<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED FEBRUARY 29, 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
"... Long-term municipal securities offered compelling value on a tax-adjusted
basis. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
4
ECONOMIC OVERVIEW
6
MANAGEMENT TEAM
7
PERFORMANCE UPDATE
9
TERMS TO KNOW
10
CALIFORNIA'S PORTFOLIO STATISTICS AND PORTFOLIO OF INVESTMENTS
21
FLORIDA'S PORTFOLIO STATISTICS AND PORTFOLIO OF INVESTMENTS
25
NEW YORK'S PORTFOLIO STATISTICS AND PORTFOLIO OF INVESTMENTS
AT A GLANCE
KEMPER STATE TAX-FREE INCOME FUNDS TOTAL RETURNS
FOR THE SIX-MONTH PERIOD ENDED FEBRUARY 29, 2000 (UNADJUSTED FOR ANY SALES
CHARGE)
CALIFORNIA
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER CALIFORNIA TAX-FREE INCOME FUND CLASS A LIPPER CALIFORNIA TAX-FREE
- ---------------------------------------------- KEMPER CALIFORNIA TAX- KEMPER CALIFORNIA TAX- INCOME FUNDS CATEGORY
FREE INCOME FUND CLASS B FREE INCOME FUND CLASS C AVERAGE*
------------------------ ------------------------ --------------------------
<S> <C> <C> <C>
- -0.04 -0.42 -0.28 -1.40
</TABLE>
FLORIDA
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER FLORIDA TAX-FREE INCOME FUND CLASS A LIPPER FLORIDA TAX-FREE
- ------------------------------------------- KEMPER FLORIDA TAX-FREE KEMPER FLORIDA TAX-FREE INCOME FUNDS CATEGORY
INCOME FUND CLASS B INCOME FUND CLASS C AVERAGE*
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
- -0.19 -0.67 -0.56 -1.36
</TABLE>
NEW YORK
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER NEW YORK TAX-FREE INCOME FUND CLASS A LIPPER NEW YORK TAX-FREE
- -------------------------------------------- KEMPER NEW YORK TAX- KEMPER NEW YORK TAX- INCOME FUNDS CATEGORY
FREE INCOME FUND CLASS B FREE INCOME FUND CLASS C AVERAGE*
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
- -0.29 -0.62 -0.60 -1.27
</TABLE>
OHIO
[BAR GRAPH]
<TABLE>
<CAPTION>
KEMPER OHIO TAX-FREE INCOME FUND CLASS A LIPPER OHIO TAX-FREE
- ---------------------------------------- KEMPER OHIO TAX-FREE KEMPER OHIO TAX-FREE INCOME FUNDS CATEGORY
INCOME FUND CLASS B INCOME FUND CLASS C AVERAGE*
-------------------- -------------------- ---------------------
<S> <C> <C> <C>
- -0.73 -1.13 -1.12 -1.14
</TABLE>
RETURNS AND RANKINGS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
*LIPPER, INC. RETURNS AND RANKINGS ARE BASED UPON CHANGES IN NET ASSET VALUE
WITH ALL DIVIDENDS REINVESTED AND DO NOT INCLUDE THE EFFECT OF SALES CHARGES; IF
SALES CHARGES HAD BEEN INCLUDED, RESULTS MAY HAVE BEEN LESS FAVORABLE.
NET ASSET VALUE
CALIFORNIA
<TABLE>
<CAPTION>
AS OF AS OF
2/29/00 8/31/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER CALIFORNIA TAX-FREE
INCOME FUND CLASS A $6.93 $7.10
.........................................................
KEMPER CALIFORNIA TAX-FREE
INCOME FUND CLASS B $6.94 $7.11
.........................................................
KEMPER CALIFORNIA TAX-FREE
INCOME FUND CLASS C $6.89 $7.05
.........................................................
</TABLE>
FLORIDA
<TABLE>
<CAPTION>
AS OF AS OF
2/29/00 8/31/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER FLORIDA TAX-FREE INCOME
FUND CLASS A $9.48 $9.72
.........................................................
KEMPER FLORIDA TAX-FREE INCOME
FUND CLASS B $9.46 $9.71
.........................................................
KEMPER FLORIDA TAX-FREE INCOME
FUND CLASS C $9.47 $9.71
.........................................................
</TABLE>
NEW YORK
<TABLE>
<CAPTION>
AS OF AS OF
2/29/00 8/31/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER NEW YORK TAX-FREE
INCOME FUND CLASS A $9.96 $10.22
.........................................................
KEMPER NEW YORK TAX-FREE
INCOME FUND CLASS B $9.98 $10.23
.........................................................
KEMPER NEW YORK TAX-FREE
INCOME FUND CLASS C $9.96 $10.21
.........................................................
</TABLE>
OHIO
<TABLE>
<CAPTION>
AS OF AS OF
2/29/00 8/31/99
.........................................................
<S> <C> <C> <C> <C>
KEMPER OHIO TAX-FREE INCOME
FUND CLASS A $9.68 $9.97
.........................................................
KEMPER OHIO TAX-FREE INCOME
FUND CLASS B $9.67 $9.97
.........................................................
KEMPER OHIO TAX-FREE INCOME
FUND CLASS C $9.68 $9.97
.........................................................
</TABLE>
<PAGE> 3
CONTENTS
31
OHIO'S PORTFOLIO STATISTICS AND PORTFOLIO OF INVESTMENTS
36
FINANCIAL STATEMENTS
40
FINANCIAL HIGHLIGHTS
48
NOTES TO FINANCIAL STATEMENTS
AT A GLANCE
KEMPER STATE TAX-FREE INCOME FUND LIPPER RANKINGS AS OF 2/29/00*
COMPARED WITH ALL OTHER FUNDS IN THEIR RESPECTIVE LIPPER CATEGORIES
CALIFORNIA MUNICIPAL DEBT CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..........................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #14 of 108 funds #44 of 108 funds #38 of 108 funds
..........................................................................................
5-YEAR #29 of 78 funds #59 of 78 funds #65 of 78 funds
..........................................................................................
10-YEAR #13 of 39 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 #20 of 64 funds #38 of 64 funds #33 of 64 funds
..........................................................................................
5-YEAR #17 of 44 funds #38 of 44 funds #37 of 44 funds
..........................................................................................
</TABLE>
NEW YORK MUNICIPAL DEBT CATEGORY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
..........................................................................................
<S> <C> <C> <C> <C> <C>
1-YEAR #26 of 102 funds #62 of 102 funds #58 of 102 funds
..........................................................................................
5-YEAR #29 of 77 funds #63 of 77 funds #62 of 77 funds
..........................................................................................
10-YEAR #10 of 33 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 #17 of 51 funds #31 of 51 funds #29 of 51 funds
..........................................................................................
5-YEAR #12 of 42 funds #31 of 42 funds #32 of 42 funds
..........................................................................................
</TABLE>
DIVIDEND REVIEW
THE FOLLOWING TABLES SHOW PER SHARE DIVIDEND AND YIELD INFORMATION FOR THE
FUNDS AS OF FEBRUARY 29, 2000.
CALIFORNIA
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
...........................................................
<S> <C> <C> <C> <C> <C>
SIX-MONTHS INCOME: $0.1657 $0.1396 $0.1392
...........................................................
FEBRUARY DIVIDEND: $0.0255 $0.0223 $0.0231
...........................................................
ANNUALIZED
DISTRIBUTION RATE:+ 4.56% 3.99% 4.16%
...........................................................
SEC YIELD:+ 4.71% 4.17% 4.20%
...........................................................
TAX EQUIVALENT YIELD: 8.25% 7.30% 7.36%
...........................................................
BASED ON A MARGINAL INCOME TAX RATE OF 42.9%
(COMBINED CALIFORNIA STATE AND FEDERAL INCOME TAX
RATE)
...........................................................
</TABLE>
FLORIDA
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
...........................................................
<S> <C> <C> <C> <C> <C>
SIX-MONTHS INCOME: $0.2201 $0.1843 $0.1853
...........................................................
FEBRUARY DIVIDEND: $0.0334 $0.0290 $0.0291
...........................................................
ANNUALIZED
DISTRIBUTION RATE:+ 4.38% 3.80% 3.82%
...........................................................
SEC YIELD:+ 4.38% 3.97% 4.05%
...........................................................
TAX EQUIVALENT YIELD: 6.96% 6.31% 6.44%
...........................................................
BASED ON A MARGINAL INCOME TAX RATE OF 37.1%
(FEDERAL INCOME TAX RATE)
...........................................................
</TABLE>
NEW YORK
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
...........................................................
<S> <C> <C> <C> <C> <C>
SIX-MONTHS INCOME: $0.2284 $0.1857 $0.1873
...........................................................
FEBRUARY DIVIDEND: $0.0353 $0.0287 $0.0289
...........................................................
ANNUALIZED
DISTRIBUTION RATE:+ 4.40% 3.57% 3.53%
...........................................................
SEC YIELD:+ 4.54% 3.87% 3.91%
...........................................................
TAX EQUIVALENT YIELD: 8.14% 6.94% 7.01%
...........................................................
BASED ON A MARGINAL INCOME TAX RATE OF 44.2%
(COMBINED NEW YORK STATE, NEW YORK CITY AND FEDERAL
INCOME TAX RATE)
...........................................................
</TABLE>
OHIO
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
...........................................................
<S> <C> <C> <C> <C> <C>
SIX-MONTHS INCOME: $0.2269 $0.1878 $0.1884
...........................................................
FEBRUARY DIVIDEND: $0.0344 $0.0284 $0.0286
...........................................................
ANNUALIZED
DISTRIBUTION RATE:+ 4.42% 3.65% 3.67%
...........................................................
SEC YIELD:+ 4.45% 3.84% 3.88%
...........................................................
TAX EQUIVALENT YIELD: 7.57% 6.53% 6.60%
...........................................................
BASED ON A MARGINAL INCOME TAX RATE OF 41.2%
(COMBINED OHIO STATE AND FEDERAL INCOME TAX RATE)
...........................................................
</TABLE>
+CURRENT ANNUALIZED DISTRIBUTION RATE IS THE LATEST MONTHLY DIVIDEND SHOWN AS AN
ANNUALIZED PERCENTAGE OF NET ASSET VALUE ON FEBRUARY 29, 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 FEBRUARY 29, 2000, SHOWN AS AN ANNUALIZED PERCENTAGE OF THE MAXIMUM
OFFERING PRICE ON THAT DATE. THE SEC YIELD IS COMPUTED IN ACCORDANCE WITH A
STANDARDIZED METHOD PRESCRIBED BY THE SECURITIES AND EXCHANGE COMMISSION. TAX
EQUIVALENT YIELD IS BASED ON THE FUND'S YIELD AND THE APPLICABLE FEDERAL AND
STATE MARGINAL TAX RATE. INCOME MAY BE SUBJECT TO STATE AND LOCAL TAXES AND, FOR
SOME INVESTORS, A PORTION MAY BE SUBJECT TO THE ALTERNATIVE MINIMUM TAX. YIELDS
AND DISTRIBUTION RATES ARE HISTORICAL AND WILL FLUCTUATE.
<PAGE> 4
ECONOMIC OVERVIEW
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:
As we enter the second quarter of the year, there isn't much to complain about.
For all the yammering about the "new" economy, the old economy is doing pretty
well. Consumers may hanker for a new GPS handset or a Palm Pilot, but they lust
after a suburban mansion with a garage big enough to hold their luxury car and
SUV -- and state and local governments are laying old-fashioned asphalt almost
as fast as businesses are building the information superhighway. Satisfying both
old and new desires got the economy off to a fast start in the new century. Even
with a modest slowdown possible in the second half, growth for the year 2000 is
likely to be close to 5 percent.
So everyone is happy, right? Well, almost everyone. Consumers seldom have felt
so confident; businesspeople seldom have behaved so expansively. But there's
still one grump: Federal Reserve Board Chairman Alan Greenspan, who's become
increasingly worried that rapid growth will bring on inflation.
Despite Greenspan's attempt to slow spending by raising interest rates,
consumers are still splurging, and they show no signs of stopping. We know this
because shoppers are buying the big-ticket items they usually purchase early in
a cycle -- items such as personal computers, mobile phones, jewelry, fancy
kitchen appliances, exercise equipment and big boats.
Why are consumers still buying despite Greenspan's attempts to slow their
splurging? There are three answers: deflation, wealth and easy credit.
Falling prices have made big-ticket items almost irresistible. Since 1997,
prices of kitchen appliances have fallen 4.5 percent, TVs and VCRs 16 percent
and sporting equipment 6.5 percent. Even auto showrooms no longer produce
sticker shock, and drivers have responded with gusto, buying a record 16.9
million cars and light trucks in 1999. 2000 is likely to be the first year in
which automotive sales top 17 million.
Some of that spending has been made possible by stock market gains: Wall
Street has handed out windfalls to almost anyone holding equities in the past
few years. But consumers who don't own stocks are also spending, thanks to a
decade of debt. Young, poor or new to America? In the 1990s, it didn't matter;
lenders still loved you. While high-income families have been borrowing less,
those lower on the income scale have been borrowing more.
But it's not just consumers that Greenspan is concerned about; businesses are
splurging as well. During 1999, businesses increased spending on computers and
peripherals by 35 percent and spending on communications equipment by 25 percent
(both after adjusting for price declines). Far from slowing down this year, we
expect investment in these two categories to accelerate -- to 40 percent growth
for computers and 30 percent growth for communications equipment. And just like
consumers, businesses are borrowing to buy. You may think that with booming
sales, entrepreneurs are cash-rich and can afford it. But while 1999 saw
economy-wide earnings jump 10 percent and profits of Standard and Poor's (S&P)
500 companies leap nearly 14 percent, internal cash covered less than 84 percent
of capital spending. With the exception of 1998, that's the lowest on record.
Last year alone, corporate debt shot up by more than 11 percent to $560 billion.
And new economy companies are no exception; they have more debt than most people
realize, issuing more than half of all convertible bonds.
All this debt could cause problems. Although we've increased our 2001
inflation outlook to nearly 3 percent -- an entire percentage point higher than
our prediction three months ago -- we're not particularly worried about
inflation. It's the heavy borrowing we're concerned about. Debt continues to
exceed income growth, and when Greenspan succeeds in slowing the economy with
higher interest rates (which he will succeed in doing), all of the debt American
consumers and businesses are taking on could be tricky to handle. Debt is a
medley of financial obligations that must be paid with personal income and
corporate profits. When the economy slows, personal income and corporate profits
stay the same or even fall -- which makes it harder to pay off those debts.
Consumers and businesses may have to sell their assets to pay off the debt, and
they may risk going into default.
That being the case, a gradual economic slowdown may be in everyone's best
interest. But "gradual" is the key. Both the old and new economy have a lot
riding on the Fed's ability to rein in growth softly and smoothly, because
abrupt slowdowns encourage consumers and businesses to sell assets -- and
perhaps risk bankruptcy -- to pay off debt, as described above.
A gradual slowdown seems to be what the Fed is seeking, but for all of
Greenspan's semi-tough talk, some
4
<PAGE> 5
ECONOMIC OVERVIEW
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES.
THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (3/31/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.3 5.9 5.2 5.6
Prime rate (2) 9 8.25 7.75 8.5
Inflation rate (3)* 3.2 2.3 1.7 1.4
The U.S. dollar (4) 0.6 -3.3 -0.1 4.9
Capital goods orders (5)* 7.7 1.9 5.6 7.3
Industrial production (5)* 5.6 3.1 2.9 5.4
Employment growth (6) 2.3 2.1 2.3 2.6
</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 2/29/00.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
indicators suggest that monetary policy has actually been lax. Broad money and
credit creation have vastly exceeded economic activity since 1995, and no
central bank can allow that to continue indefinitely without creating inflation.
If we begin to see higher core inflation, the Fed will have to deal with all
that money it's created in a less gradualist manner -- and that could get
tricky. Financial turmoil accompanied each of the Fed's last two efforts to slow
the economy down. In 1994, there was a bond market meltdown that resulted in a
Mexican debt crisis. After a more timid Fed tightening in 1997, crises in Asia
were followed by problems with Russian debt, Brazilian debt and a large American
hedge fund. We don't think this is a coincidence: The global debt market is so
vast and interconnected that it's highly vulnerable to a rise in the cost of its
basic raw material -- short-term funds.
Let's hope, then, that the Fed can slow the economy without upsetting the
financial applecart, because that could affect everyone. After all, the old
economy and the new economy are wedded in many ways. Much of the money that
flows to IPOs is available because mature industries have borrowed to carry out
mergers and share buybacks. Old economy companies are the biggest customers of
new economy products. And e-commerce sites are all about moving traditional
goods over old-fashioned highways. Despite a lot of talk about old and new,
we're all in this economy together.
Sincerely,
Scudder Kemper Investments Economics Group
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 MARCH 29, 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.
5
<PAGE> 6
MANAGEMENT TEAM
KEMPER STATE TAX-FREE INCOME SERIES
PORTFOLIO MANAGEMENT TEAM
BRENNAN PHOTO
ELEANOR R. BRENNAN IS LEAD PORTFOLIO MANAGER OF KEMPER CALIFORNIA, KEMPER
FLORIDA AND KEMPER OHIO TAX-FREE INCOME FUNDS. SHE IS CO-LEAD MANAGER OF KEMPER
MUNICIPAL BOND FUND AND PORTFOLIO MANAGER OF KEMPER NEW YORK TAX-FREE INCOME
FUND. BRENNAN JOINED SCUDDER KEMPER INVESTMENTS, INC. IN MARCH 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. BRENNAN IS A CHARTERED FINANCIAL
ANALYST.
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.
ASHTON PHOTO
ASHTON P. GOODFIELD IS LEAD PORTFOLIO MANAGER FOR KEMPER NEW YORK TAX-FREE
INCOME FUND AND KEMPER INTERMEDIATE MUNICIPAL BOND FUND. SHE IS A SENIOR VICE
PRESIDENT WITH 14 YEARS OF PROFESSIONAL INVESTMENT EXPERIENCE. SHE JOINED
SCUDDER KEMPER INVESTMENTS 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.
6
<PAGE> 7
PERFORMANCE UPDATE
MUNICIPAL BONDS HAVE FACED AN EXCEPTIONALLY TOUGH ENVIRONMENT SINCE AUGUST 1999.
THE FEDERAL RESERVE BOARD OPEN MARKET COMMITTEE RAISED SHORT-TERM INTEREST RATES
WHILE THE TREASURY DEPARTMENT ANNOUNCED A DEBT BUYBACK PLAN, PROMPTING SOME
INVESTORS TO SWITCH TO TAXABLE SECURITIES. BELOW, THE MANAGEMENT TEAM DISCUSSES
THE MARKET'S PERFORMANCE AND HOW KEMPER STATE TAX-FREE INCOME FUNDS ARE
POSITIONED FOR THE COMING MONTHS.
Q
HOW DID THE MUNICIPAL BOND MARKET PERFORM DURING THE FIRST SIX MONTHS OF
FISCAL YEAR 2000?
A
It was a tough time for all fixed-income markets, and particularly
stressful for tax-exempt debt. Both long-term and intermediate interest rates
climbed between the end of August 1999 and the end of February 2000. During the
period, the Federal Reserve expressed a resolve to head off inflationary
pressures as commodity prices rebounded, the nation's unemployment rate reached
30-year lows and consumer spending was brisk. Strong U.S. economic growth
prompted the Federal Reserve Board Open Market Committee to raise its short-term
interest-rate target on November 16 and February 2 by an additional 50 basis
points (0.50 percent) to 5.75 percent. In the municipal bond market, the
overriding challenge was to preserve capital as bond prices and investor demand
fell.
Shrinking new supplies of municipal debt created intense competition for
attractively priced securities with solid credit characteristics and
above-average income and total return prospects. As of the end of February, it
appeared that new issuance in calendar year 2000 could be as low as $200
billion, compared with more than $260 billion in 1999.
Q
HOW DID YOU POSITION KEMPER STATE TAX-FREE INCOME FUNDS BETWEEN AUGUST
1999 AND FEBRUARY 2000?
A
Each fund's average duration target (see Portfolio Statistics on pages 10,
21, 25 and 31) ranged from neutral to slightly less than most of the funds'
peers during the period. This, along with curve positioning and security
structure selection, helped the funds preserve capital to a greater extent than
their peers in a climate of rapidly rising interest rates (see At a Glance on
page 2.) The funds' returns were lower than the -0.02 percent return of the
Lehman Brothers Municipal Bond Index* for the six months ended February 29,
2000. Duration can dramatically impact fund performance, so we don't make big
"bets" on the direction of interest rates.
To increase income and total return potential, we focused on issue selection
and curve placement. We added some lower-quality bonds as the income
differential (spreads) between high-quality and lower-quality securities grew
for most of the period. In most states, as of the end of February 2000,
municipal bonds rated BBB -- the lowest level of investment-grade
bonds -- generally yielded more than 125 basis points more than
comparable-sector AAAs.
* 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, ISSUED AS A PART OF AN ISSUE OF AT
LEAST $50 MILLION, ISSUED WITHIN THE LAST FIVE YEARS, AND A MATURITY OF AT
LEAST TWO YEARS. BONDS SUBJECT TO ALTERNATIVE MINIMUM TAX, VARIABLE RATE BONDS
AND ZERO COUPON BONDS ARE EXCLUDED FROM THE INDEX. INVESTORS CANNOT INVEST IN
THE INDEX.
Q
DURING FEBRUARY 2000, THE TREASURY ANNOUNCED PLANS TO BUY BACK SOME
LONG-TERM DEBT AND HOLD FEWER AUCTIONS. WHAT WERE THE SHORT-TERM CONSEQUENCES OF
THIS ACTION ON MUNICIPAL BONDS, AND WHAT DO YOU BELIEVE MAY BE THE LONG-TERM
EFFECT?
A
February's long anticipated Treasury news generated a welcome rally after
five straight months of depressed municipal bond prices. The Treasury said it
plans to buy back 30-year government bonds and reduce auctions all along the
maturity spectrum.
In January and February, the municipal bond yield curve -- the difference in
income potential between short-term and long-term securities -- was steep
compared with Treasuries. We used this development to reposition the portfolio
with more longer-term bonds selling at a discount. We believe this may help the
funds capture additional income and total return potential in the coming months.
In our view, long-term municipal securities offered compelling value on a
tax-adjusted basis.
7
<PAGE> 8
PERFORMANCE UPDATE
Usually, long-term bonds provide more income potential than securities
maturing in a year or less since they involve more interest-rate risk. This
pattern held true for both Treasuries and municipal bonds in the late summer and
autumn of 1999. However, as the new millennium began, the Treasury yield curve
inverted so that by February 29, 2000, one-year Treasury bills had higher yields
than 30-year bonds. This did not happen in the municipal market, and long-term
municipal bond yields reached an historically attractive ratio -- providing 97
percent of the yield of comparable-maturity Treasuries. Because the tax
advantage of municipal bonds is typically "built in" to the price, long-maturity
municipal bonds typically yield about 85 to 90 percent of a similar-maturity
Treasury.
Q
IS A STRONG U.S. ECONOMY BAD NEWS FOR MUNICIPAL BONDS?
A
Not necessarily. In fact, to the extent that the Fed can contain
inflation, and investors believe that consumer prices will not accelerate,
strong economic growth is positive because it enhances the ability of municipal
debt issuers to meet their obligations. The fourth calendar quarter of 1999 was
the 17th consecutive quarter in which bond rating upgrades exceeded downgrades,
according to Standard & Poor's.
Since last summer, two credit-rating agencies have upgraded the general
obligation (GO, bonds that are usually backed by state or municipal income,
sales or other general tax revenue) bond rating of California, whose economy is
benefiting from 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 has been 5.78 percent since 1995, compared with 5.03
percent for the United States as a whole.* (see State Economic and Bond Market
Snapshot.) Last year, New York's general obligation bonds were also upgraded for
similar reasons. We believe these upgrades, which were anticipated by the bond
market, have helped enhance performance for Kemper California Tax-Free Income
Fund and Kemper New York Tax-Free Income Fund since fiscal 1999 relative to
national tax-free funds.
* SOURCE: STANDARD & POOR'S CREDITWEEK 2/21/00 AND BLOOMBERG BUSINESS NEWS.
Q
DID ANYTHING HAPPEN IN FLORIDA OR OHIO DURING THE FIRST SIX MONTHS OF
FISCAL 2000 THAT HAS AFFECTED OR IS LIKELY TO AFFECT HOW EACH STATE IS VIEWED BY
RATING AGENCIES OR THE MUNICIPAL BOND MARKET?
A
Last year, Florida systematically evaluated the impact of the state's
bonding programs on its financial health, and it plans to integrate the study's
findings into its budget development process. 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
February, Standard & Poor's praised the study, saying, "Given the state's
reliance on sales tax for nearly 70 percent of revenues and the historic
volatility of this tax source, a higher level of mandated reserves would be
viewed positively from a credit standpoint."
In Ohio, the state is planning a comprehensive program to address
school-funding needs. Legislators' proposals call for a $23 billion state and
federal investment over 12 years to build and renovate schools in poorer
districts. The local share is expected to come from the proceeds of general
obligation bond issues to be approved by voters. Standard & Poor's believes "the
state's strong economic performance and sizable reserve levels provide the
flexibility to increase school funding with little impact in other areas of the
budget."
STATE ECONOMIC AND BOND MARKET SNAPSHOT (DATA AS OF 2/29/00)
<TABLE>
<CAPTION>
PERSONAL INCOME GO BOND 10-YEAR GO VOLUME OF
GROWTH RATE 1995-1999 RATING BOND YIELD BOND ISSUANCE
<S> <C> <C> <C> <C> <C>
CALIFORNIA 5.78% AA3/AA- 5.11% -57%
...................................................................................................................................
FLORIDA 5.30% AA2/AA+ 5.29% +33%
...................................................................................................................................
NEW YORK 4.59% A2/A+ 5.36% -34%
...................................................................................................................................
OHIO 4.16% AA1/AA+ 5.34% -38%
...................................................................................................................................
<CAPTION>
<S> <C>
...
...
...
...
</TABLE>
SOURCE: BLOOMBERG BUSINESS NEWS, THE BOND BUYER, MOODY'S INVESTORS SERVICE,
STANDARD & POOR'S. YIELDS AND RATINGS SHOWN ARE NOT INTENDED TO PRESENT THE
YIELDS OR AVERAGE QUALITY OF ANY KEMPER FUND. BOND ISSUANCE REFLECTS DATA FOR
JANUARY AND FEBRUARY 2000.
8
<PAGE> 9
PERFORMANCE UPDATE TERMS TO KNOW
CURRENT STATE INCOME TAX RATES
NET OF FEDERAL INCOME TAXES FOR TAXPAYERS IN THE 39.6% BRACKET
Q
WHAT'S YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET FOR THE BALANCE OF
FISCAL YEAR 2000?
A
Since it is widely expected that the Fed will need to raise interest rates
even more by the summer of 2000, municipal bonds face a challenging environment.
Still, we believe the municipal market provides excellent value, with yields
of longer maturity municipals still near those of Treasuries, and tax-
equivalent yields near double-digit levels for investors in the highest
brackets. In January, in fact, municipal bond yields, as measured by THE BOND
BUYER'S Revenue Bond Index, reached 6.35 percent, the highest level since August
1995. In our view, a robust
U.S. economy enhances municipal finances, and that should continue to help
bolster municipal credit ratings. Finally, if the equity and taxable bond
markets remain as volatile as they have been this past winter, we think it could
provide a catalyst for renewed enthusiasm for tax-exempt debt.
DISCOUNTS AND PREMIUMS Par value is the principal value that an investor may
receive when a bond matures. If a bond's price is lower than par, it is selling
at a discount. If a bond's price is higher than par, it is said to be trading at
a premium.
DURATION A measure of the interest-rate sensitivity of a portfolio,
incorporating time to maturity and coupon size. The longer a portfolio's
duration, the greater its sensitivity to interest-rate changes.
INVERTED YIELD CURVE A market phenomenon in which intermediate-term bonds
(securities with one- to 10-year maturities) have higher income potential and
current yields than long-term bonds (securities with 10- to 30-year maturities).
Historically it has occurred during a period of rising short-term interest rates
and been viewed as an indicator of a future economic slowdown.
REVENUE BOND INDEX (RBI) RBI is the average yield on 25 revenue bonds with
30-year maturities rated A1 and compiled by The Bond Buyer, a newspaper that
reports on the municipal bond market.
<TABLE>
<CAPTION>
RELATIVE TAX BURDEN
RATE AMONG STATES (1 = HIGHEST)
<S> <C> <C> <C> <C>
CALIFORNIA 5.62% 6TH
..........................................................................................................
FLORIDA NONE 44TH
..........................................................................................................
NEW YORK 4.14% 19TH
..........................................................................................................
OHIO 4.11% 20TH
..........................................................................................................
</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.
9
<PAGE> 10
PORTFOLIO STATISTICS
KEMPER CALIFORNIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION ON 2/29/00 ON 8/31/99
<S> <C> <C> <C> <C>
REVENUE BONDS 76% 77%
..................................................................................
U.S. GOVERNMENT SECURED 13 11
..................................................................................
GENERAL OBLIGATION BONDS 10 12
..................................................................................
CASH AND EQUIVALENTS 1 --
- ----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
QUALITY ON 2/29/00 ON 8/31/99
<S> <C> <C> <C> <C>
AAA 60% 65%
..................................................................................
AA 8 7
..................................................................................
A 14 13
..................................................................................
BBB 10 10
..................................................................................
NOT RATED 8 5
- ----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
YEARS TO MATURITY ON 2/29/00 ON 8/31/99
<S> <C> <C> <C> <C>
1-10 YEARS 38% 48%
..................................................................................
11-20 YEARS 48 43
..................................................................................
21+ YEARS 14 9
- ----------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
ON 2/29/00 ON 8/31/99
<S> <C> <C> <C> <C>
AVERAGE MATURITY 15.1 years 14.2 years
..................................................................................
AVERAGE DURATION 8.9 years 7.7 years
- ----------------------------------------------------------------------------------
</TABLE>
* PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
CALIFORNIA TAX-FREE INCOME FUND
Portfolio of Investment at February 29, 2000 (unaudited)
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
LONG-TERM MUNICIPAL INVESTMENTS--100.0%
- ---------------------------------------------------------------------------------------------------------------------
Alameda, CA, Corridor Transportation Authority, Senior Lien,
Revenue, Series A, 5.125%, 10/01/2015 $10,920,000 $ 10,412,002
------------------------------------------------------------------------------------------------
Benicia, CA, Unified School District, General Obligation,
Series A, zero coupon, 08/01/2017 1,735,000 621,009
------------------------------------------------------------------------------------------------
Benicia, CA, Unified School District, General Obligation,
Series A, zero coupon, 08/01/2018 1,510,000 504,989
------------------------------------------------------------------------------------------------
(c)Big Bear Lake, California Water Revenue, 10.19%,
04/01/2015 1,700,000 1,888,700
------------------------------------------------------------------------------------------------
(c)Big Bear Lake, California Water Revenue, 10.17%,
04/01/2022 6,750,000 7,142,580
------------------------------------------------------------------------------------------------
Burbank, CA, Unified School District, General Obligation,
Series B, zero coupon, 08/01/2011 3,070,000 1,660,195
------------------------------------------------------------------------------------------------
Burbank, CA, Unified School District, General Obligation,
Series B, zero coupon, 08/01/2012 1,500,000 759,435
------------------------------------------------------------------------------------------------
Burbank, CA, Unified School District, General Obligation,
Series B, zero coupon, 08/01/2013 3,225,000 1,525,683
------------------------------------------------------------------------------------------------
Burbank, CA, Unified School District, General Obligation,
Series B, zero coupon, 08/01/2014 3,000,000 1,325,430
------------------------------------------------------------------------------------------------
California Educational Facilities Authority, Claremont
McKenna College, Revenue, 5.100%, 11/01/2017 800,000 738,616
------------------------------------------------------------------------------------------------
California Educational Facilities Authority, Mill College,
Revenue, 6.875%, 09/01/2022 1,775,000 1,907,699
------------------------------------------------------------------------------------------------
California Educational Facilities Authority, Revenue, Pomona
College, 5.250%, 01/01/2017 5,445,000 5,178,739
------------------------------------------------------------------------------------------------
California Educational Facilities Authority, Revenue Bond,
Santa Clara University, 5.250%, 09/01/2018 1,000,000 935,400
------------------------------------------------------------------------------------------------
California Educational Facilities Authority, University of
San Diego, Revenue, zero coupon, 10/01/2014 1,470,000 643,360
------------------------------------------------------------------------------------------------
California Educational Facilities Authority, University of
San Francisco, Revenue, 6.000%, 10/01/2016 6,640,000 6,825,588
------------------------------------------------------------------------------------------------
California Health Facilities Authority, Kaiser Permanente,
Revenue, Series A, zero coupon, 10/01/2009 7,140,000 4,273,576
------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, Adventist
Health System West, Revenue Series B, 6.500%, 03/01/2007 3,750,000 3,904,800
------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, Kaiser
Permanente, Revenue, Series A, 7.000%, 12/01/2010 3,550,000 3,698,532
------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, Adventist
Health System West, Revenue, Series B, 6.500%, 03/01/2011 2,000,000 2,077,520
------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, Insured
Health Facilities, Small Facilities Loan, Revenue, Series
A, 6.700%, 03/01/2011 1,200,000 1,257,156
------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, Eskaton
Properties Health Facilities, Revenue, 7.450%, 05/01/2011 4,800,000 4,924,320
------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, Southern
California Presbyterian, Revenue, 6.700%, 06/01/2011 2,000,000 2,097,420
------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, Sutter
Health, Revenue, Series A, 5.000%, 08/15/2018 1,820,000 1,636,289
------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
California Health Facilities Finance Authority, Sutter
Health, Revenue, Series A, 5.000%, 08/15/2019 $ 1,605,000 $ 1,428,033
------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, San
Francisco Children's Hospital, Revenue, Series A, 7.500%,
10/01/2020 3,600,000 3,745,584
------------------------------------------------------------------------------------------------
California Health Facilities Finance Authority, Cedars-Sinai
Medical Center, Revenue, Series A, 6.125%, 12/01/2030 2,500,000 2,377,225
------------------------------------------------------------------------------------------------
California Housing Finance Agency, Home Mortgage Revenue,
Series D, 7.750%, 08/01/2010 3,230,000 3,310,718
------------------------------------------------------------------------------------------------
California Housing Finance Agency, Home Mortgage Revenue,
Series F-1, 6.875%, 08/01/2015 10,905,000 11,239,347
------------------------------------------------------------------------------------------------
California Housing Finance Agency, Home Mortgage Revenue,
Series C, 7.600%, 08/01/2030 1,040,000 1,047,862
------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority, Solid
Waste Disposal Revenue, CanFibre of Riverside PJ, Series
A, 9.000%, 07/01/2019 6,750,000 7,207,448
------------------------------------------------------------------------------------------------
California Resource Efficiency Financing Authority, Capital
Improvements Program, Certificates of Participation,
6.000%, 04/01/2012 1,685,000 1,810,246
------------------------------------------------------------------------------------------------
California Resource Efficiency Financing Authority, Capital
Improvements Program, Certificates of Participation,
5.500%, 04/01/2017 4,285,000 4,189,659
------------------------------------------------------------------------------------------------
California State, General Obligation, 5.875%, 10/01/2019 10,000,000 10,069,900
------------------------------------------------------------------------------------------------
California State Colleges and Universities, College and
University Improvements, Revenue, 6.750%, 11/01/2009 1,515,000 1,571,706
------------------------------------------------------------------------------------------------
California State Colleges and Universities, Housing System,
Revenue, 5.650%, 11/01/2012 8,110,000 8,309,506
------------------------------------------------------------------------------------------------
California State Colleges and Universities, Housing System,
Revenue, 5.700%, 11/01/2013 5,000,000 5,106,950
------------------------------------------------------------------------------------------------
California State Department Water, Revenue, Water Systems,
Series S, 5.000%, 12/01/2019 5,860,000 5,258,412
------------------------------------------------------------------------------------------------
California State Public Works Board, Department of
Corrections, Revenue, Series A, 7.400%, 09/01/2010 3,365,000 3,942,636
------------------------------------------------------------------------------------------------
California State Public Works Board, Department of
Corrections, Lease Revenue, Series A, 5.750%, 01/01/2012 5,145,000 5,299,813
------------------------------------------------------------------------------------------------
California State Public Works Board, Trustees of California
State University, Lease Revenue, Series A, 5.000%,
10/01/2017 3,255,000 2,931,909
------------------------------------------------------------------------------------------------
California State Public Works Board, Department of
Corrections, Lease Revenue, Series A, 5.000%, 09/01/2018 11,000,000 9,820,140
------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority,
Triad Healthcare, Certificates of Participation, 5.800%,
08/01/2000 4,205,000 4,238,514
------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority,
Cedars-Sinai Medical Center, Certificates of
Participation, 6.500%, 08/01/2012 20,205,000 21,478,723
------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority,
Health Facilities, Certificates of Participation, 5.500%,
09/01/2014 6,750,000 6,733,260
------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority,
Certificate of Participation, The Internext Group, 5.375%,
04/01/2017 1,000,000 826,150
------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority,
Certificates of Participation, 5.500%, 08/15/2018 1,840,000 1,762,830
------------------------------------------------------------------------------------------------
</TABLE>
12 The accompanying notes are an integral part of the financial statements.
<PAGE> 13
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
California Statewide Communities Development Authority,
Eastfield Ming Quong Inc, Certificates of Participation,
5.625%, 06/01/2020 $ 3,420,000 $ 3,245,512
------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority,
Catholic Healthcare West, 6.500%, 07/01/2020 5,500,000 5,336,650
------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority, ARC
of San Diego, Certificates of Participation, 5.625%,
05/01/2021 3,055,000 2,881,751
------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority,
Certificates of Participation, The Internext Group,
5.375%, 04/01/2030 6,000,000 4,638,840
------------------------------------------------------------------------------------------------
Carlsbad, CA, Unified School District, General Obligation,
zero coupon, 11/01/2010 2,520,000 1,432,242
------------------------------------------------------------------------------------------------
Carlsbad, CA, Unified School District, General Obligation,
zero coupon, 11/01/2011 1,625,000 867,035
------------------------------------------------------------------------------------------------
Carlsbad, CA, Unified School District, General Obligation,
zero coupon, 11/01/2012 2,685,000 1,340,889
------------------------------------------------------------------------------------------------
Carlsbad, CA, Unified School District, General Obligation,
zero coupon, 11/01/2013 2,740,000 1,278,292
------------------------------------------------------------------------------------------------
Carlsbad, CA, Unified School District, General Obligation,
zero coupon, 11/01/2018 3,050,000 1,004,945
------------------------------------------------------------------------------------------------
Carson, CA, Redevelopment Agency, Redevelopment Project No.
1, Tax Allocation, Series B, 6.000%, 10/01/2016 3,350,000 3,292,849
------------------------------------------------------------------------------------------------
Central Valley, CA, Financing Authority, Cogeneration
Project, Revenue, 6.100%, 07/01/2013 8,700,000 9,244,359
------------------------------------------------------------------------------------------------
Concord, CA, Redevelopment Agency, Tax Allocation, Series 3,
8.000%, 07/01/2018 40,000 40,458
------------------------------------------------------------------------------------------------
Contra Costa County, CA, GNMA Mortgage Backed Securities
Program, Home Mortgage Revenue, 7.750%, 05/01/2022 2,715,000 3,252,244
------------------------------------------------------------------------------------------------
Corona, CA, Community Facilities District, Special Tax,
Series 90-1-A, 5.500%, 09/01/2015 9,240,000 9,292,760
------------------------------------------------------------------------------------------------
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 2,802,745
------------------------------------------------------------------------------------------------
Duarte, CA, Certificate of Participation, City of Hope
National Medical Center, Series A, 5.250%, 04/01/2024 3,750,000 2,943,863
------------------------------------------------------------------------------------------------
East Bay California Municipal Utilities District, Wastewater
Treatment System, Revenue, 4.750%, 06/01/2021 1,915,000 1,614,211
------------------------------------------------------------------------------------------------
El Dorado County, CA, Public Agency Financing Authority,
Revenue, 5.600%, 02/15/2012 6,000,000 6,133,080
------------------------------------------------------------------------------------------------
Emeryville, CA, Public Financing Authority, Redevelopment
Project, Revenue, Series A, 6.500%, 05/01/2021 6,315,000 6,380,802
------------------------------------------------------------------------------------------------
(b)Emeryville, CA, Public Financing Authority, Redevelopment
Project, Revenue, Series A, Prerefunded 05/01/2002,
6.500%, 05/01/2021 3,940,000 4,178,646
------------------------------------------------------------------------------------------------
Escondido, CA, Unified High School District, General
Obligation, zero coupon, 05/01/2015 3,165,000 1,322,495
------------------------------------------------------------------------------------------------
Escondido, CA, Unified High School District, General
Obligations, zero coupon, 05/01/2016 3,335,000 1,303,285
------------------------------------------------------------------------------------------------
Fontana, CA, Public Financing Authority, Tax Allocation
Revenue, 7.050%, 09/01/2021 3,900,000 3,947,502
------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 13
<PAGE> 14
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Foothill-DeAnza, CA, Community College District, De-Anza
Campus Center Project, Certificates of Participation,
7.350%, 03/01/2007 $ 1,540,000 $ 1,647,430
------------------------------------------------------------------------------------------------
Foothill-DeAnza, CA, Community College District, De-Anza
Campus Center Project, Certificates of Participation,
7.875%, 06/01/2021 4,055,000 4,313,465
------------------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue,
zero coupon, 01/01/2018 10,000,000 3,486,400
------------------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue,
zero coupon, 01/01/2018 6,250,000 2,092,563
------------------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue,
zero coupon, 01/15/2025 10,000,000 1,976,100
------------------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue,
zero coupon, 01/15/2026 3,750,000 1,896,075
------------------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue,
zero coupon, 01/15/2017 4,500,000 1,614,915
------------------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue,
zero coupon, 01/01/2020 5,000,000 1,534,100
------------------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue,
5.000%, 01/01/2035 10,000,000 8,592,800
------------------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency, CA, Toll Road Revenue,
5.750%, 01/15/2040 6,250,000 5,695,250
------------------------------------------------------------------------------------------------
(b)Foothill/Eastern Corridor Agency, CA, Toll Road Revenue,
Series A Prerefunded 01/01/2010, 6.000%, 01/01/2016 11,000,000 11,718,080
------------------------------------------------------------------------------------------------
(b)Foothill/Eastern Corridor Agency, CA, Toll Road Revenue,
Series A Prerefunded 01/01/2007, 6.500%, 01/01/2032 10,000,000 10,965,100
------------------------------------------------------------------------------------------------
(b)Foothill/Eastern Corridor Agency, CA, Toll Road Revenue,
Series A, Prerefunded 01/01/2007, 6.000%, 01/01/2034 3,350,000 3,576,728
------------------------------------------------------------------------------------------------
Foster City, CA, Public Financing Authority, Community
Development Project, Series A, 5.600%, 09/01/2012 1,225,000 1,222,048
------------------------------------------------------------------------------------------------
Foster City, CA, Public Financing Authority, Community
Development Project, Series A, 5.800%, 09/01/2016 1,000,000 986,950
------------------------------------------------------------------------------------------------
Fresno, CA, Health Facilities Authority, Holy Cross Health
System, Revenue, 6.500%, 06/01/2011 1,500,000 1,591,935
------------------------------------------------------------------------------------------------
Fresno, CA, Health Facilities Authority, Holy Cross Health
System, Revenue, 6.625%, 06/01/2021 2,000,000 2,129,220
------------------------------------------------------------------------------------------------
Fresno, CA, Unified School District, General Obligation,
Series A, 6.400%, 08/01/2016 2,000,000 2,184,080
------------------------------------------------------------------------------------------------
Hawthorne, CA, Community Redevelopment Agency, Redevelopment
Project Area 2, Tax Allocation, 6.625%, 09/01/2014 2,000,000 2,044,720
------------------------------------------------------------------------------------------------
Hollister CA, Joint Powers Financing Authority, Sewer System
Improvement Project, Revenue, 5.750%, 12/01/2011 3,815,000 3,695,934
------------------------------------------------------------------------------------------------
Inglewood, CA, Civic Center Improvement Project,
Certificates of Participation, 7.000%, 08/01/2011 2,500,000 2,638,825
------------------------------------------------------------------------------------------------
Inglewood, CA, Civic Center Improvement Project,
Certificates of Participation, 7.000%, 08/01/2019 5,200,000 5,488,756
------------------------------------------------------------------------------------------------
Inglewood, CA, Civic Center Improvement Project,
Certificates of Participation, 6.500%, 08/01/2021 1,825,000 1,913,895
------------------------------------------------------------------------------------------------
Inglewood, CA, Public Financing Authority, Revenue, Series
B, 7.000%, 05/01/2022 8,140,000 8,584,688
------------------------------------------------------------------------------------------------
</TABLE>
14 The accompanying notes are an integral part of the financial statements.
<PAGE> 15
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Inglewood, CA, Public Financing Authority, Revenue, Series
C, 7.000%, 05/01/2022 $ 905,000 $ 956,549
------------------------------------------------------------------------------------------------
Irvine, CA, Improvement Bond Act 1915, Special Assessment,
6.000%, 09/02/2022 750,000 682,545
------------------------------------------------------------------------------------------------
Kern, CA, High School District, General Obligation, Series
A, 6.400%, 08/01/2012 3,095,000 3,425,886
------------------------------------------------------------------------------------------------
Kings River, CA, Conservation District, Pine Flat Power,
Revenue, Series E, 5.125%, 01/01/2017 1,000,000 924,440
------------------------------------------------------------------------------------------------
Kings River, CA, Conservation District, Pine Flat Power,
Revenue, Series E, 5.125%, 01/01/2018 2,185,000 2,002,924
------------------------------------------------------------------------------------------------
Laguna Salada, CA, Unified School District, General
Obligation, Series B, zero coupon, 08/01/2019 2,765,000 864,781
------------------------------------------------------------------------------------------------
Laguna Salada, CA, Unified School District, General
Obligation, Series B, zero coupon, 08/01/2020 2,000,000 588,000
------------------------------------------------------------------------------------------------
Las Virgenes, CA, Unified School District, General
Obligation, Series A, zero coupon, 11/01/2013 2,150,000 1,003,039
------------------------------------------------------------------------------------------------
Las Virgenes, CA, Unified School District, General
Obligation, Series A, zero coupon, 11/01/2014 1,050,000 456,078
------------------------------------------------------------------------------------------------
Las Virgenes, CA, Unified School District, General
Obligation, Series A, zero coupon, 11/01/2015 1,550,000 629,315
------------------------------------------------------------------------------------------------
Las Virgenes, CA, Unified School District, General
Obligation, Series A, zero coupon, 11/01/2015 1,275,000 516,082
------------------------------------------------------------------------------------------------
Lemon Grove, CA, Community Development Agency, Lemon Grove
Redevelopment Project, Tax Allocation, 6.650%, 08/01/2006 250,000 267,023
------------------------------------------------------------------------------------------------
Lemon Grove, CA, Community Development Agency, Lemon Grove
Redevelopment Project, Tax Allocation, 6.900%, 08/01/2020 2,250,000 2,415,983
------------------------------------------------------------------------------------------------
(c)Long Beach, CA, Harbor Revenue, 7.051%, 05/15/2016 4,215,000 4,520,166
------------------------------------------------------------------------------------------------
(c)Long Beach, CA, Harbor Revenue, 7.050%, 05/15/2019 1,300,000 1,342,874
------------------------------------------------------------------------------------------------
Long Beach, CA, Revenue, Series A, 6.000%, 05/15/2019 8,000,000 8,141,200
------------------------------------------------------------------------------------------------
Los Angeles County, CA, Metropolitan Transportation
Authority, Sales Tax Revenue, Series A, 4.750%, 07/01/2017 4,610,000 3,955,979
------------------------------------------------------------------------------------------------
Los Angeles County, CA, Metropolitan Transportation
Authority, Sales Tax Revenue, Series A, 4.750%, 07/01/2018 4,830,000 4,099,221
------------------------------------------------------------------------------------------------
Los Angeles County, CA, Metropolitan Transportation
Authority, Sales Tax Revenue, Series A, 4.750%, 07/01/2019 5,060,000 4,262,190
------------------------------------------------------------------------------------------------
Los Angeles County, CA, Metropolitan Transportation
Authority, Sales Tax Revenue, Series A, 4.750%, 07/01/2020 5,300,000 4,464,031
------------------------------------------------------------------------------------------------
Los Angeles County, CA, Metropolitan Transportation
Authority, Sales Tax Revenue, Series A, 5.000%, 07/01/2023 3,500,000 3,057,215
------------------------------------------------------------------------------------------------
Los Angeles, CA, Harbor Department Revenue, Series B,
6.250%, 08/01/2026 2,320,000 2,357,004
------------------------------------------------------------------------------------------------
Los Angeles, CA, Community Redevelopment Agency, Hollywood
Redevelopment Project, Tax Allocation, Series C, 5.500%,
07/01/2017 1,260,000 1,238,491
------------------------------------------------------------------------------------------------
Los Angeles, CA, Convention and Exhibition Center Authority,
Certificates of Participation, 9.000%, 12/01/2020 1,000,000 1,213,120
------------------------------------------------------------------------------------------------
Los Angeles, CA, Department of Airports, Ontario
International Airport, Revenue, Series A, 5.900%,
05/15/2012 3,290,000 3,376,395
------------------------------------------------------------------------------------------------
</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>
Los Angeles, California, State Building Authority Lease
Revenue, Series A, 5.400%, 10/01/2015 $ 2,530,000 $ 2,458,502
------------------------------------------------------------------------------------------------
Los Angeles, California, State Building Authority Lease
Revenue, Series A, 5.500%, 10/01/2016 3,890,000 3,792,789
------------------------------------------------------------------------------------------------
Los Angeles, California, State Building Authority Lease
Revenue, Series A, 5.500%, 10/01/2018 2,000,000 1,915,740
------------------------------------------------------------------------------------------------
Los Angeles, California, State Building Authority Lease
Revenue, Series A, 5.500%, 10/01/2019 2,365,000 2,281,113
------------------------------------------------------------------------------------------------
(c)Los Angeles, California, Unified School District, Inverse
Floater, Rites-PA 589A, 10.40%, 07/01/2012 3,170,000 3,612,215
------------------------------------------------------------------------------------------------
(c)Los Angeles, California, Unified School District, Inverse
Floater, Rites-PA 589B, 10.40%, 07/01/2013 1,485,000 1,680,307
------------------------------------------------------------------------------------------------
(c)Los Angeles, California, Unified School District, Inverse
Floater, Rites-PA 589C, 10.40%, 07/01/2014 2,910,000 3,263,914
------------------------------------------------------------------------------------------------
(c)Los Angeles, California, Unified School District, Inverse
Floater, Rites-PA 589D, 10.40%, 07/01/2015 3,560,000 3,936,363
------------------------------------------------------------------------------------------------
Los Angeles, California, Unified School District, General
Obligation, Series A, 5.000%, 07/01/2021 14,000,000 12,349,400
------------------------------------------------------------------------------------------------
Los Angeles, California, Unified School District, General
Obligation, Series B, 5.000%, 07/01/2023 5,755,000 5,026,935
------------------------------------------------------------------------------------------------
Los Banos, CA, Certificates of Participation, 6.000%,
12/01/2019 2,100,000 1,956,297
------------------------------------------------------------------------------------------------
Lucia Mar, CA, Unified School District, General Obligation,
Series A, zero coupon, 08/01/2016 1,000,000 385,160
------------------------------------------------------------------------------------------------
Martinez, CA, Home Mortgage Revenue, 10.375%, 02/01/2002 25,000 26,668
------------------------------------------------------------------------------------------------
Merced, CA, Unified School District, General Obligation,
Series A, zero coupon, 08/01/2014 2,045,000 900,966
------------------------------------------------------------------------------------------------
Metropolitan Water District, Southern California Waterworks,
Revenue, Series A, 5.000%, 07/01/2016 7,000,000 6,472,480
------------------------------------------------------------------------------------------------
Metropolitan Water District, Southern California Waterworks,
Revenue, Series A, 5.750%, 07/01/2021 2,000,000 2,001,040
------------------------------------------------------------------------------------------------
Mill Valley, CA, The Redwoods, Certificates of
Participation, 5.750%, 12/01/2020 3,230,000 3,110,425
------------------------------------------------------------------------------------------------
Modesto, CA, Irrigation District Financing Authority,
Revenue, Series A, 6.000%, 10/01/2015 7,000,000 7,246,400
------------------------------------------------------------------------------------------------
Montebello, CA, Unified School District, General Obligation,
zero coupon, 08/01/2012 1,890,000 956,888
------------------------------------------------------------------------------------------------
Montebello, CA, Unified School District, General Obligation,
zero coupon, 08/01/2013 1,945,000 920,141
------------------------------------------------------------------------------------------------
Moreno Valley, CA, Towngate Community Facilities District,
Special Tax, 6.500%, 12/01/2009 3,670,000 3,742,226
------------------------------------------------------------------------------------------------
Moreno Valley, CA, Towngate Community Facilities District,
Special Tax, 7.125%, 10/01/2023 2,810,000 2,869,825
------------------------------------------------------------------------------------------------
Murrieta Valley, CA, Unified School District, General
Obligation, Series A, zero coupon, 09/01/2013 4,320,000 2,034,245
------------------------------------------------------------------------------------------------
Murrieta Valley, CA, Unified School District, General
Obligation, Series A, zero coupon, 09/01/2016 2,500,000 958,250
------------------------------------------------------------------------------------------------
(b)Northern California Power Agency, Public Power Revenue,
Prerefunded 01/01/2016, 7.000%, 07/01/2016 210,000 240,708
------------------------------------------------------------------------------------------------
Northern California Power Agency, Hydroelectric Project
Number One, Revenue, Series A, 5.000%, 07/01/2018 3,945,000 3,564,426
------------------------------------------------------------------------------------------------
</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>
Oakland, CA, Housing Finance Revenue, 7.100%, 01/01/2010 $ 1,240,000 $ 1,265,606
------------------------------------------------------------------------------------------------
Orange County, CA, Recovery Certificates of Participation,
6.000%, 07/01/2026 13,000,000 13,045,240
------------------------------------------------------------------------------------------------
Palmdale, CA, School District, School Building Project,
Certificates of Participation, zero coupon, 10/01/2019 1,420,000 438,042
------------------------------------------------------------------------------------------------
Pleasanton, CA, Joint Power Financing Series A, 6.150%,
09/02/2012 8,775,000 8,895,305
------------------------------------------------------------------------------------------------
Redondo Beach, CA, Public Financing Authority, South Bay
Center Redevelopment Project, Revenue, 7.000%, 07/01/2016 1,000,000 1,033,300
------------------------------------------------------------------------------------------------
Redondo Beach, CA, Public Financing Authority, South Bay
Center Redevelopment Project, Revenue, 7.125%, 07/01/2026 2,000,000 2,068,600
------------------------------------------------------------------------------------------------
Reedley, CA, Sierra View Homes, Certificates of
Participation, 5.850%, 03/01/2021 2,325,000 2,255,343
------------------------------------------------------------------------------------------------
(b)Reedley, CA, Sierra View Homes, Certificates of
Participation, Prerefunded 03/01/2001, 7.600%, 03/01/2021 3,820,000 3,993,084
------------------------------------------------------------------------------------------------
Sacramento County, CA, Community Facilities District Number
1, Special Tax, 5.500%, 12/01/2010 1,090,000 1,021,286
------------------------------------------------------------------------------------------------
Sacramento County, CA, Community Facilities District Number
1, Special Tax, 6.000%, 09/01/2011 850,000 831,045
------------------------------------------------------------------------------------------------
Sacramento County, CA, Community Facilities District Number
1, Special Tax, 6.125%, 09/01/2014 605,000 583,069
------------------------------------------------------------------------------------------------
Sacramento County, CA, Community Facilities District Number
1, Special Tax, 5.700%, 12/01/2020 2,000,000 1,697,500
------------------------------------------------------------------------------------------------
Sacramento County, CA, Community Facilities District Number
1, Special Tax, 6.300%, 09/01/2021 1,500,000 1,415,715
------------------------------------------------------------------------------------------------
Sacramento, CA, City Financing Authority, Revenue Bond,
Convention Center Hotel, Series A, 6.250%, 01/01/2030 10,000,000 9,016,800
------------------------------------------------------------------------------------------------
Sacramento, CA, Financing Authority Lease Revenue, Series
1993B, 5.000%, 11/01/2014 10,000,000 9,361,500
------------------------------------------------------------------------------------------------
Sacramento, CA, City Financing Authority Lease Revenue
Refunding, 5.400%, 11/01/2020 5,000,000 4,744,900
------------------------------------------------------------------------------------------------
(b)Sacramento, CA, Cogeneration Authority, Procter and
Gamble Project, Revenue, Prerefunded 07/01/2005, 6.375%,
07/01/2010 2,700,000 2,939,220
------------------------------------------------------------------------------------------------
Sacramento, CA, Cogeneration Authority, Procter and Gamble
Project, Revenue, 6.375%, 07/01/2010 2,300,000 2,368,908
------------------------------------------------------------------------------------------------
Sacramento, CA, Cogeneration Authority, Procter and Gamble
Project, Revenue, 6.500%, 07/01/2021 7,750,000 8,481,833
------------------------------------------------------------------------------------------------
Sacramento, CA, Municipal Utility District, Electric
Revenue, Series A, 6.200%, 08/15/2006 1,000,000 1,054,520
------------------------------------------------------------------------------------------------
Sacramento, CA, Municipal Utility District, Electric
Revenue, Series G, 6.500%, 09/01/2013 1,270,000 1,426,794
------------------------------------------------------------------------------------------------
Sacramento, CA, Municipal Utility District, Electric
Revenue, Series K, 5.700%, 07/01/2017 3,105,000 3,136,485
------------------------------------------------------------------------------------------------
Sacramento, CA, Power Authority, Cogeneration Project,
Revenue, 6.000%, 07/01/2022 5,000,000 4,605,050
------------------------------------------------------------------------------------------------
Saddleback Valley Unified School District, Public Financing
Authority, Special Tax Revenue, Series 1997A, 6.000%,
09/01/2014 1,195,000 1,269,568
------------------------------------------------------------------------------------------------
Salinas, CA, Capital Improvement Projects, Certificates of
Participation, Series A, 5.625%, 10/01/2017 2,000,000 1,903,440
------------------------------------------------------------------------------------------------
</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>
San Bernardino County, CA, West Valley Detention Center,
Certificates of Participation, 6.500%, 11/01/2012 $ 8,000,000 $ 8,428,960
------------------------------------------------------------------------------------------------
(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 5,274,300
------------------------------------------------------------------------------------------------
San Bruno Park, CA, School District, General Obligation,
zero coupon, 08/01/2014 1,010,000 446,228
------------------------------------------------------------------------------------------------
San Bruno Park, CA, School District, General Obligation,
zero coupon, 08/01/2015 1,080,000 444,841
------------------------------------------------------------------------------------------------
San Bruno Park, CA, School District, General Obligation,
zero coupon, 08/01/2016 1,000,000 385,160
------------------------------------------------------------------------------------------------
San Bruno Park, CA, School District, General Obligation,
zero coupon, 08/01/2017 1,000,000 357,930
------------------------------------------------------------------------------------------------
San Bruno Park, CA, School District, General Obligation,
zero coupon, 08/01/2019 1,100,000 344,036
------------------------------------------------------------------------------------------------
San Diego County, CA, Central Jail, Certificates of
Participation, 5.000%, 10/01/2017 4,000,000 3,643,720
------------------------------------------------------------------------------------------------
San Diego, CA, Detention Facility, Certificates of
Participation, Revenue, 8.000%, 06/01/2002 3,425,000 3,529,120
------------------------------------------------------------------------------------------------
San Diego, CA, Public Facilities Financing Authority, Sewer
Revenue, Series A, 5.000%, 05/15/2018 3,000,000 2,724,180
------------------------------------------------------------------------------------------------
San Diego, CA, Public Facilities Financing Authority, Sewer
Revenue, Series B, 5.000%, 05/15/2018 2,000,000 1,816,120
------------------------------------------------------------------------------------------------
San Diego, CA, Redevelopment Agency, Horton Project, Tax
Allocation, Series B, 6.625%, 11/01/2017 2,000,000 2,071,040
------------------------------------------------------------------------------------------------
San Francisco, CA, Bay Area Rapid Transit District Sales Tax
Revenue, 5.250%, 07/01/2018 3,120,000 2,935,951
------------------------------------------------------------------------------------------------
San Francisco, CA, Bay Area Rapid Transit District Sales Tax
Revenue, 5.250%, 07/01/2019 1,890,000 1,764,731
------------------------------------------------------------------------------------------------
San Francisco, CA, City and County Airport Communication,
International Airport Revenue, Series 12A, 5.700%,
05/01/2013 5,470,000 5,490,239
------------------------------------------------------------------------------------------------
San Francisco, CA, City and County Airport Communication,
International Airport Revenue, Series 16A, 5.500%,
05/01/2014 4,065,000 4,031,139
------------------------------------------------------------------------------------------------
San Francisco, CA, City and County Airport Communication,
International Airport Revenue, Series 12A, 5.700%,
05/01/2014 6,795,000 6,778,013
------------------------------------------------------------------------------------------------
San Francisco, CA, City and County Educational Facilities,
Unified School District, General Obligation, Series B,
5.250%, 06/15/2017 4,165,000 3,931,802
------------------------------------------------------------------------------------------------
San Francisco, CA, City and County Redevelopment Agency,
George R. Moscone Convention Center, Lease Revenue,
6.750%, 07/01/2015 2,200,000 2,372,634
------------------------------------------------------------------------------------------------
San Francisco, CA, State Building Authority, San Francisco
Civic Center Complex, Lease Revenue, Series A, 5.250%,
12/01/2016 6,775,000 6,493,905
------------------------------------------------------------------------------------------------
San Joaquin Hills, CA, Transportation Corridor Agency, Toll
Road Revenue, Series A, zero coupon, 01/15/2011 5,450,000 3,031,672
------------------------------------------------------------------------------------------------
San Joaquin Hills, CA, Transportation Corridor Agency, Toll
Road Revenue, Series A, zero coupon, 01/15/2016 3,485,000 1,383,266
------------------------------------------------------------------------------------------------
San Joaquin Hills, CA, Transportation Corridor Agency, Toll
Road Revenue, Series A, zero coupon, 01/15/2015 10,000,000 4,243,700
------------------------------------------------------------------------------------------------
San Joaquin Hills, CA, Transportation Corridor Agency, Toll
Road Revenue, Series A, zero coupon, 01/15/2017 3,965,000 1,463,085
------------------------------------------------------------------------------------------------
</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>
San Joaquin Hills, CA, Transportation Corridor Agency, Toll
Road Revenue, Series A, zero coupon, 01/15/2018 $ 2,640,000 $ 910,351
------------------------------------------------------------------------------------------------
San Joaquin Hills, CA, Transportation Corridor Agency, Toll
Road Revenue, Series A, zero coupon, 01/15/2019 3,185,000 1,027,226
------------------------------------------------------------------------------------------------
San Joaquin Hills, CA, Transportation Corridor Agency, Toll
Road Revenue, Capital Appreciation, Series 1997 A, zero
coupon, 01/15/2012 22,920,000 11,941,778
------------------------------------------------------------------------------------------------
San Joaquin Hills, CA, Transportation Corridor Agency, Toll
Road Revenue, Senior Lien, zero coupon, 01/01/2014 1,180,000 541,750
------------------------------------------------------------------------------------------------
San Jose, CA, Unified School District, General Obligation,
Series A, zero coupon, 08/01/2015 2,570,000 1,058,557
------------------------------------------------------------------------------------------------
San Jose, CA, Unified School District, General Obligation,
Series A, Zero Coupon, 08/01/2017 1,350,000 483,206
------------------------------------------------------------------------------------------------
San Juan, CA, M-S-R Public Power Agency, San Juan Project,
Revenue, Series D, 6.750%, 07/01/2020 2,000,000 2,219,620
------------------------------------------------------------------------------------------------
San Mateo County, CA, Transportation District, Sales Tax
Revenue, Series A, 5.250%, 06/01/2015 4,000,000 3,891,240
------------------------------------------------------------------------------------------------
San Ysidro, CA, School District, General Obligation, 6.125%,
08/01/2021 1,400,000 1,445,500
------------------------------------------------------------------------------------------------
Santa Cruz County, CA, Housing Authority, Multi-Family
Revenue, Series A, 7.750%, 07/01/2023 2,000,000 2,050,400
------------------------------------------------------------------------------------------------
Santa Margarita/Dana Point, CA, Authority, Improvement
Districts, Revenue, Series B, 7.250%, 08/01/2012 3,675,000 4,357,889
------------------------------------------------------------------------------------------------
Santa Margarita/Dana Point, CA, Authority, Improvement
Districts, Revenue, Series B, 7.250%, 08/01/2013 3,400,000 4,045,354
------------------------------------------------------------------------------------------------
Snowline, CA, Joint Unified School District, Certificates of
Participation, 6.300%, 07/01/2011 2,500,000 2,675,750
------------------------------------------------------------------------------------------------
Snowline, CA, Joint Unified School District, Certificates of
Participation, 6.400%, 07/01/2018 1,195,000 1,282,665
------------------------------------------------------------------------------------------------
South San Francisco, CA, Conference Center Financing,
Certificates of Participation, 5.000%, 04/01/2019 1,500,000 1,297,845
------------------------------------------------------------------------------------------------
South San Francisco, CA, Capital Improvements Financing
Authority, South San Francisco Conference Center, Revenue,
6.125%, 09/01/2018 3,925,000 3,735,462
------------------------------------------------------------------------------------------------
South Tahoe, CA, Joint Powers Financing Authority, Series A,
7.300%, 10/01/2007 10,000,000 9,895,100
------------------------------------------------------------------------------------------------
Southern California Home Finance Authority, Single Family
Mortgage Revenue, Series A, 6.750%, 09/01/2022 600,000 609,216
------------------------------------------------------------------------------------------------
Southern California Home Finance Authority, Single Family
Mortgage Revenue, Series A, 7.350%, 09/01/2024 415,000 425,736
------------------------------------------------------------------------------------------------
Stockton, CA, Community Facilities District, Brookside
Estates, Special Tax Revenue, 5.950%, 08/01/2010 1,000,000 987,060
------------------------------------------------------------------------------------------------
Stockton, CA, Community Facilities District, Brookside
Estates, Special Tax Revenue, 6.200%, 08/01/2015 2,000,000 1,942,540
------------------------------------------------------------------------------------------------
Sunnyvale, CA, Financing Authority, Wastewater, Refuse and
Sludge, Utilities Revenue, 6.300%, 10/01/2017 4,000,000 4,078,400
------------------------------------------------------------------------------------------------
Tahoe Truckee, CA, Unified School District, General
Obligation, Series A, zero coupon, 08/01/2022 3,600,000 926,676
------------------------------------------------------------------------------------------------
Tahoe Truckee, CA, Unified School District, General
Obligation, Series A, 5.750%, 08/01/2020 5,000,000 4,973,000
------------------------------------------------------------------------------------------------
</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>
Temple City, CA, Unified School District, General
Obligation, Series A, zero coupon, 08/01/2015 $ 1,250,000 $ 514,863
------------------------------------------------------------------------------------------------
Torrance, CA, Torrance Memorial Hospital Medical Center,
Revenue, 6.750%, 01/01/2012 5,000,000 5,007,600
------------------------------------------------------------------------------------------------
Washington Township, CA, Health Care, Revenue Bond, 5.125%,
07/01/2023 1,500,000 1,235,970
------------------------------------------------------------------------------------------------
Westminster, CA, Redevelopment Agency, Tax Allocation
Revenue, Community Development, Project #1, Series A,
7.300%, 08/01/2021 2,500,000 2,653,000
------------------------------------------------------------------------------------------------
Yosemite, CA, Community College District, Certificate of
Participation, 7.750%, 07/01/2011 1,470,000 1,542,192
------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth, General Obligation, 6.500%,
07/01/2015 4,000,000 4,417,040
------------------------------------------------------------------------------------------------
(c)Puerto Rico Commonwealth, Inverse Floater, 10.40%,
07/01/2014 3,500,000 3,875,480
------------------------------------------------------------------------------------------------
Puerto Rico Municipal Financial Agency, General Obligation,
Series A, 5.875%, 08/01/2014 5,000,000 5,163,650
------------------------------------------------------------------------------------------------
Puerto Rico Municipal Finance Agency, Series A, 6.000%,
08/01/2015 2,000,000 2,081,300
------------------------------------------------------------------------------------------------
(c)Puerto Rico Commonwealth, Highway and Transportation
Authority Revenue, 10.400%, 07/01/2018 3,000,000 3,240,840
------------------------------------------------------------------------------------------------
(c)Puerto Rico Commonwealth Highway and Transportation
Authority, Highway Revenue, Inverse Floater, 8.65%,
08/11/2010 3,610,000 4,503,042
------------------------------------------------------------------------------------------------
(c)Puerto Rico Commonwealth Highway and Transportation
Authority, Highway Revenue, Inverse Floater, 8.65%,
03/09/2012 2,825,000 3,262,762
------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway and Transportation
Authority, Transportation Revenue, Series A,
5.500%, 07/01/2014 5,000,000 5,026,750
------------------------------------------------------------------------------------------------
Virgin Islands Public Finance Authority, Revenue, Series A,
6.500%, 10/01/2024 5,000,000 4,960,200
------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100%
(Cost $767,239,056) (a) $770,000,010
------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost for federal income tax purpose was $767,239,056. At February 29,
2000, net unrealized appreciation for all securities based on tax cost was
$2,760,954. This consists of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$19,996,452 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over market value of $17,235,498.
(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) 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 a similar maturity. These securities are shown at their rate as
of February 29, 2000.
20 The accompanying notes are an integral part of the financial statements.
<PAGE> 21
PORTFOLIO STATISTICS
KEMPER FLORIDA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION ON 2/29/00 ON 8/31/99
<S> <C> <C> <C> <C>
REVENUE BONDS 75% 79%
................................................................................
GENERAL OBLIGATION BONDS 16 8
................................................................................
U.S. GOVERNMENT SECURED 8 13
................................................................................
CASH AND EQUIVALENTS 1 --
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
QUALITY ON 2/29/00 ON 8/31/99
<S> <C> <C> <C> <C>
AAA 68% 69%
................................................................................
AA 13 11
................................................................................
A 8 8
................................................................................
BBB 3 2
................................................................................
NOT RATED 8 10
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
YEARS TO MATURITY ON 2/29/00 ON 8/31/99
<S> <C> <C> <C> <C>
1-10 YEARS 34% 41%
................................................................................
11-20 YEARS 50 52
................................................................................
21+ YEARS 16 7
- --------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
ON 2/29/00 ON 8/31/99
<S> <C> <C> <C> <C>
AVERAGE MATURITY 14.5 years 13.3 years
................................................................................
AVERAGE DURATION 8.6 years 8.2 years
- --------------------------------------------------------------------------------
</TABLE>
* PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
21
<PAGE> 22
PORTFOLIO OF INVESTMENTS
FLORIDA TAX-FREE INCOME FUND
Portfolio of Investments at February 29, 2000 (unaudited)
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL INVESTMENTS--1.0%
- ------------------------------------------------------------------------------------------------------------------------
(c)Louisiana State Offshore Terminal Port Authority Revenue
Series 1992, Daily Demand Note, 3.750%, 09/01/2008
(Cost $800,000) $ 800,000 $ 800,000
------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS--99.0%
- ------------------------------------------------------------------------------------------------------------------------
Broward County, FL, Airport Systems Revenue, Series E,
5.250%, 10/01/2012 1,000,000 967,320
---------------------------------------------------------------------------------------------------
Broward County, FL, Resource Recovery Waste Energy Company,
Revenue, 7.950%, 12/01/2008 730,000 753,637
---------------------------------------------------------------------------------------------------
Broward County, FL, Resource Recovery Waste Energy Company,
Revenue, 7.950%, 12/01/2008 775,000 800,095
---------------------------------------------------------------------------------------------------
(b)Charlotte County, FL, Utility Revenue, Prerefunded
10/01/2003, 6.750%, 10/01/2013 250,000 269,970
---------------------------------------------------------------------------------------------------
Dade City, FL, Certificate of Participation, Governmental
Leasing Corp., Series C, 9.000%, 04/01/2020 1,025,000 1,059,778
---------------------------------------------------------------------------------------------------
Dade County, FL, Aviation Revenue, Miami International
Airport, Series B, 5.125%, 10/01/2014 1,000,000 931,780
---------------------------------------------------------------------------------------------------
Dade County, FL, Water and Sewer Revenue, 6.250%, 10/01/2011 500,000 539,585
---------------------------------------------------------------------------------------------------
Dade County, FL, Aviation Revenue, Series B, 6.550%,
10/01/2013 2,000,000 2,104,740
---------------------------------------------------------------------------------------------------
Dade County, FL, Public Service Revenue, 5.000%, 10/01/2023 1,225,000 1,065,138
---------------------------------------------------------------------------------------------------
Dade County, FL, Single Family Mortgage Revenue, Housing
Finance Authority, Series B, 7.250%, 295,000 301,838
---------------------------------------------------------------------------------------------------
District of Columbia General Obligation, Series A, 5.250%,
06/01/2027 750,000 653,318
---------------------------------------------------------------------------------------------------
(b)Dunedin, FL, Hospital Revenue, Mease Health Care,
Prerefunded 11/15/2001, 6.750%, 11/15/2011 750,000 790,943
---------------------------------------------------------------------------------------------------
Duval County, FL, Single Family Mortgage Revenue, Housing
Finance Authority, 7.250%, 07/01/2019 245,000 251,216
---------------------------------------------------------------------------------------------------
Escambia County, FL, Single Family Mortgage Revenue, Housing
Finance Authority, Series A, 6.900%, 04/01/2020 625,000 636,038
---------------------------------------------------------------------------------------------------
(b)Florida Department of Natural Resources, General Services
Revenue, Preservation 2000, Series A, Prerefunded
07/01/2001, 6.750%, 07/01/2013 1,000,000 1,048,690
---------------------------------------------------------------------------------------------------
Florida Housing Finance Agency Revenue, 5.200%, 01/01/2031 2,000,000 1,972,320
---------------------------------------------------------------------------------------------------
Florida Housing Finance Agency GNMA Collateral Home
Ownership Revenue, 7.900%, 03/01/2022 600,000 617,088
---------------------------------------------------------------------------------------------------
Florida State Board of Education, Lottery Revenue, 5.500%,
07/01/2018 1,000,000 970,160
---------------------------------------------------------------------------------------------------
Fort Pierce, FL, Utilities, Revenue, zero coupon, 10/01/2018 2,000,000 658,680
---------------------------------------------------------------------------------------------------
Gainesville, FL, Utility System Revenue Series B, 6.500%,
10/01/2010 1,370,000 1,511,781
---------------------------------------------------------------------------------------------------
Greater Orlando Aviation Authority, FL, Airport Facilities
Revenue, 5.125%, 10/01/2017 1,000,000 902,150
---------------------------------------------------------------------------------------------------
Greater Orlando Aviation Authority, FL, Airport Facilities
Revenue, 5.750%, 10/01/2011 1,690,000 1,717,784
---------------------------------------------------------------------------------------------------
Hillsborough County, FL, Industrial Development Authority
Revenue, University Community Hospital Project, 5.625%,
08/15/2023 2,770,000 2,190,294
---------------------------------------------------------------------------------------------------
</TABLE>
22 The accompanying notes are an integral part of the financial statements.
<PAGE> 23
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Hillsborough County, FL, Utility Revenue, Series A, 7.000%,
08/01/2014 $1,325,000 $ 1,361,862
---------------------------------------------------------------------------------------------------
Hillsborough County, FL, Single Family Mortgage Revenue,
Housing Finance Authority, Series A, 7.300%, 04/01/2022 245,000 250,111
---------------------------------------------------------------------------------------------------
Hillsborough County, FL, Industrial Development Revenue,
University Community Hospital, 6.500%, 08/15/2019 1,000,000 1,082,820
---------------------------------------------------------------------------------------------------
Jacksonville, FL, Electric Authority Revenue, Series 7, zero
coupon, 10/01/2011 1,140,000 600,062
---------------------------------------------------------------------------------------------------
(b)Jacksonville, FL, Water and Sewer Revenue, Prerefunded
9/30/2008, 5.000%, 10/01/2020 1,000,000 975,760
---------------------------------------------------------------------------------------------------
Key West, FL, Utility Board Electricity Revenue, zero
coupon, 10/01/2014 4,975,000 2,149,747
---------------------------------------------------------------------------------------------------
Lakeland, FL, Electricity and Water Revenue, Series A, zero
coupon, 10/01/2010 1,755,000 986,486
---------------------------------------------------------------------------------------------------
Marion County, FL, Hospital District Revenue, 5.625%,
10/01/2019 1,000,000 887,090
---------------------------------------------------------------------------------------------------
Miami Dade County, FL, Revenue, Series A, Zero Coupon,
10/01/2014 2,000,000 850,840
---------------------------------------------------------------------------------------------------
Nassau County, Amelia Island Care Center Project, Revenue,
9.750%, 01/01/2023 975,000 1,057,631
---------------------------------------------------------------------------------------------------
North Miami, FL, Education Facilities Revenue, Johnson &
Wales University Project, Series A, 6.100%, 04/01/2013 1,285,000 1,263,695
---------------------------------------------------------------------------------------------------
North Miami, FL, Education Facilities Revenue, Johnson &
Wales University Project, Series A, 6.125%, 04/01/2020 1,500,000 1,455,270
---------------------------------------------------------------------------------------------------
Orange County, FL, Health Facilities Revenue, 6.250%,
10/01/2016 2,120,000 2,261,574
---------------------------------------------------------------------------------------------------
Orange County, FL, Health Facilities Revenue, 6.250%,
10/01/2018 880,000 936,804
---------------------------------------------------------------------------------------------------
Orange County, FL, Health Facilities Authority Revenue,
Orlando Regional Healthcare, Series A, 6.250%, 10/01/2018 500,000 528,585
---------------------------------------------------------------------------------------------------
Orlando, FL, Capital Improvements, Revenue, Series A,
4.750%, 10/01/2022 1,600,000 1,327,552
---------------------------------------------------------------------------------------------------
Orlando, FL, Utilities Commission Water and Electricity,
Revenue, 6.750%, 10/01/2017 3,000,000 3,349,980
---------------------------------------------------------------------------------------------------
Orlando, FL, Expressway Authority Revenue, 6.500%,
07/01/2012 1,000,000 1,106,150
---------------------------------------------------------------------------------------------------
Orlando, FL, Special Assessment Revenue, Conroy Road
Interchange, Series A, 5.800%, 05/01/2026 1,280,000 1,098,714
---------------------------------------------------------------------------------------------------
Palm Beach County, FL, Solid Waste Authority Revenue, Series
A, zero coupon, 10/01/2013 2,865,000 1,323,458
---------------------------------------------------------------------------------------------------
Palm Beach County, FL, General Obligation, 5.500%,
12/01/2014 1,000,000 1,005,440
---------------------------------------------------------------------------------------------------
Palm Beach County, FL, Criminal Justice Facilities Revenue,
7.200%, 06/01/2015 110,000 128,142
---------------------------------------------------------------------------------------------------
Pensacola, FL, Health Facilities Revenue, Daughters of
Charity National Healthcare, 5.250%, 01/01/2011 2,200,000 2,210,560
---------------------------------------------------------------------------------------------------
Pinellas County, FL, Pollution Control Revenue, Florida
Power Corporation, 7.200%, 12/01/2014 2,000,000 2,094,760
---------------------------------------------------------------------------------------------------
Port St. Lucie, FL, Special Assessment Revenue, Utility
Service Area No. 3 & 4, Series A, 5.000%, 10/01/2013 1,000,000 945,670
---------------------------------------------------------------------------------------------------
St Johns County, FL, Water and Sewer Revenue, Series A, zero
coupon, 06/01/2016 440,000 169,237
---------------------------------------------------------------------------------------------------
(b) St Petersburg, FL, Health Facilities Authority Revenue,
Allegheny Health Systems, Prerefunded 12/01/2003, 6.750%,
12/01/2021 1,000,000 1,064,250
---------------------------------------------------------------------------------------------------
(b) St Petersburg, FL, Health Facilities Authority Revenue,
Allegheny Health Systems, Series A, Prerefunded
12/01/2001, 7.000%, 12/01/2015 500,000 528,460
---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 23
<PAGE> 24
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
State of Florida Board of Education Lottery Revenue, Series
C, 5.125%, 07/01/2015 $2,000,000 $ 1,874,540
---------------------------------------------------------------------------------------------------
State of Florida Board of Education Capital Outlay, General
Obligation, Series A, 7.250%, 06/01/2023 390,000 400,838
---------------------------------------------------------------------------------------------------
(d)Sunrise, FL, Utility System Revenue, Inverse Floating
Rate Bond, 8.425%, 10/01/2018 1,250,000 1,183,225
---------------------------------------------------------------------------------------------------
Tampa Bay, FL, Sports Authority Revenue, Tampa Bay Arena,
5.750%, 10/01/2020 2,075,000 2,071,161
---------------------------------------------------------------------------------------------------
Tampa Bay, FL, Utility Tax Revenue, zero coupon, 10/01/2014 3,165,000 1,367,628
---------------------------------------------------------------------------------------------------
Tampa Bay, FL, Utility Tax Revenue, zero coupon, 10/01/2016 375,000 141,439
---------------------------------------------------------------------------------------------------
Tampa Bay, FL Water Utilities, Revenue 5.625%, 10/01/2013 2,150,000 2,180,982
---------------------------------------------------------------------------------------------------
(b)Volusia County, FL, Health Facilities Authority, Memorial
Health Systems Project, Revenue, Prerefunded 06/01/2000,
8.250%, 06/01/2020 1,940,000 1,996,978
---------------------------------------------------------------------------------------------------
Village Center Community Development Center, Utility
Revenue, 6.000%, 11/01/2018 1,250,000 1,286,825
---------------------------------------------------------------------------------------------------
Westchase, FL, Special Assessment Revenue, Community
Development District, 5.800%, 05/01/2012 2,975,000 3,043,663
---------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth, General Obligation, 6.250%,
07/01/2013 1,850,000 2,004,401
---------------------------------------------------------------------------------------------------
(d)Puerto Rico Commonwealth, General Obligation, 10.400%,
07/02/2016 1,000,000 1,096,780
---------------------------------------------------------------------------------------------------
(d)Puerto Rico Commonwealth, Highway and Transportation
Authority Revenue, 10.40%, 07/01/2008 625,000 675,171
---------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth, General Obligation, zero coupon,
07/01/2017 1,500,000 535,470
---------------------------------------------------------------------------------------------------
(b)Virgin Islands Public Financial Authority Revenue, Series
A, Prerefunded 10/01/2002, 7.250%, 10/01/2018 2,125,000 2,304,605
---------------------------------------------------------------------------------------------------
Virgin Islands Public Finance Authority Revenue, Series A,
6.500%, 10/01/2024 600,000 595,224
------------------------------------------------------------------------------------------------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(Cost $79,680,821) 78,473,983
------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100%
(Cost: $80,480,821)(a) $79,273,983
------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost for federal income tax purpose was $80,480,821. At February 29,
2000, net unrealized depreciation for all securities based on tax cost was
$1,206,838. This consists of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $1,645,557 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$2,852,395.
(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) Floating rate and monthly, weekly, or daily demand notes are securities
whose yields are periodically reset at levels that are generally comparable
to tax-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 a similar maturity. These securities are shown at their rate as
of February 29, 2000.
24 The accompanying notes are an integral part of the financial statements.
<PAGE> 25
PORTFOLIO STATISTICS
KEMPER NEW YORK TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION ON 2/29/00 ON 8/31/99
<S> <C> <C> <C> <C>
REVENUE BONDS 82% 80%
.....................................................................................
GENERAL OBLIGATION BONDS 15 18
.....................................................................................
U.S. GOVERNMENT SECURED 1 2
.....................................................................................
CASH AND EQUIVALENTS 2 --
- -------------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
QUALITY ON 2/29/00 ON 8/31/99
<S> <C> <C> <C> <C>
AAA 60% 56%
.....................................................................................
AA 15 11
.....................................................................................
A 23 17
.....................................................................................
BBB -- 10
.....................................................................................
BB 1 1
.....................................................................................
B -- --
.....................................................................................
NOT RATED 1 5
- -------------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
YEARS TO MATURITY ON 2/29/00 ON 8/31/99
<S> <C> <C> <C> <C>
1-10 YEARS 38% 42%
.....................................................................................
11-20 YEARS 56 48
.....................................................................................
21+ YEARS 6 10
- -------------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
ON 2/29/00 ON 8/31/99
<S> <C> <C> <C> <C>
AVERAGE MATURITY 13.6 years 13.8 years
.....................................................................................
AVERAGE DURATION 8.0 years 7.8 years
- -------------------------------------------------------------------------------------
</TABLE>
* PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
25
<PAGE> 26
PORTFOLIO OF INVESTMENTS
NEW YORK TAX-FREE INCOME FUND
Portfolio of Investments at February 29, 2000 (unaudited)
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL INVESTMENTS--1.8%
- ---------------------------------------------------------------------------------------------------------------------
(c)Long Island, NY, Power Authority New York Electricity,
Revenue, Series 6, Daily Demand Note, 3.750%, 05/01/2033 $ 3,000,000 $ 3,000,000
------------------------------------------------------------------------------------------------
(c)New York State Energy Research and Development Authority,
Pollution Control Revenue, Niagara Mohawk Power Company,
Daily Demand Note, 3.750%, 03/01/2027 1,000,000 1,000,000
------------------------------------------------------------------------------------------------
TOTAL SHORT TERM MUNICIPAL INVESTMENTS
(Cost $4,000,000) 4,000,000
------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS--98.2%
- ---------------------------------------------------------------------------------------------------------------------
(b)Battery Park City Authority, Housing Revenue, Prerefunded
06/01/2005, 8.625%, 06/01/2023 10,000 11,522
------------------------------------------------------------------------------------------------
Long Island Power Authority, Electric System Revenue, Series
A, 5.500%, 12/01/2023 3,500,000 3,195,115
------------------------------------------------------------------------------------------------
Monroe County, NY, General Obligation, 6.000%, 03/01/2018 1,130,000 1,168,499
------------------------------------------------------------------------------------------------
Municipal Assistance Corporation for The City of New York,
5.250%, 07/01/2006 4,200,000 4,239,102
------------------------------------------------------------------------------------------------
Nassau County, NY, Sewer Districts, Series A, 6.000%,
07/01/2012 705,000 739,115
------------------------------------------------------------------------------------------------
Nassau County, NY, Sewer Districts, Series A, 6.000%,
07/01/2013 710,000 740,793
------------------------------------------------------------------------------------------------
New York & New Jersey, Port Authority Special Obligation,
Revenue, Continental/Eastern Project, LaGuardia, 9.125%,
12/01/2015 2,550,000 2,661,002
------------------------------------------------------------------------------------------------
New York City, NY, General Obligation, 7.750%, 03/15/2002 15,000 15,497
------------------------------------------------------------------------------------------------
(b)New York City, NY, General Obligation, Prerefunded
03/15/2000 7.750%, 03/15/2002 50,000 50,829
------------------------------------------------------------------------------------------------
New York City, NY, General Obligation, Series L, 5.625%,
08/01/2007 5,550,000 5,643,906
------------------------------------------------------------------------------------------------
New York City, NY, General Obligation, Series F, zero
coupon, 08/01/2008 6,755,000 4,307,191
------------------------------------------------------------------------------------------------
New York City, NY, General Obligation, Series H, 6.000%,
08/01/2014 2,500,000 2,540,300
------------------------------------------------------------------------------------------------
New York City, NY, General Obligation, Series H, 6.000%,
08/01/2010 3,725,000 3,902,534
------------------------------------------------------------------------------------------------
New York City, NY, General Obligations, Series C, 5.250%,
08/15/2013 3,000,000 2,843,190
------------------------------------------------------------------------------------------------
New York City, NY, Certificate of Participation, City
Transportation Authority, Triborough Bridge, Series A,
5.625%, 01/01/2010 1,000,000 1,023,430
------------------------------------------------------------------------------------------------
New York City, NY, Housing Development Corporation, Series
A, 7.300%, 06/01/2010 8,800,000 9,200,136
------------------------------------------------------------------------------------------------
New York City, NY, Transitional Finance Authority, Revenue
Bond, Series A, 5.750%, 08/15/2011 3,000,000 3,087,480
------------------------------------------------------------------------------------------------
New York City, NY, Transitional Finance Authority, Revenue,
Series A, 5.250%, 11/15/2013 500,000 481,740
------------------------------------------------------------------------------------------------
</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>
New York City, NY, Transitional Finance Authority, Revenue,
Series C, 5.000%, 05/01/2016 $ 2,125,000 $ 1,920,065
------------------------------------------------------------------------------------------------
New York City, NY, General Obligation, Series J, 5.000%,
05/15/2017 2,000,000 1,787,980
------------------------------------------------------------------------------------------------
New York City, NY, City Transitional Financial Authority
Revenue, 6.125%, 11/15/2014 1,000,000 1,044,530
------------------------------------------------------------------------------------------------
New York City, NY, General Obligation, 5.125%, 08/01/2018 3,405,000 3,073,625
------------------------------------------------------------------------------------------------
New York Dormitory Authority, Department of Health, Revenue,
5.750%, 07/01/2007 1,500,000 1,525,440
------------------------------------------------------------------------------------------------
New York Dormitory Authority, Pace University, Revenue,
6.500%, 07/01/2012 500,000 552,595
------------------------------------------------------------------------------------------------
(d)New York Metropolitan Transportation Authority, Inverse
Floating Rate Bond, Series B, 6.236%, 07/01/2011 2,000,000 1,788,640
------------------------------------------------------------------------------------------------
New York Metropolitan Transportation Authority, Revenue,
Series Q, 5.125%, 07/01/2012 5,000,000 4,805,100
------------------------------------------------------------------------------------------------
New York Metropolitan Transportation Authority, Commuter
Facilities Revenue, Series E, 5.000%, 07/01/2015 3,000,000 2,728,290
------------------------------------------------------------------------------------------------
New York Metropolitan Transportation Authority,
Transportation Facilities Revenue, 6.000%, 07/01/2016 7,750,000 7,863,383
------------------------------------------------------------------------------------------------
New York State, General Obligation, Series F, 5.000%,
09/15/2014 2,480,000 2,278,773
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, St. Joseph's Hospital
Health Center, Revenue, 6.000%, 07/01/2009 1,000,000 1,043,100
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, State University
Educational Facilities, Revenue, Series C, 7.375%,
05/15/2010 1,000,000 1,117,420
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, State University
Educational Facilities, Revenue, Series B, 7.500%,
05/15/2011 1,000,000 1,132,120
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Pace University,
Revenue, 6.500%, 07/01/2011 760,000 834,533
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Special Activity School
Districts, Revenue, 5.250%, 07/01/2011 2,545,000 2,499,008
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, St. Vincent's Hospital
and Medical Center, 7.375%, 08/01/2011 2,215,000 2,334,920
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Mental Health Services
Facilities Improvements, Revenue, Series D, 5.000%,
02/15/2012 1,160,000 1,149,456
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, State University
Educational Facilities, Revenue, 5.750%, 5/15/2012 3,000,000 3,077,880
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Special Activities
School Districts, Revenue, 5.250%, 07/01/2012 1,350,000 1,314,644
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Mental Health Service
Facilities Improvement, Revenue, Series D, 5.000%,
08/15/2012 1,160,000 1,149,154
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Revenue Bond, 5.750%,
08/15/2012 2,000,000 2,034,240
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, State University
Educational Facilities, Revenue, 5.000%, 05/15/2013 1,845,000 1,689,983
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, City University System,
Revenue, Series A, 5.750%, 07/01/2013 1,000,000 1,028,570
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, City University,
Revenue, 5.750%, 07/01/2013 4,100,000 4,217,137
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Special Activities
School Districts, Revenue, 5.250%, 07/01/2013 370,000 354,730
------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 27
<PAGE> 28
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
New York State Dormitory Authority, Office Facilities, Lease
Revenue, 5.250%, 04/01/2014 $ 745,000 $ 706,908
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Upstate Community
Colleges, Revenue Bond, Series A, 5.000%, 07/01/2014 1,500,000 1,380,690
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Westchester County Court
Facilities, Lease Revenue, 5.250%, 08/01/2014 2,555,000 2,434,404
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Fordham University,
Revenue, 7.200%, 07/01/2015 790,000 812,420
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Special Activities
School Districts, Revenue, 5.250%, 07/01/2015 1,000,000 937,300
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, City University System,
Revenue, 5.000%, 07/01/2016 2,000,000 1,794,340
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Colgate University,
Revenue, 6.000%, 07/01/2016 900,000 937,638
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Judicial Facilities,
Revenue, 7.375%, 07/01/2016 120,000 139,091
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Upstate Community
Colleges, Revenue, Series A, 5.875%, 07/01/2016 3,555,000 3,503,346
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, State University
Educational Facilities, Revenue, 5.875%, 05/15/2017 2,325,000 2,380,568
------------------------------------------------------------------------------------------------
(b)New York State Dormitory Authority, Revenue, State
University Educational Facilities, Revenue, Prerefunded
5/15/2002, 7.250%, 05/15/2018 155,000 166,059
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, City University System,
Revenue, Series A, 5.750%, 07/01/2018 2,000,000 2,007,720
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, City University,
Revenue, 5.750%, 07/01/2018 2,250,000 2,258,685
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Wyndham Schools,
Revenue, Series C, 5.000%, 07/01/2018 1,500,000 1,320,000
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Cornell University,
Revenue, Series A, 7.375%, 07/01/2020 2,000,000 2,058,240
------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Colgate University,
Revenue, 6.000%, 07/01/2021 850,000 871,106
------------------------------------------------------------------------------------------------
New York State Dormitory Authority Revenue, City University
Revenue, Series D, 7.000%, 07/01/2009 2,200,000 2,380,818
------------------------------------------------------------------------------------------------
New York State Energy Research and Development Authority,
Lilco Project, Revenue, Series A, 5.150%, 03/01/2016 2,500,000 2,236,650
------------------------------------------------------------------------------------------------
New York State Environmental Facilities Corporation, State
Water Pollution Control, Revolving Fund Revenue, Series A,
7.250%, 06/15/2010 100,000 105,132
------------------------------------------------------------------------------------------------
(b)New York State Environmental Facilities Corporation,
State Water Pollution, Revolving Fund Revenue, Series A,
Prerefunded 06/15/2001, 7.250%, 06/15/2010 900,000 949,158
------------------------------------------------------------------------------------------------
New York State Environmental Facilities Corporation,
RiverBank State Park, Special Obligation Revenue, 6.250%,
04/01/2012 3,695,000 3,982,914
------------------------------------------------------------------------------------------------
New York State Environmental Facilities Corporation, State
Water Pollution Control, Revolving Fund Revenue, Series E,
6.500%, 06/15/2014 90,000 93,554
------------------------------------------------------------------------------------------------
New York State Housing Finance Agency, West-H.E.L.P.
Housing, Revenue, Series A, 7.550%, 11/01/2002 1,500,000 1,503,375
------------------------------------------------------------------------------------------------
</TABLE>
28 The accompanying notes are an integral part of the financial statements.
<PAGE> 29
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
New York State Housing Finance Agency, State University
Construction, Revenue, Series A, 8.000%, 05/01/2011 $ 200,000 $ 238,688
------------------------------------------------------------------------------------------------
New York State Housing Finance Agency, Multi-Family Mortgage
Housing, Revenue, Series A, 6.950%, 08/15/2012 1,500,000 1,573,155
------------------------------------------------------------------------------------------------
New York State Housing Finance Agency, Service Contract
Obligation, Revenue, Series A, 7.250%, 09/15/2012 185,000 195,980
------------------------------------------------------------------------------------------------
New York State Housing Finance Agency, Service Contract
Obligation, Revenue, Series C, 7.300%, 09/15/2012 75,000 78,955
------------------------------------------------------------------------------------------------
New York State Local Assistance Corporation, Capital
Appreciation, Series B, zero coupon, 04/01/2009 5,980,000 3,666,577
------------------------------------------------------------------------------------------------
New York State Medical Care Facilities Finance Agency,
Revenue, 7.875%, 08/15/2015 380,000 384,773
------------------------------------------------------------------------------------------------
New York State Medical Care Facilities Finance Agency,
Mental Health Service Facilities Improvement, Revenue,
Series D, 7.400%, 02/15/2018 300,000 317,946
------------------------------------------------------------------------------------------------
(b)New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities Improvement Revenue,
Series D, Prefunded 2/15/2002, 7.400%, 02/15/2018 755,000 805,872
------------------------------------------------------------------------------------------------
New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities Improvement, Revenue,
7.700%, 02/15/2018 55,000 55,128
------------------------------------------------------------------------------------------------
(b)New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities Improvement, Revenue,
Prerefunded 02/15/2000, 7.750%, 02/15/2020 140,000 143,137
------------------------------------------------------------------------------------------------
New York State Mortgage Agency, Homeownership Mortgage
Revenue, Series 56, 6.450%, 10/01/2021 4,000,000 4,058,720
------------------------------------------------------------------------------------------------
New York State Mortgage Agency, Homeownership Mortgage
Revenue, Series HH, 7.850%, 04/01/2022 700,000 714,868
------------------------------------------------------------------------------------------------
New York State Thruway Authority, Local Highway and Bridges,
Service Contract Revenue, 6.000%, 04/01/2011 5,000,000 5,128,100
------------------------------------------------------------------------------------------------
New York State Thruway Authority, Local Highway and Bridges,
Service Contract Revenue, 5.250%, 04/01/2014 2,000,000 1,907,000
------------------------------------------------------------------------------------------------
New York State Thruway Authority, Highway and Bridges Trust
Fund, Revenue, Series A, 5.125%, 04/01/2015 1,500,000 1,391,190
------------------------------------------------------------------------------------------------
New York State Urban Development Corporation, Community
Enhancement Facilities, Revenue, 5.125%, 04/01/2014 1,000,000 935,110
------------------------------------------------------------------------------------------------
New York State Urban Development Corporation, Syracuse
University Center for Science and Technology, Revenue,
5.500%, 01/01/2015 4,500,000 4,364,325
------------------------------------------------------------------------------------------------
New York State Urban Development Corporation, State
Facilities, Revenue, 5.600%, 04/01/2015 2,260,000 2,213,715
------------------------------------------------------------------------------------------------
New York State Urban Development, Syracuse University Center
for Science and Technology, Revenue, 5.500%, 01/01/2017 4,890,000 4,700,219
------------------------------------------------------------------------------------------------
New York State Urban Development Corporation, Correctional
Facilities Service Contract Revenue, Series B, 5.250%,
01/01/2013 1,700,000 1,637,610
------------------------------------------------------------------------------------------------
New York State, General Obligation, Series 1998 F, 5.250%,
09/15/2013 1,275,000 1,225,390
------------------------------------------------------------------------------------------------
New York Triborough Bridge and Tunnel Authority, General
Purpose Revenue, Series Y, 6.125%, 01/01/2021 7,205,000 7,489,814
------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 29
<PAGE> 30
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Niagara Falls, NY, Water Treatment Plant, General
Obligation, 7.250%, 11/01/2011 $ 215,000 $ 247,272
------------------------------------------------------------------------------------------------
Niagara Falls, NY, Water Treatment Plant, General
Obligation, 7.000%, 11/01/2012 1,000,000 1,083,160
------------------------------------------------------------------------------------------------
Niagara Falls, NY, Bridge Commission Toll Revenue, 5.250%,
10/01/2015 10,720,000 10,305,779
------------------------------------------------------------------------------------------------
Orange County, NY, Industrial Development Agency, The Glen
Arden Project, 5.625%, 01/01/2018 1,000,000 814,580
------------------------------------------------------------------------------------------------
Orange County, NY, Industrial Development Agency, The Glen
Arden Project, 5.700%, 01/01/2028 2,500,000 1,964,950
------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey, JFK International
Airport Terminal 6, Special Obligation Revenue, 6.250%,
12/01/2015 8,000,000 8,543,120
------------------------------------------------------------------------------------------------
Ulster County, NY, Resource Recovery Agency, Solid Waste
System Revenue, 6.000%, 03/01/2014 3,000,000 3,003,180
------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth, Public Improvements, General
Obligation, zero coupon, 07/01/2008 1,000,000 642,300
------------------------------------------------------------------------------------------------
(d)Puerto Rico Commonwealth, Highway and Transportation
Authority Revenue, 7.149%, 07/01/2018 1,375,000 1,485,385
------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority, Power Revenue, 6.000%,
07/01/2012 4,020,000 4,274,024
------------------------------------------------------------------------------------------------
Puerto Rico Municipal Finance Agency, General Obligation,
Series B, 5.750%, 08/01/2012 3,000,000 3,107,911
------------------------------------------------------------------------------------------------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(Cost 217,658,647) 213,854,746
------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100%
(Cost: $221,658,647)(a) $217,854,746
------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost for federal income tax purpose was $221,658,647. At February 29,
2000, net unrealized depreciation for all securities based on tax cost was
$3,803,901. This consists of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $2,917,530 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$6,721,431.
(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) Floating rate and monthly, weekly, or daily demand notes are securities
whose yields are periodically reset at levels that are generally comparable
to tax-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 a similar maturity. These securities are shown at their rate as
of February 29, 2000.
30 The accompanying notes are an integral part of the financial statements.
<PAGE> 31
PORTFOLIO STATISTICS
KEMPER OHIO TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION ON 2/29/00 ON 8/31/99
<S> <C> <C> <C> <C>
GENERAL OBLIGATION BONDS 35% 34%
.....................................................................................
REVENUE BONDS 45 49
.....................................................................................
U.S. GOVERNMENT SECURED 18 17
.....................................................................................
CASH AND EQUIVALENTS 2 --
- -------------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
QUALITY ON 2/29/00 ON 8/31/99
<S> <C> <C> <C> <C>
AAA 66% 67%
.....................................................................................
AA 13 13
.....................................................................................
A 3 3
.....................................................................................
BBB 7 6
.....................................................................................
BB 3 3
.....................................................................................
NOT RATED 8 8
- -------------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
YEARS TO MATURITY ON 2/29/00 ON 8/31/99
<S> <C> <C> <C> <C>
1-10 YEARS 54% 64%
.....................................................................................
11-20 YEARS 40 32
.....................................................................................
21+ YEARS 6 4
- -------------------------------------------------------------------------------------
100% 100%
</TABLE>
[PIE CHART] [PIE CHART]
<TABLE>
<CAPTION>
ON 2/29/00 ON 8/31/99
<S> <C> <C> <C> <C>
AVERAGE MATURITY 12.5 years 12.2 years
.....................................................................................
AVERAGE DURATION 7.1 years 6.7 years
- -------------------------------------------------------------------------------------
</TABLE>
* PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE.
31
<PAGE> 32
PORTFOLIO OF INVESTMENTS
OHIO TAX-FREE INCOME FUND
Portfolio of Investments at February 29, 2000 (unaudited)
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL INVESTMENTS--1.3%
- -----------------------------------------------------------------------------------------------------------------------
(c)Ohio Water Development Authority, Environmental Mead
Corporation Series 1986 B, Daily Demand Note, 3.75%,
11/01/2015 (Cost: $500,000) $ 500,000 $ 500,000
- -----------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS--98.7%
- -----------------------------------------------------------------------------------------------------------------------
Akron, OH, Sewer System, Revenue, 5.9%, 12/01/2011 385,000 398,433
--------------------------------------------------------------------------------------------------
Athens County, OH, Economic Development, Revenue, Ohio
Athens Inc. Project, 6.25%, 11/01/2011 500,000 477,835
--------------------------------------------------------------------------------------------------
Avon, OH, Local School District, General Obligation, 6.500%,
12/01/2015 940,000 1,033,398
--------------------------------------------------------------------------------------------------
(b)Batavia, OH, Local School District, General Obligation
Prerefunded 12/01/2005, 7.00%, 12/01/2014 500,000 557,885
--------------------------------------------------------------------------------------------------
Beavercreek, OH, Local School District, General Obligation,
Series 1996, 6.6%, 12/01/2015 500,000 554,890
--------------------------------------------------------------------------------------------------
Big Walnut, OH, Local School District, General Obligation,
zero coupon, 12/01/2012 420,000 203,171
--------------------------------------------------------------------------------------------------
(b)Clermont County, OH, Sewer System, Revenue Prerefunded
12/01/2000, 7.2%, 12/01/2005 500,000 521,240
--------------------------------------------------------------------------------------------------
Cleveland, OH, Cleveland Stadium, Revenue Bond,
zero coupon, 12/01/2008 825,000 502,268
--------------------------------------------------------------------------------------------------
Cleveland, OH, Cleveland Stadium, Revenue Bond
zero coupon, 12/01/2012 815,000 391,575
--------------------------------------------------------------------------------------------------
Cleveland, OH, Cleveland Stadium, Revenue, zero coupon,
12/01/2020 820,000 227,673
--------------------------------------------------------------------------------------------------
(b)Cleveland, OH, Waterworks, Revenue, Prerefunded
01/01/2002, 6.25%, 01/01/2015 615,000 643,130
--------------------------------------------------------------------------------------------------
Cleveland, OH, Waterworks Revenue, 6.25%, 01/01/2015 25,000 25,791
--------------------------------------------------------------------------------------------------
Cleveland, OH, Public Power System Revenue, 1st Mortgage,
7.00%, 11/15/2017 750,000 791,325
--------------------------------------------------------------------------------------------------
(b)Cleveland, OH, Public Power System, Revenue 1st Mortgage,
Prerefunded 11/15/2004, 7.00%, 11/15/2024 600,000 661,128
--------------------------------------------------------------------------------------------------
Cleveland-Cuyahoga County, OH, Port Development, Revenue,
C&P Docks Project, 6%, 03/01/2007 485,000 467,307
--------------------------------------------------------------------------------------------------
Columbus, OH, Municipal Airport Authority, Revenue, 6.00%,
01/01/2014 250,000 252,855
--------------------------------------------------------------------------------------------------
(b)Crawford County, OH, General Obligation, Prerefunded
12/01/2004, 6.75%, 12/01/2019 700,000 765,646
--------------------------------------------------------------------------------------------------
Cuyahoga County, OH, General Obligation, 5.65%, 05/15/2018 500,000 495,855
--------------------------------------------------------------------------------------------------
Cuyahoga County, OH, Multifamily Housing, Revenue, 6.5%,
10/20/2020 1,000,000 1,019,160
--------------------------------------------------------------------------------------------------
(b)Cuyahoga County, OH, Hospital Revenue, Meridia Health
System Prerefunded 8/15/2005, 6.25%, 08/15/2014 950,000 1,018,505
--------------------------------------------------------------------------------------------------
Dublin, OH, City School District, General Obligation,
zero coupon, 12/01/2010 500,000 274,895
--------------------------------------------------------------------------------------------------
Dublin, OH, City School District, General Obligation
zero coupon, 12/01/2011 1,095,000 570,101
--------------------------------------------------------------------------------------------------
</TABLE>
32 The accompanying notes are an integral part of the financial statements.
<PAGE> 33
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Edon Township, OH, Local School District, General
Obligation, 6.00%, 12/01/2019 $ 475,000 $ 486,034
--------------------------------------------------------------------------------------------------
Fayette County, OH, Rattlesnake Improvement Area General
Obligation, 5.9% 12/01/2013 145,000 148,002
--------------------------------------------------------------------------------------------------
Finneytown, OH, Local School District General Obligation,
6.2%, 12/01/2017 320,000 339,347
--------------------------------------------------------------------------------------------------
Franklin, OH, Muskingum County Local School District,
General Obligation, 6.5%, 12/01/2013 500,000 551,320
--------------------------------------------------------------------------------------------------
Green Springs, OH, Health Care, St Francis Health Care
Center Project, Revenue, Series A, 7.00%, 05/15/2014 400,000 348,976
--------------------------------------------------------------------------------------------------
Highland Heights, OH, General Obligation, 6.15%, 12/01/2012 145,000 150,304
--------------------------------------------------------------------------------------------------
(b)Lakeview, OH, Local School District, General Obligation,
Prerefunded 12/01/2004, 6.9%, 12/01/2014 700,000 770,049
--------------------------------------------------------------------------------------------------
Lakota, OH, Local School District, General Obligation,
7.00%, 12/01/2008 500,000 563,540
--------------------------------------------------------------------------------------------------
Liberty, OH, Local School District, General Obligation,
zero coupon, 12/01/2011 250,000 130,160
--------------------------------------------------------------------------------------------------
Liberty, OH, Local School District, General Obligation
zero coupon, 12/01/2012 255,000 124,353
--------------------------------------------------------------------------------------------------
Liberty, OH, Local School District, General Obligation,
zero coupon, 12/01/2014 570,000 242,210
--------------------------------------------------------------------------------------------------
Lucas County, OH, Toledo Port Authority Development, Revenue
Bond, Northwest Ohio Bond Fund, Series A, 5.4%, 05/15/2019 500,000 423,835
--------------------------------------------------------------------------------------------------
Lucas County, OH, General Obligation, 6.05%, 12/01/2013 130,000 133,497
--------------------------------------------------------------------------------------------------
Lucas County, OH, General Obligation, 6.5%, 12/01/2016 250,000 265,503
--------------------------------------------------------------------------------------------------
Marion County, OH, Health Care Facilities, United Church
Homes Project, Revenue, 6.3%, 11/15/2010 280,000 263,712
--------------------------------------------------------------------------------------------------
Marion County, OH, Health Care Facilities, United Church
Homes Project, Revenue, 6.375%, 11/15/2015 400,000 358,788
--------------------------------------------------------------------------------------------------
Medina, OH, City School District, General Obligation
zero coupon, 12/01/2006 840,000 584,917
--------------------------------------------------------------------------------------------------
Medina, OH, City School District, General Obligation
zero coupon, 12/01/2010 1,045,000 579,358
--------------------------------------------------------------------------------------------------
Napoleon, OH, Health Care Facility, Lutheran Orphans' and
Old Folks' Home Society, Revenue, 6.875%, 08/01/2023 450,000 467,033
--------------------------------------------------------------------------------------------------
(b)Northeast Ohio Regional Sewer District, Wastewater
Revenue, Prerefunded 11/15/2001, 6.5%, 11/15/2016 300,000 312,555
--------------------------------------------------------------------------------------------------
Ohio Gateway Economic Development Corp., Revenue, Cuyahoga
County Annual Gateway, 7.5%, 09/01/2005 1,000,000 1,051,300
--------------------------------------------------------------------------------------------------
Ohio Higher Education Facility Commission, Revenue,
University of Findlay Project, 6.125%, 09/01/2016 400,000 390,476
--------------------------------------------------------------------------------------------------
(b)Ohio Housing Finance Agency, GNMA Single Family Mortgage
Revenue, Prerefunded 01/15/2013 zero coupon, 01/15/2015 1,000,000 388,690
--------------------------------------------------------------------------------------------------
Ohio Housing Finance Agency, Multifamily Housing, Westlake
Apartments Project, Revenue, 5.85%, 12/01/2016 500,000 488,475
--------------------------------------------------------------------------------------------------
Ohio Housing Finance Agency, GNMA Single Family Mortgage
Revenue, 7.85%, 09/01/2021 150,000 154,140
--------------------------------------------------------------------------------------------------
Ohio Housing Finance Agency Mortgage, Residential B-2,
Revenue, 6.1%, 09/01/2028 250,000 241,495
--------------------------------------------------------------------------------------------------
</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>
Ohio State Building Authority, Administrative Building Funds
Project Revenue, 6.3%, 10/01/2011 $ 140,000 $ 147,700
--------------------------------------------------------------------------------------------------
Ohio State Building Authority, Adult Correctional Building
Fund, Revenue, 6.125%, 10/01/2012 310,000 318,221
--------------------------------------------------------------------------------------------------
(b)Ohio State Building Authority, Juvenile Correctional
Building Authority, Prerefunded 10/01/2004, 6.6%,
10/01/2014 200,000 216,798
--------------------------------------------------------------------------------------------------
(b)Ohio State Building Authority, Revenue, Prerefunded
06/01/2001, 6.25%, 06/01/2011 215,000 223,944
--------------------------------------------------------------------------------------------------
Ohio State Higher Education Facility, Dominican College,
Revenue, 6.625%, 12/01/2014 600,000 611,772
--------------------------------------------------------------------------------------------------
Ohio State Higher Education Facility, University of Dayton,
Revenue, 6.6%, 12/01/2017 430,000 459,094
--------------------------------------------------------------------------------------------------
Ohio State Higher Education Facility, Xavier University,
Revenue, 6.00%, 05/15/2011 240,000 250,054
--------------------------------------------------------------------------------------------------
Ohio State University, General Receipts, 6.00%, 12/01/2017 560,000 573,468
--------------------------------------------------------------------------------------------------
Ohio State Water Development Authority, Revenue, Bay Shore
Project, Series A, 5.875%, 09/01/2020 200,000 163,016
--------------------------------------------------------------------------------------------------
Ohio State Water Development Authority, Pollution Control,
Revenue, 6.1%, 08/01/2020 1,000,000 891,490
--------------------------------------------------------------------------------------------------
Olentangy, OH, Local School District, General Obligation,
5.85%, 12/01/2007 400,000 421,012
--------------------------------------------------------------------------------------------------
(b)Olentangy, OH, Local School District, General Obligation
Prerefunded 12/01/2001, 6.35%, 12/01/2017 150,000 157,383
--------------------------------------------------------------------------------------------------
(b)Olmstead Falls, OH, City School District, General
Obligation, Prerefunded 12/15/2004, 6.85%, 12/15/2020 250,000 274,175
--------------------------------------------------------------------------------------------------
Puerto Rico, Municipal Finance Agency Revenue, 6.00%,
07/01/2014 250,000 266,025
--------------------------------------------------------------------------------------------------
Puerto Rico, Ports Authority, American Airlines, Inc.,
Project, Revenue, 6.25%, 06/01/2026 360,000 346,939
--------------------------------------------------------------------------------------------------
(d)Puerto Rico, Highway and Transportation Authority,
Inverse Floater, 8.262%, 07/01/2016 375,000 431,273
--------------------------------------------------------------------------------------------------
Sandusky County, OH, General Obligation, 6.2%, 12/01/2013 500,000 521,335
--------------------------------------------------------------------------------------------------
South Euclid-Lyndhurst, OH, City School District, General
Obligation, 6.4%, 12/01/2018 535,000 558,155
--------------------------------------------------------------------------------------------------
Springboro, OH, Community City School District, School
Improvement, General Obligation, 6%, 12/01/2011 500,000 531,410
--------------------------------------------------------------------------------------------------
Springdale, OH, Hospital Facilities Revenue, 6.00%,
11/01/2018 750,000 663,885
--------------------------------------------------------------------------------------------------
Strongsville, OH, General Obligation, 6.7%, 12/01/2011 500,000 546,285
--------------------------------------------------------------------------------------------------
Toledo, OH, General Obligation, 6.1%, 12/01/2014 250,000 257,420
--------------------------------------------------------------------------------------------------
Toledo, OH, General Obligation, 6.35%, 12/01/2025 1,000,000 1,018,430
--------------------------------------------------------------------------------------------------
Trumbull County, OH, Sewer Improvement, General Obligation,
6.2%, 12/01/2014 500,000 519,905
--------------------------------------------------------------------------------------------------
Tuscarawas Valley, OH, Local School District General
Obligation, 6.6%, 12/01/2015 365,000 400,029
--------------------------------------------------------------------------------------------------
University Cincinnati Ohio General Receipts, Revenue, 5.5%,
06/01/2012 1,280,000 1,288,396
--------------------------------------------------------------------------------------------------
University of Akron, General Receipts, Revenue, 5.75%,
01/01/2013 1,000,000 1,017,260
--------------------------------------------------------------------------------------------------
Wayne, OH, Local School District, General Obligation, 6.45%,
12/01/2011 155,000 170,631
--------------------------------------------------------------------------------------------------
</TABLE>
34 The accompanying notes are an integral part of the financial statements.
<PAGE> 35
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
ISSUER PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Wayne, OH, Local School District, General Obligation, 6.45%,
12/01/2016 $ 200,000 $ 221,350
--------------------------------------------------------------------------------------------------
Willoughby, OH, Industrial Development Revenue, Series A,
6.875%, 07/01/2016 575,000 556,606
--------------------------------------------------------------------------------------------------
Wooster, OH, City School District, General Obligation,
zero coupon, 12/01/2013 930,000 423,569
--------------------------------------------------------------------------------------------------
Youngstown, OH, General Obligation, 6.125%, 12/01/2014 110,000 113,418
--------------------------------------------------------------------------------------------------
Virgin Islands Public Finance Authority, Revenue Bond,
Series A, 6.5%, 10/01/2024 300,000 297,612
--------------------------------------------------------------------------------------------------
(b)Virgin Islands Public Financial Authority Revenue, Series
A, Prerefunded 10/01/2002, 7.25%, 10/01/2018 225,000 244,017
------------------------------------------------------------------------------------------------
TOTAL LONG TERM MUNICIPAL INVESTMENTS
(Cost: $36,919,585) 36,914,212
------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100%
(Cost: $37,419,585)(a) $37,414,212
------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost for federal income tax purpose was $37,419,585. At February 29,
2000, net unrealized depreciation for all securities based on tax cost was
$5,373. This consists of aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over tax cost of
$825,719 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $831,092.
(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) Floating rate and monthly, weekly, or daily demand notes are securities
whose yields are periodically reset at levels that are generally comparable
to tax-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 may exhibit added interest rate sensitivity compared to
other bonds with similar maturity. These securities are shown at their
rates as of February 29, 2000.
The accompanying notes are an integral part of the financial statements. 35
<PAGE> 36
FINANCIAL STATEMENTS
STATEMENT OF ASSETS & LIABILITIES
as of February 29, 2000 (unaudited)
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA NEW YORK OHIO
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value
(cost, see accompanying portfolios of
investments) $770,000,010 79,273,983 217,854,746 37,414,212
- ------------------------------------------------------------------------------------------------------------
Cash -- 134,417 247,401 257,853
- ------------------------------------------------------------------------------------------------------------
Receivable for investments sold 14,300,176 90,000 -- 30,000
- ------------------------------------------------------------------------------------------------------------
Interest receivable 11,268,373 1,383,352 2,818,842 538,529
- ------------------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 13,839,430 3,000 58,819 21,098
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 809,407,989 80,884,752 220,979,808 38,261,692
- ------------------------------------------------------------------------------------------------------------
LIABILITIES
Due to custodian bank 5,670,292 -- -- --
- ------------------------------------------------------------------------------------------------------------
Dividends payable 1,027,532 86,950 237,807 38,520
- ------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed 1,611,698 114,363 113,638 25,823
- ------------------------------------------------------------------------------------------------------------
Accrued management fee 270,565 25,210 79,573 12,255
- ------------------------------------------------------------------------------------------------------------
Other accrued expenses and payables 422,594 94,969 209,517 29,185
- ------------------------------------------------------------------------------------------------------------
Total liabilities 9,002,681 321,492 640,535 105,783
- ------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $800,405,308 80,563,260 220,339,273 38,155,909
- ------------------------------------------------------------------------------------------------------------
NET ASSETS
Net assets consist of:
- ------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on
investments 2,760,954 (1,206,838) (3,803,901) (5,373)
- ------------------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) (18,173,164) (1,847,230) (4,181,795) (570,578)
- ------------------------------------------------------------------------------------------------------------
Paid-in capital 815,817,518 83,617,328 228,324,969 38,731,860
- ------------------------------------------------------------------------------------------------------------
NET ASSETS, AT VALUE $800,405,308 80,563,260 220,339,273 38,155,909
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AND OFFERING PRICE
CLASS A SHARES
Net assets applicable to shares outstanding $760,099,768 73,324,185 204,344,872 24,532,977
- ------------------------------------------------------------------------------------------------------------
Outstanding shares of beneficial interest, $.01
par value, unlimited number of shares
authorized 109,665,921 7,734,949 20,509,933 2,535,214
- ------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per share $6.93 9.48 9.96 9.68
- ------------------------------------------------------------------------------------------------------------
Maximum offering price per share (100/95.50 of
net asset value.) $7.26 9.93 10.43 10.14
- ------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Net assets applicable to shares outstanding $ 32,218,979 6,303,595 12,102,288 11,771,060
- ------------------------------------------------------------------------------------------------------------
Outstanding shares of beneficial interest, $.01
par value, unlimited number of shares
authorized 4,642,353 666,104 1,213,081 1,216,913
- ------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
(subject to contingent deferred sales charge)
per share $6.94 9.46 9.98 9.67
- ------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Net assets applicable to shares outstanding $ 8,086,561 935,480 3,892,113 1,851,872
- ------------------------------------------------------------------------------------------------------------
Outstanding shares of beneficial interest, $.01
par value, unlimited number of shares
authorized 1,174,091 98,810 390,857 191,392
- ------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
(subject to contingent deferred sales charge)
per share $6.89 9.47 9.96 9.68
- ------------------------------------------------------------------------------------------------------------
</TABLE>
36 The accompanying notes are an integral part of the financial statements.
<PAGE> 37
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended February 29, 2000 (unaudited)
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA NEW YORK OHIO
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 24,243,092 2,526,334 6,542,399 1,175,701
- ----------------------------------------------------------------------------------------------------------
Expenses:
Management fee 2,183,644 236,712 635,899 112,582
- ----------------------------------------------------------------------------------------------------------
Services to shareholders 285,710 53,826 107,280 17,802
- ----------------------------------------------------------------------------------------------------------
Custodian fees 20,634 14,478 3,128 1,619
- ----------------------------------------------------------------------------------------------------------
Distribution services fees 144,520 28,629 62,069 52,681
- ----------------------------------------------------------------------------------------------------------
Administrative services fees 911,749 87,568 234,803 46,805
- ----------------------------------------------------------------------------------------------------------
Auditing 75,245 5,902 9,365 2,748
- ----------------------------------------------------------------------------------------------------------
Legal 16,580 1,188 5,964 1,068
- ----------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 13,575 1,181 3,910 2,496
- ----------------------------------------------------------------------------------------------------------
Reports to shareholders 142,102 48,713 51,486 2,773
- ----------------------------------------------------------------------------------------------------------
Registration fees 9,985 10,967 10,431 12,390
- ----------------------------------------------------------------------------------------------------------
Other 36,998 1,823 35,423 1,092
- ----------------------------------------------------------------------------------------------------------
Total expenses, before expense reductions 3,840,742 490,987 1,159,758 254,056
- ----------------------------------------------------------------------------------------------------------
Expense reductions (33,169) (3,674) (9,891) (1,720)
- ----------------------------------------------------------------------------------------------------------
Total expenses, after expense reductions 3,807,573 487,313 1,149,867 252,336
- ----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 20,435,519 2,039,021 5,392,532 923,365
- ----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
- ----------------------------------------------------------------------------------------------------------
Investments (7,663,280) (1,187,230) (3,212,988) (179,213)
- ----------------------------------------------------------------------------------------------------------
Futures -- -- 560,193 --
- ----------------------------------------------------------------------------------------------------------
(7,663,280) (1,187,230) (2,652,795) (179,213)
- ----------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the
period on:
- ----------------------------------------------------------------------------------------------------------
Investments (12,210,492) (1,086,579) (3,275,902) (1,088,371)
- ----------------------------------------------------------------------------------------------------------
Futures -- -- (173,000) --
- ----------------------------------------------------------------------------------------------------------
(12,210,492) (1,086,579) (3,448,902) (1,088,371)
- ----------------------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (19,873,772) (2,273,809) (6,101,697) (1,267,584)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $ 561,747 (234,788) (709,165) (344,219)
- -------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 37
<PAGE> 38
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA
----------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR
FEBRUARY 29, ENDED FEBRUARY 29, ENDED
2000 AUGUST 31, 2000 AUGUST 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 20,435,519 44,834,762 2,039,021 4,649,353
- -------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment
transactions (7,663,280) 3,245,527 (1,187,230) 549,481
- -------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on
investment transactions during the period (12,210,492) (56,399,762) (1,086,579) (7,290,259)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 561,747 (8,319,473) (234,788) (2,091,425)
- -------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A (19,628,722) (43,236,322) (1,884,447) (4,364,442)
- -------------------------------------------------------------------------------------------------------------
Class B (716,047) (1,409,524) (132,611) (250,219)
- -------------------------------------------------------------------------------------------------------------
Class C (90,749) (188,641) (21,962) (34,691)
- -------------------------------------------------------------------------------------------------------------
From net realized gains
Class A -- (17,156,258) -- (2,089,139)
- -------------------------------------------------------------------------------------------------------------
Class B -- (666,246) -- (143,950)
- -------------------------------------------------------------------------------------------------------------
Class C -- (66,451) -- (14,823)
- -------------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 229,838,397 482,647,873 8,499,170 19,230,181
- -------------------------------------------------------------------------------------------------------------
Reinvestment of distributions 11,313,126 37,748,170 965,180 3,575,742
- -------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (316,809,591) (577,687,878) (19,107,390) (28,868,538)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
Fund share transactions (75,658,068) (57,291,835) (9,643,040) (6,062,615)
- -------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (95,531,839) (128,334,750) (11,916,848) (15,051,304)
- -------------------------------------------------------------------------------------------------------------
Net assets at beginning of period 895,937,147 1,024,271,897 92,480,108 107,531,412
- -------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $800,405,308 895,937,147 80,563,260 92,480,108
- -------------------------------------------------------------------------------------------------------------
</TABLE>
38 The accompanying notes are an integral part of the financial statements.
<PAGE> 39
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
NEW YORK OHIO
----------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR
FEBRUARY 29, ENDED FEBRUARY 29, ENDED
2000 AUGUST 31, 2000 AUGUST 31,
(UNAUDITED) 1999 (UNAUDITED) 1999
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 5,392,532 12,234,547 923,365 1,924,432
- -------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment
transactions (2,652,795) 2,961,591 (179,213) (71,882)
- -------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on
investment transactions during the period (3,448,902) (19,291,040) (1,088,371) (2,331,002)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (709,165) (4,094,902) (344,219) (478,452)
- -------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A (5,073,376) (11,599,352) (644,277) (1,432,547)
- -------------------------------------------------------------------------------------------------------------
Class B (246,184) (484,334) (240,286) (449,334)
- -------------------------------------------------------------------------------------------------------------
Class C (72,972) (150,641) (38,802) (42,551)
- -------------------------------------------------------------------------------------------------------------
From net realized gains
Class A -- (6,096,679) -- (128,279)
- -------------------------------------------------------------------------------------------------------------
Class B -- (295,245) -- (49,141)
- -------------------------------------------------------------------------------------------------------------
Class C -- (97,847) -- (4,353)
- -------------------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 9,093,254 15,180,010 2,126,566 8,983,873
- -------------------------------------------------------------------------------------------------------------
Reinvestment of distributions 3,081,402 11,885,439 522,282 1,301,967
- -------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (39,175,300) (35,124,873) (8,089,301) (6,678,846)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
Fund share transactions (27,000,644) (8,059,424) (5,440,453) 3,606,994
- -------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (33,102,341) (30,878,424) (6,708,037) 1,022,337
- -------------------------------------------------------------------------------------------------------------
Net assets at beginning of period 253,441,614 284,320,038 44,863,946 43,841,609
- -------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $220,339,273 253,441,614 38,155,909 44,863,946
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements. 39
<PAGE> 40
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
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 ---------------------------------------------------
CALIFORNIA (UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $7.10 7.65 7.52 7.31 7.35 7.22
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .17 .34 .36 .38 .39 .39
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.17) (.41) .26 .25 .04 .17
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations -- (.07) .62 .63 .43 .56
- -------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.17) (.34) (.36) (.38) (.39) (.39)
- -------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment
transactions -- (.14) (.13) (.04) (.08) (.04)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (.17) (.48) (.49) (.42) (.47) (.43)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.93 7.10 7.65 7.52 7.31 7.35
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) (.04)** (1.07) 8.56 8.78 5.92 8.13
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ thousands) 760,100 854,921 982,113 979,471 1,022,147 1,075,265
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) .89* .82 .78 .79 .78 .74
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) .88* .82 .78 .79 .78 .74
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 4.94* 4.60 4.82 5.08 5.18 5.53
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 52* 62 61 79 100 69
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 ---------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $7.11 7.66 7.52 7.32 7.35 7.22
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .14 .28 .30 .32 .32 .33
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.17) (.41) .27 .24 .05 .17
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.03) (.13) .57 .56 .37 .50
- -------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.14) (.28) (.30) (.32) (.32) (.33)
- -------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment
transactions -- (.14) (.13) (.04) (.08) (.04)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (.14) (.42) (.43) (.36) (.40) (.37)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.94 7.11 7.66 7.52 7.32 7.35
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) (.42)** (1.90) 7.79 7.73 5.16 7.17
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ thousands) 32,219 37,070 35,466 26,930 17,536 11,673
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) 1.68* 1.65 1.63 1.62 1.63 1.60
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) 1.67* 1.65 1.63 1.62 1.63 1.60
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 4.15* 3.75 3.97 4.25 4.33 4.67
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 52* 62 61 79 100 69
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 41
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 ---------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 7.05 7.60 7.50 7.31 7.34 7.22
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .14 .28 .30 .32 .32 .33
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions (.16) (.41) .23 .23 .05 .16
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations (.02) (.13) .53 .55 .37 .49
- -----------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.14) (.28) (.30) (.32) (.32) (.33)
- -----------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.14) (.13) (.04) (.08) (.04)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (.14) (.42) (.43) (.36) (.40) (.37)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 6.89 7.05 7.60 7.50 7.31 7.34
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) (.28)** (1.91) 7.21 7.59 5.15 7.08
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ thousands) 8,087 3,947 6,693 1,506 855 294
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.56* 1.68 1.62 1.60 1.64 1.56
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.54* 1.68 1.62 1.60 1.64 1.56
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 4.28* 3.71 3.98 4.27 4.32 4.71
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 52* 62 61 79 100 69
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 42
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 ---------------------------------------------
FLORIDA (UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $9.72 10.62 10.42 10.21 10.27 10.11
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .22 .47 .49 .51 .52 .53
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.24) (.68) .35 .33 .08 .30
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations (.02) (.21) .84 .84 .60 .83
- --------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.22) (.47) (.49) (.51) (.52) (.53)
- --------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.22) (.15) (.12) (.14) (.14)
- --------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.69) (.64) (.63) (.66) (.67)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.48 9.72 10.62 10.42 10.21 10.27
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) (.19)** (2.13) 8.27 8.37 5.83 8.62
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ thousands) 73,324 84,757 100,431 99,051 105,028 115,313
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) 1.06 * .88 .85 .83 .84 .80
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) 1.06 * .88 .85 .83 .84 .80
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 4.76 * 4.57 4.65 4.92 5.00 5.30
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 33 * 56 70 87 119 96
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 ---------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $9.71 10.60 10.40 10.19 10.26 10.10
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .18 .39 .40 .42 .43 .44
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.25) (.67) .35 .33 .07 .30
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations (.07) (.28) .75 .75 .50 .74
- --------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.18) (.39) (.40) (.42) (.43) (.44)
- --------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.22) (.15) (.12) (.14) (.14)
- --------------------------------------------------------------------------------------------------------------------
Total distributions (.18) (.61) (.55) (.54) (.57) (.58)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.46 9.71 10.60 10.40 10.19 10.26
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) (.67)** (2.85) 7.38 7.48 4.84 7.67
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ thousands) 6,304 6,474 6,379 4,226 2,752 1,941
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) 1.81 * 1.69 1.68 1.65 1.68 1.65
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) 1.81 * 1.69 1.68 1.65 1.68 1.65
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 4.01 * 3.76 3.82 4.10 4.16 4.45
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 33 * 56 70 87 119 96
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 43
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 --------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $9.71 10.60 10.41 10.20 10.26 10.10
- -------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .19 .39 .40 .42 .43 .45
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.24) (.67) .34 .33 .08 .30
- -------------------------------------------------------------------------------------------------------------
Total from investment operations (.05) (.28) .74 .75 .51 .75
- -------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.39) (.40) (.42) (.43) (.45)
- -------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.22) (.15) (.12) (.14) (.14)
- -------------------------------------------------------------------------------------------------------------
Total distributions (.19) (.61) (.55) (.54) (.57) (.59)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.47 9.71 10.60 10.41 10.20 10.26
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) (.56)** (2.84) 7.26 7.49 4.97 7.84
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ thousands) 935 1,249 721 568 325 38
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) 1.79 * 1.68 1.69 1.64 1.64 1.52
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) 1.78 * 1.68 1.69 1.64 1.64 1.52
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 4.04 * 3.76 3.81 4.11 4.20 4.58
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 33 * 56 70 87 119 96
- -------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 44
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 -----------------------------------------------
NEW YORK (UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.22 11.11 10.93 10.66 10.80 10.73
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .23 .49 .53 .56 .56 .58
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.26) (.63) .36 .36 -- .20
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations (.03) (.14) .89 .92 .56 .78
- ----------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.23) (.49) (.53) (.56) (.56) (.58)
- ----------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.26) (.18) (.09) (.14) (.13)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.75) (.71) (.65) (.70) (.71)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.96 10.22 11.11 10.93 10.66 10.80
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) (.29)** (1.52) 8.44 8.77 5.26 7.62
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ thousands) 204,345 235,800 268,155 272,777 294,121 315,385
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) .93* .88 .84 .83 .83 .81
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) .92* .88 .84 .83 .83 .81
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 4.67* 4.49 4.81 5.15 5.15 5.47
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 31* 69 77 92 104 112
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 ----------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.23 11.13 10.94 10.66 10.80 10.73
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .19 .39 .44 .47 .47 .48
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.25) (.64) .37 .37 -- .20
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations (.06) (.25) .81 .84 .47 .68
- ---------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.39) (.44) (.47) (.47) (.48)
- ---------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.26) (.18) (.09) (.14) (.13)
- ---------------------------------------------------------------------------------------------------------------
Total distributions (.19) (.65) (.62) (.56) (.61) (.61)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.98 10.23 11.13 10.94 10.66 10.80
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) (.62)** (2.44) 7.65 7.96 4.36 6.69
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ thousands) 12,102 13,674 12,390 10,184 7,007 3,635
- ---------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) 1.80* 1.73 1.67 1.67 1.69 1.67
- ---------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) 1.79* 1.73 1.67 1.67 1.69 1.67
- ---------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 3.80* 3.64 3.98 4.31 4.29 4.61
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 31* 69 77 92 104 112
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE> 45
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 -------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.21 11.10 10.92 10.65 10.79 10.73
- ------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .19 .40 .44 .47 .47 .48
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.25) (.63) .36 .36 -- .19
- ------------------------------------------------------------------------------------------------------------
Total from investment operations (.06) (.23) .80 .83 .47 .67
- ------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.40) (.44) (.47) (.47) (.48)
- ------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.26) (.18) (.09) (.14) (.13)
- ------------------------------------------------------------------------------------------------------------
Total distributions (.19) (.66) (.66) (.56) (.61) (.61)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.96 10.21 11.10 10.92 10.65 10.79
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) (.60)** (2.33) 7.56 7.87 4.38 6.64
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ thousands) 3,892 3,968 3,775 2,973 1,218 458
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) 1.76* 1.71 1.67 1.65 1.67 1.62
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) 1.75* 1.71 1.67 1.65 1.67 1.62
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 3.84* 3.65 3.98 4.33 4.31 4.66
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 31* 69 77 92 104 112
- ------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE> 46
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 ------------------------------------------
OHIO (UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.97 10.54 10.22 9.93 9.81 9.56
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .23 .46 .47 .47 .48 .50
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.29) (.53) .39 .32 .12 .25
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations (.06) (.07) .86 .79 .60 .75
- ---------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.23) (.46) (.47) (.47) (.48) (.50)
- ---------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.04) (.07) (.03) -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.50) (.54) (.50) (.48) (.50)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.68 9.97 10.54 10.22 9.93 9.81
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) (.73)** (.66) 8.57 8.17 6.16 8.20(B)
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ thousands) 24,533 30,324 31,731 29,931 29,496 26,151
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) .95* .94 .87 .89 .91 .83
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) .94* .94 .87 .89 .91 .63
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 4.75* 4.38 4.51 4.69 4.78 5.07
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 14* 29 15 52 86 90
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 ---------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.97 10.54 10.22 9.93 9.81 9.56
- ----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .19 .38 .38 .39 .39 .44
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.30) (.53) .39 .32 .12 .25
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations (.11) (.15) .77 .71 .51 .69
- ----------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.38) (.38) (.39) (.39) (.44)
- ----------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions -- (.04) (.07) (.03) -- --
- ----------------------------------------------------------------------------------------------------------------
Total distributions (.19) (.42) (.45) (.42) (.39) (.44)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.67 9.97 10.54 10.22 9.93 9.81
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) (1.13)** (1.55) 7.69 7.29 5.30 7.57(B)
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ thousands) 11,771 12,658 11,100 9,147 7,330 5,135
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) 1.76* 1.74 1.69 1.70 1.73 1.75
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) 1.76* 1.74 1.69 1.70 1.73 1.32
- ----------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 3.93* 3.57 3.69 3.88 3.96 4.58
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 14* 29 15 52 86 90
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 47
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS C
SIX MONTHS ENDED Year ended August 31,
FEBRUARY 29, 2000 -------------------------------------
OHIO (UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.97 10.54 10.22 9.93 9.81 9.56
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .19 .37 .38 .39 .39 .44
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions (.29) (.53) .39 .32 .12 .25
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations (.10) (.16) .77 .71 .51 .69
- ------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.37) (.38) (.39) (.39) (.44)
- ------------------------------------------------------------------------------------------------------------------
Net realized gains on investment
transactions. -- (.04) (.07) (.03) -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.19) (.41) (.45) (.42) (.39) (.44)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.68 9.97 10.54 10.22 9.93 9.81
- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (A) (1.12)** (1.48) 7.70 7.32 5.28 7.56(B)
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
Net assets, end of period ($ thousands) 1,852 1,882 1,010 390 274 163
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions
(%) 1.74* 1.77 1.67 1.68 1.74 1.69
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions
(%) 1.73* 1.77 1.67 1.68 1.74 1.27
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (%) 3.96* 3.53 3.71 3.90 3.95 4.63
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 14* 29 15 52 86 90
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Not annualized
(a) Total return does not reflect the effect of sales charges.
(b) Total return would have been lower had certain expenses not been reduced.
47
<PAGE> 48
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. Each share of a Fund has equal
rights with respect to voting subject to class
specific arrangements.
Each Fund's financial statements are prepared in
accordance with generally accepted accounting
principles 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
48
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS
the face value indicated in the futures contract.
Subsequent payments ("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.
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.
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 six months ended February 29, 2000,
investment transactions (excluding short-term
instruments) are as follows (in thousands):
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA NEW YORK OHIO
---------- ------- -------- ----
<S> <C> <C> <C> <C>
Purchases $211,608 14,141 34,317 2,714
Proceeds from sales $268,274 21,637 51,811 5,373
</TABLE>
49
<PAGE> 50
NOTES TO FINANCIAL
STATEMENTS
- --------------------------------------------------------------------------------
3
TRANSACTIONS
WITH AFFILIATES MANAGEMENT AGREEMENT. The Trust has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper). Under the Trust's management
agreement each Fund pays a monthly investment
management fee of 1/12 of the annual rate of .55%
of the first $250 million of average daily net
assets declining to .40% of average daily net
assets in excess of $12.5 billion. Management fees
incurred for the six months ended February 29, 2000
are as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEE EFFECTIVE
IMPOSED ($) RATE (%)
-------------- ---------
<S> <C> <C>
California 2,183,644 .52
Florida 236,712 .55
New York 635,899 .55
Ohio 112,582 .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 six months
ended February 29, 2000 are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
RETAINED BY KDI ($)
---------------------
<S> <C>
California 23,998
Florida 8,874
New York 4,638
Ohio 1,049
</TABLE>
For services under the distribution services
agreement, each Fund pays KDI a fee of .75% of
average daily net assets of Class B and Class C
shares pursuant to separate Rule 12b-1 plans for
the Class B and Class C shares. Pursuant to the
agreement, KDI enters into related selling group
agreements with various firms at various rates for
sales of Class B and Class C shares of each Fund.
In addition, KDI receives any contingent deferred
sales charges (CDSC) from redemptions of Class B
and Class C shares. Distribution fees and CDSC for
the six months ended February 29, 2000 are as
follows:
<TABLE>
<CAPTION>
DISTRIBUTION FEES AND
CDSC RECEIVED BY KDI ($)
------------------------
<S> <C>
California 206,790
Florida 49,147
New York 91,284
Ohio 65,077
</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
50
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS
based on assets of fund accounts the firms service.
Administrative services fees (ASF) paid for the six
months ended February 29, 2000 are as follows:
<TABLE>
<CAPTION>
ASF PAID BY
THE FUND TO ASF PAID BY
KDI ($) KDI TO AFFILIATES ($)
----------- ---------------------
<S> <C> <C>
California 911,749 --
Florida 87,568 --
New York 234,803 3,513
Ohio 46,805 --
</TABLE>
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Funds' transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Trust. Under the agreement,
for the six months ended February 29, 2000, KSvC
received transfer agency fees as follows:
<TABLE>
<CAPTION>
FEES PAID ($)
-------------
<S> <C>
California 205,646
Florida 21,597
New York 67,976
Ohio 36,270
</TABLE>
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Trust are also officers or directors of
Scudder Kemper. For the six months ended February
29, 2000, the Funds made no payments to their
officers and incurred trustees' fees aggregating
$21,162 to independent trustees.
- --------------------------------------------------------------------------------
4
CAPITAL SHARE
TRANSACTIONS The following tables summarize the activity in
capital shares of the Funds:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999
--------------------------- ---------------------------
CALIFORNIA SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 27,259,636 $ 189,606,017 45,978,683 $ 342,246,974
-----------------------------------------------------------------------------------
Class B 504,392 3,517,597 1,639,123 12,318,577
-----------------------------------------------------------------------------------
Class C 5,287,908 36,506,760 17,067,961 127,179,449
-----------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 1,557,446 10,823,671 4,853,940 36,260,336
-----------------------------------------------------------------------------------
Class B 62,486 434,745 177,591 1,327,526
-----------------------------------------------------------------------------------
Class C 7,226 54,710 21,587 160,308
-----------------------------------------------------------------------------------
SHARES REDEEMED
Class A (39,656,366) (276,472,994) (58,929,445) (438,610,942)
-----------------------------------------------------------------------------------
Class B (1,110,404) (7,720,621) (1,112,823) (8,321,482)
-----------------------------------------------------------------------------------
Class C (4,681,755) (32,407,953) (17,410,337) (129,852,581)
-----------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 29,949 208,023 121,234 902,873
-----------------------------------------------------------------------------------
Class B (29,904) (208,023) (121,104) (902,873)
-----------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $ (75,658,068) $ (57,291,835)
-----------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 52
NOTES TO FINANCIAL
STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999
------------------------- -------------------------
FLORIDA SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 723,620 $ 6,905,952 1,524,088 $ 15,773,122
--------------------------------------------------------------------------------
Class B 158,754 1,516,774 232,626 2,416,099
--------------------------------------------------------------------------------
Class C 7,779 74,220 70,061 717,627
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 81,461 908,034 331,344 3,412,968
--------------------------------------------------------------------------------
Class B 5,217 49,583 14,650 150,422
--------------------------------------------------------------------------------
Class C 795 7,563 1,210 12,352
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (1,804,344) (17,181,017) (2,625,052) (26,882,065)
--------------------------------------------------------------------------------
Class B (164,692) (1,558,234) (151,064) (1,553,274)
--------------------------------------------------------------------------------
Class C (38,404) (365,915) (10,572) (109,866)
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 231 2,224 28,736 323,333
--------------------------------------------------------------------------------
Class B (231) (2,224) (31,064) (323,333)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $ (9,643,040) $ (6,062,615)
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999
------------------------- -------------------------
NEW YORK SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 734,571 $ 7,288,118 867,377 $ 9,422,179
--------------------------------------------------------------------------------
Class B 86,064 865,412 392,447 4,258,841
--------------------------------------------------------------------------------
Class C 89,275 889,774 91,939 999,679
--------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 289,038 2,888,302 1,036,895 11,208,920
--------------------------------------------------------------------------------
Class B 14,170 141,786 45,664 493,761
--------------------------------------------------------------------------------
Class C 5,138 51,314 16,929 182,758
--------------------------------------------------------------------------------
SHARES REDEEMED
Class A (3,598,876) (36,016,616) (3,003,371) (32,158,950)
--------------------------------------------------------------------------------
Class B (218,924) (2,189,797) (169,451) (1,828,820)
--------------------------------------------------------------------------------
Class C (92,145) (918,937) (59,603) (637,792)
--------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A 4,944 49,950 46,258 499,311
--------------------------------------------------------------------------------
Class B (4,897) (49,950) (46,187) (499,311)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $(27,000,644) $ (8,059,424)
--------------------------------------------------------------------------------
</TABLE>
52
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999
---------------------- ---------------------
OHIO SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
SHARES SOLD
Class A 105,391 $ 1,035,382 384,038 $4,033,381
-------------------------------------------------------------------------------
Class B 72,722 714,659 358,864 3,737,265
-------------------------------------------------------------------------------
Class C 38,197 376,525 114,690 1,166,432
-------------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
Class A 36,476 356,276 92,021 956,452
-------------------------------------------------------------------------------
Class B 14,509 141,605 29,870 310,168
-------------------------------------------------------------------------------
Class C 2,500 24,401 3,403 35,347
-------------------------------------------------------------------------------
SHARES REDEEMED
Class A (647,669) (6,352,150) (449,227) (4,652,503)
-------------------------------------------------------------------------------
Class B (140,192) (1,366,724) (167,989) (1,724,021)
-------------------------------------------------------------------------------
Class C (38,003) (370,427) (24,696) (255,527)
-------------------------------------------------------------------------------
CONVERSION OF SHARES
Class A -- -- 4,514 46,795
-------------------------------------------------------------------------------
Class B -- -- (4,517) (46,795)
-------------------------------------------------------------------------------
NET INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS $(5,440,453) $3,606,994
-------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
5
EXPENSE OFF-SET
ARRANGEMENTS The Funds have entered into arrangements with their
custodian and transfer agent whereby credits
realized as a result of uninvested cash balances
were to reduce a portion of the Funds' expenses.
During the six months ended February 29, 2000, the
Fund's custodian and transfer agent fees were
reduced as follows:
<TABLE>
<CAPTION>
FEE
REDUCTIONS ($)
--------------
<S> <C>
California 33,169
Florida 3,674
New York 9,891
Ohio 1,720
</TABLE>
- --------------------------------------------------------------------------------
6
LINE OF CREDIT The Funds and several Kemper funds (the
"Participants") share in a $750 million revolving
credit facility 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 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 assets under the
agreement.
53
<PAGE> 54
NOTES
54
<PAGE> 55
NOTES
55
<PAGE> 56
<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 INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
.............................................................................................
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>
TRUSTEES&OFFICERS
[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-3 (04/25/00) 1108450
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
