<PAGE> 1
Kemper State Tax-Free Income Series
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED AUGUST 31, 1995
"WE CORRECTLY IDENTIFIED THE VALUE THAT LONG-TERM INTEREST RATES HAD ACHIEVED
AND BEGAN TO LENGTHEN THE PORTFOLIOS' AVERAGE DURATIONS"
FLORIDA TAX-FREE
INCOME FUND
NEW JERSEY TAX-FREE
INCOME FUND
NEW YORK TAX-FREE
INCOME FUND
PENNSYLVANIA TAX-FREE
INCOME FUND
[KEMPER MUTUAL FUNDS LOGO]
<PAGE> 2
FLORIDA TAX-FREE
INCOME FUND
NEW JERSEY TAX-FREE
INCOME FUND
NEW YORK TAX-FREE
INCOME FUND
PENNSYLVANIA TAX-FREE
INCOME FUND
<PAGE> 3
TABLE OF
CONTENTS
================================================================================
4
Terms to Know
5
General
Economic Overview
7
Performance Update
9
Florida's
Performance Update,
Portfolio Statistics and
Portfolio of Investments
14
New Jersey's
Performance Update,
Portfolio Statistics and
Portfolio of Investments
18
New York's
Performance Update,
Portfolio Statistics and
Portfolio of Investments
23
Pennsylvania's
Performance Update,
Portfolio Statistics and
Portfolio of Investments
27
Report of
Independent Auditors
28
Financial Statements
31
Notes to
Financial Statements
36
Financial Highlights
AT A GLANCE
================================================================================
KEMPER STATE TAX-FREE INCOME FUNDS TOTAL RETURNS
================================================================================
(unadjusted for sales charge)
- - Florida and New York returns are for the year ended August 31, 1995.
- - New Jersey and Pennsylvania returns are for the period from March 31, 1995
through August 31, 1995.
FLORIDA
================================================================================
<TABLE>
<S> <C>
CLASS A 8.62%
CLASS B 7.67%
CLASS C 7.84%
LIPPER TAX-FREE INCOME FUNDS CATEGORY AVERAGE* 7.74%
</TABLE>
NEW JERSEY
================================================================================
<TABLE>
<S> <C>
CLASS A 4.24%
CLASS B 4.02%
CLASS C 4.04%
LIPPER TAX-FREE INCOME FUNDS CATEGORY AVERAGE* 3.80%
</TABLE>
NEW YORK
================================================================================
<TABLE>
<S> <C>
CLASS A 7.62%
CLASS B 6.69%
CLASS C 6.64%
LIPPER TAX-FREE INCOME FUNDS CATEGORY AVERAGE* 6.62%
</TABLE>
PENNSYLVANIA
================================================================================
<TABLE>
<S> <C>
CLASS A 5.33%
CLASS B 4.90%
CLASS C 4.92%
LIPPER TAX-FREE INCOME FUNDS CATEGORY AVERAGE* 3.89%
</TABLE>
Returns are historical and do not represent future performance. Returns and net
asset value fluctuate. Shares are redeemable at current net asset value, which
may be more or less than original cost.
NET ASSET VALUE
================================================================================
FLORIDA
================================================================================
<TABLE>
<CAPTION>
As of As of
8/31/95 8/31/94
- --------------------------------------------------------------------------------
<S> <C> <C>
Kemper Florida Tax-Free
Income Fund Class A $10.27 $10.11
- --------------------------------------------------------------------------------
Kemper Florida Tax-Free
Income Fund Class B $10.26 $10.10
- --------------------------------------------------------------------------------
Kemper Florida Tax-Free
Income Fund Class C $10.26 $10.10
- --------------------------------------------------------------------------------
</TABLE>
NEW JERSEY
================================================================================
<TABLE>
<CAPTION>
As of As of
8/31/95 8/31/94
- --------------------------------------------------------------------------------
<S> <C> <C>
Kemper New Jersey Tax-Free
Income Fund Class A $9.75 N/A
- --------------------------------------------------------------------------------
Kemper New Jersey Tax-Free
Income Fund Class B $9.77 N/A
- --------------------------------------------------------------------------------
Kemper New Jersey Tax-Free
Income Fund Class C $9.77 N/A
- --------------------------------------------------------------------------------
</TABLE>
NEW YORK
================================================================================
<TABLE>
<CAPTION>
As of As of
8/31/95 8/31/94
- --------------------------------------------------------------------------------
<S> <C> <C>
Kemper New York Tax-Free
Income Fund Class A $10.80 $10.73
- --------------------------------------------------------------------------------
Kemper New York Tax-Free
Income Fund Class B $10.80 $10.73
- --------------------------------------------------------------------------------
Kemper New York Tax-Free
Income Fund Class C $10.79 $10.73
- --------------------------------------------------------------------------------
</TABLE>
PENNSYLVANIA
================================================================================
<TABLE>
<CAPTION>
As of As of
8/31/95 8/31/94
- --------------------------------------------------------------------------------
<S> <C> <C>
Kemper Pennsylvania Tax-Free
Income Fund Class A $9.81 N/A
- --------------------------------------------------------------------------------
Kemper Pennsylvania Tax-Free
Income Fund Class B $9.80 N/A
- --------------------------------------------------------------------------------
Kemper Pennsylvania Tax-Free
Income Fund Class C $9.81 N/A
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
AT A GLANCE
================================================================================
KEMPER TAX-FREE INCOME FUNDS LIPPER RANKINGS
================================================================================
Compared to all other funds in their respective Lipper category*
FLORIDA
================================================================================
<TABLE>
<CAPTION>
1-year
- --------------------------------------------------------------------------------
<S> <C>
Class A #16 of 69 funds
- --------------------------------------------------------------------------------
Class B #36 of 69 funds
- --------------------------------------------------------------------------------
Class C #34 of 69 funds
- --------------------------------------------------------------------------------
</TABLE>
NEW YORK
================================================================================
<TABLE>
<CAPTION>
1-year 5-year
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A #20 of 76 funds #6 of 39 funds
- --------------------------------------------------------------------------------
Class B #42 of 76 funds N/A
- --------------------------------------------------------------------------------
Class C #43 of 76 funds N/A
- --------------------------------------------------------------------------------
</TABLE>
* Lipper Analytical Services, Inc. returns and rankings are based upon changes
in net asset value with all dividends reinvested and do not include the effect
of sales charges and, if they had, results may have been less favorable. Returns
and rankings are historical and do not reflect future performance. Lipper
rankings are not available for Kemper New Jersey and Pennsylvania Tax-Free
Income Funds.
DIVIDEND REVIEW
================================================================================
The following tables show per share dividend and yield information for the funds
as of August 31, 1995.
FLORIDA
================================================================================
<TABLE>
<CAPTION>
A Shares B Shares C Shares
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year Income: $0.5300 $0.4411 $0.4544
- --------------------------------------------------------------------------------
August Dividend: $0.0446 $0.0385 $0.0391
- --------------------------------------------------------------------------------
Annualized
Distribution Rate+: 5.21% 4.50% 4.57%
- --------------------------------------------------------------------------------
SEC Yield+: 4.50% 3.89% 3.77%
- --------------------------------------------------------------------------------
Tax Equivalent Yield: 7.15% 6.18% 5.99%
</TABLE>
Based on a marginal tax rate of 37.1% (federal income tax rate)
- --------------------------------------------------------------------------------
NEW JERSEY
================================================================================
<TABLE>
<CAPTION>
A Shares B Shares C Shares
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
5 months Income: $0.2197 $0.1796 $0.1848
- --------------------------------------------------------------------------------
August Dividend: $0.0420 $0.0358 $0.0358
- --------------------------------------------------------------------------------
Annualized
Distribution Rate+: 5.17% 4.40% 4.40%
- --------------------------------------------------------------------------------
SEC Yield+:
(after expense waiver) 5.03% 4.43% 4.48%
- --------------------------------------------------------------------------------
SEC Yield+:
(before expense waiver) 4.62% 3.96% 4.03%
- --------------------------------------------------------------------------------
Tax Equivalent Yield: 8.51% 7.50% 7.58%
</TABLE>
Based on a marginal tax rate of 40.9% (combined New Jersey state and federal
income tax rate)
- --------------------------------------------------------------------------------
NEW YORK
================================================================================
<TABLE>
<CAPTION>
A Shares B Shares C Shares
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year Income: $0.5750 $0.4833 $0.4847
- --------------------------------------------------------------------------------
August Dividend: $0.0479 $0.0403 $0.0401
- --------------------------------------------------------------------------------
Annualized
Distribution Rate+: 5.32% 4.48% 4.46%
- --------------------------------------------------------------------------------
SEC Yield+: 4.75% 4.20% 4.19%
- --------------------------------------------------------------------------------
Tax Equivalent Yield: 8.53% 7.54% 7.52%
</TABLE>
Based on a marginal tax rate of 44.3% (combined New York state, New York City
and federal income tax rate)
- --------------------------------------------------------------------------------
PENNSYLVANIA
================================================================================
<TABLE>
<CAPTION>
A Shares B Shares C Shares
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
5 months Income: $0.2198 $0.1829 $0.1850
- --------------------------------------------------------------------------------
August Dividend: $0.0407 $0.0345 $0.0346
- --------------------------------------------------------------------------------
Annualized
Distribution Rate+: 4.98% 4.22% 4.23%
- --------------------------------------------------------------------------------
SEC Yield+:
(after expense waiver) 4.89% 4.26% 4.32%
- --------------------------------------------------------------------------------
SEC Yield+:
(before expense waiver) 4.68% 4.00% 4.03%
- --------------------------------------------------------------------------------
Tax Equivalent Yield: 8.00% 6.97% 7.07%
</TABLE>
Based on a marginal tax rate of 38.9% (combined Pennsylvania state and federal
income tax rate)
- --------------------------------------------------------------------------------
+ Current annualized distribution rate is the latest monthly dividend shown as
an annualized percentage of net asset value on August 31, 1995. 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 August 31, 1995 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.
The exemption for federal and a particular state or local income tax purposes
may not result in an exemption under the tax laws of any other state or local
taxing authority. There is no Florida income tax for individuals. Kemper Florida
Tax-Free Income Fund shares are expected to be exempt from Florida intangibles
tax but there is no assurance of exemption. A portion of income may be subject
to the alternative minimum tax for certain investors.
3
<PAGE> 5
ABOUT YOUR REPORT
SHAREHOLDER REPORTS REVISED
Your fund's annual report is your best source for tracking the progress of your
investment. This report includes several changes that have been made in an
effort to provide additional information to you as well as explain significant
changes to the fund over the last fiscal year. In addition, the performance
update includes commentary from your fund's portfolio manager or management team
on what might be expected in the coming months. Specifically, your report now
includes:
- - Terms you'd need to know related to your fund
- - A look at your fund's portfolio composition and how it has changed
- - The quality and years to maturity of the fund's underlying investments
If you have any comments about the revised format or if you have
suggestions for additional changes, please write to:
Kemper Mutual Funds
Shareholder Communications
120 South LaSalle Street
Chicago, IL 60603
TERMS TO KNOW
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for the period, assuming the
reinvestment of all dividends. It represents the aggregate percentage or dollar
value change over the period.
YIELD A fund's yield is a measure of the net investment income per share earned
over a specific one month or 30-day period expressed as a percentage of the
maximum offering price of the fund's shares at the end of the period.
DURATION Duration is a measure of the interest rate sensitivity of a
fixed-income portfolio incorporating time to maturity and coupon size. The
longer the duration, the greater the interest rate risk.
DERIVATIVE SECURITIES Instruments that derive their value from an underlying
security or a benchmark such as a security index. Financial futures and option
contracts, long recognized as risk-managing tools, fall under this category. In
recent years a number of exotic derivatives were created as a means of enhancing
returns in a declining interest rate environment. Certain of such products can
entail a high degree of risk and can be prone to significant price volatility.
INSURED PAPER Bonds for which an insurer has agreed to pay all interest and
principal if, for any reason, the issuer fails to pay these costs.
REVENUE BOND INDEX ("RBI") The average yield on 25 revenue bonds with 30-year
maturities, compiled by The Bond Buyer, the newspaper of the municipal bond
industry.
4
<PAGE> 6
GENERAL ECONOMIC OVERVIEW
[PHOTO OF STEPHEN B. TIMBERS]
Stephen B. Timbers is chief executive and chief investment officer of Kemper
Financial Services, Inc. (KFS). KFS and its affiliates manage approximately $63
billion in assets, including $44 billion in retail mutual funds. Timbers is a
graduate of Yale University and holds an M.B.A. from Harvard University.
DEAR SHAREHOLDER,
Investors enjoyed generally positive performance in both the fixed income and
stock markets in the first several months of 1995. At this point in the year,
the returns of most leading securities markets are significantly higher than
they were at the same time in 1994.
This is an excellent environment for financial assets. After several
quarters of robust growth, the United States economy seems to be slowing down at
a comfortable pace.
Through a series of interest rate adjustments, the Federal Reserve Board
has played a critical role in controlling the pace of economic growth. Its most
recent adjustment was in July when the Fed acknowledged that economic growth had
slowed so much that a recession was a threat. In response, the Federal Reserve
eased short-term interest rates by a small but symbolic 25 basis points. This
action was significant because, since February 1994, the Fed had been raising
interest rates to slow down what was considered high enough growth to rekindle
troublesome inflation.
After the interest rate cut, the government announced that the real gross
domestic product (GDP) -- the value of goods and services produced in the United
States -- grew at a 1.1% annual rate in the second quarter. This was a revised
number, representing more than twice the growth that was originally reported,
and it virtually assured that the economy was not in jeopardy of recession. At
the same time, economic growth at that level did not require an immediate
response, in the form of additional rate cuts, from the Fed.
The absence of inflation is also very encouraging. Although we are well
along in the economic cycle and at a point when prices often start hiking up,
price increases are modest. In fact, plunging energy prices during the summer
offset slight increases in food prices. Consumer prices through July 1995 rose
at an annual rate of 3.1% -- higher than last year but still not a concern, and
the GDP deflator is running at only about 2%.
We anticipate 2% to 3% real GDP growth for the next few quarters, with the
momentum likely to come from housing and foreign trade. Will the Federal Reserve
Board adjust interest rates again? Additional action by the Fed at least once
more in 1995 would not surprise us.
MARKET OUTLOOK
Slow growth and low inflation is the optimal combination for investors in
the fixed income markets, and we expect them to continue to perform well.
We believe that the opportunities for common stock investors will be
increasingly concentrated in higher quality investments. After hitting new highs
and showing considerable strength for most of the year, the stock market showed
some vulnerability when it took a tumble in July. The market recovered after a
brief period and has started to move up again. But such a sudden, severe
mini-correction served to remind investors that the current bull market will
inevitably come to an end someday and that some sectors may even be overextended
today.
As we view the remainder of the year, companies cannot necessarily count on
the economy to provide above-average earnings support. Rather, stocks that have
proven themselves with a pattern of consistent earnings are likely to attract
investor support. Specifically, sectors that produce more consistent earnings,
such as health care, consumer nondurables, selected technology and selected
capital goods can be expected to do well. Picking the right sectors to invest in
will be the key challenge for equity investors during the next few quarters.
International investing continues to be quite complex. After sinking to its
post-World War II low in April, the value of the U.S. dollar is gaining strength
against most foreign currencies. While a stronger dollar favors the U.S. economy
because it
5
<PAGE> 7
GENERAL 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-over-year percentage changes.
<TABLE>
<CAPTION>
NOW (9/30/95) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-YEAR TREASURY RATE(1) 6.2 7.06 7.74 5.33
PRIME RATE(2) 8.75 9 7.75 6
INFLATION RATE(3)(*) 2.9 2.86 2.9 2.84
THE U.S. DOLLAR(4) (1.17) (11.46) (5.28) 4.03
CAPITAL GOODS ORDERS(5)(*) 7.08 15.06 21.72 16.98
INDUSTRIAL PRODUCTION(6)(*) 2.6 5.6 6.18 3.87
EMPLOYMENT GROWTH(7) 1.91 2.6 3.03 2.34
</TABLE>
*Data as of July 31, 1995
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. The low, moderate inflation of the last
few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters and the
value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on corporate profits and equity performance.
(7) An influence on family income and retail sales.
Source: Economics Department, Kemper Financial Services, Inc.
reduces the cost of American imports and attracts foreign capital, a strong
dollar in relation to a local currency has the effect of devaluing a foreign
investment. The value of the dollar and the attractiveness of U.S. investments
to foreign investors will be key factors in the next few months.
We are in the midst of a global recovery, and the same fundamentals that
have driven markets higher in the U.S. can be found in many foreign countries
currently. However, leading international economies continue to lag the U.S.
Japan and Germany, whose economies typically follow U.S. growth, are not as
robust as in past cycles. Moreover, conditions in emerging market countries
underline the importance of careful research and experience in understanding how
these markets work.
Political leadership also has some bearing on the progress of the economy
and the state of the financial markets. In the months preceding a presidential
election year, it has been common for incumbents to attempt to stimulate growth.
Given our Republican Congress and Democratic President, however, we do not
consider this as likely this time.
With the rest of the country, we are closely following political
initiatives to produce a balanced federal budget. This is a political wild card,
but we would expect both the stock and fixed-income markets to react with
enthusiasm if progress can be made.
With that as an economic backdrop, we encourage you to read the following
detailed report of your fund, including a question-and-answer interview with
your fund's portfolio manager. Thank you for your continued support. We
appreciate the opportunity to serve your investment needs.
Sincerely,
/s/ STEPHEN B. TIMBERS
- --------------------------------------
Stephen B. Timbers
Chief Investment and Executive Officer
October 11, 1995
6
<PAGE> 8
PERFORMANCE UPDATE
[Photo of Chris Mier]
Chris Mier joined Kemper Financial Services, Inc. in 1986 and is now Senior Vice
President and Portfolio Manager of the Kemper State Tax-Free Income Series. Mier
received his B.A. degree in Economics from the University of Michigan and went
on to receive his M.M. in Finance from the Kellogg Graduate School of Management
at Northwestern University.
CHRIS MIER, PORTFOLIO MANAGER OF THE KEMPER STATE TAX-FREE INCOME SERIES,
DISCUSSES THE IMPACT OF CHANGING INTEREST RATES ON THE BOND MARKETS AND
PRECAUTIONS HE'S TAKEN IN RESPONSE TO INCREASING DISCUSSIONS OF TAX REFORM.
Q DURING THE FUNDS' FISCAL YEAR WE SAW INTEREST RATES INCREASE AND THEN
DECLINE. HOW DID THESE MOVEMENTS INFLUENCE THE MUNICIPAL BOND MARKET?
A The Fed consistently raised short-term interest rates through 1994 in an
effort to slow economic growth and offset perceived inflationary pressures.
The result was the worst year for the bond markets in decades. The Bond
Buyers Revenue Bond Index (RBI) peaked at 7.37% on November 17. At that
point, the market began to rally on the belief that the Fed's actions were
effectively bringing economic growth down to its target rate of 2.5%, and
that the tightening process was near completion. The rally continued from
mid-November to early June, perpetuated by first quarter 1995 data that
verified positive but slower growth and continued low inflation. By June 8,
the RBI had declined to 5.94% -- 143 basis points below November's peak.
From June through August, economic data -- fairly strong auto sales,
an increase in consumer spending and a general leveling of inventories --
suggested that the economy was poised to pick up again. This prompted
interest rates to rise again, reaching 6.44% in mid-August. Since then,
yields have traded at a fairly narrow range as the market has attempted to
discern just how strong the economy is and how well inflation has been
contained.
With this as a backdrop, we saw municipal bonds outperform Treasuries
during the first quarter of 1995. This reflected a low level of new issues
coming to market relative to expectations and the anticipation of a high
number of bonds being called or scheduled to mature. During the second
quarter, however, Treasuries outperformed municipals due to increasing
dealer inventories and, in part, as a reaction to the outperformance of
municipals in the previous quarter and an increase in the level of
discussion of tax reform. This also reflected the cumulative effect of a
lack of cash flow into the market in late 1994 and early 1995.
Q HOW DID THIS ENVIRONMENT AFFECT YOUR INVESTMENT STRATEGY?
A We correctly identified the value that long-term interest rates had
achieved in November of 1994 and began to lengthen the portfolios' average
durations. First, we reduced the hedges we had on the portfolios and then
reduced our cash positions with purchases of long-term bonds. These moves
allowed the funds to participate to a reasonable degree in the market rally
early in 1995. Through 1995 we've increased our exposure to A- and BBB-
rated bonds and increased our level of diversification.
7
<PAGE> 9
PERFORMANCE UPDATE
Q WHAT OTHER FACTORS INFLUENCED THE MARKET?
A Among the more significant factors were:
- Reduced supply. This has been a peak year in terms of bonds reaching
maturity and being called. Meanwhile, the volume of new issues coming
to market in 1995 has been well below that of 1994, and those figures
were significantly down from 1993. So we have more bonds leaving the
market than there are bonds being issued. However, demand has slowed.
This is one reason why we're seeing a higher yield ratio between
municipal and Treasury yields.
- Derivatives. The use of derivative securities became a big concern as
certain units of government suffered losses on derivatives in their
portfolios. Kemper has not used exotic derivative securities to
enhance yield. However, this issue had a definite impact throughout
the municipal bond market.
- Increased scrutiny of new issues. The Securities and Exchange
Commission increased its level of scrutiny with regard to new bond
issues. In my opinion, this is a generally positive development
because, in the long run, we should see more thorough disclosure about
the practices of the various government units that issue municipal
bonds.
- Tax reform. The possibility of tax reform raised questions as to the
future relative tax advantage of municipal bonds.
Q TAX REFORM -- INCLUDING A POSSIBLE FLAT TAX -- HAS BEEN GETTING A LOT OF
ATTENTION IN WASHINGTON AND IN THE MEDIA. DID THIS HAVE A SIGNIFICANT
IMPACT ON THE FUNDS, AND DO YOU EXPECT THIS TO BE AN ONGOING ISSUE?
A This became a concern in April and May and continued periodically
throughout the summer. During that time, municipal bond prices adjusted by
about 10 percentage points relative to Treasuries. So the market has
already discounted much of the potential impact of tax reform.
This issue is probably going to dog the market through the 1996
election and, quite possibly, beyond. It's a very uncertain issue, subject
to a lot of variables. Obviously, we can't see into the future so there's
really no way to predict what kind of reform, if any, will take place or
when it might be enacted. But it's probably safe to expect that any kind of
reform won't be implemented until 1997 at the earliest. Nevertheless, it
will continue to generate media interest.
We've taken a few precautions with regard to this issue and the
management of the Kemper Tax-Free Income Funds. We've reduced the funds'
average maturity somewhat recently and slightly increased our cash
positions. In addition, we sold some shorter-maturity bonds which are
richer relative to Treasuries than bonds on the longer end and, therefore,
potentially more vulnerable to price adjustments.
Q HOW DID THE KEMPER STATE TAX-FREE INCOME FUNDS PERFORM DURING THE PERIOD?
A We achieved some very competitive rates of return relative to our peers.
Looking back, we probably could have gained a bit more by extending our
durations earlier in the year. But the returns we posted for the period are
certainly competitive and, if we err, we'd prefer to err on the side of
caution.
The funds introduced last March have been a bit more volatile on a
month-to-month basis than the older funds. This is due to the fact that
they hold a higher percentage of insured paper which, in fact, has helped
in recent months. As the portfolios evolve over time and the weightings in
insured paper decrease, that volatility should smooth out to some degree.
Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A Generally very constructive. We anticipate continued slow but positive
economic growth with inflation remaining in control. That's a good
environment for the bond markets. We also expect some positive action in
Congress with regard to deficit reduction. For the municipal bond market in
particular, we expect continued low levels of new supply. Although the
number of bonds maturing and being called should decline in 1996, new issue
volume should continue to be relatively moderate.
As I said, we think the market has substantially discounted the
potential threat of tax reform, at least on the long-end. Should the market
overreact or over-discount events as they unfold, we may well see some
attractive buying opportunities.
8
<PAGE> 10
PERFORMANCE UPDATE
KEMPER FLORIDA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
FLORIDA AVERAGE ANNUAL TOTAL RETURNS*
For periods ended August 31, 1995
(adjusted for the maximum sales charge)
KEMPER FLORIDA TAX-FREE INCOME FUNDS
LIFE OF
1-YEAR CLASS
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEMPER FLORIDA TAX-FREE
INCOME FUND CLASS A 3.70% 7.76% (Since 4/25/91)
---------------------------------------------------------------------------------------------
KEMPER FLORIDA TAX-FREE
INCOME FUND CLASS B 4.68 4.36 (Since 5/31/94)
---------------------------------------------------------------------------------------------
KEMPER FLORIDA TAX-FREE
INCOME FUND CLASS C 7.84 6.86 (Since 5/31/94)
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROWTH OF AN ASSUMED $10,000 INVESTMENT
IN KEMPER FLORIDA TAX-FREE INCOME FUND
CLASS A FROM 4/25/91 THROUGH 8/31/96
-----------------------------------------
Kemper Florida Lehman Brothers Consumer
Tax-Free Income Municipal Price
Class A(1) Bond Index+ Index++
------------------------------------------------------------
<S> <C> <C> <C>
4/25/91 10000 10000 10000
------------------------------------------------------------
12/31/91 10506 10822 10200
------------------------------------------------------------
12/31/92 11463 11776 10496
------------------------------------------------------------
12/31/93 13011 13222 10784
------------------------------------------------------------
12/31/94 12502 12539 11072
------------------------------------------------------------
8/31/95 13850 14055 11309
------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROWTH OF AN ASSUMED $10,000 INVESTMENT
IN KEMPER FLORIDA TAX-FREE INCOME FUND
CLASS B FROM 5/31/94 THROUGH8/31/95
-----------------------------------------
Kemper Florida Lehman Brothers Consumer
Tax-Free Income Municipal Price
Class B(1) Bond Index+ Index++
------------------------------------------------------------
<S> <C> <C> <C>
5/31/94 10000 10000 10000
------------------------------------------------------------
9/30/94 9921.1 10007 10129
------------------------------------------------------------
12/31/94 9837.6 9864 10149
------------------------------------------------------------
3/31/95 10521.2 10561 10264
------------------------------------------------------------
6/30/95 10916.5 10816 10339
------------------------------------------------------------
8/31/95 10547.4 11057 10366
------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROWTH OF AN ASSUMED $10,000 INVESTMENT
IN KEMPER FLORIDA TAX-FREE INCOME FUND
CLASS C FROM 5/31/94 THROUGH 8/31/95
-----------------------------------------
Kemper Florida Lehman Brothers Consumer
Tax-Free Income Municipal Price
Class C(1) Bond Index+ Index++
-------------------------------------------------------------
<S> <C> <C> <C>
5/31/94 10000 10000 10000
------------------------------------------------------------
9/30/94 9903 10007 10129
------------------------------------------------------------
12/31/94 9845 9864 10149
------------------------------------------------------------
3/31/95 10531 10561 10264
------------------------------------------------------------
6/30/95 10731 10816 10339
------------------------------------------------------------
8/31/95 10864 11057 10366
------------------------------------------------------------
</TABLE>
Past performance is not predictive of
future performance. Returns and net asset
value fluctuate. Shares are redeemable at
current net asset value, which may be
more or less than original cost.
* Average annual total return measures
net investment income and capital gain or
loss from portfolio investments, assuming
reinvestment of all dividends and for A
Shares adjustment for the maximum sales
charge of 4.5% and for B Shares
adjustment for the applicable contingent
deferred sales charge of 3%. There is no
sales charge for C Shares. Average annual
total return reflects annualized change.
During the periods noted, securities
prices fluctuated. For additional
information, see the Prospectus and
Statement of Additional Information and
the Financial Highlights at the end of
this report.
(1) Performance includes reinvestment of
dividends and adjustment for the maximum
sales charge for A Shares and the
contingent deferred sales charge in
effect at the end of the period for B
Shares. In comparing the Kemper State
Tax-Free Income Funds to the Lehman
Brothers Municipal Bond Index, you should
note that the funds' 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,
have been issued as a part of an issue of
at least $50 million, have been issued
within the last 5 years, and have a
maturity of at least 2 years. Bond
subject to AMT, variable rate bonds and
zero coupon bonds are excluded from the
index. Source is Towers Data Systems.
++ The Consumer Price Index is a
statistical measure of change, over time,
in the prices of goods and services in
major expenditure groups for all urban
consumers. It is generally considered to
be a measure of inflation. Source is
Towers Data Systems.
9
<PAGE> 11
PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
KEMPER FLORIDA TAX-FREE INCOME FUND
PORTFOLIO COMPOSITION ON 8/31/95 ON 8/31/94
----------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 87% 86%
----------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 11 11
----------------------------------------------------------------------------
CASH AND EQUIVALENTS 2 3
----------------------------------------------------------------------------
100% 100%
</TABLE>
[2 PIE CHARTS]
<TABLE>
<CAPTION>
QUALITY ON 8/31/95 ON 8/31/94
----------------------------------------------------------------------------
<S> <C> <C>
AAA 56% 64%
----------------------------------------------------------------------------
AA 13 10
----------------------------------------------------------------------------
A 12 10
----------------------------------------------------------------------------
BBB 11 10
----------------------------------------------------------------------------
NR (NOT RATED) 8 6
----------------------------------------------------------------------------
100% 100%
</TABLE>
[2 PIE CHARTS]
<TABLE>
<CAPTION>
YEARS TO MATURITY ON 8/31/95 ON 8/31/94
----------------------------------------------------------------------------
<S> <C> <C>
1-10 YEARS 6% 14%
----------------------------------------------------------------------------
10-20 YEARS 44 48
----------------------------------------------------------------------------
20+ YEARS 50 38
----------------------------------------------------------------------------
100% 100%
</TABLE>
[2 PIE CHARTS]
<TABLE>
<CAPTION>
AVERAGE MATURITY ON 8/31/95 ON 8/31/94
----------------------------------------------------------------------------
<S> <C> <C>
19.8 YEARS 16.6 YEARS
----------------------------------------------------------------------------
</TABLE>
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS
FLORIDA TAX-FREE INCOME FUND
August 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
===================================================================================================================
<S> <C> <C> <C>
ADVANCE Dunedin, Mease Health Care, Rev., 6.75%,
REFUNDED to be called 11-15-11 @ 114 $ 750 $ 856
OBLIGATIONS -------------------------------------------------------------------------------------------
SECURED AS TO Jacksonville Health Facilities Auth.,
PRINCIPAL AND Memorial Medical Center Proj., Rev., 6.75%
INTEREST BY to be called 05-01-11 @ 113 2,000 2,263
OBLIGATIONS -------------------------------------------------------------------------------------------
OF THE Volusia County Health Facilities Auth.,
UNITED STATES Memorial Health Systems, Hospital Facilities
GOVERNMENT Rev., 8.25%, to be called 6-01-20 @ 116 1,940 2,265
-------------------------------------------------------------------------------------------
West Palm Beach Community ReDev. Agcy.,
Rev., 6.75%, to be called 3-01-10 @ 112 1,025 1,153
===========================================================================================
TOTAL ADVANCE REFUNDED OBLIGATIONS--5.6% 6,537
- -------------------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL Board of Education, Public Education Capital
OBLIGATIONS Outlay, Rev., 5.25% and 7.25%, 2014 and 2023 4,890 4,624
-------------------------------------------------------------------------------------------
Broward County:
North Site Proj., Resource Recovery Rev., 7.95%, 2008 915 1,025
School District, Gen. Oblg., 6.00%, 2007 4,000 4,214
South Site Proj., Resource Recovery Rev., 7.95%, 2008 970 1,087
-------------------------------------------------------------------------------------------
Charlotte County, Utility System, Rev.,
5.25% and 6.75%, 2021 and 2013 2,250 2,103
-------------------------------------------------------------------------------------------
Dade City Governmental Leasing Corp.,
Department of Health and Rehabilitative
Services, Rev., 9.00%, 2020 1,025 1,105
-------------------------------------------------------------------------------------------
Dade County:
Housing Finance Auth., Single Family Mortgage,
Rev., 7.25%, 2023 370 391
Public Facilities, Jackson Memorial Hospital,
Rev., 4.875%, 2015 3,500 3,070
School District, Gen. Oblg., 5.00%, 2013 3,115 2,846
-------------------------------------------------------------------------------------------
Department of Natural Resources,
Rev., 6.75%, 2013 1,000 1,079
-------------------------------------------------------------------------------------------
Department of Transportation, Turnpike Auth.,
Rev., 5.00%, 2014 1,750 1,598
-------------------------------------------------------------------------------------------
Dunedin City, Utility System Rev., 4.50%, 2014 1,770 1,495
-------------------------------------------------------------------------------------------
Duval County Housing Finance Auth.,
GNMA Mortgage-Backed Securities Program,
Single Family Mortgage Rev., 7.25%, 2019 550 581
-------------------------------------------------------------------------------------------
Escambia County Housing Finance Auth.,
Multi-County Program, Single Family
Mortgage Rev., 6.90%, 2020 and 2021 2,805 2,934
-------------------------------------------------------------------------------------------
Gainesville, Utility System Rev., 6.50%, 2010 1,370 1,525
-------------------------------------------------------------------------------------------
Halifax Hospital Medical Center,
Hospital Rev., 6.75%, 2006 3,475 3,823
-------------------------------------------------------------------------------------------
Hillsborough County:
Aviation Auth.,Tampa International Airport,
Rev., 6.90%, 2011 1,250 1,356
Housing Finance Auth., Single Family Mortgage
Rev., 7.30%, 2022 345 365
Utility Rev., 7.00%, 2014 1,325 1,391
-------------------------------------------------------------------------------------------
Housing Finance Agcy., GNMA Collateralized
Home Ownership, Rev., 7.90%, 2022 1,480 1,593
-------------------------------------------------------------------------------------------
Jacksonville:
Capital Improvement, Rev., 5.50%, 2019 1,500 1,425
Electric Auth., Saint Johns River Power Park System,
Rev., 5.25% and 5.50%, 2013 and 2021 2,500 2,361
Health Facilities Auth., Daughters of Charity,
Rev., 5.00%, 2015 1,700 1,530
-------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
===================================================================================================================
<S> <C> <C> <C>
Kissimmee Utilities Auth., Electric System
Improvement and Rev., 5.25%, 2018 $3,215 $2,957
-------------------------------------------------------------------------------------------
Lake City, Utilities Rev., 5.00%, 2018 2,000 1,778
-------------------------------------------------------------------------------------------
Lake County:
NRG/Recovery Group Proj.,Resource Recovery
Rev., 5.95%, 2013 3,120 2,939
Village Center Community Dev. District
Utility Rev., 5.00%, 2013 2,500 2,282
-------------------------------------------------------------------------------------------
Leesburg, Regional Medical Center Proj.,
Hospital Rev., 5.70%, 2018 1,000 916
-------------------------------------------------------------------------------------------
Manatee County:
Gen. Oblg., 4.75%, 2013 1,000 875
Public Utilities, Rev., 5.00%, 2013 2,000 1,826
-------------------------------------------------------------------------------------------
Martin County, Industrial Dev. Auth.,
Indiantown Cogeneration, L.P. Proj.,
Rev., 7.875%, 2025 2,325 2,581
-------------------------------------------------------------------------------------------
Miami Beach ReDev. Agcy., City
Center/Historic Convention Village, Tax
Increment Rev., 5.875%, 2022 3,150 2,896
-------------------------------------------------------------------------------------------
Nassau County, Intermediate Care Facility, Amelia Island Proj.,
Rev., 9.75%, 2023 997 1,103
-------------------------------------------------------------------------------------------
North Miami, Johnson and Wales University
Proj., Educational Facilities Rev.,
6.10% and 6.125%, 2013 and 2020 4,785 4,696
-------------------------------------------------------------------------------------------
Orange County:
Health Facilities Auth., Hospital Rev., 5.25%, 2020 2,000 1,818
Housing Finance Auth., Single Family Mortgage,
Rev., 6.75%, 2018 3,600 3,754
Sales Tax Rev., 5.375%, 2024 3,500 3,221
-------------------------------------------------------------------------------------------
Orlando and Orange County Expressway Auth.,
Junior Lien, Rev., 5.95% and 6.50%,
2023 and 2012 4,000 4,012
-------------------------------------------------------------------------------------------
Palm Beach County:
Criminal Justice Facilities, Rev., 7.20%, 2015 110 131
Solid Waste Auth., Rev., 8.75%, 2010 245 268
-------------------------------------------------------------------------------------------
Pasco County, Solid Waste Disposal and
Resource Recovery System, Rev., 7.80%, 2011 345 384
-------------------------------------------------------------------------------------------
Pensacola, Health Facilities Auth.,
Daughters of Charity, Rev., 5.25%, 2011 2,200 2,038
-------------------------------------------------------------------------------------------
Pinellas County, Pollution Control,
Florida Power Corp., Rev., 7.20%, 2014 2,000 2,146
-------------------------------------------------------------------------------------------
Pinellas Park, Public Improvement
Rev., 5.00%, 2018 3,805 3,372
-------------------------------------------------------------------------------------------
St. Petersburg:
Excise Tax Rev., 5.00%, 2016 3,935 3,528
Health Facilities Auth., St. Anthony Health Care Center,
Rev., 6.75% and 7.00%, 2021 and 2015 1,500 1,617
-------------------------------------------------------------------------------------------
Sarasota, Water and Sewer System,
Rev., 4.50%, 2016 3,000 2,500
-------------------------------------------------------------------------------------------
South Florida, Water Management
District, 5.25%, 2015 1,000 935
-------------------------------------------------------------------------------------------
Sunrise, Public Facilities,
Rev., 6.50%, 2007 1,000 1,092
-------------------------------------------------------------------------------------------
Tampa Sports Auth., Special Purpose
Bonds, 5.75%, 2020 1,825 1,818
-------------------------------------------------------------------------------------------
Vero Beach, Electric Rev., 5.375%, 2021 2,000 1,863
-------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
===================================================================================================================
<S> <C> <C> <C>
Puerto Rico Commonwealth, Highway &
Transportation Auth., Rev., 5.50%, 2013 $1,500 $ 1,475
-------------------------------------------------------------------------------------------
Puerto Rico, Electric Power Auth.,
Rev., 5.50%, 2025 2,000 1,859
-------------------------------------------------------------------------------------------
Virgin Islands Public Finance Auth.,
Gen. Oblg. Rev., 7.25%, 2018 2,100 2,220
===========================================================================================
TOTAL OTHER MUNICIPAL OBLIGATIONS--92.4% 108,421
===========================================================================================
TOTAL OBLIGATIONS--98.0%
(COST: $110,766) 114,958
===========================================================================================
MONEY MARKET INSTRUMENTS--1.3%
YIELD--3.60%
DUE--SEPTEMBER 1995
(COST: $1,500) 1,500 1,500
===========================================================================================
TOTAL INVESTMENTS--99.3%
(COST: $112,266) 116,458
===========================================================================================
CASH AND OTHER ASSETS, LESS LIABILITIES--.7% 834
===========================================================================================
NET ASSETS--100% $117,292
===========================================================================================
</TABLE>
NOTE TO PORTFOLIO INVESTMENTS
Based on the cost of investments of $112,266,000 for federal income tax purposes
at August 31, 1995, the aggregate gross unrealized appreciation was $5,317,000,
the aggregate gross unrealized depreciation was $1,125,000 and the net
unrealized appreciation of investments was $4,192,000.
See accompanying Notes to Financial Statements.
13
<PAGE> 15
PERFORMANCE UPDATE
KEMPER NEW JERSEY TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
NEW JERSEY TOTAL RETURNS*
For period ended August 31, 1995
(adjusted for the maximum sales charge)
KEMPER NEW JERSEY TAX-FREE INCOME FUNDS
LIFE OF
CLASS
------------------------------------------------------------------------
<S> <C> <C>
KEMPER NEW JERSEY TAX-FREE
INCOME FUND CLASS A 0.15% (Since 3/15/95)
------------------------------------------------------------------------
KEMPER NEW JERSEY TAX-FREE
INCOME FUND CLASS B 0.69% (Since 3/15/95)
------------------------------------------------------------------------
KEMPER NEW JERSEY TAX-FREE
INCOME FUND CLASS C 4.75% (Since 3/15/95)
------------------------------------------------------------------------
</TABLE>
Past performance is not predictive of
future performance. Returns and net asset
value fluctuate. Shares are redeemable at
current net asset value, which may be
more or less than original cost.
* Total return measures net investment
income and capital gain or loss from
portfolio investments, assuming
reinvestment of all dividends and for
A Shares adjustment for the maximum
sales charge of 4.5% and for B Shares
adjustment for the applicable contingent
deferred sales charge of 4%. There is no
sales charge for C Shares. Total return
reflects aggregate charge. During the
periods noted, securities prices
fluctuated. For additional information,
see the Prospectus and Statement of
Additional Information and the Financial
Highlights at the end of this report.
<TABLE>
<CAPTION>
KEMPER NEW JERSEY TAX-FREE INCOME FUND
PORTFOLIO COMPOSITION ON 8/31/95
------------------------------------------------------------------------
<S> <C>
REVENUE BONDS 72%
------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 26
------------------------------------------------------------------------
CASH AND EQUIVALENTS 2
------------------------------------------------------------------------
100%
</TABLE>
[1 PIE CHART
ON 8/31/95]
- Revenue bonds
- General obligation bonds
- Cash and equivalents
14
<PAGE> 16
PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
QUALITY ON 8/31/95
<S> <C>
AAA 70%
------------------------------------------
AA 11
------------------------------------------
A 13
------------------------------------------
BBB 3
------------------------------------------
NR (not rated) 3
------------------------------------------
100%
[1 PIE CHART]
</TABLE>
<TABLE>
YEARS TO MATURITY ON 8/31/95
<S> <C> <C>
10-20 years 30%
------------------------------------------
20+ years 70
------------------------------------------
100%
[1 PIE CHART]
</TABLE>
<TABLE>
AVERAGE MATURITY ON 8/31/95
<S> <C>
22.5 years
------------------------------------------
</TABLE>
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS
NEW JERSEY TAX-FREE INCOME FUND
August 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
MUNICIPAL Atlantic City Board of Education, Gen. Oblg., 6.15%, 2015 $150 $153
OBLIGATIONS -------------------------------------------------------------------------------------
Building Auth., Rev., 5.00%, 2019 100 89
-------------------------------------------------------------------------------------
Cape May County, Municipal Utilities Auth.,
Rev., 6.00%, 2011 15 16
-------------------------------------------------------------------------------------
Chatham Borough, Gen. Oblg., 5.80%, 2015 32 32
-------------------------------------------------------------------------------------
Delran Township, Gen. Oblg., 5.90%, 2017 75 75
-------------------------------------------------------------------------------------
Economic Dev. Auth.:
Market Transition Facility, Rev., 5.875%, 2011 90 91
Natural Gas Facilities, National Gas Company
Proj., Rev., 6.25%, 2024 35 36
Pollution Control, Public Service Electric and
Gas Company Proj., Rev., 6.40%, 2032 90 94
Rev., Saint Barnabas Realty Dev. Corp. Proj.,
5.25%, 2020 5 5
Water Facilities
American Water Company Proj., Rev.,
5.35%, 2023 95 89
Middlesex Water Company Proj., Rev.,
5.25%, 2023 15 14
-------------------------------------------------------------------------------------
Educational Facilities Auth.:
Caldwell College, Rev., 7.25%, 2025 50 50
Jersey City State College, Rev., 6.125%, 2022 50 51
Rider College, Rev., 6.20%, 2017 115 118
-------------------------------------------------------------------------------------
Essex County, Improvement Auth., Rev.,
5.50% and 7.00%, 2020 and 2024 50 51
-------------------------------------------------------------------------------------
Evesham, Municipal Utilities Auth., Rev.,
5.55%, 2018 40 39
-------------------------------------------------------------------------------------
Great Meadows Regional School District,
Gen. Oblg., 5.90%, 2018 150 150
-------------------------------------------------------------------------------------
Health Care Facilities Financing Auth.:
Atlantic City Medical Center, Rev., 6.80%, 2011 150 157
Dover General Hospital and Medical Center,
Rev., 5.875%, 2012 165 167
Hackensack Medical Center, Rev., 6.625%, 2017 15 16
Jersey Shore Medical Center, Rev., 6.25%, 2016 100 103
JFK Health System, Rev., 5.50%, 2023 70 66
Riverview Medical Center, Rev., 5.50%, 2018 25 24
Somerset Medical Center, Rev., 5.20%, 2024 45 41
Southern Ocean County Hospital, Rev.,
6.125%, 2013 120 116
-------------------------------------------------------------------------------------
Housing and Mortgage Finance Agcy., Home Buyer
Program, Rev., 5.375% to 6.35%, 2025 through 2027 200 190
-------------------------------------------------------------------------------------
Jersey City, Gen. Oblg., 6.60%, 2011 40 43
-------------------------------------------------------------------------------------
Lacey, Municipal Utilities Auth., 5.50%, 2019 130 125
-------------------------------------------------------------------------------------
Lower Cape May, Gen. Oblg., 5.80%, 2014 40 40
-------------------------------------------------------------------------------------
Monroe Township, Gloucester County, Gen. Oblg.,
5.20%, 2015 125 118
-------------------------------------------------------------------------------------
Monroe Township, Middlesex County, Municipal
Utilities Auth., Rev., 5.50%, 2017 60 58
-------------------------------------------------------------------------------------
Newark, Gen. Oblg., 5.875% and 6.00%,
2010 and 2015 105 106
-------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
North Brunswick Township, Gen. Oblg.,
6.10% and 6.30%, 2010 and 2015 $ 135 $141
-----------------------------------------------------------------------------------------
Passaic County, Gen. Oblg., 5.00%, 2017 45 41
-----------------------------------------------------------------------------------------
Passaic Valley, Sewerage Commissioners,
5.75% and 5.875%, 2015 and 2022 150 149
-----------------------------------------------------------------------------------------
Paulsboro Borough, Gen. Oblg., 5.80%, 2014 15 15
-----------------------------------------------------------------------------------------
Perth Amboy, Gen. Oblg., 5.40%, 2018 50 47
-----------------------------------------------------------------------------------------
Port Auth. of New York and New Jersey, Rev.,
5.00% to 5.25%, 2011 through 2021 190 175
-----------------------------------------------------------------------------------------
Rutgers State University, Rev., 5.25%, 2015 15 14
-----------------------------------------------------------------------------------------
Salem County, Pollution Control Financing
Auth., Public Service Electric and Gas Company
Proj., Rev., 5.55%, 2033 90 85
-----------------------------------------------------------------------------------------
Sports and Exposition Auth., 6.00%, 2013 100 102
-----------------------------------------------------------------------------------------
Spotswood Borough, Gen. Oblg., 5.70%, 2015 110 111
-----------------------------------------------------------------------------------------
Turnpike Auth., Rev., 6.50%, 2016 200 216
-----------------------------------------------------------------------------------------
Puerto Rico Commonwealth:
Electric Power Auth., Rev., 6.125%, 2021 200 201
Gen. Oblg., 5.25%, 2018 55 51
Highway and Transportation Auth., Rev., 5.50%, 2019 100 96
Housing and Finance Agcy., Rev., 6.25%, 2029 90 91
Tourist Educational, Medical and Environmental
Control Facilities, Pila Hospital Proj., Rev., 6.25%, 2032 100 101
-----------------------------------------------------------------------------------------
Virgin Islands Public Finance Auth., Matching Fund
Loan, Rev., 7.25%, 2018 75 79
=========================================================================================
TOTAL INVESTMENTS--98.4%
(COST: $4,184) 4,238
=========================================================================================
CASH AND OTHER ASSETS, LESS LIABILITIES--1.6% 71
=========================================================================================
NET ASSETS--100% $4,309
=========================================================================================
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $4,184,000 for federal income tax purposes
at August 31, 1995, the aggregate gross unrealized appreciation was $61,000, the
aggregate gross unrealized depreciation was $7,000 and the net unrealized
appreciation of investments was $54,000.
See accompanying Notes to Financial Statements.
17
<PAGE> 19
PERFORMANCE UPDATE
KEMPER NEW YORK TAX-FREE INCOME FUND
NEW YORK AVERAGE ANNUAL TOTAL RETURNS*
For periods ended August 31, 1995
(adjusted for the maximum sales charge)
<TABLE>
<CAPTION>
KEMPER NEW YORK TAX-FREE INCOME FUNDS
LIFE OF
1 YEAR 5 YEAR CLASS
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------
KEMPER NEW YORK TAX-FREE
INCOME FUND CLASS A 2.73% 8.84% 7.46% (Since 12/31/85)
----------------------------------------------------------------------------------
KEMPER NEW YORK TAX-FREE
INCOME FUND CLASS B 3.65% N/A 3.54% (Since 5/31/95)
----------------------------------------------------------------------------------
KEMPER NEW YORK TAX-FREE
INCOME FUND CLASS C 6.64% N/A 5.87% (Since 5/31/95)
----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROWTH OF AN ASSUMED $10,000 INVESTMENT
IN KEMPER NEW YORK TAX-FREE INCOME FUND
CLASS A FROM 12/31/85 THROUGH 8/31/95
<S> <C> <C> <C>
------------------------------------------------------
12/31/85 10000 10000 10000
------------------------------------------------------
12/31/88 11461 13342 11025
------------------------------------------------------
12/31/91 15419 17784 12617
------------------------------------------------------
12/31/94 18117 20606 13696
------------------------------------------------------
8/31/95 20044 23097 13989
------------------------------------------------------
</TABLE>
- Kemper New York Tax-Free Income Class
A(1)
- Lehman Brothers Municipal Bond Index +
- Consumer Price Index ++
<TABLE>
<CAPTION>
GROWTH OF AN ASSUMED $10,000 INVESTMENT
IN KEMPER NEW YORK TAX-FREE INCOME FUND
CLASS B FROM 5/31/94 THROUGH 8/31/95
<S> <C> <C> <C>
------------------------------------------------------
5/31/94 10000 10000 10000
------------------------------------------------------
9/30/94 9933.9 10007 10129
------------------------------------------------------
12/31/94 9771.1 9864 10149
------------------------------------------------------
3/31/95 10373.8 10561 10264
------------------------------------------------------
6/30/95 10676.6 10816 10339
------------------------------------------------------
8/31/95 10444.4 11057 10366
------------------------------------------------------
</TABLE>
- Kemper New York Tax-Free Income Class
B(1)
- Lehman Brothers Municipal Bond Index +
- Consumer Price Index ++
<TABLE>
<CAPTION>
GROWTH OF AN ASSUMED $10,000 INVESTMENT
IN KEMPER NEW YORK TAX-FREE INCOME FUND
CLASS C FROM 5/31/94 THROUGH 8/31/95
------------------------------------------------------
<S> <C> <C> <C>
5/31/94 10000 10000 10000
------------------------------------------------------
9/30/94 9901 10007 10129
------------------------------------------------------
12/31/94 9770 9864 10149
------------------------------------------------------
3/31/95 10364 10561 10264
------------------------------------------------------
6/30/95 10560 10816 10339
------------------------------------------------------
8/31/95 10739 11057 10366
------------------------------------------------------
</TABLE>
- Kemper New York Tax-Free Income Class
B(1)
- Lehman Brothers Municipal Bond Index +
- Consumer Price Index ++
Past performance is not predictive of
future performance. Returns and net asset
value fluctuate. Shares are redeemable at
current net asset value, which may be
more or less than original cost.
* Average annual total return measures
net investment income and capital gain or
loss from portfolio investments, assuming
reinvestment of all dividends and for A
Shares adjustment for the maximum sales
charge of 4.5% and for B Shares
adjustment for the applicable contingent
deferred sales charge of 3%. There is no
sales charge for C Shares. Average annual
total return reflects annualized change.
During the periods noted, securities
prices fluctuated. For additional
information, see the Prospectus and
Statement of Additional Information and
the Financial Highlights at the end of
this report
(1) Performance includes reinvestment of
dividends and adjustment for the maximum
sales charge for A Shares and the
contingent deferred sales charge in
effect at the end of the period for B
Shares. In comparing the Kemper State
Tax-Free Income Funds to the Lehman
Brothers Municipal Bond Index, you should
note that the funds' 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,
have been issued as a part of an issue of
at least $50 million, have been issued
within the last 5 years, and have a
maturity of at least 2 years. Bond
subject to AMT, variable rate bonds and
zero coupon bonds are excluded from the
index. Source is Towers Data Systems.
++ The Consumer Price Index is a
statistical measure of change, over time,
in the prices of goods and services in
major expenditure groups for all urban
consumers. It is generally considered to
be a measure of inflation. Source is
Towers Data Systems.
18
<PAGE> 20
PORTFOLIO STATEMENTS
KEMPER NEW YORK TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITIONS ON 8/31/95 ON 8/31/94
<S> <C> <C>
-----------------------------------------------------------
Revenue bonds 92% 91%
-----------------------------------------------------------
General obligation bonds 6 7
-----------------------------------------------------------
Cash and equivalents 2 2
-----------------------------------------------------------
100% 100%
[2 PI CHARTS)
/ / Revenue Bonds
/ / General obligation bonds
/ / Cash and equivalents
</TABLE>
<TABLE>
<CAPTION>
QUALITY On 8/31/95 On 8/31/94
<S> <C> <C>
----------------------------------------------------
AAA 53% 42%
----------------------------------------------------
AA 28 28
----------------------------------------------------
A 9 11
----------------------------------------------------
BBB 8 17
----------------------------------------------------
NR 2 2
----------------------------------------------------
100% 100%
[2 PI CHARTS]
/ / AAA
/ / AA
/ / A
/ / BBB
/ / NR
</TABLE>
<TABLE>
<CAPTION>
YEARS TO MATURITY On 8/31/95 On 8/31/94
----------------------------------------------------
<S> <C> <C>
1-10 years 7% 15%
----------------------------------------------------
10-20 years 36 51
----------------------------------------------------
20+ years 57 34
----------------------------------------------------
100% 100%
[2 PI CHARTS]
/ / 1 - 10 Years
/ / 10 - 20 Years
/ / 20+ Years
</TABLE>
<TABLE>
<CAPTION>
AVERAGE MATURITY On 8/31/95 On 8/31/94
---------------------------------------------------------
<S> <C> <C>
20.9 years 16.9 years
---------------------------------------------------------
</TABLE>
19
<PAGE> 21
PORTFOLIO OF INVESTMENTS
NEW YORK TAX-FREE INCOME FUND
August 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVANCE Battery Park City Auth., Rev., 8.625%, to be called
REFUNDED 06-01-05 @ 100 $ 10 $ 13
OBLIGATIONS -------------------------------------------------------------------------------------
SECURED AS TO Dormitory Auth., State University Educational
PRINCIPAL AND Facilities, Rev., 7.25%, to be called
INTEREST BY 05-15-02 @ 102 155 182
OBLIGATIONS -------------------------------------------------------------------------------------
OF THE Medical Care Facilities Finance Agency, Hospital
UNITED STATES and Nursing Home, Rev., 7.70%, to be called
GOVERNMENT 08-15-00 @ 102 4,000 4,658
-------------------------------------------------------------------------------------
Medical Care, St. Marty Hospital, Rev., 8.25%,
to be called 11-01-99 @ 100 50 51
-------------------------------------------------------------------------------------
Mortgage Agency, Homeowner Mortgage, Rev.,
8.25%, to be called 04-14-99 @ 102 330 330
-------------------------------------------------------------------------------------
Niagara Falls Bridge Commission, Toll Bridge
System, Rev., 6.30%, to be called 10-01-02 @ 102 2,450 2,752
-------------------------------------------------------------------------------------
Power Auth. Electrical, Gen. Purpose, Rev., 8.00%,
to be called 01-01-98 @ 102 5,320 5,876
=====================================================================================
TOTAL ADVANCE REFUNDED OBLIGATIONS--4.4% 13,862
- -------------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL Babylon, Suffolk County, Gen. Oblg.,
OBLIGATIONS 5.875%, 2009 1,075 1,101
-------------------------------------------------------------------------------------
Battery Park City Auth., Rev., 5.00% and
5.25%, 2013 and 2017 12,735 11,354
-------------------------------------------------------------------------------------
Buffalo and Fort Erie Public Bridge Auth.,
Toll Bridge System, Rev., 5.75%, 2025 7,200 7,059
-------------------------------------------------------------------------------------
Buffalo Municipal Water Finance Auth.,
Water System, Rev., 5.00%, 2012 and 2025 4,900 4,434
-------------------------------------------------------------------------------------
Clifton Park Water Auth., Water System, Rev.,
5.00%, 2014 and 2018 3,250 2,940
-------------------------------------------------------------------------------------
Dormitory Auth.:
City University System, Rev.,
5.759% and 7.00%, 2009 and 2018 4,450 4,661
Cornell University, Rev., 7.375%, 2020 2,000 2,213
Fordham University, Rev., 7.20%, 2015 790 883
Ideal Senior Living Center, Rev., 7.625%, 2028 400 442
Judicial Lease Facility, Rev., 7.375%, 2016 120 147
Menorah Campus Inc., Rev., 7.30% and 7.40%,
2016 and 2031 3,870 4,299
Mount Sinai School of Medicine, Rev., 5.15%, 2024 6,000 5,395
Special Art School Districts Program, Rev.,
7.00%, 2013 1,300 1,418
State University Educational Facilities, Rev.,
5.50% to 7.50%, 2010 through 2019 5,500 5,688
St. Vincents Hospital and Medical Center,
Rev., 7.375%, 2011 2,500 2,809
-------------------------------------------------------------------------------------
Dutchess County Resource Recovery Agency, Solid
Waste Mgmt. System, Rev., 7.50%, 2009 2,000 2,236
-------------------------------------------------------------------------------------
Energy Research and Dev. Auth.:
Brooklyn Union Gas Company, Rev., 5.60% to
7.125%, 2020 and 2025 10,325 9,938
Commonwealth Edison Company, Rev., 5.25%
and 5.375%, 2020 and 2022 8,100 7,400
Consolidated Edison Company of New York, Inc.,
Rev., 6.10% to 7.75%, 2020 through 2025 9,900 10,372
Solid Waste Disposal, Rev., 5.70%, 2028 2,000 1,895
-------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 22
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Environmental Facilities Corp.:
Huntington Resource Recovery Proj., Rev.,
7.50%, 2012 $ 3,745 $ 4,188
Spring Valley Water Co., Inc., Water Facilities
Rev., 5.65%, 2023 7,700 7,295
State Water Pollution Control, Revolving
Fund Rev., 6.50% and 7.25%, 2010 and 2014 3,500 3,767
-------------------------------------------------------------------------------------
Erie County, Gen. Oblg., 5.50% and 5.625%,
2020 and 2025 1,700 1,630
-------------------------------------------------------------------------------------
Grand Central District Mgmt. Association,
Business Improvement, Rev., 5.125%, 2014 4,000 3,589
-------------------------------------------------------------------------------------
Housing Finance Agcy.:
Multi-Family Mortg. Rev., 6.95%, 2012 1,500 1,594
Service Contract Oblg., Rev.,
7.25% and 7.30%, 2012 4,000 4,323
State University Construction, Rev., 8.00%, 2011 200 244
West-H.E.L.P. Housing, Rev., 7.55%, 2002 3,990 4,217
-------------------------------------------------------------------------------------
Local Government Assistance Corp., Rev.,
5.50%, 2017 9,000 8,521
-------------------------------------------------------------------------------------
Medical Care Facilities Finance Agcy.:
Albany Medical Center Hospital, Rev., 8.00%, 2028 1,085 1,206
Beth Israel Medical Center, Rev., 5.00%, 2013 3,750 3,342
Booth Silvercrest Nursing Home, Rev., 7.60%, 2029 2,000 2,206
Columbian Presbyterian Hospital, Rev., 5.25%, 2014 1,000 932
Good Samaritan Hospital, Rev., 7.625%, 2023 1,000 1,088
Hospital and Nurses' Home, Rev., 5.375%, 2025 3,230 2,965
Long Beach Memorial Hospital, Rev., 7.80%, 2025 1,000 1,105
Mental Health Service Facilities
Improvement, Rev., 5.25% to 7.875%, 2013 through 2023 14,530 14,200
Montefiore Medical Center, Rev., 7.25%, 2024 2,000 2,181
Presbyterian Hospital, Rev., 7.875%, 2007 500 541
St. Luke Mortgage, Rev., 5.625%, 2018 2,625 2,513
-------------------------------------------------------------------------------------
Mortgage Agency, Homeowner Mortgage,
Rev., 5.25% to 8.30%, 2009 through 2022 9,690 9,798
-------------------------------------------------------------------------------------
Municipal Assistance Corp. for the City of
New York, Rev., 7.625%, 2008 4,160 4,655
-------------------------------------------------------------------------------------
Nassau County, Gen. Oblg., 5.70%, 2013 1,360 1,361
-------------------------------------------------------------------------------------
Nassau County, Sewer Districts, Rev.,
5.40%, 2012 2,000 1,945
-------------------------------------------------------------------------------------
New Castle, Public Improvement, Rev.,
4.75%, 2009 through 2011 925 847
-------------------------------------------------------------------------------------
New York City, Gen. Oblg., 7.60% to 8.00%,
1998 through 2006 3,040 3,317
-------------------------------------------------------------------------------------
New York City Housing Dev. Corp.,
Multi-Unit Mortgage, Rev., 7.30%, 2010 8,800 9,496
-------------------------------------------------------------------------------------
New York City Municipal Water Finance Auth.,
Water and Sewer System, Rev., 5.375% and
6.00%, 2019 and 2025 11,000 10,594
-------------------------------------------------------------------------------------
New York City Transit Auth.,
Livingston Plaza Proj., Rev., 5.40%, 2018 8,180 7,733
-------------------------------------------------------------------------------------
Niagara County, Water Treatment Plant,
Gen. Oblg., 7.00% and 7.25%,
2011 and 2012 1,215 1,344
-------------------------------------------------------------------------------------
Niagara Falls Bridge Commission,
Toll Bridge System, Rev., 5.25%, 2015 1,215 1,151
-------------------------------------------------------------------------------------
Niagara Frontier Transportation Auth.,
Greater Buffalo International Airport,
Airport Rev., 6.125%, 2014 3,000 3,041
-------------------------------------------------------------------------------------
North Country New York Dev.
Auth., Solid Waste Management System,
Rev., 6.75%, 2012 3,140 3,186
-------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 23
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
North Hempstead, Solid Waste Management
Auth., Solid Waste Management,
Rev., 5.00%, 2012 $ 3,375 $ 3,122
-------------------------------------------------------------------------------------
Port Auth. of New York and New Jersey,
Consolidation Bonds, Rev., 5.20% to
8.00%, 2013 through 2023 10,550 10,125
-------------------------------------------------------------------------------------
Power Auth., General Purpose, Rev., 5.25%, 2018 5,000 4,634
-------------------------------------------------------------------------------------
Suffolk County Water Auth., Water System,
Rev., 5.00% and 7.375%, 2012 and 2013 6,170 5,635
-------------------------------------------------------------------------------------
Sullivan County, Public Improvement,
Rev., 4.75%, 2009 and 2010 1,770 1,629
-------------------------------------------------------------------------------------
Syracuse:
Public Improvement, Rev., 4.75%, 2014 2,230 1,929
Onondaga County Airport Improvement,
Gen. Oblg., 6.00% and 6.125%, 2014 2,135 2,171
-------------------------------------------------------------------------------------
Thruway Auth.:
General Rev., 5.00%, 2020 8,250 7,258
Highway and Bridge Trust Fund, 5.50%, 2015 5,000 4,809
Local Highway and Bridge Service Contract,
Rev., 7.25%, 2010 1,890 2,021
-------------------------------------------------------------------------------------
Triborough Bridge and Tunnel Auth.,
Gen. Purpose Rev., 4.75% to 6.125%,
2017 through 2021 14,125 13,355
-------------------------------------------------------------------------------------
Ulster County, Resource Recovery Agency,
Solid Waste System, Rev., 5.90% and
6.00%, 2007 and 2014 4,100 3,982
-------------------------------------------------------------------------------------
Urban Dev. Corp.:
Correctional Facilities, Rev., 5.00% to 5.50%,
2017 through 2025 12,450 11,439
Syracuse University, Center for Science
and Technology, Rev., 7.75%, 2008 200 214
-------------------------------------------------------------------------------------
Puerto Rico Commonwealth Gen.Oblg.,
5.00%, 2021 4,200 3,737
-------------------------------------------------------------------------------------
Virgin Islands Housing Finance Auth.,
GNMA Collateralized Home Mortgage,
Rev., 8.10%, 2018 75 80
-------------------------------------------------------------------------------------
Virgin Islands Public Finance Auth.,
Matching Fund Loan, Rev., 7.25%, 2018 7,100 7,505
=====================================================================================
Total Other Municipal Obligations--94.0% 300,444
=====================================================================================
Total Obligations--98.4%
(Cost: $301,551) 314,306
=====================================================================================
Money Market Instruments--1.1%
Yield--3.45% to 3.50%
Due--August, 1995
(Cost: $3,500) $ 3,500 3,500
=====================================================================================
Total Investments--99.5%
(Cost: $305,051) 317,806
=====================================================================================
Cash and Other Assets, Less Liabilities--.5% 1,671
=====================================================================================
Net Assets--100% $319,477
=====================================================================================
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $305,051,000 for federal income tax purposes
at August 31, 1995, the aggregate gross unrealized appreciation was $14,492,000,
the aggregate gross unrealized depreciation was $1,737,000 and the net
unrealized appreciation of investments was $12,755,000.
See accompanying Notes to Financial Statements.
22
<PAGE> 24
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND
PERFORMANCE UPDATE
PENNSYLVANIA TOTAL RETURNS*
For periods ended August 31, 1995 (adjusted for the maximum sales charge)
<TABLE>
<CAPTION>
PENNSYLVANIA TAX-FREE INCOME FUNDS
LIFE OF
CLASS
<S> <C>
-----------------------------------------------------------
Kemper Pennsylvania Tax-Free
Income Fund Class A 0.77% (Since 3/15/95)
-----------------------------------------------------------
Kemper Pennsylvania Tax-Free
Income Fund Class B 1.05 (Since 3/15/95)
-----------------------------------------------------------
Kemper Pennsylvania Tax-Free
Income Fund Class C 5.18 (Since 3/15/95)
-----------------------------------------------------------
</TABLE>
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PROTFOLIO COMPOSITION On 8/31/95
<S> <C>
REVENUE BONDS 81%
--------------------------------------
GENERAL OBLIGATION BONDS 17
--------------------------------------
CASH AND EQUIVALENTS 2
--------------------------------------
100%
</TABLE>
[PIE CHART]
Past performance is not predictive of
future performance. Returns and net asset
value fluctuate. Shares are redeemable at
current net asset value, which may be
more or less than original cost.
* Total return measures net investment
income and capital gain or loss from
portfolio investments, assuming
reinvestment of all dividends and for A
Shares adjustment for the maximum sales
charge of 4.5% and for B Shares
adjustment for the applicable contingent
deferred sales charge of 4%. There is no
sales charge for C Shares. Total return
reflects aggregate charge. During the
periods noted, securities prices
fluctuated. For additional information,
see the Prospectus and Statement of
Additional Information and the Financial
Highlights at the end of this report.
23
<PAGE> 25
PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
QUALITY ON 8/31/95
--------------------------------------------
<S> <C>
AAA 78%
--------------------------------------------
AA 2
--------------------------------------------
A 6
--------------------------------------------
BBB 7
--------------------------------------------
NR 7
--------------------------------------------
100%
</TABLE>
[1 PIE CHART
Dated 8/31/95]
<TABLE>
<CAPTION>
YEARS TO MATURITY ON 8/31/95
<S> <C>
1-10 YEARS 3%
-----------------------------------------
10-20 YEARS 70
-----------------------------------------
20+ YEARS 27
-----------------------------------------
100%
</TABLE>
[1 PIE CHART
Dated 8/31/95]
<TABLE>
<CAPTION>
AVERAGE MATURITY ON 8/31/95
<S> <C>
23.7 years
-----------------------------------------
</TABLE>
24
<PAGE> 26
PORTFOLIO OF INVESTMENTS
PENNSYLVANIA TAX-FREE INCOME FUND
August 31, 1995
(Dollars in thousands)
<TABLE>
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
MUNICIPAL Bangor Area School District, Rev., 5.375%, 2015 $ 40 $ 37
OBLIGATIONS --------------------------------------------------------------------------------
Boyertown Area School District, Gen. Oblg.,
5.25%, 2012 35 34
--------------------------------------------------------------------------------
Bucks County:
Industrial Dev. Auth. Grand View Hospital,
Rev., 5.25%, 2021 50 46
Water and Sewer Auth., Rev., 5.375%, 2013 35 33
--------------------------------------------------------------------------------
Cambria County, Gen. Oblg., 5.875%, 2008 15 16
--------------------------------------------------------------------------------
Central Bucks School District, Gen. Oblg.,
5.40%, 2014 20 19
--------------------------------------------------------------------------------
Convention Center Auth., Rev., 6.75%, 2019 85 88
--------------------------------------------------------------------------------
Delaware County Auth., Villanova University, Rev.,
5.50% and 5.80%, 2023 and 2025 70 68
--------------------------------------------------------------------------------
Delaware County Industrial Dev. Auth., Philadelphia
Suburban Water, Rev., 6.35%, 2025 100 101
--------------------------------------------------------------------------------
Erie County, Gen. Oblg., 5.25%, 2012 15 14
--------------------------------------------------------------------------------
State Gen. Oblg., 5.375%, 2013 15 14
--------------------------------------------------------------------------------
Hampton Township School District, Gen. Oblg.,
5.90%, 2015 40 40
--------------------------------------------------------------------------------
Higher Educational Facilities Auth.:
Bryn Mawr College, Rev., 6.00%, 2015 15 15
State System of Higher Education, Rev., 6.20%, 2019 15 15
--------------------------------------------------------------------------------
Industrial Dev. Auth., Economic Development, Rev.,
5.50% and 6.00%, 2014 and 2012 80 80
--------------------------------------------------------------------------------
Lackawanna County, Gen. Oblg., 6.00%, 2011 15 15
--------------------------------------------------------------------------------
Lawrence County, Gen. Oblg., 5.00%, 2018 60 54
--------------------------------------------------------------------------------
Lehigh County General Purpose Auth., Lehigh
Valley Hospital, Inc., Rev., 5.875%, 2015 85 84
--------------------------------------------------------------------------------
Lehigh County Industrial Dev. Auth.,
Pennsylvania Power & Light Company Proj.,
Rev., 6.15% and 6.40%, 2029 115 117
--------------------------------------------------------------------------------
Lower Providence Township, Gen. Oblg.,
6.00%, 2024 20 20
--------------------------------------------------------------------------------
McKean County Hospital Auth., Bradford Hospital
Proj., Rev., 5.375%, 2003 65 61
--------------------------------------------------------------------------------
Meadville Area Water Auth., Rev., 5.125% and 5.35%,
2014 and 2022 85 79
--------------------------------------------------------------------------------
Montgomery County Higher Education and
Health Auth., Abington Memorial Hospital,
Rev., 5.125%, 2024 85 75
--------------------------------------------------------------------------------
Northampton County Industrial Dev. Auth.,
Metropolitan Edison Company Proj.,
Rev., 6.10%, 2021 90 91
--------------------------------------------------------------------------------
Philadelphia:
Airport System, Rev., 6.10%, 2025 85 85
Gas Works Rev., 6.375%, 2014 15 16
Water and Wastewater Rev., 5.00% and 6.25%,
2016 and 2012 65 67
--------------------------------------------------------------------------------
Pittsburgh Water and Sewer Auth., Rev., 5.60%, 2022 85 82
--------------------------------------------------------------------------------
Punxsutawney Area School District, Gen
Oblg., 5.90%, 2020 50 50
--------------------------------------------------------------------------------
Schuylkill County Industrial Dev. Auth.,
Schuylkill Energy Resources Inc. Proj.,
Rev., 6.50%, 2010 45 45
--------------------------------------------------------------------------------
Sewickley Valley Hospital Auth., Sewickley
Valley Hospital Proj., Rev., 5.75%, 2016 55 54
--------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 27
PORTFOLIO OF INVESTMENTS
<TABLE>
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Southeastern Pennsylvania Transportation
Auth., Rev., 6.00%, 2015 $ 30 $ 30
--------------------------------------------------------------------------------
Turnpike Commission, Rev., 6.25%, 2011 10 10
--------------------------------------------------------------------------------
University of Puerto Rico, Rev., 5.25%, 2025 60 55
--------------------------------------------------------------------------------
Upper Merion Area School District, Gen. Oblg.,
5.50%, 2016 20 19
--------------------------------------------------------------------------------
Washington County Hospital Auth., The Washington
Hospital Proj., Rev., 5.625%, 2023 30 29
--------------------------------------------------------------------------------
West Chester Area Municipal Auth., Water Rev.,
5.45%, 2012 20 19
--------------------------------------------------------------------------------
Westmoreland County Industrial Dev. Auth.,
Westmoreland Health System Proj.,
Rev., 6.00%, 2011 15 15
--------------------------------------------------------------------------------
York County Industrial Dev. Auth.,
Public Service Electric and Gas Company
Peach Bottom Proj., Rev., 6.45%, 2019 20 21
--------------------------------------------------------------------------------
Puerto Rico:
Electric Power Auth., Rev., 6.125%, 2021 100 101
Gen. Oblg., 5.50%, 2009 15 15
Housing and Finance Agcy., Single Family
Mortgage, Rev., 6.25%, 2029 35 35
--------------------------------------------------------------------------------
Virgin Islands Public Finance Auth., Rev.,
7.25%, 2018 100 106
================================================================================
TOTAL INVESTMENTS--97.7%
(Cost: $2,037) 2,070
================================================================================
CASH AND OTHER ASSETS, LESS LIABILITIES--2.3% 48
================================================================================
NET ASSETS--100% $2,118
================================================================================
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $2,037,000 for federal income tax purposes
at August 31, 1995, the aggregate gross unrealized appreciation was $34,000, the
aggregate gross unrealized depreciation was $1,000 and the net unrealized
appreciation of investments was $33,000.
See accompanying Notes to Financial Statements.
26
<PAGE> 28
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER STATE TAX-FREE INCOME SERIES
We have audited the accompanying statement of assets and liabilities,
including the portfolios of investments, of Kemper Florida Tax-Free Income Fund
(Florida Fund), Kemper New Jersey Tax-Free Income Fund (New Jersey Fund),
Kemper New York Tax-Free Income Fund (New York Fund), and Kemper Pennsylvania
Tax-Free Income Fund (Pennsylvania Fund), four of the eight investment
portfolios comprising Kemper State Tax-Free Income Series (the Trust), as of
August 31, 1995, the related statements of operations for the year then ended
and changes in net assets for each of the two years in the period ended August
31, 1995 for the Florida Fund and New York Fund and for the period from March
15, 1995 (initial public offering) to August 31, 1995 for the New Jersey Fund
and Pennsylvania Fund, and the financial highlights for the fiscal periods
since 1991. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
August 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the above mentioned Funds of Kemper State Tax-Free Income Series at
August 31, 1995, and the results of their operations, the changes in their net
assets and the financial highlights for the periods referred to above, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
October 13, 1995
27
<PAGE> 29
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
FLORIDA NEW JERSEY NEW YORK PENNSYLVANIA
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------
Investments, at value (Cost: $112,266, $4,184,
$305,051 and $2,037, respectively) $116,458 4,238 317,806 2,070
- ----------------------------------------------------------------------------------------------------------------------
Cash 847 291 26 204
- ----------------------------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 79 11 120 --
- ----------------------------------------------------------------------------------------------------------------------
Investments sold -- 66 3,569 16
- ----------------------------------------------------------------------------------------------------------------------
Interest 2,139 55 4,186 29
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 119,523 4,661 325,707 2,319
======================================================================================================================
Liabilities and net assets
- ----------------------------------------------------------------------------------------------------------------------
Payable for:
Dividends 103 4 284 1
- ----------------------------------------------------------------------------------------------------------------------
Fund shares redeemed 233 -- 153 --
- ----------------------------------------------------------------------------------------------------------------------
Investments purchased 1,789 346 5,525 198
- ----------------------------------------------------------------------------------------------------------------------
Management fee 53 -- 122 --
- ----------------------------------------------------------------------------------------------------------------------
Other 53 2 146 2
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 2,231 352 6,230 201
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 117,292 4,309 319,477 2,118
======================================================================================================================
Analysis of net assets
- ----------------------------------------------------------------------------------------------------------------------
Paid-in capital $ 112,515 4,266 306,680 2,088
- ----------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss)
on investments 585 (11) 42 (3)
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 4,192 54 12,755 33
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 117,292 4,309 319,477 2,118
======================================================================================================================
The pricing of shares
- ----------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Net assets applicable to shares outstanding $115,312.586 2,362.767 315,384.521 977.034
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding, no par value 11,226.261 242.304 29,208.894 99.614
- ----------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per
share (net assets / shares outstanding) $10.27 9.75 10.80 9.81
- ----------------------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 4.71% of net asset
value or 4.50% of offering price) $10.75 10.21 11.31 10.27
======================================================================================================================
CLASS B SHARES
Net assets applicable to shares outstanding $ 1,941.312 1,814.088 3,634.914 1,010.788
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding, no par value 189.246 185.678 336.575 103.102
- ----------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price (subject
to contingent deferred sales charge) per share
(net assets / shares outstanding) $10.26 9.77 10.80 9.80
======================================================================================================================
CLASS C SHARES
Net assets applicable to shares outstanding $ 38.216 132.428 457.721 130.256
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding, no par value 3.726 13.560 42.425 13.282
- ----------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per
share (net assets / shares outstanding) $10.26 9.77 10.79 9.81
======================================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
28
<PAGE> 30
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Year ended August 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
FLORIDA NEW JERSEY(a) NEW YORK PENNSYLVANIA(a)
<S> <C> <C> <C> <C>
==================================================================================================================
Net investment income
- ------------------------------------------------------------------------------------------------------------------
Interest income $7,333 80 20,077 36
- ------------------------------------------------------------------------------------------------------------------
Expenses:
Management fee 661 8 1,738 4
- ------------------------------------------------------------------------------------------------------------------
Administrative services fee 176 3 461 1
- ------------------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 61 1 254 --
- ------------------------------------------------------------------------------------------------------------------
Distribution services fee 12 4 20 3
- ------------------------------------------------------------------------------------------------------------------
Professional fees 11 -- 30 --
- ------------------------------------------------------------------------------------------------------------------
Reports to shareholders 17 -- 49 --
- ------------------------------------------------------------------------------------------------------------------
Registration fees 1 1 2 1
- ------------------------------------------------------------------------------------------------------------------
Trustees' fees and other 32 2 56 1
- ------------------------------------------------------------------------------------------------------------------
Total expenses before expense waiver 971 19 2,610 10
- ------------------------------------------------------------------------------------------------------------------
Less expenses waived and absorbed by investment manager -- 8 -- 4
- ------------------------------------------------------------------------------------------------------------------
Total expenses after expense waiver 971 11 2,610 6
- ------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 6,362 69 17,467 30
==================================================================================================================
Net realized and unrealized gain (loss) on investments
- ------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investments
(including options purchased) 1,023 (11) 3,710 (3)
- ------------------------------------------------------------------------------------------------------------------
Net realized gain from futures transactions 120 -- 70 --
- ------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 1,143 (11) 3,780 (3)
- ------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 2,452 54 1,061 33
- ------------------------------------------------------------------------------------------------------------------
Net gain on investments 3,595 43 4,841 30
- ------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $9,957 112 22,308 60
==================================================================================================================
</TABLE>
(a) For the period from March 15, 1995 (initial public offering) to August 31,
1995.
See accompanying Notes to Financial Statements.
29
<PAGE> 31
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands)
<TABLE>
<CAPTION>
FLORIDA NEW JERSEY NEW YORK PENNSYLVANIA
YEAR ENDED MARCH 15, 1995 YEAR ENDED MARCH 15, 1995
AUGUST 31, TO AUGUST 31, AUGUST 31, TO AUGUST 31,
1995 1994 1995 1995 1994 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations, dividends and capital share activity
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 6,362 6,524 69 17,467 18,901 30
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 1,143 2,618 (11) 3,780 2,494 (3)
- -----------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized
appreciation 2,452 (9,543) 54 1,061 (22,614) 33
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 9,957 (401) 112 22,308 (1,219) 60
- -----------------------------------------------------------------------------------------------------------------------------------
Distribution from net
investment income (6,362) (6,524) (69) (17,467) (18,901) (30)
- -----------------------------------------------------------------------------------------------------------------------------------
Distribution from net
realized gain on investments (1,659) (4,031) -- (3,769) (8,195) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total dividends to shareholders (8,021) (10,555) (69) (21,236) (27,096) (30)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from
capital share transactions (9,365) 5,975 3,933 (24,434) 16,693 1,755
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS (7,429) (4,981) 3,976 (23,362) (11,622) 1,785
===================================================================================================================================
Net assets
- -----------------------------------------------------------------------------------------------------------------------------------
Beginning of period 124,721 129,702 333 342,839 354,461 333
- -----------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $117,292 124,721 4,309 319,477 342,839 2,118
===================================================================================================================================
</TABLE>
30
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS
1 DESCRIPTION OF THE FUNDS Kemper Florida Tax-Free Income Fund,
Kemper New Jersey Tax-Free Income Fund,
Kemper New York Tax-Free Income Fund and
Kemper Pennsylvania Tax-Free Income Fund
(collectively the Funds) are four of
eight investment portfolios comprising
the Kemper State Tax-Free Income Series
(the Trust). The remaining portfolios
are Kemper California, Kemper Michigan,
Kemper Ohio and Kemper Texas Tax-Free
Income Funds. The Trust is an open-end
management investment company organized
as a business trust under the laws of
Massachusetts.
Each Fund offers three classes of
shares. Class A shares are sold to
investors subject to an initial sales
charge. Class B shares are sold without
an initial sales charge but are subject
to higher ongoing expenses than Class A
shares and a contingent deferred sales
charge payable upon certain redemptions.
Class B shares automatically convert to
Class A shares six years after issuance.
Class C shares are sold without an
initial or a contingent deferred sales
charge but are subject to higher ongoing
expenses than Class A shares and do not
convert into another class. Each share
of a Fund represents an identical
interest in the investments of the Fund
and has the same rights.
2 SIGNIFICANT ACCOUNTING POLICIES INVESTMENT VALUATION. Investments are
stated at value. Fixed income securities
are valued by using market quotations,
or independent pricing services that use
prices provided by market makers or
estimates of market values obtained from
yield data relating to instruments or
securities with similar characteristics.
Exchange traded fixed income options are
valued at the last sale price unless
there is no sale price, in which event
prices provided by market makers are
used. Over-the-counter traded fixed
income options are valued based upon
prices provided by market makers.
Financial futures and options thereon
are valued at the settlement price
established each day by the board of
trade or exchange on which they are
traded. Other securities and assets are
valued at fair value as determined in
good faith by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are
accounted for on the trade date (date
the order to buy or sell is executed).
Interest income is recorded on the
accrual basis and premiums and original
issue discounts on securities are
amortized. Realized gains and losses
from investment transactions are
reported on an identified cost basis.
Realized and unrealized gains and losses
on financial futures and options are
included in net realized and unrealized
gain (loss) on investments, as
appropriate.
EXPENSES. Expenses arising in connection
with a specific Fund are allocated to
that Fund. Other Trust expenses are
allocated among the Funds in proportion
to their relative net assets.
FUND SHARE VALUATION. Fund shares are
sold and redeemed on a continuous basis
at net asset value (plus an initial
sales charge on most sales of Class A
shares). Proceeds payable on redemption
of Class B shares will be reduced by the
amount of any applicable contingent
deferred sales charge. On each day the
New York Stock Exchange is open for
trading, the net asset value per share
is determined as of the earlier of 3:00
p.m. Chicago time or the close of the
Exchange. The net asset value per share
is determined separately for each class
by dividing the Fund's net assets
attributable to that class by the number
of shares of the class outstanding.
31
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS
FEDERAL INCOME TAXES AND DIVIDENDS TO
SHAREHOLDERS. Each Fund has complied
with the special provisions of the
Internal Revenue Code available to
investment companies, and therefore no
federal income tax provision is
required. The accumulated net realized
loss on sales of investments for federal
income tax purposes at August 31, 1995,
is $11,000 in the New Jersey Fund, and
$3,000 in the Pennsylvania Fund. These
loss carryovers are available to offset
future taxable gains in the respective
Funds, and, if not applied, expire in
2003.
Differences in dividends per share for a
Fund are due to different class
expenses. Each Fund declares and
records a daily dividend equal to its
net investment income for that day, to
holders of shares for which payment has
been received. Income dividends are
distributed monthly. Net realized
capital gains, if any, will be
distributed at least annually.
Distributions are determined in
accordance with income tax principles
which may treat certain transactions
differently than generally accepted
accounting principles.
3 TRANSACTIONS WITH AFFILIATES MANAGEMENT AGREEMENT. The Trust has a
management agreement with Kemper
Financial Services, Inc. (KFS) and each
Fund pays a management fee at an annual
rate of .55% of the first $250 million
of average daily net assets declining
gradually to .40% of average daily net
assets in excess of $12.5 billion.
The Florida and New York Funds paid a
management fee of $661,000, and
$1,738,000, respectively, for the year
ended August 31, 1995.
KFS has agreed to waive the New Jersey
Fund's and the Pennsylvania Fund's
management fee until September 15, 1995.
Thereafter, the management fees will be
reinstated gradually. For the period
ended August 31, 1995, the New Jersey
Fund and the Pennsylvania Fund paid no
management fee after the waiver.
Underwriting and distribution services
agreement. The Trust has an underwriting
and distribution services agreement with
Kemper Distributors, Inc. (KDI). The
following information concerns the
underwriting commissions paid in
connection with the distribution of each
Fund's Class A shares for the period
ended August 31, 1995:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS COMMISSIONS
RETAINED ALLOWED BY KDI PAID TO
BY KDI TO ALL FIRMS AFFILIATES OF KDI
----------------------------------------------------------------------------
<S> <C> <C> <C>
Florida $20,000 125,000 8,000
New Jersey 3,000 24,000 2,000
New York 42,000 276,000 8,000
Pennsylvania 2,000 18,000 3,000
</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 the agreement, KDI enters
into related selling group agreements
with various firms at various rates for
sales of Class B and Class C shares of
each Fund. The following information
concerns the distribution fees,
commissions and contingent deferred
sales charges paid in connection with
the distribution services for each
Fund's Class B and Class C shares for
the period ended August 31, 1995:
32
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS
connection with the distribution services
for each Fund's Class B and Class C
shares for the period ended August 31,
1995:
<TABLE>
<CAPTION>
COMMISSIONS
DISTRIBUTION AND AMOUNTS CONTINGENT
FEES PAID DISTRIBUTION PAID TO DEFERRED SALES
BY THE FUND FEES PAID BY AFFILIATES CHARGES RECEIVED
TO KDI KDI TO FIRMS OF KDI BY KDI
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Florida $12,000 48,000 5,000 4,000
New Jersey 4,000 62,000 -- 1,000
New York 20,000 76,000 4,000 18,000
Pennsylvania 3,000 26,000 -- 1,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The
Trust has an administrative services
agreement with KDI. For providing
information and administrative services
to shareholders, each Fund pays KDI a
fee at an annual rate of up to .25% of
average daily net assets. KDI in turn
has various arrangements with financial
services firms that provide these
services and pays these firms based on
assets of Fund accounts the firms
service. Information concerning
administrative services fees for the
period ended August 31, 1995 is as
follows:
<TABLE>
<CAPTION>
ADMINISTRATIVE TOTAL
SERVICES FEES SERVICES FEES SERVICES FEES
PAID BY THE PAID BY KDI PAID TO
FUND TO KDI TO ALL FIRMS AFFILIATES OF KDI
-------------------------------------------------------------------------
<S> <C> <C> <C>
Florida $176,000 176,000 16,000
New Jersey 3,000 6,000 --
New York 461,000 456,000 13,000
Pennsylvania 1,000 2,000 --
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant
to a services agreement with the Funds'
custodian and transfer agent, Kemper
Service Company (KSvC), is the
shareholder service agent of the Trust.
For the period ended August 31, 1995,
the custodian remitted shareholder
services fees as follows:
<TABLE>
<CAPTION>
SHAREHOLDER SERVICES FEES
REMITTED TO KSVC
-------------------------------------------------------------------------
<S> <C>
Florida $ 55,000
New Jersey 1,000
New York 166,000
Pennsylvania --
</TABLE>
OFFICERS AND TRUSTEES. Certain officers
or trustees of the Trust are also
officers or directors of KFS. For the
period ended August 31, 1995, the Funds
made no payments to its officers and
incurred trustees' fees aggregating
$13,000 to independent trustees.
4 INVESTMENT TRANSACTIONS For the period ended August 31, 1995,
investment transactions (excluding
short-term instruments) are as follows
(in thousands):
<TABLE>
<CAPTION>
FLORIDA NEW JERSEY NEW YORK PENNSYLVANIA
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases $110,976 5,263 348,176 2,664
Proceeds from
sales $119,985 1,068 373,626 624
</TABLE>
33
<PAGE> 35
Notes To Financial Statements
5 CAPITAL SHARE TRANSACTIONS The following tables summarize the
activity in capital shares of the Funds
(in thousands):
<TABLE>
<CAPTION>
FLORIDA
YEAR ENDED AUGUST 31,
1995 1994
-------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
-------------------------------------------------------------------------
Class A 1,835 $17,931 2,658 $28,070
-------------------------------------------------------------------------
Class B 219 2,167 87 880
-------------------------------------------------------------------------
Class C 2 22 1 15
-------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
-------------------------------------------------------------------------
Class A 455 4,487 565 5,970
-------------------------------------------------------------------------
Class B 5 45 -- --
-------------------------------------------------------------------------
SHARES REDEEMED
-------------------------------------------------------------------------
Class A (3,318) (32,857) (2,786) (28,960)
-------------------------------------------------------------------------
Class B (115) (1,160) -- --
-------------------------------------------------------------------------
CONVERSION OF SHARES
-------------------------------------------------------------------------
Class A 6 64 -- --
-------------------------------------------------------------------------
Class B (6) (64) -- --
-------------------------------------------------------------------------
NET INCREASE
(DECREASE) FROM CAPITAL
SHARE TRANSACTIONS $(9,365) $5,975
=========================================================================
<CAPTION>
NEW JERSEY
MARCH 15, 1995 TO
AUGUST 31, 1995
----------------------
SHARES AMOUNT
-------------------------------------------------------------------------
<S> <C> <C>
SHARES SOLD
-------------------------------------------------------------------------
Class A 254 $ 2,458
-------------------------------------------------------------------------
Class B 174 1,685
-------------------------------------------------------------------------
Class C 2 16
-------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
-------------------------------------------------------------------------
Class A 2 16
-------------------------------------------------------------------------
Class B 2 17
-------------------------------------------------------------------------
Class C 1 2
-------------------------------------------------------------------------
SHARES REDEEMED
-------------------------------------------------------------------------
Class A (25) (246)
Class B (1) (15)
-------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL
SHARE TRANSACTIONS $3,933
</TABLE>
34
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NEW YORK
YEAR ENDED AUGUST 31,
1995 1994
----------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
----------------------------------------------------------------------------
Class A 1,686 $ 17,802 5,052 $ 56,846
----------------------------------------------------------------------------
Class B 278 2,974 149 1,618
----------------------------------------------------------------------------
Class C 38 410 7 73
----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
----------------------------------------------------------------------------
Class A 1,340 13,940 1,688 18,895
----------------------------------------------------------------------------
Class B 9 92 1 7
----------------------------------------------------------------------------
Class C 1 6 -- --
----------------------------------------------------------------------------
SHARES REDEEMED
----------------------------------------------------------------------------
Class A (5,633) (58,773) (5,511) (60,693)
----------------------------------------------------------------------------
Class B (80) (851) (5) (53)
----------------------------------------------------------------------------
Class C (3) (34) -- --
----------------------------------------------------------------------------
CONVERSION OF SHARES
----------------------------------------------------------------------------
Class A 15 164 -- --
----------------------------------------------------------------------------
Class B (15) (164) -- --
----------------------------------------------------------------------------
NET INCREASE
(DECREASE) FROM CAPITAL
SHARE TRANSACTIONS $ (24,434) $ 16,693
============================================================================
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA
MARCH 15, 1995 TO
AUGUST 31, 1995
--------------------------
SHARES AMOUNT
----------------------------------------------------------------------------
<S> <C> <C>
SHARES SOLD
----------------------------------------------------------------------------
Class A 94 $ 918
----------------------------------------------------------------------------
Class B 94 916
----------------------------------------------------------------------------
Class C 1 15
----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
----------------------------------------------------------------------------
Class A 1 9
----------------------------------------------------------------------------
Class B 1 9
----------------------------------------------------------------------------
SHARES REDEEMED
----------------------------------------------------------------------------
Class A (7) (75)
----------------------------------------------------------------------------
Class B (4) (37)
----------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL
SHARE TRANSACTIONS $1,755
============================================================================
</TABLE>
35
<PAGE> 37
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------
APRIL 25,
1991 TO
YEAR ENDED AUGUST 31, AUGUST 31,
FLORIDA 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.11 10.98 10.22 9.69 9.50
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .53 .52 .58 .64 .23
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .30 (.52) .81 .53 .19
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations .83 -- 1.39 1.17 .42
- ---------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .53 .52 .58 .64 .23
- ---------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .14 .35 .05 -- --
- ---------------------------------------------------------------------------------------------------------------------
Total dividends .67 .87 .63 .64 .23
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.27 10.11 10.98 10.22 9.69
=====================================================================================================================
TOTAL RETURN 8.62% (.11) 13.96 12.51 4.27
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (A)
- ---------------------------------------------------------------------------------------------------------------------
Expenses .80% .79 .63 .25 --
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 5.30 5.04 5.48 6.25 6.52
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
---------------------------------- -------------------------------------
YEAR ENDED MAY 31, 1994 TO YEAR ENDED MAY 31, 1994 TO
AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1995 AUGUST 31, 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.10 10.13 10.10 10.13
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .44 .11 .45 .11
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .30 (.03) .30 (.03)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations .74 .08 .75 .08
Less dividends:
- ---------------------------------------------------------------------------------------------------------------------
Distribution from net investment income .44 .11 .45 .11
- ---------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .14 -- .14 --
- ---------------------------------------------------------------------------------------------------------------------
Total dividends .58 .11 .59 .11
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.26 10.10 10.26 10.10
=====================================================================================================================
TOTAL RETURN 7.67% .74 7.84 .75
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Expenses 1.65% 1.70 1.52 1.54
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 4.45 4.28 4.58 4.52
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL FUND DATA
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
APRIL 25,
1991 TO
YEAR ENDED AUGUST 31, AUGUST 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $117,292 124,721 129,702 109,276 41,923
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 96% 53 35 20 33
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 38
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------------- ----------------- -----------------
MARCH 15, 1995 TO MARCH 15, 1995 TO MARCH 15, 1995 TO
NEW JERSEY AUGUST 31, 1995 AUGUST 31, 1995 AUGUST 31, 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.50 9.50 9.50
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .22 .18 .18
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .25 .27 .27
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .47 .45 .45
- -----------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .22 .18 .18
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.75 9.77 9.77
=================================================================================================================
TOTAL RETURN 4.89% 4.69 4.75
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (B)
- -----------------------------------------------------------------------------------------------------------------
Expenses absorbed by the Fund .39% 1.18 1.18
- -----------------------------------------------------------------------------------------------------------------
Net investment income 4.99 4.20 4.20
- -----------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (B)
- -----------------------------------------------------------------------------------------------------------------
Expenses .94% 1.73 1.73
- -----------------------------------------------------------------------------------------------------------------
Net investment income 4.44 3.65 3.65
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL FUND DATA
- -----------------------------------------------------------------------------------------------------------------
MARCH 15, 1995 TO
AUGUST 31, 1995
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $4,309
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 68%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 39
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED AUGUST 31,
NEW YORK 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $10.73 11.59 10.97 10.41 9.90
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .58 .58 .63 .65 .69
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .20 (.60) .72 .56 .51
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations .78 (.02) 1.35 1.21 1.20
- ------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .58 .58 .63 .65 .69
- ------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .13 .26 .10 -- --
- ------------------------------------------------------------------------------------------------------------------
Total dividends .71 .84 .73 .65 .69
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $10.80 10.73 11.59 10.97 10.41
- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 7.62% (.19) 12.82 12.07 12.54
RATIOS TO AVERAGE NET ASSETS (C)
- ------------------------------------------------------------------------------------------------------------------
Expenses .81% .76 .67 .66 .40
- ------------------------------------------------------------------------------------------------------------------
Net investment income 5.47 5.29 5.69 6.12 6.77
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
----------------------------------- -----------------------------------
YEAR ENDED MAY 31, 1994 TO YEAR ENDED MAY 31, 1994 TO
AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1995 AUGUST 31, 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.73 10.77 10.73 10.77
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .48 .12 .48 .12
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .20 (.04) .19 (.04)
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations .68 .08 .67 .08
- ------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .48 .12 .48 .12
- ------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain .13 -- .13 --
- ------------------------------------------------------------------------------------------------------------------
Total dividends .61 .12 .61 .12
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.80 10.73 10.79 10.73
- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 6.69% .75 6.64 .70
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
Expenses 1.67% 1.68 1.62 1.63
- ------------------------------------------------------------------------------------------------------------------
Net investment income 4.61 4.36 4.66 4.68
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL FUND DATA
<CAPTION>
YEAR ENDED AUGUST 31,
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $319,477 342,839 354,461 290,464 229,350
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 112% 43 36 16 26
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 40
Financial Highlights
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------------- ----------------- -----------------
MARCH 15, 1995 TO MARCH 15, 1995 TO MARCH 15, 1995 TO
PENNSYLVANIA AUGUST 31, 1995 AUGUST 31, 1995 AUGUST 31, 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.50 9.50 9.50
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .22 .18 .19
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .31 .30 .31
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .53 .48 .50
- -----------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .22 .18 .19
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.81 9.80 9.81
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN 5.54% 5.05 5.18
RATIOS TO AVERAGE NET ASSETS (B)
- -----------------------------------------------------------------------------------------------------------------
Expenses absorbed by the Fund .46% 1.24 1.21
- -----------------------------------------------------------------------------------------------------------------
Net investment income 4.93 4.15 4.18
- -----------------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (B)
- -----------------------------------------------------------------------------------------------------------------
Expenses 1.01% 1.79 1.76
- -----------------------------------------------------------------------------------------------------------------
Net investment income 4.38 3.60 3.63
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL FUND DATA
<TABLE>
<CAPTION>
MARCH 15, 1995 TO
AUGUST 31, 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $2,118
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 85%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES FOR ALL FUNDS:
(a) Certain expenses of the Florida Fund were waived or absorbed by KFS during
each of the three periods shown ending August 31, 1993. If no waiver had been
in place during this time, the expense ratios would have increased .86%, .42%
and .01% of average net assets, respectively, with a corresponding decrease in
the net investment income ratios during these periods.
(b) KFS agreed to waive the management fee of the New Jersey Fund and the
Pennsylvania Fund from their inception, March 15, 1995, through September 15,
1995. Thereafter, the management fees will be gradually reinstated. "Other
ratios to average net assets" are computed without the undertaking to waive the
management fee.
(c) Certain expenses of the New York Fund were waived or absorbed by KFS during
the period ended August 31, 1991. If no waiver had been in place during this
time, the expense ratio would have increased .32% of average net assets with a
corresponding decrease in the net investment income ratio.
Ratios have been determined on an annualized basis. Total return is not
annualized and does not reflect the effect of sales charges.
39
<PAGE> 41
Trustees and Officers
TRUSTEES
STEPHEN B. TIMBERS
President and Trustee
DAVID W. BELIN
Trustee
LEWIS A. BURNHAM
Trustee
DONALD L. DUNAWAY
Trustee
ROBERT B. HOFFMAN
Trustee
DONALD R. JONES
Trustee
DAVID B. MATHIS
Trustee
SHIRLEY D. PETERSON
Trustee
WILLIAM P. SOMMERS
Trustee
OFFICERS
J. PATRICK BEIMFORD, JR.
Vice President
CHRISTOPHER J. MIER
Vice President
JOHN E. PETERS
Vice President
PHILIP J. COLLORA
Vice President and
Secretary
CHARLES F. CUSTER
Vice President and
Assistant Secretary
JEROME L. DUFFY
Treasurer
ELIZABETH C. WERTH
Assistant Secretary
<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 419557
Kansas City, MO 64141
800-621-1048
- ---------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 127 West 10th Street
Kansas City, MO 64105
- ---------------------------------------------------------------------------
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
- ---------------------------------------------------------------------------
INVESTMENT MANAGER KEMPER FINANCIAL SERVICES, INC.
- ---------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
120 South LaSalle Street
Chicago, IL 60603
</TABLE>
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