<PAGE> 1
KEMPER STATE TAX-FREE
INCOME SERIES
SEMIANNUAL REPORT TO SHAREHOLDERS
FOR THE PERIOD ENDED FEBRUARY 29, 1996
Florida Tax-Free
Income Fund
New Jersey Tax-Free
Income Fund
New York Tax-Free
Income Fund
Pennsylvania 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
Florida's
Portfolio Statistics and
Portfolio of Investments
12
New Jersey's
Portfolio Statistics and
Portfolio of Investments
15
New York's
Portfolio Statistics and
Portfolio of Investments
19
Pennsylvania's
Portfolio Statistics and
Portfolio of Investments
22
Financial Statements
25
Notes to
Financial Statements
31
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)
- --------------------------------------------------------------------------------
FLORIDA
- --------------------------------------------------------------------------------
[BAR GRAPH]
<TABLE>
<CAPTION>
LIPPER FLORIDA
TAX-FREE INCOME
FUNDS CATEGORY
CLASS A CLASS B CLASS C AVERAGE*
------------------------------------------
<S> <C> <C> <C>
5.62% 5.09% 5.13% 5.29%
------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NEW YORK
- --------------------------------------------------------------------------------
[BAR GRAPH]
<TABLE>
<CAPTION>
LIPPER NEW YORK
TAX-FREE INCOME
FUNDS CATEGORY
CLASS A CLASS B CLASS C AVERAGE*
---------------------------------------------
<S> <C> <C> <C>
5.72% 5.27% 5.18% 4.80%
---------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NEW JERSEY
- --------------------------------------------------------------------------------
[BAR GRAPH]
<TABLE>
<CAPTION>
LIPPER NEW JERSEY
TAX-FREE INCOME
FUNDS CATEGORY
CLASS A CLASS B CLASS C AVERAGE*
------------------------------------------
<S> <C> <C> <C>
5.94% 5.53% 5.42% 4.61%
------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PENNSYLVANIA
- --------------------------------------------------------------------------------
[BAR GRAPH]
<TABLE>
<CAPTION>
LIPPER PENNSYLVANIA
TAX-FREE INCOME
FUNDS CATEGORY
CLASS A CLASS B CLASS C AVERAGE*
-----------------------------------------------
<S> <C> <C> <C>
6.25% 5.94% 5.81% 4.99%
-----------------------------------------------
</TABLE>
Returns are historical and do not represent future performance. Returns and net
asset value fluctuate. Shares are redeemable at current net asset value, which
may be more or less than original cost.
- --------------------------------------------------------------------------------
NET ASSET VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FLORIDA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF AS OF
2/29/96 8/31/95
- --------------------------------------------------------------------------------------
<S> <C> <C>
KEMPER FLORIDA TAX-FREE INCOME FUND CLASS A $10.45 $10.27
- --------------------------------------------------------------------------------------
KEMPER FLORIDA TAX-FREE INCOME FUND CLASS B $10.43 $10.26
- --------------------------------------------------------------------------------------
KEMPER FLORIDA TAX-FREE INCOME FUND CLASS C $10.43 $10.26
- --------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------
NEW YORK
- --------------------------------------------------------------------------------------
AS OF AS OF
2/29/96 8/31/95
- --------------------------------------------------------------------------------------
<S> <C> <C>
KEMPER NEW YORK TAX-FREE INCOME FUND CLASS A $10.99 $10.80
- --------------------------------------------------------------------------------------
KEMPER NEW YORK TAX-FREE INCOME FUND CLASS B $10.99 $10.80
- --------------------------------------------------------------------------------------
KEMPER NEW YORK TAX-FREE INCOME FUND CLASS C $10.97 $10.79
- --------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------
NEW JERSEY
- --------------------------------------------------------------------------------------
AS OF AS OF
2/29/96 8/31/95
- --------------------------------------------------------------------------------------
<S> <C> <C>
KEMPER NEW JERSEY TAX-FREE INCOME FUND CLASS A $10.09 $9.75
- --------------------------------------------------------------------------------------
KEMPER NEW JERSEY TAX-FREE INCOME FUND CLASS B $10.11 $9.77
- --------------------------------------------------------------------------------------
KEMPER NEW JERSEY TAX-FREE INCOME FUND CLASS C $10.10 $9.77
- --------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------
PENNSYLVANIA
- --------------------------------------------------------------------------------------
AS OF AS OF
2/29/96 8/31/95
- --------------------------------------------------------------------------------------
<S> <C> <C>
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND CLASS A $10.18 $9.81
- --------------------------------------------------------------------------------------
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND CLASS B $10.18 $9.80
- --------------------------------------------------------------------------------------
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND CLASS C $10.18 $9.81
- --------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
AT A GLANCE
- ------------------------------------------------------------------------
KEMPER TAX-FREE INCOME FUND LIPPER RANKINGS
- ------------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THEIR RESPECTIVE LIPPER CATEGORIES*
- ------------------------------------------------------------------------
FLORIDA
- ------------------------------------------------------------------------
<TABLE>
<Capton>
1-YEAR
- -------------------------------
<S> <C>
CLASS A #29 OF 73 FUNDS
- -------------------------------
CLASS B #55 OF 73 FUNDS
- -------------------------------
CLASS C #54 OF 73 FUNDS
- -------------------------------
</TABLE>
- ------------------------------------------------------------------------
NEW YORK
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR
- ------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A #16 OF #7 OF #6 OF
91 FUNDS 41 FUNDS 16 FUNDS
- ------------------------------------------------------------------------
CLASS B #45 OF N/A N/A
91 FUNDS
- ------------------------------------------------------------------------
CLASS C #49 OF N/A N/A
91 FUNDS
- ------------------------------------------------------------------------
</TABLE>
*Kemper Florida Tax-Free Income Fund is compared to the Lipper Florida
Municipal Debt category. Kemper New York Tax-Free Income Fund is compared to
the Lipper New York Municipal Debt category. Lipper rankings are not available
for Kemper New Jersey and Pennsylvania Tax-Free Income Funds. 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.
- -------------------------------------------------------------
- -------------------------------------------------------------
FLORIDA
- -------------------------------------------------------------
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
- -------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $0.2620 $0.2188 $0.2216
- -------------------------------------------------------------
FEBRUARY DIVIDEND: $0.0423 $0.0362 $0.0347
- -------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 4.86% 4.16% 3.99%
- -------------------------------------------------------------
SEC YIELD+: 4.41% 3.79% 3.82%
- -------------------------------------------------------------
TAX EQUIVALENT YIELD: 7.01% 6.03% 6.07%
BASED ON A 37.1%
MARGINAL FEDERAL INCOME TAX RATE
- -------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------
NEW YORK
- -------------------------------------------------------------
A SHARES B SHARES C SHARES
- -------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $0.2806 $0.2329 $0.2354
- -------------------------------------------------------------
FEBRUARY DIVIDEND: $0.0464 $0.0387 $0.0389
- -------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE+: 5.07% 4.23% 4.26%
- -------------------------------------------------------------
SEC YIELD+: 4.36% 3.69% 3.74%
- -------------------------------------------------------------
TAX EQUIVALENT YIELD: 7.83% 6.62% 6.71%
BASED ON A MARGINAL TAX RATE OF
44.3% (COMBINED NEW YORK STATE,
NEW YORK CITY AND FEDERAL INCOME
TAX RATE)
- -------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------
NEW JERSEY
- -------------------------------------------------------------
A SHARES B SHARES C SHARES
- -------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $0.2387 $0.1995 $0.1993
- -------------------------------------------------------------
FEBRUARY DIVIDEND: $0.0368 $0.0303 $0.0305
- -------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE: 4.38% 3.60% 3.62%
- -------------------------------------------------------------
SEC YIELD:
(AFTER EXPENSE WAIVER) 4.44% 3.85% 3.86%
- -------------------------------------------------------------
SEC YIELD:
(BEFORE EXPENSE WAIVER) 4.09% 3.50% 3.51%
- -------------------------------------------------------------
TAX EQUIVALENT YIELD: 7.51% 6.51% 6.53%
BASED ON A MARGINAL TAX RATE
OF 40.9% (COMBINED NEW JERSEY
STATE AND FEDERAL INCOME TAX
RATE)
- -------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------
PENNSYLVANIA
- -------------------------------------------------------------
A SHARES B SHARES C SHARES
- -------------------------------------------------------------
<S> <C> <C> <C>
SIX-MONTHS INCOME: $0.2433 $0.2027 $0.2021
- -------------------------------------------------------------
FEBRUARY DIVIDEND: $0.0388 $0.0320 $0.0333
- -------------------------------------------------------------
ANNUALIZED
DISTRIBUTION RATE: 4.57% 3.77% 3.93%
- -------------------------------------------------------------
SEC YIELD:
(AFTER EXPENSE WAIVER) 4.50% 3.94% 3.83%
- -------------------------------------------------------------
SEC YIELD:
(BEFORE EXPENSE WAIVER) 4.15% 3.59% 3.48%
- -------------------------------------------------------------
TAX EQUIVALENT YIELD: 7.36% 6.45% 6.27%
BASED ON A MARGINAL TAX
RATE OF 38.9% (COMBINED
PENNSYLVANIA STATE AND
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 Florida income tax for individuals. Kemper
Florida Tax-Free Income Fund shares are expected to be exempt from Florida
intangibles tax but there is no assurance of exemption. A portion of income may
be subject to the alternative minimum tax for certain investors.
3
<PAGE> 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-digits.
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.
Q. WERE THERE ANY SIGNIFICANT TRENDS THAT AFFECTED INDIVIDUAL STATES WITHIN
KEMPER'S STATE TAX-FREE INCOME SERIES?
A. New supply in Florida was heavy during the period, as new issuers entered
the market. The volume of this supply
6
<PAGE> 7
PERFORMANCE UPDATE
attracted national investors to Florida's municipal market. Florida's state
revenues were in-line with budget projections, unemployment moved lower and its
tourism industry continued to prosper during the period.
In New Jersey, the last phase of a three-tier state income tax reduction
program was recently completed. The state was and continues to be focused on
attracting new business and employment through this and other various tax
relief programs. Supply in the New Jersey municipal market increased. Two
major new issuers included the New Jersey Transit Authority and the New Jersey
Education Authority. Overall, New Jersey bonds remained in relatively high
demand during the period.
New York State also attempted to attract new business and to stimulate its
economy with a series of recent tax cuts. The state continued to improve its
budget deficit through spending cuts. As a result of the cuts, New York State's
budget gap is expected to be nearly eliminated within the next year. New York
City's budget, however, has been under pressure and its deficit could climb
to $2 billion by 1997.
Pennsylvania completed the final phase of a three-year program to decrease
both corporate and personal income taxes. The reductions were made to stimulate
business growth and state revenues. At this writing, revenues were slightly
above the state's budget projections.
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 of 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 FLORIDA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
PORTFOLIO COMPOSITION ON 2/29/96 ON 8/31/95
----------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 86% 87%
----------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 12 11
----------------------------------------------------------------------------
CASH AND EQUIVALENTS 2 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 57% 56%
----------------------------------------------------------------------------
AA 15 13
----------------------------------------------------------------------------
A 8 12
----------------------------------------------------------------------------
BBB 9 11
----------------------------------------------------------------------------
NOT RATED 11 8
----------------------------------------------------------------------------
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 38 44
----------------------------------------------------------------------------
20+ YEARS 55 50
----------------------------------------------------------------------------
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>
19.8 years 19.8 years
----------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
FLORIDA TAX-FREE INCOME FUND
February 29, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVANCE Dunedin, Mease Health Care, Hospital Rev.,
REFUNDED 6.75%, to be called 11-15-01 @ 102 $ 750 $ 859
OBLIGATIONS ------------------------------------------------------------------------------------------
SECURED AS TO Halifax Hospital Medical Center, Hospital Rev.,
PRINCIPAL AND 6.75%, to be called 10-01-01 @ 102 2,000 2,279
INTEREST BY ------------------------------------------------------------------------------------------
OBLIGATIONS Jacksonville Health Facilities Auth., Memorial Medical
OF THE Center Proj., Rev., 6.75% to be called 05-01-01 @ 102 2,000 2,269
UNITED STATES ------------------------------------------------------------------------------------------
GOVERNMENT Volusia County Health Facilities Auth., Memorial Health
Systems, Hospital Facilities Rev., 8.25%,
to be called 6-01-00 @ 102 1,940 2,268
-----------------------------------------------------------------------------------------
TOTAL ADVANCE REFUNDED OBLIGATIONS--6.4% 7,675
- ----------------------------------------------------------------------------------------------------------------------
OTHER
MUNICIPAL
OBLIGATIONS
Board of Education, Public Education Capital Outlay,
5.25% to 7.25%, 2014 through 2023 5,390 5,371
------------------------------------------------------------------------------------------
Department of Natural Resources, Preservation 2000,
Rev., 6.75%, 2013 1,000 1,112
------------------------------------------------------------------------------------------
Department of Transportation, Turnpike Rev.,
5.50%, 2017 and 2021 2,915 2,884
------------------------------------------------------------------------------------------
Housing Finance Agcy., GNMA Collateralized
Home Ownership, Rev., 7.90%, 2022 1,445 1,531
------------------------------------------------------------------------------------------
Brevard County, Health Facilities Rev., 5.125%, 2019 1,300 1,225
------------------------------------------------------------------------------------------
Broward County:
North Site Proj., Resource Recovery Rev., 7.95%, 2008 885 993
School District, Gen. Oblg., 6.00%, 2007 4,000 4,286
South Broward Hospital District, Rev., 5.25%, 2021 3,385 3,250
South Site Proj., Resource Recovery Rev., 7.95%, 2008 940 1,055
------------------------------------------------------------------------------------------
Charlotte County, Utility System Rev.,
6.75%, 2013 250 283
------------------------------------------------------------------------------------------
Dade City Governmental Leasing Corp., Department of
Health and Rehabilitative Services, Rev., 9.00%, 2020 1,025 1,104
------------------------------------------------------------------------------------------
Dade County:
Housing Finance Auth., Single Family Mortgage Rev., 7.25%, 2023 370 388
Miami International Airport, Aviation Rev., 5.75%, 2015 1,900 1,922
Professional Sports Franchise Facilities, Rev.,
zero coupon, 2013 and 2014 1,455 548
Public Facilities, Jackson Memorial Hospital,
Rev., 4.875%, 2015 3,500 3,240
Seaport, Gen. Oblg. 6.50%, 2009 and 2010 1,300 1,497
------------------------------------------------------------------------------------------
Dunedin, Utility System Rev., 4.50%, 2014 1,770 1,578
------------------------------------------------------------------------------------------
Duval County Housing Finance Auth., Single Family
Mortgage Rev., 7.25%, 2019 550 583
------------------------------------------------------------------------------------------
Escambia County Housing Finance Auth., Single Family
Mortgage Rev., 6.90%, 2020 805 841
------------------------------------------------------------------------------------------
Gainesville, Utilities System Rev., 5.20% and 6.50%,
2010 and 2022 4,955 4,985
------------------------------------------------------------------------------------------
Hillsborough County:
Aviation Auth., Tampa International Airport,
Rev., 6.90%, 2011 1,250 1,373
Center Proj., Capital Improvement Program Rev., 5.00%, 2017 2,000 1,884
Housing Finance Auth., Single Family Mortgage,
Rev., 7.30%, 2022 345 362
Utility Rev., 7.00%, 2014 1,325 1,454
------------------------------------------------------------------------------------------
Jacksonville:
District Water and Sewer Rev., 5.00%, 2020 3,000 2,805
Gator Bowl Proj., Capital Improvement Rev., 5.50%, 2019 1,500 1,479
Health Facilities Auth., Hospital Rev., 5.00%, 2015 1,700 1,603
------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lake City, Utilities Rev., 5.00%, 2018 $2,000 $ 1,854
------------------------------------------------------------------------------------------
Lake County, NRG/Recovery Group Proj.,
Resource Recovery Rev., 5.95%, 2013 3,120 3,021
------------------------------------------------------------------------------------------
Manatee County:
Gen. Oblg., 4.75%, 2013 1,000 924
Meditrust Proj., First Mortgage Rev., 7.35%, 2015 1,700 1,757
------------------------------------------------------------------------------------------
Martin County, Industrial Dev. Auth., Indiantown
Cogeneration, L.P. Proj., Rev., 7.875%, 2025 2,325 2,664
------------------------------------------------------------------------------------------
Miami, Health Facilities Auth., Rev., 5.125%, 2020 1,700 1,596
------------------------------------------------------------------------------------------
Miami Beach Redevelopment Agcy., Tax Increment Rev.,
5.875%, 2022 3,150 3,023
------------------------------------------------------------------------------------------
Nassau County, GF/Amelia Island Properties, Inc.
Proj., 9.75%, 2023 995 1,108
------------------------------------------------------------------------------------------
North Miami, Johnson and Wales University Proj.,
Educational Facilities Rev.,
6.10% and 6.125%, 2013 and 2020 4,785 4,765
------------------------------------------------------------------------------------------
Orange County:
Health Facilities Auth., Hospital Rev.,
5.25% and 5.50%, 2015 and 2020 2,500 2,402
Sales Tax Rev., 5.375%, 2024 3,000 2,850
------------------------------------------------------------------------------------------
Orlando-Orange County Expressway Auth.,
Rev., 5.95% and 6.50%, 2012 and 2023 3,000 3,178
------------------------------------------------------------------------------------------
Palm Beach County:
Criminal Justice Facilities Rev., 7.20%, 2015 110 136
Solid Waste Auth., Rev., 8.75%, 2010 245 265
------------------------------------------------------------------------------------------
Pasco County:
Pollution Control Rev., 6.35%, 2022 3,290 3,546
Solid Waste Disposal and Resource Recovery System,
Rev., 7.80%, 2011 345 375
------------------------------------------------------------------------------------------
Pensacola, Health Facilities Auth., Rev., 5.25%, 2011 2,200 2,135
------------------------------------------------------------------------------------------
Pinellas County, Pollution Control Rev., 7.20%, 2014 2,000 2,165
------------------------------------------------------------------------------------------
Pinnellas Park, Public Improvement Rev., 5.00%, 2018 3,805 3,526
------------------------------------------------------------------------------------------
Reedy Creek Improvement District, 5.00%, 2019 1,405 1,316
------------------------------------------------------------------------------------------
South Miami, Health Facilities Auth., Hospital Rev.,
5.375%, 2011 1,900 1,890
------------------------------------------------------------------------------------------
St. Petersburg Health Facilities Auth., Allegheny Health System,
Rev., 6.75% and 7.00%, 2015 and 2021 1,500 1,676
------------------------------------------------------------------------------------------
Sarasota, Water and Sewer Utilities, Rev., 4.50%, 2016 2,000 1,768
------------------------------------------------------------------------------------------
Tampa:
Sports Auth., Special Purpose, Rev., 5.75%, 2020 1,825 1,925
Water and Sewer Systems, Rev., 5.125%, 2017 3,500 3,337
------------------------------------------------------------------------------------------
Puerto Rico Commonwealth:
Highway and Transportation Auth., Rev., 5.50%, 2013 1,500 1,541
Public Improvement, Gen. Oblg., 5.375%, 2022 2,000 1,961
------------------------------------------------------------------------------------------
Virgin Islands Public Finance Auth., Matching Fund Loan,
Rev., 7.25%, 2018 2,100 2,266
-----------------------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--91.1% 108,606
-----------------------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--97.5%
(COST: $111,508) 116,281
-----------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET INSTRUMENTS--2.7%
YIELD--3.55%
DUE--MARCH 1996
(COST: $3,200) $3,200 $ 3,200
-----------------------------------------------------------------------------------------
TOTAL INVESTMENTS--100.2%
(COST: $114,708) 119,481
-----------------------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(.2)% (293)
-----------------------------------------------------------------------------------------
NET ASSETS--100% $119,188
-----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $114,708,000 for federal income tax purposes
at February 29, 1996, the aggregate gross unrealized appreciation was
$5,475,000, the aggregate gross unrealized depreciation was $702,000 and the net
unrealized appreciation of investments was $4,773,000.
See accompanying Notes to Financial Statements.
11
<PAGE> 12
PORTFOLIO STATISTICS
KEMPER NEW JERSEY TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 62% 72%
- --------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 34 26
- --------------------------------------------------------------------------------
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 87% 70%
- --------------------------------------------------------------------------------
AA 4 11
- --------------------------------------------------------------------------------
A 3 13
- --------------------------------------------------------------------------------
BBB 3 3
- --------------------------------------------------------------------------------
Not Rated 3 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>
10-20 YEARS 49% 30%
- --------------------------------------------------------------------------------
20+ YEARS 51 70
- --------------------------------------------------------------------------------
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>
20.9 YEARS 22.5 YEARS
- --------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
NEW JERSEY TAX-FREE INCOME FUND
February 29, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Economic Dev. Auth.:
Market Transition Facility, Rev., 5.875%, 2011 $ 90 $ 94
Natural Gas Facilities, National Gas Company Proj., Rev., 6.25%,
2024 35 37
Pollution Control, Public Service Electric and Gas Company Proj.,
Rev., 6.40%, 2032 90 96
------------------------------------------------------------------------------------------
Educational Facilities Auth.:
Caldwell College, Rev., 7.25%, 2025 50 52
Jersey City State College, Rev., 6.125%, 2022 50 53
Rider College, Rev., 6.20%, 2017 115 122
Trenton State College, Rev., 5.75%, 2026 100 102
University of Medicine and Dentistry, Rev., 5.25%, 2017 100 97
------------------------------------------------------------------------------------------
Health Care Facilities Financing Auth.:
Atlantic City Medical Center, Rev., 6.80%, 2011 150 164
Dover General Hospital and Medical Center, Rev., 5.875%, 2012 165 172
Hackensack Medical Center, Rev., 6.625%, 2017 15 16
Jersey Shore Medical Center, Rev., 6.25%, 2016 100 107
Riverview Medical Center, Rev., 5.50%, 2018 25 25
Somerset Medical Center, Rev., 5.20%, 2024 145 137
Southern Ocean County Hospital, Rev., 6.125%, 2013 120 120
------------------------------------------------------------------------------------------
Housing and Mortgage Finance Agcy., Rev., 6.05% to 6.35%, 2020
through 2027 300 306
------------------------------------------------------------------------------------------
Port Auth. of New York and New Jersey, Rev., 5.25% and 5.875%, 2016
and 2027 120 122
------------------------------------------------------------------------------------------
Sports and Exposition Auth., Rev., 6.00%, 2013 100 105
------------------------------------------------------------------------------------------
Turnpike Auth., Rev., 6.50%, 2016 125 142
------------------------------------------------------------------------------------------
West New York and New Jersey Municipal Utilities, Rev., 5.125%, 2017 100 95
------------------------------------------------------------------------------------------
Atlantic City Board of Education, Gen. Oblg., 6.15%, 2015 150 159
------------------------------------------------------------------------------------------
Camden County:
Improvement Auth., Rev., 5.625%, 2015 140 141
Municipal Utilities Auth., Rev., 5.125%, 2017 125 120
------------------------------------------------------------------------------------------
Cape May County, Municipal Utilities Auth., Rev., 6.00%, 2011 15 16
------------------------------------------------------------------------------------------
Chatham Borough, Gen. Oblg., 5.80%, 2015 32 33
------------------------------------------------------------------------------------------
Delran Township, Gen. Oblg., 5.90%, 2017 75 78
------------------------------------------------------------------------------------------
Essex County:
Gen. Oblg., 5.50%, 2015 150 150
Improvement Auth., Rev., 7.00%, 2024 15 18
------------------------------------------------------------------------------------------
Great Meadows Regional School District, Gen. Oblg., 5.90%, 2018 150 155
------------------------------------------------------------------------------------------
Hillsborough Township, Municipal Utilities Auth., Rev., 5.375%, 2020 100 98
------------------------------------------------------------------------------------------
Jackson Township, Gen. Oblg., 6.60%, 2012 100 116
------------------------------------------------------------------------------------------
Jersey City, Gen. Oblg., 6.60%, 2011 40 44
------------------------------------------------------------------------------------------
Lacey, Municipal Utilities Auth., Rev., 5.50%, 2019 130 129
------------------------------------------------------------------------------------------
Lumberton Township, Gen. Oblg., 5.60%, 2015 85 86
------------------------------------------------------------------------------------------
Manasquan, Gen. Oblg., 5.30%, 2015 125 123
------------------------------------------------------------------------------------------
Monroe Township, Gen. Oblg., 5.20%, 2015 125 123
------------------------------------------------------------------------------------------
Montgomery Township, Gen. Oblg., 5.45%, 2019 125 123
------------------------------------------------------------------------------------------
Newark, Gen. Oblg., 5.875% and 6.00%, 2010 and 2015 105 109
------------------------------------------------------------------------------------------
North Brunswick Township, Gen. Oblg., 6.10% and 6.30%, 2010 and 2015 135 145
------------------------------------------------------------------------------------------
Passaic County, Gen. Oblg., 5.00%, 2017 45 43
------------------------------------------------------------------------------------------
Passaic Valley:
Sewerage Commissioners, Rev., 5.75%, 2015 100 102
Water Commission, Rev., 5.00%, 2022 75 70
------------------------------------------------------------------------------------------
Paulsboro Borough, Gen. Oblg., 5.80%, 2014 15 15
------------------------------------------------------------------------------------------
Pequannock, Lincoln Park and Fairfield Sewerage Auth., Rev., 5.00%,
2015 100 95
------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rutgers State University, Rev., 5.25%, 2015 $ 15 $ 15
------------------------------------------------------------------------------------------
Spotswood Borough, Gen. Oblg., 5.70%, 2015 110 112
------------------------------------------------------------------------------------------
Union Township, Gen. Oblg., 5.50%, 2021 100 99
------------------------------------------------------------------------------------------
University of Puerto Rico, Rev., 5.25%, 2025 100 96
------------------------------------------------------------------------------------------
Virgin Islands Public Finance Auth., Matching Fund Loan, Rev.,
7.25%, 2018 75 81
-----------------------------------------------------------------------------------------
TOTAL INVESTMENTS--96.0%
(COST: $4,717) 4,858
-----------------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--4.0% 201
-----------------------------------------------------------------------------------------
NET ASSETS--100% $5,059
-----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $4,717,000 for federal income tax purposes
at February 29, 1996, the aggregate gross unrealized appreciation was $146,000,
the aggregate gross unrealized depreciation was $5,000 and the net unrealized
appreciation of investments was $141,000.
See accompanying Notes to Financial Statements.
14
<PAGE> 15
PORTFOLIO STATISTICS
KEMPER NEW YORK TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION ON 2/29/96 ON 8/31/95
-----------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 77% 92%
-----------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 20 6
-----------------------------------------------------------------------------
CASH AND EQUIVALENTS 3 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 40% 53%
-----------------------------------------------------------------------------
AA 26 28
-----------------------------------------------------------------------------
A 9 9
-----------------------------------------------------------------------------
BBB 22 8
-----------------------------------------------------------------------------
NOT RATED 3 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 8% 7%
-----------------------------------------------------------------------------
10-20 YEARS 39 36
-----------------------------------------------------------------------------
20+ YEARS 53 57
-----------------------------------------------------------------------------
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>
19.8 YEARS 20.9 YEARS
-----------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
NEW YORK TAX-FREE INCOME FUND
February 29, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVANCE Battery Park City Auth., Rev., 8.625%, to be called
REFUNDED 6-1-05 @ 100 $ 10 $ 13
OBLIGATIONS ------------------------------------------------------------------------------------------
SECURED AS TO Dormitory Auth., State University Educational Facilities,
PRINCIPAL AND Rev., 7.25%, to be called 5-15-02 @ 102 155 182
INTEREST BY ------------------------------------------------------------------------------------------
OBLIGATIONS Medical Care Facilities Finance Agcy.:
OF THE Albany Medical Center Hospital Proj., Rev., 8.00%,
UNITED STATES to be called 8-15-98 @ 102 1,085 1,184
GOVERNMENT Long Beach Memorial Hospital Proj., Rev., 7.80%,
to be called 8-15-98 @ 102 4,000 4,641
Presbyterian Hospital Proj., 7.70%,
to be called 8-15-00 @ 102 1,000 1,112
------------------------------------------------------------------------------------------
Niagara Falls Bridge Commission, Toll Bridge System,
Rev., 6.30%, to be called 10-1-02 @ 102 2,450 2,769
------------------------------------------------------------------------------------------
Power Auth. Electrical, Gen. Purpose, Rev., 8.00%,
to be called 1-1-98 @ 102 5,320 5,821
------------------------------------------------------------------------------------------
Thruway Auth., Local Highway and Bridge Service Contract,
Rev., 7.25%, to be called 1-1-01 @ 102 1,890 2,160
------------------------------------------------------------------------------------------
Urban Dev. Corp., Syracuse University, Center for Science and
Technology, Rev., 7.75%, to be called 1-1-98 @ 102 200 218
-----------------------------------------------------------------------------------------
TOTAL ADVANCE REFUNDED OBLIGATIONS--5.6% 18,100
- ---------------------------------------------------------------------------------------------------------------------
OTHER
MUNICIPAL
OBLIGATIONS
Dormitory Auth.:
City University System, Rev., 5.625% to 7.00%,
2009 through 2018 11,450 11,850
Colgate University, Rev., 6.00%, 2016 and 2021 1,300 1,397
Cornell University, Rev., 7.375%, 2020 2,000 2,250
Devereux Foundation, Rev., 5.00%, 2015 1,205 1,141
Fordham University, Rev., 7.20%, 2015 790 886
Ideal Senior Living Center, Rev., 7.625%, 2028 400 436
Judicial Lease Facility, Rev., 7.375%, 2016 120 150
Leake & Watts Services, Inc., Rev., 6.00%, 2023 1,500 1,552
Menorah Campus Inc., Rev., 7.30% and 7.40%, 2016 and 2031 3,870 4,345
Mount Sinai School of Medicine, Rev., 5.15%, 2024 6,000 5,745
Special Art School Districts Program, Rev., 7.00%, 2013 1,300 1,446
State University Educational Facilities,
Rev., 5.25% to 7.50%, 2010 through 2022 18,800 19,154
St. Vincent's Hospital and Medical Center, Rev., 7.375%, 2011 2,500 2,822
------------------------------------------------------------------------------------------
Energy Research and Dev. Auth.:
Brooklyn Union Gas Company Proj., Gas Facilities Rev.,
5.50% to 7.125%, 2020 through 2021 7,025 7,042
Consolidated Edison Company of New York, Inc.,
Rev., 5.375% to 7.75%, 2022 through 2025 8,200 8,535
------------------------------------------------------------------------------------------
Environmental Facilities Corp.:
Huntington Resource Recovery Proj., Rev., 7.50%, 2012 3,745 4,185
Spring Valley Water Co., Inc., Water Facilities Rev., 5.65%,
2023 5,200 5,167
State Water Pollution Control, Revolving Fund Rev., 6.50% and
7.25%, 2010 and 2014 3,500 3,841
------------------------------------------------------------------------------------------
Housing Finance Agcy.:
Multi-Family Mortgage Rev., 6.95%, 2012 1,500 1,610
Service Contract Oblg., Rev., 7.25% and 7.30%, 2012 4,000 4,467
State University Construction, Rev., 8.00%, 2011 200 255
West-H.E.L.P. Housing, Rev., 7.55%, 2002 3,750 3,963
------------------------------------------------------------------------------------------
Local Government Assistance Corp., Rev., 5.25% to 6.00%,
2016 through 2019 14,570 14,368
------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
PORTFOLIO OF INVESTMENT
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Medical Care Facilities Finance Agcy.:
Columbian Presbyterian Hospital, Rev., 7.875%, 2007 $ 500 $ 532
Good Samaritan Hospital, Rev., 7.625%, 2023 1,000 1,071
Hospital and Nursing Home, Rev., 7.60%, 2029 2,000 2,182
Mental Health Service Facilities Improvement, Rev., 5.25% to
7.875%, 2015 through 2023 12,645 12,652
Montefiore Medical Center, Rev., 7.25%, 2024 2,000 2,164
------------------------------------------------------------------------------------------
Metropolitan Transportation Auth., Commuter Facilities,
Rev., 6.25%, 2017 2,000 2,131
------------------------------------------------------------------------------------------
Mortgage Agcy., Homeowner Mortgage, Rev., 5.25% to 8.30%,
2009 through 2022 7,655 8,009
------------------------------------------------------------------------------------------
Port Auth. of New York and New Jersey, Rev., 5.20% to 8.00%,
2013 through 2030 8,955 8,998
------------------------------------------------------------------------------------------
Power Auth., General Purpose, Rev., 5.25%, 2018 5,000 4,772
------------------------------------------------------------------------------------------
Thruway Auth., Highway and Bridge Trust Fund, 5.50%, 2015 6,000 5,961
------------------------------------------------------------------------------------------
Urban Dev. Corp.:
Center for Industrial Innovation, Proj. Rev., 5.50%, 2013 1,625 1,595
Correctional Facilities, Rev., 5.00% and 5.25%, 2014 and 2017 8,900 8,480
State Facilities, Rev., 5.60% and 5.75%, 2012 and 2015 5,760 5,721
Syracuse University, Center for Science and Technology,
Rev., 5.50%, 2015 and 2017 7,390 7,221
------------------------------------------------------------------------------------------
Babylon, Gen. Oblg., 5.875%, 2009 1,075 1,133
------------------------------------------------------------------------------------------
Battery Park City Auth., Rev., 5.00% and 5.25%, 2013 and 2017 12,735 11,809
------------------------------------------------------------------------------------------
Buffalo Municipal Water Finance Auth., Water System,
Rev., 5.00%, 2025 2,000 1,854
------------------------------------------------------------------------------------------
Dutchess County Resource Recovery Agcy., Solid Waste Mgmt.
System, Rev., 7.50%, 2009 2,000 2,218
------------------------------------------------------------------------------------------
Erie County, Gen. Oblg., 5.625%, 2020 1,000 1,002
------------------------------------------------------------------------------------------
Grand Central District Mgmt. Association, Business Improvement,
Rev., 5.125% and 5.25%, 2014 and 2022 6,440 5,958
------------------------------------------------------------------------------------------
Nassau County:
Gen. Oblg., 5.125% and 5.70%, 2013 and 2014 3,910 3,859
Sewer Districts, Rev., 5.40%, 2012 2,000 2,034
------------------------------------------------------------------------------------------
New York City:
Gen. Oblg., 5.75% to 8.00%, 1998 through 2019 14,040 13,723
Housing Dev. Corp., Multi-Unit Mortgage Rev., 7.30%, 2010 8,800 9,516
Municipal Assistance Corp., Rev., 7.625%, 2008 4,160 4,629
Municipal Water Finance Auth., Water and Sewer System Rev.,
5.875%, 2025 2,075 2,132
Transit Auth., Livingston Plaza Proj., Rev., 5.40%, 2018 8,680 8,641
------------------------------------------------------------------------------------------
Niagara County, Water Treatment Plant, Gen. Oblg.,
7.00% and 7.25%, 2011 and 2012 1,215 1,400
------------------------------------------------------------------------------------------
Niagara Falls Bridge Commission, Toll Bridge System,
Rev., 5.25%, 2015 1,215 1,192
------------------------------------------------------------------------------------------
Niagara Frontier Transportation Auth., Airport Rev., 6.125%,
2014 3,000 3,149
------------------------------------------------------------------------------------------
North Country Dev. Auth., Solid Waste Management System,
Rev., 6.75%, 2012 1,430 1,489
------------------------------------------------------------------------------------------
Suffolk County Water Auth., Water System, Rev., 7.375%, 2012 170 186
------------------------------------------------------------------------------------------
Sullivan County, Public Improvement, Rev., 4.75%, 2009 and 2010 1,770 1,720
------------------------------------------------------------------------------------------
Syracuse:
Onondaga County Airport Improvement, Gen. Oblg.,
6.00% and 6.125%, 2014 2,135 2,235
Public Improvement, Rev., 4.75%, 2014 2,230 2,045
------------------------------------------------------------------------------------------
Triborough Bridge and Tunnel Auth., Gen. Purpose
Rev., 4.75% to 6.125%, 2017 through 2021 14,125 14,215
------------------------------------------------------------------------------------------
Ulster County, Resource Recovery Agcy., Rev., 5.90% and 6.00%,
2007 and 2014 4,100 3,999
------------------------------------------------------------------------------------------
Puerto Rico Commonwealth, Gen. Oblg., 5.375%, 2022 6,150 6,031
------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Virgin Islands:
Housing Finance Auth., GNMA Collateralized Home Mortgage,
Rev., 8.10%, 2018 $ 75 $ 79
Public Finance Auth., Matching Fund Loan, Rev., 7.25%, 2018 7,100 7,663
-----------------------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--91.0% 292,007
-----------------------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--96.6%
(COST: $294,279) 310,107
-----------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS--2.5%
YIELD-3.35% TO 3.60%
DUE-MARCH, 1996
(COST: $7,900) 7,900 7,900
-----------------------------------------------------------------------------------------
TOTAL INVESTMENTS--99.1%
(COST: $302,179) 318,007
-----------------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--.9% 2,960
-----------------------------------------------------------------------------------------
NET ASSETS--100% $320,967
-----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $302,179,000 for federal income tax purposes
at February 29, 1996, the aggregate gross unrealized appreciation was
$16,745,000, the aggregate gross unrealized depreciation was $917,000 and the
net unrealized appreciation of investments was $15,828,000.
See accompanying Notes to Financial Statements.
18
<PAGE> 19
PORTFOLIO STATISTICS
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION ON 2/29/96 ON 8/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 84% 81%
- --------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 16 17
- --------------------------------------------------------------------------------
CASH AND EQUIVALENTS 0 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 81% 78%
- --------------------------------------------------------------------------------
AA 7 2
- --------------------------------------------------------------------------------
A 0 6
- --------------------------------------------------------------------------------
BBB 8 7
- --------------------------------------------------------------------------------
NOT RATED 4 7
- --------------------------------------------------------------------------------
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% 3%
- --------------------------------------------------------------------------------
10-20 YEARS 55 70
- --------------------------------------------------------------------------------
20+ YEARS 44 27
- --------------------------------------------------------------------------------
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>
20.6 years 23.7 years
- --------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
PORTFOLIO OF INVESTMENTS
PENNSYLVANIA TAX-FREE INCOME FUND
February 29, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commonwealth of Pennsylvania, Gen. Oblg., 5.00%, 2007 $125 $ 126
------------------------------------------------------------------------------------------
Convention Center Auth., Rev., 6.00% and 6.75%, 2019 105 115
------------------------------------------------------------------------------------------
Higher Educational Facilities Auth.:
Allegheny General Hospital, Rev., 7.00%, 2011 100 111
Bryn Mawr College, Rev., 6.00%, 2015 90 95
College of Pharmacy & Science, Rev., 5.40%, 2015 190 186
State System of Higher Education, Rev., 6.20%, 2019 15 16
------------------------------------------------------------------------------------------
Housing Finance Agcy., Single Family Mortgages, Rev., 5.70%, 2016 200 197
------------------------------------------------------------------------------------------
Industrial Dev. Auth., Economic Dev., Rev., 5.50% and 6.00%, 2014
and 2012 80 82
------------------------------------------------------------------------------------------
Intergovernmental Cooperation Auth., Rev., 5.75%, 2015 100 101
------------------------------------------------------------------------------------------
State Public School Building Auth., Westmoreland County Community
College Proj., Rev., 5.45%, 2011 125 126
------------------------------------------------------------------------------------------
Turnpike Commission, Rev., 6.25%, 2011 10 11
------------------------------------------------------------------------------------------
Allegheny County Higher Education Building Auth., Duquesne
University Proj., Rev., 6.50%, 2011 205 231
------------------------------------------------------------------------------------------
Bangor Area School District, Rev., 5.375%, 2015 40 39
------------------------------------------------------------------------------------------
Boyertown Area School District, Gen. Oblg., 5.25%, 2012 35 34
------------------------------------------------------------------------------------------
Cambria County, Gen., Oblg., 5.875%, 2008 15 16
------------------------------------------------------------------------------------------
Central Bucks School District, Gen. Oblg., 5.40%, 2014 20 20
------------------------------------------------------------------------------------------
Cumberland County Municipal Auth., Messiah College Proj., Rev.,
5.125%, 2015 125 119
------------------------------------------------------------------------------------------
Delaware County Auth., Villanova University, Rev., 5.80%, 2025 40 41
------------------------------------------------------------------------------------------
Delaware County Industrial Dev. Auth., Philadelphia Suburban Water,
Rev., 6.35%, 2025 100 106
------------------------------------------------------------------------------------------
Delaware River Port Auth., Rev., 5.40%, 2014 200 196
------------------------------------------------------------------------------------------
Doylestown Hospital Auth., Hospital Rev., 5.00%, 2023 50 46
------------------------------------------------------------------------------------------
Hampton Township School District, Gen. Oblg., 5.90%, 2015 40 41
------------------------------------------------------------------------------------------
Lackawanna County, Gen. Oblg., 6.00%, 2011 15 16
------------------------------------------------------------------------------------------
Lawrence County, Gen. Oblg., 5.00%, 2018 60 56
------------------------------------------------------------------------------------------
Lehigh County General Purpose Auth., Lehigh Valley Hospital, Inc.,
Rev., 5.875%, 2015 85 87
------------------------------------------------------------------------------------------
Lehigh County Industrial Dev. Auth., Pennsylvania Power & Light
Company Proj., Rev., 6.15% and 6.40%, 2029 215 231
------------------------------------------------------------------------------------------
Lehigh-Northampton Airport Auth., International Airport, Rev.,
5.60%, 2023 100 97
------------------------------------------------------------------------------------------
Lower Providence Township:
Gen. Oblg., 6.00%, 2024 20 21
Sewer Auth., Rev., 5.25%, 2014 150 146
------------------------------------------------------------------------------------------
McKean County Hospital Auth., Bradford Hospital Proj., Rev., 5.375%
and 5.95%, 2003 and 2008 125 123
------------------------------------------------------------------------------------------
Monroeville Hospital Auth., Forbes Health System, Rev., 6.25%, 2015 100 100
------------------------------------------------------------------------------------------
North Fayette County Municipal Auth., Water Rev., zero coupon, 2013 100 37
------------------------------------------------------------------------------------------
Northampton County Industrial Dev. Auth., Metropolitan Edison
Company Proj., Rev., 6.10%, 2021 90 95
------------------------------------------------------------------------------------------
Philadelphia:
Airport System, Rev., 6.10%, 2025 85 88
Gas Works Rev., 6.375%, 2014 90 93
Gen. Oblg., 5.00%, 2020 100 93
Municipal Auth., Rev., 5.625%, 2014 120 120
School District, Gen. Oblg., 6.25%, 2009 100 112
Water and Wastewater Rev., 6.25% and 5.60%, 2012 and 2018 250 253
------------------------------------------------------------------------------------------
Pittsburgh Water and Sewer Auth., Rev., 5.60%, 2022 255 254
------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Punxsutawney Area School District, Gen. Oblg., 5.90%, 2020 $ 50 $ 51
------------------------------------------------------------------------------------------
Schuylkill County Industrial Dev. Auth., Schuylkill Energy Resources
Inc. Proj., Rev., 6.50%, 2010 100 102
------------------------------------------------------------------------------------------
Sewickley Valley Hospital Auth., Sewickley Valley Hospital Proj.,
Rev., 5.75%, 2016 55 55
------------------------------------------------------------------------------------------
Southeastern Pennsylvania Transportation Auth., Rev., 6.00%, 2015 30 31
------------------------------------------------------------------------------------------
Township of Radnor, Gen. Oblg., 5.25%, 2016 100 97
------------------------------------------------------------------------------------------
Upper Merion Area School District, Gen. Oblg., 5.50%, 2016 20 20
------------------------------------------------------------------------------------------
West Chester Area Municipal Auth., Rev., 5.45%, 2012 20 20
------------------------------------------------------------------------------------------
Westmoreland County Industrial Dev. Auth., Westmoreland Health
System Proj., Rev., 6.00%, 2011 15 16
------------------------------------------------------------------------------------------
York County Industrial Dev. Auth., Public Service Electric and Gas
Company Peach Bottom Proj., Rev., 6.45%, 2019 20 22
------------------------------------------------------------------------------------------
Puerto Rico:
Gen. Oblg., 5.50%, 2009 15 16
Housing and Finance Agcy., Single Family Mortgage, Rev., 6.25%,
2029 35 36
------------------------------------------------------------------------------------------
Virgin Islands Public Finance Auth., Rev., 7.25%, 2018 100 108
-----------------------------------------------------------------------------------------
TOTAL INVESTMENTS--100.1%
(COST: $4,561) 4,651
-----------------------------------------------------------------------------------------
LIABILITIES, LESS CASH AND OTHER ASSETS--(.1)% (4)
-----------------------------------------------------------------------------------------
NET ASSETS--100% $4,647
-----------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
Based on the cost of investments of $4,561,000 for federal income tax purposes
at February 29, 1996, the aggregate gross unrealized appreciation was $107,000,
the aggregate gross unrealized depreciation was $17,000 and the net unrealized
appreciation of investments was $90,000.
See accompanying Notes to Financial Statements.
21
<PAGE> 22
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 29, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
FLORIDA NEW JERSEY NEW YORK PENNSYLVANIA
- -----------------------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments, at value (Cost: $114,708, $4,717,
$302,179 and $4,561, respectively) $119,481 4,858 318,007 4,651
- -----------------------------------------------------------------------------------------------------------
Cash 1,464 172 229 121
- -----------------------------------------------------------------------------------------------------------
Receivable for:
Fund shares sold 1 2 22 22
- -----------------------------------------------------------------------------------------------------------
Investments sold 1,943 373 4,965 631
- -----------------------------------------------------------------------------------------------------------
Interest 1,780 70 4,376 69
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS 124,669 5,475 327,599 5,494
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
Payable for:
Dividends 122 4 343 5
- -----------------------------------------------------------------------------------------------------------
Fund shares redeemed 56 -- 177 --
- -----------------------------------------------------------------------------------------------------------
Investments purchased 5,182 411 5,790 839
- -----------------------------------------------------------------------------------------------------------
Management fee 56 1 147 1
- -----------------------------------------------------------------------------------------------------------
Other 65 -- 175 2
- -----------------------------------------------------------------------------------------------------------
Total liabilities 5,481 416 6,632 847
- -----------------------------------------------------------------------------------------------------------
NET ASSETS $119,188 5,059 320,967 4,647
- -----------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
Paid-in capital $112,449 4,873 302,537 4,537
- -----------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 1,966 45 2,602 20
- -----------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 4,773 141 15,828 90
- -----------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $119,188 5,059 320,967 4,647
- -----------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
CLASS A SHARES
Net assets applicable to shares outstanding $115,921,000 2,593,000 314,516,000 2,377,000
- -----------------------------------------------------------------------------------------------------------
Shares outstanding, no par value 11,097,000 257,000 28,626,000 233,400
- -----------------------------------------------------------------------------------------------------------
Net asset value and redemption price per
share
(net assets / shares outstanding) $10.45 10.09 10.99 10.18
- -----------------------------------------------------------------------------------------------------------
Maximum offering price per share
(net asset value, plus 4.71% of net asset
value or 4.50% of offering price) $10.94 10.58 11.51 10.66
- -----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net assets applicable to shares outstanding $3,168,000 2,332,000 5,691,000 1,665,000
- -----------------------------------------------------------------------------------------------------------
Shares outstanding, no par value 303,800 230,700 518,000 163,600
- -----------------------------------------------------------------------------------------------------------
Net asset value and redemption price
(subject to contingent deferred sales charge)
per share (net assets / shares outstanding) $10.43 10.11 10.99 10.18
- -----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net assets applicable to shares outstanding $99,000 134,000 760,000 605,000
- -----------------------------------------------------------------------------------------------------------
Shares outstanding, no par value 9,490 13,270 69,280 59,430
- -----------------------------------------------------------------------------------------------------------
Net asset value and redemption price per
share
(net assets / shares outstanding) $10.43 10.10 10.97 10.18
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
22
<PAGE> 23
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended February 29, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
FLORIDA NEW JERSEY NEW YORK PENNSYLVANIA
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 3,502 128 9,533 93
- -------------------------------------------------------------------------------------------------------------
Expenses:
Management fee 332 12 879 9
- -------------------------------------------------------------------------------------------------------------
Administrative services fee 98 6 252 4
- -------------------------------------------------------------------------------------------------------------
Distribution services fee 11 8 20 7
- -------------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related
expenses 39 3 109 2
- -------------------------------------------------------------------------------------------------------------
Professional fees 11 6 33 3
- -------------------------------------------------------------------------------------------------------------
Reports to shareholders 11 1 26 --
- -------------------------------------------------------------------------------------------------------------
Trustees' fees and other 6 2 19 2
- -------------------------------------------------------------------------------------------------------------
Total expenses before expense waiver 508 38 1,338 27
- -------------------------------------------------------------------------------------------------------------
Less expenses waived and absorbed by investment
manager -- 10 -- 8
- -------------------------------------------------------------------------------------------------------------
Total expenses after expense waiver 508 28 1,338 19
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,994 100 8,195 74
- -------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments
(including options purchased) 3,029 56 7,021 23
- -------------------------------------------------------------------------------------------------------------
Net realized loss from futures transactions (91) -- (267) --
- -------------------------------------------------------------------------------------------------------------
Net realized gain 2,938 56 6,754 23
- -------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation on
investments 581 87 3,073 57
- -------------------------------------------------------------------------------------------------------------
Net gain on investments 3,519 143 9,827 80
- -------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 6,513 243 18,022 154
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
23
<PAGE> 24
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
Six months ended February 29, 1996 and year ended August 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
FLORIDA NEW JERSEY
--------------------- ------------------
1996 1995 1996 1995(a)
- ----------------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ 2,994 6,362 100 69
- ----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 2,938 1,143 56 (11)
- ----------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 581 2,452 87 54
- ----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,513 9,957 243 112
- ----------------------------------------------------------------------------------------------------------------
Distribution from net investment income (2,994) (6,362) (100) (69)
- ----------------------------------------------------------------------------------------------------------------
Distribution from net realized gain on investments (1,557) (1,659) -- --
- ----------------------------------------------------------------------------------------------------------------
Total dividends to shareholders (4,551) (8,021) (100) (69)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions (66) (9,365) 607 3,933
- ----------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,896 (7,429) 750 3,976
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period 117,292 124,721 4,309 333
- ----------------------------------------------------------------------------------------------------------------
END OF PERIOD $119,188 117,292 5,059 4,309
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
NEW YORK PENNSYLVANIA
--------------------- ------------------
1996 1995 1996 1995(a)
- ----------------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ 8,195 17,467 74 30
- ----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 6,754 3,780 23 (3)
- ----------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation 3,073 1,061 57 33
- ----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 18,022 22,308 154 60
- ----------------------------------------------------------------------------------------------------------------
Distribution from net investment income (8,195) (17,467) (74) (30)
- ----------------------------------------------------------------------------------------------------------------
Distribution from net realized gain on investments (4,194) (3,769) -- --
- ----------------------------------------------------------------------------------------------------------------
Total dividends to shareholders (12,389) (21,236) (74) (30)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share transactions (4,143) (24,434) 2,449 1,755
- ----------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,490 (23,362) 2,529 1,785
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
Beginning of period 319,477 342,839 2,118 333
- ----------------------------------------------------------------------------------------------------------------
END OF PERIOD $320,967 319,477 4,647 2,118
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period of March 15, 1995 (date of inception) to August 31, 1995.
24
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE FUNDS Kemper Florida Tax-Free Income Fund, Kemper New
Jersey Tax-Free Income Fund, Kemper New York
Tax-Free Income Fund and Kemper Pennsylvania
Tax-Free Income Fund (collectively the Funds) are
four of eight investment portfolios comprising the
Kemper State Tax-Free Income Series (the Trust).
The remaining portfolios are Kemper California,
Kemper Michigan, Kemper Ohio and Kemper Texas
Tax-Free Income Funds. The Trust is an open-end
management investment company organized as a
business trust under the laws of Massachusetts.
Each Fund offers three classes of shares. Class A
shares are sold to investors subject to an initial
sales charge. Class B shares are sold without an
initial sales charge but are subject to higher
ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are sold without an initial 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 upon 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
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
for trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the close of the Exchange. The net asset
value per share is determined separately for each
class by dividing the Fund's net assets
attributable to that class by the number of
shares of the class outstanding.
FEDERAL INCOME TAXES. Each Fund has complied with
the special provisions of the Internal Revenue Code
available to investment companies during the six
months ended February 29, 1996.
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 to .40% of
average daily net assets in excess of $12.5
billion.
The Florida and New York Funds paid a management
fee of $332,000, and $879,000, respectively, for
the six months ended February 29, 1996.
ZKI waived the management fees of the New Jersey
Fund and the Pennsylvania Fund from their
inception, March 15, 1995, through September 15,
1995. Thereafter, the management fees are being
gradually reinstated. For the six months ended
February 29, 1996, the New Jersey Fund and the
Pennsylvania Fund paid management fees of $2,000
and $1,000, respectively, 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>
Florida $ 9,000 40,000 --
New Jersey -- 9,000 --
New York 21,000 118,000 6,000
Pennsylvania 1,000 7,000 --
</TABLE>
For services under the distribution services
agreement, each Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares of each Fund. In addition, KDI receives any
contingent deferred sales charges (CDSC) from
redemptions of Class B and Class C shares.
Distribution fees and commissions paid in
connection with the
26
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
sale of each Fund's Class B and Class C shares and
the CDSC received in connection with the
redemption of each Fund's Class B shares for the
six months ended February 29, 1996 are as follows:
<TABLE>
<CAPTION>
DISTRIBUTION COMMISSIONS AND DISTRIBUTION
FEES AND FEES PAID BY KDI
CDSC RECEIVED -----------------------------
BY KDI TO ALL FIRMS TO AFFILIATES
------------- ------------ -------------
<S> <C> <C> <C>
Florida $12,000 22,000 --
New Jersey 15,000 24,000 --
New York 23,000 80,000 42,000
Pennsylvania 7,000 18,000 4,000
</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 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>
Florida $ 98,000 98,000 4,000
New Jersey 6,000 5,000 --
New York 252,000 253,000 7,000
Pennsylvania 4,000 4,000 --
</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>
SHAREHOLDER SERVICES FEES
REMITTED TO KSVC
-------------------------
<S> <C>
Florida $26,000
New Jersey 1,000
New York 82,000
Pennsylvania 1,000
</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 $8,000 to independent
trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT For the six months ended February 29, 1996,
TRANSACTIONS investment transactions (excluding short-term
instruments) are as follows (in thousands):
<TABLE>
<CAPTION>
FLORIDA NEW JERSEY NEW YORK PENNSYLVANIA
------- ---------- -------- ------------
<S> <C> <C> <C> <C>
Purchases $59,990 2,695 179,214 4,576
Proceeds from sales 62,277 2,218 193,507 2,075
</TABLE>
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following tables summarize the activity in
TRANSACTIONS capital shares of the Funds (in thousands):
<TABLE>
<CAPTION>
FLORIDA SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 1996 AUGUST 31, 1995
-------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 552 $ 5,857 1,835 $ 17,931
-----------------------------------------------------------------------------
Class B 290 3,073 219 2,167
-----------------------------------------------------------------------------
Class C 15 153 2 22
-----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 241 2,531 455 4,487
-----------------------------------------------------------------------------
Class B 5 49 5 45
-----------------------------------------------------------------------------
Class C 1 2 -- --
-----------------------------------------------------------------------------
SHARES REDEEMED
Class A (922) (9,730) (3,318) (32,857)
----------------------------------------------------------------------------
Class B (181) (1,908) (115) (1,160)
-----------------------------------------------------------------------------
Class C (9) (93) -- --
-----------------------------------------------------------------------------
CONVERSION OF SHARES
Class A -- -- 6 64
-----------------------------------------------------------------------------
Class B -- -- (6) (64)
-----------------------------------------------------------------------------
NET DECREASE
FROM CAPITAL
SHARE TRANSACTIONS $ (66) $ (9,365)
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NEW JERSEY SIX MONTHS ENDED MARCH 15, 1995 TO
FEBRUARY 29, 1996 AUGUST 31, 1995
------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 46 $ 468 254 $ 2,458
------------------------------------------------------------------------------
Class B 63 644 174 1,685
------------------------------------------------------------------------------
Class C -- -- 2 16
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 3 24 2 16
------------------------------------------------------------------------------
Class B 3 26 2 17
------------------------------------------------------------------------------
Class C -- 3 1 2
------------------------------------------------------------------------------
SHARES REDEEMED
Class A (34) (340) (25) (246)
------------------------------------------------------------------------------
Class B (21) (212) (1) (15)
------------------------------------------------------------------------------
Class C (1) (6) -- --
------------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL
SHARE TRANSACTIONS $ 607 $ 3,933
------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NEW YORK SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 1996 AUGUST 31, 1995
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 589 $ 6,514 1,686 $ 17,802
-----------------------------------------------------------------------------
Class B 193 2,131 278 2,974
-----------------------------------------------------------------------------
Class C 38 429 38 410
-----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 744 8,207 1,340 13,940
-----------------------------------------------------------------------------
Class B 10 115 9 92
-----------------------------------------------------------------------------
Class C 2 21 1 6
-----------------------------------------------------------------------------
SHARES REDEEMED
Class A (1,919) (21,211) (5,633) (58,773)
-----------------------------------------------------------------------------
Class B (18) (197) (80) (851)
-----------------------------------------------------------------------------
Class C (14) (152) (3) (34)
-----------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 4 43 15 164
-----------------------------------------------------------------------------
Class B (4) (43) (15) (164)
-----------------------------------------------------------------------------
NET DECREASE
FROM CAPITAL
SHARE TRANSACTIONS $ (4,143) $(24,434)
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA SIX MONTHS ENDED MARCH 15, 1995 TO
FEBRUARY 29, 1996 AUGUST 31, 1995
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 133 $ 1,367 94 $ 918
-----------------------------------------------------------------------------
Class B 63 645 94 916
-----------------------------------------------------------------------------
Class C 46 469 1 15
-----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 2 23 1 9
-----------------------------------------------------------------------------
Class B 2 16 1 9
-----------------------------------------------------------------------------
Class C 1 8 -- --
-----------------------------------------------------------------------------
SHARES REDEEMED
Class A (2) (21) (7) (75)
-----------------------------------------------------------------------------
Class B (4) (44) (4) (37)
-----------------------------------------------------------------------------
Class C (1) (14) -- --
-----------------------------------------------------------------------------
NET INCREASE
FROM CAPITAL
SHARE TRANSACTIONS $ 2,449 $ 1,755
-----------------------------------------------------------------------------
</TABLE>
29
<PAGE> 30
- --------------------------------------------------------------------------------
6 FINANCIAL FUTURES The New York Fund has entered into exchange traded
CONTRACTS 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 $6,153,000 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 $ 5,928 Long March '96 $ 26
</TABLE>
30
<PAGE> 31
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
FLORIDA 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.27 10.11 10.98 10.22 9.69
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .26 .53 .52 .58 .64
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .32 .30 (.52) .81 .53
- -----------------------------------------------------------------------------------------------------
Total from investment operations .58 .83 -- 1.39 1.17
- -----------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .26 .53 .52 .58 .64
- -----------------------------------------------------------------------------------------------------
Distribution from net realized gain .14 .14 .35 .05 --
- -----------------------------------------------------------------------------------------------------
Total dividends .40 .67 .87 .63 .64
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $10.45 10.27 10.11 10.98 10.22
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.62% 8.62 (.11) 13.96 12.51
- -----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)(A)
- -----------------------------------------------------------------------------------------------------
Expenses .81% .80 .79 .63 .25
- -----------------------------------------------------------------------------------------------------
Net investment income 4.97 5.30 5.04 5.48 6.25
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------ ------------------------------------------
SIX MONTHS MAY 31, SIX MONTHS MAY 31,
ENDED YEAR ENDED 1994 TO ENDED YEAR ENDED 1994 TO
FEBRUARY 29, AUGUST 31, AUGUST 31, FEBRUARY 29, AUGUST 31, AUGUST 31,
1996 1995 1994 1996 1995 1994
- ----------------------------------------------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------- ------------------------------------------
Net asset value, beginning of period $10.26 10.10 10.13 10.26 10.10 10.13
- ----------------------------------------------------------------------------------- ------------------------------------------
Income from investment operations:
Net investment income .22 .44 .11 .22 .45 .11
- ----------------------------------------------------------------------------------- ------------------------------------------
Net realized and unrealized gain (loss) .31 .30 (.03) .31 .30 (.03)
- ----------------------------------------------------------------------------------- ------------------------------------------
Total from investment operations .53 .74 .08 .53 .75 .08
- ----------------------------------------------------------------------------------- ------------------------------------------
Less dividends:
Distribution from net investment income .22 .44 .11 .22 .45 .11
- ----------------------------------------------------------------------------------- ------------------------------------------
Distribution from net realized gain .14 .14 -- .14 .14 --
- ----------------------------------------------------------------------------------- ------------------------------------------
Total dividends .36 .58 .11 .36 .59 .11
- ----------------------------------------------------------------------------------- ------------------------------------------
Net asset value, end of period $10.43 10.26 10.10 10.43 10.26 10.10
- ----------------------------------------------------------------------------------- ------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.09% 7.67 .74 5.13 7.84 .75
- ----------------------------------------------------------------------------------- ------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------- ------------------------------------------
Expenses 1.62% 1.65 1.70 1.59 1.52 1.54
- ----------------------------------------------------------------------------------- ------------------------------------------
Net investment income 4.16 4.45 4.28 4.19 4.58 4.52
- ----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
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) $ 119,188 117,292 124,721 129,702 109,276
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 103% 96 53 35 20
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE FOR FLORIDA FUND:
(a) Certain expenses of the Florida Fund were waived or absorbed by ZKI during
each of the two periods shown ending August 31, 1993. If no waiver had been in
place during this time, the expense ratios would have increased .42% and .01% of
average net assets, respectively, with a corresponding decrease in the net
investment income ratios during these periods.
31
<PAGE> 32
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------------------------- -------------------------- ------------
SIX MONTHS MARCH 15, SIX MONTHS MARCH 15, SIX MONTHS
ENDED 1995 TO ENDED 1995 TO ENDED
FEBRUARY 29, AUGUST 31, FEBRUARY 29, AUGUST 31, FEBRUARY 29,
NEW JERSEY 1996 1995 1996 1995 1996
- ----------------------------------------------------------------------- -------------------------- ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------ --------------------------- ------------
Net asset value, beginning of period $9.75 9.50 9.77 9.50 9.77
- ------------------------------------------------------------------------ --------------------------- ------------
Income from investment operations:
Net investment income .24 .22 .20 .18 .20
- ------------------------------------------------------------------------ --------------------------- ------------
Net realized and unrealized gain .34 .25 .34 .27 .33
- ------------------------------------------------------------------------ --------------------------- ------------
Total from investment operations .58 .47 .54 .45 .53
- ------------------------------------------------------------------------ --------------------------- ------------
Less distribution from net investment income .24 .22 .20 .18 .20
- ------------------------------------------------------------------------ --------------------------- ------------
Net asset value, end of period $10.09 9.75 10.11 9.77 10.10
- ------------------------------------------------------------------------ --------------------------- ------------
TOTAL RETURN (NOT ANNUALIZED) 5.94% 4.89 5.53 4.69 5.42
- ------------------------------------------------------------------------ --------------------------- ------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)(B)
- ------------------------------------------------------------------------ --------------------------- ------------
Expenses absorbed by the Fund .56% .39 1.35 1.18 1.32
- ------------------------------------------------------------------------ --------------------------- ------------
Net investment income 4.99 4.99 4.20 4.20 4.23
- ------------------------------------------------------------------------ --------------------------- ------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)(B)
- ------------------------------------------------------------------------ --------------------------- ------------
Expenses 1.01% .94 1.80 1.73 1.77
- ------------------------------------------------------------------------ --------------------------- ------------
Net investment income 4.54 4.44 3.75 3.65 3.78
- ------------------------------------------------------------------------ --------------------------- ------------
<CAPTION>
CLASS C
----------
MARCH 15,
1995 TO
AUGUST 31,
NEW JERSEY 1995
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period 9.50
- ---------------------------------------------------------
Income from investment operations:
Net investment income .18
- ---------------------------------------------------------
Net realized and unrealized gain .27
- ---------------------------------------------------------
Total from investment operations .45
- ---------------------------------------------------------
Less distribution from net investment income .18
- ---------------------------------------------------------
Net asset value, end of period 9.77
- ---------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 4.75
- ---------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)(B)
Expenses absorbed by the Fund 1.18
- ---------------------------------------------------------
Net investment income 4.20
- ---------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZ
Expenses 1.73
- ---------------------------------------------------------
Net investment income 3.65
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS MARCH 15,
ENDED 1995 TO
FEBRUARY 29, AUGUST 31,
SUPPLEMENTAL DATA FOR ALL CLASSES 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $5,059 4,309
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 98% 68
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE FOR NEW JERSEY FUND:
(b) ZKI agreed to waive the management fee of the New Jersey 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.
32
<PAGE> 33
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
NEW YORK 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of year $10.80 10.73 11.59 10.97 10.41
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .28 .58 .58 .63 .65
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .33 .20 (.60) .72 .56
- ---------------------------------------------------------------------------------------------
Total from investment operations .61 .78 (.02) 1.35 1.21
- ---------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .28 .58 .58 .63 .65
- ---------------------------------------------------------------------------------------------
Distribution from net realized gain .14 .13 .26 .10 --
- ---------------------------------------------------------------------------------------------
Total dividends .42 .71 .84 .73 .65
- ---------------------------------------------------------------------------------------------
Net asset value, end of year $10.99 10.80 10.73 11.59 10.97
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.72% 7.62 (.19) 12.82 12.07
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ---------------------------------------------------------------------------------------------
Expenses .81% .81 .76 .67 .66
- ---------------------------------------------------------------------------------------------
Net investment income 5.07 5.47 5.29 5.69 6.12
- ---------------------------------------------------------------------------------------------
</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
- ----------------------------------------------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------- ------------------------------------------
Net asset value, beginning of period $10.80 10.73 10.77 10.79 10.73 10.77
- ----------------------------------------------------------------------------------- ------------------------------------------
Income from investment operations:
Net investment income .23 .48 .12 .24 .48 .12
- ----------------------------------------------------------------------------------- ------------------------------------------
Net realized and unrealized gain (loss) .33 .20 (.04) .32 .19 (.04)
- ----------------------------------------------------------------------------------- ------------------------------------------
Total from investment operations .56 .68 .08 .56 .67 .08
- ----------------------------------------------------------------------------------- ------------------------------------------
Less dividends:
Distribution from net investment income .23 .48 .12 .24 .48 .12
- ----------------------------------------------------------------------------------- ------------------------------------------
Distribution from net realized gain .14 .13 -- .14 .13 --
- ----------------------------------------------------------------------------------- ------------------------------------------
Total dividends .37 .61 .12 .38 .61 .12
- ----------------------------------------------------------------------------------- ------------------------------------------
Net asset value, end of period $10.99 10.80 10.73 10.97 10.79 10.73
- ----------------------------------------------------------------------------------- ------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.27% 6.69 .75 5.18 6.64 .70
- ----------------------------------------------------------------------------------- ------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------- ------------------------------------------
Expenses 1.66% 1.67 1.68 1.62 1.62 1.63
- ----------------------------------------------------------------------------------- ------------------------------------------
Net investment income 4.22 4.61 4.36 4.26 4.66 4.68
- ----------------------------------------------------------------------------------- ------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
SUPPLEMENTAL FUND DATA
- --------------------------------------------------------------------------------------------------------
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 year (in thousands) $320,967 319,477 342,839 354,461 290,464
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 111% 112 43 36 16
- --------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 34
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------------- --------------------------- ------------
SIX MONTHS MARCH 15, SIX MONTHS MARCH 15, SIX MONTHS
ENDED 1995 TO ENDED 1995 TO ENDED
FEBRUARY 29, AUGUST 31, FEBRUARY 29, AUGUST 31, FEBRUARY 29,
PENNSYLVANIA 1996 1995 1996 1995 1996
- ------------------------------------------------------------------------- --------------------------- ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------- --------------------------- ------------
Net asset value, beginning of period $9.81 9.50 9.80 9.50 9.81
- ------------------------------------------------------------------------- --------------------------- ------------
Income from investment operations:
Net investment income .24 .22 .20 .18 .20
- ------------------------------------------------------------------------- --------------------------- ------------
Net realized and unrealized gain .37 .31 .38 .30 .37
- ------------------------------------------------------------------------- --------------------------- ------------
Total from investment operations .61 .53 .58 .48 .57
- ------------------------------------------------------------------------- --------------------------- ------------
Less distribution from net investment income .24 .22 .20 .18 .20
- ------------------------------------------------------------------------- --------------------------- ------------
Net asset value, end of period $10.18 9.81 10.18 9.80 10.18
- ------------------------------------------------------------------------- --------------------------- ------------
TOTAL RETURN (NOT ANNUALIZED) 6.25% 5.54 5.94 5.05 5.81
- ------------------------------------------------------------------------- --------------------------- ------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)(C)
- ------------------------------------------------------------------------- --------------------------- ------------
Expenses absorbed by the Fund .56% .46 1.31 1.24 1.42
- ------------------------------------------------------------------------- --------------------------- ------------
Net investment income 4.83 4.93 4.08 4.15 3.97
- ------------------------------------------------------------------------- --------------------------- ------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)(C)
- ------------------------------------------------------------------------- --------------------------- ------------
Expenses 1.02% 1.01 1.77 1.79 1.88
- ------------------------------------------------------------------------- --------------------------- ------------
Net investment income 4.37 4.38 3.62 3.60 3.51
- ------------------------------------------------------------------------- --------------------------- ------------
<CAPTION>
MARCH 15,
1995 TO
AUGUST 31,
PENNSYLVANIA 1995
- ----------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------
Net asset value, beginning of period 9.50
- ----------------------------------------------------------
Income from investment operations:
Net investment income .19
- ----------------------------------------------------------
Net realized and unrealized gain .31
- ----------------------------------------------------------
Total from investment operations .50
- ----------------------------------------------------------
Less distribution from net investment income .19
- ----------------------------------------------------------
Net asset value, end of period 9.81
- ----------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 5.18
- ----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (C)
- ----------------------------------------------------------
Expenses absorbed by the Fund 1.21
- ----------------------------------------------------------
Net investment income 4.18
- ----------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (ANNUALIZED) (C)
- ----------------------------------------------------------
Expenses 1.76
- ----------------------------------------------------------
Net investment income 3.63
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS MARCH 15,
ENDED 1995 TO
FEBRUARY 29, AUGUST 31,
SUPPLEMENTAL DATA FOR ALL CLASSES 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $4,647 2,118
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 122% 85
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE FOR PENNSYLVANIA FUND:
(c) ZKI agreed to waive the management fee of the Pennsylvania 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.
NOTE FOR ALL FUNDS:
Total return does not reflect the effect of sales charges.
34
<PAGE> 35
NOTES
35
<PAGE> 36
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.
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
1013520
Printed in the U.S.A.
