<PAGE> 1
KEMPER STATE TAX-FREE
INCOME SERIES
SEMIANNUAL REPORT TO SHAREHOLDERS
FOR THE PERIOD ENDED FEBRUARY 29, 1996
CALIFORNIA TAX-FREE INCOME FUND
MICHIGAN TAX-FREE INCOME FUND
OHIO TAX-FREE INCOME FUND
TEXAS TAX-FREE INCOME FUND
" ...Our outlook on the direction of rates was correct and our longer duration
stance served the funds well..."
<PAGE> 2
TABLE OF
CONTENTS
4
General
Economic Overview
6
Performance Update
7
Terms to Know
8
California's
Portfolio Statistics and
Portfolio of Investments
14
Michigan's
Portfolio Statistics and
Portfolio of Investments
17
Ohio's
Portfolio Statistics and
Portfolio of Investments
20
Texas'
Portfolio Statistics and
Portfolio of Investments
23
Financial Statements
26
Notes to
Financial Statements
32
Financial Highlights
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER STATE TAX-FREE INCOME FUNDS TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED FEBRUARY 29, 1996 (UNADJUSTED FOR ANY SALES
CHARGE)
[LINE GRAPH]
CALIFORNIA
<TABLE>
<CAPTION>
Class A Class B Class C Lipper California
Tax-Free Income
Funds Category
Average*
------------------------------------------------
<S> <C> <C> <C>
5.85% 5.54% 5.54% 5.58%
</TABLE>
[LINE GRAPH]
MICHIGAN
<TABLE>
<CAPTION>
Class A Class B Class C Lipper California
Tax-Free Income
Funds Category
Average*
------------------------------------------------
<S> <C> <C> <C>
6.37% 5.88% 5.97% 5.17%
</TABLE>
[LINE GRAPH]
OHIO
<TABLE>
<CAPTION>
Class A Class B Class C Lipper California
Tax-Free Income
Funds Category
Average*
------------------------------------------------
<S> <C> <C> <C>
5.63% 5.30% 5.31% 4.78%
</TABLE>
[LINE GRAPH]
TEXAS
<TABLE>
<CAPTION>
Class A Class B Class C Lipper California
Tax-Free Income
Funds Category
Average*
------------------------------------------------
<S> <C> <C> <C>
5.88% 5.32% 5.42% 5.11%
</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
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CALIFORNIA
- --------------------------------------------------------------------------------
AS OF AS OF
2/29/96 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER CALIFORNIA TAX-FREE
INCOME FUND CLASS A $7.50 $7.35
- --------------------------------------------------------------------------------
KEMPER CALIFORNIA TAX-FREE
INCOME FUND CLASS B $7.51 $7.35
- --------------------------------------------------------------------------------
KEMPER CALIFORNIA TAX-FREE
INCOME FUND CLASS C $7.50 $7.34
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
MICHIGAN
- --------------------------------------------------------------------------------
AS OF AS OF
2/29/96 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER MICHIGAN TAX-FREE
INCOME FUND CLASS A $10.14 $9.76
- --------------------------------------------------------------------------------
KEMPER MICHIGAN TAX-FREE
INCOME FUND CLASS B $10.14 $9.77
- --------------------------------------------------------------------------------
KEMPER MICHIGAN TAX-FREE
INCOME FUND CLASS C $10.14 $9.76
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
OHIO
- --------------------------------------------------------------------------------
AS OF AS OF
2/29/96 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER OHIO TAX-FREE
INCOME FUND CLASS A $10.12 $9.81
- --------------------------------------------------------------------------------
KEMPER OHIO TAX-FREE
INCOME FUND CLASS B $10.13 $9.81
- --------------------------------------------------------------------------------
KEMPER OHIO TAX-FREE
INCOME FUND CLASS C $10.13 $9.81
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
TEXAS
- --------------------------------------------------------------------------------
AS OF AS OF
2/29/96 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
KEMPER TEXAS TAX-FREE
INCOME FUND CLASS A $10.50 $10.42
- --------------------------------------------------------------------------------
KEMPER TEXAS TAX-FREE
INCOME FUND CLASS B $10.49 $10.42
- --------------------------------------------------------------------------------
KEMPER TEXAS TAX-FREE
INCOME FUND CLASS C $10.50 $10.42
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
AT A GLANCE
- --------------------------------------------------------------------------------
KEMPER TAX-FREE INCOME FUND LIPPER RANKINGS
- --------------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THEIR RESPECTIVE LIPPER CATEGORIES*
- --------------------------------------------------------------------------------
CALIFORNIA
- --------------------------------------------------------------------------------
1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------
[S] [C] [C] [C]
CLASS A #35 OF #12 OF #1 OF
93 FUNDS 45 FUNDS 22 FUNDS
- --------------------------------------------------------------------------------
CLASS B #61 OF
93 FUNDS N/A N/A
- --------------------------------------------------------------------------------
CLASS C #68 OF
93 FUNDS N/A N/A
- --------------------------------------------------------------------------------
[CAPTION]
- --------------------------------------------------------------------------------
OHIO TEXAS
- --------------------------------------------------------------------------------
1-YEAR 1-YEAR
[S] [C] [C]
CLASS A #15 OF 50 FUNDS #10 OF 26 FUNDS
- --------------------------------------------------------------------------------
CLASS B #31 OF 50 FUNDS #16 OF 26 FUNDS
- --------------------------------------------------------------------------------
CLASS C #34 OF 50 FUNDS #17 OF 26 FUNDS
- --------------------------------------------------------------------------------
* Kemper California Tax-Free Income Fund is compared to the Lipper California
Municipal Debt category. Lipper rankings are not available for Kemper Michigan
Tax-Free Income Fund. Kemper Ohio Tax-Free Income Fund is compared to the
Lipper Ohio Municipal Debt category. Kemper Texas Tax-Free Income Fund is
compared to the Lipper Texas Municipal Debt category. Lipper Analytical
Services, Inc. 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. Rankings are historical and do
not reflect future performance.
- --------------------------------------------------------------------------------
DIVIDEND REVIEW
- --------------------------------------------------------------------------------
THE FOLLOWING TABLE SHOWS PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE
FUNDS AS OF FEBRUARY 29, 1996.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CALIFORNIA
- --------------------------------------------------------------------------------
A SHARES B SHARES C SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $0.1932 $0.1610 $0.1610
- --------------------------------------------------------------------------------
FEBRUARY DIVIDEND: $0.0320 $0.0268 $0.0269
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 5.12% 4.28% 4.30%
- --------------------------------------------------------------------------------
SEC YIELD+: 4.37% 3.70% 3.71%
- --------------------------------------------------------------------------------
TAX EQUIVALENT YIELD: 7.65% 6.48% 6.50%
BASED ON A MARGINAL TAX RATE OF 42.9% (COMBINED CALIFORNIA STATE AND FEDERAL
INCOME TAX RATE)
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
MICHIGAN
- --------------------------------------------------------------------------------
A SHARES B SHARES C SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $0.2391 $0.2024 $0.2011
- --------------------------------------------------------------------------------
FEBRUARY DIVIDEND: $0.0361 $0.0301 $0.0286
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 4.27% 3.56% 3.38%
- --------------------------------------------------------------------------------
SEC YIELD+:
(AFTER EXPENSE WAIVER) 4.07% 3.51% 3.54%
- --------------------------------------------------------------------------------
SEC YIELD+:
(BEFORE EXPENSE WAIVER) 3.72% 3.16% 3.19%
- --------------------------------------------------------------------------------
TAX EQUIVALENT YIELD: 6.77% 5.84% 5.89%
BASED ON A MARGINAL TAX RATE OF 39.9% (COMBINED MICHIGAN STATE AND FEDERAL
INCOME TAX RATE)
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
OHIO
- --------------------------------------------------------------------------------
A SHARES B SHARES C SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $0.2417 $0.1995 $0.1992
- --------------------------------------------------------------------------------
FEBRUARY DIVIDEND: $0.0406 $0.0329 $0.0326
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 4.81% 3.90% 3.86%
- --------------------------------------------------------------------------------
SEC YIELD+: 4.29% 3.64% 3.65%
- --------------------------------------------------------------------------------
TAX EQUIVALENT YIELD: 7.32% 6.21% 6.23%
BASED ON A MARGINAL TAX RATE OF 41.4% (COMBINED OHIO STATE AND FEDERAL INCOME
TAX RATE)
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
TEXAS
- --------------------------------------------------------------------------------
A SHARES B SHARES C SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $0.2606 $0.2137 $0.2149
- --------------------------------------------------------------------------------
FEBRUARY DIVIDEND: $0.0429 $0.0350 $0.0357
- --------------------------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 4.90% 4.00% 4.08%
- --------------------------------------------------------------------------------
SEC YIELD+: 4.42% 3.73% 3.77%
- --------------------------------------------------------------------------------
TAX EQUIVALENT YIELD: 7.03% 5.93% 5.99%
BASED ON A 37.1% MARGINAL FEDERAL INCOME TAX RATE
- --------------------------------------------------------------------------------
</TABLE>
+ Current annualized distribution rate is the latest monthly dividend shown
as an annualized percentage of net asset value on February 29, 1996.
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 February 29, 1996 shown as an annualized percentage of the
maximum offering price on that date. The SEC yield is computed in accordance
with a standardized method prescribed by the Securities and Exchange
Commission. Tax equivalent yield is based on the fund's yield and the
applicable federal and state marginal tax rate. Income may be subject to state
and local taxes and, for some investors, a portion may be subject to the
alternative minimum tax.
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 Texas income tax for individuals. A portion of
income may be subject to the alternative minimum tax for certain investors.
3
<PAGE> 4
GENERAL ECONOMIC OVERVIEW
[TIMBERS PHOTO]
STEPHEN B. TIMBERS IS PRESIDENT, CHIEF EXECUTIVE AND CHIEF INVESTMENT OFFICER
OF ZURICH KEMPER INVESTMENTS,(ZKI) INC. ZKI AND ITS AFFILIATES MANAGE
APPROXIMATELY $79 BILLION IN ASSETS, INCLUDING $45 BILLION IN RETAIL MUTUAL
FUNDS. TIMBERS IS A GRADUATE OF YALE UNIVERSITY AND HOLDS AN M.B.A. FROM
HARVARD UNIVERSITY.
DEAR SHAREHOLDER:
Last year -- a year in which both the equity and the fixed-income markets
produced strong above-average returns -- will be a difficult year to follow.
However, based on what we see a few months into the new year, we believe 1996
also will be capable of rewarding investors. Unlike last year, however, we
expect there will be more volatility from markets and a wider range of winners
and losers in 1996. This is the time for careful decision-making.
What has changed? We continue to experience low interest rates, an
acceptable rate of economic growth and low inflation. Although certain
government reports have been late in coming due to the federal government
shutdown, there's little in the economic data that suggests cause for concern.
Yet, this year we must begin to consider the possibility of a recession
within the next 24 months. We have enjoyed one of the longest economic
expansions in the 20th century. By virtue of the length of the expansion alone,
it is reasonable to expect a bumpier road ahead with spurts and pockets of
strength followed by potholes. Moreover, recessions can be triggered by a
surprise not forecastable by current available data. It could take the form of
political turmoil in the Middle East, instability in Russia or even a further
downturn in Japan's economic health. Any type of surprise has the potential to
reverse the growth we have become accustomed to.
Having enjoyed an almost uninterrupted climb in 1995, the markets also
are vulnerable to correction. A key reason that stock prices have been rising
is that there have been large cash flows directed to the market. Whenever
positive liquidity is the driving force in the market -- as opposed to
investors' reactions to individual companies' fundamentals -- one has to be
cautious.
Moreover, corporate earnings will not continue to grow at their
earlier, breakneck paces. In 1996, we expect profit growth to be in the
single-digit. Despite all, at this point early in the year, we think the stock
market has the potential to return close to its historical average of about 10
percent. Remember, of course, that in the first quarter alone the Standard &
Poor's 500 Stock Index gained 5.37 percent. Our forecast assumes added stock
market volatility this year.
Our equities forecast assumes some help from the bond market. As you
know, the Federal Reserve Board began to ease short-term interest rates last
year and may ease again if weak economic data appears. The widening
relationship between short- and long-term rates at this point in the economic
cycle is an intriguing one, and one that would argue against a recession
forecast. Short-term interest rates are generally falling. Yet, rates usually
rise in an economy headed toward recession.
As is typical after a strong year in the domestic markets, many
investors will be looking overseas for superior return opportunities in 1996.
This move makes good sense to us, as well. Foreign economies' expansions often
follow the U.S. In fact, improvement abroad could help sustain this country's
expansion as it could boost the demand for exports.
The value of the dollar, having had a roller coaster year in 1995,
should settle down. Strength in foreign markets could boost those countries'
currencies, which would bring an end to the current dollar rally later this
year.
As we head toward the November presidential elections, we can expect
continued discussion from both political parties about balancing the federal
budget and related taxation issues. Frankly, we see the candidates as waging a
war in sameness -- there will be little difference between the Republican
primary platform and what President Bill Clinton has committed to about a
balanced budget. Economically as well as socially, the trend in government is
toward conservativism.
With that as an economic backdrop, we encourage you to read the
following detailed report of your fund, including an interview with your fund's
portfolio management. Thank you for your continued support. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ Stephen B. Timbers
Stephen B. Timbers
PRESIDENT, CHIEF INVESTMENT AND EXECUTIVE OFFICER
APRIL 1, 1996
+ SOURCE: BASED UPON THE AVERAGE OF THE STANDARD & POOR'S 500 (S&P 500)
STOCK INDEX SINCE 1928 (TOWERS DATA SYSTEMS). THIS DATA IS HISTORICAL AND DOES
NOT REFLECT FUTURE RESULTS. THE S&P 500 IS AN UNMANAGED INDEX GENERALLY
REPRESENTATIVE OF THE U.S. STOCK MARKET.
4
<PAGE> 5
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-to-year percentage changes.
[BAR GRAPH]
<TABLE>
<CAPTION>
Now (2/29/96) 6 Months Ago 1 year ago 2 years ago
<S> <C> <C> <C> <C>
10-year Treasury rate(1) 5.81 6.20 7.20 6.48
Prime rate(2) 8.25 8.75 9.00 6.06
Inflation rate(3) 2.72 2.54 2.86 2.51
The U.S. dollar(4) 0.82 -1.17 -8.46 0.48
Capital goods orders(5) 9.72 12.54 15.60 21.00
Industrial production(6) 1.63 3.14 4.68 5.04
Employment growth(7) 1.51 1.89 2.84 2.97
</TABLE>
(1) Falling interest rates in recent years have been a big plus for financial
assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. In the last five years,
inflation has been as high as 6%. 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, ZURICH KEMPER INVESTMENTS, INC.
5
<PAGE> 6
PERFORMANCE UPDATE
[MIER PHOTO]
CHRIS MIER JOINED ZURICH KEMPER INVESTMENTS, INC. IN 1986 AND IS NOW SENIOR
VICE PRESIDENT AND PORTFOLIO MANAGER OF KEMPER STATE TAX-FREE INCOME SERIES.
MIER RECEIVED A B.A. DEGREE IN ECONOMICS FROM THE UNIVERSITY OF MICHIGAN AND AN
M.M. IN FINANCE FROM THE KELLOGG GRADUATE SCHOOL OF MANAGEMENT AT NORTHWESTERN
UNIVERSITY. HE IS A CHARTERED FINANCIAL ANALYST.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
KEMPER STATE TAX-FREE INCOME SERIES PORTFOLIO MANAGER CHRIS MIER, DISCUSSES HIS
VIEWS ON THE MUNICIPAL MARKET, INTEREST RATES AND THE IMPACT THAT TAX REFORM
RHETORIC HAS HAD ON MUNICIPAL BONDS.
Q. KEMPER'S STATE TAX-FREE FUNDS POSTED STRONG RETURNS FOR THE SIX-MONTH
PERIOD, SEPTEMBER 1, 1995, THROUGH FEBRUARY 29, 1996. WHAT WAS BEHIND THIS
PERFORMANCE?
A. The economic environment was positive for municipal bonds during most
of the period. From September 1995, to January 1996, interest rates fell, there
was optimism that a federal budget resolution would occur and inflation remained
low. In addition, economic indicators suggested that the economy, while
growing, was slowing down somewhat due to severe weather conditions and other
factors.
All of these factors created a favorable climate for the municipal
market, and bond prices appreciated. THE BOND BUYER 25-Bond Revenue Bond Index
(RBI) -- a gauge of municipal bond interest rates -- began the period at 6.26
percent on August 31, 1995, and fell to a low of 5.63 percent on January 4,
1996.
In January, however, the bond rally began to lose some steam. Data
indicated that the economic slowdown may have been related mostly to the impact
of severe weather as opposed to any fundamental weakness. Moreover, with the
start of the Republican party presidential primaries, focus moved away from the
federal budget and deficit reduction proposals toward other issues. As optimism
about deficit reduction began to fade, yields began to rise.
Q. DID YOUR INVESTMENT STRATEGY CHANGE DURING THE PERIOD?
A. At the start of the fiscal year, we continued to believe that interest
rates would move lower. To take advantage of the potential decline, we
maintained the funds' relatively long durations. Duration is a measurement of
a portfolio's sensitivity to interest rates. The longer a fund's duration, the
more sensitive it is to interest rate changes.
Our outlook on the direction of rates was correct and our longer
duration stance served the funds well until January. In January, we began to
shorten durations and the volatility of the funds by making adjustments in the
portfolios' bond holdings.
Q. WAS SUPPLY A POSITIVE FACTOR FOR THE FUND DURING THE PERIOD?
A. Supply picked up during the last few months of 1995 but remained lower
than 1994 levels for the year as a whole. In 1996, supply remained higher than
comparable months in 1995.
6
<PAGE> 7
PERFORMANCE UPDATE
Q. WERE THERE ANY SIGNIFICANT TRENDS THAT AFFECTED INDIVIDUAL STATES WITHIN
KEMPER'S STATE TAX-FREE INCOME SERIES?
A. The California economy continued to recover during the period, and
unemployment declined. Certain sectors and geographic areas within the state,
however, benefited more than others. In the municipal market, state
general obligation bonds were strong performers -- a result of the
strengthening economy and tightened fiscal controls. County credits struggled
due to structural fiscal restraints. The fund had minimal exposure to county
credits.
The Michigan economy was strong, and unemployment dipped to 4.4 percent
in October, which was the lowest rate since the state began keeping records in
1970. In addition, because of a large general fund surplus, Michigan is
expected to add approximately $57 million to its $1.1 billion rainy-day fund in
1996. The surplus is due to continued fiscal discipline by the state
government.
Ohio's economic data was positive. The state continued to improve its
financial position and showed an increase in general fund reserves and
maintained a low unemployment rate during the period. We anticipate that Ohio's
economy will improve further due to its expanding service sector and strong
export activity.
The Texas economy, like the national economy, grew slowly during the
period with a relatively benign rate of inflation. Unemployment was slightly
above the national average. The construction industry continued to grow and as
of November 1995, employment in the industry reached its highest level since
early 1986. Such economic growth should be positive for the Texas municipal
market.
Q. WHAT IS YOUR VIEW ON THE LIKELIHOOD OF TAX REFORM AND ITS AFFECT ON THE
MUNICIPAL BOND MARKET?
A. Talk of tax reform -- including a possible flat tax -- has raised
considerable interest in the media and among municipal bond investors. At this
writing, however, two important factors regarding these proposals are still
unknown: the shape such reform would take, and when it would be implemented.
Any tax change is likely to be significantly less radical than
proposals being touted recently. This is due to the political realities of
getting major legislation passed through Congress. If any specific legislation
were to be drafted and presented to Congress in 1997, it would likely be 1998
before the start of any implementation.
The municipal market has already discounted the impact of possible tax
reform to a certain degree. Municipal bonds offer high tax equivalent yields in
relation to those available from Treasuries. If reform fails to materialize or
the market overcompensates for the risk of tax reform, we could be presented
with advantageous buying opportunities, which would likely help the performance
of municipal bonds.
Q. WHAT'S YOUR OUTLOOK FOR 1996?
A. Our outlook is cautiously optimistic. We anticipate continued moderate
economic growth with inflation remaining under control. Although it is unlikely
that we'll see total returns of the magnitude of 1995, this year should
provide a reasonably positive environment for bond markets.
TERMS TO KNOW
DURATION Duration is a measure of the interest rate sensitivity of a
fixed-income investment or portfolio. The longer the duration, the greater the
interest rate risk.
REVENUE BOND INDEX (RBI) The average yield on 25 revenue bonds with 30-year
maturities compiled by The Bond Buyer, a newspaper that covers the municipal
bond market.
TOTAL RETURN A fund's total return figure measures both the net investment
income generated by, and the effect of, any realized and unrealized
appreciation or depreciation of the underlying investments in its portfolio for
the period. Total return assumes the reinvestment of all dividends and 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.
7
<PAGE> 8
PORTFOLIO STATISTICS
KEMPER CALIFORNIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 90% 93%
- --------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 6 5
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS 4 2
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/29/96 ON 8/31/95
- - Revenue bonds
General obligation bonds
- - Cash and equivalents
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
QUALITY ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 52% 52%
- --------------------------------------------------------------------------------
AA 13 17
- --------------------------------------------------------------------------------
A 17 18
- --------------------------------------------------------------------------------
BBB 14 10
- --------------------------------------------------------------------------------
Not rated 4 3
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/29/96 ON 8/31/95
- - AAA
- - AA
- - A
- - BBB
- - Not rated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEARS TO MATURITY ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
1-10 YEARS 7% 6%
- --------------------------------------------------------------------------------
10-20 YEARS 33 38
- --------------------------------------------------------------------------------
20+ YEARS 60 56
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/29/96 ON 8/31/95
- - 1-10 years
- - 10-20 years
- - 20+ years
- --------------------------------------------------------------------------------
AVERAGE MATURITY ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
20.9 YEARS 20.5 YEARS
- --------------------------------------------------------------------------------
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
CALIFORNIA TAX-FREE INCOME FUND
February 29, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVANCE Bakersfield County Waste Water Treatment Plant,
REFUNDED Certificates of Participation, Rev.,
OBLIGATIONS 8.00%, to be called 01-01-98 @ 101 $ 1,750 $ 1,896
SECURED AS TO -----------------------------------------------------------------------------------------
PRINCIPAL AND Brea Public Financing Auth., Orange County, Redev.
INTEREST BY Proj. AB, Rev., 6.75%, to be called 08-01-01 @ 102 3,885 4,429
OBLIGATIONS -----------------------------------------------------------------------------------------
OF THE City of Los Angeles:
UNITED STATES Convention and Exhibit Center, Certificates of
GOVERNMENT Participation, Rev., 9.00%, to be called 12-01-05
@ 100 1,000 1,348
Harbor Department, Rev., 8.70%, to be called 9-01-99
@ 100 2,500 2,724
-----------------------------------------------------------------------------------------
Foothill-DeAnza Community College District, Santa
Clara, Rev., 7.875%, to be called 06-01-01 @ 102 4,055 4,793
-----------------------------------------------------------------------------------------
Fullerton Redev. Agcy., Local Government Finance Auth.,
Rev., 7.70%, to be called 2-01-99 @ 102 4,360 4,881
-----------------------------------------------------------------------------------------
Health Facilities Financing Auth.:
Daughters Of Charity National Health System, Rev.,
9.25%, to be called 5-1-96 @ 102 2,500 2,575
Eskaton Properties, Inc., Rev., 7.45%,
to be called 05-01-00 @ 102 4,800 5,486
-----------------------------------------------------------------------------------------
Kaweah Delta Hospital District, Rev., 7.25%,
to be called 11-01-96 @ 102 5,750 6,008
-----------------------------------------------------------------------------------------
Metropolitan Water District of Southern California,
Rev., 6.625%, to be called 7-01-01 @ 102 1,500 1,694
-----------------------------------------------------------------------------------------
Northern California Power Agcy., Hydroelectric Number
One, Rev., 7.00%, to be called 1-01-16 @ 100 210 255
-----------------------------------------------------------------------------------------
Orange Unified School District, Certificates of
Participation, Rev., 6.875%, to be called 06-01-99 @
102 2,620 2,891
-----------------------------------------------------------------------------------------
Redbud Hospital District, Insured Health Facility,
Rev., 7.90%, to be called 6-01-96 @ 102 1,000 1,029
-----------------------------------------------------------------------------------------
San Jose Redev. Agcy., Rev., 7.80%,
to be called 08-01-96 @ 102 6,500 6,751
-----------------------------------------------------------------------------------------
Santa Margarita Water District, Gen. Oblg., 7.30%,
to be called 06-01-97 @ 102 1,080 1,151
-----------------------------------------------------------------------------------------
Tulare County Public Facilities Corp., Certificates of
Participation, Rev., 8.10%, to be called 11-01-97 @
102 1,000 1,092
-----------------------------------------------------------------------------------------
TOTAL ADVANCE REFUNDED OBLIGATIONS--4.5% 49,003
- ---------------------------------------------------------------------------------------------------------------------
OTHER Department of Water Resources, Central Valley Proj.,
MUNICIPAL OBLIGATIONS Rev., 5.00% to 6.00%, 2019 through 2020 9,780 9,250
-----------------------------------------------------------------------------------------
Educational Facilities Auth., Mills College, Rev.,
6.875%, 2022 1,775 1,917
-----------------------------------------------------------------------------------------
Health Facilities Financing Auth.:
Adventist Health System/West, Rev., 6.50%, 2007 and
2011 5,750 6,286
America Baptist Homes West, Rev., 7.65%, 2014 4,000 4,298
Children's Hospital, Rev., 7.50%, 2020 3,600 4,074
Kaiser Permanante, Rev., 7.00%, 2010 3,550 3,957
Marshall Hospital Health System, Rev., 5.125%, 2012 3,770 3,564
Small Facilities Loan, Insured Health Facility, Rev.,
6.70%, 2011 1,200 1,281
Southern California Presbyterian Homes, Rev., 6.70%,
2011 2,000 2,131
Unihealth America, Rev., 7.625%, 2015 745 817
-----------------------------------------------------------------------------------------
Housing Finance Agcy.:
Home Mortgage Rev., 6.875% to 8.00%,
2010 through 2030 28,380 29,953
Single Family Mortgage, Rev., 6.45%, 2025 4,400 4,560
-----------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maritime Infrastructure Authority, Airport Rev., 5.00%,
2020 $ 2,265 $ 2,077
-----------------------------------------------------------------------------------------
Public Works Board:
Department of Corrections, Rev., 5.25% to 7.40%,
2010 through 2014 12,865 13,821
Public Works, 5.25%, 2015 5,800 5,783
Various Universities, Rev., 6.00% and 6.375%, 2014 7,000 7,183
-----------------------------------------------------------------------------------------
State, Gen. Oblg., 4.75% to 6.125%, 2011 through 2025 42,040 43,401
-----------------------------------------------------------------------------------------
Statewide Communities Dev. Auth.:
Cedars-Sinai Medical Center, Rev., 6.50%, 2012 18,000 19,948
Children's Hospital, Rev., 6.00%, 2010 2,835 3,086
Eskaton Properties, Inc., Insured Health Facilities,
5.80%, 2013 4,000 3,989
Oakland Convention Center, Lease Rev., 6.00%, 2005 2,500 2,716
Triad Healthcare, Rev., 5.80%, 2000 4,205 4,333
United Western Medical Centers, Insured, Rev., 6.80%,
2009 4,245 4,575
-----------------------------------------------------------------------------------------
University of California:
Housing System Rev., 6.75%, 2009 1,515 1,643
Multiple Purpose Proj., Rev., 4.75%, 2015 and 2016 18,075 16,462
-----------------------------------------------------------------------------------------
Bellflower Certificate of Participation, Civic Center
and Capital Improvement, Rev., 7.20%, 2019 1,880 2,077
-----------------------------------------------------------------------------------------
Campbell, Union Elementary School District, Gen.
Oblig., 6.25%, 2019 2,750 2,929
-----------------------------------------------------------------------------------------
Central Valley Financing Auth., Carson Ice-Gen. Proj.,
Rev., 6.00% to 6.20%, 2009 through 2020 20,200 20,297
-----------------------------------------------------------------------------------------
Cerritos Public Financing Auth., Los Cerritos Redev.
Proj., Rev., 6.00% and 6.05%, 2013 and 2020 14,780 14,819
-----------------------------------------------------------------------------------------
City of Carson Redev. Agcy., Proj. Number One, Tax
Allocation, Rev., 5.625% and 6.00%, 2008 and 2016 4,600 4,507
-----------------------------------------------------------------------------------------
City of Concord Redev. Agcy., Central Concord Proj.,
Tax Allocation, Rev., 8.00%, 2018 40 44
-----------------------------------------------------------------------------------------
City of Costa Mesa Redev. Agcy., Downtown Redev. Proj.,
Tax Allocation, Rev., 5.625%, 2017 3,750 3,514
-----------------------------------------------------------------------------------------
City of Culver Redev. Financing Auth., Tax Allocation,
Rev., 4.60% and 5.50%, 2014 and 2020 17,240 16,032
-----------------------------------------------------------------------------------------
City of Los Angeles:
Department of Water and Power, Rev., 4.50% to 6.40%,
2013 through 2031 28,895 26,405
Wastewater System, Rev., 4.70% to 6.625%,
2012 through 2024 24,910 23,633
-----------------------------------------------------------------------------------------
City of Oakland:
Housing Finance Rev., 7.10%, 2010 1,920 2,030
Pension Financing Rev., 7.60%, 2021 26,075 28,494
-----------------------------------------------------------------------------------------
City of Riverside, Community College District,
Certificates of Participation, Rev., 5.80%, 2017 9,940 9,648
-----------------------------------------------------------------------------------------
City of Sacramento:
Area Flood Control Agcy., Rev., 5.375%, 2020 6,510 6,337
Cogeneration Auth., Proj. Rev., 5.875% and 6.00%,
2015 and 2022 20,000 19,611
Cogeneration Auth., Procter and Gamble Proj., Rev.,
6.375% to 6.50%, 2010 through 2021 16,000 16,576
Finance Auth., Lease Rev., 5.00% and 5.40%,
2014 through 2020 24,020 23,399
Municipal Utility District, Electric Rev., 6.20% to
6.75%, 2009 through 2022 11,045 12,111
-----------------------------------------------------------------------------------------
City of San Bernardino, Sisters of Charity Health Care
System, Rev., 6.50% to 7.00%, 2011 through 2021 18,750 20,498
-----------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
City and County of San Francisco:
Bay Area Rapid Transit District, Sales Tax, Rev.,
5.50%, 2020 $ 6,330 $ 6,267
Community International Airport, Rev., 6.250% and
6.30%, 2020 and 2025 15,450 16,189
Gen. Oblg., 6.50%, 2010 1,000 1,072
Moscone Convention Center, Rev., 6.75%, 2015 2,200 2,480
Redev. Agcy., Hotel Tax, Rev., 6.75%, 2015 3,705 4,177
Redev. Proj., Rev., zero coupon and 5.25%,
2013 and 2021 4,300 3,411
Sewer System, Rev., 5.95%, 2025 1,775 1,822
-----------------------------------------------------------------------------------------
Contra Costa County:
County Public Facilities Corp., Certificates of
Participation, Rev., 7.80%, 2005 1,250 1,393
Home Mortgage, Rev., 7.75%, 2022 2,715 3,514
Water District, Rev., 5.00%, 2020 and 2024 25,000 23,147
-----------------------------------------------------------------------------------------
Coronado Community Dev. Agcy., Tax Allocation, Rev.,
7.25%, 2012 4,500 4,972
-----------------------------------------------------------------------------------------
Davis State Unified School District Community
Facilities, Rev., 6.10%, 2023 2,150 2,109
-----------------------------------------------------------------------------------------
Duarte, City of Hope National Medical Center,
Certificates of Participation, Rev., 6.125% and
6.25%, 2013 and 2023 26,000 25,350
-----------------------------------------------------------------------------------------
East Bay Municipal Utility District:
Wastewater System, Rev., 5.00%, 2026 4,000 3,704
Water System, Rev., 4.75%, 2021 10,000 8,976
-----------------------------------------------------------------------------------------
Emeryville, Public Financing Auth., Redev. Proj., Rev.,
6.50%, 2021 10,255 10,594
-----------------------------------------------------------------------------------------
Encina Financing Joint Powers Auth., Wastewater, Rev.,
6.875%, 2011 3,000 3,274
-----------------------------------------------------------------------------------------
Fontana Public Financing Auth., Tax Allocation, Rev.,
7.00%, 2021 3,900 4,134
-----------------------------------------------------------------------------------------
Foothill-DeAnza Community College District, DeAnza
Campus Center Proj., Certificates of Participation,
Rev., 7.35%, 2007 1,700 1,907
-----------------------------------------------------------------------------------------
Fresno:
Health Facilities, Holy Cross Health System, St.
Agnes Medical Center, Rev., 6.50% and 6.625%,
2011 and 2021 3,500 3,760
Sewer System, Rev., 5.25%, 2019 4,600 4,476
-----------------------------------------------------------------------------------------
Garden Grove, Community Dev. Agcy., Community Proj.,
Tax Allocation, Rev., 5.875%, 2023 7,500 7,419
-----------------------------------------------------------------------------------------
Hawthorne Community Redev. Agcy., Tax Allocation, Rev.,
6.625%, 2014 2,000 2,105
-----------------------------------------------------------------------------------------
Hollister Joint Powers Financing Auth., Sewer System
Improvement Proj., Rev., 5.75% and 5.90%,
2011 and 2023 13,470 13,154
-----------------------------------------------------------------------------------------
Inglewood:
Civic Center Improvement Proj., Certificates of
Participation, Rev., 6.50% to 7.00%,
2011 through 2021 7,025 7,423
Public Financing Auth., Manchester and North
Inglewood Industrial Park Redev. Proj., Rev.,
7.00%, 2022 9,625 10,306
-----------------------------------------------------------------------------------------
Irvine Ranch, Water District Joint Powers Agcy., Rev.,
7.875%, 2023 5,000 5,305
-----------------------------------------------------------------------------------------
Las Virgenes, Municipal Water District, Capital
Improvement Proj., Rev., 6.30%, 2016 2,175 2,324
-----------------------------------------------------------------------------------------
Lemon Grove Community Dev. Agcy., Tax Allocation, Rev.,
6.65% and 6.90%, 2006 and 2020 1,500 1,597
-----------------------------------------------------------------------------------------
Loma Linda, University Medical Center, Rev., 5.00% and
7.00%, 2013 and 2015 11,995 11,694
-----------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long Beach:
Harbor Department, Rev., 5.275% to 7.25%,
2019 to 2025 $35,000 $34,086
Health Care Systems, Sisters of Charity, Rev., 6.50%,
2015 4,000 4,137
-----------------------------------------------------------------------------------------
Los Angeles County:
Metropolitan Transportation Auth., Sales Tax Rev.,
4.75% to 5.50%, 2017 through 2025 23,065 21,886
Transportation Commission, Sales Tax Rev.,
6.50% to 7.40%, 2003 through 2019 20,455 22,377
-----------------------------------------------------------------------------------------
Los Banos, Certificates of Participation, Rev., 6.00%,
2019 2,250 2,103
-----------------------------------------------------------------------------------------
Martinez, Multiple Lenders, Home Mortgage, Rev.,
10.375%, 2002 35 45
-----------------------------------------------------------------------------------------
Metropolitan Water District of Southern California,
Water Rev., 4.75% and 5.75%, 2021 19,000 17,365
-----------------------------------------------------------------------------------------
Montebello Community Redev. Agcy., Montebello Hills
Redev., Tax Allocation, Rev., 7.50%, 2010 3,750 4,127
-----------------------------------------------------------------------------------------
Moreno Valley, Towngate Community Facilities:
District 87-1, Improvement Area No. 1, Special Tax
Rev., 7.125%, 2023 2,810 2,882
Special Tax, Rev., 6.50%, 2009 3,670 3,782
-----------------------------------------------------------------------------------------
Morgan Hill Redev. Agcy., Ojo De Agua Community Dev.
Proj., Tax Allocation, Rev., 5.50%, 1999 3,725 3,851
-----------------------------------------------------------------------------------------
Northern California Power Agcy.:
Geothermal Proj., Number 3, Rev., 7.00%, 2007 8,000 8,201
Hydroelectric Number One, Rev., 7.15%, 2024 8,940 9,649
-----------------------------------------------------------------------------------------
Orange County, Civic Center, Certificates of
Participation, Rev., 6.625%, 2010 2,000 2,208
-----------------------------------------------------------------------------------------
Pinole Redev. Agcy., Pinole Vista Redev. Proj., Tax
Allocation, Rev., 5.60%, 2017 2,000 1,917
-----------------------------------------------------------------------------------------
Port Hueneme, Redev. Agcy., Central Community Proj.,
Tax Allocation, Rev., 5.50%, 2014 2,055 2,080
-----------------------------------------------------------------------------------------
Port of Oakland, Rev., 6.40% and 7.60%, 2022 and 2016 20,520 21,669
-----------------------------------------------------------------------------------------
Rancho Water District Financing Auth., Rev., 4.875%,
2015 2,100 1,943
-----------------------------------------------------------------------------------------
Rancho Cucamonga, Redev. Proj., Tax Allocation, Rev.,
5.00%, 2015 4,710 4,438
-----------------------------------------------------------------------------------------
Rancho Mirage, Redev. Agcy., Tax Allocation, Rev.,
5.00%, 2024 5,000 4,621
-----------------------------------------------------------------------------------------
Reedley, Sierra View Homes, Inc., Insured Certificates
of Participation, Rev., 7.60%, 2021 4,145 4,593
-----------------------------------------------------------------------------------------
Riverside County, Public Facilities Financing,
Certificates of Participation, Rev., 6.875% and
7.875%, 2009 and 2015 7,250 7,734
-----------------------------------------------------------------------------------------
Rohnert Park Public Safety Facilities Proj.,
Certificates of Participation, Rev., 4.75%, 2017 1,880 1,703
-----------------------------------------------------------------------------------------
Sacramento County, Sanitation Districts Financing
Auth., Rev., 5.00%, 2015 and 2016 15,200 14,108
-----------------------------------------------------------------------------------------
San Bernardino County, West Valley Detention Center,
Certificates of Participation, Rev., 6.50%, 2012 8,000 8,848
-----------------------------------------------------------------------------------------
San Bernardino Joint Powers Financing Auth., Lease
Rev., 7.15%, 2013 4,250 4,682
-----------------------------------------------------------------------------------------
San Diego:
Misdemeanor Pre-Arraignment Detention Facility,
Certificates of Participation, Rev., 8.00%, 2002 6,175 6,667
Public Facilities Finance Auth., Sewer Rev., 5.00%,
2025 12,550 11,633
-----------------------------------------------------------------------------------------
San Jose Redev. Agcy., Merged Area Redev. Proj., Tax
Allocation, Rev., 5.00% and 5.75%, 2011 and 2020 13,555 12,985
-----------------------------------------------------------------------------------------
San Jose--Santa Clara, Clean Water Fin. Auth., Sewer
Rev., 5.375%, 2020 15,300 14,831
-----------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
San Pablo, Redev. Agcy., Merged Area Proj., Tax
Allocation, Rev., 5.25%, 2016 $ 3,720 $ 3,559
-----------------------------------------------------------------------------------------
Santa Clarita Public Financing Auth., Local Agcy. Rev.,
6.70% and 6.75%, 2011 and 2021 4,250 4,558
-----------------------------------------------------------------------------------------
Santa Cruz County Housing Auth., Multi-Family Housing,
Rev., 7.75%, 2023 2,000 2,151
-----------------------------------------------------------------------------------------
Santa Maria, Redev. Agcy., Town Center and West Side
Parking Facility, Rev., 5.00%, 2016 7,180 6,682
-----------------------------------------------------------------------------------------
Snowline Joint Unified School District, 1993 Family
Proj., Certificates of Participation, Rev., 6.30% and
6.40%, 2011 and 2018 3,695 3,781
-----------------------------------------------------------------------------------------
South San Francisco, Capital Improvement Financing
Auth., Conference Center Proj., Rev., 6.125%, 2018 3,925 3,877
-----------------------------------------------------------------------------------------
Southern California Home Financing Auth., Single Family
Mortgage, Rev., 6.75% and 7.35%, 2022 and 2024 1,565 1,631
-----------------------------------------------------------------------------------------
Southern California Public Power Auth.:
Mead Adelanto Proj., Rev., 4.75%, 2016 8,000 7,266
Power Proj. Rev., 4.75% and 5.00%, 2015 and 2020 20,000 18,479
-----------------------------------------------------------------------------------------
Sunnyvale Fin. Auth., Wastewater, Refuge and Sludge,
Management Facilities, Rev., 6.30%, 2017 4,000 4,214
-----------------------------------------------------------------------------------------
Turlock, Irrigation Dist., Rev., 6.00%, 2012 and 2013 2,015 2,191
-----------------------------------------------------------------------------------------
Torrance Memorial Hospital Medical Center, Rev., 6.75%,
2012 5,000 5,173
-----------------------------------------------------------------------------------------
Victor Valley Community College District, Certificates
of Participation, Rev., 6.875%, 2023 8,705 9,147
-----------------------------------------------------------------------------------------
West & Central Basin, Fin. Auth., Rev., 6.125%, 2012 2,970 3,146
-----------------------------------------------------------------------------------------
Western Placer Unified School District, Election of
1993, Gen. Oblg., zero coupon, 2011 1,590 681
-----------------------------------------------------------------------------------------
Westminster Redev. Agcy., Westminster Commercial Redev.
Proj., Tax Allocation, Rev., 7.30%, 2021 2,500 2,667
-----------------------------------------------------------------------------------------
Yosemite Community College District, Certificates of
Participation, Rev., 7.75%, 2011 1,665 1,820
-----------------------------------------------------------------------------------------
Puerto Rico Housing Bank and Financing Agcy., Single
Family Mortgage, Rev., 6.25%, 2029 5,000 5,137
-----------------------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--91.9% 999,432
-----------------------------------------------------------------------------------------
TOTAL INVESTMENTS--96.4%
(COST: $995,441) 1,048,435
-----------------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--3.6% 39,397
-----------------------------------------------------------------------------------------
NET ASSETS--100% $1,087,832
-----------------------------------------------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $995,441 for federal income tax purposes at
February 29, 1996, aggregate gross unrealized appreciation was $58,123, the
aggregate gross unrealized depreciation was $5,129 and the net unrealized
appreciation of investments was $52,994.
See accompanying Notes to Financial Statements.
13
<PAGE> 14
PORTFOLIO STATISTICS
KEMPER MICHIGAN TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 54% 60%
- --------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 44 36
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS 2 4
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/29/96 ON 8/31/95
- - REVENUE BONDS
- - GENERAL OBLIGATION BONDS
- - CASH AND EQUIVALENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
QUALITY ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 78% 64%
- --------------------------------------------------------------------------------
AA 15 24
- --------------------------------------------------------------------------------
A 1 4
- --------------------------------------------------------------------------------
BBB 3 4
- --------------------------------------------------------------------------------
NOT RATED 3 4
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/29/96 ON 8/31/95
- - AAA
- - AA
- - A
- - BBB
- - NOT RATED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEARS TO MATURITY ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
10-20 years 44% 21%
- --------------------------------------------------------------------------------
20+ years 56 79
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/29/96 ON 8/31/95
- - 1-10 YEARS
- - 10-20 YEARS
- - 20+ YEARS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE MATURITY ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
21.7 years 22.8 years
- --------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
MICHIGAN TAX-FREE INCOME FUND
February 29, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Building Auth., Rev., 6.25%, 2020 $ 95 $ 100
------------------------------------------------------------------------------------------
Environmental Protection Program, Gen. Oblg., 5.40%, 2019 100 98
------------------------------------------------------------------------------------------
Ferris State University, Board of Trustees, Rev., 5.25%, 2015 100 97
------------------------------------------------------------------------------------------
Hospital Finance Auth.:
Gratiot Community Hospital, Rev., 6.10%, 2007 50 50
Oakwood Hospital Obligated Group, Rev., 5.625%, 2018 15 15
Port Huron Hospital Obligated Group, Rev., 5.50%, 2015 100 98
St. John Hospital and Medical Center, Rev., 6.00%, 2010 100 107
------------------------------------------------------------------------------------------
Housing Dev. Auth.:
Limited Oblg. Green Hill Proj., Rev., 5.45%, 2011 20 19
Rental Housing Rev., 5.75%, 2014 15 15
------------------------------------------------------------------------------------------
Michigan State University, Board of Trustees, Rev.,
5.125% and 5.50%, 2016 and 2022 120 115
------------------------------------------------------------------------------------------
Michigan Trunk Line, Rev., 5.50%, 2021 10 10
------------------------------------------------------------------------------------------
Municipal Bond Auth.:
Local Government Bond Rev., 6.00%, 2013 10 10
Local Government Loan Program, Rev., 5.75%, 2014 70 71
State Revolving Fund, Rev., 6.50%, 2014 15 17
------------------------------------------------------------------------------------------
Regents of the University of Michigan:
Construction and Renovation Proj., Student Fee Bonds, 5.25%, 2015 100 98
Major Capital Proj., Student Fee Bonds, 5.50%, 2013 10 10
------------------------------------------------------------------------------------------
Strategic Fund, Limited Oblg., Detroit Edison Company Pollution
Control Proj., Rev., 6.20%, 2025 100 107
------------------------------------------------------------------------------------------
Western Michigan University, Board of Trustees, Rev., 6.125%, 2022 30 32
------------------------------------------------------------------------------------------
Birmingham Public Schools, Gen. Oblg., 5.75%, 2011 15 15
------------------------------------------------------------------------------------------
Chelsea School District, Gen. Oblg., 6.00%, 2019 100 104
------------------------------------------------------------------------------------------
Clarkston Community Schools, Gen. Oblg., 5.90%, 2016 95 98
------------------------------------------------------------------------------------------
Dearborn Economic Dev. Corp., Hospital Rev., 5.875%, 2025 100 102
------------------------------------------------------------------------------------------
Detroit:
Gen. Oblg., 6.80%, 2015 50 54
Sewage Disposal System, Rev., 5.25%, 2015 125 121
Water Supply System, Rev., 4.75%, 2019 15 13
------------------------------------------------------------------------------------------
Genesee School District, Gen. Oblg., 5.75%, 2017 120 121
------------------------------------------------------------------------------------------
Grand Ledge Public Schools, Gen. Oblg., 5.50%, 2015 100 99
------------------------------------------------------------------------------------------
Greenville Public Schools, Gen. Oblg., 5.75%, 2024 85 86
------------------------------------------------------------------------------------------
Gull Lake Community Schools, Gen. Oblg., 5.25%, 2021 5 5
------------------------------------------------------------------------------------------
Hemlock Public School District, Gen. Oblg., 5.25%, 2021 100 96
------------------------------------------------------------------------------------------
Holly School District, Gen. Oblg., 5.625%, 2020 100 100
------------------------------------------------------------------------------------------
Lansing, Sewage Disposal System, Rev., 5.85%, 2014 100 103
------------------------------------------------------------------------------------------
Monroe County, Pollution Control Rev., 6.55%, 2024 100 109
------------------------------------------------------------------------------------------
North Branch Area Schools, Gen. Oblg., 5.375%, 2021 5 5
------------------------------------------------------------------------------------------
Novi Community School District, Gen. Oblg., 5.30%, 2014 100 98
------------------------------------------------------------------------------------------
Oakland County, Drainage District, Rev., 6.40%, 2016 15 16
------------------------------------------------------------------------------------------
Oxford Township, Gen. Oblg., 4.60%, 2016 75 67
------------------------------------------------------------------------------------------
Reeths Puffer School District, Gen. Oblg., 6.00%, 2025 100 104
------------------------------------------------------------------------------------------
Rockford Public Schools, Gen. Oblg., 5.875%, 2019 25 25
------------------------------------------------------------------------------------------
St. Clair County, Water Supply System No. VII, Ira Township Bonds,
Gen. Oblg., 5.25%, 2018 15 14
------------------------------------------------------------------------------------------
St. Clair Shores, Bon Secours Health System Proj., Rev., 6.00%, 2027 15 15
------------------------------------------------------------------------------------------
Wayne County, Detroit Metropolitan Wayne County Airport, Rev.,
6.125%, 2024 20 21
------------------------------------------------------------------------------------------
Wayne State University Board of Governors, Rev., 5.65%, 2015 100 101
------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
West Ottawa Public Schools, Gen. Oblg., 6.00%, 2020 $ 25 $ 26
------------------------------------------------------------------------------------------
Williamston Community School District, Gen. Oblg., 5.375%, 2015 200 197
------------------------------------------------------------------------------------------
Wyandotte, Electric Rev., 6.250%, 2017 45 48
------------------------------------------------------------------------------------------
Puerto Rico Commonwealth:
Gen. Oblg., 5.50% and 5.375%, 2009 and 2022 115 114
Housing Rev., 6.25%, 2029 30 31
------------------------------------------------------------------------------------------
University of Puerto Rico, System Rev., 5.25%, 2025 80 77
------------------------------------------------------------------------------------------
Virgin Islands Public Finance Auth., Government Dev. Program, Rev.,
7.25%, 2018 100 108
-----------------------------------------------------------------------------------------
TOTAL INVESTMENTS--97.7%
(COST: $3,267) 3,362
-----------------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--2.3% 80
-----------------------------------------------------------------------------------------
NET ASSETS--100% $3,442
-----------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
Based on the cost of investments of $3,267,000 for federal income tax purposes
at February 29, 1996, the aggregate gross unrealized appreciation was $102,000,
the aggregate gross unrealized depreciation was $7,000 and the net unrealized
appreciation of investments was $95,000.
See accompanying Notes to Financial Statements.
16
<PAGE> 17
PORTFOLIO STATISTICS
KEMPER OHIO TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenue bonds 62% 71%
General obligation bonds 33 27
Cash and equivalents 5 2
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/29/96 ON 8/31/95
- - REVENUE BONDS
- - GENERAL OBLIGATION BONDS
- - CASH AND EQUIVALENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
QUALITY ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 77% 69%
- --------------------------------------------------------------------------------
AA 7 13
- --------------------------------------------------------------------------------
A 8 9
- --------------------------------------------------------------------------------
BBB 7 8
- --------------------------------------------------------------------------------
Not rated 1 1
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/29/96 ON 8/31/95
- - AAA
- - AA
- - A
- - BBB
- - Not rated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEARS TO MATURITY ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
1-10 years 1% --%
- --------------------------------------------------------------------------------
10-20 years 59 48
- --------------------------------------------------------------------------------
20+ years 40 52
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/29/96 ON 8/31/95
- - 1-10 years
- - 10-20 years
- - 20+ years
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE MATURITY ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
19.6 YEARS 21.2 YEARS
- --------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
OHIO TAX-FREE INCOME FUND
February 29, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Building Auth.:
Administrative Building Funds Proj., Rev., 5.50% and 6.30%,
2012 and 2011 $ 265 $ 276
Adult Correctional Building Fund Proj., Rev., 6.125%, 2012 310 327
James A. Rhodes State Office Tower, Rev., 6.25%, 2011 215 229
Juvenile Correctional Building Proj., Rev., 6.60%, 2014 200 224
------------------------------------------------------------------------------------------
Development Authority, Rev., 5.50%, 2014 1,000 1,008
------------------------------------------------------------------------------------------
Higher Education Facility:
Dayton University, Rev., 6.60%, 2017 430 480
Dominican College, Rev., 6.625%, 2014 600 655
------------------------------------------------------------------------------------------
Housing Finance Agency, Single Family Mortgage, Rev., 7.85%, 2021 350 371
------------------------------------------------------------------------------------------
Ohio State University, General Receipt, Rev., 5.00%, 2018 750 698
------------------------------------------------------------------------------------------
State Turnpike, Rev., 5.45%, 2011 750 761
------------------------------------------------------------------------------------------
Akron, Gen. Oblg., 5.25%, 2016 250 243
------------------------------------------------------------------------------------------
Batavia Local School District, Gen. Oblg., 7.00%, 2014 500 584
------------------------------------------------------------------------------------------
Bellefontaine, Water System Mortgage Rev., 5.00%, 2015 500 474
------------------------------------------------------------------------------------------
Butler County, Waterworks Rev., 5.125%, 2021 700 667
------------------------------------------------------------------------------------------
Cambridge, Water System Rev., 5.50%, 2015 550 551
------------------------------------------------------------------------------------------
Canton Waterworks, Gen. Oblg., 5.85%, 2015 300 310
------------------------------------------------------------------------------------------
Cleveland, Airport System Improvement, Rev., 5.75%, 2015 750 755
------------------------------------------------------------------------------------------
Cleveland Public Power, First Mortgage, Rev., 7.00%, 2017 750 851
------------------------------------------------------------------------------------------
Cleveland, Waterworks Improvement, First Mortgage Rev., 5.50% and
6.25%, 2013 and 2015 895 944
------------------------------------------------------------------------------------------
Columbus Municipal Airport Auth., Rev., 6.00%, 2014 750 777
------------------------------------------------------------------------------------------
Crawford County, Gen. Oblg., 6.75%, 2019 700 794
------------------------------------------------------------------------------------------
Cuyahoga County:
Fairview General Hospital, Rev., 5.50%, 2014 500 481
Merida Health System, Rev., 6.25%, 2014 950 994
Multi-Family Housing, Rev., 6.50%, 2020 1,000 1,036
------------------------------------------------------------------------------------------
Dayton International Airport, Rev., 5.25%, 2015 750 727
------------------------------------------------------------------------------------------
Delaware County:
Gen. Oblg., 5.25%, 2015 320 314
School District, Gen. Oblg., 5.20%, 2016 500 482
------------------------------------------------------------------------------------------
Dublin, Gen. Oblg., 5.00%, 2018 750 706
------------------------------------------------------------------------------------------
Fayette County, Gen. Oblg., 5.90%, 2013 185 185
------------------------------------------------------------------------------------------
Franklin County Convention Facilities Authority, Rev., 5.80%,
2013 1,000 1,027
------------------------------------------------------------------------------------------
Grandview Heights, Gen. Oblg., 5.55%, 2019 500 510
------------------------------------------------------------------------------------------
Green Springs, Health Care Facility, St. Francis Healthcare,
Rev., 7.00%, 2014 400 411
------------------------------------------------------------------------------------------
Highland Heights, Gen. Oblg., 6.15%, 2012 145 155
------------------------------------------------------------------------------------------
Hilliard, Gen. Oblg., 5.00%, 2020 1,000 938
------------------------------------------------------------------------------------------
Lakeview Local School District, Gen. Oblg., 6.90%, 2014 700 805
------------------------------------------------------------------------------------------
Lorian:
Gen. Oblg., 5.65%, 2015 175 178
Sewer System Rev., 5.60%, 2011 330 338
------------------------------------------------------------------------------------------
Lucas County:
Public Improvement Water Utility, Rev., 6.05%, 2013 130 138
St. Vincent Medical Center, Rev., 5.375% and 5.45%, 2017 and
2014 800 787
------------------------------------------------------------------------------------------
Marion County, Health Care Facilities, United Church Homes Proj.,
Rev., 6.30% and 6.375%, 2015 and 2010 700 689
------------------------------------------------------------------------------------------
Middleburg Heights, Hospital Improvement Rev., 5.625%, 2015 1,000 998
------------------------------------------------------------------------------------------
Muskingum County, Franciscan Health Advisory Services, Inc.,
Rev., 7.50%, 2012 30 32
------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Napoleon, Health Care Facility, Lutheran Orphans' and Old Folks'
Home Society, Rev., 6.875%, 2023 $ 490 $ 531
------------------------------------------------------------------------------------------
North Royalton City School District, Gen. Oblg., 6.10%, 2019 500 537
------------------------------------------------------------------------------------------
Northeast Ohio Regional Sewer District, Wastewater Improvement,
Rev., 6.50%, 2016 300 336
------------------------------------------------------------------------------------------
Olentangy Local School District, Gen. Oblg., 5.85% and 6.35%,
2007 and 2017 550 591
------------------------------------------------------------------------------------------
Olmstead Falls School District, Gen. Oblg., 6.85%, 2011 250 286
------------------------------------------------------------------------------------------
St. Henry Consolidated Local School District, Gen. Oblg., 5.25%,
2019 400 386
------------------------------------------------------------------------------------------
Sandusky County, Gen. Oblg., 6.20%, 2013 500 535
------------------------------------------------------------------------------------------
Shawnee State University, General Receipts, Rev., 6.00%, 2014 200 211
------------------------------------------------------------------------------------------
Springboro Community City School District:
School Improvement, Rev., 6.00%, 2011 600 656
Gen. Oblg., 5.10%, 2023 500 473
------------------------------------------------------------------------------------------
City of Springdale, Hospital Facilities First Mortgage,
Southwestern Ohio Seniors Services, Rev., 6.00%, 2018 750 725
------------------------------------------------------------------------------------------
Toledo, Gen. Oblg., 6.10% and 6.35%, 2014 and 2025 1,250 1,345
------------------------------------------------------------------------------------------
Trumbull County Sewer Improvement, Gen. Oblg., 6.20%, 2014 500 535
------------------------------------------------------------------------------------------
Tuscarawas Valley Local School District, Gen. Oblg., 6.60%, 2015 365 414
------------------------------------------------------------------------------------------
Youngstown, Gen. Oblg., 6.125%, 2014 110 117
------------------------------------------------------------------------------------------
Puerto Rico:
Finance Agcy., Rev., 6.00%, 2014 750 790
Housing and Finance Agcy., Rev., 6.25%, 2029 1,000 1,027
------------------------------------------------------------------------------------------
Virgin Islands Public Finance Auth., Rev., 7.25%, 2018 225 243
-----------------------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--95.0%
(COST: $31,976) 33,648
-----------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS--2.8%
YIELD--3.6%
DUE--MARCH 1996
(COST: $1,000) 1,000 1,000
-----------------------------------------------------------------------------------------
TOTAL INVESTMENTS--97.8%
(COST: $32,976) 34,648
-----------------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES--2.2% 769
-----------------------------------------------------------------------------------------
NET ASSETS--100% $35,417
-----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $32,976,000, for federal income tax purposes
at February 29, 1996 aggregate gross unrealized appreciation was $1,765,000, the
aggregate gross unrealized depreciation was $93,000 and the net unrealized
appreciation of investments was $1,672,000.
See accompanying Notes to Financial Statements.
19
<PAGE> 20
PORTFOLIO STATISTICS
KEMPER TEXAS TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 78% 79%
- --------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 21 19
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS 1 2
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/29/96 ON 8/31/95
- - REVENUE BONDS
- - GENERAL OBLIGATION BONDS
- - CASH AND EQUIVALENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
QUALITY ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 65% 64%
- --------------------------------------------------------------------------------
AA 11 16
- --------------------------------------------------------------------------------
A 11 8
- --------------------------------------------------------------------------------
BBB 13 10
- --------------------------------------------------------------------------------
Not rated -- 2
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/29/96 ON 8/31/95
- - AAA
- - AA
- - A
- - BBB
- - NOT RATED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEARS TO MATURITY ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
1-10 YEARS 1% 1%
- --------------------------------------------------------------------------------
10-20 YEARS 64 62
- --------------------------------------------------------------------------------
20+ YEARS 35 37
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/29/96 ON 8/31/95
- - 1-10 YEARS
- - 10-20 YEARS
- - 20+ YEARS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE MATURITY ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
19.2 YEARS 19.0 YEARS
- --------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
PORTFOLIO OF INVESTMENTS
TEXAS TAX-FREE INCOME FUND
February 29, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Board of Regents of the University of Texas, Rev., 5.20%, 2016 $ 150 $ 145
------------------------------------------------------------------------------------------
Housing Agcy., Single Family Mortgage, Rev., 7.15%, 2012 80 84
------------------------------------------------------------------------------------------
Public Financing Auth., Gen. Oblg., zero coupon and 7.00%,
2009 and 2012 1,236 740
------------------------------------------------------------------------------------------
Southwest Higher Education Auth., Southwest Methodist University
Proj., Rev., 5.125%, 2016 250 239
------------------------------------------------------------------------------------------
Turnpike Auth., Dallas North Tollway, Rev., 5.00%, 2025 350 323
------------------------------------------------------------------------------------------
Abilene Higher Education Facilities Corp., Abilene Christian
University Proj., Rev., 6.25%, 2011 300 311
------------------------------------------------------------------------------------------
Amarillo, Gen. Oblg., 5.125%, 2015 350 335
------------------------------------------------------------------------------------------
Austin Airport, Rev., 6.20%, 2015 585 614
------------------------------------------------------------------------------------------
Austin, Combined Utility Systems, Rev., 5.875%, 2021 500 506
------------------------------------------------------------------------------------------
Bexar County Housing Finance Dev. Corp., Multi-Family Housing,
Rev., 6.875%, 2012 250 263
------------------------------------------------------------------------------------------
Brazos River Auth., Texas Utilities Electric Company Proj., Rev.,
8.125%, 2020 350 388
------------------------------------------------------------------------------------------
Brownsville, Utilities System, Rev., 5.25%, 2020 250 238
------------------------------------------------------------------------------------------
Cameron County Housing Finance Corp., Single Family Mortgage,
Rev., 6.75%, 2025 500 526
------------------------------------------------------------------------------------------
Circle C, Utility System, District Number Three, Rev., 6.50%,
2009 250 273
------------------------------------------------------------------------------------------
Corpus Christi, Utility System, Rev., 5.25%, 2013 300 295
------------------------------------------------------------------------------------------
Denton, Utility System, Rev., 6.50%, 2009 150 165
------------------------------------------------------------------------------------------
Ector County Hospital District, Hospital Rev., 7.30%, 2012 450 496
------------------------------------------------------------------------------------------
El Paso, Gen. Oblg., 5.00%, 2015 350 330
------------------------------------------------------------------------------------------
Fort Bend County Levee Improvement District Number 2, Gen. Oblg.,
6.625%, 2008 200 218
------------------------------------------------------------------------------------------
Galveston County Health Facilities Dev. Corp., The Devereux
Foundation, Rev., 5.00%, 2019 350 324
------------------------------------------------------------------------------------------
Georgetown Higher Education Finance Corp., Southwestern
University Proj., Rev., 6.30%, 2014 500 522
------------------------------------------------------------------------------------------
Grand Prairie Independent School District, Gen. Oblg., 5.20%,
2018 400 382
------------------------------------------------------------------------------------------
Grapevine, Gen. Oblg., 5.00%, 2015 200 189
------------------------------------------------------------------------------------------
Harlingen, Waterworks and Sewer System, Rev., 5.25%, 2013 250 246
------------------------------------------------------------------------------------------
Harris County:
Health Facilities Dev. Corp., St. Luke's Episcopal Hospital
Proj., Rev., 6.75%, 2021 120 129
Hospital District Mortgage, Rev., 7.40%, 2010 60 74
------------------------------------------------------------------------------------------
Houston Higher Education Finance Corp., University of St. Thomas
Proj., Rev., 7.25%, 2007 300 327
------------------------------------------------------------------------------------------
Katy Independent School District, Rev., 5.85%, 2020 500 511
------------------------------------------------------------------------------------------
Lockhart Correctional Facilities Financing Corp., Rev., 6.625%,
2012 200 217
------------------------------------------------------------------------------------------
Lower Colorado River Auth., Junior Lien, Rev., 5.25%, 2015 150 148
------------------------------------------------------------------------------------------
Lower Neches Valley, Industrial Dev. Corp., Mobil Oil, Rev.,
6.40%, 2030 250 264
------------------------------------------------------------------------------------------
Lubbock, Gen. Oblg., 4.00%, 2011 300 259
------------------------------------------------------------------------------------------
Matagorda County, Navigation District:
Number 1, Pollution Control Rev., Central Power and Light,
7.875%, 2016 110 115
Houston Power and Light, 7.875%, 2016 100 104
------------------------------------------------------------------------------------------
North Central Health Facilities Dev. Corp., Presbysterian
Healthcare System, Rev., 6.625%, 2011 100 107
------------------------------------------------------------------------------------------
Northwest Independent School District, Rev., zero coupon, 2010 1,200 546
------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Socorro Independent School District, Gen. Oblg., 6.625%, 2013 $ 90 $ 98
------------------------------------------------------------------------------------------
Spring Independent School District, Gen. Oblg., 6.375%, 2016 400 436
------------------------------------------------------------------------------------------
Tarrant County Health Facilities Dev. Corp., Health System, Rev.,
5.125%, 2012 500 478
------------------------------------------------------------------------------------------
Titus County Hospital District, Improvement Rev., 6.125%, 2013 500 489
------------------------------------------------------------------------------------------
Travis County Housing Finance Corp.:
Gen. Oblg., 6.75%, 2009 75 84
Residential Mortgage, Senior Rev., 7.00%, 2011 250 264
Single Family Mortgage, Rev., 6.75%, 2014 130 137
------------------------------------------------------------------------------------------
Trinity River Auth., Denton Creek Wastewater System, Rev., 6.45%,
2015 390 421
------------------------------------------------------------------------------------------
Waco Health Facilities Dev. Corp., Hillcrest Baptist Medical
Center Proj., Rev., 7.125%, 2014 90 100
------------------------------------------------------------------------------------------
West Side Calhoun County Navigation District, Union Carbide
Chemicals and Plastics Company Inc. Proj., Rev., 6.40%, 2023 275 278
=========================================================================================
TOTAL INVESTMENTS--98.9%
(COST: $13,191) 13,738
=========================================================================================
CASH AND OTHER ASSETS, LESS LIABILITIES--1.1% 152
=========================================================================================
NET ASSETS--100% $13,890
=========================================================================================
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $13,191,000 for federal income tax purposes
at February 29, 1996 aggregate gross unrealized appreciation was $588,000, the
aggregate gross unrealized depreciation was $41,000 and the net unrealized
appreciation of investments was $547,000.
See accompanying Notes to Financial Statements.
22
<PAGE> 23
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 29, 1996
(in thousands)
<TABLE>
<CAPTION>
CALIFORNIA MICHIGAN OHIO TEXAS
- ----------------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments, at value (Cost: $995,441, $3,267,
$32,976 and $13,191) $1,048,435 3,362 34,648 13,738
- ----------------------------------------------------------------------------------------------------------
Cash 37,892 292 -- 34
- ----------------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 249 -- 184 --
- ----------------------------------------------------------------------------------------------------------
Investments sold 21,455 -- 1,264 364
- ----------------------------------------------------------------------------------------------------------
Interest 16,803 58 473 172
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS 1,124,834 3,712 36,569 14,308
==========================================================================================================
- ----------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ----------------------------------------------------------------------------------------------------------
Payable for:
Cash overdraft -- -- 325 --
- ----------------------------------------------------------------------------------------------------------
Dividends 1,238 3 37 14
- ----------------------------------------------------------------------------------------------------------
Fund shares redeemed 621 -- 80 --
- ----------------------------------------------------------------------------------------------------------
Investments purchased 34,296 267 668 387
- ----------------------------------------------------------------------------------------------------------
Management fee 483 -- 16 6
- ----------------------------------------------------------------------------------------------------------
Other 364 -- 26 11
- ----------------------------------------------------------------------------------------------------------
Total liabilities 37,002 270 1,152 418
- ----------------------------------------------------------------------------------------------------------
NET ASSETS $1,087,832 3,442 35,417 13,890
==========================================================================================================
- ----------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ----------------------------------------------------------------------------------------------------------
Paid-in capital $1,031,406 3,311 33,871 13,087
- ----------------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments 3,432 36 (126) 256
- ----------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 52,994 95 1,672 547
- ----------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $1,087,832 3,442 35,417 13,890
==========================================================================================================
- ----------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- ----------------------------------------------------------------------------------------------------------
CLASS A SHARES
Net assets applicable to shares outstanding $1,072,549,000 2,111,000 28,576,000 13,327,000
- ----------------------------------------------------------------------------------------------------------
Shares outstanding, no par value 142,980,000 208,100 2,822,600 1,269,000
- ----------------------------------------------------------------------------------------------------------
Net asset value and redemption price per share
(net assets divided by shares outstanding) $7.50 10.14 10.12 10.50
- ----------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 4.71% of net asset value
or 4.50% of offering price) $7.85 10.62 10.60 10.99
==========================================================================================================
- ----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net assets applicable to shares outstanding $14,802,000 1,178,000 6,559,000 406,000
- ----------------------------------------------------------------------------------------------------------
Shares outstanding, no par value 1,971,000 116,200 647,800 39,000
- ----------------------------------------------------------------------------------------------------------
Net asset value and redemption price
(subject to contingent deferred sales charge) per
share
(net assets divided by shares outstanding) $7.51 10.14 10.13 10.49
==========================================================================================================
- ----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net assets applicable to shares outstanding $481,000 153,000 282,000 157,000
- ----------------------------------------------------------------------------------------------------------
Shares outstanding, no par value 64,100 15,090 27,840 15,000
- ----------------------------------------------------------------------------------------------------------
Net asset value and redemption price per share
(net assets divided by shares outstanding) $7.50 10.14 10.13 10.50
==========================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
23
<PAGE> 24
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended February 29, 1996
(in thousands)
<TABLE>
<CAPTION>
CALIFORNIA MICHIGAN OHIO TEXAS
- ------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $32,540 89 950 424
- ------------------------------------------------------------------------------------------------------------
Expenses:
Management fee 2,893 9 92 40
- ------------------------------------------------------------------------------------------------------------
Administrative services fee 825 4 32 13
- ------------------------------------------------------------------------------------------------------------
Distribution services fee 52 5 23 2
- ------------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related
expenses 293 2 16 7
- ------------------------------------------------------------------------------------------------------------
Professional fees 113 4 3 1
- ------------------------------------------------------------------------------------------------------------
Reports to shareholders 124 -- 3 2
- ------------------------------------------------------------------------------------------------------------
Trustees' fees and other 43 2 7 4
- ------------------------------------------------------------------------------------------------------------
Total expenses before expense waiver 4,343 26 176 69
- ------------------------------------------------------------------------------------------------------------
Less expenses waived and absorbed by investment
manager -- 7 -- --
- ------------------------------------------------------------------------------------------------------------
Total expenses after expense waiver 4,343 19 176 69
- ------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 28,197 70 774 355
============================================================================================================
- ------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments
(including options purchased) 23,019 59 355 370
- ------------------------------------------------------------------------------------------------------------
Net realized loss from futures transactions (968) -- (27) (13)
- ------------------------------------------------------------------------------------------------------------
Net realized gain 22,051 59 328 357
- ------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on investments 12,821 54 680 137
- ------------------------------------------------------------------------------------------------------------
Net gain on investments 34,872 113 1,008 494
- ------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $63,069 183 1,782 849
============================================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
24
<PAGE> 25
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
Six months ended February 29, 1996 and year ended August 31, 1995
(in thousands)
<TABLE>
<CAPTION>
CALIFORNIA MICHIGAN
----------------------- ----------------
1996 1995 1996 1995(A)
- ---------------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ 28,197 60,693 70 43
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 22,051 7,380 59 (23)
- ---------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 12,821 14,140 54 41
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 63,069 82,213 183 61
- ---------------------------------------------------------------------------------------------------------------
Distribution from net investment income (28,197) (60,693) (70) (43)
- ---------------------------------------------------------------------------------------------------------------
Distribution from net realized gain on investments (12,275) (5,442) -- --
- ---------------------------------------------------------------------------------------------------------------
Total dividends to shareholders (40,472) (66,135) (70) (43)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions (21,997) (97,295) 250 2,728
- ---------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 600 (81,217) 363 2,746
===============================================================================================================
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 1,087,232 1,168,449 3,079 333
- ---------------------------------------------------------------------------------------------------------------
END OF PERIOD $1,087,832 1,087,232 3,442 3,079
===============================================================================================================
</TABLE>
(a) For the period of March 15, 1995 (date of inception) to August 31, 1995.
<TABLE>
<CAPTION>
OHIO TEXAS
----------------------- -----------------
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ 774 1,465 355 807
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 328 (62) 357 295
- ---------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 680 957 137 208
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,782 2,360 849 1,310
- ---------------------------------------------------------------------------------------------------------------
Distribution from net investment income (774) (1,465) (355) (807)
- ---------------------------------------------------------------------------------------------------------------
Distribution from net realized gain on investments -- -- (358) (114)
- ---------------------------------------------------------------------------------------------------------------
Total dividends to shareholders (774) (1,465) (713) (921)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions 2,959 6,786 (1,123) (921)
- ---------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 3,967 7,681 (987) (532)
===============================================================================================================
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 31,450 23,769 14,877 15,409
- ---------------------------------------------------------------------------------------------------------------
END OF PERIOD $35,417 31,450 13,890 14,877
===============================================================================================================
</TABLE>
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUNDS Kemper California Tax-Free Income Fund, Kemper
Michigan Tax-Free Income Fund, Kemper Ohio Tax-Free
Income Fund and Kemper Texas 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 Florida, Kemper New Jersey,
Kemper New York and Kemper Pennsylvania 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 sales
charge but are subject to higher ongoing expenses
than Class A shares and, for shares sold on or
after April 1, 1996, a contingent deferred sales
charge payable on certain redemptions within one
year of purchase. Class C shares 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 INVESTMENT VALUATION. Investments are stated at
ACCOUNTING POLICIES 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 includes premium and original
issue discount amortization on fixed income
securities. Realized gains and losses from
investment transactions are reported on an
identified cost basis.
EXPENSES. Expenses arising in connection with a
specific Fund are allocated to that Fund. Other
Trust expenses are allocated among the Funds in
proportion to their relative net assets.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B and Class C shares will be reduced by the
amount of any applicable contingent deferred sales
charge. On each day the New York Stock Exchange is
open for trading,
26
<PAGE> 27
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.
FEDERAL INCOME TAXES. Each Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies for the six
months ended February 29, 1996. The accumulated net
realized loss on sales of investments for federal
income tax purposes at February 29, 1996, is
$60,000 in the Ohio Fund. This loss carryover is
available to offset future taxable gains in the
Ohio Fund, and, if not applied, expires during the
period 2002 through 2003.
DIVIDENDS TO SHAREHOLDERS. Each Fund declares and
records a daily dividend equal to its net
investment income for that day, to holders of
shares for which payment has been received. Income
dividends are distributed monthly. Net realized
capital gains, if any, will be distributed at least
annually. Dividends are determined in accordance
with income tax principles which may treat certain
transactions differently than generally accepted
accounting principles.
- --------------------------------------------------------------------------------
3 TRANSACTIONS MANAGEMENT AGREEMENT. The Trust has a management
WITH AFFILIATES agreement with Zurich Kemper Investments, Inc.
(ZKI) (formerly known as Kemper Financial Services,
Inc.), 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 California, Ohio and Texas Funds paid
management fees of $2,893,000, $92,000 and $40,000
respectively for the six months ended February 29,
1996.
ZKI waived the management fee of the Michigan Fund
from its inception, March 15, 1995, through
September 15, 1995. Thereafter, the management fee
is being gradually reinstated. For the six months
ended February 29, 1996, the Michigan Fund paid a
management fee of $2,000 after the waiver.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT.
The Trust has an underwriting and distribution
services agreement with Kemper Distributors, Inc.
(KDI). Underwriting commissions paid in connection
with the distribution of each Fund's Class A shares
for the six months ended February 29, 1996 are as
follows:
<TABLE>
<CAPTION>
COMMISSIONS ALLOWED BY KDI
COMMISSIONS ------------------------------
RETAINED BY KDI TO ALL FIRMS TO AFFILIATES
--------------- ------------ -------------
<S> <C> <C> <C>
California $67,000 426,000 12,000
Michigan 3,000 14,000 1,000
Ohio 5,000 34,000 --
Texas 1,000 8,000 --
</TABLE>
For services under the distribution services
agreement, each Fund pays KDI a fee of .75% of
average daily net assets of Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares of each Fund. In addition, KDI receives any
contingent
27
<PAGE> 28
deferred sales charges (CDSC) from redemptions of
Class B and Class C shares. Distribution fees and
commissions paid in connection with the sale of
each Fund's Class B and Class C shares and
the CDSC received in connection with the
redemption of Class B shares for the six months
ended February 29, 1996 are as follows:
<TABLE>
<CAPTION>
COMMISSIONS AND
DISTRIBUTION DISTRIBUTION FEES
FEES AND PAID BY KDI
CDSC RECEIVED -----------------------------
BY KDI TO ALL FIRMS TO AFFILIATES
------------- ------------ -------------
<S> <C> <C> <C>
California $81,000 160,000 13,000
Michigan 5,000 15,000 4,000
Ohio 29,000 55,000 --
Texas 2,000 -- --
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Trust has an
administrative services agreement with KDI. For
providing information and administrative services
to shareholders, each Fund pays KDI a fee at an
annual rate of up to .25% of average daily net
assets of each class. KDI in turn has various
arrangements with financial services firms that
provide these services and pays these firms based
on assets of each Fund accounts the firms service.
Administrative services fees (ASF) paid for the six
months ended February 29, 1996 are as follows:
<TABLE>
<CAPTION>
ASF ASF PAID BY KDI
PAID BY THE -----------------------------
FUND TO KDI TO ALL FIRMS TO AFFILIATES
----------- ------------ -------------
<S> <C> <C> <C>
California $ 825,000 822,000 30,000
Michigan 4,000 3,000 --
Ohio 32,000 32,000 --
Texas 13,000 13,000 --
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Funds' transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Trust. For the six months
ended February 29, 1996, the transfer agent
remitted shareholder services fees to KSvC as
follows:
<TABLE>
<CAPTION>
SHAREHOLDERS SERVICES FEES
REMITTED TO KSVC
--------------------------
<S> <C>
California $208,000
Michigan 1,000
Ohio 10,000
Texas 4,000
</TABLE>
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of ZKI.
For the six months ended February 29, 1996, the
Funds made no payments to its officers and incurred
trustees' fees aggregating $18,000 to independent
trustees.
28
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4 INVESTMENT For the six months ended February 29, 1996,
TRANSACTIONS investment transactions (excluding short-term
instruments) are as follows (in thousands):
<TABLE>
<CAPTION>
CALIFORNIA MICHIGAN OHIO TEXAS
---------- -------- ------ ------
<S> <C> <C> <C> <C>
Purchases $461,472 1,671 11,566 9,697
Proceeds from sales 516,461 1,359 9,952 10,998
</TABLE>
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following tables summarize the activity in
TRANSACTIONS capital shares of the Funds (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 1996 AUGUST 31, 1995
---------------------- ------------------------
CALIFORNIA SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
------------------------------------------------------------------------------
Class A 5,256 $ 39,546 12,188 $ 86,868
------------------------------------------------------------------------------
Class B 596 4,507 1,538 10,921
------------------------------------------------------------------------------
Class C 34 254 39 286
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
------------------------------------------------------------------------------
Class A 3,202 24,088 5,347 37,817
------------------------------------------------------------------------------
Class B 33 247 31 221
------------------------------------------------------------------------------
Class C 2 13 1 4
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES REDEEMED
------------------------------------------------------------------------------
Class A (11,848) (89,005) (32,560) (230,923)
------------------------------------------------------------------------------
Class B (206) (1,560) (339) (2,405)
------------------------------------------------------------------------------
Class C (12) (87) (11) (84)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
CONVERSION OF SHARES
------------------------------------------------------------------------------
Class A 39 301 61 418
------------------------------------------------------------------------------
Class B (39) (301) (61) (418)
------------------------------------------------------------------------------
NET DECREASE
FROM CAPITAL
SHARE TRANSACTIONS $(21,997) $ (97,295)
------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 15, 1995 TO
FEBRUARY 29, 1996 AUGUST 31, 1995
------------------- ----------------------
MICHIGAN SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
SHARES SOLD
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 66 $674 296 $2,868
------------------------------------------------------------------------------
Class B 29 292 87 845
------------------------------------------------------------------------------
Class C 2 25 44 421
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
------------------------------------------------------------------------------
Class A 3 32 3 24
------------------------------------------------------------------------------
Class B 1 14 1 4
------------------------------------------------------------------------------
Class C 1 9 1 3
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES REDEEMED
------------------------------------------------------------------------------
Class A (34) (345) (137) (1,307)
------------------------------------------------------------------------------
Class B (1) (12) (12) (120)
------------------------------------------------------------------------------
Class C (43) (439) (1) (10)
------------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL
SHARE TRANSACTIONS $250 $2,728
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 1996 AUGUST 31, 1995
------------------- ----------------------
OHIO SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
SHARES SOLD
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 259 $2,636 703 $6,633
------------------------------------------------------------------------------
Class B 145 1,466 448 4,271
------------------------------------------------------------------------------
Class C 13 130 14 133
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 42 422 87 819
------------------------------------------------------------------------------
Class B 8 73 9 85
------------------------------------------------------------------------------
Class C -- 3 1 7
------------------------------------------------------------------------------
SHARES REDEEMED
Class A (146) (1,471) (494) (4,704)
------------------------------------------------------------------------------
Class B (28) (281) (38) (379)
------------------------------------------------------------------------------
Class C (2) (19) (8) (79)
------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A -- -- 12 116
------------------------------------------------------------------------------
Class B -- -- (12) (116)
------------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL
SHARE TRANSACTIONS $2,959 $6,786
------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 1996 AUGUST 31, 1995
-------------------- ----------------------
TEXAS SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------
SHARES SOLD
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 43 $ 454 197 $1,968
-------------------------------------------------------------------------------
Class B 3 36 33 336
-------------------------------------------------------------------------------
Class C -- -- 4 42
-------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 43 462 56 562
-------------------------------------------------------------------------------
Class B 1 6 1 7
-------------------------------------------------------------------------------
Class C 1 7 1 13
-------------------------------------------------------------------------------
SHARES REDEEMED
Class A (191) (2,032) (349) (3,496)
-------------------------------------------------------------------------------
Class B -- -- (2) (27)
-------------------------------------------------------------------------------
Class C (5) (56) (31) (326)
-------------------------------------------------------------------------------
NET DECREASE FROM
CAPITAL SHARE
TRANSACTIONS $(1,123) $ (921)
-------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6 FINANCIAL FUTURES The California Fund has entered into exchange
CONTRACTS traded financial futures contracts to take
advantage of anticipated market conditions and, as
such, bears the risk that arises from owning these
contracts.
At the time the Fund enters into a futures
contract, it is required to segregate liquid assets
with its custodian. Subsequently, gain or loss is
recognized and payments are made on a daily basis
between the Fund and the broker as the market price
of the futures contract changes. At February 29,
1996 the market value of assets segregated by the
Fund was $28,388,000 for the following financial
futures contracts owned by the Fund (in thousands):
<TABLE>
<CAPTION>
EXPIRATION LOSS AT
TYPE FACE AMOUNT POSITION MONTH 02/29/96
--------------------------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Municipal Bond
Securities $27,628 Long March '96 $127
</TABLE>
31
<PAGE> 32
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------------
CLASS A
-------------------------------------------------------
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
CALIFORNIA 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $7.35 7.22 8.01 7.57 7.31
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .39 .39 .44 .46
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .23 .17 (.44) .53 .29
- --------------------------------------------------------------------------------------------------------
Total from investment operations .42 .56 (.05) .97 .75
- --------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .19 .39 .39 .44 .46
- --------------------------------------------------------------------------------------------------------
Distribution from net realized gain .08 .04 .35 .09 .03
- --------------------------------------------------------------------------------------------------------
Total dividends .27 .43 .74 .53 .49
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.50 7.35 7.22 8.01 7.57
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.85% 8.13 (.74) 13.21 10.47
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------------------
Expenses .76% .74 .74 .63 .64
- --------------------------------------------------------------------------------------------------------
Net investment income 5.13 5.53 5.30 5.68 6.11
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------ ---------------------------
CLASS B CLASS C
------------------------------------------ ---------------------------
SIX MONTHS MAY 31, SIX MONTHS
ENDED YEAR ENDED 1994 TO ENDED YEAR ENDED
FEBRUARY 29, AUGUST 31, AUGUST 31, FEBRUARY 29, AUGUST 31,
1996 1995 1994 1996 1995
- -------------------------------------------------------------------------------------- ---------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $7.35 7.22 7.23 7.34 7.22
- -------------------------------------------------------------------------------------- ---------------------------
Income from investment operations:
Net investment income .16 .33 .08 .16 .33
- -------------------------------------------------------------------------------------- ---------------------------
Net realized and unrealized gain (loss) .24 .17 (.01) .24 .16
- -------------------------------------------------------------------------------------- ---------------------------
Total from investment operations .40 .50 .07 .40 .49
- -------------------------------------------------------------------------------------- ---------------------------
Less dividends:
Distribution from net investment income .16 .33 .08 .16 .33
- -------------------------------------------------------------------------------------- ---------------------------
Distribution from net realized gain .08 .04 -- .08 .04
- -------------------------------------------------------------------------------------- ---------------------------
Total dividends .24 .37 .08 .24 .37
- -------------------------------------------------------------------------------------- ---------------------------
Net asset value, end of period $7.51 7.35 7.22 7.50 7.34
- -------------------------------------------------------------------------------------- ---------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.54% 7.17 1.05 5.54 7.08
- -------------------------------------------------------------------------------------- ---------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------- ---------------------------
Expenses 1.60% 1.60 1.60 1.60 1.56
- -------------------------------------------------------------------------------------- ---------------------------
Net investment income 4.29 4.67 4.48 4.29 4.71
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
--------------
CLASS C
--------------
MAY 31,
1994 TO
AUGUST 31,
1994
- ----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------
Net asset value, beginning of period 7.23
- ----------------------------------------------------------
Income from investment operations:
Net investment income .08
- ----------------------------------------------------------
Net realized and unrealized gain (loss) (.01)
- ----------------------------------------------------------
Total from investment operations .07
- ----------------------------------------------------------
Less dividends:
Distribution from net investment income .08
- ----------------------------------------------------------
Distribution from net realized gain --
- ----------------------------------------------------------
Total dividends .08
- ----------------------------------------------------------
Net asset value, end of period 7.22
- ----------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) .96
- ----------------------------------------------------------
- ----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------
Expenses 1.56
- ----------------------------------------------------------
Net investment income 4.76
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $1,087,832 1,087,232 1,168,449 1,331,377 1,182,891
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 86% 69 37 59 15
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 33
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------- --------------------------- ---------------------------
CLASS A CLASS B CLASS C
--------------------------- --------------------------- ---------------------------
SIX MONTHS MARCH 15, SIX MONTHS MARCH 15, SIX MONTHS MARCH 15,
ENDED 1995 TO ENDED 1995 TO ENDED 1995 TO
FEBRUARY 29, AUGUST 31, FEBRUARY 29, AUGUST 31, FEBRUARY 29, AUGUST 31,
MICHIGAN 1996 1995 1996 1995 1996 1995
- ------------------------------------------------------------------ --------------------------- ---------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------ --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.76 9.50 9.77 9.50 9.76 9.50
- ------------------------------------------------------------------ --------------------------- ---------------------------
Income from investment operations:
Net investment income .24 .22 .20 .18 .20 .18
- ------------------------------------------------------------------ --------------------------- ---------------------------
Net realized and unrealized gain .38 .26 .37 .27 .38 .26
- ------------------------------------------------------------------ --------------------------- ---------------------------
Total from investment operations .62 .48 .57 .45 .58 .44
- ------------------------------------------------------------------ --------------------------- ---------------------------
Less distribution from net investment
income .24 .22 .20 .18 .20 .18
- ------------------------------------------------------------------ --------------------------- ---------------------------
Net asset value, end of period $10.14 9.76 10.14 9.77 10.14 9.76
- ------------------------------------------------------------------ --------------------------- ---------------------------
TOTAL RETURN (NOT ANNUALIZED) 6.37% 5.00 5.88 4.72 5.97 4.63
- ------------------------------------------------------------------ --------------------------- ---------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (A)
- ------------------------------------------------------------------ --------------------------- ---------------------------
Expenses absorbed by the Fund .61% .41 1.35 1.21 1.32 1.21
- ------------------------------------------------------------------ --------------------------- ---------------------------
Net investment income 4.97 4.82 4.23 4.02 4.39 4.02
- ------------------------------------------------------------------ --------------------------- ---------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (A)
- ------------------------------------------------------------------ --------------------------- ---------------------------
Expenses 1.06% .96 1.79 1.76 1.79 1.76
- ------------------------------------------------------------------ --------------------------- ---------------------------
Net investment income 4.52 4.27 3.78 3.47 3.94 3.47
- ------------------------------------------------------------------ --------------------------- ---------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- --------------------------------------------------------------------------------------------------------------------
SIX MONTHS MARCH 15,
ENDED 1995 TO
FEBRUARY 29, AUGUST 31,
1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net assets at end of period (in thousands) $3,442 3,079
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 87% 161
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE FOR MICHIGAN FUND:
(a) ZKI agreed to waive the management fee of the Michigan Fund from its
inception, March 15, 1995, through September 15, 1995. Thereafter, the
management fee is being gradually reinstated. "Other ratios to average net
assets" are computed without the undertaking to waive the management fee.
33
<PAGE> 34
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
---------------------------------------------
CLASS A
---------------------------------------------
SIX MONTHS MARCH 22,
ENDED YEAR ENDED 1993 TO
FEBRUARY 29, AUGUST 31, AUGUST 31,
OHIO 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.81 9.56 9.98 9.50
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .24 .50 .53 .24
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .31 .25 (.41) .48
- -------------------------------------------------------------------------------------------
Total from investment operations .55 .75 .12 .72
- -------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .24 .50 .53 .24
- -------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- .01 --
- -------------------------------------------------------------------------------------------
Total dividends .24 .50 .54 .24
- -------------------------------------------------------------------------------------------
Net asset value, end of period $10.12 9.81 9.56 9.98
- -------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.63% 8.20 1.23 7.54
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (B)
- -------------------------------------------------------------------------------------------
Expenses absorbed by the Fund .87% .63 .02 --
- -------------------------------------------------------------------------------------------
Net investment income 4.78 5.27 5.44 5.21
- -------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (B)
- -------------------------------------------------------------------------------------------
Expenses .87% .83 .82 .86
- -------------------------------------------------------------------------------------------
Net investment income 4.78 5.07 4.64 4.36
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------ ------------------------------------------
CLASS B CLASS C
------------------------------------------ ------------------------------------------
SIX MONTHS YEAR MAY 31, SIX MONTHS YEAR MAY 31,
ENDED ENDED 1994 TO ENDED ENDED 1994 TO
FEBRUARY 29, AUGUST 31, AUGUST 31, FEBRUARY 29, AUGUST 31, AUGUST 31,
1996 1995 1994 1996 1995 1994
- ----------------------------------------------------------------------------------- ------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.81 9.56 9.54 9.81 9.56 9.54
- ----------------------------------------------------------------------------------- ------------------------------------------
Income from investment operations:
Net investment income .20 .44 .14 .20 .44 .14
- ----------------------------------------------------------------------------------- ------------------------------------------
Net realized and unrealized gain .32 .25 .02 .32 .25 .02
- ----------------------------------------------------------------------------------- ------------------------------------------
Total from investment operations .52 .69 .16 .52 .69 .16
- ----------------------------------------------------------------------------------- ------------------------------------------
Less distribution from net investment
income .20 .44 .14 .20 .44 .14
- ----------------------------------------------------------------------------------- ------------------------------------------
Net asset value, end of period $10.13 9.81 9.56 10.13 9.81 9.56
- ----------------------------------------------------------------------------------- ------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.30% 7.57 1.55 5.31 7.56 1.55
- ----------------------------------------------------------------------------------- ------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (B)
- ----------------------------------------------------------------------------------- ------------------------------------------
Expenses absorbed by the Fund 1.70% 1.32 .22 1.69 1.27 .21
- ----------------------------------------------------------------------------------- ------------------------------------------
Net investment income 3.95 4.58 4.72 3.96 4.63 5.04
- ----------------------------------------------------------------------------------- ------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (B)
- ----------------------------------------------------------------------------------- ------------------------------------------
Expenses 1.70% 1.75 1.72 1.69 1.69 1.67
- ----------------------------------------------------------------------------------- ------------------------------------------
Net investment income 3.95 4.15 3.22 3.96 4.21 3.58
- ----------------------------------------------------------------------------------- ------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ---------------------------------------------------------------------------------------------------
SIX MONTHS MARCH 22,
ENDED YEAR ENDED AUGUST 1993 TO
FEBRUARY 29, 31, AUGUST 31,
1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at end of period (in
thousands) $35,417 31,450 23,769 15,530
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 61% 90 103 17
- ---------------------------------------------------------------------------------------------------
</TABLE>
NOTE FOR OHIO FUND:
(b) Certain expenses of the Ohio Fund were waived or absorbed by ZKI from March
22, 1993 through June 30, 1994. Thereafter, these expenses were gradually
reinstated through June 30, 1995. "Other ratios to average net assets" are
computed without the undertaking to waive such expenses.
34
<PAGE> 35
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------------------
CLASS A
-------------------------------------------------------------
SIX MONTHS NOVEMBER 1,
ENDED 1991 TO
FEBRUARY 29, YEAR ENDED AUGUST 31, AUGUST 31,
TEXAS 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.42 10.14 10.69 9.95 9.50
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .26 .54 .56 .60 .50
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .35 .36 (.42) .74 .45
- ---------------------------------------------------------------------------------------------------------
Total from investment operations .61 .90 .14 1.34 .95
- ---------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .26 .54 .56 .60 .50
- ---------------------------------------------------------------------------------------------------------
Distribution from net realized gain .27 .08 .13 -- --
- ---------------------------------------------------------------------------------------------------------
Total dividends .53 .62 .69 .60 .50
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.50 10.42 10.14 10.69 9.95
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.88% 9.28 1.28 13.89 10.15
- ---------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (C)
- ---------------------------------------------------------------------------------------------------------
Expenses absorbed by the Fund .85% .70 .36 .08 --
- ---------------------------------------------------------------------------------------------------------
Net investment income 4.90 5.37 5.38 5.79 5.98
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (C)
- ---------------------------------------------------------------------------------------------------------
Expenses .85% .89 .90 .79 .93
- ---------------------------------------------------------------------------------------------------------
Net investment income 4.90 5.18 4.82 5.08 5.05
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------ ------------------------------------------
CLASS B CLASS C
------------------------------------------ ------------------------------------------
SIX MONTHS YEAR MAY 31, SIX MONTHS YEAR MAY 31,
ENDED ENDED 1994 TO ENDED ENDED 1994 TO
FEBRUARY 29, AUGUST 31, AUGUST 31, FEBRUARY 29, AUGUST 31, AUGUST 31,
1996 1995 1994 1996 1995 1994
- ----------------------------------------------------------------------------------- ------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.42 10.15 10.17 10.42 10.15 10.17
- ----------------------------------------------------------------------------------- ------------------------------------------
Income from investment operations:
Net investment income .21 .45 .12 .21 .46 .12
- ----------------------------------------------------------------------------------- ------------------------------------------
Net realized and unrealized gain (loss) .34 .35 (.02) .35 .35 (.02)
- ----------------------------------------------------------------------------------- ------------------------------------------
Total from investment operations .55 .80 .10 .56 .81 .10
- ----------------------------------------------------------------------------------- ------------------------------------------
Less dividends:
Distribution from net investment income .21 .45 .12 .21 .46 .12
- ----------------------------------------------------------------------------------- ------------------------------------------
Distribution from net realized gain .27 .08 -- .27 .08 --
- ----------------------------------------------------------------------------------- ------------------------------------------
Total dividends .48 .53 .12 .48 .54 .12
- ----------------------------------------------------------------------------------- ------------------------------------------
Net asset value, end of period $10.49 10.42 10.15 10.50 10.42 10.15
- ----------------------------------------------------------------------------------- ------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.32% 8.16 .92 5.42 8.27 .88
- ----------------------------------------------------------------------------------- ------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (C)
- ----------------------------------------------------------------------------------- ------------------------------------------
Expenses absorbed by the Fund 1.73% 1.54 1.24 1.69 1.50 1.23
- ----------------------------------------------------------------------------------- ------------------------------------------
Net investment income 4.02 4.53 4.44 4.06 4.57 3.96
- ----------------------------------------------------------------------------------- ------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (C)
- ----------------------------------------------------------------------------------- ------------------------------------------
Expenses 1.73% 1.73 1.78 1.69 1.69 1.77
- ----------------------------------------------------------------------------------- ------------------------------------------
Net investment income 4.02 4.34 3.90 4.06 4.38 3.42
- ----------------------------------------------------------------------------------- ------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ----------------------------------------------------------------------------------------------------------
SIX MONTHS NOVEMBER 1,
ENDED 1991 TO
FEBRUARY 29, YEAR ENDED AUGUST 31, AUGUST 31,
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in
thousands) $13,890 14,877 15,409 12,341 7,810
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 91% 75 58 47 18
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE FOR TEXAS FUND: (c) Certain expenses of the Texas Fund were waived or
absorbed by ZKI from November 1, 1991 through December 31, 1992. Thereafter,
expenses (excluding the management fee) were gradually reinstated through
October 1, 1993 and the management fee was gradually reinstated through June 30,
1995. "Other ratios to average net assets" are computed without the undertaking
to waive such expenses.
NOTES FOR ALL FUNDS: Total return does not reflect the effect of sales charges.
35
<PAGE> 36
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
STEPHEN B. TIMBERS J. PATRICK BEIMFORD, JR.
President and Trustee Vice President
DAVID W. BELIN CHRISTOPHER J. MIER
Trustee Vice President
LEWIS A. BURNHAM JOHN E. NEAL
Trustee Vice President
DONALD L. DUNAWAY JOHN E. PETERS
Trustee Vice President
ROBERT B. HOFFMAN PHILIP J. COLLORA
Trustee Vice President and
Secretary
DONALD R. JONES
Trustee CHARLES F. CUSTER
Vice President and
DOMINIQUE P. MORAX Assistant Secretary
Trustee
JEROME L. DUFFY
SHIRLEY D. PETERSON Treasurer
Trustee
ELIZABETH C. WERTH
WILLIAM P. SOMMERS Assistant Secretary
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE AGENT KEMPER SERVICE COMPANY
P.O. Box 419557
Kansas City, MO 64141
800-621-1048
- --------------------------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
127 West 10th Street
Kansas City, MO 64105
- --------------------------------------------------------------------------------
INVESTMENT MANAGER ZURICH KEMPER INVESTMENTS, INC.
120 South LaSalle Street
Chicago, IL 60603
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
120 South LaSalle Street Chicago, IL 60603
http://www.kemper.com
(RECYCLE LOGO)
Printed on recycled paper.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Tax-Free Income Funds prospectus.
KSTIS - 3 (4/96) KEMPER LOGO
1013530
Printed in the U.S.A.
