<PAGE> 1
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED FEBRUARY 28, 1999
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
CALIFORNIA TAX-FREE INCOME FUND
FLORIDA TAX-FREE INCOME FUND
NEW YORK TAX-FREE INCOME FUND
OHIO TAX-FREE INCOME FUND
KEMPER STATE TAX-FREE
INCOME SERIES
"... While other fixed income asset classes, such as
corporate bonds and Treasuries, often experienced extreme
volatility, municipal bonds remained relatively stable while
providing good relative performance. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
4
ECONOMIC OVERVIEW
6
PERFORMANCE UPDATE
8
TERMS TO KNOW
9
CALIFORNIA'S
PORTFOLIO STATISTICS
AND PORTFOLIO
OF INVESTMENTS
16
FLORIDA'S
PORTFOLIO STATISTICS
AND PORTFOLIO
OF INVESTMENTS
20
NEW YORK'S
PORTFOLIO STATISTICS
AND PORTFOLIO
OF INVESTMENTS
AT A GLANCE
- -----------------------------------------------------------------------------
KEMPER STATE TAX-FREE INCOME FUNDS' TOTAL RETURNS
- -----------------------------------------------------------------------------
FOR THE SIX-MONTH PERIOD ENDED FEBRUARY 28, 1999 (UNADJUSTED FOR ANY SALES
CHARGE)
CALIFORNIA
[BAR GRAPH]
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIPPER CALIFORNIA TAX-FREE
KEMPER CALIFORNIA TAX- KEMPER CALIFORNIA TAX- INCOME FUNDS CATEGORY
KEMPER CALIFORNIA TAX-FREE INCOME FUND CLASS A FREE INCOME FUND CLASS B FREE INCOME FUND CLASS C AVERAGE*
- ---------------------------------------------- ------------------------ ------------------------ --------------------------
<S> <C> <C> <C>
2.06% 1.65% 1.67% 2.09%
</TABLE>
- -----------------------------------------------------------------------------
FLORIDA
[BAR GRAPH]
<TABLE>
<CAPTION>
LIPPER FLORIDA TAX-FREE
KEMPER FLORIDA TAX-FREE KEMPER FLORIDA TAX-FREE INCOME FUNDS CATEGORY
KEMPER FLORIDA TAX-FREE INCOME FUND CLASS A INCOME FUND CLASS B INCOME FUND CLASS C AVERAGE*
- ------------------------------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
1.67% 1.36% 1.37% 1.78%
</TABLE>
- -----------------------------------------------------------------------------
NEW YORK
[BAR GRAPH]
<TABLE>
<CAPTION>
LIPPER NEW YORK TAX-FREE
KEMPER NEW YORK TAX- KEMPER NEW YORK TAX- INCOME FUNDS CATEGORY
KEMPER NEW YORK TAX-FREE INCOME FUND CLASS A FREE INCOME FUND CLASS B FREE INCOME FUND CLASS C AVERAGE*
- -------------------------------------------- ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
2.18% 1.75% 1.78% 1.91%
</TABLE>
- -----------------------------------------------------------------------------
OHIO
[BAR GRAPH]
<TABLE>
<CAPTION>
LIPPER OHIO TAX-FREE
KEMPER OHIO TAX-FREE KEMPER OHIO TAX-FREE INCOME FUNDS CATEGORY
KEMPER OHIO TAX-FREE INCOME FUND CLASS A INCOME FUND CLASS B INCOME FUND CLASS C AVERAGE*
- ---------------------------------------- -------------------- -------------------- ---------------------
<S> <C> <C> <C>
1.96% 1.47% 1.48% 1.96%
</TABLE>
Returns and rankings are historical and do not guarantee future results.
investment returns and principal values will fluctuate so that shares, when
redeemed, may be worth more or less than original cost.
- -----------------------------------------------------------------------------
NET ASSET VALUE
- -----------------------------------------------------------------------------
CALIFORNIA
<TABLE>
<CAPTION>
AS OF AS OF
2/28/99 8/31/98
.........................................................
<S> <C> <C>
KEMPER CALIFORNIA TAX-FEE
INCOME FUND CLASS A $7.50 $7.65
.........................................................
KEMPER CALIFORNIA TAX-FREE
INCOME FUND CLASS B $7.51 $7.66
.........................................................
KEMPER CALIFORNIA TAX-FREE
INCOME FUND CLASS C $7.45 $7.60
.........................................................
</TABLE>
FLORIDA
<TABLE>
<CAPTION>
AS OF AS OF
2/28/99 8/31/98
.........................................................
<S> <C> <C>
KEMPER FLORIDA TAX-FEE
INCOME FUND CLASS A $10.34 $10.62
.........................................................
KEMPER FLORIDA TAX-FREE
INCOME FUND CLASS B $10.33 $10.60
.........................................................
KEMPER FLORIDA TAX-FREE
INCOME FUND CLASS C $10.33 $10.60
.........................................................
</TABLE>
NEW YORK
<TABLE>
<CAPTION>
AS OF AS OF
2/28/99 8/31/98
.........................................................
<S> <C> <C>
KEMPER NEW YORK TAX-FEE
INCOME FUND CLASS A $10.85 $11.11
.........................................................
KEMPER NEW YORK TAX-FREE
INCOME FUND CLASS B $10.87 $11.13
.........................................................
KEMPER NEW YORK TAX-FREE
INCOME FUND CLASS C $10.84 $11.10
.........................................................
</TABLE>
OHIO
<TABLE>
<CAPTION>
AS OF AS OF
2/28/99 8/31/98
.........................................................
<S> <C> <C>
KEMPER OHIO TAX-FEE
INCOME FUND CLASS A $10.48 $10.54
.........................................................
KEMPER OHIO TAX-FREE
INCOME FUND CLASS B $10.47 $10.54
.........................................................
KEMPER OHIO TAX-FREE
INCOME FUND CLASS C $10.47 $10.54
.........................................................
</TABLE>
<PAGE> 3
CONTENTS
24
OHIO'S
PORTFOLIO STATISTICS
AND PORTFOLIO
OF INVESTMENTS
28
FINANCIAL STATEMENTS
31
NOTES TO
FINANCIAL STATEMENTS
36
FINANCIAL HIGHLIGHTS
44
SHAREHOLDER'S MEETING
AT A GLANCE
- ------------------------------------------------------------------
KEMPER STATE TAX-FREE INCOME FUNDS' LIPPER RANKINGS AS OF 2/28/99*
- ------------------------------------------------------------------
COMPARED TO ALL OTHER FUNDS IN THEIR RESPECTIVE LIPPER CATEGORIES
- ------------------------------------------------------------------
CALIFORNIA MUNICIPAL DEBT CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
.........................................................
<S> <C> <C> <C>
1-YEAR #43 of #87 of #97 of
107 funds 107 funds 107 funds
.........................................................
5-YEAR #24 of N/A N/A
65 funds
.........................................................
10-YEAR #10 of N/A N/A
33 funds
.........................................................
15-YEAR #2 of N/A N/A
8 funds
.........................................................
</TABLE>
- ------------------------------------------------------------------
FLORIDA MUNICIPAL DEBT CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
.........................................................
<S> <C> <C> <C>
1-YEAR #32 of #59 of #60 of
63 funds 63 funds 63 funds
.........................................................
5-YEAR #7 of N/A N/A
36 funds
.........................................................
</TABLE>
- ------------------------------------------------------------------
NEW YORK MUNICIPAL DEBT CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
.........................................................
<S> <C> <C> <C>
1-YEAR #30 of #69 of #81 of
99 funds 99 funds 99 funds
.........................................................
5-YEAR #12 of N/A N/A
60 funds
.........................................................
10-year #6 of N/A N/A
30 funds
.........................................................
</TABLE>
- ------------------------------------------------------------------
OHIO MUNICIPAL DEBT CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
.........................................................
<S> <C> <C> <C>
1-YEAR #16 of #45 of #44 of
52 funds 52 funds 52 funds
.........................................................
5-YEAR #1 of N/A N/A
36 funds
.........................................................
</TABLE>
* Lipper Analytical Services, Inc. returns and rankings are based upon changes
in net asset value with all dividends reinvested and do not include the effect
of sales charges and, if they had, results may have been less favorable.
DIVIDEND REVIEW
- ------------------------------------------------------------------
THE FOLLOWING TABLES SHOW PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE
FUNDS AS OF FEBRUARY 28, 1999.
- ------------------------------------------------------------------
CALIFORNIA
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..............................................................
<S> <C> <C> <C>
SIX-MONTHS INCOME: $.1694 $.1389 $.1399
..............................................................
FEBRUARY DIVIDEND: $.0253 $.0205 $.0210
..............................................................
ANNUALIZED DISTRIBUTION
RATE+: 4.33% 3.52% 3.63%
..............................................................
SEC YIELD+ 3.66% 3.00% 2.87%
..............................................................
TAX EQUIVALENT YIELD: 6.41% 5.25% 5.03%
..............................................................
BASED ON A MARGINAL INCOME TAX RATE OF 42.9% (COMBINED
CALIFORNIA STATE AND FEDERAL INCOME TAX RATE)
..............................................................
</TABLE>
- ------------------------------------------------------------------
FLORIDA
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..............................................................
<S> <C> <C> <C>
SIX-MONTHS INCOME: $.2289 $.1939 $.1813
..............................................................
FEBRUARY DIVIDEND: $.0360 $.0294 $.0286
..............................................................
ANNUALIZED DISTRIBUTION
RATE+: 4.47% 3.66% 3.55%
..............................................................
SEC YIELD+ 3.73% 3.09% 2.90%
..............................................................
TAX EQUIVALENT YIELD: 5.93% 4.91% 4.61%
..............................................................
BASED ON A MARGINAL INCOME TAX RATE OF 37.1%
(FEDERAL INCOME TAX RATE)
..............................................................
</TABLE>
- ------------------------------------------------------------------
NEW YORK
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..............................................................
<S> <C> <C> <C>
SIX-MONTHS INCOME: $.2448 $.2005 $.2073
..............................................................
FEBRUARY DIVIDEND: $.0362 $.0294 $.0286
..............................................................
ANNUALIZED DISTRIBUTION
RATE+: 4.29% 3.50% 3.49%
..............................................................
SEC YIELD+ 3.75% 3.11% 3.10%
..............................................................
TAX EQUIVALENT YIELD: 6.72% 5.57% 5.56%
..............................................................
BASED ON A MARGINAL INCOME TAX RATE OF 44.2% (COMBINED
NEW YORK STATE, NEW YORK CITY AND FEDERAL INCOME TAX
RATE)
..............................................................
</TABLE>
- ------------------------------------------------------------------
OHIO
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..............................................................
<S> <C> <C> <C>
SIX-MONTHS INCOME: $.2163 $.1858 $.1856
..............................................................
FEBRUARY DIVIDEND: $.0344 $.0280 $.0282
..............................................................
ANNUALIZED DISTRIBUTION
RATE+: 4.22% 3.44% 3.46%
..............................................................
SEC YIELD+ 3.58% 2.95% 2.98%
..............................................................
TAX EQUIVALENT YIELD: 6.09% 5.02% 5.07%
..............................................................
BASED ON A MARGINAL INCOME TAX RATE OF 41.2% (COMBINED
OHIO 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 28, 1999. 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 28, 1999 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. Yields
and distribution rates are historical and will fluctuate.
<PAGE> 4
Economic OVERVIEW
[SILVIA PHOTO]
DR. JOHN E. SILVIA IS A MANAGING DIRECTOR OF SCUDDER KEMPER INVESTMENTS, INC.
HIS PRIMARY RESPONSIBILITIES INCLUDE ANALYSIS, MODELING AND FORECASTING OF
ECONOMIC DEVELOPMENTS AND FEDERAL RESERVE ACTIVITY THAT AFFECT FINANCIAL
MARKETS, ESPECIALLY INTEREST RATE TRENDS. THIS EFFORT INCLUDES CLOSE
COLLABORATION WITH BOTH INCOME AND EQUITY MUTUAL FUND MANAGERS AND PENSION FUND
MANAGERS.
SILVIA HOLDS A BACHELOR'S DEGREE AND PH.D. IN ECONOMICS FROM NORTHEASTERN
UNIVERSITY IN BOSTON AND A MASTER'S DEGREE IN ECONOMICS FROM BROWN UNIVERSITY IN
PROVIDENCE, R.I. PRIOR TO HIS CAREER AT SCUDDER KEMPER INVESTMENTS, HE WAS WITH
THE HARRIS BANK AND ALSO TAUGHT AT INDIANA UNIVERSITY.
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $280 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
If you think the first quarter of 1999 has seemed rather anticlimactic compared
to 1998, you're not alone. The year began with a quiet bang in the U.S. stock
market, with the Dow Jones Industrial Average hitting an all-time high. While
stock market volatility has continued, it seems to be phasing investors less and
less. Even global events are being taken in stride. Europe's Economic and
Monetary Union (EMU) was launched without much notice. And when Brazil's economy
recently took a turn for the worse, Wall Street was only mildly concerned. Also
contributing to today's laid-back attitude -- the impeachment trial of President
Clinton has all but fizzled into obscurity without significantly affecting the
U.S. economy or markets.
Indeed, the U.S. economy looks good. The fundamentals by which we measure the
state of the economy remain strong. We continue to see solid consumer spending
growth, continued investment spending and low inflation. This suggests that
there are no internal problems for continued U.S. economic growth.
Additionally, we can expect the Federal Reserve Board to keep short-term
interest rates steady. At both the February 3 and March 30 meetings, the Fed
left interest rates unchanged. It is likely that this "hands-off" approach will
continue at the Fed's May 18 meeting, particularly if U.S. inflation remains in
check and there is a degree of slowdown in the U.S. economy. Caution is
warranted here, though, if growth continues far above the Fed's view of
noninflationary growth. In that case, the Fed could adopt a bias to tighten.
The U.S. budget surplus for 1998 came in at $60 billion, with another budget
surplus of between $95 billion and $105 billion expected for fiscal 1999. Growth
in the nation's gross domestic product (GDP), which represents the total value
of all goods and services produced within the U.S. economy, has remained steady.
GDP, driven by consumer spending, is expected to grow at an annualized rate of
approximately 3 to 3.5 percent in 1999. We also anticipate modest capital
spending and inventory growth.
The consumer price index (CPI) remains in the vicinity of 2 percent. However,
energy prices, which were down 6 to 7 percent last year and helped keep the CPI
down, are unlikely to remain so low this year. For 1999, inflation should
register at 2 to 2.5 percent.
Employment growth has slowed to 2 percent, but combined with real wage growth
of between 2 percent and 2.5 percent, produces real income growth between 4
percent and 5 percent. In addition, gains in household net worth, which tends to
fuel consumer spending, are on the rise. Banks appear to be only a little less
willing to lend in 1999, so the threat of a general credit crunch is minimal. As
a result of all these factors, consumer spending should continue to grow this
year.
On a less positive note, two factors need to be watched. First, corporate
profits have slowed in 1999, growing at a rate of 1 percent to 3 percent on a
year-over-year basis. As a result, we may see a slowdown in capital spending
this year. Second, the current U.S. account deficit is rising, which suggests
the U.S. economy is increasingly dependent on foreign capital inflows to finance
its economic activity. This is acceptable as long as foreign money continues to
flow in. But if foreign investors, particularly the Japanese, no longer wish to
invest in the United States, we can expect pressure on interest rates and the
dollar, as well as increased uncertainty and market volatility.
Given the events of the last two years, investors may be comforted by the fact
that the U.S. markets and economy have withstood the test of tumultuous times.
While certain countries, such as Malaysia, Indonesia, Brazil and Russia, are
still suffering from economic crises, others, including the Philippines, South
Korea, Thailand and China, continue to recover and grow. As long as the Fed and
the Group of Eight leading industrial nations (G8) are committed to avoiding
recession on national and global levels respectively, investors have a good
chance of experiencing a more stable economic environment.
At home, there has been somewhat of a slowdown in manufacturing, as reduced
U.S. exports reflect foreign economic turmoil. But the global impact of the
Asian crisis still has not hit the U.S. as hard as some analysts expected.
Indeed, Asian turmoil has not affected U.S. export
4
<PAGE> 5
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.
NOW (3/31/99) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
[S] [C] [C] [C] [C]
Ten Year Treasury Rate 5.23 4.81 5.65 6.69
Prime Rate 7.75 8.49 8.50 8.30
Inflation* 1.79 1.43 1.38 2.76
The U.S. Dollar* -0.54 4.31 4.88 8.58
Capital goods orders* 2.35 11.44 8.10 5.52
Industrial production* 1.88 3.56 5.05 5.86
Employment growth* 2.21 2.50 2.57 2.52
(1) Falling interest rates in recent years have been a big plus for
financial assets.
(2) The interest rate that commercial lenders charge their best borrowers.
(3) Inflation reduces an investor's real return. in the last five years,
inflation has been as high as 6 percent. the low, moderate inflation
of the last few years has meant high real returns.
(4) Changes in the exchange value of the dollar impact U.S. exporters
and the value of U.S. firms' foreign profits.
(5) These influence corporate profits and equity performance.
(6) An influence on family income and retail sales.
*Data as of January 31, 1999.
Source: Economics Department, Scudder Kemper Investments, Inc.
volumes as much as it has lowered import prices and helped reduce global
interest rates.
Ultimately, Europe's recently inaugurated EMU is likely to bring more
flexibility and growth potential for the region. European equities may be the
beneficiaries of increased spending, as governments seek to ease fiscal and
monetary policy, foster growth and reduce unemployment. It's going to be
interesting to watch as the monetary union continues to evolve. One lesson for
investors -- particularly those with international holdings -- is to diversify.
With the democratization of the world, the globalization of trade and more free
market economies at our fingertips, international markets are becoming more and
more attractive. But if you subscribe to the concept of international
investment, be cautious -- don't put all of your investment eggs in one basket
(i.e. country or region).
Other key elements to watch in 1999: the race for the next presidency and
information technology preparedness for the year 2000. And remember, while it is
nearly impossible to predict the next big crisis, preparedness through
diversification and risk control are key.
Thank you for choosing to invest with Kemper Funds. We appreciate the
opportunity to serve your investment needs.
Sincerely,
/s/ JOHN E. SILVIA
John E. Silvia
The information contained in this piece has been taken from sources believed to
be reliable, but the accuracy of the information is not guaranteed. the opinions
and forecasts expressed are those of Dr. John Silvia as of April 5, 1999, and
may not actually come to pass. This information is subject to change. No part of
this material is intended as an investment recommendation.
To obtain a Kemper Funds Prospectus, download one now, talk to your financial
representative or call Shareholder Services at (800) 621-1048. The prospectus
contains more complete information including management fees and expenses.
Please read it carefully before you invest or send money.
5
<PAGE> 6
PERFORMANCE UPDATE
MUNICIPAL BONDS WERE IN THE EYE OF A HURRICANE DURING THE FIRST SIX MONTHS OF
THE FISCAL YEAR. AS INVESTOR FOCUS SHIFTED FROM TURBULENCE OVERSEAS TO
UNEXPECTEDLY STRONG ECONOMIC GROWTH IN THE U.S., GOVERNMENT BOND YIELDS
FLUCTUATED SUBSTANTIALLY. MUNICIPAL BONDS, HOWEVER, HELD THEIR GROUND IN THE
MIDST OF THE TURMOIL. BELOW, THE MANAGEMENT TEAM DISCUSS THE MARKET'S
PERFORMANCE AND HOW THE FUNDS WERE POSITIONED IN RESPONSE.
Q
HOW DID THE MUNICIPAL BOND MARKET PERFORM DURING THE LAST SIX MONTHS
RELATIVE TO OTHER FIXED-INCOME ASSET CLASSES?
A
While other fixed income asset classes, such as corporate bonds and
Treasuries, often experienced extreme volatility, municipal bonds remained
relatively stable while providing good relative performance.
For example, the Lehman Brothers Municipal Bond Index gained 3.07 percent for
the six-month period ended February 28, 1999, while Lehman Brothers Government
Bond index returned 0.75 percent. Of course, the return for municipal bonds
doesn't take into account the tax advantage they offer. So municipal bonds were
obviously a good place to be if you were a fixed income investor, especially a
nervous one.
Q
WHY WERE OTHER MARKETS SO VOLATILE?
A
The volatility in other markets was primarily precipitated by events
outside the United States. Last summer, turbulence in foreign markets prompted a
massive flight-to-quality as global investors sought a safe haven for their
assets. Since U.S. government bonds were the obvious choice, billions of dollars
poured into the U.S. bond market. This demand pushed prices up and yields down,
particularly on Treasury bonds.
In October, after several months of feverish price gains, U.S. government
bonds underwent a violent readjustment. Uncertainty regarding the magnitude and
sustainability of low inflation in the U.S., compounded by a flight FROM quality
in the Treasury market caused yields to rise. The Federal Reserve Board easing
on October 15, followed by two more easings, helped support domestic asset
markets.
Through February, the market was caught in the dynamic tension between a
strong domestic growth environment and turbulent markets overseas. In February,
a strong economic report for the fourth quarter of 1998 indicating 6%+ annual
growth substantiated investor concerns regarding fears of higher interest rates
in the U.S.
Q
WHY DID MUNICIPAL BONDS SEEM TO BE IMMUNE TO ALL THIS?
A
"Immune" is probably too strong a word. These changes affected the
municipal market of course, but they had less of an impact because different
forces were acting to limit a municipal rally when Treasury prices were rising,
but also limit a muni sell-off when Treasury prices fell.
When the Treasury market was rallying, the municipal market's progress was
impeded by heavy
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT, AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
6
<PAGE> 7
PERFORMANCE UPDATE
issuance. The declining rate environment that characterized the majority of 1998
increased the supply of municipal bonds in two ways:
1) New issues -- new bond offerings flooded the market as local governments
tried to capitalize on low interest rates to beef up infrastructure such as
highways and water/sewer projects.
2) Refinancing bonds -- when rates decline, municipal issuers look to
refinance their debt, just like private homeowners refinance their mortgages
when rates fall. So municipal governments issued new lower-yielding bonds to
replace the higher-yielding ones.
In mid-1998, it looked as if it might be a record year for issuance. But as
volatility increased during the fall, issuance slacked off. Fortunately, much of
the supply was sopped up by hedge funds and "crossover" buyers, primarily
investors who usually buy taxable bonds, but who recognized the outstanding
value in municipals. Such "non-traditional" buyers helped offset the glut of
issuance.
When Treasuries and other fixed income classes were being pummeled, two
factors helped support municipal bond prices. First, supply decreased
dramatically. Second, the previous dramatic yield decline on U.S. government
bonds had caused municipal bonds to actually OUTYIELD similar maturity
Treasuries (according to THE BOND BUYER REVENUE Bond Index). Historically,
that's very unusual. Because the tax-advantage of municipal bonds is typically
"built in" to the price, long-maturity municipal bonds typically yield about
80-90 percent of a similar maturity Treasury. So munis represented an incredible
value throughout the six-month period, which helped support prices when the
Treasury market was under pressure.
Municipals now yield about 95 percent of what similar maturity Treasuries
do -- that's less than in previous months, but historically munis are still very
attractive.
Q
HOW DID THE FUND RESPOND TO THE MARKET'S CONDITIONS?
A
As always, we tried to add value in two ways. Duration and issue
selection.
DURATION. As you may know, duration is an indication of a portfolio's
sensitivity to changes in interest rates. If you expect the market to rally and
interest rates to go down, you want to lengthen duration to help the fund
participate as much as possible. If you expect interest rates to trend up, you
want to shorten duration to help lessen the negative effects.
Duration can dramatically impact fund performance, so we don't make
particularly big moves. We tend to stay close to a neutral duration (7-8 years)
and make modest adjustments on either side of that.
Going into the fiscal year, oil prices were at new lows, commodity prices were
declining and inflationary concerns remained generally absent -- all good for
bonds. So the funds' durations were slightly long, which helped them participate
in the rally. However, when the market turned gloomy in October, our longer
durations hurt us a bit. During the remainder of the year, durations on the
funds were reduced closer to a neutral level.
ISSUE SELECTION. Through most of the period, we concentrated on purchasing
intermediate-maturity bonds, which right now provide about 90 percent of the
return of longer maturities, but entail substantially less potential risk. We
funded some of the purchases with sales of lower-rated paper that, in light of
tight credit spreads, didn't compensate us for additional risk. Our overall goal
was to produce good returns while eliminating bonds that could underperform if
economic growth slackened.
So far this fiscal year, these moves produced returns that were about "middle
of the pack" for our peer group. But considering how volatile the markets have
been, we're fairly satisfied with that result, considering that the portfolios'
improved credit quality and shorter duration should reduce their sensitivity to
market gyrations.
Q
HOW DO YOU VIEW THE ATTRACTIVENESS OF MUNICIPAL BONDS FOR THE REST OF THE
YEAR VERSUS OTHER TYPES OF BONDS?
A
Despite strength in the economy, favorable inflation figures should keep
interest rates near current levels in the near future. Against that backdrop, we
believe the municipal market provides excellent value, with yields still near
those of Treasuries. Plus, strong municipal finances should help reduce credit
concerns. While heavier issuance, which generally comes in the second quarter,
may limit some of the market's upside potential, we think municipal bonds offer
an attractive alternative for skittish fixed-income investors.
7
<PAGE> 8
TERMS TO KNOW
BOND RATINGS Grades assigned by credit-rating agencies to corporate and
municipal debt securities, based on the borrower's expected ability to repay.
The higher the grade, the lower the interest rate a borrower will usually pay.
The two major credit rating firms are Moody's Investors Service, Inc. and
Standard and Poor's.
CROSSOVER BUYERS Newcomers to a particular market who do not usually buy
securities in that market, but who are drawn by attractive, often temporary
values.
DURATION A measure of the interest rate sensitivity of a portfolio,
incorporating time to maturity and coupon size. The longer a portfolio's
duration, the greater its sensitivity to interest rate changes.
REVENUE BOND INDEX (RBI) RBI is the average yield on 25 revenue bonds with
30-year maturities compiled by The Bond Buyer, a newspaper that reports on the
municipal bond market.
TOTAL RETURN A fund's total return figure measures both the net investment
income and any realized and unrealized appreciation or depreciation of the
underlying investments in its portfolio for the period. Total return assumes the
reinvestment of all dividends and 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.
8
<PAGE> 9
PORTFOLIO Statistics
KEMPER CALIFORNIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
PORTFOLIO COMPOSITION* ON 2/28/99 ON 8/31/98
- -----------------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 66% 69%
- -----------------------------------------------------------------------------------
U.S. GOVERNMENT SECURED 18 11
- -----------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 16 20
- -----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/28/99 ON 8/31/98
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
QUALITY ON 2/28/99 ON 8/31/98
- -----------------------------------------------------------------------------------
<S> <C> <C>
AAA 55% 60%
- -----------------------------------------------------------------------------------
AA 10 9
- -----------------------------------------------------------------------------------
A 18 15
- -----------------------------------------------------------------------------------
BBB 12 12
- -----------------------------------------------------------------------------------
NOT RATED 5 4
- -----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/28/99 ON 8/31/98
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
YEARS TO MATURITY ON 2/28/99 ON 8/31/98
- -----------------------------------------------------------------------------------
<S> <C> <C>
1-10 YEARS 13% 13%
- -----------------------------------------------------------------------------------
11-20 YEARS 64 55
- -----------------------------------------------------------------------------------
21 + YEARS 23 32
- -----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/28/99 ON 8/31/98
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
AVERAGE MATURITY ON 2/28/99 ON 8/31/98
- -----------------------------------------------------------------------------------
<S> <C> <C>
15.7 years 16.8 years
- -----------------------------------------------------------------------------------
</TABLE>
* Portfolio composition is subject to change.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
CALIFORNIA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS AT FEBRUARY 28, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVANCE REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL
AND INTEREST BY UNITED STATES GOVERNMENT SECURITIES
- ---------------------------------------------------------------------------------------------------------
County Public Facilities Corp., Certificates of
Participation, Rev., 7.80%, to be called 6-1-99 @ 102 $ 1,250 $ 1,291
------------------------------------------------------------------------------------
Orange County, Unified School District, Certificates of
Participation, Rev., 6.875%, to be called 6-1-99 @ 102 2,620 2,669
------------------------------------------------------------------------------------
City of Los Angeles, Harbor Department, Rev., 8.70%, to be
called 9-1-99 @ 100 2,500 2,575
------------------------------------------------------------------------------------
City of San Bernardino, Joint Powers Financing Auth., Lease
Rev., 7.15%, to be called 9-1-99 @ 102 4,250 4,428
------------------------------------------------------------------------------------
Coronado Community Dev. Agcy., Tax Allocation, Rev., 7.25%,
to be called 9-1-99 @ 102 4,500 4,691
------------------------------------------------------------------------------------
Health Facilities Financing Auth., Eskaton Properties, Inc.,
Rev., 7.45%, to be called 5-1-00 @ 102 3,600 3,915
------------------------------------------------------------------------------------
Health Facilities Financing Auth., Children's Hospital,
Rev., 7.50%, to be called 11-1-00 @ 102 4,800 5,131
------------------------------------------------------------------------------------
University of California, Housing System Rev., 6.75%, to be
called 11-1-00 @ 102 1,515 1,632
------------------------------------------------------------------------------------
Health Facilities Financing Auth., Kaiser Permanante, Rev.,
7.00%, to be called 12-1-00 @ 102 3,550 3,853
------------------------------------------------------------------------------------
City of Reedley, Sierra View Homes, Inc., Insured
Certificates of Participation, Rev., 7.60%, to be called
3-1-01 @ 102 3,895 4,252
------------------------------------------------------------------------------------
Foothill-DeAnza Community College District, Santa Clara,
Rev., 7.875%, to be called 6-1-01 @ 102 4,055 4,526
------------------------------------------------------------------------------------
Health Facilities Financing Auth., Southern California
Presbyterian Homes, Rev., 6.70%, to be called 6-1-01 @ 102 2,000 2,182
------------------------------------------------------------------------------------
City of San Bernardino, Sisters of Charity Health Care
System, Rev., 7.00%, to be called 7-1-01 @ 102 5,000 5,509
------------------------------------------------------------------------------------
Yosemite Community College District, Certificates of
Participation, Rev., 7.75%, to be called 7-1-01 @ 102 1,540 1,675
------------------------------------------------------------------------------------
Westminster Redev. Agcy., Westminster Commercial Redev.
Proj., Tax Allocation, Rev., 7.30%, to be called 8-1-01 @
102 2,500 2,783
------------------------------------------------------------------------------------
Emeryville, Public Financing Auth., Redev. Proj., Rev.,
6.50%, to be called 5-1-02 @ 102 3,940 4,368
------------------------------------------------------------------------------------
Fresno Health Facilities, Holy Cross Health Systems, St.
Agnes Medical Center, Rev., 6.50% and 6.625%, to be called
6-1-02 @ 102 3,500 3,895
------------------------------------------------------------------------------------
Lemon Grove Community Dev. Agcy., Tax Allocation, Rev.,
6.65% and 6.90%, to be called 8-1-02 @ 102 2,500 2,809
------------------------------------------------------------------------------------
Educational Facilities Auth., Mills College, Rev., 6.875%,
to be called 9-1-02 @ 102 1,775 2,003
------------------------------------------------------------------------------------
Central Valley Financing Auth., Cogeneration Project, Rev.,
6.10%, to be called 7-1-03 @ 102 8,700 9,692
------------------------------------------------------------------------------------
Snowline Joint Unified School District, Certificates of
Participation, Rev., 6.30% and 6.40%, to be called 7-1-03
@ 102 3,695 4,151
------------------------------------------------------------------------------------
City of Sacramento, Cogeneration Auth., Procter and Gamble
Proj., Rev., 6.375% and 6.50%, to be called 7-1-05 @ 102 10,450 12,118
------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
City of Los Angeles, Convention & Exhibit Center,
Certificates of Participation, Rev., 9.00%, to be called
12-1-05 @ 100 $ 1,000 $ 1,311
------------------------------------------------------------------------------------
Northern California Power Agcy., Hydroelectric No. 1, 7.00%,
to be called 1-1-16 @ 100 210 263
------------------------------------------------------------------------------------
TOTAL ADVANCE REFUNDED OBLIGATIONS--9.3% 91,722
------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS
- ---------------------------------------------------------------------------------------------------------
Community College Financing Auth., Lease Rev., 4.625%, 2019 5,125 4,864
------------------------------------------------------------------------------------
Department of Water, Project Rev., 5.125%, 2015 and 2016 2,000 2,064
------------------------------------------------------------------------------------
Education Facilities Auth.:
Chiropractic College, Rev., 5.10% to 5.75%, 2005 through
2017 2,570 2,707
Claremont McKenna College, Rev., 5.10%, 2017 800 816
University of San Diego, Rev., zero coupon, 2011 through
2014 3,935 2,062
University of San Francisco, Rev., 6.00%, 2016 6,640 7,286
------------------------------------------------------------------------------------
Gen. Oblg., 5.00% to 6.25%, 2012 through 2017 35,130 36,432
------------------------------------------------------------------------------------
Health Facilities Financing Auth.:
Adventist Health System West, Rev., 6.50%, 2007 and 2011 5,750 6,186
Catholic Healthcare Facilities Finance Auth., Rev., 6.00%,
2025 5,000 5,443
Financing Authority, Rev., 6.90%, 2010 5,985 7,175
Kaiser Permanante, Rev., zero coupon, 2009 and 2025 15,540 13,135
Small Facilities Loan, Insured Health Facility, Rev.,
6.70%, 2011 1,200 1,305
Sutter Health Series, Rev., 5.00% to 5.50%, 2018 through
2019 8,835 9,224
------------------------------------------------------------------------------------
Housing Finance Agcy., Home Mortgage, Rev., 6.875% to 8.00%,
2010 through 2030 18,560 19,809
------------------------------------------------------------------------------------
Residential Efficiency Financing Auth., Rev., 5.50% and
6.00%, 2017 and 2012 5,970 6,464
------------------------------------------------------------------------------------
State Public Works Board of the State of California:
California Science Center, Rev., 5.25%, 2017 1,000 1,027
California State University Series, Rev., 5.00% and
5.375%, 2012 through 2017 23,735 24,632
Department of Corrections, Lease Rev., 5.25% to 7.40%,
2010 through 2015 17,925 19,859
University of California, Rev., 5.50%, 2014 8,915 9,762
------------------------------------------------------------------------------------
Statewide Communities Dev. Auth.:
Arc of San Diego, Certificates of Participation, Rev.,
5.625%, 2020 and 2021 6,475 6,753
Cedars-Sinai Medical Center, Rev., 6.50%, 2012 20,205 23,349
Diablo Health Systems, Certificates of Participation,
Rev., 5.50%, 2012 4,000 4,403
San Gabriel Valley Medical Center, Rev., 5.50%, 2014 6,750 7,158
Triad Healthcare, Rev., 5.80%, 2000 4,205 4,359
------------------------------------------------------------------------------------
State Colleges and Universities:
San Diego State University, Rev., 5.625%, 2024 4,210 4,506
University of California, Housing System, Rev., 5.65% to
5.70%, 2012 and 2013 13,110 14,266
------------------------------------------------------------------------------------
Alameda:
Corridor Transportation Auth., Rev., 5.125%, 2015 and 2017 8,420 8,688
Public Financing Auth., Rev., 6.375%, 2014 2,000 2,041
------------------------------------------------------------------------------------
Anaheim Public Financing Auth., Lease Rev., zero coupon,
2018 5,130 1,907
------------------------------------------------------------------------------------
Benicia Unified School District, Gen. Oblg., zero coupon,
2017 through 2020 12,130 4,299
------------------------------------------------------------------------------------
Big Bear Lake, Water Rev., 6.00%, 2015 and 2022 15,405 17,703
------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bonita Canyon, Public Facilities Financing Auth., Special
Tax, Rev., 5.375%, 2028 $10,165 $ 9,897
------------------------------------------------------------------------------------
Burbank Unified School District, Gen. Oblg., zero coupon,
2011 through 2014 10,795 5,631
------------------------------------------------------------------------------------
Cabrillo Unified School District, Gen. Oblg., zero coupon,
2019 4,000 1,414
------------------------------------------------------------------------------------
Campbell Unified School District, Gen. Oblg., zero coupon,
2018 3,000 1,129
------------------------------------------------------------------------------------
Carlsbad County Unified School District, Gen. Oblg., zero
coupon, 2007 through 2020 26,855 12,985
------------------------------------------------------------------------------------
Central Valley:
Financing Auth., Cogeneration Project, Rev., 5.00%, 2016 3,220 3,224
School District, Gen. Oblg., zero coupon, 2009 6,000 3,824
------------------------------------------------------------------------------------
City of Carson Redev. Agcy., Proj. No. 1, Tax Allocation,
Rev., 6.00%, 2016 3,350 3,518
------------------------------------------------------------------------------------
City of Concord Redev. Agcy., Central Concord Proj., Tax
Allocation, Rev., 8.00%, 2018 40 41
------------------------------------------------------------------------------------
City of Fresno, Unified School District, Gen. Oblg., 6.40%,
2016 2,000 2,366
------------------------------------------------------------------------------------
City of Long Beach:
Department of Water, Rev., 5.75%, 2015 1,725 1,928
Harbor Department, Rev., 6.00%, 2016 and 2019 11,035 12,486
------------------------------------------------------------------------------------
City of Los Angeles:
Community Redev. Agcy., Tax Allocation, Rev., 5.50%, 2017 1,260 1,358
Department of Airports, Ontario International Airport,
Rev., 5.90%, 2012 3,290 3,593
Department of Water and Power, Rev., 5.50%, 2012 5,000 5,446
Harbor Department, Rev., 6.25%, 2026 2,320 2,562
------------------------------------------------------------------------------------
City of Oakland:
Building Auth., Lease Rev., 5.50%, 2014 6,970 7,486
Housing Finance, Rev., 7.10%, 2010 1,385 1,458
------------------------------------------------------------------------------------
City of Reedley, Sierra View Homes, Inc., Insured
Certificates of Participation, Rev., 5.85%, 2021 2,325 2,468
------------------------------------------------------------------------------------
City of Sacramento:
Cogeneration Auth., Cogeneration Proj., Rev., 5.25%, 2014
and 2015 11,255 11,761
Cogeneration Auth., Power Auth., Rev., 6.00%, 2022 5,000 5,337
Cogeneration Auth., Procter and Gamble Proj., Rev.,
6.375%, 2010 2,300 2,616
Finance Auth., Lease Rev., 5.00% and 5.40%, 2014 and 2020 15,000 15,632
Municipal Utility District, Electric Rev., 5.10% and
6.50%, 2006 and 2014 9,065 9,683
------------------------------------------------------------------------------------
City of Salinas, Certificates of Participation, Rev.,
5.625%, 2017 2,000 2,096
------------------------------------------------------------------------------------
City of San Diego:
Certificates of Participation, Rev., 8.00%, 2002 4,225 4,505
Redevelopment Agcy., Tax Allocation, Rev., 5.125% to
6.625%, 2013 through 2017 4,480 4,801
San Ysidro School District, Gen. Oblg., 6.125%, 2021 1,400 1,591
Water Utility Funding System, Rev., 5.00% and 5.375%, 2021
and 2013 19,000 19,188
------------------------------------------------------------------------------------
City and County of San Francisco:
Civic Center Complex, Building Auth., Rev., 5.25%, 2016 6,775 7,045
Redev. Agcy., Horton Plaza Redev. Proj., Rev., 6.75%, 2015 2,200 2,521
San Francisco International Airport, Rev., 5.50% and
5.70%, 2011 through 2015 20,010 21,394
------------------------------------------------------------------------------------
City of San Jose:
Redev. Agcy., Merged Area Redev. Proj., Tax Allocation,
Rev., 5.50%, 2014 through 2016 9,520 10,204
Unified School District, Gen. Oblg., zero coupon, 2015 and
2017 3,920 1,693
------------------------------------------------------------------------------------
City of Torrance:
Memorial Hospital Medical Center, Rev., 6.75%, 2012 5,000 5,015
Redev. Agcy., Tax Allocation, Rev., 5.60% and 5.625%, 2028 2,400 2,414
------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contra Costa County:
County Public Financing, Lease Rev., 5.25%, 2012 and 2013 $ 5,750 $ 6,132
Home Mortgage, Rev., 7.75%, 2020 2,715 3,606
------------------------------------------------------------------------------------
Corona-Norco University, Special Tax, Rev., 5.75%, 2014 2,750 3,006
------------------------------------------------------------------------------------
Duarte, City of Hope National Medical Center, Certificates
of Participation, Rev., 6.25%, 2023 4,000 4,262
------------------------------------------------------------------------------------
East Bay Municipal Utility District, Wastewater System,
Rev., 5.25%, 2018 and 2019 2,280 2,351
------------------------------------------------------------------------------------
Eldorado Public Agcy., Financial Auth., Rev., 5.60%, 2012 6,000 6,524
------------------------------------------------------------------------------------
Emeryville, Public Financing Auth., Redev. Proj., Rev.,
6.50%, 2021 6,315 6,763
------------------------------------------------------------------------------------
Escondido Union High School District, Gen. Oblg., zero
coupon, 2015 through 2018 15,475 6,363
------------------------------------------------------------------------------------
Fontana Public Financing Auth., Tax Allocation, Rev., 7.00%,
2021 3,900 4,180
------------------------------------------------------------------------------------
Foothill-DeAnza Community College District, DeAnza Campus
Center Proj., Certificates of Participation, Rev., 7.35%,
2007 1,700 1,873
------------------------------------------------------------------------------------
Foothill/Eastern, Transit Corridor Agcy., Toll Road, Rev.,
6.00% and 6.50%, 2016 through 2034 24,350 26,787
------------------------------------------------------------------------------------
Foster County Public Financing Auth., Rev., 5.60% and 5.80%,
2012 and 2016 2,225 2,372
------------------------------------------------------------------------------------
Hawthorne Community Redev. Agcy., Tax Allocation, Rev.,
6.625%, 2014 2,000 2,267
------------------------------------------------------------------------------------
Hollister:
Joint Powers Financing Auth., Sewer System Improvement
Proj., Rev., 5.75%, 2011 3,815 4,019
Redev. Agcy., Tax Allocation, Community Dev. Proj., Rev.,
5.375%, 2013 2,630 2,823
------------------------------------------------------------------------------------
Inglewood Civic Center:
Improvement Proj., Certificates of Participation, Rev.,
6.50% to 7.00%, 2011 through 2021 9,525 10,152
Public Financing Auth., Rev., 7.00%, 2022 9,210 10,202
------------------------------------------------------------------------------------
Kern High School District, Gen. Oblg., 6.40%, 2012 3,095 3,663
------------------------------------------------------------------------------------
Laguna Salada Unified School District, Gen. Oblg., zero
coupon, 2017 through 2020 8,215 2,971
------------------------------------------------------------------------------------
Las Virgenes, Unified School District, Gen. Oblg., zero
coupon, 2013 and 2015 3,700 1,766
------------------------------------------------------------------------------------
Loma Linda, University Medical Center, Rev., 7.00%, 2015 2,500 2,620
------------------------------------------------------------------------------------
Los Angeles County:
Metropolitan Transportation Auth., Sales Tax Rev., 4.75%
to 6.00%, 2015 through 2023 39,990 40,642
Public Works Financing Auth., Regional Parks and Open
Spaces, Rev., 5.00%, 2019 4,845 4,842
Transportation Commission, Sales Tax Rev., 7.40%, 2015 6,430 6,653
Unified School District, Gen. Oblg., 5.375% to 6.00%, 2012
through 2016 28,260 31,936
------------------------------------------------------------------------------------
Los Banos, Certificates of Participation, Rev., 6.00%, 2019 2,100 2,181
------------------------------------------------------------------------------------
Lucia Mar Unified School District, Gen. Oblg., zero coupon,
2016 1,000 423
------------------------------------------------------------------------------------
Martinez, Multiple Lenders, Home Mortgage, Rev., 10.375%,
2002 30 33
------------------------------------------------------------------------------------
Metropolitan Water District of Southern California, Rev.,
5.75%, 2021 2,000 2,231
------------------------------------------------------------------------------------
Mill Valley Certificates of Participation, The Redwoods,
Rev., 5.75%, 2020 3,230 3,414
------------------------------------------------------------------------------------
Modesto Irrigation District Financing Auth., Domestic Water
Proj., Rev., 5.30% and 6.00%, 2022 and 2015 9,500 10,235
------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Montebello:
Community Redev. Agcy., Montebello Hills Redev., Tax
Allocation, Rev., 7.50%, 2010 $ 3,750 $ 3,828
Unified School District, Gen. Oblg., zero coupon, 2012 and
2013 3,835 2,006
------------------------------------------------------------------------------------
Moreno Valley, Towngate Community Facilities:
District 87-1, Improvement Area No. 1, Special Tax, Rev.,
7.125%, 2023 2,810 2,942
District 87-1-b, Special Tax, Rev., 6.50%, 2009 3,670 3,915
------------------------------------------------------------------------------------
Murrieta Valley Unified School District, Gen. Oblg., zero
coupon, 2013 and 2021 9,470 3,799
------------------------------------------------------------------------------------
Northern California Power Agcy.:
Hydroelectric No. 1, Rev., 5.00%, 2017 and 2018 8,475 8,512
Multiple Facilities, Rev., 5.25%, 2013 and 2015 2,000 2,113
------------------------------------------------------------------------------------
Orange County Recovery, Certificates of Participation, Rev.,
6.00%, 2026 13,000 14,237
------------------------------------------------------------------------------------
Palmdale School District, Certificates of Participation,
Rev., zero coupon, 2019 1,420 498
------------------------------------------------------------------------------------
Pleasanton Junction Power, Finance Auth., Reassessment Rev.,
6.15%, 2012 8,820 9,472
------------------------------------------------------------------------------------
Redondo Beach, South Bay, Redev. Proj., Rev., 7.00% and
7.125%, 2016 and 2026 3,000 3,333
------------------------------------------------------------------------------------
Richmond Redev., Tax Allocation, Rev., 5.50%, 2018 2,350 2,496
------------------------------------------------------------------------------------
Riverside County, Temecula Valley Unified School District,
Gen. Oblg., 5.80%, 2014 2,430 2,670
------------------------------------------------------------------------------------
Sacramento County, Community Facilities, Special Tax, Rev.,
5.50% to 6.30%, 2010 through 2021 6,045 6,277
------------------------------------------------------------------------------------
Saddleback Valley Unified School District, Gen. Oblg.,
6.00%, 2012 through 2014 4,080 4,717
------------------------------------------------------------------------------------
San Bernardino County, West Valley Detention Center,
Certificates of Participation, Rev., 6.50%, 2012 8,000 8,826
------------------------------------------------------------------------------------
San Bruno Park School District, Gen. Oblg., zero coupon,
2014 through 2019 5,190 2,178
------------------------------------------------------------------------------------
San Joaquin Hills, Transportation Corridor Agcy., Toll Road
Rev., zero coupon, 2011 through 2020 56,475 27,576
------------------------------------------------------------------------------------
San Juan, M-S-R Public Power Agcy., Rev., 6.75%, 2020 2,000 2,435
------------------------------------------------------------------------------------
San Mateo County:
Power Auth., Certificate of Participation, Rev., 5.00%,
2012 through 2016 4,745 4,827
Transportation Auth., Rev., 5.00%, 2014 and 2015 11,600 11,880
------------------------------------------------------------------------------------
Santa Clara County:
Redev. Agcy., Tax Allocation, Rev., 7.00%, 2010 1,300 1,601
Santa Clara, Electric Rev, 5.25%, 2014 3,325 3,516
Whisman School District, Gen. Oblg., zero coupon, 2020 1,000 335
------------------------------------------------------------------------------------
Santa Cruz County Housing Auth., Multi-Family Housing, Rev.,
7.75%, 2023 2,000 2,102
------------------------------------------------------------------------------------
Santa Margarita/Dana Point Auth., Rev., 7.25%, 2012 and 2013 7,075 9,084
------------------------------------------------------------------------------------
South Orange County Public Finance Auth., Rev., 7.00%, 2008 1,000 1,222
------------------------------------------------------------------------------------
South San Francisco:
Capital Improvement Financing Auth., Conference Center
Proj., Rev., 6.125%, 2018 3,925 4,175
Conference Center Financing, Certificates of
Participation, Rev., 5.00%, 2019 1,500 1,477
------------------------------------------------------------------------------------
Southern California Home Financing Auth., Single Family
Mortgage, Rev., 6.75% and 7.35%, 2022 and 2024 1,275 1,340
------------------------------------------------------------------------------------
Stockton Community Facilities, Special Tax, Rev., 5.65% to
6.20%, 2007 through 2015 4,640 4,893
------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sunnyvale, Financing Auth., Wastewater, Refuge and Sludge
Management Facilities, Rev., 6.30%, 2017 $ 4,000 $ 4,241
------------------------------------------------------------------------------------
Temple City, Unified School District, Gen. Oblg., zero
coupon, 2015 1,250 561
------------------------------------------------------------------------------------
Puerto Rico Commonwealth:
Gen. Oblg., 6.50%, 2015 4,000 4,838
Highway and Transportation Auth., Rev., 6.00%, 2018 6,000 6,913
Medical and Environmental Facilities, Rev., 5.00% and
5.50%, 2014 and 2015 2,000 2,092
------------------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--89.4% 884,213
------------------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--98.7%
(Cost: $918,578) 975,935
------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
MONEY MARKET Yield--3.10%
INSTRUMENTS
- --1.3%
Due--March 1999
(Cost: $13,300) 13,300 13,300
------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $931,878) $989,235
------------------------------------------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $931,878,000 for federal income tax purposes
at February 28, 1999, the gross unrealized appreciation was $58,433,000, the
gross unrealized depreciation was $1,076,000 and the net unrealized appreciation
on investments was $57,357,000.
See accompanying Notes to Financial Statements.
15
<PAGE> 16
PORTFOLIO STATISTICS
KEMPER FLORIDA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
PORTFOLIO COMPOSITION* ON 2/28/99 ON 8/31/98
- -----------------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 73% 77%
- -----------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 14 13
- -----------------------------------------------------------------------------------
U.S. GOVERNMENT SECURED 13 9
- -----------------------------------------------------------------------------------
CASH AND EQUIVALENTS -- 1
- -----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/28/99 ON 8/31/98
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
QUALITY ON 2/28/99 ON 8/31/98
- -----------------------------------------------------------------------------------
<S> <C> <C>
AAA 65% 59%
- -----------------------------------------------------------------------------------
AA 11 13
- -----------------------------------------------------------------------------------
A 6 7
- -----------------------------------------------------------------------------------
BBB 9 10
- -----------------------------------------------------------------------------------
NOT RATED 9 11
- -----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/28/99 ON 8/31/98
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
YEARS TO MATURITY ON 2/28/99 ON 8/31/98
- -----------------------------------------------------------------------------------
<S> <C> <C>
1-10 YEARS 15% 11%
- -----------------------------------------------------------------------------------
11-20 YEARS 64 57
- -----------------------------------------------------------------------------------
21+ YEARS 21 32
- -----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/28/99 ON 8/31/98
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
AVERAGE MATURITY ON 2/28/99 ON 8/31/98
- -----------------------------------------------------------------------------------
<S> <C> <C>
15.5 years 17.0 years
- ------------------------------------------------------------------------------------
</TABLE>
* Portfolio composition is subject to change
16
<PAGE> 17
PORTFOLIO OF INVESTMENTS
KEMPER FLORIDA TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS AT FEBRUARY 28, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVANCE REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL
AND INTEREST BY UNITED STATES GOVERNMENT SECURITIES
- --------------------------------------------------------------------------------------------------------
Hillsborough County, Aviation Auth., Tampa International
Airport, Rev., 6.90%, to be called 10-1-99 @ 102 $ 585 $ 610
-----------------------------------------------------------------------------------
Volusia County Health Facilities Auth., Memorial Health
Systems, Hospital Facilities Rev., 8.25%, to be called
6-1-00 @ 102 1,940 2,095
-----------------------------------------------------------------------------------
Department of Natural Resources, Preservation 2000, Rev.,
6.75% to be called 7-1-01 @ 102 1,000 1,094
-----------------------------------------------------------------------------------
Dunedin, Mease Health Care, Hospital Rev., 6.75%, to be
called 11-15-01 @ 102 750 829
-----------------------------------------------------------------------------------
St. Petersburg Health Facilities Auth., Allegheny Health
System, Rev., 7.00%, to be called 12-1-01 @ 102 500 556
-----------------------------------------------------------------------------------
Virgin Islands Public Finance Auth., Matching Fund Loan,
Rev., 7.25%, to be called 10-1-02 @ 102 2,125 2,422
-----------------------------------------------------------------------------------
Charlotte County, Utility System Rev., 6.75%, to be called
10-1-03 @ 102 250 287
-----------------------------------------------------------------------------------
St. Petersburg Health Facilities Auth., Allegheny Health
System, Rev., 6.75%, to be called 12-1-03 @ 100 1,000 1,131
-----------------------------------------------------------------------------------
Jacksonville District, Water & Sewer Rev., 5.00%, to be
called 10-1-08 @ 100 1,000 1,070
-----------------------------------------------------------------------------------
TOTAL ADVANCE REFUNDED OBLIGATIONS--9.8% 10,094
-----------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS
- --------------------------------------------------------------------------------------------------------
Board of Education, Public Education Capital Outlay, Gen.
Oblg., 5.125% to 7.25%, 2014 through 2023 2,840 2,962
-----------------------------------------------------------------------------------
Department of Natural Resources, Preservation 2000, Rev.,
5.25%, 2011 1,000 1,067
-----------------------------------------------------------------------------------
Housing Finance Agcy., GNMA Collateralized Home Ownership
Rev., 7.90%, 2022 780 823
-----------------------------------------------------------------------------------
Ports Authority Financing Community, Gen. Oblg., 5.375%,
2016 2,000 2,077
-----------------------------------------------------------------------------------
Broward County:
Airport System Rev., 5.25%, 2012 1,000 1,051
North Site Proj., Resource Recovery Rev., 7.95%, 2008 775 821
Port Facilities Rev., 5.375%, 2012 1,500 1,594
South Site Proj., Resource Recovery Rev., 7.95%, 2008 825 873
-----------------------------------------------------------------------------------
Cocoa Beach, Water and Sewer Rev., 5.25%, 2018 650 683
-----------------------------------------------------------------------------------
Dade City Governmental Leasing Corp., Department of Health
and Rehabilitation Services, Rev., 9.00%, 2020 1,025 1,070
-----------------------------------------------------------------------------------
Dade County:
Housing Finance Auth., Single Family Mortgage Rev., 7.25%,
2023 340 356
Miami International Airport, Aviation Facilities, Rev.,
5.125% and 6.55%, 2013 and 2014 3,000 3,220
Public Service Tax Rev., 5.25%, 2017 2,000 2,076
School District, Gen. Oblg., 5.375%, 2014 1,000 1,078
Special Obligation, Rev., zero coupon, 2014 2,000 924
Water and Sewer System Rev., 6.25% and 5.50%, 2011 and
2025 2,500 2,675
-----------------------------------------------------------------------------------
Duval County Housing Finance Auth., Single Family Mortgage
Rev., 7.25%, 2019 395 416
-----------------------------------------------------------------------------------
Escambia County, Housing Finance Auth., Single Family
Mortgage Rev., 6.90%, 2020 770 812
-----------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fort Pierce, Utilities System Rev., zero coupon, 2009 $4,695 $ 2,957
-----------------------------------------------------------------------------------
Gainesville, Utilities System Rev., 6.50%, 2010 1,370 1,637
-----------------------------------------------------------------------------------
Hillsborough County:
Aviation Auth., Tampa International Airport, Rev., 6.90%,
2011 665 692
Housing Finance Auth., Single Family Mortgage Rev., 6.50%
and 7.30%, 2019 and 2022 1,300 1,519
Utility Rev., 7.00%, 2014 1,325 1,421
-----------------------------------------------------------------------------------
Jacksonville, Electric Auth., Rev., zero coupon, 2011 1,140 643
-----------------------------------------------------------------------------------
Key West, Utility Board Electric Rev., zero coupon, 2014 4,975 2,345
-----------------------------------------------------------------------------------
Lakeland, Electric and Water Rev., zero coupon, 2009 2,000 1,260
-----------------------------------------------------------------------------------
Manatee County, Meditrust Proj., First Mortgage Rev., 7.35%,
2015 1,570 1,758
-----------------------------------------------------------------------------------
Martin County, Industrial Dev. Auth., Indiantown
Cogeneration, L.P. Proj., Rev., 7.875%, 2025 2,325 2,658
-----------------------------------------------------------------------------------
Nassau County, GF/Amelia Island Properties, Inc. Proj.,
Rev., 9.75%, 2023 980 1,121
-----------------------------------------------------------------------------------
North Miami, Johnson and Wales University Proj., Educational
Facilities Rev., 6.10% and 6.125%, 2013 and 2020 2,785 2,924
-----------------------------------------------------------------------------------
Orange County:
Health Facilities Auth., Rev., 6.25%, 2016 and 2018 3,500 4,065
Tourist Development Tax, Rev., 5.00%, 2018 1,000 1,003
-----------------------------------------------------------------------------------
Orlando and Orange County Expressway Auth., Junior Lien,
Rev., 6.50%, 2012 1,000 1,201
-----------------------------------------------------------------------------------
Orlando:
Greater Orlando, Aviation Auth., Rev., 5.125%, 2017 1,000 1,010
Special Assessment Rev., 5.80%, 2026 1,280 1,269
Utilities Commission, Water and Electric Rev., 6.75%, 2017 3,000 3,654
-----------------------------------------------------------------------------------
Palm Beach County:
Criminal Justice Facilities, Rev., 7.20%, 2015 110 140
Gen. Oblg., 5.50%., 2014 1,000 1,091
Solid Waste Auth., Rev., zero coupon, 2013 2,865 1,429
-----------------------------------------------------------------------------------
Pensacola, Health Facilities Auth., Rev., 5.25%, 2011 2,200 2,273
-----------------------------------------------------------------------------------
Pinellas County, Pollution Control Rev., 7.20%, 2014 2,000 2,179
-----------------------------------------------------------------------------------
Port Palm Beach, District of Florida, Rev., 5.375%, 2012 1,100 1,169
-----------------------------------------------------------------------------------
Port St. Lucie, Special Assessment, Rev., 5.00% and 5.40%,
2013 and 2016 3,000 3,105
-----------------------------------------------------------------------------------
Reedy Creek, Gen. Oblg., 5.25%, 2014 1,000 1,046
-----------------------------------------------------------------------------------
St. John's County, Water and Sewer Rev., zero coupon, 2016 440 188
-----------------------------------------------------------------------------------
Sunrise, Utilities System Rev., 5.50%, 2018 2,505 2,711
-----------------------------------------------------------------------------------
Tampa:
Hillsborough County Expressway Auth., Rev., 5.125%, 2017 475 483
Sports Auth., Special Purpose, Rev., 5.75%, 2020 2,075 2,310
Utility Tax, Rev., zero coupon, 2014 and 2016 3,540 1,649
Water Utility System, Rev., 5.125%, 2012 1,000 1,054
-----------------------------------------------------------------------------------
Village Center Community Dev. District, Utility Rev., 6.00%,
2018 1,250 1,422
-----------------------------------------------------------------------------------
Volusia County, Sales Tax Rev., 5.00%, 2013 1,435 1,478
-----------------------------------------------------------------------------------
Westchase Community Dev. District, Rev., 5.80%, 2012 2,975 3,235
-----------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Puerto Rico Commonwealth:
Facilities Financing Auth., Mennonite Gen. Hospital Proj.,
Rev., zero coupon, 2017 $3,500 $ 1,407
Gen. Oblg., 6.00% and 6.25%, 2013 and 2016 2,850 3,303
Highway and Transportation Auth., Rev., 6.00%, 2018 1,250 1,440
-----------------------------------------------------------------------------------
Virgin Islands Public Finance Auth., Matching Fund Loan,
Rev., 6.00%, 2022 1,505 1,565
-----------------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--90.2% 92,392
-----------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $97,082) $102,486
-----------------------------------------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $97,082,000 for federal income tax purposes
at February 28, 1999, the gross unrealized appreciation was $5,568,000, the
gross unrealized depreciation was $164,000 and the net unrealized appreciation
on investments was $5,404,000.
See accompanying Notes to Financial Statements.
19
<PAGE> 20
PORTFOLIO STATISTICS
KEMPER NEW YORK TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
PORTFOLIO COMPOSITION* ON 2/28/99 ON 8/31/98
- -----------------------------------------------------------------------------------
<S> <C> <C>
REVENUE BONDS 68% 73%
- -----------------------------------------------------------------------------------
GENERAL OBLIGATION BONDS 17 14
- -----------------------------------------------------------------------------------
U.S. GOVERNMENT SECURED 15 11
- -----------------------------------------------------------------------------------
CASH AND EQUIVALENTS -- 2
- -----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/28/99 ON 8/31/98
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
QUALITY ON 2/28/99 ON 8/31/98
- -----------------------------------------------------------------------------------
<S> <C> <C>
AAA 49% 42%
- -----------------------------------------------------------------------------------
AA 14 12
- -----------------------------------------------------------------------------------
A 22 23
- -----------------------------------------------------------------------------------
BBB 11 16
- -----------------------------------------------------------------------------------
B 1 1
- -----------------------------------------------------------------------------------
NOT RATED 3 6
- -----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/28/99 ON 8/31/98
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
YEARS TO MATURITY ON 2/28/99 ON 8/31/98
- ----------------------------------------------------------------------------------
<S> <C> <C>
1-10 YEARS 8% 14%
- ----------------------------------------------------------------------------------
11-20 YEARS 69 51
- ----------------------------------------------------------------------------------
21 + YEARS 23 35
- ----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/28/99 ON 8/31/98
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
AVERAGE MATURITY ON 2/28/99 ON 8/31/98
- ----------------------------------------------------------------------------------
<S> <C> <C>
16.7 years 17.6 years
- ----------------------------------------------------------------------------------
</TABLE>
* Portfolio composition is subject to change.
20
<PAGE> 21
PORTFOLIO OF INVESTMENTS
NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS AT FEBRUARY 28, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVANCE REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL
AND INTEREST BY UNITED STATES GOVERNMENT SECURITIES
- ---------------------------------------------------------------------------------------------------------
Medical Care Facilities Finance Agcy., Mental Health Service
Facilities Improvement, Rev., 7.75%, to be called 2-15-00
@ 102 $ 365 $ 388
------------------------------------------------------------------------------------
Gen. Oblg., 7.75%, to be called 3-15-00 @ 101 1/2 40 42
------------------------------------------------------------------------------------
Environmental Facilities Corp., State Water Pollution
Control, Revolving Fund Rev., 7.25%, to be
called 6-15-01 @ 102 900 993
------------------------------------------------------------------------------------
Medical Care Facilities Finance Agcy., Mental Health Service
Facilities, Improvement, Rev., 7.40%, to be called 2-15-02
@ 102 755 847
------------------------------------------------------------------------------------
Dormitory Auth., State University Educational Facilities,
Rev., 7.25%, to be called 5-15-02 @ 102 155 175
------------------------------------------------------------------------------------
Battery Park City Auth., Rev., 8.625%, to be called 6-1-05 @
100 10 13
------------------------------------------------------------------------------------
TOTAL ADVANCE REFUNDED OBLIGATIONS--.9% 2,458
------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS
- ---------------------------------------------------------------------------------------------------------
Dormitory Auth.:
City University System, Rev., 5.75% and 6.00%, 2013
through 2018 14,550 16,137
Colgate University, Rev., 6.00%, 2016 and 2021 1,750 2,006
Court Facilities, Rev., zero coupon and 5.25%, 2013
through 2019 6,440 5,956
Fordham University, Rev., 7.20%, 2015 790 843
Hamilton College, Rev., 5.125%, 2013 through 2016 3,395 3,525
Interfaith, Rev., 5.25%, 2016 1,205 1,244
Judicial Lease Facility, Rev., 7.375%, 2016 120 153
Mental Health Services Facilities Improvement, Rev., 5.00%
and 5.50%, 2012 and 2017 4,575 4,729
Montefiore Medical Center, Rev., 5.75%, 2007 3,000 3,324
Pace University, Rev., 6.50%, 2011 through 2012 1,260 1,508
Special Activity School Districts, Rev., 5.25%, 2011
through 2015 5,265 5,587
State University Educational Facilities, Rev., 5.00%
through 7.50%, 2010 through 2020 13,170 14,037
St. Joseph's Hospital Health Center, Rev., 6.00%, 2009 1,000 1,123
St. Vincent's Hospital and Medical Center, Rev., 7.375%,
2011 2,440 2,677
Upstate Community Colleges, Rev., 5.875%, 2016 3,555 3,862
Wyndham Schools, Rev., 5.00%, 2018 1,500 1,492
------------------------------------------------------------------------------------
Energy Research and Dev. Auth.:
Consolidated Edison Company of New York, Inc. Proj., Rev.,
7.50%, 2025 3,500 3,583
Lilco Project-Service, Rev., 5.15% and 5.30%, 2016 and
2025 5,000 4,974
------------------------------------------------------------------------------------
Environmental Facilities Corp.:
Riverbank State Park, Rev., 6.25%, 2012 3,695 4,327
State Clean Water and Drinking, Revolving Fund Rev.,
5.25%, 2014 5,090 5,334
State Water Pollution Control, Revolving Fund Rev., 7.25%
and 6.50%, 2010 and 2014 190 207
------------------------------------------------------------------------------------
Gen. Oblg., Rev., 5.00% and 5.25%, 2013 and 2014 3,755 3,874
------------------------------------------------------------------------------------
Housing Finance Agcy.:
Local Government Assistance Corp., zero coupon and 5.00%,
2009 and 2016 6,980 4,851
Multi-Family Mortgage, Rev., 6.95% and 6.00%, 2012 and
2027 2,695 2,898
Service Contract Oblg., Rev., 7.25% and 7.30%, 2012 260 288
State University Construction, Rev., 8.00%, 2011 200 262
West-H.E.L.P. Housing, Rev., 7.55%, 2002 2,120 2,173
------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 22
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Medical Care Facilities Finance Agcy.:
Albany Medical Center, Rev., 8.00%, 2028 $ 55 $ 56
Mental Health Service Facilities Improvement, Rev., 7.40%
to 7.875%, 2015 through 2020 875 925
------------------------------------------------------------------------------------
Metropolitan Transportation Auth.:
Commuter Facilities, Rev., 5.00%, 2015 3,000 3,035
Transit Facilities, Rev., 5.125% to 6.00%, 2012 through
2016 15,250 16,464
------------------------------------------------------------------------------------
Mortgage Agcy., Homeowner Mortgage, Rev., 6.45% to 7.875%,
2009 through 2022 8,225 8,722
------------------------------------------------------------------------------------
Port Auth. of New York and New Jersey, Gen. Oblg., 6.25% and
9.125%, 2015 10,550 12,090
------------------------------------------------------------------------------------
Thruway Auth., Highway and Bridges Trust Fund, Rev., 5.25%
to 6.00%, 2011 through 2022 9,740 10,423
------------------------------------------------------------------------------------
Urban Dev. Corp.:
Community Enhancement Facilities, Rev., zero coupon and
5.125%, 2013 and 2014 3,000 2,051
Control Facilities Service Contract, Rev., 5.25%, 2012 350 370
State Facilities, Rev., 5.60%, 2015 2,260 2,438
Sub Lien Corp. Purpose, Rev., 5.50%, 2022 5,000 5,168
Syracuse University Center for Science and Technology,
Rev., 5.50%, 2015 and 2017 9,390 9,958
------------------------------------------------------------------------------------
Long Island, Power Auth., Electricity System, Rev., 5.125%
and 5.50%, 2016 through 2029 14,750 15,227
------------------------------------------------------------------------------------
Monroe County, Gen. Oblg., 6.00% and 5.00%, 2018 and 2019 2,230 2,388
------------------------------------------------------------------------------------
Nassau County:
Gen. Oblg., 6.00%, 2012 and 2013 1,415 1,621
Industrial Development Agcy. Civic Facilities, Rev., zero
coupon, 2019 1,000 358
------------------------------------------------------------------------------------
New York City:
Gen. Oblg., zero coupon to 7.75%, 2002 through 2025 33,015 28,301
Housing Dev. Corp., Multi-Unit Mortgage Rev., 7.30%, 2010 8,800 9,485
Municipal Water Finance Auth., Water and Sewer System,
Rev., 5.875% and 5.75%, 2026 and 2029 5,500 5,923
Transitional Finance Auth., Rev., 5.25% and 5.00%, 2013
and 2016 2,625 2,664
------------------------------------------------------------------------------------
Niagara County, Water Treatment Plant, Gen. Oblg., 7.25% and
7.00% 2011 and 2012 1,215 1,419
------------------------------------------------------------------------------------
Orange County Industrial Development Agcy., Life Care
Community, Rev., 5.625% and 5.70%, 2018 and 2028 3,500 3,439
------------------------------------------------------------------------------------
Suffolk County, Water Authority Waterworks., Sub Lien, Rev.,
6.00%, 2014 3,000 3,434
------------------------------------------------------------------------------------
Triborough Bridge and Tunnel Auth., Gen. Purpose Rev.,
6.125%, 2021 7,205 8,385
------------------------------------------------------------------------------------
Ulster County, Resource Recovery Agcy., Solid Waste System,
Rev., 6.00%, 2014 3,000 3,142
------------------------------------------------------------------------------------
Yonkers, Gen. Oblg., 5.25%, 2012 1,250 1,320
------------------------------------------------------------------------------------
Puerto Rico Commonwealth:
Gen. Oblg., zero coupon, 2008 and 2016 6,000 2,807
Highway and Transit Auth., Rev., 5.50%, 2026 2,000 2,075
Highway and Transportation Auth., Rev., 6.00%, 2018 2,750 3,168
------------------------------------------------------------------------------------
Virgin Island Public Finance Auth., Home Mortgage Loan,
Rev., 5.875%, 2018 5,000 5,161
------------------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--96.7% 272,991
------------------------------------------------------------------------------------
TOTAL MUNICIPAL OBLIGATIONS--97.6%
(Cost: $262,050) 275,449
------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET Yield--3.20% to 3.55%
INSTRUMENTS
- --2.4%
Due--March 1999
(Cost: $6,700) $ 6,700 $ 6,700
------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $268,750) $282,149
------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $268,750,000 for federal income tax purposes
at February 28, 1999, the gross unrealized appreciation was $13,744,000, the
gross unrealized depreciation was $345,000 and the net unrealized appreciation
on investments was $13,399,000.
See accompanying Notes to Financial Statements.
23
<PAGE> 24
PORTFOLIO STATISTICS
KEMPER OHIO TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
PORTFOLIO COMPOSITION* ON 2/28/99 ON 8/31/98
- -----------------------------------------------------------------------------------
<S> <C> <C>
GENERAL OBLIGATION BONDS 44% 35%
- -----------------------------------------------------------------------------------
REVENUE BONDS 42 48
- -----------------------------------------------------------------------------------
U.S. GOVERNMENT SECURED 14 15
- -----------------------------------------------------------------------------------
CASH AND EQUIVALENTS -- 2
- -----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/28/99 ON 8/31/98
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
QUALITY ON 2/28/99 ON 8/31/98
- -----------------------------------------------------------------------------------
<S> <C> <C>
AAA 66% 64%
- -----------------------------------------------------------------------------------
AA 12 11
- -----------------------------------------------------------------------------------
A 3 3
- -----------------------------------------------------------------------------------
BBB 8 8
- -----------------------------------------------------------------------------------
BB 3 3
- -----------------------------------------------------------------------------------
NOT RATED 11 11
- -----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/28/99 ON 8/31/98
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
YEARS TO MATURITY ON 2/28/99 ON 8/31/98
- -----------------------------------------------------------------------------------
<S> <C> <C>
1-10 YEARS 23% 26%
- -----------------------------------------------------------------------------------
11-20 YEARS 52 52
- -----------------------------------------------------------------------------------
21+ YEARS 22 22
- -----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
ON 2/28/99 ON 8/31/98
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
AVERAGE MATURITY ON 2/28/99 ON 8/31/98
- -----------------------------------------------------------------------------------
<S> <C> <C>
14.6 years 13.9 years
- -----------------------------------------------------------------------------------
</TABLE>
* Portfolio composition is subject to change.
24
<PAGE> 25
PORTFOLIO OF INVESTMENTS
OHIO TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS AT FEBRUARY 28, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVANCE REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL
AND INTEREST BY UNITED STATES GOVERNMENT SECURITIES
- -------------------------------------------------------------------------------------------------------
Clermont County, Sewer Systems, Rev., 7.20%, to be called
12-1-00 @ 102 $ 500 $ 543
----------------------------------------------------------------------------------
Northeast Ohio Regional Sewer District, Wastewater
Improvement, Rev., 6.50%, to be called 11-15-01 @ 101 300 327
----------------------------------------------------------------------------------
Olentangy Local School District, Gen. Oblg., 6.35%, to be
called 12-1-01 @ 102 150 164
----------------------------------------------------------------------------------
Cleveland, WaterWorks Rev., 6.25%, to be called 1-1-02 @ 102 615 670
----------------------------------------------------------------------------------
Ohio Building Authority, James A. Rhodes State Office Tower,
Rev., 6.25%, to be called 6-1-02 @ 102 215 232
----------------------------------------------------------------------------------
Virgin Islands, Public Finance Auth., Rev., 7.25%, to be
called 10-1-02 @ 102 225 256
----------------------------------------------------------------------------------
Ohio Building Authority, Juvenile Correctional Building
Proj., 6.60%, to be called 10-1-04 @ 102 200 231
----------------------------------------------------------------------------------
Cleveland Public Power, First Mortgage, Rev., 7.00%, to be
called 11-15-04 @ 102 600 707
----------------------------------------------------------------------------------
Lakeview Local School District, Gen. Oblg., 6.90%, to be
called 12-1-04 @ 102 700 824
----------------------------------------------------------------------------------
Olmstead Falls City School District, Gen. Oblg., 6.85%, to
be called 12-15-04 @ 102 250 293
----------------------------------------------------------------------------------
Cuyahoga County, Merida Health System, Rev., 6.25%, to be
called 8-15-05 @ 102 950 1,092
----------------------------------------------------------------------------------
Batavia Local School District, Gen. Oblg., 7.00%, to be
called 12-1-05 @ 102 500 601
----------------------------------------------------------------------------------
Ohio Housing Finance Agency, Single Family Mortgage, Rev.,
zero coupon, to be called 1-15-13 @ 82 1,000 427
----------------------------------------------------------------------------------
TOTAL ADVANCE REFUNDED OBLIGATIONS -- 13.5% 6,367
----------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
OTHER MUNICIPAL OBLIGATIONS
- -------------------------------------------------------------------------------------------------------
Building Auth.:
Administrative Building Funds Proj., Rev., 6.30%, 2011 140 153
Adult Correctional Building Fund Proj., Rev., 6.125%, 2012 310 339
Juvenile Correctional Building Proj., Rev., 5.125%, 2017 1,000 1,017
----------------------------------------------------------------------------------
Higher Education Facility:
Dayton University, Rev., 6.60%, 2017 430 485
Dominican College, Rev., 6.625%, 2014 600 657
Oberlin College, Rev., 5.25%, 2014 750 798
Rev., 6.00% and 6.125%, 2011 and 2016 400 417
Xavier University, Rev., 6.00%, 2011 240 268
----------------------------------------------------------------------------------
Housing Finance Agency:
Rev., 5.85% and 6.10%, 2016 and 2028 750 790
Single Family Mortgage, Rev., 7.85%, 2021 195 206
----------------------------------------------------------------------------------
State Turnpike, Rev., 6.00%, 2007 1,000 1,123
----------------------------------------------------------------------------------
Water Development Auth.:
Pollution Control, Rev., 6.00% and 6.10%, 2006 and 2020 1,550 1,633
Solid Waste Disposal, Rev., 5.875%, 2020 200 204
----------------------------------------------------------------------------------
Akron, Sewer System., Rev., 5.90%, 2011 385 427
----------------------------------------------------------------------------------
Athens, Gen. Oblg., 6.25%, 2011 500 529
----------------------------------------------------------------------------------
Avon Local School District, Gen. Oblg., 6.50%, 2015 940 1,132
----------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 26
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
----------------------------------------------------------------------------------
<S> <C> <C>
Beavercreek Local School District, Gen. Oblg., 6.60%, 2015 $ 500 $ 608
----------------------------------------------------------------------------------
Big Walnut Local School District, Gen. Oblg., zero coupon,
2012 420 223
----------------------------------------------------------------------------------
Butler County, Hospital Facilities, Rev., 4.75%, 2018 500 472
----------------------------------------------------------------------------------
City of Springdale, Hospital Facilities First Mortgage,
Southwestern Ohio Seniors Services, Rev., 6.00%, 2018 750 771
----------------------------------------------------------------------------------
Cleveland Public Power, First Mortgage, Rev., 5.25% and
7.00%, 2014 and 2017 1,250 1,348
----------------------------------------------------------------------------------
Cleveland, WaterWorks Rev., 6.25%, 2015 25 27
----------------------------------------------------------------------------------
Columbus Municipal Airport Auth., Rev., 6.00%, 2014 250 270
----------------------------------------------------------------------------------
Crawford County, Gen. Oblg., 6.75%, 2019 700 804
----------------------------------------------------------------------------------
Cuyahoga County:
Gen. Oblg., 5.65%, 2018 500 549
Multifamily Housing, Rev., 6.50%, 2020 1,000 1,086
Sewer System, Rev., 6.00%, 2007 500 513
----------------------------------------------------------------------------------
Dayton, Gen. Oblg., 5.15%, 2015 1,675 1,726
----------------------------------------------------------------------------------
Dublin:
City School District, Gen. Oblg., zero coupon, 2010 and
2011 1,595 905
Gen. Oblg., 5.25%, 2014 500 526
----------------------------------------------------------------------------------
Edon Township Local School District, Gen. Oblg., 6.00%, 2019 475 545
----------------------------------------------------------------------------------
Fayette County, Gen. Oblg., 5.90%, 2013 155 172
----------------------------------------------------------------------------------
Finneytown Local School District, Gen. Oblg., 6.20%, 2017 320 373
----------------------------------------------------------------------------------
Franklin County Local School District, Gen. Oblg., 6.50%,
2013 500 599
----------------------------------------------------------------------------------
Gateway Economic Development Corp., Rev., 7.50%, 2005 1,000 1,092
----------------------------------------------------------------------------------
Green Springs, St. Francis Healthcare, Rev., 7.00%, 2014 400 393
----------------------------------------------------------------------------------
Hamilton County, Healthcare Facilities Rev., 5.125%, 2018 500 491
----------------------------------------------------------------------------------
Highland Heights, Gen. Oblg., 6.15%, 2012 145 159
----------------------------------------------------------------------------------
Hillard School District, Gen. Oblg., 6.00%, 2006 500 565
----------------------------------------------------------------------------------
Lakota, Local School District, Gen. Oblg., 7.00%, 2008 500 612
----------------------------------------------------------------------------------
Liberty Benton Local School District, Gen Oblg., zero
coupon, 2011 through 2014 1,075 541
----------------------------------------------------------------------------------
Lucas County, Public Improvement Water Utility, Rev., 6.05%
and 6.50%, 2013 and 2016 380 434
----------------------------------------------------------------------------------
Mahoning Valley, Sanitation District, Rev., 5.125%, 2014 750 778
----------------------------------------------------------------------------------
Marion County, United Church Homes Proj., Rev., 6.375% and
6.30%, 2010 and 2015 700 736
----------------------------------------------------------------------------------
Medina, City School District, Gen. Oblg., zero coupon, 2010 1,045 616
----------------------------------------------------------------------------------
Napoleon, Health Care Facility, Lutheran Orphans' and Old
Folks' Home Society, Rev., 6.875%, 2023 460 507
----------------------------------------------------------------------------------
Olentangy Local School District, Gen. Oblg., 5.85%, 2007 400 441
----------------------------------------------------------------------------------
Sandusky County, Gen. Oblg., 6.20%, 2013 500 562
----------------------------------------------------------------------------------
South Euclid-Lyndhurst City School District, Gen. Oblg.,
6.40%, 2018 535 615
----------------------------------------------------------------------------------
Springboro Community City School District, School
Improvement, Gen. Oblg., 6.00%, 2011 500 577
----------------------------------------------------------------------------------
Strongsville, Gen. Oblg., 6.70%, 2011 500 586
----------------------------------------------------------------------------------
Toledo, Gen. Oblg., 6.10% and 6.35%, 2014 and 2025 1,250 1,399
----------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 27
PORTFOLIO OF INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
PRINCIPAL
ISSUER AMOUNT VALUE
----------------------------------------------------------------------------------
<S> <C> <C>
Trumbull County Sewer Improvement, Gen. Oblg., 6.20%, 2014 $ 500 $ 561
----------------------------------------------------------------------------------
Tuscarawas Valley Local School District, Gen. Oblg., 6.60%,
2015 365 421
----------------------------------------------------------------------------------
University of Cincinnati, Rev., 5.50%, 2013 620 672
----------------------------------------------------------------------------------
Wayne Local School District, Gen Oblg., 6.45% and 6.60%,
2011 and 2016 355 429
----------------------------------------------------------------------------------
West Lake Local School District, Gen. Oblg., 6.15%, 2005 500 565
----------------------------------------------------------------------------------
Willoughby Industrial Development, Rev., 6.875%, 2016 575 636
----------------------------------------------------------------------------------
Wooster City School District, Gen. Oblg., zero coupon, 2013 930 460
----------------------------------------------------------------------------------
Wyoming, City School District, Gen. Oblg., 5.75%, 2013 500 562
----------------------------------------------------------------------------------
Youngstown, Gen. Oblg., 6.125%, 2014 110 123
----------------------------------------------------------------------------------
Puerto Rico Commonwealth:
Highway and Transportation Auth., Rev., 6.25%, 2016 750 884
Industrial, Tourist, Educational, Medical, Environmental
Control Facilities, Rev., 5.00%, 2015 685 695
Municipal Financing Agency, Rev., 6.00%, 2014 250 275
Ports Auth., American Airlines, Inc. Proj., Rev., 6.25%,
2026 360 389
----------------------------------------------------------------------------------
Virgin Islands:
Public Finance Auth., Rev., 6.00%, 2022 840 874
Water and Power Auth., Electric System, Rev., 5.30%, 2018 500 504
----------------------------------------------------------------------------------
TOTAL OTHER MUNICIPAL OBLIGATIONS--86.5% 40,849
----------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost: $44,058) $47,216
----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
Based on the cost of investments of $44,058,000 for federal income tax purposes
at February 28, 1999, the gross unrealized appreciation was $3,185,000, the
gross unrealized depreciation was $27,000 and the net unrealized appreciation on
investments was $3,158,000.
See accompanying Notes to Financial Statements.
27
<PAGE> 28
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NEW
CALIFORNIA FLORIDA YORK OHIO
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------------
Investments at value (Cost: $931,878,
$97,082, $268,750 and $44,058, respectively) $ 989,235 102,486 282,149 47,216
- ---------------------------------------------------------------------------------------------------------
Cash 8,214 456 556 25
- ---------------------------------------------------------------------------------------------------------
Receivable for:
Investments sold 278 163 -- 30
- ---------------------------------------------------------------------------------------------------------
Fund shares sold 912 -- 196 24
- ---------------------------------------------------------------------------------------------------------
Interest 12,298 1,652 3,172 647
- ---------------------------------------------------------------------------------------------------------
TOTAL ASSETS 1,010,937 104,757 286,073 47,942
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Payable for:
Dividends 1,360 335 370 62
- ---------------------------------------------------------------------------------------------------------
Investments purchased 8,486 -- 5,010 --
- ---------------------------------------------------------------------------------------------------------
Fund shares redeemed 207 -- 18 17
- ---------------------------------------------------------------------------------------------------------
Management fee 410 42 118 19
- ---------------------------------------------------------------------------------------------------------
Distribution services fee 24 5 9 8
- ---------------------------------------------------------------------------------------------------------
Administrative services fee 72 9 39 7
- ---------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 66 27 26 9
- ---------------------------------------------------------------------------------------------------------
Trustees' fees and other 143 25 76 10
- ---------------------------------------------------------------------------------------------------------
Total liabilities 10,768 443 5,666 132
- ---------------------------------------------------------------------------------------------------------
NET ASSETS $1,000,169 104,314 280,407 47,810
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Paid-in capital $ 944,071 98,944 266,175 44,881
- ---------------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (1,259) (34) 833 (229)
- ---------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 57,357 5,404 13,399 3,158
- ---------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $1,000,169 104,314 280,407 47,810
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- ---------------------------------------------------------------------------------------------------------
CLASS A SHARES
Net assets applicable to shares outstanding $ 953,248 96,356 262,805 33,885
- ---------------------------------------------------------------------------------------------------------
Shares outstanding 127,036 9,316 24,220 3,235
- ---------------------------------------------------------------------------------------------------------
Net asset value and redemption price per share (net assets
divided by shares outstanding) $ 7.50 10.34 10.85 10.48
- ---------------------------------------------------------------------------------------------------------
Maximum offering price per share (net asset value, plus
4.71% of net asset value or 4.50% of offering price) $ 7.85 10.83 11.36 10.97
- ---------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net assets applicable to shares outstanding $ 39,767 6,979 13,344 12,779
- ---------------------------------------------------------------------------------------------------------
Shares outstanding 5,292 676 1,228 1,220
- ---------------------------------------------------------------------------------------------------------
Net asset value and redemption price (subject to
contingent deferred sales charge) per share (net assets
divided by shares outstanding) $ 7.51 10.33 10.87 10.47
- ---------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net assets applicable to shares outstanding $ 7,154 979 4,258 1,146
- ---------------------------------------------------------------------------------------------------------
Shares outstanding 960 95 393 109
- ---------------------------------------------------------------------------------------------------------
Net asset value and redemption price (subject to
contingent deferred sales charge) per share (net assets
divided by shares outstanding) $ 7.45 10.33 10.84 10.47
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
28
<PAGE> 29
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA NEW YORK OHIO
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
- ---------------------------------------------------------------------------------------------------------
Interest income $ 27,073 2,893 7,577 1,228
- ---------------------------------------------------------------------------------------------------------
Expenses: Management fee 2,634 290 769 127
- ---------------------------------------------------------------------------------------------------------
Distribution services fee 158 28 63 49
- ---------------------------------------------------------------------------------------------------------
Administrative services fee 866 97 271 51
- ---------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 214 34 92 19
- ---------------------------------------------------------------------------------------------------------
Professional fees 34 6 11 3
- ---------------------------------------------------------------------------------------------------------
Reports to shareholders 68 11 45 4
- ---------------------------------------------------------------------------------------------------------
Trustees' fees and other 41 6 12 5
- ---------------------------------------------------------------------------------------------------------
Total expenses 4,015 472 1,263 258
- ---------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 23,058 2,421 6,314 970
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ---------------------------------------------------------------------------------------------------------
Net realized gain on sales of investments (including
options purchased) 13,122 1,193 5,294 100
- ---------------------------------------------------------------------------------------------------------
Net realized gain from futures transactions 307 39 98 1
- ---------------------------------------------------------------------------------------------------------
Net realized gain 13,429 1,232 5,392 101
- ---------------------------------------------------------------------------------------------------------
Change in net unrealized depreciation on investments (14,014) (1,766) (5,537) (256)
- ---------------------------------------------------------------------------------------------------------
Net loss on investments (585) (534) (145) (155)
- ---------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 22,473 1,887 6,169 815
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
29
<PAGE> 30
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED) AND THE YEAR ENDED
AUGUST 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA
------------------------- --------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ 23,058 48,730 2,421 4,838
- -----------------------------------------------------------------------------------------------------------
Net realized gain 13,429 16,460 1,232 1,887
- -----------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) (14,014) 17,885 (1,766) 1,508
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 22,473 83,075 1,887 8,233
- -----------------------------------------------------------------------------------------------------------
Distribution from net investment income (23,058) (48,730) (2,421) (4,838)
- -----------------------------------------------------------------------------------------------------------
Distribution from net realized gain (17,889) (16,813) (2,248) (1,420)
- -----------------------------------------------------------------------------------------------------------
Total dividends to shareholders (40,947) (65,543) (4,669) (6,258)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share
transactions (5,629) (1,167) (435) 1,711
- -----------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (24,103) 16,365 (3,217) 3,686
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------
Beginning of period 1,024,272 1,007,907 107,531 103,845
- -----------------------------------------------------------------------------------------------------------
END OF PERIOD $1,000,169 1,024,272 104,314 107,531
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NEW YORK OHIO
------------------------- --------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ 6,314 13,502 970 1,774
- -----------------------------------------------------------------------------------------------------------
Net realized gain 5,392 4,639 101 219
- -----------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) (5,537) 4,612 (256) 1,308
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,169 22,753 815 3,301
- -----------------------------------------------------------------------------------------------------------
Distribution from net investment income (6,314) (13,502) (970) (1,774)
- -----------------------------------------------------------------------------------------------------------
Distribution from net realized gain (6,490) (4,612) (182) (250)
- -----------------------------------------------------------------------------------------------------------
Total dividends to shareholders (12,804) (18,114) (1,152) (2,024)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital share
transactions 2,722 (6,253) 4,306 3,096
- -----------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (3,913) (1,614) 3,969 4,373
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------
Beginning of period 284,320 285,934 43,841 39,468
- -----------------------------------------------------------------------------------------------------------
END OF PERIOD $ 280,407 284,320 47,810 43,841
- -----------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE Kemper California Tax-Free Income Fund, Kemper
FUNDS Florida Tax-Free Income Fund, Kemper New York
Tax-Free Income Fund and Kemper Ohio Tax-Free
Income Fund (collectively the funds) are the
investment portfolios comprising the Kemper State
Tax-Free Income Series (the trust). 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 a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class. Differences in class expenses
will result in the payment of different per share
income dividends by class. Each share of a fund has
equal rights with respect to voting, dividends and
assets, subject to class specific preferences.
- --------------------------------------------------------------------------------
2 SIGNIFICANT
ACCOUNTING POLICIES SECURITY VALUATION. Investments are stated at
value. Portfolio debt securities with remaining
maturities greater than sixty days are valued by
pricing agents approved by the officers of the
fund, whose quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations calculated
mean between the most recent bid and asked
quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased
with an original maturity of sixty days or less are
valued at amortized cost. An exchange-traded
options contract on securities, futures and other
financial instruments is valued at its most recent
sale price on such exchange. Lacking any sales, the
options contract is valued at the calculated mean.
Lacking any calculated mean, the options contract
is valued at the most recent bid quotation in the
case of a purchased options contract, or the most
recent asked quotation in the case of a written
options contract. An options contract on securities
and other financial instruments traded
over-the-counter is valued at the most recent bid
quotation in the case of a purchased options
contract and at the most recent asked quotation in
the case of a written options contract. All other
securities are valued at their fair value as
determined in good faith by the Valuation Committee
of the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. 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
31
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS
reduced by the amount of any applicable contingent
deferred sales charge. On each day the New York
Stock Exchange is open for trading, the net asset
value per share is determined as of the 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's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies, and to distribute
all of its taxable and tax-exempt income to its
shareholders. Accordingly, each fund paid no
federal income taxes and no federal income tax
provision was required.
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, are distributed at least
annually. Dividends are determined in accordance
with income tax principles which may treat certain
transactions differently from generally accepted
accounting principles.
- --------------------------------------------------------------------------------
3 TRANSACTIONS
WITH AFFILIATES MANAGEMENT AGREEMENT. The trust has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper). Under the trust's management
agreement each fund pays a monthly investment
management fee of 1/12 of the annual rate of .55%
of the first $250 million of average daily net
assets declining to .40% of average daily net
assets in excess of $12.5 billion. Management fees
incurred for the period ended February 28, 1999 are
as follows:
California $2,634,000
Florida 290,000
New York 769,000
Ohio 127,000
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The trust has an under-writing and
distribution services agreement with Kemper
Distributors, Inc. (KDI). Underwriting commissions
retained by KDI in connection with the distribution
of each fund's Class A shares for the six months
ended February 28, 1999 are as follows:
COMMISSIONS
RETAINED BY KDI
---------------
California $56,000
Florida 21,000
New York 19,000
Ohio 3,000
For services under the distribution services
agreement, each fund pays KDI a fee of .75% of
average daily net assets of Class B and Class C
shares pursuant to separate Rule 12b-1 plans for
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
32
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS
Class B and Class C shares. Distribution fees and
CDSC for the six months ended February 28, 1999 are
as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES COMMISSIONS AND
AND CDSC DISTRIBUTION FEES PAID
RECEIVED BY KDI BY KDI TO AFFILIATES
----------------- ----------------------
<S> <C> <C>
California $208,000 2,000
Florida 41,000 --
New York 68,000 --
Ohio 60,000 --
</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 28, 1999 are as follows:
<TABLE>
<CAPTION>
ASF PAID BY ASF PAID BY
THE FUND TO KDI KDI TO AFFILIATES
--------------- -----------------
<S> <C> <C>
California $866,000 --
Florida 97,000 1,000
New York 271,000 5,000
Ohio 51,000 --
</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. Under the agreement,
for the six months ended February 28, 1999, KSvC
received shareholder services fees as follows:
<TABLE>
<S> <C>
California $184,000
Florida 22,000
New York 68,000
Ohio 13,000
</TABLE>
OFFICERS AND TRUSTEES. Certain officers or trustees
of the trust are also officers or directors of
Scudder Kemper. For the six months ended February
28, 1999, the funds made no payments to their
officers and incurred trustees' fees aggregating
$21,000 to independent trustees.
- --------------------------------------------------------------------------------
4 INVESTMENT For the six months ended February 28, 1999,
TRANSACTIONS investment transactions (excluding short-term
instruments) are as follows (in thousands):
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA NEW YORK OHIO
---------- ------- -------- -----
<S> <C> <C> <C> <C>
Purchases $318,120 27,621 121,357 7,204
Proceeds from sales 347,746 29,406 125,601 2,820
</TABLE>
33
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5 CAPITAL SHARE The following tables summarize the activity in
TRANSACTIONS capital shares of the funds (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
----------------------- -----------------------
CALIFORNIA SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 19,001 $ 144,625 23,569 $ 178,026
--------------------------------------------------------------------------------
Class B 1,043 7,952 1,683 12,734
--------------------------------------------------------------------------------
Class C 8,838 66,962 11,621 87,312
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 3,180 24,018 5,163 38,989
--------------------------------------------------------------------------------
Class B 115 872 138 1,042
--------------------------------------------------------------------------------
Class C 14 108 19 142
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (23,642) (180,088) (30,796) (232,622)
--------------------------------------------------------------------------------
Class B (453) (3,460) (567) (4,288)
--------------------------------------------------------------------------------
Class C (8,773) (66,618) (10,960) (82,502)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 46 348 200 1,508
--------------------------------------------------------------------------------
Class B (46) (348) (200) (1,508)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NET DECREASE FROM
CAPITAL SHARE TRANSACTIONS $ (5,629) $ (1,167)
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
----------------------- -----------------------
FLORIDA SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 814 $ 8,582 1,067 $ 11,250
--------------------------------------------------------------------------------
Class B 176 1,844 308 3,227
--------------------------------------------------------------------------------
Class C 32 339 13 142
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 226 2,354 290 3,052
--------------------------------------------------------------------------------
Class B 10 101 11 117
--------------------------------------------------------------------------------
Class C 1 7 1 10
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (1,200) (12,592) (1,419) (14,927)
--------------------------------------------------------------------------------
Class B (97) (1,003) (104) (1,149)
--------------------------------------------------------------------------------
Class C (6) (67) (1) (11)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 15 161 19 201
--------------------------------------------------------------------------------
Class B (15) (161) (19) (201)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $ (435) $ 1,711
--------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
---------------------- ----------------------
NEW YORK SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 461 $ 5,092 1,255 $13,685
------------------------------------------------------------------------------
Class B 170 1,882 295 3,244
------------------------------------------------------------------------------
Class C 66 730 212 2,324
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 723 7,894 948 10,538
------------------------------------------------------------------------------
Class B 31 341 36 402
------------------------------------------------------------------------------
Class C 12 126 12 139
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES REDEEMED
Class A (1,115) (12,304) (3,067) (33,718)
------------------------------------------------------------------------------
Class B (69) (769) (105) (1,155)
------------------------------------------------------------------------------
Class C (25) (270) (156) (1,712)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 18 195 43 467
------------------------------------------------------------------------------
Class B (18) (195) (43) (467)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $ 2,722 $ (6,253)
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1999 AUGUST 31, 1998
---------------------- ----------------------
OHIO SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 253 $ 2,691 319 $ 3,297
------------------------------------------------------------------------------
Class B 218 2,307 258 2,688
------------------------------------------------------------------------------
Class C 20 215 59 611
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 49 519 99 1,027
------------------------------------------------------------------------------
Class B 16 165 27 282
------------------------------------------------------------------------------
Class C 2 19 3 28
------------------------------------------------------------------------------
------------------------------------------------------------------------------
SHARES REDEEMED
Class A (77) (814) (337) (3,501)
------------------------------------------------------------------------------
Class B (67) (706) (127) (1,297)
------------------------------------------------------------------------------
Class C (9) (90) (4) (39)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A -- -- -- --
------------------------------------------------------------------------------
Class B -- -- -- --
------------------------------------------------------------------------------
------------------------------------------------------------------------------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS $ 4,306 $ 3,096
------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 36
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------
CLASS A
------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, --------------------------
CALIFORNIA 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.65 7.52 7.31 7.35 7.22
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .17 .36 .38 .39 .39
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.06) .26 .25 .04 .17
- --------------------------------------------------------------------------------------------
Total from investment operations .11 .62 .63 .43 .56
- --------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .17 .36 .38 .39 .39
- --------------------------------------------------------------------------------------------
Distribution from net realized gain .09 .13 .04 .08 .04
- --------------------------------------------------------------------------------------------
Total dividends .26 .49 .42 .47 .43
- --------------------------------------------------------------------------------------------
Net asset value, end of period $7.50 7.65 7.52 7.31 7.35
- --------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 2.06% 8.56 8.78 5.92 8.13
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------
Expenses .75% .78 .79 .78 .74
- --------------------------------------------------------------------------------------------
Net investment income 4.56% 4.82 5.08 5.18 5.53
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------
CLASS B
------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, --------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.66 7.52 7.32 7.35 7.22
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .14 .30 .32 .32 .33
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.06) .27 .24 .05 .17
- --------------------------------------------------------------------------------------------
Total from investment operations .08 .57 .56 .37 .50
- --------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .14 .30 .32 .32 .33
- --------------------------------------------------------------------------------------------
Distribution from net realized gain .09 .13 .04 .08 .04
- --------------------------------------------------------------------------------------------
Total dividends .23 .43 .36 .40 .37
- --------------------------------------------------------------------------------------------
Net asset value, end of period $7.51 7.66 7.52 7.32 7.35
- --------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.65% 7.79 7.73 5.16 7.17
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- --------------------------------------------------------------------------------------------
Expenses 1.57% 1.63 1.62 1.63 1.60
- --------------------------------------------------------------------------------------------
Net investment income 3.74% 3.97 4.25 4.33 4.67
- --------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 37
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
------------------------------------------------
CLASS C
------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, ---------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $7.60 7.50 7.31 7.34 7.22
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .14 .30 .32 .32 .33
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.06) .23 .23 .05 .16
- ----------------------------------------------------------------------------------------------
Total from investment operations .08 .53 .55 .37 .49
- ----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .14 .30 .32 .32 .33
- ----------------------------------------------------------------------------------------------
Distribution from net realized gain .09 .13 .04 .08 .04
- ----------------------------------------------------------------------------------------------
Total dividends .23 .43 .36 .40 .37
- ----------------------------------------------------------------------------------------------
Net asset value, end of period $7.45 7.60 7.50 7.31 7.34
- ----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.67% 7.21 7.59 5.15 7.08
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------
Expenses 1.58% 1.62 1.60 1.64 1.56
- ----------------------------------------------------------------------------------------------
Net investment income 3.73% 3.98 4.27 4.32 4.71
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ---------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, -------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $1,000,169 1,024,272 1,007,907 1,040,538 1,087,232
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 64% 61 79 100 69
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE FOR ALL FUNDS:
- --------------------------------------------------------------------------------
Total return does not reflect the effect of sales charges.
Data for the period ended February 28, 1999 is unaudited.
37
<PAGE> 38
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------
CLASS A
-------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, ----------------------------------
FLORIDA 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.62 10.42 10.21 10.27 10.11
- ------------------------------------------------------------------------------------------------
Income from investment operations: Net
investment income .23 .49 .51 .52 .53
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.06) .35 .33 .08 .30
- ------------------------------------------------------------------------------------------------
Total from investment operations .17 .84 .84 .60 .83
- ------------------------------------------------------------------------------------------------
Less dividends: Distribution from net
investment income .23 .49 .51 .52 .53
- ------------------------------------------------------------------------------------------------
Distribution from net realized gain .22 .15 .12 .14 .14
- ------------------------------------------------------------------------------------------------
Total dividends .45 .64 .63 .66 .67
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $10.34 10.62 10.42 10.21 10.27
- ------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.67% 8.27 8.37 5.83 8.62
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------
Expenses .82% .85 .83 .84 .80
- ------------------------------------------------------------------------------------------------
Net investment income 4.56% 4.65 4.92 5.00 5.30
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, ----------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.60 10.40 10.19 10.26 10.10
- ------------------------------------------------------------------------------------------------
Income from investment operations: Net
investment income .19 .40 .42 .43 .44
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.05) .35 .33 .07 .30
- ------------------------------------------------------------------------------------------------
Total from investment operations .14 .75 .75 .50 .74
- ------------------------------------------------------------------------------------------------
Less dividends: Distribution from net
investment income .19 .40 .42 .43 .44
- ------------------------------------------------------------------------------------------------
Distribution from net realized gain .22 .15 .12 .14 .14
- ------------------------------------------------------------------------------------------------
Total dividends .41 .55 .54 .57 .58
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $10.33 10.60 10.40 10.19 10.26
- ------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.36% 7.38 7.48 4.84 7.67
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------
Expenses 1.63% 1.68 1.65 1.68 1.65
- ------------------------------------------------------------------------------------------------
Net investment income 3.75% 3.82% 4.10 4.16 4.45
- ------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 39
FINANCIAL Highlights
<TABLE>
<CAPTION>
--------------------------------------------------------
CLASS C
--------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, -----------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.60 10.41 10.20 10.26 10.10
- -------------------------------------------------------------------------------------------------------
Income from investment operations: Net
investment income .18 .40 .42 .43 .45
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.05) .34 .33 .08 .30
- -------------------------------------------------------------------------------------------------------
Total from investment operations .13 .74 .75 .51 .75
- -------------------------------------------------------------------------------------------------------
Less dividends: Distribution from net
investment income .18 .40 .42 .43 .45
- -------------------------------------------------------------------------------------------------------
Distribution from net realized gain .22 .15 .12 .14 .14
- -------------------------------------------------------------------------------------------------------
Total dividends .40 .55 .54 .57 .59
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.33 10.60 10.41 10.20 10.26
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.37% 7.26 7.49 4.97 7.84
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------------
Expenses 1.63% 1.69 1.64 1.64 1.52
- -------------------------------------------------------------------------------------------------------
Net investment income 3.75% 3.81 4.11 4.20 4.58
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, -----------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of period (in thousands) $104,314 107,531 103,845 108,105 117,292
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 53% 70 87 119 96
- -------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 40
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------
CLASS A
-------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, -----------------------------
NEW YORK 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.11 10.93 10.66 10.80 10.73
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .24 .53 .56 .56 .58
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain -- .36 .36 -- .20
- -----------------------------------------------------------------------------------------------
Total from investment operations .24 .89 .92 .56 .78
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .24 .53 .56 .56 .58
- -----------------------------------------------------------------------------------------------
Distribution from net realized gain .26 .18 .09 .14 .13
- -----------------------------------------------------------------------------------------------
Total dividends .50 .71 .65 .70 .71
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $10.85 11.11 10.93 10.66 10.80
- -----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 2.18% 8.44 8.77 5.26 7.62
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------
Expenses .84% .84 .83 .83 .81
- -----------------------------------------------------------------------------------------------
Net investment income 4.50% 4.81 5.15 5.15 5.47
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------
CLASS B
-------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, -----------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.13 10.94 10.66 10.80 10.73
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .20 .44 .47 .47 .48
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain -- .37 .37 -- .20
- -----------------------------------------------------------------------------------------------
Total from investment operations .20 .81 .84 .47 .68
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .20 .44 .47 .47 .48
- -----------------------------------------------------------------------------------------------
Distribution from net realized gain .26 .18 .09 .14 .13
- -----------------------------------------------------------------------------------------------
Total dividends .46 .62 .56 .61 .61
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $10.87 11.13 10.94 10.66 10.80
- -----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.75% 7.65 7.96 4.36 6.69
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -----------------------------------------------------------------------------------------------
Expenses 1.65% 1.67 1.67 1.69 1.67
- -----------------------------------------------------------------------------------------------
Net investment income 3.69% 3.98 4.31 4.29 4.61
- -----------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 41
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
--------------------------------------------------
CLASS C
--------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, ------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $11.10 10.92 10.65 10.79 10.73
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .21 .44 .47 .47 .48
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain -- .36 .36 -- .19
- -------------------------------------------------------------------------------------------------
Total from investment operations .21 .80 .83 .47 .67
- -------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .21 .44 .47 .47 .48
- -------------------------------------------------------------------------------------------------
Distribution from net realized gain .26 .18 .09 .14 .13
- -------------------------------------------------------------------------------------------------
Total dividends .47 .62 .56 .61 .61
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $10.84 11.10 10.92 10.65 10.79
- -------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.78% 7.56 7.87 4.38 6.64
- -------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- -------------------------------------------------------------------------------------------------
Expenses 1.65% 1.67 1.65 1.67 1.62
- -------------------------------------------------------------------------------------------------
Net investment income 3.69% 3.98 4.33 4.31 4.66
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- -------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, -------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $280,407 284,320 285,934 302,346 319,477
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 86% 77 92 104 112
- -------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 42
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-----------------------------------------------
CLASS A
-----------------------------------------------
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, ----------------------------
OHIO 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.54 10.22 9.93 9.81 9.56
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .22 .47 .47 .48 .50
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.02) .39 .32 .12 .25
- ----------------------------------------------------------------------------------------------
Total from investment operations .20 .86 .79 .60 .75
- ----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .22 .47 .47 .48 .50
- ----------------------------------------------------------------------------------------------
Distribution from net realized gain .04 .07 .03 -- --
- ----------------------------------------------------------------------------------------------
Total dividends .26 .54 .50 .48 .50
- ----------------------------------------------------------------------------------------------
Net asset value, end of period $10.48 10.54 10.22 9.93 9.81
- ----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.96% 8.57 8.17 6.16 8.20
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------
Expenses .87% .87 .89 .91 .63
- ----------------------------------------------------------------------------------------------
Net investment income 4.35% 4.51 4.69 4.78 5.27
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------
CLASS B
-----------------------------------------------
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, ----------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.54 10.22 9.93 9.81 9.56
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .38 .39 .39 .44
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.03) .39 .32 .12 .25
- ----------------------------------------------------------------------------------------------
Total from investment operations .16 .77 .71 .51 .69
- ----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .19 .38 .39 .39 .44
- ----------------------------------------------------------------------------------------------
Distribution from net realized gain .04 .07 .03 -- --
- ----------------------------------------------------------------------------------------------
Total dividends .23 .45 .42 .39 .44
- ----------------------------------------------------------------------------------------------
Net asset value, end of period $10.47 10.54 10.22 9.93 9.81
- ----------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.47% 7.69 7.29 5.30 7.57
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ----------------------------------------------------------------------------------------------
Expenses 1.66% 1.69 1.70 1.73 1.32
- ----------------------------------------------------------------------------------------------
Net investment income 3.56% 3.69 3.88 3.96 4.58
- ----------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 43
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------
CLASS C
-------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, -----------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.54 10.22 9.93 9.81 9.56
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .38 .39 .39 .44
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.03) .39 .32 .12 .25
- ------------------------------------------------------------------------------------------------
Total from investment operations .16 .77 .71 .51 .69
- ------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .19 .38 .39 .39 .44
- ------------------------------------------------------------------------------------------------
Distribution from net realized gain .04 .07 .03 -- --
- ------------------------------------------------------------------------------------------------
Total dividends .23 .45 .42 .39 .44
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $10.47 10.54 10.22 9.93 9.81
- ------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) 1.48% 7.70 7.32 5.28 7.56
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED)
- ------------------------------------------------------------------------------------------------
Expenses 1.65% 1.67 1.68 1.74 1.27
- ------------------------------------------------------------------------------------------------
Net investment income 3.57% 3.71 3.90 3.95 4.63
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ---------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, ---------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Net assets at end of period (in thousands) $47,810 43,841 39,468 37,100 31,450
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate (annualized) 12% 15 52 86 90
- ---------------------------------------------------------------------------------------------------
</TABLE>
NOTE FOR OHIO FUND:
Scudder Kemper Investments, Inc. agreed to temporarily waive and absorb certain
operating expenses of the fund for the fiscal year ended August 31, 1995. Absent
this waiver, the ratios of expenses to average net assets would have increased
and the ratios of net investment income to average net assets would have
decreased by the following amounts:
0.20% for Class A, 0.43% for Class B and 0.42% for Class C, respectively.
43
<PAGE> 44
SHAREHOLDERS' MEETING
SPECIAL SHAREHOLDERS' MEETING
On December 17, 1998, a special shareholders' meeting was held. Kemper State
Tax-Free Income Series shareholders of each series were asked to vote on two
separate issues: approval of the new Investment Management Agreement between the
funds and Scudder Kemper Investments, Inc., and to modify or eliminate certain
policies and to eliminate the shareholder approval requirement as to certain
other matters. The following are the results.
KEMPER CALIFORNIA TAX-FREE INCOME FUND
1) Approval of the new Investment Management Agreement between the fund and
Scudder Kemper Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
86,108,120 2,080,528 4,325,156
</TABLE>
2) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
Investment objectives
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
62,693,090 3,967,000 8,202,220 17,651,493
</TABLE>
Investment policies
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
62,714,558 3,934,234 8,213,518 17,651,493
</TABLE>
Diversification
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
62,732,669 3,916,123 8,213,518 17,651,493
</TABLE>
Borrowing
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
62,709,398 3,939,395 8,213,518 17,651,493
</TABLE>
Senior securities
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
62,786,289 3,862,503 8,213,518 17,651,493
</TABLE>
Concentration
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
62,770,492 3,878,300 8,213,518 17,651,493
</TABLE>
Underwriting of securities
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
62,772,699 3,876,093 8,213,518 17,651,493
</TABLE>
Investment in real estate
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
62,751,109 3,897,683 8,213,518 17,651,493
</TABLE>
Purchase of commodities
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
62,714,472 3,934,320 8,213,518 17,651,493
</TABLE>
Lending
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
62,690,425 3,958,367 8,213,518 17,651,493
</TABLE>
Margin purchases and short sales
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
62,608,600 4,040,192 8,213,518 17,651,493
</TABLE>
Pledging of assets
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
62,685,927 3,962,865 8,213,518 17,651,493
</TABLE>
Purchases of options and warrants
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
62,673,768 3,975,024 8,213,518 17,651,493
</TABLE>
Investment other than in accordance with objectives and policies
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
<S> <C> <C> <C>
62,475,973 4,172,819 8,213,518 17,651,493
</TABLE>
44
<PAGE> 45
SHAREHOLDERS' MEETING
KEMPER FLORIDA TAX-FREE INCOME FUND
1) Approval of the new Investment Management Agreement between the fund and
Scudder Kemper Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
7,338,702 147,581 206,890
</TABLE>
2) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
Investment objectives
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
5,212,814 746,891 372,876 1,360,591
</TABLE>
Investment policies
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
5,213,365 746,340 372,876 1,360,591
</TABLE>
Diversification
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
5,213,365 746,340 372,876 1,360,591
</TABLE>
Borrowing
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
5,182,194 777,512 372,876 1,360,591
</TABLE>
Senior securities
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
5,213,365 746,340 372,876 1,360,591
</TABLE>
Concentration
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
5,213,365 746,340 372,876 1,360,591
</TABLE>
Underwriting of securities
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
5,213,365 746,340 372,876 1,360,591
</TABLE>
Investment in real estate
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
5,212,029 747,677 372,876 1,360,591
</TABLE>
Purchase of commodities
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
5,188,974 770,732 372,876 1,360,591
</TABLE>
Lending
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
5,211,535 748,171 372,876 1,360,591
</TABLE>
Margin purchases and short sales
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
5,169,232 790,473 372,876 1,360,591
</TABLE>
Pledging of assets
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
5,199,684 760,022 372,876 1,360,591
</TABLE>
Purchases of options and warrants
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
5,194,790 764,916 372,876 1,360,591
</TABLE>
Investment other than in accordance with objectives and policies
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
5,164,388 795,318 372,876 1,360,591
</TABLE>
45
<PAGE> 46
SHAREHOLDERS' MEETING
KEMPER NEW YORK TAX-FREE INCOME FUND
1) Approval of the new Investment Management Agreement between the fund and
Scudder Kemper Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
18,496,060 305,314 846,454
</TABLE>
2) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
Investment objectives
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
13,349,321 532,086 1,455,325 4,311,095
</TABLE>
Investment policies
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
13,343,922 536,319 1,456,491 4,311,095
</TABLE>
Diversification
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
13,345,429 534,812 1,456,491 4,311,095
</TABLE>
Borrowing
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
13,337,226 543,015 1,456,491 4,311,095
</TABLE>
Senior securities
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
13,347,663 532,578 1,456,491 4,311,095
</TABLE>
Concentration
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
13,345,777 534,464 1,456,491 4,311,095
</TABLE>
Underwriting of securities
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
13,347,176 533,065 1,456,491 4,311,095
</TABLE>
Investment in real estate
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
13,344,531 535,710 1,456,491 4,311,095
</TABLE>
Purchase of commodities
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
13,319,106 561,135 1,456,491 4,311,095
</TABLE>
Lending
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
13,342,944 537,297 1,456,491 4,311,095
</TABLE>
Margin purchases and short sales
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
13,325,195 555,046 1,456,491 4,311,095
</TABLE>
Pledging of assets
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
13,310,645 569,596 1,456,491 4,311,095
</TABLE>
Purchases of options and warrants
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
13,315,390 564,851 1,456,491 4,311,095
</TABLE>
Investment other than in accordance with objectives and policies
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
13,271,193 609,048 1,456,491 4,311,095
</TABLE>
46
<PAGE> 47
SHAREHOLDERS' MEETING
KEMPER OHIO TAX-FREE INCOME FUND
1) Approval of the new Investment Management Agreement between the fund and
Scudder Kemper Investments, Inc. This item was approved.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
3,315,028 21,342 117,843
</TABLE>
2) To modify or eliminate certain policies and to eliminate the shareholder
approval requirements as to certain other matters. These items were approved.
Investment objectives
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
2,114,402 86,724 253,714 999,373
</TABLE>
Diversification
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
2,114,402 86,724 253,714 999,373
</TABLE>
Borrowing
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
2,114,443 86,684 253,714 999,373
</TABLE>
Senior securities
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
2,114,443 86,684 253,714 999,373
</TABLE>
Concentration
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
2,114,443 86,684 253,714 999,373
</TABLE>
Underwriting of securities
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
2,114,443 86,684 253,714 999,373
</TABLE>
Investment in real estate
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
2,114,443 86,684 253,714 999,373
</TABLE>
Purchase of commodities
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
2,111,997 89,130 253,714 999,373
</TABLE>
Lending
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
2,114,443 86,684 253,714 999,373
</TABLE>
Margin purchases and short sales
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
2,111,997 89,130 253,714 999,373
</TABLE>
Pledging of assets
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
2,114,443 86,684 253,714 999,373
</TABLE>
Purchases of options and warrants
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
2,111,997 89,130 253,714 999,373
</TABLE>
Investment other than in accordance with objectives and policies
<TABLE>
<CAPTION>
Broker
For Against Abstain non-votes
<S> <C> <C> <C>
2,111,957 89,170 253,714 999,373
</TABLE>
47
<PAGE> 48
TRUSTEES AND OFFICERS
TRUSTEES OFFICERS
DANIEL PIERCE MARK S. CASADY MAUREEN E. KANE
Chairman and Trustee President Assistant Secretary
LEWIS A. BURNHAM PHILIP J. COLLORA CAROLINE PEARSON
Trustee Vice President and Assistant Secretary
Secretary
DONALD L. DUNAWAY ELIZABETH C. WERTH
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
ROBERT B. HOFFMAN BRENDA LYONS
Trustee ANN M. MCCREARY Assistant Treasurer
Vice President
DONALD R. JONES
Trustee ROBERT C. PECK, JR.
Vice President
THOMAS W. LITTAUER
Trustee and Vice President KATHRYN L. QUIRK
Vice President
SHIRLEY D. PETERSON
Trustee LINDA J. WONDRACK
Vice President
WILLIAM P. SOMMERS
Trustee
- --------------------------------------------------------------------------------
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
- --------------------------------------------------------------------------------
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 419557
Kansas City, MO 64141
- --------------------------------------------------------------------------------
CUSTODIAN AND INVESTORS FIDUCIARY TRUST COMPANY
TRANSFER AGENT 801 Pennsylvania Avenue
Kansas City, MO 64105
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
[RECYCLED LOGO]
Printed on recycled paper in the U.S.A.
This report is not to be distributed unless preceded
or accompanied by a Kemper Tax-Free Income Funds
prospectus.
KSTIS-3 (4/19/99) 1071090
[KEMPER FUNDS LOGO]
