<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
ANNUAL REPORT TO
SHAREHOLDERS FOR THE YEAR
ENDED AUGUST 31, 2000
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
"... Municipal bond prices rebounded as U.S. economic growth slowed to a more
sustainable pace. Throughout the year credit quality held firm in many states.
..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
4
ECONOMIC OVERVIEW
8
MANAGEMENT TEAM
9
PERFORMANCE UPDATE
12
TERMS TO KNOW
13
CALIFORNIA'S PORTFOLIO STATISTICS AND PORTFOLIO OF INVESTMENTS
23
FLORIDA'S PORTFOLIO STATISTICS AND PORTFOLIO OF INVESTMENTS
29
NEW YORK'S PORTFOLIO STATISTICS AND PORTFOLIO OF INVESTMENTS
AT A GLANCE
KEMPER STATE TAX-FREE INCOME FUNDS' TOTAL RETURNS
FOR THE YEAR ENDED AUGUST 31, 2000 (UNADJUSTED FOR SALES CHARGE):
CALIFORNIA
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER CALIFORNIA TAX- LIPPER CALIFORNIA TAX-FREE
KEMPER CALIFORNIA TAX- FREE INCOME FUND CLASS INCOME FUNDS CATEGORY
KEMPER CALIFORNIA TAX-FREE INCOME FUND CLASS A FREE INCOME FUND CLASS B C AVERAGE*
---------------------------------------------- ------------------------ ---------------------- --------------------------
<S> <C> <C> <C>
7.97% 7.14% 7.34% 6.47%
</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>
6.15% 5.32% 5.34% 4.86%
</TABLE>
NEW YORK
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER NEW YORK TAX- LIPPER NEW YORK TAX-FREE
KEMPER NEW YORK TAX- FREE INCOME FUND CLASS INCOME FUNDS CATEGORY
KEMPER NEW YORK TAX-FREE INCOME FUND CLASS A FREE INCOME FUND CLASS B C AVERAGE*
-------------------------------------------- ------------------------ ---------------------- ------------------------
<S> <C> <C> <C>
6.50% 5.60% 5.64% 5.29%
</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>
4.58% 3.73% 3.74% 4.85%
</TABLE>
RETURNS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN
AND PRINCIPAL VALUE 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
8/31/00 8/31/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER CALIFORNIA TAX-FREE
INCOME FUND CLASS A $7.30 $7.10
.........................................................
KEMPER CALIFORNIA TAX-FREE
INCOME FUND CLASS B $7.31 $7.11
.........................................................
KEMPER CALIFORNIA TAX-FREE
INCOME FUND CLASS C $7.26 $7.05
.........................................................
</TABLE>
FLORIDA
<TABLE>
<CAPTION>
AS OF AS OF
8/31/00 8/31/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER FLORIDA TAX-FREE INCOME
FUND CLASS A $9.85 $9.72
.........................................................
KEMPER FLORIDA TAX-FREE INCOME
FUND CLASS B $9.83 $9.71
.........................................................
KEMPER FLORIDA TAX-FREE INCOME
FUND CLASS C $9.83 $9.71
.........................................................
</TABLE>
NEW YORK
<TABLE>
<CAPTION>
AS OF AS OF
8/31/00 8/31/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER NEW YORK TAX-FREE
INCOME FUND CLASS A $10.39 $10.22
.........................................................
KEMPER NEW YORK TAX-FREE
INCOME FUND CLASS B $10.40 $10.23
.........................................................
KEMPER NEW YORK TAX-FREE
INCOME FUND CLASS C $10.38 $10.21
.........................................................
</TABLE>
OHIO
<TABLE>
<CAPTION>
AS OF AS OF
8/31/00 8/31/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER OHIO TAX-FREE INCOME
FUND CLASS A $9.96 $9.97
.........................................................
KEMPER OHIO TAX-FREE INCOME
FUND CLASS B $9.95 $9.97
.........................................................
KEMPER OHIO TAX-FREE INCOME
FUND CLASS C $9.96 $9.97
.........................................................
</TABLE>
<PAGE> 3
CONTENTS
35
OHIO'S PORTFOLIO STATISTICS AND PORTFOLIO OF INVESTMENTS
41
FINANCIAL STATEMENTS
45
FINANCIAL HIGHLIGHTS
53
NOTES TO FINANCIAL STATEMENTS
60
REPORT OF INDEPENDENT AUDITORS
61
TAX INFORMATION
AT A GLANCE
KEMPER TAX-FREE INCOME FUNDS' LIPPER RANKINGS AS OF 8/31/00*
CALIFORNIA MUNICIPAL DEBT CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..........................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #10 of 109 funds #44 of 109 funds #35 of 109 funds
..........................................................................................
5-YEAR #28 of 85 funds #65 of 85 funds #72 of 85 funds
..........................................................................................
10-YEAR #12 of 40 funds n/a n/a
..........................................................................................
</TABLE>
FLORIDA MUNICIPAL DEBT CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..........................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #9 of 64 funds #25 of 64 funds #24 of 64 funds
..........................................................................................
5-YEAR #20 of 54 funds #47 of 54 funds #46 of 54 funds
..........................................................................................
</TABLE>
NEW YORK MUNICIPAL DEBT CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..........................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #12 of 105 funds #48 of 105 funds #46 of 105 funds
..........................................................................................
5-YEAR #25 of 82 funds #70 of 82 funds #69 of 82 funds
..........................................................................................
10-YEAR #12 of 34 funds n/a n/a
..........................................................................................
</TABLE>
OHIO MUNICIPAL DEBT CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..........................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #32 of 50 funds #48 of 50 funds #47 of 50 funds
..........................................................................................
5-YEAR #12 of 45 funds #34 of 45 funds #32 of 45 funds
..........................................................................................
</TABLE>
*LIPPER, INC. RANKINGS ARE BASED UPON CHANGES IN NET ASSET VALUE WITH ALL
DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF SALES CHARGES; IF SALES
CHARGES HAD BEEN INCLUDED, RESULTS MIGHT HAVE BEEN LESS FAVORABLE. RANKINGS ARE
HISTORICAL AND DO NOT REFLECT FUTURE PERFORMANCE.
DIVIDEND REVIEW
THE FOLLOWING TABLES SHOW PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE
FUNDS AS OF AUGUST 31, 2000.
CALIFORNIA
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
...........................................................
<S> <C> <C> <C> <C> <C>
ONE-YEAR INCOME: $0.3440 $0.2902 $0.2893
...........................................................
AUGUST DIVIDEND: $0.0290 $0.0243 $0.0242
...........................................................
ANNUALIZED
DISTRIBUTION RATE:+ 4.77% 4.00% 4.00%
...........................................................
SEC YIELD:+ 4.19% 3.62% 3.62%
...........................................................
TAX EQUIVALENT YIELD: 7.33% 6.34% 6.34%
...........................................................
BASED ON A MARGINAL 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> <C> <C>
ONE-YEAR INCOME: $0.4458 $0.3790 $0.3806
...........................................................
AUGUST DIVIDEND: $0.0372 $0.0319 $0.0319
...........................................................
ANNUALIZED
DISTRIBUTION RATE:+ 4.53% 3.90% 3.90%
...........................................................
SEC YIELD:+ 4.17% 3.62% 3.62%
...........................................................
TAX EQUIVALENT YIELD: 6.63% 5.76% 5.76%
...........................................................
BASED ON A MARGINAL TAX RATE OF 37.1% (COMBINED
FLORIDA STATE AND FEDERAL INCOME TAX RATE)
...........................................................
</TABLE>
NEW YORK
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
...........................................................
<S> <C> <C> <C> <C> <C>
ONE-YEAR INCOME: $0.4690 $0.3841 $0.3870
...........................................................
AUGUST DIVIDEND: $0.0393 $0.0322 $0.0324
...........................................................
ANNUALIZED
DISTRIBUTION RATE:+ 4.55% 3.71% 3.75%
...........................................................
SEC YIELD:+ 4.21% 3.66% 3.66%
...........................................................
TAX EQUIVALENT YIELD: 7.54% 6.56% 6.56%
...........................................................
BASED ON A MARGINAL INCOME TAX RATE OF 44.2%
(COMBINED NEW YORK STATE AND FEDERAL INCOME TAX
RATE)
...........................................................
</TABLE>
OHIO
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
...........................................................
<S> <C> <C> <C> <C> <C>
ONE-YEAR INCOME: $0.4600 $0.3777 $0.3794
...........................................................
AUGUST DIVIDEND: $0.0376 $0.0307 $0.0310
...........................................................
ANNUALIZED
DISTRIBUTION RATE:+ 4.53% 3.71% 3.74%
...........................................................
SEC YIELD:+ 3.95% 3.35% 3.37%
...........................................................
TAX EQUIVALENT YIELD: 6.72% 5.70% 5.73%
...........................................................
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 AUGUST 31, 2000. DISTRIBUTION RATE
SIMPLY MEASURES THE LEVEL OF DIVIDENDS AND IS NOT A COMPLETE MEASURE OF
PERFORMANCE. THE SEC YIELD IS NET INVESTMENT INCOME PER SHARE EARNED OVER THE
MONTH ENDED AUGUST 31, 2000, SHOWN AS AN ANNUALIZED PERCENTAGE OF THE MAXIMUM
OFFERING PRICE ON THAT DATE. THE SEC YIELD IS COMPUTED IN ACCORDANCE WITH THE
STANDARDIZED METHOD PRESCRIBED BY THE SECURITIES AND EXCHANGE COMMISSION. TAX
EQUIVALENT YIELD IS BASED ON THE FUND'S YIELD AND THE 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
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
Times have been good. During the first half of 2000, the global economy put on
more speed than it has in over a decade. All regions participated. The United
States, of course, was still powering ahead. The growth rate in Europe was
nearly 4 percent. Asia fed off an electronics boom and a revitalized China.
South America got a boost from an improved credit rating. New money pumped up
energy producers from Mexico to the Middle East.
Now for the bad news, which is that the best news is probably behind us.
Global growth peaked in the spring, and in the United States, at least, the
slowdown was abrupt. After 6 percent growth in the year ending June 30, we
estimate that the economy grew at a rate of less 3 percent rate during the
summer. It seems that expensive energy, currency volatility and more widespread
profit problems, are bringing the exuberant global economy, including the United
States, to heel. Let's explore these factors in more detail.
OIL, OIL, TOIL AND TROUBLE
Everyone's talking about oil prices, and with good reason: They have a
particularly pernicious history of disrupting the economy. Of the seven
recessions since World War II, six were preceded by a spike in crude oil prices.
Oil prices have already been strong enough for long enough to crimp growth,
and they're biting the rest of the world even harder than the United States. But
there are two factors working to our advantage. First, oil prices are still
historically low. Oil is slightly more than $30 per barrel today, but it peaked
at over $75 per barrel back in 1980 (stated in today's dollars). Second, our
dependence on oil has decreased: The United States uses only roughly half as
much oil to produce a unit of gross domestic product (GDP) as it did thirty
years ago. This gives us hope that the economy can escape recession this time
around.
What would make us worry more? Outright energy shortages or a political
crisis. If either happens, the odds of a recession occurring would rise steeply.
People panic or become excessively cautious when they have to fret. Can I fill
up my oil tank? Will there be a war? Their loss of confidence can be much more
devastating than price increases alone.
CURRENCY CONCERNS
Currency turmoil is a second danger to the economy. Central bankers have
intervened to halt the euro's decline, and they're right that the euro is
fundamentally undervalued. But intervention is a hazardous game. Let's hope they
don't convince the markets that the euro should rise a lot very quickly. A
suddenly weak dollar might make Europeans think about selling all those American
stocks and bonds they've been buying, and would greatly complicate the Fed's
inflation fight.
BUSINESS: BIG PLANS BUT PROFIT DISAPPOINTMENTS
Profit warnings escalated late this summer, and we believe there's fire amid
that smoke.
Sure, businesses have had a voracious appetite for money -- and corporate
treasurers are finding it easily. Banks increased business lending by 11.5
percent in the past year, and the bond markets are healthy, with only the lowest
credit-quality companies experiencing any difficulty issuing bonds. Capital
goods orders reflect executives' enthusiasm -- they've been accelerating since
early in the year, and in August were up more than 15 percent compared to a year
ago.
Still, we expect total capital spending to slow, from this year's estimated 14
percent to 12.5 percent in 2001. The reason? A profit squeeze is about to take
some of the edge off executives' animal spirits.
We've always been more cautious than Wall Street about 2001 profits, and our
forecast hasn't changed. Profits are likely to be flat to down next year for
several reasons. First, growth slowdown will make it harder to keep up the
productivity gains that have kept labor costs under control. Second, interest
expense will surge (thanks to higher rates and all that new debt). Third,
depreciation costs are escalating. And finally, the excessively weak euro and
higher oil costs will sap earnings.
SAVING GRACES: FISCAL POLICY AND CONSUMER SPENDING
While growth has peaked and is now slowing, we can be thankful that growth
probably won't slow too much, thanks in part to a more stimulative fiscal policy
and consumer spending.
4
<PAGE> 5
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES.
THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (8/31/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 5.80 6.30 5.90 4.80
Prime rate (2) 9.50 9.00 8.25 8.50
Inflation rate (3)* 3.30 3.20 2.30 1.70
The U.S. dollar (4) 8.40 0.60 -3.30 4.10
Capital goods orders (5)* 16.10 8.40 1.90 15.60
Industrial production (5)* 5.80 5.30 3.10 4.40
Employment growth (6) 1.90 2.30 2.20 2.50
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF 8/31/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
ECONOMIC OVERVIEW
Fiscal policy is likely to be more stimulative no matter who wins the
presidential election. Of course, most economists agree that the last thing this
pumped-up economy needs is another shot of stimulants -- too much stimulus,
after all, is widely believed to cause inflation. But economists aren't running
for office. Politicians are. And inflation risk is about the last thing on the
minds of politicians in the heat of their election campaigns. They want to win
votes, and the time-tested way to do so is to make promises. Whatever their
political differences, neither candidate is planning a lot of fiscal restraint.
The good news is that neither candidate's plan is likely to be enacted until
2002 at the earliest. And even then, each candidate's plan maintains a portion
of the surplus stemming from Social Security receipts -- a surplus that should
reach new heights in 2001.
Second, consumers continue to spend, spend, spend. The personal savings rate
keeps falling, from an already low 2.2 percent last year to a nearly invisible
0.1 percent this year. Critics of this admittedly squishy statistic claim it
doesn't adequately capture households' growing wealth. As it turns out, however,
the average American not only doesn't save much, but he's not getting wealthier
in leaps and bounds, either.
Net worth for the median family where the head of the household is over 45
(and where thoughts are presumably beginning to turn to retirement) rose less
than $13,000 between 1995 and 1998. That's less than a 12 percent gain during
the same three years the stock market nearly doubled and the market value of
owner-occupied homes jumped 21 percent. Why didn't the average family get
richer? Because they were borrowing and spending like crazy. House values were
up 21 percent -- but mortgage debt rose even faster, by 25 percent!
Consumers' profligacy worries many financial professionals. Some people aren't
saving enough for retirement because they have inflated expectations of future
investment returns. Other people aren't saving enough for retirement because
they don't realize just how much money they'll need. Either way, people aren't
saving.
Still, no one wants consumers to change their profligate ways too fast. After
all, hearty consumer spending is a prime reason America's growth has stayed on a
fast track so far. Most economists would like to see shoppers be a bit more
moderate -- but only a bit. If Americans suddenly turned thrifty, the economy
would lurch into reverse.
5
<PAGE> 6
ECONOMIC OVERVIEW
Luckily, there's little chance of that happening, unless lenders get cold
feet. So far, they're hot to trot. In the past year, mortgage lending by banks
rocketed nearly 17 percent while loans to consumers jumped 10 percent. Brokers
are selling the loans banks don't want on their balance sheets to mortgage pools
and the asset-backed securities market, where eager non-bank lenders are
snapping them up. In the past year, these markets provided $625 billion of new
credit, a leap of more than 12 percent.
With so much money at their disposal, consumers won't stay out of the shopping
centers and restaurants for long. We expect consumer spending growth to move
back above 3 percent by early next year and stay there.
OMINOUS SIGNS?
Decelerations are always tricky, to be sure. But barring some unexpected
shock, growth should pop back into the 3.5 percent to 4 percent range in 2001.
Why? Borrowing costs a little more than it did last year, but banks and the bond
market are still lending freely. Capital goods orders are strong, so there's a
lot of life left in business spending. Shoppers are a little pickier, but
they're still more interested in visiting the mall than in filling their piggy
banks. And after the election, no matter who wins, fiscal policy is likely to be
more stimulative than it has been for years. The price to pay will likely be a
rise in core inflation (inflation excluding food and energy). We expect it to
hit 3 percent next year, up from its recent rate of 2.5 percent. We believe
we'll make it safely through 2001, but investors should keep their hands on the
wheel and their eyes peeled.
Sincerely,
Kemper Distributors, Inc.
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF OCTOBER 5, 2000, AND MAY NOT ACTUALLY COME TO PASS. THIS
INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS AN
INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
6
<PAGE> 7
ECONOMIC OVERVIEW
(THIS PAGE INTENTIONALLY LEFT BLANK)
7
<PAGE> 8
MANAGEMENT TEAM
KEMPER STATE TAX-FREE INCOME SERIES
PORTFOLIO MANAGEMENT TEAM
[BRENNAN PHOTO]
ELEANOR R. BRENNAN IS CO-LEAD PORTFOLIO MANAGER OF KEMPER CALIFORNIA, KEMPER
FLORIDA AND KEMPER OHIO TAX-FREE INCOME FUNDS. BRENNAN JOINED THE FIRM IN 1995
AND IS A SENIOR VICE PRESIDENT. SHE RECEIVED HER B.A. IN ECONOMICS FROM URSINUS
COLLEGE AND AN M.S. IN FINANCE FROM DREXEL UNIVERSITY.
[CAGGIANO PHOTO]
MATTHEW J. CAGGIANO IS A PORTFOLIO MANAGER OF KEMPER CALIFORNIA TAX-FREE INCOME
FUND. HE HAS 10 YEARS OF PROFESSIONAL INVESTMENT EXPERIENCE AND JOINED SCUDDER
KEMPER INVESTMENTS IN 1990.
[CONDON PHOTO]
PHILIP G. CONDON IS CO-LEAD PORTFOLIO MANAGER OF KEMPER CALIFORNIA, KEMPER
FLORIDA, KEMPER NEW YORK AND KEMPER OHIO TAX-FREE INCOME FUNDS. HE HAS 24 YEARS
OF PROFESSIONAL INVESTMENT EXPERIENCE AND JOINED THE FIRM IN 1983 AS A FIXED-
INCOME ANALYST.
[GOODFIELD PHOTO]
ASHTON P. GOODFIELD IS CO-LEAD PORTFOLIO MANAGER FOR KEMPER NEW YORK TAX-FREE
INCOME FUND. SHE IS A SENIOR VICE PRESIDENT WITH 14 YEARS OF PROFESSIONAL
INVESTMENT EXPERIENCE. SHE JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1986.
[WILSON PHOTO]
REBECCA L. WILSON IS A PORTFOLIO MANAGER FOR KEMPER FLORIDA AND KEMPER OHIO
TAX-FREE INCOME FUNDS. SHE JOINED SCUDDER KEMPER INVESTMENTS IN 1986. SHE HAS 14
YEARS OF PROFESSIONAL INVESTMENT EXPERIENCE.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS AND SHOULD NOT BE CONSIDERED AS A RECOMMENDATION OF ANY SPECIFIC
SECURITY.
8
<PAGE> 9
PERFORMANCE UPDATE
MUNICIPAL BONDS HAVE FACED A CHALLENGING ENVIRONMENT SINCE AUGUST 1999. CAREFUL
SECURITY SELECTION AND SAVVY CURVE POSITIONING IN A RISING-INTEREST-RATE
ENVIRONMENT HELPED DELIVER ATTRACTIVE RESULTS. BELOW, THE MANAGEMENT TEAM
DISCUSSES THE MARKET'S PERFORMANCE AND HOW KEMPER STATE TAX-FREE INCOME FUNDS
ARE POSITIONED FOR THE YEAR AHEAD.
Q HOW DID THE MUNICIPAL BOND MARKET BEHAVE DURING FISCAL YEAR 2000?
A During the 12 months ended August 31, 2000, interest rates fluctuated
sharply. Short-term rates rose while long-term rates fell. Strong U.S. economic
growth prompted the Federal Reserve Board Open Market Committee to raise its
short-term interest-rate target by 125 basis points (1.25 percentage points) to
6.50 percent during the period. By late summer, inflationary pressures appeared
to ebb following a period that saw commodity moved prices upward while the
nation's unemployment rate fell to 30-year lows.
In the municipal bond market, the initial challenge in the summer of 1999 was
to preserve capital as bond prices and investor demand fell. However, by the
spring of 2000, municipal bond prices rebounded as U.S. economic growth slowed
to a more sustainable pace. Throughout the year, credit quality held firm in
many states, and rating services upgraded New York and California municipal
debt.
Shrinking new supplies of municipal debt created intense competition for
attractively priced securities with above-average income and total return
prospects. As of August 31, 2000, the volume of new issuance was down 20 percent
from earlier levels in the year, to about $124 billion. California and Ohio had
even larger percentage declines in new issuance for the period.
Municipal bond yields fluctuated substantially during fiscal year 2000. The
yield of the Bond Buyer Revenue Bond index, an unmanaged group of municipal
bonds that vary in quality and maturity (see Terms To Know, on page 10), hit a
five-year high of 6.35 percent in January. Bond prices then began to rise, and
by August 31, the index's yield had fallen to 5.72 percent. Within the funds, we
took advantage of a major shift in the shape of the municipal yield curve at the
end of calendar year 1999 to increase income potential and build more call
protection.
Q HOW DID EACH KEMPER STATE TAX-FREE INCOME FUND PERFORM BETWEEN AUGUST 1999
AND AUGUST 2000?
A It was a great year for Kemper California Tax-Free Income Fund and a
strong year for Kemper New York Tax-Free Income Fund and Kemper Florida Tax-Free
Income Fund. Results for Kemper Ohio Tax-Free Income Fund were more modest,
reflecting market conditions and bond issuance patterns within the state.
The California fund's 7.97 percent 12-month total return (as of August 31,
2000, for Class A Shares, unadjusted for a sales charge) substantially outpaced
the average of the fund's peers and finished ahead of both the unmanaged Lehman
Brothers Municipal Bond index (up 6.77 percent) and the unmanaged Lehman
Brothers California Exempt Bond index (up 7.82 percent).* The New York and
Florida funds' results also outpaced the average return of their respective peer
groups for the 12 months ended August 31, 2000. The Ohio fund's fiscal-year
return was slightly less than its peer-group average.
* THE LEHMAN BROTHERS MUNICIPAL BOND INDEX AND LEHMAN BROTHERS CALIFORNIA
EXEMPT BOND INDEX INCLUDE BONDS THAT VARY IN QUALITY AND MATURITY. THE
CALIFORNIA INDEX INCLUDES ONLY CALIFORNIA BONDS, WHILE THE OTHER INDEX HAS
BONDS FROM MANY STATES, INCLUDING CALIFORNIA. TO BE INCLUDED IN EITHER INDEX,
A MUNICIPAL BOND MUST MEET THE FOLLOWING CRITERIA: A MINIMUM CREDIT RATING OF
BBB, ISSUED AS A PART OF AN ISSUE OF AT LEAST $50 MILLION, ISSUED WITHIN THE
LAST 5 YEARS, AND A MATURITY OF AT LEAST 2 YEARS. BONDS SUBJECT TO
ALTERNATIVE MINIMUM TAX, VARIABLE-RATE BONDS AND ZERO-COUPON BONDS ARE
EXCLUDED. INVESTORS CANNOT INVEST IN EITHER INDEX. INDEX RETURNS DO NOT
REFLECT THE EXPENSES OF OPERATING AN ACTIVELY MANAGED MUTUAL FUND.
Q WHY DID THE CALIFORNIA FUND PERFORM BETTER THAN OTHER STATES?
A California bonds did particularly well in fiscal year 2000 because there
was a high level of retail demand in California for municipal bonds from
individual investors. The state also benefited from ratings upgrades for
California's general obligation (GO) bond debt.
Within Kemper California Tax-Free Income Fund, we capitalized on these trends
and maintained a large portion of fund assets in bonds maturing in 12 to 20
years, the portion of the yield curve that benefited substantially from the
municipal bond market's rebound. The fund finished the fiscal year
9
<PAGE> 10
PERFORMANCE UPDATE
with results that were in the top 10 percent of its peer group, as shown in the
Lipper Rankings table.
California's economy is reaping the rewards of the nation's high-technology
boom and strong debt management practices, according to Standard & Poor's.
California's average annual rate of growth in personal income was 6.49 percent
between December 1994 and December 1999, compared with 5.67 percent for the
United States as a whole.** As technology stock volatility increased in the past
year, especially for Internet-related companies, we believe some California
investors harvested long-term capital gains from the sale of technology stocks
and technology stock options. We've seen trading activity that suggests
California residents are reinvesting the proceeds of such sales in state
municipal bonds to diversify their portfolios, reduce risk and minimize income
taxes. California has one of the nation's highest state income tax burdens.
** SOURCE: BLOOMBERG BUSINESS NEWS.
Q WHAT HAPPENED IN NEW YORK AND FLORIDA DURING FISCAL YEAR 2000?
A During the past year, New York's general obligation bonds were also
upgraded amid strength in the state's economy, helping lift bond prices.
Investor demand, while good, was not as robust as in California. Personal income
growth in New York has lagged the national average over the past few years (see
Economic Snapshot table). New York City is thriving thanks to Wall Street and
global trade, but some areas upstate have not done as well. Larger employers
such as Xerox and Kodak as well as smaller firms continue to cut back and/or
relocate operations to areas with lower taxes and lower utility costs.
Within Kemper New York Tax-Free Income Fund, we achieved 12-month results that
were within the top 12 percent of the fund's peer group by focusing on bonds
maturing within a 14- to 18-year range (see Lipper Rankings table). It was
challenging to find a diverse mix of attractive municipal investments within the
state's bond market last year because new issuance declined. Much of the new
debt that came to market was state lease obligations, and we did not want to be
too overweighted in this one area. During the past year, we also avoided New
York bonds that were related to the tobacco industry settlement because of
uncertainties surrounding this revenue stream.
Within Kemper Florida Tax-Free Income Fund, we achieved 12-month results that
were within the top 14 percent of the fund's peer group by focusing on bonds
maturing within a range similar to that of the New York fund (see Lipper
Rankings table). The volume of new Florida issuance, while down, did not decline
as much as other states, providing us with an opportunity to reposition the
portfolio to benefit from the bond market's rebound.
In Florida, a stronger-than-average economy has helped support bond prices. As
of July 31, the state's unemployment rate of 3.7 percent was lower than the
national average, while personal income growth between 1994 and 1999 was higher
than average. The state's growth also fuels a need for more road, school and
sewer-related bond issues. This past year, Florida officials won praise from
rating agencies for a study that systematically evaluated the impact of
Florida's growth-related bonding programs on its financial health. The study
found that the state's annual tax revenues are likely to grow 52 percent through
2009, from $21 billion to $32 billion, and recommended an increase in Florida's
budget reserve. In July, Standard & Poor's said,"This type of analysis is viewed
positively from a credit standpoint."
Q WHY WERE RESULTS FOR KEMPER OHIO TAX-FREE INCOME FUND MORE MODEST THAN THE
OTHER THREE SINGLE-STATE FUNDS?
A The Ohio portfolio reflected the fact that the bulk of the state's
municipalities issue bonds in the shorter maturity range, an area of the yield
curve that did not do particularly well last year, especially in comparison with
bonds in the 10- to 20-year range. The scarcity of new issuance, coupled with
the small size of the fund relative to its Ohio peer group and the other three
Kemper funds, made security selection and portfolio diversification challenging.
Q THIS PAST WINTER, THE TREASURY BEGAN BUYING BACK SOME LONG-TERM DEBT AND
HELD FEWER AUCTIONS. WHAT EFFECT DID THIS HAVE ON MUNICIPAL BONDS?
A The Treasury buyback news helped generate a welcome rally after several
months of depressed municipal bond prices. In February, the Treasury said it
plans to buy back 30-year government bonds and reduce auctions all along the
maturity spectrum.
This past winter, the difference in income potential between short-term and
long-term municipal securities was steep compared with Treasuries. We used this
development to
10
<PAGE> 11
PERFORMANCE UPDATE
reposition the portfolios with more longer-term bonds selling at a discount.
This helped the funds capture additional total return potential as the market
rebounded in the spring.
Q WHAT'S YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET?
A The environment for municipal bonds has improved substantially since
mid-1999. First, we doubt that the Federal Reserve will need to raise interest
rates further in the coming months, since U.S. economic growth has moderated. At
the same time, overall municipal bond credit quality remains solid, especially
in comparison with U.S. corporate bonds. In a July report, Standard & Poor's
said, "It is reasonable to be optimistic that the United States' recent good
economic fortune is shaping public policy in a way that will support the rise in
state and local government credit quality for years to come."
Even though bond prices have risen, we still believe the municipal market
provides strong long-term value, as tax-equivalent yields were at attractive
levels for investors in the highest brackets as of August 31, 2000. California
isn't the only place where people have faced high income taxes in recent years,
and we are hopeful that more equity investors may look to municipal bonds to
reduce income taxes and portfolio volatility.
Historically, California has been regarded as a pacesetter for what happens in
the rest of the country. We hope this will hold true for municipal bonds and
that the apparent pattern of asset reallocation to tax-exempt debt that we have
seen anecdotally in the Golden State will spread to other states.
Finally, we think it worth noting that the 6.77 percent return of the Lehman
Brothers Municipal Bond index outpaced the 5.17 percent total return of the Dow
Jones Industrial Average for the 12 months ended August 31, 2000. While such an
occurrence is rare and is unlikely to be repeated over the long term, we think
it illustrates the continuing valuable role that municipal bonds can play in a
diverse portfolio.
STATE ECONOMIC AND BOND MARKET SNAPSHOT (DATA AS OF 8/31/00)
<TABLE>
<CAPTION>
PERSONAL INCOME GO BOND 10-YEAR GO VOLUME OF UNEMPLOYMENT RATE REGIONAL CONSUMER
GROWTH RATE 1994-1999 RATING BOND YIELD BOND ISSUANCE AS OF 7/00 PRICES SINCE 1983
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALIFORNIA 6.49% AA3/AA- 4.65% -27.9% 5.0% +79%
....................................................................................................................................
FLORIDA 6.16% AA2/AA+ 4.80% -3.3% 3.7% +68%
....................................................................................................................................
NEW YORK 4.94% A2/A+ 4.78% -4.7% 4.2% +83%
....................................................................................................................................
OHIO 5.01% AA1/AA+ 4.89% -34.2% 4.1% +68%
....................................................................................................................................
</TABLE>
SOURCES: BLOOMBERG BUSINESS NEWS, THE BOND BUYER, MOODY'S INVESTORS SERVICE,
STANDARD & POOR'S, U.S. DEPARTMENT OF LABOR. YIELDS AND RATINGS SHOWN ARE NOT
INTENDED TO PRESENT THE YIELDS OR AVERAGE QUALITY OF ANY KEMPER FUND. BOND
ISSUANCE REFLECTS DATA FOR EIGHT MONTHS ENDED AUGUST 2000. CALIFORNIA CONSUMER
PRICES ARE FOR THE SAN FRANCISCO AREA.
CURRENT STATE INCOME TAX RATES
FOR TAXPAYERS IN THE 39.6% FEDERAL BRACKET
<TABLE>
<CAPTION>
RANKING AMONG STATES
HIGHEST RATE (1 = HIGHEST TAX RATE)
<S> <C> <C> <C> <C>
CALIFORNIA 9.30% 4TH
..................................................................................................................
FLORIDA NONE --
..................................................................................................................
NEW YORK 6.85% 16TH
..................................................................................................................
OHIO 7.23% 15TH
..................................................................................................................
</TABLE>
SOURCE: BLOOMBERG BUSINESS NEWS. RATES MAY BE AFFECTED BY PAYMENT OF THE
ALTERNATIVE MINIMUM TAX. WHILE FLORIDA HAS NO STATE INCOME TAX, IT HAS A
GRADUATED INTANGIBLES TAX BASED ON ASSET VALUES. NEW YORK TAX RATE AND RELATIVE
TAX BURDEN ARE HIGHER IN NEW YORK CITY, WHICH HAS ITS OWN INCOME TAX.
11
<PAGE> 12
TERMS TO KNOW
BOND RATING A grade assigned by a credit-rating agency to a corporate or
municipal debt security, based on the borrower's expected ability to repay. The
higher the grade, the lower the interest rate a borrower will usually pay. The
two major credit rating firms are Moody's Investors Service, Inc. and Standard &
Poor's.
DURATION A measure, in years, of the interest-rate sensitivity of a portfolio,
incorporating time-to-maturity and coupon size. The longer a portfolio's
duration, the greater its sensitivity to interest-rate changes.
REVENUE BOND INDEX (RBI) The RBI is the average yield on 25 revenue bonds with
30-year maturities generally rated single "A," compiled by THE BOND BUYER, a
daily newspaper that reports on the municipal bond market.
YIELD A fund's yield is a measure of the net investment income per share earned
over a specific one-month or 30-day period expressed as an annualized percentage
of the maximum offering price of the fund's shares at the end of the period.
12
<PAGE> 13
PERFORMANCE UPDATE
KEMPER CALIFORNIA TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED AUGUST 31, 2000 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER CALIFORNIA TAX-FREE INCOME FUND
CLASS A 3.18% 4.98% 6.73% 8.12% (since 2/17/83)
.........................................................................................................
KEMPER CALIFORNIA TAX-FREE INCOME FUND
CLASS B 4.14 4.95 n/a 5.41 (since 5/31/94)
.........................................................................................................
KEMPER CALIFORNIA TAX-FREE INCOME FUND
CLASS C 7.34 5.01 n/a 5.29 (since 5/31/94)
.........................................................................................................
</TABLE>
[LINE GRAPH LINE GRAPH KEMPER CALIFORNIA TAX-FREE INCOME FUND CLASS A]
<TABLE>
<CAPTION>
KEMPER CALIFORNIA TAX-
FREE INCOME FUND CLASS LEHMAN BROTHERS
A1 MUNICIPAL BOND INDEX+ CONSUMER PRICE INDEX++
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
2/28/83 9556.00 10000.00 10000.00
9895.00 10242.00 10347.00
10679.00 11323.00 10756.00
13028.00 13591.00 11164.00
15428.00 16216.00 11287.00
16063.00 16460.00 11788.00
12/31/88 17271.00 18132.00 12308.00
19251.00 20087.00 12880.00
20540.00 21553.00 13667.00
22886.00 24170.00 14086.00
24772.00 26301.00 14494.00
27890.00 29532.00 14893.00
12/31/94 26360.00 28016.00 15291.00
31494.00 32894.00 15679.00
32432.00 34351.00 16200.00
35210.00 37508.00 16476.00
37328.00 39939.00 16742.00
35948.00 39115.00 17191.00
8/31/00 39300.00 42078.00 17634.00
</TABLE>
[LINE GRAPH KEMPER CALIFORNIA TAX-FREE INCOME FUND CLASS B]
<TABLE>
<CAPTION>
KEMPER CALIFORNIA TAX-
FREE INCOME FUND CLASS LEHMAN BROTHERS
B1 MUNICIPAL BOND INDEX+ CONSUMER PRICE INDEX++
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9945.00 9942.00 10034.00
9760.00 9868.00 10149.00
10662.00 10816.00 10339.00
11576.00 11586.00 10407.00
6/30/96 11273.00 11534.00 10624.00
11818.00 12099.00 10753.00
12070.00 12486.00 10868.00
12724.00 13211.00 10936.00
12948.00 13566.00 11051.00
12/31/98 13379.00 14067.00 11112.00
13068.00 13948.00 11268.00
12776.00 13777.00 11410.00
13421.00 14396.00 11681.00
8/31/00 13894.00 14821.00 11704.00
</TABLE>
[LINE GRAPH KEMPER CALIFORNIA TAX-FREE INCOME FUND CLASS C]
<TABLE>
<CAPTION>
KEMPER CALIFORNIA TAX-
FREE INCOME FUND CLASS LEHMAN BROTHERS
C1 MUNICIPAL BOND INDEX+ CONSUMER PRICE INDEX++
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9933.00 9942.00 10034.00
9754.00 9868.00 10149.00
10657.00 10816.00 10339.00
11556.00 11586.00 10407.00
6/30/96 11236.00 11534.00 10624.00
11782.00 12099.00 10753.00
12047.00 12486.00 10868.00
12648.00 13211.00 10936.00
12851.00 13566.00 11051.00
12/31/98 13281.00 14067.00 11112.00
12938.00 13948.00 11268.00
12662.00 13777.00 11410.00
13324.00 14396.00 11681.00
8/31/00 13797.00 14821.00 11704.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT
SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
* AVERAGE ANNUAL TOTAL RETURN AND TOTAL
RETURN MEASURE NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS OVER THE PERIODS
SPECIFIED, ASSUMING REINVESTMENT OF
DIVIDENDS AND, WHERE INDICATED,
ADJUSTMENT FOR THE MAXIMUM SALES
CHARGE. THE MAXIMUM SALES CHARGE FOR
CLASS A SHARES IS 4.5%. FOR CLASS B
SHARES, THE MAXIMUM CONTINGENT
DEFERRED SALES CHARGE IS 4%. CLASS C
SHARES HAVE NO SALES ADJUSTMENT, BUT
REDEMPTIONS WITHIN ONE YEAR OF
PURCHASE MAY BE SUBJECT TO A
CONTINGENT DEFERRED SALES CHARGE OF
1%. SHARE CLASSES INVEST IN THE SAME
UNDERLYING PORTFOLIO. AVERAGE ANNUAL
RETURN REFLECTS ANNUALIZED CHANGE,
WHILE TOTAL RETURN REFLECTS AGGREGATE
CHANGE. DURING THE PERIODS NOTED,
SECURITIES PRICES FLUCTUATED. FOR
ADDITIONAL INFORMATION, SEE THE
PROSPECTUS, STATEMENT OF ADDITIONAL
INFORMATION AND THE FINANCIAL
HIGHLIGHTS AT THE END OF THIS REPORT.
(1)PERFORMANCE INCLUDES REINVESTMENT OF
DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A
SHARES AND THE CONTINGENT DEFERRED
SALES CHARGE IN EFFECT AT THE END OF
THE PERIOD FOR CLASS B SHARES. IN
COMPARING THE KEMPER STATE TAX-FREE
INCOME FUNDS WITH THE LEHMAN
BROTHERS MUNICIPAL BOND INDEX, YOU
SHOULD NOTE THAT THE FUNDS'
PERFORMANCE REFLECTS THE MAXIMUM
SALES CHARGES, WHILE NO SUCH CHARGES
ARE REFLECTED IN THE PERFORMANCE OF
THE INDEX.
+THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX INCLUDES APPROXIMATELY 15,000
BONDS. TO BE INCLUDED IN THE INDEX A
MUNICIPAL BOND MUST MEET THE FOLLOWING
CRITERIA: A MINIMUM CREDIT RATING OF
BBB, HAVE BEEN ISSUED AS A PART OF AN
ISSUE OF AT LEAST $50 MILLION, HAVE
BEEN ISSUED WITHIN THE LAST 5 YEARS,
AND HAVE A MATURITY OF AT LEAST 2
YEARS. BONDS SUBJECT TO ALTERNATIVE
MINIMUM TAX, VARIABLE-RATE BONDS AND
ZERO-COUPON BONDS ARE EXCLUDED FROM
THE INDEX. SOURCE: WIESENBERGER(R).
++THE CONSUMER PRICE INDEX IS A
STATISTICAL MEASURE OF CHANGE, OVER
TIME, IN THE PRICES OF GOODS AND
SERVICES IN MAJOR EXPENDITURE GROUPS
FOR ALL URBAN CONSUMERS. IT IS
GENERALLY CONSIDERED TO BE A MEASURE
OF INFLATION. SOURCE: WIESENBERGER(R).
13
<PAGE> 14
PORTFOLIO STATISTICS
KEMPER CALIFORNIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION* ON 8/31/00 ON 8/31/99
<S> <C> <C> <C> <C>
REVENUE BONDS 69% 77%
.................................................................................
U.S. GOVERNMENT SECURED 15 11
.................................................................................
GENERAL OBLIGATION BONDS 16 12
---------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
QUALITY ON 8/31/00 ON 8/31/99
<S> <C> <C> <C> <C>
AAA 63% 65%
.................................................................................
AA 7 7
.................................................................................
A 10 13
.................................................................................
BBB 10 10
.................................................................................
NOT RATED 10 5
---------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
YEARS TO MATURITY ON 8/31/00 ON 8/31/99
<S> <C> <C> <C> <C>
1-10 YEARS 54% 48%
.................................................................................
11-20 YEARS 36 43
.................................................................................
+21 YEARS 10 9
---------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ON 8/31/00 ON 8/31/99
<S> <C> <C> <C> <C>
AVERAGE DURATION 7.4 years 7.7 years
.................................................................................
AVERAGE MATURITY 10.5 years 14.2 years
---------------------------------------------------------------------------------
</TABLE>
* Portfolio composition and holdings are subject to change.
14
<PAGE> 15
PORTFOLIO OF INVESTMENTS
CALIFORNIA TAX-FREE INCOME FUND
Portfolio of Investment at August 31, 2000
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL INVESTMENTS--1.2%
----------------------------------------------------------------------------------------------------------------------
(c)Irvine Ranch Water District, CA, General Obligation,
Variable Rate Demand Note, 3.350%, 06/01/2015 $ 4,800,000 $ 4,800,000
-------------------------------------------------------------------------------------------------
(c)Orange County, CA, Certificate of Participation, Variable
Rate Demand Note, 3.650%, 08/01/2015 3,335,000 3,335,000
-------------------------------------------------------------------------------------------------
(c)Orange County, CA, Municipal Water District, Certificate
of Participation, Variable Rate Demand Note, 3.750%,
08/15/2015 1,600,000 1,600,000
-------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $9,735,000) $ 9,735,000
-------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS--98.8%
----------------------------------------------------------------------------------------------------------------------
Benicia, CA, Unified School District, General Obligation,
Series A:
zero coupon, 08/01/2017 1,735,000 709,667
zero coupon, 08/01/2018 1,510,000 578,723
-------------------------------------------------------------------------------------------------
(d)Big Bear Lake, CA, Water Revenue, Rites-PA 597A Inverse
Floater: 10.19%, 04/01/2015 1,700,000 2,103,325
10.17%, 04/01/2022 6,750,000 8,056,935
-------------------------------------------------------------------------------------------------
Burbank, CA, Unified School District, General Obligation,
Series B zero coupon:
08/01/2011 2,500,000 1,496,725
08/01/2012 1,500,000 844,920
08/01/2013 3,225,000 1,707,315
08/01/2014 3,000,000 1,489,500
-------------------------------------------------------------------------------------------------
California Educational Facilities Authority, University of
San Diego, Revenue, zero coupon, 10/01/2014 1,470,000 723,754
-------------------------------------------------------------------------------------------------
California Educational Facilities Authority, University of
San Francisco, Revenue, 6.000%, 10/01/2016 6,640,000 7,149,819
-------------------------------------------------------------------------------------------------
(b)California Educational Facilities Authority, Mills
College, Revenue, Prerefunded 09/01/2002, 6.875%,
09/01/2022 1,775,000 1,905,302
-------------------------------------------------------------------------------------------------
California Educational Facilities Authority Revenue, zero
coupon, 10/01/2024 2,500,000 658,800
-------------------------------------------------------------------------------------------------
California Health Facilities Authority, Kaiser Permanente,
Revenue, Series A:
zero coupon, 10/01/2009 7,140,000 4,717,541
(b) Prerefunded 12/01/2000, 7.000% 12/01/2010 3,550,000 3,646,098
-------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, Adventist
Health System West, Revenue Series B:
6.500%, 03/01/2007 3,750,000 3,865,875
6.500%, 03/01/2011 2,000,000 2,059,280
-------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, Insured
Health Facilities, Small Facilities Loan, Revenue, Series
A, 6.700%, 03/01/2011 1,200,000 1,255,332
-------------------------------------------------------------------------------------------------
(b)California Health Facilities Finance Authority, Southern
California Presbyterian, Revenue, Prerefunded 06/01/2001,
6.700%, 06/01/2011 2,000,000 2,077,800
-------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 15
<PAGE> 16
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
(b)California Health Facilities Finance Authority, San
Francisco Children's Hospital, Revenue, Series A,
Prerefunded 10/01/2000, 7.500%, 10/01/2020 $ 3,600,000 $ 3,682,116
-------------------------------------------------------------------------------------------------
California Housing Finance Agency, Home Mortgage Revenue,
Series F-1, 6.875%, 08/01/2015 10,905,000 11,329,968
-------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority, Solid
Waste Disposal Revenue, Canadian Fibre of Riverside PJ,
Series 1997 A, AMT, 9.000%, 07/01/2019 6,750,000 6,174,967
-------------------------------------------------------------------------------------------------
California Resource Efficiency Financing Authority, Capital
Improvements Program, Certificates of Participation:
6.000%, 04/01/2012 1,685,000 1,905,448
5.500%, 04/01/2017 4,285,000 4,437,375
-------------------------------------------------------------------------------------------------
California State Colleges and Universities, College and
University Improvements, Revenue, 6.750%, 11/01/2009 1,515,000 1,551,936
-------------------------------------------------------------------------------------------------
California State Colleges and Universities, Housing System,
Revenue: 5.650%, 11/01/2012 8,110,000 8,658,966
5.700%, 11/01/2013 5,000,000 5,329,300
-------------------------------------------------------------------------------------------------
California State Public Works Board, Department of
Corrections, Lease Revenue, Series A:
7.400%, 09/01/2010 3,365,000 4,159,544
5.750%, 01/01/2012 5,145,000 5,523,929
5.000%, 09/01/2018 11,000,000 10,738,530
-------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority,
Cedars-Sinai Medical Center, Certificates of
Participation, 6.500%, 08/01/2012 20,205,000 22,393,808
-------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority,
Certificate of Participation, The Internext Group:
5.375%, 04/01/2017 1,000,000 923,010
5.375%, 04/01/2030 18,000,000 15,734,700
-------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority,
Catholic Healthcare West, 6.500%, 07/01/2020 5,500,000 5,580,520
-------------------------------------------------------------------------------------------------
Carlsbad, CA, Unified School District, General Obligation,
zero coupon, 11/01/2018 3,050,000 1,153,418
-------------------------------------------------------------------------------------------------
Carson, CA, Redevelopment Agency, Redevelopment Project No.
1, Tax Allocation, Series B, 6.000%, 10/01/2016 3,350,000 3,443,364
-------------------------------------------------------------------------------------------------
(b)Central Valley, CA, Financing Authority, Cogeneration
Project, Revenue, Prerefunded 07/01/2003, 6.100%,
07/01/2013 8,700,000 9,326,400
-------------------------------------------------------------------------------------------------
Concord, CA, Redevelopment Agency, Tax Allocation, Series 3,
8.000%, 07/01/2018 40,000 40,482
-------------------------------------------------------------------------------------------------
(e)Contra Costa County, CA, GNMA Mortgage Backed Securities
Program, Home Mortgage, ETM, Revenue, 7.750%, 05/01/2022 2,715,000 3,382,890
-------------------------------------------------------------------------------------------------
Corona, CA, Community Facilities District, Special Tax,
Series 90-1-A, 5.500%, 09/01/2015 9,240,000 9,869,798
-------------------------------------------------------------------------------------------------
Corona-Norco, CA, Unified School District Public Financing
Authority, Community Facilities District, Special Tax
Revenue, Series A, 5.750%, 09/01/2014 2,750,000 2,941,647
-------------------------------------------------------------------------------------------------
El Dorado County, CA, Public Agency Financing Authority,
Revenue, 5.600%, 02/15/2012 6,000,000 6,405,000
-------------------------------------------------------------------------------------------------
Emeryville, CA, Public Financing Authority, Redevelopment
Project, Revenue, Series A:
6.500%, 05/01/2021 6,315,000 6,528,005
(b) Prerefunded 05/01/2002, 6.500%, 05/01/2021 3,940,000 4,171,751
-------------------------------------------------------------------------------------------------
Escondido, CA, High School District, zero coupon, 11/01/2017 5,500,000 2,250,050
-------------------------------------------------------------------------------------------------
(e)(f)Escondido, CA, Unified High School District, ETM,
General Obligation, zero coupon, 11/01/2020 7,000,000 2,373,770
-------------------------------------------------------------------------------------------------
</TABLE>
16 The accompanying notes are an integral part of the financial statements.
<PAGE> 17
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Escondido, CA, Unified High School District, General
Obligation, zero coupon:
05/01/2015 $ 3,165,000 $ 1,491,759
05/01/2016 3,335,000 1,472,903
-------------------------------------------------------------------------------------------------
Fontana, CA, Public Financing Authority, Tax Allocation
Revenue, 7.050%, 09/01/2021 3,900,000 4,016,376
-------------------------------------------------------------------------------------------------
Foothill-DeAnza, CA, Community College, 6.000%, 08/01/2013 1,105,000 1,234,539
-------------------------------------------------------------------------------------------------
Foothill-DeAnza, CA, Community College, General Obligation,
6.000%, 08/01/2012 1,610,000 1,809,704
-------------------------------------------------------------------------------------------------
(b)Foothill-DeAnza, CA, Community College District, De-Anza
Campus Center Project, Certificates of Participation,
Prerefunded:
09/01/2003, 7.350%, 03/01/2007 1,540,000 1,644,166
06/01/2001, 7.875%, 06/01/2021 3,950,000 4,140,271
-------------------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue,
Series A:
(b) Prerefunded 01/01/2010, 6.000%, 01/01/2016 11,000,000 12,374,890
(b) Prerefunded 01/01/2007, 6.500%, 01/01/2032 10,000,000 11,293,400
(b) Prerefunded 01/01/2007, 6.000%, 01/01/2034 3,350,000 3,690,862
(e) ETM, zero coupon, 01/01/2014 2,000,000 1,022,580
-------------------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue:
zero coupon, 01/15/2017 4,500,000 1,834,335
zero coupon, 01/15/2018 6,250,000 2,388,625
zero coupon, 01/15/2025 10,000,000 2,320,200
zero coupon, 01/15/2026 3,750,000 2,149,012
5.000%, 01/01/2035 10,000,000 9,358,200
-------------------------------------------------------------------------------------------------
(e)Foothill/Eastern Corridor Agency, CA, Toll Road Revenue,
ETM:
zero coupon, 01/18/2018 10,000,000 3,954,200
zero coupon, 01/01/2020 5,000,000 1,746,550
-------------------------------------------------------------------------------------------------
(b)Fresno, CA, Health Facilities Authority, Holy Cross
Health System, Revenue:
Prerefunded 06/01/2002, 6.500%, 06/01/2011 1,500,000 1,589,730
Prerefunded 06/01/2002, 6.625%, 06/01/2021 2,000,000 2,125,580
-------------------------------------------------------------------------------------------------
Fresno, CA, Unified School District, General Obligation,
Series A, 6.400%, 08/01/2016 2,000,000 2,346,300
-------------------------------------------------------------------------------------------------
Hawthorne, CA, Community Redevelopment Agency, Redevelopment
Project Area 2, Tax Allocation, 6.625%, 09/01/2014 2,000,000 2,117,920
-------------------------------------------------------------------------------------------------
Hollister CA, Joint Powers Financing Authority, Sewer System
Improvement Project, Revenue, 5.750%, 12/01/2011 3,815,000 3,903,813
-------------------------------------------------------------------------------------------------
Inglewood, CA, Civic Center Improvement Project,
Certificates of Participation:
7.000%, 08/01/2011 2,500,000 2,614,375
7.000%, 08/01/2019 5,200,000 5,437,900
6.500%, 08/01/2021 1,825,000 1,900,354
-------------------------------------------------------------------------------------------------
(b)Inglewood, CA, Public Financing Authority, Revenue:
Series B, Prerefunded 05/01/2002, 7.000%, 05/01/2022 7,990,000 8,410,673
Series C, Prerefunded 05/01/2002, 7.000%, 05/01/2022 890,000 941,380
-------------------------------------------------------------------------------------------------
Kern, CA, High School District, General Obligation, Series
A, 6.400%, 08/01/2012 3,095,000 3,610,844
-------------------------------------------------------------------------------------------------
Laguna Salada CA Unified School District, General
Obligation:
Series B, zero coupon, 08/01/2019 2,765,000 993,464
Series B, zero coupon, 08/01/2020 2,000,000 676,800
-------------------------------------------------------------------------------------------------
Las Virgenes, CA, Unified School District, General
Obligation: Series A, zero coupon, 11/01/2013 2,150,000 1,124,300
Series A, zero coupon, 11/01/2014 1,050,000 514,805
Series A, zero coupon, 11/01/2015 1,275,000 585,722
-------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 17
<PAGE> 18
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
(b)Lemon Grove, CA, Community Development Agency, Lemon
Grove Redevelopment Project, Tax Allocation, Prerefunded
08/01/2002:
6.650%, 08/01/2006 $ 250,000 $ 266,803
6.900%, 08/01/2020 2,250,000 2,411,235
-------------------------------------------------------------------------------------------------
(d)Long Beach, CA, Harbor Revenue Inverse Floater:
7.850%, 05/15/2016 4,215,000 5,061,035
6.000%, 05/15/2018 4,000,000 4,369,480
7.850%, 05/15/2019 5,300,000 6,232,270
-------------------------------------------------------------------------------------------------
Los Angeles County, CA, Metropolitan Transportation
Authority, Sales Tax Revenue, Series A:
4.750%, 07/01/2017 4,610,000 4,356,588
4.750%, 07/01/2019 5,060,000 4,671,038
-------------------------------------------------------------------------------------------------
Los Angeles, CA, Harbor Department Revenue, Series B,
6.250%, 08/01/2026 2,320,000 2,457,878
-------------------------------------------------------------------------------------------------
Los Angeles, CA, University School District 5.625%:
07/01/2015 4,115,000 4,376,673
07/01/2016 10,655,000 11,264,040
07/01/2017 3,500,000 3,680,530
07/01/2018 5,990,000 6,265,720
-------------------------------------------------------------------------------------------------
(b)Los Angeles, CA, Convention and Exhibition Center
Authority, Certificates of Participation, Prerefunded
12/01/2005, 9.000%, 12/01/2020 1,000,000 1,232,160
-------------------------------------------------------------------------------------------------
Los Angeles, CA, Department of Airports, Ontario
International Airport, Revenue, Series A, 5.900%,
05/15/2012 3,290,000 3,499,507
-------------------------------------------------------------------------------------------------
Los Angeles, CA, Unified School District, General
Obligation, Series A, 5.000%, 07/01/2021 14,000,000 13,515,880
-------------------------------------------------------------------------------------------------
(d)Los Angeles, CA, Unified School District, Inverse
Floater:
Rites-PA 589A, 10.40%, 07/01/2012 3,170,000 4,012,903
Rites-PA 589B, 10.40%, 07/01/2013 1,485,000 1,870,551
Rites-PA 589C, 10.40%, 07/01/2014 2,910,000 3,631,651
Rites-PA 589D, 10.40%, 07/01/2015 3,560,000 4,414,364
-------------------------------------------------------------------------------------------------
Los Banos, CA, Certificates of Participation, 6.000%,
12/01/2019 2,100,000 2,117,136
-------------------------------------------------------------------------------------------------
Lucia Mar, CA, Unified School District, General Obligation,
Series A, zero coupon, 08/01/2016 1,000,000 435,930
-------------------------------------------------------------------------------------------------
(e)M-S-R Public Power Agency, San Juan Project, Revenue,
Series D, ETM, 6.750%, 07/01/2020 2,000,000 2,324,140
-------------------------------------------------------------------------------------------------
(e)Martinez, CA, Home Mortgage Revenue, ETM, 10.375%,
02/01/2002 20,000 21,071
-------------------------------------------------------------------------------------------------
Merced, CA, Unified School District, General Obligation,
Series A, zero coupon, 08/01/2014 2,045,000 1,015,343
-------------------------------------------------------------------------------------------------
Metropolitan Water District of Southern California,
Waterworks Revenue, Series A:
5.750%, 07/01/2021 2,000,000 2,129,540
4.750%, 07/01/2022 5,000,000 4,558,950
-------------------------------------------------------------------------------------------------
Modesto, CA, Irrigation District Financing Authority,
Revenue, Series A, 6.000%, 10/01/2015 7,000,000 7,560,560
-------------------------------------------------------------------------------------------------
Montebello, CA, Unified School District, General Obligation,
zero coupon:
08/01/2012 1,890,000 1,064,599
08/01/2013 1,945,000 1,029,683
-------------------------------------------------------------------------------------------------
Moreno Valley, CA, Towngate Community Facilities District,
Special Tax:
6.500%, 12/01/2009 3,670,000 3,830,599
7.125%, 10/01/2023 2,810,000 2,897,082
-------------------------------------------------------------------------------------------------
Murrieta Valley, CA, Unified School District, General
Obligation, Series A, zero coupon, 09/01/2016 2,500,000 1,085,100
-------------------------------------------------------------------------------------------------
</TABLE>
18 The accompanying notes are an integral part of the financial statements.
<PAGE> 19
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
(b)Northern California Power Agency, Public Power Revenue,
Prerefunded 01/01/2016, 7.000%, 07/01/2016 $ 210,000 $ 252,195
-------------------------------------------------------------------------------------------------
Oakland, CA, Housing Finance Revenue, 7.100%, 01/01/2010 1,125,000 1,151,888
-------------------------------------------------------------------------------------------------
Oakland, CA, Port Revenue:
Series K, 5.500%, 11/01/2009 6,700,000 7,185,281
(f) 5.500%, 11/01/2010 6,305,000 6,740,865
5.625%, 11/01/2011 9,260,000 9,937,276
-------------------------------------------------------------------------------------------------
Orange County, CA, Recovery Certificates of Participation,
6.000%, 07/01/2026 13,000,000 13,648,310
-------------------------------------------------------------------------------------------------
Palmdale, CA, School District, School Building Project,
Certificates of Participation, zero coupon, 10/01/2019 1,420,000 504,682
-------------------------------------------------------------------------------------------------
Pleasanton, CA, Joint Power Financing Series A, 6.150%,
09/02/2012 8,775,000 9,183,652
-------------------------------------------------------------------------------------------------
Redondo Beach, CA, Public Financing Authority, South Bay
Center:
Redevelopment Project, Revenue, 7.000%, 07/01/2016 1,000,000 1,078,310
Redevelopment Project, Revenue, 7.125%, 07/01/2026 2,000,000 2,155,420
-------------------------------------------------------------------------------------------------
(b)Reedley, CA, Sierra View Homes, Certificates of
Participation, Prerefunded 03/01/2001, 7.600%, 03/01/2021 3,820,000 3,944,150
-------------------------------------------------------------------------------------------------
Sacramento California Power Authority Cogeneration Project
Revenue, 6.000%, 07/01/2022 5,000,000 5,249,350
-------------------------------------------------------------------------------------------------
Sacramento County, CA, Community Facilities District Number
1 Special Tax:
5.500%, 12/01/2010 1,090,000 1,116,411
6.000%, 09/01/2011 850,000 896,198
6.125%, 09/01/2014 605,000 630,471
5.700%, 12/01/2020 2,000,000 1,920,260
6.300%, 09/01/2021 1,500,000 1,536,915
-------------------------------------------------------------------------------------------------
Sacramento County,CA, Sanitation District Financing
Authority, Revenue, 5.875%, 12/01/2027 10,000,000 10,316,600
-------------------------------------------------------------------------------------------------
Sacramento, CA, City Financing Authority, Revenue Bond,
Convention Center Hotel, Series A, 6.250%, 01/01/2030 10,000,000 9,685,900
-------------------------------------------------------------------------------------------------
Sacramento, CA, City Financing Authority Lease Revenue
Refunding, 5.400%, 11/01/2020 5,000,000 5,120,500
-------------------------------------------------------------------------------------------------
Sacramento, CA, Cogeneration Authority, Procter and Gamble
Project, Revenue:
6.375%, 07/01/2010 2,300,000 2,467,762
(b) Prerefunded 07/01/2005, 6.375%, 07/01/2010 2,700,000 3,009,150
(b) Prerefunded 07/01/2005, 6.500%, 07/01/2021 7,750,000 8,679,458
-------------------------------------------------------------------------------------------------
Sacramento, CA, Municipal Utility District, Electric
Revenue:
Series A, 6.200%, 08/15/2006 1,000,000 1,055,200
Series G, 6.500%, 09/01/2013 1,270,000 1,497,978
Series K, 5.750%, 07/01/2018 5,170,000 5,582,256
-------------------------------------------------------------------------------------------------
(f)Saddleback Valley Unified School District, Public
Financing Authority, Special Tax Revenue, Series 1997A,
6.000%, 09/01/2014 1,195,000 1,344,530
-------------------------------------------------------------------------------------------------
Salinas, CA, Capital Improvement Projects, Certificates of
Participation, Series A, 5.625%, 10/01/2017 2,000,000 2,039,780
-------------------------------------------------------------------------------------------------
San Bernardino County, CA, West Valley Detention Center,
Certificates of Participation, 6.500%, 11/01/2012 8,000,000 8,516,560
-------------------------------------------------------------------------------------------------
(b)San Bernardino, CA, School Health Care System, Sisters of
Charity, Revenue, Series A, Prerefunded 07/01/2001,
7.000%, 07/01/2011 5,000,000 5,220,850
-------------------------------------------------------------------------------------------------
San Bruno Park, CA, School District, General Obligation,
zero coupon:
08/01/2014 1,010,000 501,465
08/01/2016 1,000,000 435,930
08/01/2017 1,000,000 409,030
08/01/2019 1,100,000 395,230
-------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 19
<PAGE> 20
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
San Diego County, CA, Central Jail, Certificates of
Participation, 5.000%, 10/01/2017 $ 4,000,000 $ 3,974,840
-------------------------------------------------------------------------------------------------
San Diego, CA, Detention Facility, Certificates of
Participation, Revenue, 8.000%, 06/01/2002 2,725,000 2,815,416
-------------------------------------------------------------------------------------------------
San Diego, CA, Redevelopment Agency, Horton Project, Tax
Allocation, Series B, 6.625%, 11/01/2017 2,000,000 2,161,700
-------------------------------------------------------------------------------------------------
San Francisco, CA, City and County Airport Communication,
International Airport Revenue:
Series 12A, 5.700%, 05/01/2013 5,470,000 5,716,205
Series 12A, 5.700%, 05/01/2014 6,795,000 7,064,082
-------------------------------------------------------------------------------------------------
(d)San Francisco, CA, City and County Airports, Inverse
Floater: 6.480%, 05/01/2007 1,445,000 1,679,249
7.134%, 05/01/2010 1,445,000 1,637,575
6.460%, 05/01/2010 1,535,000 1,761,612
6.960%, 05/01/2015 1,080,000 1,310,656
6.460%, 05/01/2015 1,365,000 1,566,515
6.460%, 05/01/2017 1,285,000 1,493,311
6.982%, 05/01/2018 1,365,000 1,656,523
-------------------------------------------------------------------------------------------------
San Francisco, CA, City and County Redevelopment Agency,
George R. Moscone Convention Center, Lease Revenue,
6.750%, 07/01/2015 2,200,000 2,419,670
-------------------------------------------------------------------------------------------------
San Joaquin Hills, CA, Transportation Corridor Agency,
Toll Road Revenue:
Series A, zero coupon, 01/15/2011 5,450,000 3,330,495
Series A, zero coupon, 01/15/2015 10,000,000 4,751,600
Series A, zero coupon, 01/15/2016 3,485,000 1,551,313
Series A, zero coupon, 01/15/2017 3,965,000 1,655,863
Series A, zero coupon, 01/15/2018 2,640,000 1,032,979
Series A, zero coupon, 01/15/2019 3,185,000 1,168,099
Series A, 5.250%, 01/15/2030 5,540,000 5,382,165
Series 1997-A, zero coupon, 01/15/2012 22,920,000 13,180,146
(e) Senior Lien, zero coupon, ETM, 01/01/2014 1,180,000 603,322
-------------------------------------------------------------------------------------------------
San Jose, CA, Redevelopment Agency, Tax Allocation, 4.750%,
08/01/2023 5,300,000 4,820,774
-------------------------------------------------------------------------------------------------
San Jose, CA, Unified School District, General Obligation,
Series A:
zero coupon, 08/01/2015 2,570,000 1,195,872
zero coupon, 08/01/2017 1,350,000 552,191
-------------------------------------------------------------------------------------------------
San Ysidro, CA, School District, General Obligation, 6.125%,
08/01/2021 1,400,000 1,556,870
-------------------------------------------------------------------------------------------------
Santa Cruz County, CA, Housing Authority, Multi-Family
Revenue, Series A, 7.750%, 07/01/2023 2,000,000 2,042,740
-------------------------------------------------------------------------------------------------
Santa Margarita/Dana Point, CA, Improvement Districts,
Revenue, Series B:
7.250%, 08/01/2012 3,675,000 4,577,874
7.250%, 08/01/2013 3,400,000 4,243,438
-------------------------------------------------------------------------------------------------
(b)Snowline, CA, Joint Unified School District, Certificates
of Participation, Prerefunded 07/01/2003, 6.300%,
07/01/2011 2,500,000 2,696,750
-------------------------------------------------------------------------------------------------
Snowline, CA, Joint Unified School District, Certificates of
Participation, 6.400%, 07/01/2018 1,195,000 1,292,225
-------------------------------------------------------------------------------------------------
South San Francisco, CA, Capital Improvements Financing
Authority, South San Francisco Conference Center, Revenue,
6.125%, 09/01/2018 3,925,000 3,980,539
-------------------------------------------------------------------------------------------------
South Tahoe, CA, Joint Powers Financing Authority, Series A,
7.300%, 10/01/2007 10,000,000 10,070,700
-------------------------------------------------------------------------------------------------
</TABLE>
20 The accompanying notes are an integral part of the financial statements.
<PAGE> 21
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Southern California Home Finance Authority, Single Family
Mortgage Revenue, Series A:
6.750%, 09/01/2022 $ 565,000 $ 575,532
7.350%, 09/01/2024 370,000 379,187
-------------------------------------------------------------------------------------------------
State of California, General Obligation:
5.750%, 05/01/2010 8,070,000 8,936,557
6.600%, 02/01/2011 4,975,000 5,854,580
5.500%, 05/01/2011 5,465,000 5,944,936
5.875%, 10/01/2019 10,000,000 10,624,800
-------------------------------------------------------------------------------------------------
Stockton, CA, Community Facilities District, Brookside
Estates, Special Tax Revenue, 6.200%, 08/01/2015 2,000,000 2,056,960
-------------------------------------------------------------------------------------------------
Sunnyvale, CA, Financing Authority, Wastewater, Refuse and
Sludge, Utilities Revenue, 6.300%, 10/01/2017 4,000,000 4,087,240
-------------------------------------------------------------------------------------------------
Tahoe Truckee CA, Unified School District, General
Obligation, Series A, zero coupon, 08/01/2022 3,600,000 1,078,740
-------------------------------------------------------------------------------------------------
Temple City, CA, Unified School District, General
Obligation, Series A, zero coupon, 08/01/2015 1,250,000 581,650
-------------------------------------------------------------------------------------------------
Torrance, CA, Torrance Memorial Hospital Medical Center,
Revenue, 6.750%, 01/01/2012 5,000,000 5,008,900
-------------------------------------------------------------------------------------------------
Tustin, CA, Unified School District, 6.375%, 09/01/2035 2,000,000 2,020,020
-------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth, General Obligation:
5.750%, 07/01/2009 7,500,000 8,254,125
6.500%, 07/01/2015 4,000,000 4,625,120
-------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway and Transportation
Authority:
Highway Revenue, Series Z, 6.250%, 07/01/2016 750,000 847,680
Highway Revenue, Series Z, 6.000%, 07/01/2018 7,250,000 7,958,325
-------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway and Transportation
Authority, Transportation Revenue, Series A, 5.500%,
07/01/2014 5,000,000 5,285,600
-------------------------------------------------------------------------------------------------
(d)Puerto Rico Commonwealth Highway and Transportation
Authority, Highway Revenue, Inverse Floater:
8.65%, 08/11/2010 3,610,000 5,084,071
8.65%, 03/09/2012 2,825,000 3,573,964
-------------------------------------------------------------------------------------------------
(d)Puerto Rico Commonwealth, Inverse Floater, Rites-PA 620
B, 10.40%, 07/01/2014 3,500,000 4,247,880
-------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority:
5.750%, 07/01/2014 6,250,000 6,754,813
5.750%, 07/01/2016 5,000,000 5,338,400
-------------------------------------------------------------------------------------------------
(d)Puerto Rico Municipal Finance Authority, Inverse Floater:
6.316%, 08/01/2013 1,250,000 1,456,775
6.531%, 08/01/2014 2,500,000 2,935,800
6.745%, 08/01/2015 1,000,000 1,181,640
-------------------------------------------------------------------------------------------------
Virgin Islands Public Finance Authority, Revenue, Series A,
6.500%, 10/01/2024 5,000,000 5,189,700
-------------------------------------------------------------------------------------------------
Washington Township, CA, Health Care, Revenue Bond, 5.125%,
07/01/2023 1,500,000 1,389,600
-------------------------------------------------------------------------------------------------
(b)Westminster, CA, Redevelopment Agency, Tax Allocation
Revenue, Community Development, Project #1, Series A,
Prerefunded 08/01/2001, 7.300%, 08/01/2021 2,500,000 2,623,600
-------------------------------------------------------------------------------------------------
(b)Yosemite, CA, Community College District, Certificate of
Participation, Prerefunded 07/01/2001, 7.750%, 07/01/2011 1,395,000 1,447,773
-------------------------------------------------------------------------------------------------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(Cost $736,815,583) $783,251,064
-------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $746,550,583)(a) $792,986,064
-------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 21
<PAGE> 22
PORTFOLIO OF INVESTMENTS
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost for federal income tax purposes was $746,550,583. At August 31,
2000, net unrealized appreciation for all securities based on tax cost was
$46,435,481. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$48,615,368 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $2,179,887.
(b) Prerefunded: Bonds which are prerefunded are collateralized by U.S.
Treasury securities which are held in escrow and are used to pay principal
and interest on tax-exempt issues and to retire the bonds in full at the
earliest refunding date.
(c) Variable rate demand notes are securities whose yields are periodically
reset at levels that are generally comparable to exempt commercial paper.
These securities are payable on demand within seven calendar days and
normally incorporate an irrevocable letter of credit from a major bank.
These notes are carried, for purposes of calculating average weighted
maturity, at the longer of the period remaining until the next rate change
or to the extent of the demand period.
(d) Inverse floating rate notes are instruments whose yields may change based on
the change in the relationship between long-term and short-term interest
rates and which may exhibit added interest rate sensitivity compared to
other bonds with similar maturities. These securities are shown at their
rates as of August 31, 2000.
(e) ETM: Bonds bearing the description ETM (escrowed to maturity) are
collateralized by U.S. Treasury securities which are held in escrow by a
trustee and used to pay principal and interest on bonds so designated.
(f) Bond is insured by one of these companies: AMBAC, Capital Guaranty, FGIC,
FSA, or MBIA/BIG.
22 The accompanying notes are an integral part of the financial statements.
<PAGE> 23
PERFORMANCE UPDATE
KEMPER FLORIDA TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS*
For periods ended August 31, 2000 (adjusted for the maximum sales charge)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR LIFE OF CLASS
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEMPER FLORIDA TAX-FREE
INCOME FUND CLASS A 1.36% 4.27% 6.40% (since 4/25/91)
.................................................................................................................................
KEMPER FLORIDA TAX-FREE
INCOME FUND CLASS B 2.32 4.20 4.83 (since 5/31/94)
.................................................................................................................................
KEMPER FLORIDA TAX-FREE
INCOME FUND CLASS C 5.34 4.37 4.86 (since 5/31/94)
.................................................................................................................................
</TABLE>
KEMPER FLORIDA TAX-FREE INCOME FUND CLASS A
Growth of an assumed $10,000
investment in Class A shares from
4/30/91 to 8/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER FLORIDA TAX-FREE LEHMAN BROTHERS
INCOME FUND CLASS A1 MUNICIPAL BOND INDEX+ CONSUMER PRICE INDEX++
----------------------- --------------------- ----------------------
<S> <C> <C> <C>
4/25/91 9549.00 10000.00 10000.00
10475.00 10822.00 10200.00
11429.00 11776.00 10496.00
12/31/93 12972.00 13222.00 10784.00
12464.00 12543.00 11072.00
14757.00 14727.00 11354.00
12/31/96 15156.00 15380.00 11731.00
16468.00 16793.00 11930.00
17371.00 17881.00 12123.00
16633.00 17513.00 12448.00
8/31/00 17806.00 18839.00 12769.00
</TABLE>
KEMPER FLORIDA TAX-FREE INCOME FUND CLASS B
Growth of an assumed $10,000
investment in Class B shares from
5/31/94 to 8/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER FLORIDA TAX-FREE LEHMAN BROTHERS
INCOME FUND CLASS B1 MUNICIPAL BOND INDEX+ CONSUMER PRICE INDEX++
----------------------- --------------------- ----------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9913.00 9942.00 10034.00
9838.00 9868.00 10149.00
10717.00 10816.00 10339.00
11551.00 11586.00 10407.00
6/30/96 11236.00 11534.00 10624.00
11773.00 12099.00 10753.00
12046.00 12486.00 10868.00
12684.00 13211.00 10936.00
6/30/98 12880.00 13566.00 11051.00
13259.00 14067.00 11112.00
12856.00 13948.00 11268.00
12603.00 13777.00 11410.00
13061.00 14396.00 11681.00
8/31/00 13421.00 14821.00 11704.00
</TABLE>
KEMPER FLORIDA TAX-FREE INCOME FUND CLASS C
Growth of an assumed $10,000
investment in Class B shares from
5/31/94 to 8/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER FLORIDA TAX-FREE LEHMAN BROTHERS
INCOME FUND CLASS C1 MUNICIPAL BOND INDEX+ CONSUMER PRICE INDEX++
----------------------- --------------------- ----------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9910.00 9942.00 10034.00
9845.00 9868.00 10149.00
10731.00 10816.00 10339.00
11573.00 11586.00 10407.00
6/30/96 11255.00 11534.00 10624.00
11795.00 12099.00 10753.00
12073.00 12486.00 10868.00
12713.00 13211.00 10936.00
6/30/98 12908.00 13566.00 11051.00
13302.00 14067.00 11112.00
12898.00 13948.00 11268.00
12634.00 13777.00 11410.00
13093.00 14396.00 11681.00
8/31/00 13454.00 14821.00 11704.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT
SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
* AVERAGE ANNUAL TOTAL RETURN AND TOTAL
RETURN MEASURE NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS OVER THE PERIODS
SPECIFIED, ASSUMING REINVESTMENT OF
DIVIDENDS AND, WHERE INDICATED,
ADJUSTMENT FOR THE MAXIMUM SALES
CHARGE. THE MAXIMUM SALES CHARGE FOR
CLASS A SHARES IS 4.5%. FOR CLASS B
SHARES, THE MAXIMUM CONTINGENT
DEFERRED SALES CHARGE IS 4%. CLASS C
SHARES HAVE NO SALES ADJUSTMENT, BUT
REDEMPTIONS WITHIN ONE YEAR OF
PURCHASE MAY BE SUBJECT TO A
CONTINGENT DEFERRED SALES CHARGE OF
1%. SHARE CLASSES INVEST IN THE SAME
UNDERLYING PORTFOLIO. AVERAGE ANNUAL
RETURN REFLECTS ANNUALIZED CHANGE,
WHILE TOTAL RETURN REFLECTS AGGREGATE
CHANGE. DURING THE PERIODS NOTED,
SECURITIES PRICES FLUCTUATED. FOR
ADDITIONAL INFORMATION, SEE THE
PROSPECTUS, STATEMENT OF ADDITIONAL
INFORMATION AND THE FINANCIAL
HIGHLIGHTS AT THE END OF THIS REPORT.
(1)PERFORMANCE INCLUDES REINVESTMENT OF
DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A
SHARES AND THE CONTINGENT DEFERRED
SALES CHARGE IN EFFECT AT THE END OF
THE PERIOD FOR CLASS B SHARES. IN
COMPARING THE KEMPER STATE TAX-FREE
INCOME FUNDS WITH THE LEHMAN
BROTHERS MUNICIPAL BOND INDEX, YOU
SHOULD NOTE THAT THE FUNDS'
PERFORMANCE REFLECTS THE MAXIMUM
SALES CHARGES, WHILE NO SUCH CHARGES
ARE REFLECTED IN THE PERFORMANCE OF
THE INDEX.
+THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX INCLUDES APPROXIMATELY 15,000
BONDS. TO BE INCLUDED IN THE INDEX A
MUNICIPAL BOND MUST MEET THE FOLLOWING
CRITERIA: A MINIMUM CREDIT RATING OF
BBB, HAVE BEEN ISSUED AS A PART OF AN
ISSUE OF AT LEAST $50 MILLION, HAVE
BEEN ISSUED WITHIN THE LAST 5 YEARS,
AND HAVE A MATURITY OF AT LEAST 2
YEARS. BONDS SUBJECT TO ALTERNATIVE
MINIMUM TAX, VARIABLE-RATE BONDS AND
ZERO-COUPON BONDS ARE EXCLUDED FROM
THE INDEX. SOURCE: WIESENBERGER(R).
++THE CONSUMER PRICE INDEX IS A
STATISTICAL MEASURE OF CHANGE, OVER
TIME, IN THE PRICES OF GOODS AND
SERVICES IN MAJOR EXPENDITURE GROUPS
FOR ALL URBAN CONSUMERS. IT IS
GENERALLY CONSIDERED TO BE A MEASURE
OF INFLATION. SOURCE: WIESENBERGER(R).
23
<PAGE> 24
PORTFOLIO STATISTICS
KEMPER FLORIDA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION* ON 8/31/00 ON 8/31/99
<S> <C> <C> <C> <C>
REVENUE BONDS 79% 79%
..................................................................................
GENERAL OBLIGATION BONDS 8 8
..................................................................................
U.S. GOVERNMENT SECURED 13 13
----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
QUALITY ON 8/31/00 ON 8/31/99
<S> <C> <C> <C> <C>
AAA 69% 69%
..................................................................................
AA 9 11
..................................................................................
A 10 8
..................................................................................
BBB 4 2
..................................................................................
NOT RATED 8 --
----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
YEARS TO MATURITY ON 8/31/00 ON 8/31/99
<S> <C> <C> <C> <C>
1-10 YEARS 58% 41%
..................................................................................
11-20 YEARS 42 52
..................................................................................
+21 YEARS -- 7
----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ON 8/31/00 ON 8/31/99
<S> <C> <C> <C> <C>
AVERAGE DURATION 7.7 years 8.2 years
..................................................................................
AVERAGE MATURITY 11.1 years 13.3 years
----------------------------------------------------------------------------------
</TABLE>
* Portfolio composition and holdings are subject to change.
24
<PAGE> 25
PORTFOLIO OF INVESTMENTS
FLORIDA TAX-FREE INCOME FUND
Investment Portfolio at August 31, 2000
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL INVESTMENTS--2.0%
--------------------------------------------------------------------------------------------------------------------
(c)Collier County, FL, Health Facilities, Authority
Hospital Revenue, Variable Rate Demand Note, 4.300%,
01/01/2033 $ 500,000 $ 500,000
-----------------------------------------------------------------------------------------------
(c)Saint Lucie County, FL, Pollution Control Revenue,
Florida Power and Light County Project, Variable Rate
Demand Note,
5.250%, 01/01/2026 1,000,000 1,000,000
-----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $1,500,000) $ 1,500,000
-----------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS--98.0%
--------------------------------------------------------------------------------------------------------------------
Broward County, FL, Airport Systems Revenue, Series E,
5.250%, 10/01/2012 1,000,000 1,008,920
-----------------------------------------------------------------------------------------------
Broward County, FL, Resource Recovery Waste Energy Company,
Revenue, 7.950%, 12/01/2008 1,505,000 1,553,262
-----------------------------------------------------------------------------------------------
(b)Charlotte County, FL, Utility Revenue, Prerefunded
10/01/2003, 6.750%, 10/01/2013 250,000 271,620
-----------------------------------------------------------------------------------------------
Dade City, FL, Certificate of Participation, Governmental
Leasing Corp., Series C, 9.000%, 04/01/2020 1,025,000 1,058,641
-----------------------------------------------------------------------------------------------
Dade County, FL, Aviation Revenue, Miami International
Airport, Series B, 5.125%, 10/01/2014 1,000,000 981,280
-----------------------------------------------------------------------------------------------
Dade County, FL, Aviation Revenue, Series B, 6.550%,
10/01/2013 2,000,000 2,107,880
-----------------------------------------------------------------------------------------------
Dade County, FL, Single Family Mortgage Revenue, Housing
Finance Authority, Series B, 7.250%, 09/01/2023 270,000 276,286
-----------------------------------------------------------------------------------------------
Dade County, FL, Water and Sewer Revenue, 6.250%,
10/01/2011 500,000 561,960
-----------------------------------------------------------------------------------------------
District of Columbia General Obligation, Series A, 5.250%,
06/01/2027 634,040 705,945
-----------------------------------------------------------------------------------------------
(b)Dunedin, FL, Hospital Revenue, Mease Health Care,
Prerefunded 11/15/2001, 6.750%, 11/15/2011 750,000 785,820
-----------------------------------------------------------------------------------------------
Duval County, FL, Single Family Mortgage Revenue, Housing
Finance Authority, 7.250%, 07/01/2019 240,000 246,665
-----------------------------------------------------------------------------------------------
Escambia County, FL, Health Facilities Authority, 5.950%,
07/01/2020 1,000,000 1,047,030
-----------------------------------------------------------------------------------------------
Escambia County, FL, Single Family Mortgage Revenue,
Housing Finance Authority, Series A, 6.900%, 04/01/2020 585,000 604,750
-----------------------------------------------------------------------------------------------
(b)Florida Department of Natural Resources, General
Services Revenue, Prerefunded 07/01/2001, 6.750%,
07/01/2013 1,000,000 1,039,700
-----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 25
<PAGE> 26
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Florida Housing Finance Agency GNMA Collateral Home
Ownership Revenue, 7.900%, 03/01/2022 $ 555,000 $ 566,100
-----------------------------------------------------------------------------------------------
Florida Housing Finance Agency Revenue Bonds, 5.200%,
01/01/2031 2,000,000 2,001,120
-----------------------------------------------------------------------------------------------
Fort Pierce FL, Utilities, zero coupon, 10/01/2018 2,000,000 739,920
-----------------------------------------------------------------------------------------------
Gainesville, FL, Utilities System Revenue, Series B,
6.500%, 10/01/2010 1,370,000 1,566,759
-----------------------------------------------------------------------------------------------
Greater Orlando Aviation Authority, FL, Airport Facilities
Revenue: 5.125%, 10/01/2017 981,541 958,220
5.750%, 10/01/2011 1,690,000 1,801,963
-----------------------------------------------------------------------------------------------
Highlands County, FL, Health Facilities Authority Revenue,
Adventist Health Systems, 5.250%, 11/15/2020 1,500,000 1,245,030
-----------------------------------------------------------------------------------------------
Hillsborough County, FL, Industrial Development Authority
Revenue, University Community Hospital Project:
5.625%, 08/15/2023 2,770,000 2,363,087
6.500%, 08/15/2019 1,000,000 1,141,730
-----------------------------------------------------------------------------------------------
Hillsborough County, FL, Single Family Mortgage Revenue,
Housing Finance Authority, Series A, 7.300%, 04/01/2022 235,000 240,057
-----------------------------------------------------------------------------------------------
Hillsborough County, FL, Utility Revenue, Series A, 7.000%,
08/01/2014 1,325,000 1,375,218
-----------------------------------------------------------------------------------------------
Jacksonville, FL, Electric Authority Revenue, Series 7,
zero coupon, 10/01/2011 1,140,000 657,689
-----------------------------------------------------------------------------------------------
Key West, FL, Utility Board Electricity Revenue, zero
coupon, 10/01/2014 4,975,000 2,373,324
-----------------------------------------------------------------------------------------------
Lakeland, FL, Electricity and Water Revenue, Series A, zero
coupon, 10/01/2010 1,755,000 1,073,463
-----------------------------------------------------------------------------------------------
Marion County, FL, Hospital District Revenue, 5.625%,
10/01/2019 1,000,000 948,430
-----------------------------------------------------------------------------------------------
Miami-Dade County, FL, Revenue, Series A, zero coupon,
10/01/2014 2,000,000 928,300
-----------------------------------------------------------------------------------------------
Nassau County, Amelia Island Care Center Project, Revenue,
9.750%, 01/01/2023 975,000 1,050,836
-----------------------------------------------------------------------------------------------
North Miami, FL, Education Facilities Revenue, Johnson &
Wales University Project, Series A: 6.100%, 04/01/2013 1,285,000 1,307,680
6.125%, 04/01/2020 1,500,000 1,521,090
-----------------------------------------------------------------------------------------------
Orange County, FL, Health Facilities Authority Revenue,
Orlando Regional Healthcare, Series A, 6.250%, 10/01/2018 500,000 555,720
-----------------------------------------------------------------------------------------------
Orange County, FL, Health Facilities, Revenue:
6.250%, 10/01/2016 2,120,000 2,359,242
6.250%, 10/01/2018 880,000 979,308
-----------------------------------------------------------------------------------------------
Orlando FL, Capital Improvements, Revenue, Series A,
4.750%, 10/01/2022 1,600,000 1,429,728
-----------------------------------------------------------------------------------------------
Orlando, FL, Expressway Authority Revenue, 6.500%,
07/01/2012 1,000,000 1,146,670
-----------------------------------------------------------------------------------------------
Orlando, FL, Special Assessment Revenue, Conroy Road
Interchange, Series A, 5.800%, 05/01/2026 1,280,000 1,136,038
-----------------------------------------------------------------------------------------------
Orlando, FL, Utilities Commission Water and Electricity,
Revenue, 6.750%, 10/01/2017 3,000,000 3,478,080
-----------------------------------------------------------------------------------------------
</TABLE>
26 The accompanying notes are an integral part of the financial statements.
<PAGE> 27
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Palm Beach County, FL, Criminal Justice Facilities Revenue,
7.200%, 06/01/2015 $ 110,000 $ 133,232
-----------------------------------------------------------------------------------------------
Palm Beach County, FL, Solid Waste Authority Revenue,
Series A, zero coupon, 10/01/2013 2,865,000 1,458,973
-----------------------------------------------------------------------------------------------
Pensacola, FL, Health Facilities Revenue, Daughters of
Charity National Healthcare, 5.250%, 01/01/2011 2,200,000 2,259,378
-----------------------------------------------------------------------------------------------
Pinellas County, FL, Pollution Control Revenue, Florida
Power Corporation, 7.200%, 12/01/2014 2,000,000 2,079,920
-----------------------------------------------------------------------------------------------
(d)Puerto Rico Commonwealth, Inverse Floater, 10.400%,
07/02/2016 1,000,000 1,204,110
-----------------------------------------------------------------------------------------------
Puerto Rico Commonwealth, General Obligation, 6.250%,
07/01/2013 1,850,000 2,101,804
-----------------------------------------------------------------------------------------------
Puerto Rico Commonwealth, General Obligation, zero coupon,
07/01/2017 1,500,000 611,715
-----------------------------------------------------------------------------------------------
St Johns County, FL, Water and Sewer Revenue, Series A,
zero coupon, 06/01/2016 440,000 187,928
-----------------------------------------------------------------------------------------------
(b)St Petersburg, FL, Health Facilities Authority Revenue,
Allegheny Health Systems, Prerefunded 12/01/2003, 6.750%,
12/01/2021 1,000,000 1,047,070
-----------------------------------------------------------------------------------------------
(b)St Petersburg, FL, Health Facilities Authority Revenue,
Allegheny Health Systems, Series A, Prerefunded
12/01/2001, 7.000%, 12/01/2015 500,000 524,095
-----------------------------------------------------------------------------------------------
Sunrise, FL, Utilities System Revenue, Refunded, 5.500%,
10/01/2018 2,500,000 2,573,775
-----------------------------------------------------------------------------------------------
Tampa Bay, FL, Sports Authority Revenue, Tampa Bay Arena,
5.750%, 10/01/2020 2,075,000 2,190,764
-----------------------------------------------------------------------------------------------
Tampa Bay, FL, Utility Tax Revenue, zero coupon:
10/01/2016 375,000 157,309
10/01/2014 3,165,000 1,509,863
-----------------------------------------------------------------------------------------------
Tampa Bay, FL, Water Utilities Revenue, 5.625%, 10/01/2013 1,850,000 1,957,892
-----------------------------------------------------------------------------------------------
Village Center Community Development Center, Utility
Revenue, 6.000%, 11/01/2018 1,250,000 1,345,375
-----------------------------------------------------------------------------------------------
Virgin Islands Public Finance Authority, Revenue, Series A,
6.500%, 10/01/2024 600,000 622,764
-----------------------------------------------------------------------------------------------
(b)Virgin Islands Public Financial Authority Revenue,
Series 1992 A, Prerefunded 10/01/2002 at 102, 7.250%,
10/01/2018 2,125,000 2,295,638
-----------------------------------------------------------------------------------------------
Westchase, FL, Special Assessment Revenue, Community
Development District, 5.800%, 05/01/2012 2,975,000 3,141,273
-----------------------------------------------------------------------------------------------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(Cost $72,612,711) $74,597,439
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $74,112,711) (a) $76,097,439
-----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 27
<PAGE> 28
PORTFOLIO OF INVESTMENTS
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost for federal income tax purpose was $74,112,711. At August 31, 2000,
net unrealized appreciation for all securities based on tax cost was
$1,984,728. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$2,895,952 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over value of $911,224.
(b) Prerefunded: Bonds which are prerefunded are collateralized by U.S. Treasury
securities which are held in escrow and are used to pay principal and
interest on tax-exempt issues and to retire the bonds in full at the
earliest refunding date.
(c) Variable rate demand notes are securities whose yields are periodically
reset at levels that are generally comparable to exempt commercial paper.
These securities are payable on demand within seven calendar days and
normally incorporate an irrevocable letter of credit from a major bank.
These notes are carried, for purpose of calculating average weighted
maturity, at the longer of the period remaining until the next rate change
or the extent of the demand period.
(d) Inverse floating rate notes are instruments whose yields may change based on
the change in the relationship between long-term and short-term interest
rates and which exhibit added interest rate sensitivity compared to other
bonds with similar maturities. These securities are shown at their rate as
of August 31, 2000.
28 The accompanying notes are an integral part of the financial statements.
<PAGE> 29
PERFORMANCE UPDATE
KEMPER NEW YORK TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED AUGUST 31, 2000 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR LIFE OF CLASS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KEMPER NEW YORK TAX-FREE INCOME FUND
CLASS A 1.72% 4.45% 6.63% 6.76% (since 12/31/85)
...........................................................................................................................
KEMPER NEW YORK TAX-FREE INCOME FUND
CLASS B 2.60 4.39 n/a 4.82 (since 5/31/94)
...........................................................................................................................
KEMPER NEW YORK TAX-FREE INCOME FUND
CLASS C 5.64 4.55 n/a 4.81 (since 5/31/94)
...........................................................................................................................
</TABLE>
KEMPER NEW YORK TAX-FREE INCOME FUND CLASS A
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN CLASS B SHARES FROM 12/31/85 TO
8/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER NEW YORK TAX-
FREE INCOME FUND CLASS LEHMAN BROTHERS
A1 MUNICIPAL BOND INDEX+ CONSUMER PRICE INDEX++
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
12/31/85 9548.00 10000.00 10000.00
10750.00 11932.00 10110.00
10637.00 12111.00 10558.00
11461.00 13341.00 11025.00
12837.00 14779.00 11537.00
13599.00 15858.00 12242.00
12/31/91 15419.00 17784.00 12617.00
16872.00 19352.00 12983.00
19060.00 21729.00 13339.00
12/31/94 18117.00 20613.00 13696.00
21375.00 24202.00 14044.00
21919.00 25274.00 14511.00
23869.00 27598.00 14758.00
25300.00 29386.00 14995.00
24224.00 28780.00 15398.00
8/31/00 26101.00 30959.00 15795.00
</TABLE>
KEMPER NEW YORK TAX-FREE INCOME FUND CLASS B
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN CLASS B SHARES FROM 5/31/94 TO
8/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER NEW YORK TAX-
FREE INCOME FUND CLASS LEHMAN BROTHERS
B1 MUNICIPAL BOND INDEX+ CONSUMER PRICE INDEX++
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9972.00 9942.00 10034.00
9771.00 9868.00 10149.00
10568.00 10816.00 10339.00
11426.00 11586.00 10407.00
6/30/96 11130.00 11534.00 10624.00
11626.00 12099.00 10753.00
11908.00 12486.00 10868.00
12538.00 13211.00 10936.00
6/30/98 12789.00 13566.00 11051.00
13203.00 14067.00 11112.00
12839.00 13948.00 11268.00
12526.00 13777.00 11410.00
13051.00 14396.00 11681.00
8/31/00 13418.00 14821.00 11704.00
</TABLE>
KEMPER NEW YORK TAX-FREE INCOME FUND CLASS C
GROWTH OF AN ASSUMED $10,000 INVESTMENT IN CLASS C SHARES FROM 5/31/94 TO
8/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
KEMPER NEW YORK TAX-
FREE INCOME FUND CLASS LEHMAN BROTHERS
C1 MUNICIPAL BOND INDEX+ CONSUMER PRICE INDEX++
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9936.00 9942.00 10034.00
9770.00 9868.00 10149.00
10560.00 10816.00 10339.00
11420.00 11586.00 10407.00
6/30/96 11135.00 11534.00 10624.00
11611.00 12099.00 10753.00
11908.00 12486.00 10868.00
12540.00 13211.00 10936.00
6/30/98 12777.00 13566.00 11051.00
13198.00 14067.00 11112.00
12834.00 13948.00 11268.00
12522.00 13777.00 11410.00
13050.00 14396.00 11681.00
8/31/00 13418.00 14821.00 11704.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT
SHARES,WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
*AVERAGE ANNUAL TOTAL RETURN AND TOTAL
RETURN MEASURE NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS OVER THE PERIODS
SPECIFIED, ASSUMING REINVESTMENT OF
DIVIDENDS AND, WHERE INDICATED,
ADJUSTMENT FOR THE MAXIMUM SALES
CHARGE. THE MAXIMUM SALES CHARGE FOR
CLASS A SHARES IS 4.5%. FOR CLASS B
SHARES, THE MAXIMUM CONTINGENT
DEFERRED SALES CHARGE IS 4%. CLASS C
SHARES HAVE NO SALES ADJUSTMENT, BUT
REDEMPTIONS WITHIN ONE YEAR OF
PURCHASE MAY BE SUBJECT TO A
CONTINGENT DEFERRED SALES CHARGE OF
1%. SHARE CLASSES INVEST IN THE SAME
UNDERLYING PORTFOLIO. AVERAGE ANNUAL
RETURN REFLECTS ANNUALIZED CHANGE,
WHILE TOTAL RETURN REFLECTS AGGREGATE
CHANGE. DURING THE PERIODS NOTED,
SECURITIES PRICES FLUCTUATED. FOR
ADDITIONAL INFORMATION, SEE THE
PROSPECTUS, STATEMENT OF ADDITIONAL
INFORMATION AND THE FINANCIAL
HIGHLIGHTS AT THE END OF THIS REPORT.
(1)PERFORMANCE INCLUDES REINVESTMENT OF
DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A
SHARES AND THE CONTINGENT DEFERRED
SALES CHARGE IN EFFECT AT THE END OF
THE PERIOD FOR CLASS B SHARES. IN
COMPARING THE KEMPER STATE TAX-FREE
INCOME FUNDS WITH THE LEHMAN
BROTHERS MUNICIPAL BOND INDEX, YOU
SHOULD NOTE THAT THE FUNDS'
PERFORMANCE REFLECTS THE MAXIMUM
SALES CHARGES, WHILE NO SUCH CHARGES
ARE REFLECTED IN THE PERFORMANCE OF
THE INDEX.
+THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX INCLUDES APPROXIMATELY 15,000
BONDS. TO BE INCLUDED IN THE INDEX A
MUNICIPAL BOND MUST MEET THE FOLLOWING
CRITERIA: A MINIMUM CREDIT RATING OF
BBB, HAVE BEEN ISSUED AS A PART OF AN
ISSUE OF AT LEAST $50 MILLION, HAVE
BEEN ISSUED WITHIN THE LAST 5 YEARS,
AND HAVE A MATURITY OF AT LEAST 2
YEARS. BONDS SUBJECT TO ALTERNATIVE
MINIMUM TAX, VARIABLE-RATE BONDS AND
ZERO-COUPON BONDS ARE EXCLUDED FROM
THE INDEX. SOURCE: WIESENBERGER(R).
++THE CONSUMER PRICE INDEX IS A
STATISTICAL MEASURE OF CHANGE, OVER
TIME, IN THE PRICES OF GOODS AND
SERVICES IN MAJOR EXPENDITURE GROUPS
FOR ALL URBAN CONSUMERS. IT IS
GENERALLY CONSIDERED TO BE A MEASURE
OF INFLATION. SOURCE: WIESENBERGER(R).
29
<PAGE> 30
PORTFOLIO STATISTICS
KEMPER NEW YORK TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION* ON 8/31/00 ON 8/31/99
<S> <C> <C> <C> <C>
REVENUE BONDS 83% 80%
..................................................................................
GENERAL OBLIGATION BONDS 16 18
..................................................................................
U.S. GOVERNMENT SECURED 1 2
----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
QUALITY ON 8/31/00 ON 8/31/99
<S> <C> <C> <C> <C>
AAA 61% 56%
..................................................................................
AA 14 11
..................................................................................
A 20 17
..................................................................................
BBB 1 10
..................................................................................
BB 1 1
..................................................................................
NOT RATED 3 5
----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
YEARS TO MATURITY ON 8/31/00 ON 8/31/99
<S> <C> <C> <C> <C>
1-10 YEARS 84% 42%
..................................................................................
11-20 YEARS 16 48
..................................................................................
+21 YEARS -- 10
----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ON 8/31/00 ON 8/31/99
<S> <C> <C> <C> <C>
AVERAGE DURATION 7.5 years 7.8 years
..................................................................................
AVERAGE MATURITY 10.7 years 13.8 years
----------------------------------------------------------------------------------
</TABLE>
* Portfolio composition and holdings are subject to change.
30
<PAGE> 31
PORTFOLIO OF INVESTMENTS
NEW YORK TAX-FREE INCOME FUND
Portfolio of Investments at August 31, 2000
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL INVESTMENTS--0.5%
-----------------------------------------------------------------------------------------------------------------
(c)Babylon, NY, Industrial Development Agency, Resource
Discovery Bond, Daily Demand Note, 4.350%, 12/01/2024 $ 1,000,000 $ 1,000,000
--------------------------------------------------------------------------------------------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $1,000,000) $ 1,000,000
--------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS--99.5%
-----------------------------------------------------------------------------------------------------------------
(b)Battery Park City Authority, Housing Revenue, Prerefunded
06/01/2005, 8.625%, 06/01/2023 10,000 11,693
--------------------------------------------------------------------------------------------
Buffalo, NY, General Obligation, 5.750%, 12/01/2012 1,000,000 1,071,620
--------------------------------------------------------------------------------------------
Long Island Power Authority:
zero coupon, 06/01/2012 8,000,000 4,424,400
zero coupon, 06/01/2014 2,115,000 1,030,936
--------------------------------------------------------------------------------------------
Long Island Power Authority, Electric Systems Revenue,
Series A, 5.500%, 12/01/2023 3,500,000 3,407,915
--------------------------------------------------------------------------------------------
Metropolitan Transportation Authority of New York, Transit
Facilities, Revenue, Series 1998-C, 5.125%, 07/01/2013 4,000,000 4,029,240
--------------------------------------------------------------------------------------------
Monroe County, NY, General Obligation, 6.000%, 03/01/2018 1,130,000 1,226,931
--------------------------------------------------------------------------------------------
Nassau County, NY, Import Series F, 7.000%, 03/01/2010 2,445,000 2,852,533
--------------------------------------------------------------------------------------------
Nassau County, NY, Sewer Districts, Series A:
6.000%, 07/01/2012 705,000 771,637
6.000%, 07/01/2013 710,000 775,540
--------------------------------------------------------------------------------------------
New York and New Jersey Port Authority Special Obligation,
Revenue, Continental/Eastern Project, LaGuardia, 9.125%,
12/01/2015 2,550,000 2,621,987
--------------------------------------------------------------------------------------------
New York City, NY, General Obligation:
7.750%, 03/15/2002 5,000 5,121
(b) Series A, Prerefunded 09/15/2000, 7.750%, 03/15/2002 10,000 10,163
Series L, 5.625%, 08/01/2007 5,550,000 5,851,587
Series F, zero coupon, 08/01/2008 6,755,000 4,634,876
Series F, 5.000, 09/15/2014 2,480,000 2,441,882
Series H, 6.000%, 08/01/2014 2,500,000 2,634,575
Series J, 5.000%, 05/15/2017 2,000,000 1,926,360
5.125%, 08/01/2018 3,405,000 3,303,906
--------------------------------------------------------------------------------------------
New York City, NY, Housing Development Corporation,
Series A, 7.300%, 06/01/2010 8,800,000 9,123,752
--------------------------------------------------------------------------------------------
New York City, NY, Transitional Finance Authority, Revenue:
Series A, 5.250%, 11/15/2013 500,000 509,190
Series A, 5.750%, 08/15/2011 3,000,000 3,219,360
6.125%, 11/15/2014 1,000,000 1,090,730
Series C, 5.000%, 05/01/2016 2,125,000 2,060,867
--------------------------------------------------------------------------------------------
New York Metropolitan Transportation Authority, Commuter
Facilities, Revenue, Series E, 5.000%, 07/01/2015 3,000,000 2,936,760
--------------------------------------------------------------------------------------------
New York Metropolitan Transportation Authority, Revenue,
Series Q, 5.125%, 07/01/2012 5,000,000 5,070,600
--------------------------------------------------------------------------------------------
New York Metropolitan Transportation Authority,
Transportation Facilities, Revenue, 6.000%, 07/01/2016 7,750,000 8,177,257
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<PAGE> 32
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
New York Municipal Assistance Corp., Series 1997-L, 6.000%,
07/01/2005 $ 3,500,000 $ 3,734,150
--------------------------------------------------------------------------------------------
New York State Dormitory Authority: City University System,
Revenue:
Series D, 7.000%, 07/01/2009 2,200,000 2,434,872
5.750%, 07/01/2013 4,100,000 4,402,457
5.750%, 07/01/2018 2,250,000 2,377,710
Series A, 5.750%, 07/01/2018 2,000,000 2,113,520
--------------------------------------------------------------------------------------------
New York State Dormitory Authority, Colgate University,
Revenue:
6.000%, 07/01/2016 900,000 978,489
6.000%, 07/01/2021 850,000 919,377
--------------------------------------------------------------------------------------------
New York State Dormitory Authority, Fordham University,
Revenue, 7.200%, 07/01/2015 790,000 807,562
--------------------------------------------------------------------------------------------
New York State Dormitory Authority, Judicial Facilities,
Revenue, 7.375%, 07/01/2016 115,000 138,406
--------------------------------------------------------------------------------------------
New York State Dormitory Authority, Pace University,
Revenue:
6.500%, 07/01/2011 760,000 869,128
6.500%, 07/01/2012 500,000 573,335
--------------------------------------------------------------------------------------------
New York State Dormitory Authority, Revenue Bond, 5.750%,
08/15/2012 2,000,000 2,121,460
--------------------------------------------------------------------------------------------
New York State Energy Research and Development Authority,
Lilco Project, Revenue,
Series A, 5.150%, 03/01/2016 2,500,000 2,363,900
--------------------------------------------------------------------------------------------
New York State Environmental Facilities Corporation,
Riverbank State Park, Special Obligation, Revenue, 6.250%,
04/01/2012 3,695,000 4,143,906
--------------------------------------------------------------------------------------------
New York State Environmental Facilities Corporation, State
Water Pollution Control, Revolving Fund, Revenue:
(b) Series A, Prerefunded 06/15/2001, 7.250%, 06/15/2010 900,000 938,457
Series A, 7.250%, 06/15/2010 100,000 104,096
Series E, 6.500%, 06/15/2014 90,000 93,207
--------------------------------------------------------------------------------------------
New York State Housing Finance Agency, Multi-Family Mortgage
Housing, Revenue, Series A, 6.950%, 08/15/2012 1,500,000 1,570,155
--------------------------------------------------------------------------------------------
New York State Housing Finance Agency, Service Contract
Obligation, Revenue:
Series A, 7.250%, 09/15/2012 185,000 195,236
Series C, 7.300%, 09/15/2012 75,000 78,487
--------------------------------------------------------------------------------------------
New York State Housing Finance Agency, West-H.E.L.P.
Housing, Revenue, Series A, 7.550%, 11/01/2002 1,165,000 1,166,771
--------------------------------------------------------------------------------------------
New York State Housing Finance Agency, State University
Construction, Revenue, Series A, 8.000%, 05/01/2011 200,000 246,554
--------------------------------------------------------------------------------------------
New York State Local Assistance Corporation, Capital
Appreciation, Series B, zero coupon, 04/01/2009 5,980,000 3,978,374
--------------------------------------------------------------------------------------------
New York State Medical Care Facilities Finance Agency,
Revenue:
7.875%, 08/15/2015 335,000 335,945
7.750%, 02/15/2020 100,000 102,244
--------------------------------------------------------------------------------------------
New York State Medical Care Facilities Finance Agency,
Mental Health Service Facilities Improvement, Revenue:
(b) Series D, Prerefunded 2/15/2002, 7.400%, 02/15/2018 755,000 801,795
Series D, 7.400%, 02/15/2018 300,000 316,311
7.700%, 02/15/2018 45,000 45,105
--------------------------------------------------------------------------------------------
New York State Mortgage Agency, Homeownership Mortgage,
Revenue, Series 56, 6.450%, 10/01/2021 4,000,000 4,181,880
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE> 33
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
New York State Thruway Authority, Highway and Bridges Trust
Fund, Revenue:
5.500%, 04/01/2010 $ 2,000,000 $ 2,116,680
Series A, 5.125%, 04/01/2015 1,500,000 1,489,290
--------------------------------------------------------------------------------------------
New York State Thruway Authority, Local Highway and Bridges,
Service Contract, Revenue, 6.000%, 04/01/2011 5,000,000 5,347,050
--------------------------------------------------------------------------------------------
New York State Urban Development Corporation: Correctional
Facilities Service Contract, Revenue,
Series B, 5.250%, 01/01/2013 1,700,000 1,731,790
--------------------------------------------------------------------------------------------
New York Triborough Bridge and Tunnel Authority, General
Purpose Revenue, Series Y, 6.125%, 01/01/2021 7,205,000 7,900,787
--------------------------------------------------------------------------------------------
Niagara Falls, NY, Water Treatment Plant, General
Obligation:
7.250%, 11/01/2011 215,000 258,965
7.000%, 11/01/2012 1,000,000 1,093,940
--------------------------------------------------------------------------------------------
Niagara Falls, NY, Bridge Commission Toll, Revenue, 5.250%,
10/01/2015 10,720,000 10,859,038
--------------------------------------------------------------------------------------------
Orange County, NY, Industrial Development Agency, The Glen
Arden Project:
5.625%, 01/01/2018 1,000,000 826,400
5.700%, 01/01/2028 2,500,000 1,994,425
--------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey, JFK International
Airport Terminal 6, Special Obligation, Revenue, 6.250%,
12/01/2015 8,000,000 8,880,640
--------------------------------------------------------------------------------------------
Puerto Rico Commonwealth, Public Improvements, General
Obligation, zero coupon, 07/01/2008 1,000,000 694,960
--------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway and Transportation
Authority, Highway Revenue, Series Z, 6.000%, 07/01/2018 2,750,000 3,018,675
--------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority, Revenue, 6.000%,
07/01/2012 4,020,000 4,476,391
--------------------------------------------------------------------------------------------
(d)Puerto Rico Municipal Finance Agency, General Obligation,
Series A, Inverse Floater, 7.324%, 08/01/2012 1,500,000 1,768,740
--------------------------------------------------------------------------------------------
Special Activities School Districts, Revenue:
5.250%, 07/01/2011 2,545,000 2,628,730
5.250%, 07/01/2012 1,350,000 1,386,396
5.250%, 07/01/2015 1,000,000 1,003,620
--------------------------------------------------------------------------------------------
State Facilities, Revenue, 5.600%, 04/01/2015 2,260,000 2,322,353
--------------------------------------------------------------------------------------------
State University Educational Facilities, Revenue:
Series C, 7.375%, 05/15/2010 1,000,000 1,153,860
Series B, 7.500%, 05/15/2011 1,000,000 1,171,790
5.750%, 05/15/2012 3,000,000 3,224,430
5.875%, 05/15/2017 2,325,000 2,491,842
(b) Prerefunded 05/15/2002, 7.250%, 05/15/2018 155,000 165,458
--------------------------------------------------------------------------------------------
St. Joseph's Hospital Health Center, Revenue, 6.000%,
07/01/2009 1,000,000 1,086,960
--------------------------------------------------------------------------------------------
St. Vincent's Hospital and Medical Center, 7.375%,
08/01/2011 2,105,000 2,198,672
--------------------------------------------------------------------------------------------
Syracuse University Center for Science and Technology,
Revenue:
5.500%, 01/01/2015 4,500,000 4,550,850
5.500%, 01/01/2017 4,890,000 4,918,460
--------------------------------------------------------------------------------------------
Ulster County, NY, Resource Recovery Agency, Solid Waste
System, Revenue, 6.000%, 03/01/2014 3,000,000 3,071,670
--------------------------------------------------------------------------------------------
Upstate Community Colleges, Revenue:
Series A, 5.000%, 07/01/2014 1,500,000 1,482,945
Series A, 5.875%, 07/01/2016 3,555,000 3,648,212
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE> 34
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Westchester County Court Facilities, Lease Revenue, 5.250%,
08/01/2014 $ 2,555,000 $ 2,580,397
--------------------------------------------------------------------------------------------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(Cost $202,183,596) $208,898,723
--------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $203,183,596)(a) $209,898,723
--------------------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost for federal income tax purpose was $203,183,596. At August 31,
2000, net unrealized appreciation for all securities based on tax cost was
$6,715,127. This consists of aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost of $8,242,478
and aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value of $1,527,351.
(b) Prerefunded: Bonds which are prerefunded are collateralized by U.S. Treasury
securities which are held in escrow and are used to pay principal and
interest on tax-exempt issues and to retire the bonds in full at the
earliest refunding date.
(c) Variable rate demand notes are securities whose yields are periodically
reset at levels that are generally comparable to exempt commercial paper.
These securities are payable on demand within seven calendar days and
normally incorporate an irrevocable letter of credit from a major bank.
These notes are carried, for purpose of calculating average weighted
maturity, at the longer of the period remaining until the next rate change
or the extent of the demand period.
(d) Inverse floating rate notes are instruments whose yields may change based on
the change in the relationship between long-term and short-term interest
rates and which exhibit added interest rate sensitivity compared to other
bonds with similar maturities. These securities are shown at their rate as
of August 31, 2000.
34 The accompanying notes are an integral part of the financial statements.
<PAGE> 35
PERFORMANCE UPDATE
KEMPER OHIO TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS*
FOR PERIODS ENDED AUGUST 31, 2000 (ADJUSTED FOR THE MAXIMUM SALES CHARGE)
<TABLE>
<CAPTION>
1-YEAR 5-YEAR LIFE OF CLASS
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kemper Ohio Tax-Free Income Fund Class A -0.13% 4.35% 5.18% (since 3/22/93)
..................................................................................................
Kemper Ohio Tax-Free Income Fund Class B 0.73 4.27 5.00 (since 5/31/94)
..................................................................................................
Kemper Ohio Tax-Free Income Fund Class C 3.74 4.46 5.02 (since 5/31/94)
..................................................................................................
</TABLE>
KEMPER OHIO TAX-FREE INCOME FUND CLASS A
Growth of an assumed $10,000 investment in Class A
shares from 3/31/93 to 8/31/00
[LINE GRAPH KEMPER OHIO TAX-FREE INCOME FUND CLASS A]
<TABLE>
<CAPTION>
KEMPER OHIO TAX-FREE LEHMAN BROTHERS
INCOME FUND CLASS A(1) MUNICIPAL BOND INDEX+ CONSUMER PRICE INDEX++
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
3/22/93 9555.00 10000.00 10000.00
10083.00 10327.00 10056.00
10584.00 10826.00 10153.00
10237.00 10348.00 10306.00
10196.00 10271.00 10425.00
6/30/95 11138.00 11257.00 10620.00
12068.00 12059.00 10689.00
11804.00 12005.00 10912.00
12447.00 12593.00 11045.00
12786.00 12996.00 11163.00
12/31/97 13527.00 13750.00 11233.00
13871.00 14120.00 11351.00
14318.00 14641.00 11414.00
14080.00 14517.00 11574.00
13851.00 14340.00 11720.00
14298.00 14983.00 11999.00
8/31/00 14659.00 15425.00 12022.00
</TABLE>
KEMPER OHIO TAX-FREE INCOME FUND CLASS B
Growth of an assumed $10,000 investment in Class B
shares from 5/31/94 to 8/31/00
[LINE GRAPH KEMPER OHIO TAX-FREE INCOME FUND CLASS B]
<TABLE>
<CAPTION>
KEMPER OHIO TAX-FREE LEHMAN BROTHERS
INCOME FUND CLASS B(1) MUNICIPAL BOND INDEX+ CONSUMER PRICE INDEX++
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9955.00 9942.00 10034.00
9881.00 9868.00 10149.00
10746.00 10816.00 10339.00
11609.00 11586.00 10407.00
6/30/96 11297.00 11534.00 10624.00
11873.00 12099.00 10753.00
12143.00 12486.00 10868.00
12794.00 13211.00 10936.00
6/30/98 13079.00 13566.00 11051.00
13448.00 14067.00 11112.00
13170.00 13948.00 11268.00
12907.00 13777.00 11410.00
13266.00 14996.00 11681.00
8/31/00 13569.00 14821.00 11704.00
</TABLE>
KEMPER OHIO TAX-FREE INCOME FUND CLASS C
Growth of an assumed $10,000 investment in Class C
shares from 5/31/94 to 8/31/00
[LINE GRAPH KEMPER OHIO TAX-FREE INCOME FUND CLASS C]
<TABLE>
<CAPTION>
KEMPER OHIO TAX-FREE LEHMAN BROTHERS
INCOME FUND CLASS C(1) MUNICIPAL BOND INDEX+ CONSUMER PRICE INDEX++
---------------------- --------------------- ----------------------
<S> <C> <C> <C>
5/31/94 10000.00 10000.00 10000.00
9933.00 9942.00 10034.00
9880.00 9868.00 10149.00
10758.00 10816.00 10339.00
11608.00 11586.00 10407.00
6/30/96 11305.00 11534.00 10624.00
11874.00 12099.00 10753.00
12151.00 12486.00 10868.00
12803.00 13211.00 10936.00
6/30/98 13076.00 13566.00 11051.00
13446.00 14067.00 11112.00
13165.00 13948.00 11268.00
12899.00 13777.00 11410.00
13260.00 14996.00 11681.00
8/31/00 13576.00 14821.00 11704.00
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT
SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN ORIGINAL COST.
*AVERAGE ANNUAL TOTAL RETURN AND TOTAL
RETURN MEASURE NET INVESTMENT INCOME
AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS OVER THE PERIODS
SPECIFIED, ASSUMING REINVESTMENT OF
DIVIDENDS AND, WHERE INDICATED,
ADJUSTMENT FOR THE MAXIMUM SALES
CHARGE. THE MAXIMUM SALES CHARGE FOR
CLASS A SHARES IS 4.5%. FOR CLASS B
SHARES, THE MAXIMUM CONTINGENT
DEFERRED SALES CHARGE IS 4%. CLASS C
SHARES HAVE NO SALES ADJUSTMENT, BUT
REDEMPTIONS WITHIN ONE YEAR OF
PURCHASE MAY BE SUBJECT TO A
CONTINGENT DEFERRED SALES CHARGE OF
1%. SHARE CLASSES INVEST IN THE SAME
UNDERLYING PORTFOLIO. AVERAGE ANNUAL
RETURN REFLECTS ANNUALIZED CHANGE,
WHILE TOTAL RETURN REFLECTS AGGREGATE
CHANGE. DURING THE PERIODS NOTED,
SECURITIES PRICES FLUCTUATED. FOR
ADDITIONAL INFORMATION, SEE THE
PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION AND THE FINANCIAL
HIGHLIGHTS AT THE END OF THIS REPORT.
(1)PERFORMANCE INCLUDES REINVESTMENT OF
DIVIDENDS AND ADJUSTMENT FOR THE
MAXIMUM SALES CHARGE FOR CLASS A
SHARES AND THE CONTINGENT DEFERRED
SALES CHARGE IN EFFECT AT THE END OF
THE PERIOD FOR CLASS B SHARES. IN
COMPARING THE KEMPER STATE TAX-FREE
INCOME FUNDS WITH THE LEHMAN
BROTHERS MUNICIPAL BOND INDEX, YOU
SHOULD NOTE THAT THE FUNDS'
PERFORMANCE REFLECTS THE MAXIMUM
SALES CHARGES, WHILE NO SUCH CHARGES
ARE REFLECTED IN THE PERFORMANCE OF
THE INDEX.
+THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX INCLUDES APPROXIMATELY 15,000
BONDS. TO BE INCLUDED IN THE INDEX A
MUNICIPAL BOND MUST MEET THE FOLLOWING
CRITERIA: A MINIMUM CREDIT RATING OF
BBB, HAVE BEEN ISSUED AS A PART OF AN
ISSUE OF AT LEAST $50 MILLION, HAVE
BEEN ISSUED WITHIN THE LAST 5 YEARS,
AND HAVE A MATURITY OF AT LEAST 2
YEARS. BONDS SUBJECT TO ALTERNATIVE
MINIMUM TAX, VARIABLE-RATE BONDS AND
ZERO-COUPON BONDS ARE EXCLUDED FROM
THE INDEX. SOURCE: WIESENBERGER(R).
++THE CONSUMER PRICE INDEX IS A
STATISTICAL MEASURE OF CHANGE, OVER
TIME, IN THE PRICES OF GOODS AND
SERVICES IN MAJOR EXPENDITURE GROUPS
FOR ALL URBAN CONSUMERS. IT IS
GENERALLY CONSIDERED TO BE A MEASURE
OF INFLATION. SOURCE: WIESENBERGER(R).
35
<PAGE> 36
PORTFOLIO STATISTICS
KEMPER OHIO TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION* ON 8/31/00 ON 8/31/99
<S> <C> <C> <C> <C>
REVENUE BONDS 48% 49%
..................................................................................
GENERAL OBLIGATION BONDS 35 34
..................................................................................
U.S. GOVERNMENT SECURED 17 17
----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
QUALITY ON 8/31/00 ON 8/31/99
<S> <C> <C> <C> <C>
AAA 64% 67%
..................................................................................
AA 14 13
..................................................................................
A -- 3
..................................................................................
BBB 7 6
..................................................................................
BB 3 3
..................................................................................
NOT RATED 12 8
----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
YEARS TO MATURITY ON 8/31/00 ON 8/31/99
<S> <C> <C> <C> <C>
1-10 YEARS 57% 64%
..................................................................................
11-20 YEARS 40 32
..................................................................................
+21 YEARS 3 4
----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ON 8/31/00 ON 8/31/99
<S> <C> <C> <C> <C>
AVERAGE DURATION 6.8 years 6.7 years
..................................................................................
AVERAGE MATURITY 9.0 years 12.2 years
----------------------------------------------------------------------------------
</TABLE>
* Portfolio composition and holdings are subject to change.
36
<PAGE> 37
PORTFOLIO OF INVESTMENTS
OHIO TAX-FREE INCOME FUND
Portfolio of Investments at August 31, 2000
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
MUNICIPAL INVESTMENTS--100.0%
--------------------------------------------------------------------------------------------------------------------
Akron, OH, Sewer System, Revenue, 5.900%, 12/01/2011 $ 385,000 $ 410,186
-----------------------------------------------------------------------------------------------
Athens County, OH, Economic Development, Revenue, Ohio
Athens Inc. Project, 6.250%, 11/01/2011 500,000 486,075
-----------------------------------------------------------------------------------------------
Avon, OH, Local School District, General Obligation,
6.500%, 12/01/2015 940,000 1,073,376
-----------------------------------------------------------------------------------------------
(b)Batavia, OH, Local School District, General Obligation,
Prerefunded 12/01/2005, 7.000%, 12/01/2014 500,000 568,390
-----------------------------------------------------------------------------------------------
Beavercreek, OH, Local School District, General Obligation,
Series 1996, 6.600%, 12/01/2015 500,000 576,185
-----------------------------------------------------------------------------------------------
Big Walnut, OH, Local School District, General Obligation,
zero coupon, 12/01/2012 420,000 222,743
-----------------------------------------------------------------------------------------------
Cleveland, OH, Revenue Bond, Cleveland Stadium, zero
coupon:
12/01/2008 825,000 517,036
12/01/2012 815,000 407,035
12/01/2020 820,000 257,119
-----------------------------------------------------------------------------------------------
Cleveland, OH, Waterworks Revenue, 6.250%, 01/01/2015 25,000 25,985
-----------------------------------------------------------------------------------------------
(b)Cleveland, OH, Waterworks Revenue, Prerefunded
01/01/2002, 6.250%, 01/01/2015 615,000 641,832
-----------------------------------------------------------------------------------------------
(b)Cleveland, OH Public Power System Revenue, First
Mortgage, Prerefunded 11/15/2004, 7.000%, 11/15/2024 600,000 669,360
-----------------------------------------------------------------------------------------------
Cleveland, OH Public Power Systems, 7.000%, 11/15/2017 600,000 629,172
-----------------------------------------------------------------------------------------------
(b)Cleveland, OH Public Power Systems, Prerefunded
11/15/2001, 7.000%, 11/15/2017 150,000 157,610
-----------------------------------------------------------------------------------------------
Cleveland-Cuyahoga County, OH, Port Development Revenue,
C&P Docks Project, 6.000%, 03/01/2007 485,000 472,307
-----------------------------------------------------------------------------------------------
Columbus, OH, Municipal Airport Authority, Revenue, 6.000%,
01/01/2014 250,000 258,545
-----------------------------------------------------------------------------------------------
(b)Crawford County, OH, General Obligation, Prerefunded
12/01/2004, 6.750%, 12/01/2019 700,000 776,293
-----------------------------------------------------------------------------------------------
Cuyahoga County, OH, General Obligation, 5.650%, 05/15/2018 500,000 521,360
-----------------------------------------------------------------------------------------------
Cuyahoga County, OH, Multifamily Housing Revenue, 6.500%,
10/20/2020 1,000,000 1,027,420
-----------------------------------------------------------------------------------------------
(b)Cuyahoga County, OH, Hospital Revenue, Meridia Health
System, Prerefunded 8/15/2005, 6.250%, 08/15/2014 950,000 1,040,773
-----------------------------------------------------------------------------------------------
Dublin, OH, City School District, General Obligation, zero
coupon:
12/01/2010 500,000 300,490
12/01/2011 1,095,000 624,807
-----------------------------------------------------------------------------------------------
Edon Township, OH, Local School District, General
Obligation, 6.000%, 12/01/2019 475,000 507,803
-----------------------------------------------------------------------------------------------
Fayette County, OH, Rattlesnake Improvement Area, General
Obligation, 5.900%, 12/01/2013 145,000 148,538
-----------------------------------------------------------------------------------------------
Finneytown, OH, Local School District, General Obligation,
6.200%, 12/01/2017 320,000 354,381
-----------------------------------------------------------------------------------------------
Franklin, OH, Muskingum County Local School District,
General Obligation, 6.500%, 12/01/2013 500,000 564,715
-----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 37
<PAGE> 38
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Green Springs, OH, Health Care, Revenue, St Francis Health
Care Center Project, Series A, 7.000%, 05/15/2014 $ 400,000 $ 342,960
-----------------------------------------------------------------------------------------------
Highland Heights, OH, General Obligation, 6.150%,
12/01/2012 145,000 152,578
-----------------------------------------------------------------------------------------------
(b)Lakeview, OH, Local School District, General Obligation,
Prerefunded 12/01/2004, 6.900%, 12/01/2014 700,000 780,150
-----------------------------------------------------------------------------------------------
Lakota, OH, Local School District, General Obligation,
7.000%, 12/01/2008 500,000 579,515
-----------------------------------------------------------------------------------------------
Liberty, OH, Local School District, General Obligation,
zero coupon:
12/01/2011 250,000 142,650
12/01/2012 255,000 136,779
12/01/2014 570,000 264,366
-----------------------------------------------------------------------------------------------
Lucas County, OH, Toledo Port Authority Development,
Revenue Bond, Northwest Ohio Bond Fund, Series A, 5.400%,
05/15/2019 500,000 434,330
-----------------------------------------------------------------------------------------------
Lucas County, OH, General Obligation:
6.050%, 12/01/2013 130,000 138,735
6.500%, 12/01/2016 250,000 276,053
-----------------------------------------------------------------------------------------------
Marion County, OH, Health Care Facilities, Revenue, Church
Homes Project:
6.375%, 11/15/2010 280,000 266,372
6.300%, 11/15/2015 400,000 363,228
-----------------------------------------------------------------------------------------------
Medina, OH, City School District, General Obligation,
12/01/2010, zero coupon 1,045,000 633,061
-----------------------------------------------------------------------------------------------
Napoleon, OH, Health Care Facility, Lutheran Orphans' and
Old Folks' Home Society, Revenue, 6.875%, 08/01/2023 445,000 472,959
-----------------------------------------------------------------------------------------------
(b)Northeast Ohio Regional Sewer District, Wastewater
Revenue, Prerefunded 11/15/2001, 6.500%, 11/15/2016 300,000 310,623
-----------------------------------------------------------------------------------------------
Ohio Higher Education Facility Commission, University of
Findlay Project, Revenue, 6.125%, 09/01/2016 400,000 407,968
-----------------------------------------------------------------------------------------------
(b)Ohio Housing Finance Agency, GNMA Single Family Mortgage
Revenue, Prerefunded 1/15/2013, zero coupon, 01/15/2015 1,000,000 429,170
-----------------------------------------------------------------------------------------------
Ohio Housing Finance Agency, GNMA Single Family Mortgage
Revenue, 7.850%, 09/01/2021 140,000 142,976
-----------------------------------------------------------------------------------------------
Ohio Housing Finance Agency, Multifamily Housing, Westlake
Apartments Project, Revenue, 5.850%, 12/01/2016 500,000 504,505
-----------------------------------------------------------------------------------------------
Ohio State Building Authority, Adult Correctional Building
Fund, Revenue, 6.125%, 10/01/2012 310,000 328,591
-----------------------------------------------------------------------------------------------
(b)Ohio State Building Authority, Revenue, Prerefunded
06/01/2001, 6.250%, 06/01/2011 215,000 222,286
-----------------------------------------------------------------------------------------------
Ohio State Building Authority, Administrative Building
Funds Project Revenue, 6.300%, 10/01/2011 140,000 147,979
-----------------------------------------------------------------------------------------------
(b)Ohio State Building Authority, Juvenile Correctional
Building Authority, Prerefunded 10/01/2004, 6.600%,
10/01/2014 200,000 219,740
-----------------------------------------------------------------------------------------------
Ohio State Higher Education Facility, Xavier University,
Revenue, 6.000%, 05/15/2011 240,000 258,598
-----------------------------------------------------------------------------------------------
Ohio State Higher Education Facility, University of Dayton,
Revenue, 6.600%, 12/01/2017 430,000 462,052
-----------------------------------------------------------------------------------------------
Ohio State Higher Education Facility, Dominican College,
Revenue, 6.625%, 12/01/2014 600,000 628,452
-----------------------------------------------------------------------------------------------
Ohio State University, General Receipts, 6.000%, 12/01/2017 560,000 595,358
-----------------------------------------------------------------------------------------------
</TABLE>
38 The accompanying notes are an integral part of the financial statements.
<PAGE> 39
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Ohio State Water Development Authority, Revenue, Bay Shore
Project, Series A, 5.875%, 09/01/2020 $ 200,000 $ 161,154
-----------------------------------------------------------------------------------------------
Ohio State Water Development Authority, Pollution Control,
Revenue, 6.100%, 08/01/2020 1,000,000 951,330
-----------------------------------------------------------------------------------------------
Olentangy, OH, Local School District, General Obligation,
5.850%, 12/01/2007 400,000 428,796
-----------------------------------------------------------------------------------------------
(b)Olentangy, OH, Local School District, General
Obligation, Prerefunded 12/01/01, 6.350%, 12/01/2017 150,000 156,596
-----------------------------------------------------------------------------------------------
(b)Olmstead Falls, OH, City School District, General
Obligation, Prerefunded 12/15/04, 6.850%, 12/15/2011 250,000 277,945
-----------------------------------------------------------------------------------------------
Sandusky County, OH, General Obligation, 6.200%, 12/01/2013 500,000 537,455
-----------------------------------------------------------------------------------------------
South Euclid-Lyndhurst, OH, City School District, General
Obligation, 6.400%, 12/01/2018 535,000 583,284
-----------------------------------------------------------------------------------------------
Springboro, OH, Community City School District, School
Improvement, General Obligation, 6.000%, 12/01/2011 500,000 550,960
-----------------------------------------------------------------------------------------------
Springdale, OH, Hospital Facilities Revenue, 6.000%,
11/01/2018 750,000 687,135
-----------------------------------------------------------------------------------------------
Stongsville, OH, General Obligation, 6.700%, 12/01/2011 500,000 559,600
-----------------------------------------------------------------------------------------------
Toledo, OH, General Obligation:
6.100%, 12/01/2014 250,000 267,275
6.350%, 12/01/2025 1,000,000 1,054,430
-----------------------------------------------------------------------------------------------
Trumbull County, OH, Sewer Improvement, General Obligation,
6.200%, 12/01/2014 500,000 536,455
-----------------------------------------------------------------------------------------------
Tuscarawas Valley, OH, Local School District, General
Obligation, 6.600%, 12/01/2015 365,000 408,329
-----------------------------------------------------------------------------------------------
University Cincinnati Ohio General Receipts, Revenue,
5.50%, 06/01/2012 1,280,000 1,343,795
-----------------------------------------------------------------------------------------------
University of Akron, General Receipts, Revenue, 5.750%,
01/01/2013 1,000,000 1,059,460
-----------------------------------------------------------------------------------------------
Wayne, OH, Local School District, General Obligation:
6.450%, 12/01/2011 155,000 175,345
6.450%, 12/01/2016 200,000 228,210
-----------------------------------------------------------------------------------------------
Willoughby, OH, Industrial Development Revenue, Series A,
6.875%, 07/01/2016 575,000 562,741
-----------------------------------------------------------------------------------------------
Wooster, OH, City School District, General Obligation,
12/01/2013, zero coupon 930,000 468,032
-----------------------------------------------------------------------------------------------
Youngstown, OH, General Obligation, 6.125%, 12/01/2014 110,000 117,706
-----------------------------------------------------------------------------------------------
Puerto Rico, Municipal Finance Agency, Revenue, 6.000%,
07/01/2014 250,000 270,210
-----------------------------------------------------------------------------------------------
Puerto Rico, Ports Authority, American Airlines, Inc.,
Project, Revenue, 6.250%, 06/01/2026 360,000 367,708
-----------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority, 5.250%, 07/01/2029 500,000 487,990
-----------------------------------------------------------------------------------------------
Virgin Islands Public Finance Authority, Revenue, Series A,
6.500%, 10/01/2024 300,000 311,382
-----------------------------------------------------------------------------------------------
(b)Virgin Islands Public Financial Authority Revenue,
Series 1992 A, Prerefunded 10/01/2002 at 102, 7.250%,
10/01/2018 225,000 243,068
-----------------------------------------------------------------------------------------------
TOTAL MUNICIPAL INVESTMENTS--100.0%
(Cost $34,548,568)(a) $35,677,961
-----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 39
<PAGE> 40
PORTFOLIO OF INVESTMENTS
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost for federal income tax purpose was $34,548,568. At August 31, 2000,
net unrealized appreciation for all securities based on tax cost was
$1,129,393. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$1,470,081 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over value of $340,688.
(b) Prerefunded: Bonds which are prerefunded are collateralized by U.S. Treasury
securities which are held in escrow and are used to pay principal and
interest on tax-exempt issues and to retire the bonds in full at the
earliest refunding date.
40 The accompanying notes are an integral part of the financial statements.
<PAGE> 41
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS & LIABILITIES
As of August 31, 2000
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA NEW YORK OHIO
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value
(cost, see accompanying portfolios of
investments) $792,986,064 76,097,439 209,898,723 35,677,961
------------------------------------------------------------------------------------------------------------
Cash 801,590 171,217 217,307 642,130
------------------------------------------------------------------------------------------------------------
Receivable for investments sold 1,126,255 70,000 3,759,494 1,054,473
------------------------------------------------------------------------------------------------------------
Interest receivable 10,679,269 1,237,180 2,572,592 517,102
------------------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 1,556,195 21,945 126,311 3,745
------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 807,149,373 77,597,781 216,574,427 37,895,411
------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividend payable 740,939 61,608 162,964 25,874
------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed 582,816 47,601 100,848 9,903
------------------------------------------------------------------------------------------------------------
Accrued management fee 235,256 19,727 68,328 10,144
------------------------------------------------------------------------------------------------------------
Other accrued expenses and payables 254,136 89,548 100,690 42,651
------------------------------------------------------------------------------------------------------------
Total liabilities 1,813,147 218,484 432,830 88,572
------------------------------------------------------------------------------------------------------------
NET ASSETS, AT VALUE $805,336,226 77,379,297 216,141,597 37,806,839
------------------------------------------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on
investments $ 46,435,481 1,984,728 6,715,127 1,129,393
------------------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) (20,727,243) (2,164,406) (5,609,279) (633,777)
------------------------------------------------------------------------------------------------------------
Paid-in-capital 779,627,988 77,558,975 215,035,749 37,311,223
------------------------------------------------------------------------------------------------------------
NET ASSETS, AT VALUE $805,336,226 77,379,297 216,141,597 37,806,839
------------------------------------------------------------------------------------------------------------
NET ASSETS VALUE AND OFFERING PRICE
CLASS A SHARES
Net assets applicable to shares outstanding $767,460,009 70,264,965 200,805,551 24,319,151
------------------------------------------------------------------------------------------------------------
Outstanding shares of beneficial interest, $.01
par value, unlimited number of shares
authorized 105,153,966 7,131,611 19,334,475 2,442,221
------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per share $7.30 9.85 10.39 9.96
------------------------------------------------------------------------------------------------------------
Maximum offering price per share (100/95.50 of
net asset value.) $7.64 10.31 10.88 10.43
------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net assets applicable to shares outstanding $ 32,522,519 5,915,107 11,795,400 11,132,151
------------------------------------------------------------------------------------------------------------
Outstanding shares of beneficial interest, $.01
par value, unlimited number of shares
authorized 4,450,203 601,885 1,133,799 1,118,445
------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
(subject to contingent deferred sales charge)
per share $7.31 9.83 10.40 9.95
------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net assets applicable to shares outstanding $ 5,353,698 1,199,225 3,540,646 2,355,537
------------------------------------------------------------------------------------------------------------
Outstanding shares of beneficial interest, $.01
par value, unlimited number of shares
authorized 737,868 121,974 341,064 236,581
------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
(subject to contingent deferred sales charge)
per share $7.26 9.83 10.38 9.96
------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 41
<PAGE> 42
FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
Year ended August 31, 2000
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA NEW YORK OHIO
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 47,287,870 4,787,253 12,559,587 2,257,820
-------------------------------------------------------------------------------------------------------------
Expenses:
Management fee 4,239,099 454,274 1,242,994 218,857
-------------------------------------------------------------------------------------------------------------
Services to shareholders 550,625 55,897 169,761 37,012
-------------------------------------------------------------------------------------------------------------
Custodian fee 23,421 6,116 10,327 4,608
-------------------------------------------------------------------------------------------------------------
Distribution services fees 281,603 54,504 119,301 102,657
-------------------------------------------------------------------------------------------------------------
Administrative services fees 1,771,236 189,979 460,350 89,544
-------------------------------------------------------------------------------------------------------------
Auditing 29,472 3,988 5,750 5,448
-------------------------------------------------------------------------------------------------------------
Legal 9,764 17,115 3,024 8,448
-------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 15,859 5,976 8,351 4,460
-------------------------------------------------------------------------------------------------------------
Reports to shareholders 147,570 44,836 80,752 29,173
-------------------------------------------------------------------------------------------------------------
Registration fees 44,772 44,947 47,676 15,323
-------------------------------------------------------------------------------------------------------------
Other 73,859 5,834 2,943 175
-------------------------------------------------------------------------------------------------------------
Total expenses, before expense reductions 7,187,280 883,466 2,151,229 515,705
-------------------------------------------------------------------------------------------------------------
Expense reductions (72,469) (7,061) (20,670) (3,604)
-------------------------------------------------------------------------------------------------------------
Total expenses, after expense reductions 7,114,811 876,405 2,130,559 512,101
-------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ 40,173,059 3,910,848 10,429,028 1,745,719
-------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments (10,025,716) (1,504,338) (4,641,456) (241,898)
-------------------------------------------------------------------------------------------------------------
Futures -- -- 560,193 --
-------------------------------------------------------------------------------------------------------------
(10,025,716) (1,504,338) (4,081,263) (241,898)
-------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during
the period on:
Investments 31,464,035 2,104,728 7,243,127 46,394
-------------------------------------------------------------------------------------------------------------
Futures -- -- (173,000) --
-------------------------------------------------------------------------------------------------------------
31,464,035 2,104,728 7,070,127 46,394
-------------------------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 21,438,319 600,390 2,988,864 (195,504)
-------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $ 61,611,378 4,511,238 13,417,892 1,550,215
-------------------------------------------------------------------------------------------------------------
</TABLE>
42 The accompanying notes are an integral part of the financial statements.
<PAGE> 43
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA
------------------------------ --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ 40,173,059 44,834,762 3,910,848 4,649,353
------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment
transactions (10,025,716) 3,245,527 (1,504,338) 549,501
------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
on investment transactions during the period 31,464,035 (56,399,762) 2,104,728 (7,290,259)
------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 61,611,378 (8,319,473) 4,511,238 (2,091,405)
------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A (38,577,116) (43,236,597) (3,606,928) (4,364,443)
------------------------------------------------------------------------------------------------------------
Class B (1,394,432) (1,409,524) (260,224) (250,219)
------------------------------------------------------------------------------------------------------------
Class C (201,511) (188,641) (43,696) (34,691)
------------------------------------------------------------------------------------------------------------
From net realized gains
Class A -- (17,156,259) -- (2,089,138)
------------------------------------------------------------------------------------------------------------
Class B -- (666,246) -- (143,950)
------------------------------------------------------------------------------------------------------------
Class C -- (66,451) -- (14,823)
------------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 351,962,728 482,648,150 11,033,379 19,230,364
------------------------------------------------------------------------------------------------------------
Reinvestment of distributions 22,443,575 37,748,170 1,784,171 3,575,742
------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (486,445,940) (577,687,482) (28,519,007) (28,868,538)
------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
Fund Share transactions (112,039,637) (57,291,162) (15,701,457) (6,062,432)
------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (90,601,318) (128,334,353) (15,101,067) (15,051,101)
------------------------------------------------------------------------------------------------------------
Net assets at beginning of period 895,937,544 1,024,271,897 92,480,364 107,531,465
------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $ 805,336,226 895,937,544 77,379,297 92,480,364
------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 43
<PAGE> 44
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
NEW YORK OHIO
--------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ 10,429,028 12,234,327 1,745,719 1,924,432
------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment
transactions (4,081,263) 2,961,591 (241,898) (69,627)
------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on
investment transactions during the period 7,070,127 (19,291,040) 46,394 (2,331,500)
------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 13,417,892 (4,095,122) 1,550,215 (476,695)
------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A (9,808,092) (11,599,352) (1,206,645) (1,432,547)
------------------------------------------------------------------------------------------------------------
Class B (477,980) (484,334) (461,013) (449,334)
------------------------------------------------------------------------------------------------------------
Class C (142,956) (150,641) (78,061) (42,551)
------------------------------------------------------------------------------------------------------------
From net realized gains
Class A -- (6,096,479) -- (129,465)
------------------------------------------------------------------------------------------------------------
Class B -- (295,245) -- (49,141)
------------------------------------------------------------------------------------------------------------
Class C -- (97,847) -- (4,353)
------------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 18,002,085 15,180,010 3,968,715 8,983,302
------------------------------------------------------------------------------------------------------------
Reinvestment of distributions 6,015,364 11,885,439 984,532 1,301,967
------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (64,306,714) (35,124,873) (11,814,351) (6,678,846)
------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund
Share transactions (40,289,265) (8,059,424) (6,861,104) 3,606,423
------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (37,300,401) (30,878,440) (7,056,608) 1,022,337
------------------------------------------------------------------------------------------------------------
Net assets at beginning of period 253,441,998 284,320,438 44,863,447 43,841,110
------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $216,141,597 253,441,998 37,806,839 44,863,447
------------------------------------------------------------------------------------------------------------
</TABLE>
44 The accompanying notes are an integral part of the financial statements.
<PAGE> 45
FINANCIAL HIGHLIGHTS
The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED AUGUST 31,
------------------------------------------------------
CALIFORNIA 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $7.10 7.65 7.52 7.31 7.35
--------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .34 .34 .36 .38 .39
--------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .20 (.41) .26 .25 .04
--------------------------------------------------------------------------------------------------------
Total from investment operations .54 (.07) .62 .63 .43
--------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.34) (.34) (.36) (.38) (.39)
--------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.14) (.13) (.04) (.08)
--------------------------------------------------------------------------------------------------------
Total distributions (.34) (.48) (.49) (.42) (.47)
--------------------------------------------------------------------------------------------------------
Net asset value, end of year $7.30 7.10 7.65 7.52 7.31
--------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) 7.97 (1.07) 8.56 8.78 5.92
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of year ($ thousands) 767,460 854,921 982,113 979,471 1,022,147
--------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .85 .82 .78 .79 .78
--------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .84 .82 .78 .79 .78
--------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 4.98 4.60 4.82 5.08 5.18
--------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 57 62 61 79 100
--------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
CLASS B
YEAR ENDED AUGUST 31,
------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $7.11 7.66 7.52 7.32 7.35
--------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .29 .28 .30 .32 .32
--------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .20 (.41) .27 .24 .05
--------------------------------------------------------------------------------------------------------
Total from investment operations .49 (.13) .57 .56 .37
--------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.29) (.28) (.30) (.32) (.32)
--------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.14) (.13) (.04) (.08)
--------------------------------------------------------------------------------------------------------
Total distributions (.29) (.42) (.43) (.36) (.40)
--------------------------------------------------------------------------------------------------------
Net asset value, end of year $7.31 7.11 7.66 7.52 7.32
--------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) 7.14 (1.90) 7.79 7.73 5.16
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of year ($ thousands) 32,523 37,070 35,466 26,930 17,536
--------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.64 1.65 1.63 1.62 1.63
--------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.63 1.65 1.63 1.62 1.63
--------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 4.19 3.75 3.97 4.25 4.33
--------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 57 62 61 79 100
--------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 45
<PAGE> 46
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
YEAR ENDED AUGUST 31,
----------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year
$7.05 7.60 7.50 7.31 7.34
------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .29 .28 .30 .32 .32
------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .21 (.41) .23 .23 .05
------------------------------------------------------------------------------------------
Total from investment operations .50 (.13) .53 .55 .37
------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.29) (.28) (.30) (.32) (.32)
------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.14) (.13) (.04) (.08)
------------------------------------------------------------------------------------------
Total distributions (.29) (.42) (.43) (.36) (.40)
------------------------------------------------------------------------------------------
Net asset value, end of year $7.26 7.05 7.60 7.50 7.31
------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) 7.34 (1.91) 7.21 7.59 5.15
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of year ($ thousands) 5,354 3,947 6,693 1,506 855
------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.64 1.68 1.62 1.60 1.64
------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.63 1.68 1.62 1.60 1.64
------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 4.19 3.71 3.98 4.27 4.32
------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 57 62 61 79 100
------------------------------------------------------------------------------------------
</TABLE>
46 The accompanying notes are an integral part of the financial statements.
<PAGE> 47
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED AUGUST 31,
------------------------------------------------
FLORIDA 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $9.72 10.62 10.42 10.21 10.27
--------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .45 .47 .49 .51 .52
--------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .13 (.68) .35 .33 .08
--------------------------------------------------------------------------------------------------
Total from investment operations .58 (.21) .84 .84 .60
--------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.45) (.47) (.49) (.51) (.52)
--------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.22) (.15) (.12) (.14)
--------------------------------------------------------------------------------------------------
Total distributions (.45) (.69) (.64) (.63) (.66)
--------------------------------------------------------------------------------------------------
Net asset value, end of year $9.85 9.72 10.62 10.42 10.21
--------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) 6.15 (2.13) 8.27 8.37 5.83
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of year ($ thousands) 70,265 84,757 100,431 99,051 105,028
--------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.00 .88 .85 .83 .84
--------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .99 .88 .85 .83 .84
--------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 4.80 4.57 4.65 4.92 5.00
--------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 21 56 70 87 119
--------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
YEAR ENDED AUGUST 31,
-------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $9.71 10.60 10.40 10.19 10.26
---------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .38 .39 .40 .42 .43
---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .12 (.67) .35 .33 .07
---------------------------------------------------------------------------------------------------
Total from investment operations .50 (.28) .75 .75 .50
---------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.38) (.39) (.40) (.42) (.43)
---------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.22) (.15) (.12) (.14)
---------------------------------------------------------------------------------------------------
Total distributions (.38) (.61) (.55) (.54) (.57)
---------------------------------------------------------------------------------------------------
Net asset value, end of year $9.83 9.71 10.60 10.40 10.19
---------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) 5.32 (2.85) 7.38 7.48 4.84
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of year ($ thousands) 5,915 6,474 6,379 4,226 2,752
---------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.77 1.69 1.68 1.65 1.68
---------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.76 1.69 1.68 1.65 1.68
---------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 4.03 3.76 3.82 4.10 4.16
---------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 21 56 70 87 119
---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 47
<PAGE> 48
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
YEAR ENDED AUGUST 31,
------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year
$9.71 10.60 10.41 10.20 10.26
--------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .38 .39 .40 .42 .43
--------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions .12 (.67) .34 .33 .08
--------------------------------------------------------------------------------------------
Total from investment operations .50 (.28) .74 .75 .51
--------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.38) (.39) (.40) (.42) (.43)
--------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.22) (.15) (.12) (.14)
--------------------------------------------------------------------------------------------
Total distributions (.38) (.61) (.55) (.54) (.57)
--------------------------------------------------------------------------------------------
Net asset value, end of year $9.83 9.71 10.60 10.41 10.20
--------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) 5.34 (2.84) 7.26 7.49 4.97
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of year ($ thousands) 1,199 1,249 721 568 325
--------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.74 1.68 1.69 1.64 1.64
--------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.73 1.68 1.69 1.64 1.64
--------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 4.06 3.76 3.81 4.11 4.20
--------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 21 56 70 87 119
--------------------------------------------------------------------------------------------
</TABLE>
48 The accompanying notes are an integral part of the financial statements.
<PAGE> 49
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED AUGUST 31,
--------------------------------------------------------
NEW YORK 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $10.22 11.11 10.93 10.66 10.80
-----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .47 .49 .53 .56 .56
-----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions .17 (.63) .36 .36 --
-----------------------------------------------------------------------------------------------------------------
Total from investment operations .64 (.14) .89 .92 .56
-----------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.47) (.49) (.53) (.56) (.56)
-----------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.26) (.18) (.09) (.14)
-----------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.75) (.71) (.65) (.70)
-----------------------------------------------------------------------------------------------------------------
Net asset value, end of year $10.39 10.22 11.11 10.93 10.66
-----------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) 6.50 (1.52) 8.44 8.77 5.26
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of year ($ thousands) 200,806 235,800 268,155 272,777 294,121
-----------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .89 .88 .84 .83 .83
-----------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .88 .88 .84 .83 .83
-----------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 4.68 4.49 4.81 5.15 5.15
-----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 26 69 77 92 104
-----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
YEAR ENDED AUGUST 31,
--------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year
$10.23 11.13 10.94 10.66 10.80
----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .38 .39 .44 .47 .47
----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions .17 (.64) .37 .37 --
----------------------------------------------------------------------------------------------------------------
Total from investment operations .55 (.25) .81 .84 .47
----------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.38) (.39) (.44) (.47) (.47)
----------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.26) (.18) (.09) (.14)
----------------------------------------------------------------------------------------------------------------
Total distributions (.38) (.65) (.62) (.56) (.61)
----------------------------------------------------------------------------------------------------------------
Net asset value, end of year $10.40 10.23 11.13 10.94 10.66
----------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) 5.60 (2.44) 7.65 7.96 4.36
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of year ($ thousands) 11,795 13,674 12,390 10,184 7,007
----------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.71 1.73 1.67 1.67 1.69
----------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.70 1.73 1.67 1.67 1.69
----------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 3.86 3.64 3.98 4.31 4.29
----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 26 69 77 92 104
----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 49
<PAGE> 50
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
YEAR ENDED AUGUST 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year
$10.21 11.10 10.92 10.65 10.79
-----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .39 .40 .44 .47 .47
-----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions .17 (.63) .36 .36 --
-----------------------------------------------------------------------------------------------------------------
Total from investment operations .56 (.23) .80 .83 .47
-----------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.39) (.40) (.44) (.47) (.47)
-----------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.26) (.18) (.09) (.14)
-----------------------------------------------------------------------------------------------------------------
Total distributions (.39) (.66) (.66) (.56) (.61)
-----------------------------------------------------------------------------------------------------------------
Net asset value, end of year $10.38 10.21 11.10 10.92 10.65
-----------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) 5.64 (2.33) 7.56 7.87 4.38
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of year ($ thousands) 3,541 3,968 3,775 2,973 1,218
-----------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.70 1.71 1.67 1.65 1.67
-----------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.69 1.71 1.67 1.65 1.67
-----------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 3.87 3.65 3.98 4.33 4.31
-----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 26 69 77 92 104
-----------------------------------------------------------------------------------------------------------------
</TABLE>
50 The accompanying notes are an integral part of the financial statements.
<PAGE> 51
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED AUGUST 31,
-------------------------------------------
OHIO 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $9.97 10.54 10.22 9.93 9.81
---------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .46 .46 .47 .47 .48
---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.01) (.53) .39 .32 .12
---------------------------------------------------------------------------------------------
Total from investment operations .45 (.07) .86 .79 .60
---------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.46) (.46) (.47) (.47) (.48)
---------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.04) (.07) (.03) --
---------------------------------------------------------------------------------------------
Total distributions (.46) (.50) (.54) (.50) (.48)
---------------------------------------------------------------------------------------------
Net asset value, end of year $9.96 9.97 10.54 10.22 9.93
---------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) 4.58 (.66) 8.57 8.17 6.16
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of year ($ thousands) 24,319 30,324 31,731 29,931 29,496
---------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.01 .94 .87 .89 .91
---------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.00 .94 .87 .89 .91
---------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 4.68 4.38 4.51 4.69 4.78
---------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 9 29 15 52 86
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
YEAR ENDED AUGUST 31,
-------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $9.97 10.54 10.22 9.93 9.81
---------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .38 .38 .38 .39 .39
---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.02) (.53) .39 .32 .12
---------------------------------------------------------------------------------------------
Total from investment operations .36 (.15) .77 .71 .51
---------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.38) (.38) (.38) (.39) (.39)
---------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.04) (.07) (.03) --
---------------------------------------------------------------------------------------------
Total distributions (.38) (.42) (.45) (.42) (.39)
---------------------------------------------------------------------------------------------
Net asset value, end of year $9.95 9.97 10.54 10.22 9.93
---------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) 3.73 (1.55) 7.69 7.29 5.30
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of year ($ thousands) 11,132 12,658 11,100 9,147 7,330
---------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.83 1.74 1.69 1.70 1.73
---------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.82 1.74 1.69 1.70 1.73
---------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 3.86 3.57 3.69 3.88 3.96
---------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 9 29 15 52 86
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 51
<PAGE> 52
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
YEAR ENDED AUGUST 31,
-----------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $9.97 10.54 10.22 9.93 9.81
-------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .38 .37 .38 .39 .39
-------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.01) (.53) .39 .32 .12
-------------------------------------------------------------------------------------------
Total from investment operations .37 (.16) .77 .71 .51
-------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.38) (.37) (.38) (.39) (.39)
-------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.04) (.07) (.03) --
-------------------------------------------------------------------------------------------
Total distributions (.38) (.41) (.45) (.42) (.39)
-------------------------------------------------------------------------------------------
Net asset value, end of year $9.96 9.97 10.54 10.22 9.93
-------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) 3.74 (1.48) 7.70 7.32 5.28
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of year ($ in thousands) 2,356 1,882 1,010 390 274
-------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.81 1.77 1.67 1.68 1.74
-------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.80 1.77 1.67 1.68 1.74
-------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 3.88 3.53 3.71 3.90 3.95
-------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 9 29 15 52 86
-------------------------------------------------------------------------------------------
</TABLE>
(a) Total return does not reflect the effect of sales charges.
* Annualized
** Not annualized
52 The accompanying notes are an integral part of the financial statements.
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1
SIGNIFICANT
ACCOUNTING POLICIES Kemper California Tax-Free Income Fund, Kemper
Florida Tax Free Income Fund, Kemper New York
Tax-Free Income Fund and Kemper Ohio Tax-Free
Income Fund (the "Funds") are a non-diversified
series of Kemper State Tax-Free Income Series (the
"Trust") which is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"),
as an open-end management investment company. The
Trust is organized as a Massachusetts business
trust. Each Fund offers multiple classes of shares.
Class A shares are offered to investors subject to
an initial sales charge. Class B shares are offered
without an initial sales charge but are subject to
higher ongoing expenses than Class A shares and a
contingent deferred sales charge payable upon
certain redemptions. Class B shares automatically
convert to Class A shares six years after issuance.
Class C shares are offered without an initial sales
charge but are subject to higher ongoing expenses
than Class A shares and a contingent deferred sales
charge payable upon certain redemptions within one
year of purchase. Class C shares do not convert
into another class.
Investment income, realized and unrealized gains
and losses, and certain fund-level expenses and
expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of
all classes of shares except that each class bears
certain expenses unique to that class such as
distribution services, shareholder services,
administrative services and certain other class
specific expenses. Differences in class expenses
may result in payment of different per share
dividends by class. All shares of each Fund has
equal rights with respect to voting subject to
class specific arrangements.
Each Fund's financial statements are prepared in
accordance with accounting principles generally
accepted in the United States which require the use
of management estimates. The policies described
below are followed consistently by each Fund in the
preparation of its financial statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Portfolio debt
securities purchased with an original maturity
greater than sixty days are valued by pricing
agents approved by the officers of the Trust, whose
quotations reflect broker/dealer-supplied
valuations and electronic data processing
techniques. If the pricing agents are unable to
provide such quotations, the 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.
All other securities are valued at their fair value
as determined in good faith by the Valuation
Committee of the Board of Trustees.
FUTURES CONTRACTS. A futures contract is an
agreement between a buyer or seller and an
established futures exchange or its clearinghouse
in which the buyer or seller agrees to take or make
a delivery of a specific amount of a financial
instrument at a specified price on a specific date
(settlement date). During the period, the Kemper
New York Tax-Free Income Fund sold interest rate
futures to hedge against declines in the value of
portfolio securities.
Upon entering into a futures contract, the Fund is
required to deposit with a financial intermediary
an amount ("initial margin") equal to a certain
percentage of the face value indicated in the
futures contract. Subsequent payments
53
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS
("variation margin") are made or received by the
Fund dependent upon the daily fluctuations in the
value of the underlying security and are recorded
for financial reporting purposes as unrealized
gains or losses by the Fund. When entering into a
closing transaction, the Fund will realize a gain
or loss equal to the difference between the value
of the futures contract to sell and the futures
contract to buy. Futures contracts are valued at
the most recent settlement price.
Certain risks may arise upon entering into futures
contracts, including the risk that an illiquid
secondary market will limit the Fund's ability to
close out a futures contract prior to the
settlement date and that a change in the value of a
futures contract may not correlate exactly with the
changes in the value of the securities or
currencies hedged. When utilizing futures contracts
to hedge, the Fund gives up the opportunity to
profit from favorable price movements in the hedged
positions during the term of the contract.
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.
At August 31, 2000, the California, Florida and New
York State Tax-Free Income Fund had a net tax basis
capital loss carryforward of approximately
$9,902,000, $623,000 and $2,538,000, respectively,
which may be applied against any realized net
taxable capital gains of each succeeding year until
fully utilized or until August 31, 2008, the
expiration date. The Ohio State Tax-Free Income
Fund had a net tax basis capital loss carryforward
of approximately $356,000 which may be applied
against any realized net taxable capital gains of
each succeeding year until fully utilized or until
August 31, 2007 ($14,000) and August 31, 2008
($342,000), the respective expiration dates,
whichever occurs first.
In addition, from November 1, 1999 through August
31, 2000, the California, Florida, New York and
Ohio State Tax-Free Income Fund incurred
approximately $7,437,000, $1,048,000, $2,721,000
and $139,000 of net realized capital losses,
respectively. As permitted by tax regulations, each
Fund intends to elect to defer these losses and
treat them as arising in the fiscal year ended
August 31, 2001.
DISTRIBUTION OF INCOME AND GAINS. All of the net
investment income of each Fund is declared as a
daily dividend and is distributed to shareholders
monthly. Net realized gains from investment
transactions, in excess of available capital loss
carryforwards, would be taxable to each Fund if not
distributed, and, therefore, will be distributed to
shareholders at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles. As a result, net investment income
(loss) and net realized gain (loss) on investment
transactions for a reporting period may differ
significantly from distributions during such
period. Accordingly, each Fund may periodically
make reclassifications among certain of its capital
accounts without impacting the net asset value of
each Fund.
54
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Realized gains and losses from
investment transactions are recorded on an
identified cost basis. All premiums and original
issue discounts are amortized/ accreted for both
tax and financial reporting purposes.
EXPENSES. Expenses arising in connection with a
specific Fund are allocated to that Fund. Other
Trust expenses are allocated between the Funds in
proportion to their relative net assets.
--------------------------------------------------------------------------------
2
PURCHASES AND
SALES OF
SECURITIES For the year ended August 31, 2000, investment
transactions (excluding short-term instruments)
were as follows (in thousands):
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA NEW YORK OHIO
---------- ------- -------- ----
<S> <C> <C> <C> <C>
Purchases $452,803,901 18,774,966 57,299,964 3,197,649
Proceeds from sales $539,348,208 33,223,259 86,494,139 8,250,882
</TABLE>
--------------------------------------------------------------------------------
3
TRANSACTIONS
WITH AFFILIATES MANAGEMENT AGREEMENT. The Trust has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper). Under the 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 for the year ended
August 31, 2000 were as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEE EFFECTIVE RATE
-------------- --------------
<S> <C> <C>
California $4,239,099 .52%
Florida 454,274 .55
New York 1,242,994 .55
Ohio 218,857 .55
</TABLE>
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The Trust has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI). Underwriting commission
retained by KDI in connection with the distribution
of each Fund's Class A shares for the year ended
August 31, 2000 were as follows:
<TABLE>
<CAPTION>
COMMISSIONS
RETAINED BY KDI
-----------------
<S> <C>
California $52,012
Florida 12,148
New York 13,498
Ohio 1,709
</TABLE>
For services under the distribution services
agreement, each Fund pays KDI a fee of .75% of
average daily net assets of Class B and Class C
shares pursuant to 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
55
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS
redemptions of Class B and Class C shares.
Distribution fees and CDSC for the year ended
August 31, 2000 were as follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES AND
CDSC RECEIVED BY KDI
---------------------
<S> <C>
California $381,870
Florida 84,389
New York 162,977
Ohio 134,647
</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
year ended August 31, 2000 were as follows:
<TABLE>
<CAPTION>
ASF INCURRED BY UNPAID AT
THE FUNDS TO KDI AUGUST 31, 2000
---------------- ---------------
<S> <C> <C>
California $1,771,236 $23,640
Florida 189,979 16,134
New York 460,350 35,876
Ohio 89,544 3,662
</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 year ended August 31, 2000, KSvC received
transfer agency fees as follows:
<TABLE>
<CAPTION>
FEES INCURRED BY UNPAID AT
THE FUNDS TO KSVC AUGUST 31, 2000
------------------ ---------------
<S> <C> <C>
California $385,377 $76,798
Florida 40,467 11,842
New York 130,672 23,733
Ohio 45,347 12,179
</TABLE>
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of
Scudder Kemper. For the year ended August 31, 2000,
the Funds made no payments to their officers and
incurred trustees' fees aggregating $34,646 to
independent trustees.
56
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4
CAPITAL SHARE
TRANSACTIONS The following tables summarize the activity in
capital shares of each Fund:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 2000 AUGUST 31, 1999
--------------------------- ---------------------------
CALIFORNIA SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 41,852,257 $ 292,236,044 45,976,683 $ 342,247,251
-----------------------------------------------------------------------------------
Class B 928,140 6,523,582 1,639,123 12,318,577
-----------------------------------------------------------------------------------
Class C 7,521,626 51,939,564 17,067,961 127,179,449
-----------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 3,063,597 21,489,351 4,853,940 36,260,336
-----------------------------------------------------------------------------------
Class B 121,036 849,862 177,591 1,327,526
-----------------------------------------------------------------------------------
Class C 14,985 104,362 21,587 160,308
-----------------------------------------------------------------------------------
SHARES REDEEMED
Class A (60,415,096) (422,766,421) (58,929,445) (438,610,546)
-----------------------------------------------------------------------------------
Class B (1,637,052) (11,437,664) (1,112,823) (8,321,482)
-----------------------------------------------------------------------------------
Class C (7,358,755) (50,978,317) (17,410,337) (129,852,581)
-----------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 177,952 1,263,538 121,234 902,873
-----------------------------------------------------------------------------------
Class B (177,703) (1,263,538) (121,104) (902,873)
-----------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $(112,039,637) $ (57,291,162)
-----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 2000 AUGUST 31, 1999
------------------------- -------------------------
FLORIDA SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 888,885 $ 8,562,121 1,524,088 $ 15,773,305
--------------------------------------------------------------------------------
Class B 191,064 1,835,639 232,626 2,416,099
--------------------------------------------------------------------------------
Class C 31,992 311,244 70,061 717,627
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 174,415 1,670,704 331,344 3,412,968
--------------------------------------------------------------------------------
Class B 10,109 96,605 14,650 150,422
--------------------------------------------------------------------------------
Class C 1,761 16,862 1,210 12,352
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (2,684,664) (25,601,666) (2,625,052) (26,882,065)
--------------------------------------------------------------------------------
Class B (234,013) (2,207,664) (151,064) (1,553,274)
--------------------------------------------------------------------------------
Class C (40,420) (385,302) (10,572) (109,866)
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 32,791 324,375 28,736 323,333
--------------------------------------------------------------------------------
Class B (32,818) (324,375) (31,064) (323,333)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $(15,701,457) $ (6,062,432)
--------------------------------------------------------------------------------
</TABLE>
57
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 2000 AUGUST 31, 1999
------------------------- -------------------------
NEW YORK SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 1,497,310 $ 14,978,014 867,377 $ 9,422,179
--------------------------------------------------------------------------------
Class B 130,880 1,322,273 392,447 4,258,841
--------------------------------------------------------------------------------
Class C 118,704 1,185,701 91,939 999,679
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 560,830 5,646,063 1,036,895 11,208,920
--------------------------------------------------------------------------------
Class B 26,833 270,354 45,664 493,761
--------------------------------------------------------------------------------
Class C 9,839 98,947 16,929 182,758
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (5,854,649) (58,917,789) (3,003,371) (32,158,950)
--------------------------------------------------------------------------------
Class B (312,569) (3,111,859) (169,451) (1,828,820)
--------------------------------------------------------------------------------
Class C (176,069) (1,760,969) (59,603) (637,792)
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 50,729 516,097 46,258 499,311
--------------------------------------------------------------------------------
Class B (48,014) (516,097) (46,187) (499,311)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $(40,289,265) $ (8,059,424)
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 2000 AUGUST 31, 1999
---------------------- ----------------------
OHIO SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 130,232 $ 1,278,648 384,038 $ 4,032,810
--------------------------------------------------------------------------------
Class B 119,908 1,177,156 358,864 3,737,265
--------------------------------------------------------------------------------
Class C 114,787 1,124,383 114,690 1,166,432
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 68,360 668,262 92,021 956,452
--------------------------------------------------------------------------------
Class B 27,467 268,329 29,870 310,168
--------------------------------------------------------------------------------
Class C 4,906 47,941 3,403 35,347
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (836,786) (8,198,670) (449,227) (4,652,503)
--------------------------------------------------------------------------------
Class B (259,379) (2,527,293) (167,989) (1,724,021)
--------------------------------------------------------------------------------
Class C (71,808) (699,860) (24,696) (255,527)
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 39,401 388,528 4,514 46,795
--------------------------------------------------------------------------------
Class B (39,425) (388,528) (4,517) (46,795)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $(6,861,104) $ 3,606,423
--------------------------------------------------------------------------------
</TABLE>
58
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
5
EXPENSE OFF-SET
ARRANGEMENTS The Funds have entered into arrangements with their
custodian and transfer agent whereby credits
realized as a result of uninvested cash balances
were used to reduce a portion of the Funds'
expenses. During the period, the Funds custodian
and transfer agent fees were reduced as follows:
<TABLE>
<CAPTION>
CUSTODIAN TRANSFER AGENT
--------- --------------
<S> <C> <C>
California $19,736 $52,733
Florida 1,677 5,384
New York 6,122 14,548
Ohio 1,040 2,564
</TABLE>
--------------------------------------------------------------------------------
6
LINE OF CREDIT The Funds and several Kemper funds (the
"Participants") share in a $750 million revolving
credit facility with Chase Manhattan Bank for
temporary or emergency purposes, including the
meeting of redemption requests that otherwise might
require the untimely disposition of securities. The
Participants are charged an annual commitment fee
which is allocated, pro rata based upon net assets,
among each of the Participants. Interest is
calculated based on the market rates at the time of
the borrowing. Each Fund may borrow up to a maximum
of 33 percent of its net assets under the
agreement.
59
<PAGE> 60
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER STATE TAX-FREE INCOME SERIES
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Kemper State Tax-Free Income Series
(comprising, respectively the Kemper California Tax-Free Income Fund, Kemper
Florida Tax-Free Income Fund, Kemper New York Tax-Free Income Fund and Kemper
Ohio Tax-Free Income Fund) (the Funds) as of August 31, 2000, and the related
statements of operations for the year then ended, and changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the fiscal years since 1996. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of August 31, 2000, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Funds comprising Kemper State Tax-Free Income Series at August 31, 2000,
the results of their operations for the year then ended, the changes in their
net assets for each of the two years in the years then ended, and the financial
highlights for each of the fiscal years since 1996 in conformity with accounting
principles generally accepted in the United States.
ERNST &
YOUNG LLP
Chicago, Illinois
October 17, 2000
60
<PAGE> 61
TAX INFORMATION
TAX INFORMATION (UNAUDITED)
Of the dividends paid from net investment income of each Fund for the taxable
year ended August 31, 2000, 100% are designated as exempt interest dividends for
federal income tax purposes.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
61
<PAGE> 62
NOTES
62
<PAGE> 63
NOTES
63
<PAGE> 64
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JOHN W. BALLANTINE ELEANOR R. BRENNAN MAUREEN E. KANE
Trustee Vice President Assistant Secretary
LEWIS A. BURNHAM MARK S. CASADY CAROLINE PEARSON
Trustee President Assistant Secretary
LINDA C. COUGHLIN PHILIP J. COLLORA BRENDA LYONS
Trustee Vice President and Secretary Assistant Treasurer
DONALD L. DUNAWAY ASHTON P. GOODFIELD
Trustee Vice President
ROBERT B. HOFFMAN JOHN R. HEBBLE
Trustee Treasurer
DONALD R. JONES ANN M. MCCREARY
Trustee Vice President
THOMAS W. LITTAUER KATHRYN L. QUIRK
Trustee and Vice President Vice President
SHIRLEY D. PETERSON LINDA J. WONDRACK
Trustee Vice President
WILLIAM P. SOMMERS
Trustee
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
.............................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT 811 Main Street
Kansas City, MO 64121
.............................................................................................
TRANSFER AGENT STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
.............................................................................................
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA 02110
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
[KEMPER FUNDS LOGO] Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Tax-Free Income Funds prospectus.
KSTIS - 2(10/25/00) 1122300
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
