
Shelby County, TN, General Obligation,
Zero Coupon, 08/01/2012 3,410,000 1,839,934
Shelby County, TN, General Obligation,
Zero Coupon, 08/01/2013 3,440,000 1,739,952
Shelby County, TN, General Obligation,
Zero Coupon, 08/01/2014 4,965,000 2,349,587
Tennessee Housing Development Agency
Mortgage Financial, Revenue, Series A,
7.050%, 07/01/2020 17,770,000 18,281,776
Tennessee Housing Development Agency
Mortgage Financial, Revenue, Series A,
7.125%, 07/01/2026 1,885,000 1,939,627
---------------------------------------------------------------------------------
31,574,336
------------------------------------------------------------------------------------------------------------------------
TEXAS
Abilene, TX, Health Facilities Development
Corporation Revenue, Retirement
Facilities, 5.875%, 11/15/2018 3,250,000 2,733,673
Austin, TX Combined Utility System
Revenue, Zero Coupon, 11/15/2011 (c) 12,600,000 7,070,616
Austin, TX, Bergstrom Landhost
Enterprises, Airport Hotel, Series 1999
A, 6.750%, 04/01/2027 17,785,000 16,760,050
Austin, TX, Utility Systems Revenue,
6.000%, 11/15/2013 (c) 9,500,000 10,258,195
Austin, TX, Water, Sewer and Electric
Revenue, 14.000%, 11/15/2001*** 10,000 10,582
Austin, TX, Water, Sewer and Electric
Revenue, 14.000%, 11/15/2001 (b) 180,000 190,343
Austin, TX, Water, Sewer and Electric
Revenue, 14.000%, 11/15/2001 (b) 1,060,000 1,117,176
Boerne, TX, Independent School District,
General Obligation, Zero Coupon,
02/01/2014 2,785,000 1,329,698
Boerne, TX, Independent School District,
General Obligation, Zero Coupon,
02/01/2016 3,285,000 1,378,944
Ector County, TX, Hospital District,
Hospital Revenue, Prerefunded
04/15/2002, 7.300%, 04/15/2012 550,000 583,110
El Paso, TX, Independent School District,
General Obligation, Zero Coupon,
08/15/2011 3,600,000 2,012,148
Georgetown, TX, Higher Education Finance,
Revenue, Southwestern University
Project, 6.250%, 02/15/2009 840,000 874,583
Grapevine-Colleyville, TX, General
Obligation, Zero Coupon, 08/15/2007 6,065,000 4,309,668
Grapevine-Colleyville, TX, General
Obligation, Zero Coupon, 08/15/2009 6,360,000 4,056,599
Grapevine-Colleyville, TX, General
Obligation, Zero Coupon, 08/15/2010 2,160,000 1,302,113
</TABLE>
34 The accompanying notes are an integral part of the financial statements.
<PAGE> 35
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
Grapevine-Colleyville, TX, General
Obligation, Zero Coupon, 08/15/2011 $ 4,830,000 $ 2,737,064
Grapevine-Colleyville, TX, General
Obligation, Zero Coupon, 08/15/2013 1,000,000 495,980
Harris County, TX, Revenue, Toll Road,
Prerefunded 08/01/2001, 6.750%,
08/01/2014 15,000,000 15,546,900
Houston, TX, Airport System Revenue,
Series B, 5.250%, 07/01/2011 (c) 16,020,000 16,046,433
Houston, TX, Airport System Revenue,
Refunded, Series A, 6.000%, 07/01/2014
(c) 5,030,000 5,227,025
Houston, TX, Airport System Revenue,
5.000%, 07/01/2025 (c) 9,520,000 8,349,611
Houston, TX, Higher Education Finance
Corporation, Revenue, University of
Saint Thomas Project, 7.250%, 12/01/2007 1,445,000 1,503,147
Houston, TX, Independent School District,
General Obligation, Series A, Zero
Coupon, 02/15/2010 8,500,000 5,138,335
Houston, TX, Independent School District,
General Obligation, Series A, Zero
Coupon, 02/15/2011 3,750,000 2,126,850
Houston, TX, Independent School District,
General Obligation, Series A, Zero
Coupon, 02/15/2015 26,000,000 11,253,580
Rio Grande Valley, TX, Health Facilities
Development, Revenue, Series B, 6.400%,
08/01/2012 3,700,000 3,865,575
Round Rock, TX, Independent School
District, General Obligation, Zero
Coupon, 08/01/2008 5,020,000 3,395,578
State of Texas, General Obligation, Amt-
Veterans Land, 6.400%, 12/01/2024 8,550,000 8,780,423
Texas Beaumont W&S, 5.000%, 09/01/2019 (c) 3,140,000 2,882,269
Texas Beaumont W&S, 5.000%, 09/01/2020 (c) 3,595,000 3,283,457
Texas General Obligation, 7.000%,
09/15/2012 9,081,165 9,350,058
Texas Housing Agency Mortgage Revenue,
Series A, 7.150%, 09/01/2012 150,000 154,619
Texas State Department Housing & Community
Affairs, Revenue, Series A, 6.400%,
01/01/2027 3,350,000 3,396,699
Texas State Turnpike Authority Dallas
North, Revenue, President George Bush
Turnpike, Zero Coupon, 01/01/2010 3,000,000 1,872,150
Texas Water Development Board Revenue,
Series 1999 B, 5.250%, 07/15/2017 10,000,000 9,711,300
Texas Water Revenue, 5.625%, 07/15/2011 3,630,000 3,805,148
Texas Water Revenue C10 S00A, 5.625%,
07/15/2015 1,000,000 1,020,280
Texas, Sabine River Pollution Authority,
Revenue, Southwestern Electric Power,
6.100%, 04/01/2018 30,200,000 31,223,176
Titus County, TX, Hospital District
Revenue, Revenue, 6.125%, 08/15/2013 6,700,000 6,164,536
Travis County, TX, Housing Financial
Corporation Revenue, Series A, 7.000%,
12/01/2011 230,000 236,987
</TABLE>
The accompanying notes are an integral part of the financial statements. 35
<PAGE> 36
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
Waxahachie, TX, Independent School
District, General Obligation, Zero
Coupon, 08/15/2009 $ 3,120,000 $ 1,995,209
Waxahachie, TX, Independent School
District, General Obligation, Zero
Coupon, 08/15/2012 4,120,000 2,198,102
Waxahachie, TX, Independent School
District, General Obligation, Zero
Coupon, 08/15/2013 2,060,000 1,029,423
---------------------------------------------------------------------------------
216,777,412
------------------------------------------------------------------------------------------------------------------------
UTAH
Utah State Housing Financial Agency,
Revenue, Series D, 8.625%, 01/01/2019 40,000 40,395
West Valley City, UT, Excise Tax Revenue,
10.625%, 07/01/2004*** 555,000 624,830
---------------------------------------------------------------------------------
665,225
------------------------------------------------------------------------------------------------------------------------
VIRGIN ISLANDS
Virgin Islands Public Financial Authority
Revenue, Series 1992 A, Prerefunded
10/01/2002, 7.250%, 10/01/2018 (b) 3,000,000 3,227,310
---------------------------------------------------------------------------------
3,227,310
------------------------------------------------------------------------------------------------------------------------
VIRGINIA
Fairfax County, VA, Economic Development
Authority Revenue, Retirement Community,
Series A, 7.500%, 10/01/2029 7,100,000 7,144,801
Richmond, VA, General Obligation, Series
B, 6.250%, 01/15/2018 2,665,000 2,730,186
Washington DC Metropolitan, VA, Airport
Revenue, Series A, 7.600%, 10/01/2014 3,000,000 3,060,480
---------------------------------------------------------------------------------
12,935,467
------------------------------------------------------------------------------------------------------------------------
WASHINGTON
King County, WA, General Obligation,
Series B, 6.625%, 12/01/2015 9,845,000 10,929,033
Spokane County, WA, School District,
General Obligation, Series B, Zero
Coupon, 12/01/2014 (c) 2,500,000 1,146,050
Washington State Public Power Supply,
Series C, 5.375%, 07/01/2015 5,410,000 5,339,075
---------------------------------------------------------------------------------
17,414,158
------------------------------------------------------------------------------------------------------------------------
WISCONSIN
Kenosha, WI, General Obligation, Series B,
Zero Coupon, 10/15/2008 (c) 6,885,000 4,534,323
Wisconsin State Health & Educational
Facilities Authority, Aurora Health Care
Inc., Series 1999 A, 5.600%, 02/15/2029 17,800,000 14,886,140
Wisconsin State Health & Educational
Facilities, Aurora Health Care Inc.,
Series 1999 B, 5.625%, 02/15/2029 7,225,000 6,067,627
---------------------------------------------------------------------------------
25,488,090
</TABLE>
36 The accompanying notes are an integral part of the financial statements.
<PAGE> 37
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
WYOMING
Wyoming Community Development Authority,
Revenue, Single Family Mortgage, Series
B, 8.125%, 06/01/2021 $ 230,000 $ 233,841
Wyoming Community Development Authority
Housing, Revenue, Series 2, 6.350%,
06/01/2029 3,925,000 4,000,478
---------------------------------------------------------------------------------
4,234,319
---------------------------------------------------------------------------------
TOTAL LONG TERM MUNICIPAL INVESTMENTS
(Cost $2,392,578,790) 2,478,537,041
---------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $2,403,878,790) (a) $2,489,837,041
---------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost for federal tax purposes was $2,404,081,939. At September 30, 2000,
net unrealized appreciation for all securities based on tax cost was
$85,755,102. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost of
$108,201,688 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $22,446,586.
(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 September 30, 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. 37
<PAGE> 38
PORTFOLIO OF INVESTMENTS
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
Portfolio of Investments at September 30, 2000
<TABLE>
<CAPTION>
LONG-TERM MUNICIPAL INVESTMENTS PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
ALASKA
Alaska Student Loan Corp., Revenue, Series A,
5.550% 07/01/2010 (c) $ 200,000 $ 203,528
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
ARIZONA
Arizona State University, Revenue, Series A,
6.500%, 07/01/2001 85,000 86,327
Arizona Transportation Board, Highway Revenue,
Series B, 6.100%, 07/01/2002 70,000 71,954
Coconino County, AZ, Industrial Development
Authority, Revenue, Guidance Center Income
Project, Prerefunded 06/01/2001, 9.250%,
06/01/2011 (b) 265,000 276,299
Phoenix, AZ, Civic Improvement Corporation,
Revenue 6.375%, 07/01/2005 495,000 531,120
------------------------------------------------------------------------------------
965,700
------------------------------------------------------------------------------------------------------------------------
ARKANSAS
North Little Rock, AR, Electrical Revenue,
Series A, 6.000%, 07/01/2001 (c) 20,000 20,242
North Little Rock, AR, Electrical Revenue,
Series A, 6.150%, 07/01/2003 (c) 275,000 286,289
------------------------------------------------------------------------------------
306,531
------------------------------------------------------------------------------------------------------------------------
CALIFORNIA
California Central Valley Financing Authority,
Revenue, Carson Ice Project, 6.000%,
07/01/2009 250,000 258,892
Sacramento, CA, Cogeneration Revenue, Procter &
Gamble Project, 7.000%, 07/01/2004 200,000 215,470
San Joaquin Hills, CA, Revenue, Series A, Zero
Coupon, 01/15/2012 (c) 825,000 466,348
------------------------------------------------------------------------------------
940,710
------------------------------------------------------------------------------------------------------------------------
COLORADO
Arapahoe County, CO, Capital Improvements,
Revenue, Series E, Prerefunded 08/31/2005,
6.900%, 08/31/2015 (b) 300,000 337,236
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
CONNECTICUT
Connecticut State Health Authority, 5.950%,
11/15/2000 5,000 5,010
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA
District of Columbia, General Obligation, Series
B, 5.500%, 06/01/2010 1,000,000 1,039,070
District of Columbia Redevelopment Land Agency,
Revenue, 5.625%, 11/01/2010 160,000 161,130
------------------------------------------------------------------------------------
1,200,200
------------------------------------------------------------------------------------------------------------------------
FLORIDA
Broward County, FL, School District, General
Obligation, 6.000%, 02/15/2004 70,000 72,647
Orlando, FL, Special Assessment Revenue, Conroy
Road Interchange Project, Series B, 5.250%,
05/01/2005 190,000 183,424
------------------------------------------------------------------------------------
256,071
------------------------------------------------------------------------------------------------------------------------
GEORGIA
Atlanta, GA, Airport Facilities Revenue, 6.500%,
01/01/2013 (c) 70,000 71,750
------------------------------------------------------------------------------------
</TABLE>
38 The accompanying notes are an integral part of the financial statements.
<PAGE> 39
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
ILLINOIS
Illinois Health Facilities Authority Revenue,
Franciscan Sisters Health Care, 6.250%,
09/01/2002 * $ 350,000 $ 361,175
McHenry & Lake Counties, IL, Certificate of
Participation, 6.125%, 12/01/2003 (c) 85,000 88,919
------------------------------------------------------------------------------------
450,094
------------------------------------------------------------------------------------------------------------------------
INDIANA
Johnson County, IN, Hospital Association,
Revenue, 6.500%, 07/01/2002 (c) 300,000 309,711
Purdue University, Indiana University Revenue,
Student Fee Service, Prerefunded 01/01/2005,
6.700%, 07/01/2015 (b) 250,000 275,982
------------------------------------------------------------------------------------
585,693
------------------------------------------------------------------------------------------------------------------------
KENTUCKY
Lexington, KY, Fayette Urban County, Revenue,
University of Kentucky Alumni Association
Income Project, Prerefunded 11/01/2004,
6.500%, 11/01/2009 (b) 300,000 326,637
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
MAINE
Maine Health & Higher Educational Facilities,
Revenue, Series B, 6.300%, 07/01/2004 * 135,000 142,988
Maine Health & Higher Educational Facilities,
Revenue, Series B, 6.300%, 07/01/2004 25,000 26,462
Maine Health & Higher Educational Facilities,
Revenue, Series B, Prerefunded 07/01/2004,
6.500%, 07/01/2006 (b) 100,000 108,216
------------------------------------------------------------------------------------
277,666
------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS
Massachusetts Bay Transportation Authority,
Revenue, 6.500%, 03/01/2004 5,000 5,305
Massachusetts State Water Pollution, Revenue,
Series A, 6.200%, 02/01/2010 45,000 47,579
State of Massachusetts, General Obligation,
Series D, Prerefunded 07/01/2001, 7.000%,
07/01/2007 (b) 200,000 207,774
State of Massachusetts, General Obligation,
Series D, Prerefunded 07/01/2001, 7.000%,
07/01/2007 (b) 75,000 77,904
------------------------------------------------------------------------------------
338,562
------------------------------------------------------------------------------------------------------------------------
MICHIGAN
Chippewa Valley, MI, School District, General
Obligation, 7.000%, 05/01/2001 (c) 350,000 355,218
Detroit, MI, General Obligation, Series A,
Prerefunded 04/01/2005, 6.700%, 04/01/2010 (b) 300,000 327,882
Grand Rapids, MI, Downtown Development Revenue,
Tax Allocation, 6.200%, 06/01/2004 (c) 175,000 184,258
Michigan Higher Educational Student Loan,
Revenue, 5.400%, 06/01/2006 (c) 250,000 256,045
Michigan State Building Authority Revenue,
Series I 6.250%, 10/01/2000 * 5,000 5,001
Michigan State Building Authority Revenue,
Series I, 6.500%, 10/01/2004 160,000 170,795
Michigan State Hospital Financial Authority
Revenue, Gratiot Community Hospital, 6.100%,
10/01/2007 350,000 347,214
------------------------------------------------------------------------------------
1,646,413
</TABLE>
The accompanying notes are an integral part of the financial statements. 39
<PAGE> 40
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
MISSOURI
Missouri State Health & Educational Facilities,
Revenue, Lake Of The Ozarks General Hospital,
5.500%, 02/15/2001 $ 200,000 $ 200,178
Missouri State Health & Educational Facilities,
Revenue, Lake Of The Ozarks General Hospital,
6.000%, 02/15/2006 300,000 298,413
------------------------------------------------------------------------------------
498,591
------------------------------------------------------------------------------------------------------------------------
NEBRASKA
Nebraska Public Power District Revenue, Nuclear
Facility, 5.700%, 01/01/2004 50,000 51,604
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
NEVADA
Clark County, NV, Highway Improvement Revenue,
Motor Vehicle Fuel Tax, 5.625%, 07/01/2002 (c) 70,000 71,327
Nevada State, General Obligation, Series A,
5.900% 05/01/2001 250,000 252,177
------------------------------------------------------------------------------------
323,504
------------------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE
New Hampshire Higher Educational & Health
Facilities, Revenue, Havenwood Heritage
Heights, 7.100%, 01/01/2006 165,000 166,518
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
NEW JERSEY
New Jersey Transportation Trust Fund, Revenue,
Series B, 6.500%, 06/15/2011 (c) 225,000 253,602
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
NEW YORK
Long Island, NY, Power Authority New York
Electricity, Revenue, Series A, 5.500%,
12/01/2013 1,000,000 1,041,370
New York & New Jersey, Port Authority Special
Obligation, Revenue, Special Project, JFK
Terminal 6, 6.250%, 12/01/2008 (c) 500,000 545,460
New York City, NY, General Obligation, Series D,
5.750% 08/01/2003 110,000 113,544
New York City, NY, General Obligation, Series
B1, 6.500%, 08/15/2002 65,000 67,330
New York City, NY, General Obligation, Series B1
6.500%, 08/15/2002 * 25,000 25,933
New York City, NY, Industrial Development
Agency, Civil Facilities Revenue, USTA
National Tennis Center, 6.100%, 11/15/2004 200,000 211,342
Niagara Falls, NY, Water Treatment Plant,
General Obligation, 6.400%, 11/01/2004 (c) 100,000 106,195
------------------------------------------------------------------------------------
2,111,174
</TABLE>
40 The accompanying notes are an integral part of the financial statements.
<PAGE> 41
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
OHIO
Athens County, OH, Economic Development,
Revenue, Ohio Athens Inc. Project, 6.250%,
11/01/2011 $ 220,000 $ 213,241
Cleveland, OH, Waterworks Revenue, Series A,
6.125%, 01/01/2003 450,000 464,751
Lucas County, OH, Health Facilities Revenue,
Ohio Presbyterian, Series A, 6.100%,
07/01/2006 300,000 296,877
Marion County, OH, Health Care Facilities,
Revenue, Church Homes Project, 6.300%,
11/15/2015 250,000 225,400
Ohio Building Authority, Adult Correctional
Building Fund Revenue, Series A, 6.125%,
10/01/2010 400,000 422,644
Ohio Gateway Economic Development Corp.,
Revenue, Cuyahoga County Annual Gateway,
7.500%, 09/01/2005 400,000 416,292
Ohio Higher Educational Facilities Revenue,
University of Findlay Project, 5.750%,
09/01/2007 375,000 383,891
Ohio Water Development Authority Revenue, Pure
Water Improvement Project, 5.750%, 12/01/2003
(c) 5,000 5,174
------------------------------------------------------------------------------------
2,428,270
------------------------------------------------------------------------------------------------------------------------
OKLAHOMA
Muskogee County, OK, General Obligation, 6.000%,
05/01/2001 10,000 10,093
Oklahoma Valley View Hospital Authority,
Revenue, 5.750%, 08/15/2006 275,000 268,510
Woodward, OK, Municipal Authority, Hospital
Revenue, 5.600%, 11/01/2004 270,000 266,655
------------------------------------------------------------------------------------
545,258
------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA
Allegheny County, PA, Hospital Development
Authority, Magee-Womens Hospital, Revenue,
6.250%, 10/01/2008 (c) 300,000 314,562
Hazelton, PA, Health Service Authority Hospital,
Revenue, Hazelton-St Joseph Medical Center,
5.850%, 07/01/2006 220,000 218,117
Pennsylvania Higher Educational Facilities,
College & University Revenue, Ursinus College,
5.500%, 01/01/2007 265,000 269,248
Pennsylvania Intergovernmental Cooperative
Authority, City of Philadelphia Funding
Program, Special Tax, 6.000%, 06/15/2002 * 285,000 289,851
Philadelphia, PA, Gas Works Revenue, Series 13,
Prerefunded 06/15/2001, 7.700%, 06/15/2021 (b) 120,000 125,105
Philadelphia, PA, School District, General
Obligation, Series C, 5.750%, 03/01/2011 (c) 500,000 528,075
State of Pennsylvania, First Series, 6.000%,
01/15/2013 500,000 534,345
------------------------------------------------------------------------------------
2,279,303
------------------------------------------------------------------------------------------------------------------------
PUERTO RICO
Puerto Rico Housing Bank & Financial Agency,
Revenue, Portfolio I, 5.900%, 04/01/2010 155,000 161,687
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA
York County, SC, School District Number 4,
General Obligation, 7.000%, 03/01/2004 (c) 460,000 494,946
------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
<PAGE> 42
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
TEXAS
Fort Worth, TX, Water & Sewer Revenue, Series B,
5.900%, 02/15/2001 $ 80,000 $ 80,447
Houston, TX, Higher Education Finance
Corporation, Revenue, University of Saint
Thomas Project, 7.250%, 12/01/2007 100,000 104,024
Texas Trinity River Authority, Ten Mile Creek,
Revenue, 5.500%, 08/01/2002 (c) 70,000 71,236
Travis County, TX, Health Facilities Development
Corp., Ascension Health Credit, Revenue,
Series A, 5.750%, 11/15/2010 (c) 1,000,000 1,056,930
Waxahachie, TX, Independent School District,
General Obligation, Zero Coupon, 08/15/2009 400,000 255,796
------------------------------------------------------------------------------------
1,568,433
------------------------------------------------------------------------------------------------------------------------
VIRGINIA
Arlington County, VA, Industrial Development
Authority, Revenue, Arlington Hospital, Series
A, Prerefunded 09/01/2001, 7.125%, 09/01/2021
(b) 90,000 93,956
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
WASHINGTON
Tacoma, WA, Electric System Revenue, 5.800%,
01/01/2004 (c) 70,000 72,454
Washington Public Power Supply System, Revenue
Refunding, Nuclear Project #2, Series A,
6.300%, 07/01/2012 1,000,000 1,093,260
------------------------------------------------------------------------------------
1,165,714
------------------------------------------------------------------------------------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS--100.0%
(Cost $19,606,841) (a) $20,054,361
------------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost for federal income tax purposes was $19,606,841. At September 30,
2000, the net unrealized appreciation for all securities based on tax cost
was $447,520. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $520,088 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $72,568.
(b) Prerefunded: Bonds which are prerefunded are collateralized by U.S.
Treasury securities which are held in escrow and are used to pay principal
and interest on tax-exempt issues and to retire the bonds in full at the
earliest refunding date.
(c) Bond is insured by one of these companies: AMBAC, Capital Guaranty, FGIC,
FSA or MBIA/BIG.
* 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.
42 The accompanying notes are an integral part of the financial statements.
<PAGE> 43
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
As of September 30, 2000
<TABLE>
<CAPTION>
MUNICIPAL INTERMEDIATE
FUND MUNICIPAL FUND
<S> <C> <C>
ASSETS
Investments in securities, at value, (cost $2,403,878,790
and $19,606,841) $2,489,837,041 20,054,361
------------------------------------------------------------------------------------------------
Cash -- 262,376
------------------------------------------------------------------------------------------------
Receivable for investments sold 585,208 5,000
------------------------------------------------------------------------------------------------
Interest receivable 38,431,355 325,248
------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 431,296 1,941
------------------------------------------------------------------------------------------------
TOTAL ASSETS 2,529,284,900 20,648,926
------------------------------------------------------------------------------------------------
LIABILITIES
Due to custodian bank 999,102 --
------------------------------------------------------------------------------------------------
Dividends payable 2,515,533 18,936
------------------------------------------------------------------------------------------------
Payable for investments purchased 5,287,903 --
------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed 1,201,851 --
------------------------------------------------------------------------------------------------
Accrued management fee 537,259 19,140
------------------------------------------------------------------------------------------------
Other accrued expenses and payables 589,457 39,600
------------------------------------------------------------------------------------------------
Total liabilities 11,131,105 77,676
------------------------------------------------------------------------------------------------
NET ASSETS, AT VALUE $2,518,153,795 20,571,250
------------------------------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
Undistributed net investment income (loss) $ 354,907 3,540
------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments 85,958,251 447,520
------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) (89,543,921) (399,012)
------------------------------------------------------------------------------------------------
Paid-in-capital 2,521,384,558 20,519,202
------------------------------------------------------------------------------------------------
NET ASSETS, AT VALUE $2,518,153,795 20,571,250
------------------------------------------------------------------------------------------------
NET ASSET VALUE AND OFFERING PRICE
CLASS A SHARES
Net assets applicable to shares outstanding $2,448,946,701 14,564,477
------------------------------------------------------------------------------------------------
Outstanding shares of beneficial interest, $.01 par value,
unlimited number of shares authorized 254,364,006 1,460,721
------------------------------------------------------------------------------------------------
Net asset value and redemption price per share (Net
assets/shares outstanding) $9.63 9.97
------------------------------------------------------------------------------------------------
Maximum offering price per share (100/95.5 of $9.63 and
100/97.25 of $9.97, respectively) (Net assets/shares
outstanding) $10.08 10.25
------------------------------------------------------------------------------------------------
CLASS B SHARES
Net assets applicable to shares outstanding $ 61,478,466 4,855,527
------------------------------------------------------------------------------------------------
Outstanding shares of beneficial interest, $.01 par value,
unlimited number of shares authorized 6,402,388 487,103
------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
(subject to contingent deferred sales charge) per share
(Net assets/shares outstanding) $9.60 9.97
------------------------------------------------------------------------------------------------
CLASS C SHARES
Net assets applicable to shares outstanding $ 7,728,628 1,151,246
------------------------------------------------------------------------------------------------
Outstanding shares of beneficial interest, $.01 par value,
unlimited number of shares authorized 801,480 115,457
------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
(subject to contingent deferred sales charge) per share
(Net assets/shares outstanding) $9.64 9.97
------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 43
<PAGE> 44
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
Year ended September 30, 2000
<TABLE>
<CAPTION>
MUNICIPAL INTERMEDIATE
FUND MUNICIPAL FUND
<S> <C> <C>
INVESTMENT INCOME
Interest $156,129,735 1,237,000
----------------------------------------------------------------------------------------------
Expenses:
Management fee 10,795,156 124,700
----------------------------------------------------------------------------------------------
Services to shareholders 1,988,205 17,506
----------------------------------------------------------------------------------------------
Custodian fees 62,223 1,137
----------------------------------------------------------------------------------------------
Distribution services fees 573,223 51,088
----------------------------------------------------------------------------------------------
Administrative services fees 4,872,075 54,209
----------------------------------------------------------------------------------------------
Auditing 79,391 720
----------------------------------------------------------------------------------------------
Legal 27,060 1,440
----------------------------------------------------------------------------------------------
Trustees' fees and expenses 62,112 9,360
----------------------------------------------------------------------------------------------
Reports to shareholders 524,777 7,946
----------------------------------------------------------------------------------------------
Registration fees 42,308 35,979
----------------------------------------------------------------------------------------------
Other 130,368 412
----------------------------------------------------------------------------------------------
Total expenses, before expense reductions 19,156,898 304,497
----------------------------------------------------------------------------------------------
Expense reductions (232,783) (21,667)
----------------------------------------------------------------------------------------------
Total expenses, after expense reductions 18,924,115 282,830
----------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 137,205,620 954,170
----------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from investments (45,083,371) (136,875)
----------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments 48,363,251 9,643
----------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 3,279,880 (127,232)
----------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $140,485,500 826,938
----------------------------------------------------------------------------------------------
</TABLE>
44 The accompanying notes are an integral part of the financial statements.
<PAGE> 45
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MUNICIPAL FUND INTERMEDIATE MUNICIPAL FUND
--------------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ 137,205,620 146,556,257 954,170 1,081,923
---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment
transactions (45,083,371) 812,316 (136,875) (162,926)
---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) on investment
transactions during the period 48,363,251 (226,279,168) 9,643 (1,224,849)
---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 140,485,500 (78,910,595) 826,938 (305,852)
---------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (133,407,238) (142,947,373) (704,364) (828,811)
---------------------------------------------------------------------------------------------------------------
Class B (3,045,448) (3,200,677) (192,339) (171,236)
---------------------------------------------------------------------------------------------------------------
Class C (398,270) (408,186) (55,179) (81,876)
---------------------------------------------------------------------------------------------------------------
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 630,239,522 1,350,668,652 10,322,794 17,139,273
---------------------------------------------------------------------------------------------------------------
Reinvestment of distributions 84,904,936 144,375,917 620,214 760,026
---------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (1,012,828,207) (1,604,687,543) (15,709,817) (16,156,752)
---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from Fund share transactions (297,683,749) (109,642,974) (4,766,809) 1,742,547
---------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (294,049,205) (408,439,680) (4,891,753) 290,123
---------------------------------------------------------------------------------------------------------------
Net assets at beginning of period 2,812,203,000 3,220,642,680 25,463,003 25,172,880
---------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 2,518,153,795 2,812,203,000 20,571,250 25,463,003
---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 45
<PAGE> 46
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLES INCLUDE SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------
MUNICIPAL FUND 2000 1999 1998 1997 1996
<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
------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (c) .50 .48 .52 .54 .55
------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .03 (.76) .37 .36 .06
------------------------------------------------------------------------------------------------------------
Total from investment operations .53 (.28) .89 .90 .61
------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.50) (.48) (.52) (.54) (.55)
------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.25) (.22) (.08) (.03)
------------------------------------------------------------------------------------------------------------
Total distributions (.50) (.73) (.74) (.62) (.58)
------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.63 9.60 10.61 10.46 10.18
------------------------------------------------------------------------------------------------------------
TOTAL RETURN % (A)(B) 5.70 (2.75) 8.84 9.15 6.00
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 2,449 2,728 3,132 3,149 3,274
------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions % .71 .69 .68 .68 .66
------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions % .70 .69 .68 .68 .66
------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) % 5.27 4.86 4.97 5.29 5.35
------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 44 70 65 77 97
------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
MUNICIPAL FUND 2000 1999 1998 1997 1996
<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
----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (c) .42 .40 .43 .45 .46
----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .02 (.75) .36 .37 .05
----------------------------------------------------------------------------------------------
Total from investment operations .44 (.35) .79 .82 .51
----------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.42) (.40) (.43) (.45) (.46)
----------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.25) (.22) (.08) (.03)
----------------------------------------------------------------------------------------------
Total distributions (.42) (.65) (.65) (.53) (.49)
----------------------------------------------------------------------------------------------
Net asset value, end of period $9.60 9.58 10.58 10.44 10.15
----------------------------------------------------------------------------------------------
TOTAL RETURN % (A)(B) 4.74 (3.48) 7.84 8.32 4.97
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 61 75 78 61 43
----------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions % 1.53 1.53 1.52 1.55 1.54
----------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions % 1.52 1.53 1.52 1.55 1.54
----------------------------------------------------------------------------------------------
Ratio of net investment income (loss) % 4.45 4.02 4.13 4.42 4.47
----------------------------------------------------------------------------------------------
Portfolio turnover rate % 44 70 65 77 97
----------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 47
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
YEAR ENDED SEPTEMBER 30,
--------------------------------------
MUNICIPAL FUND 2000 1999 1998 1997 1996
<S> <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
------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (c) .43 .40 .43 .46 .46
------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .01 (.75) .37 .37 .05
------------------------------------------------------------------------------------
Total from investment operations .44 (.35) .80 .83 .51
------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.42) (.40) (.43) (.46) (.46)
------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.25) (.22) (.08) (.03)
------------------------------------------------------------------------------------
Total distributions (.42) (.65) (.65) (.54) (.49)
------------------------------------------------------------------------------------
Net asset value, end of period $9.64 9.62 10.62 10.47 10.18
------------------------------------------------------------------------------------
TOTAL RETURN % (A)(B) 4.74 (3.47) 7.93 8.34 4.99
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in millions) 8 9 10 5 4
------------------------------------------------------------------------------------
Ratio of expenses before expenses reductions
% 1.54 1.54 1.52 1.53 1.51
------------------------------------------------------------------------------------
Ratio of expenses after expenses reductions % 1.53 1.54 1.52 1.53 1.51
------------------------------------------------------------------------------------
Ratio of net investment income (loss) % 4.44 4.01 4.13 4.44 4.50
------------------------------------------------------------------------------------
Portfolio turnover rate % 44 70 65 77 97
------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 48
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED SEPTEMBER 30,
------------------------------------------
INTERMEDIATE MUNICIPAL FUND 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $10.00 10.53 10.31 10.06 10.18
-------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (c) .43 .42 .45 .46 .46
-------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.02) (.50) .29 .29 (.04)
-------------------------------------------------------------------------------------------
Total from investment operations .41 (.08) .74 .75 .42
-------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.44) (.42) (.45) (.46) (.46)
-------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.03) (.07) (.04) (.08)
-------------------------------------------------------------------------------------------
Total distributions (.44) (.45) (.52) (.50) (.54)
-------------------------------------------------------------------------------------------
Net asset value, end of period $9.97 10.00 10.53 10.31 10.06
-------------------------------------------------------------------------------------------
TOTAL RETURN % (A)(B) 4.19 (.79) 7.34 7.62 4.15
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 14,564 17,774 19,140 16,591 16,869
-------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions % 1.10 .96 .96 .96 1.04
-------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions % 1.01 .96 .96 .96 .92
-------------------------------------------------------------------------------------------
Ratio of net investment income (loss) % 4.41 4.15 4.35 4.55 4.45
-------------------------------------------------------------------------------------------
Portfolio turnover rate % 17 30 14 80 80
-------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
YEAR ENDED SEPTEMBER 30,
------------------------------------------
INTERMEDIATE MUNICIPAL FUND 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $10.00 10.52 10.31 10.06 10.18
-------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (c) .36 .34 .37 .38 .38
-------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.03) (.49) .28 .29 (.04)
-------------------------------------------------------------------------------------------
Total from investment operations .33 (.15) .65 .67 .34
-------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.36) (.34) (.37) (.38) (.38)
-------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.03) (.07) (.04) (.08)
-------------------------------------------------------------------------------------------
Total distributions (.36) (.37) (.44) (.42) (.46)
-------------------------------------------------------------------------------------------
Net asset value, end of period $9.97 10.00 10.52 10.31 10.06
-------------------------------------------------------------------------------------------
TOTAL RETURN % (A)(B) 3.38 (1.48) 6.38 6.78 3.34
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 4,856 5,328 5,245 4,571 4,333
-------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions % 1.87 1.76 1.76 1.76 1.83
-------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions % 1.79 1.76 1.76 1.76 1.71
-------------------------------------------------------------------------------------------
Ratio of net investment income (loss) % 3.64 3.35 3.55 3.75 3.66
-------------------------------------------------------------------------------------------
Portfolio turnover rate % 17 30 14 80 80
-------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE> 49
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
INTERMEDIATE MUNICIPAL FUND 2000 1999 1998 1997 1996
<S> <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
--------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (c) .36 .34 .37 .39 .38
--------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.03) (.50) .29 .29 (.05)
--------------------------------------------------------------------------------------------
Total from investment operations .33 (.16) .66 .68 .33
--------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.36) (.34) (.37) (.39) (.38)
--------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.03) (.07) (.04) (.08)
--------------------------------------------------------------------------------------------
Total distributions (.36) (.37) (.44) (.43) (.46)
--------------------------------------------------------------------------------------------
Net asset value, end of period $9.97 10.00 10.53 10.31 10.06
--------------------------------------------------------------------------------------------
TOTAL RETURN % (A)(B) 3.41 (1.56) 6.55 6.77 3.26
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ in thousands) 1,151 2,361 788 727 699
--------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions % 1.88 1.72 1.73 1.73 1.77
--------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions % 1.77 1.72 1.73 1.73 1.65
--------------------------------------------------------------------------------------------
Ratio of net investment income (loss) % 3.64 3.39 3.58 3.78 3.72
--------------------------------------------------------------------------------------------
Portfolio turnover rate % 17 30 14 80 80
--------------------------------------------------------------------------------------------
</TABLE>
(a) Total return does not reflect the effect of any 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.
49
<PAGE> 50
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 "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 September 30, 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 in the United States 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 and tax-exempt income to its
shareholders. Accordingly, the Funds paid no
federal income taxes and no federal income tax
provision was required.
At September 30, 2000, the Municipal Bond Fund and
the Intermediate Municipal Bond Fund had a net tax
basis capital loss carryforward of approximately
$50,000,000 and $307,000, respectively, which may
be applied against any
50
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS
realized net taxable capital gains of each
succeeding year until fully utilized or until
September 30, 2008 ($50,000,000) for Municipal Bond
Fund and September 30, 2007 ($22,000) and September
30, 2008 ($285,000) for Intermediate Municipal Bond
Fund, the respective expiration dates or whichever
occurs first. In addition, from November 1, 1999
through September 30, 2000, the Municipal Bond Fund
and the Intermediate Municipal Bond Fund incurred
approximately $31,000,000 and $53,000,
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,
2001.
DISTRIBUTION OF INCOME AND GAINS. All of the net
investment income of each Fund is declared as a
daily dividend and is distributed to shareholders
monthly. Net realized gains from investment
transactions, in excess of available capital loss
carryforwards, would be taxable to the 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. Realized gains and losses from
investment transactions are recorded on an
identified cost basis. All discounts and premiums
are accreted and amortized 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 year ended September 30, 2000, investment
transactions (excluding short-term instruments) are
as follows:
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL FUND MUNICIPAL FUND
-------------- --------------
<S> <C> <C>
Purchases $1,134,384,098 $3,640,745
Proceeds from sales 1,418,552,680 7,573,185
</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 $10,795,156 for the year ended September 30,
2000. This was equivalent to an annualized
effective rate of .41% of the Fund's daily net
assets.
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.
51
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS
The Intermediate Municipal Fund incurred a
management fee of $124,700 for the year ended
September 30, 2000. This was equivalent to an
annualized effective rate of .39% of the Fund's
daily net assets.
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
distribution of Class A shares for the year ended
September 30, 2000 are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
RETAINED BY KDI
---------------
<S> <C>
Municipal Fund $133,087
Intermediate Municipal Fund 3,965
</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 year ended September 30, 2000 are as
follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES
AND CDSC
RETAINED BY KDI UNPAID FEES
----------------- -----------
<S> <C> <C>
Municipal Fund $771,744 $28,108
Intermediate Municipal Fund 65,787 1,396
</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 year ended September 30, 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 $4,872,075 $50,715 $10,821
Intermediate Municipal
Fund (after $3,432 of
expense waiver) 50,777 -- --
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Trust's transfer agent,
Kemper Service Company ("KSvC") is the shareholder
service agent of the Trust. Under the agreement,
for the year ended September 30, 2000, KSvC
received fees as follows:
<TABLE>
<CAPTION>
SHAREHOLDER
SERVICES UNPAID FEES
----------- -----------
<S> <C> <C>
Municipal Fund $1,414,438 $116,004
Intermediate Municipal Fund (after $16,016 of
expense waiver) -- --
</TABLE>
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of
Scudder Kemper. During the year ended September 30,
2000, the
52
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS
Trust made no payments to is officers and incurred
trustees' fees of $71,472 to independent trustees.
--------------------------------------------------------------------------------
4 CAPITAL SHARE
TRANSACTIONS The following table summarizes the activity in
capital shares of the Funds:
<TABLE>
<CAPTION>
MUNICIPAL YEAR ENDED YEAR ENDED
FUNDS SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 59,507,416 $ 561,469,740 122,765,000 $1,246,825,109
-------------------------------------------------------------------------------------
Class B 1,334,857 12,651,826 2,130,000 21,741,543
-------------------------------------------------------------------------------------
Class C 5,471,205 51,378,041 7,786,000 79,161,000
-------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDEND:
Class A 8,740,971 82,872,241 13,879,000 140,558,917
-------------------------------------------------------------------------------------
Class B 187,093 1,767,521 334,000 3,377,000
-------------------------------------------------------------------------------------
Class C 27,951 265,174 43,000 440,000
-------------------------------------------------------------------------------------
SHARES REDEEMED
Class A (98,444,223) (931,925,268) (148,146,000) (1,504,344,543)
-------------------------------------------------------------------------------------
Class B (2,401,385) (22,692,303) (1,801,000) (18,075,000)
-------------------------------------------------------------------------------------
Class C (5,672,865) (53,470,721) (7,801,000) (79,330,000)
-------------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 496,319 4,739,915 286,000 2,941,000
-------------------------------------------------------------------------------------
Class B (497,342) (4,739,915) (288,000) (2,941,000)
-------------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARES TRANSACTIONS $(297,683,749) $ (109,642,974)
-------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INTERMEDIATE
MUNICIPAL YEAR ENDED YEAR ENDED
FUNDS SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 867,564 $ 8,591,263 1,153,623 $ 11,794,850
----------------------------------------------------------------------------------------
Class B 130,055 1,284,987 283,171 2,938,040
----------------------------------------------------------------------------------------
Class C 44,018 433,854 228,813 2,384,056
----------------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDEND:
Class A 47,185 466,339 57,265 589,517
----------------------------------------------------------------------------------------
Class B 11,423 112,893 11,758 121,024
----------------------------------------------------------------------------------------
Class C 4,145 40,982 4,809 49,485
----------------------------------------------------------------------------------------
SHARES REDEEMED
Class A (1,233,076) (12,194,086) (1,253,633) (12,727,816)
----------------------------------------------------------------------------------------
Class B (186,102) (1,832,711) (258,106) (2,676,960)
----------------------------------------------------------------------------------------
Class C (168,911) (1,670,330) (72,276) (729,649)
----------------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 1,288 12,690 2,201 22,327
----------------------------------------------------------------------------------------
Class B (1,288) (12,690) (2,201) (22,327)
----------------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARES TRANSACTIONS $ (4,766,809) $ 1,742,547
----------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
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 $50,598 $182,185
Intermediate Municipal Fund 729 1,490
</TABLE>
--------------------------------------------------------------------------------
6 LINE OF CREDIT The Funds and several Kemper funds (the "the
Participants") share in a $750 million revolving
credit facility with Chase Manhattan Bank 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, based
upon net assets, 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
the agreement.
54
<PAGE> 55
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER NATIONAL TAX-FREE INCOME SERIES
We have audited the accompanying statement of assets and liabilities,
including the portfolios of investments, of Kemper Municipal Bond Fund and
Kemper Intermediate Municipal Bond Fund, comprising the Kemper National Tax-Free
Income Series (the Trust) as of September 30, 2000, the related statements of
operations for the year then ended and changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
fiscal periods since 1996. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of September 30, 2000, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the above mentioned Funds of Kemper National Tax-Free Income Series at
September 30, 2000, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for each of the fiscal periods since 1996, in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Chicago, Illinois
November 20, 2000
55
<PAGE> 56
TAX INFORMATION
TAX INFORMATION (UNAUDITED)
For Municipal Bond Fund, of the dividends paid from net investment income for
the taxable year ended September 30, 2000, 100% are designated as exempt
interest dividends for federal income tax purposes.
56
<PAGE> 57
NOTES
57
<PAGE> 58
NOTES
58
<PAGE> 59
NOTES
59
<PAGE> 60
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 G. CONDON
Vice President
DONALD R. JONES
Trustee ANN M. MCCREARY
Vice President
THOMAS W. LITTAUER
Chairman, Trustee and ASHTON P. GOODFIELD
Vice President Vice President
SHIRLEY D. PETERSON KATHRYN L. QUIRK
Trustee 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 AND STATE STREET BANK AND TRUST COMPANY
TRANSFER 225 Franklin Street
Boston, MA 02110
.............................................................................................
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 - 2(11/25/00) 1124150
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
