<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CASH EQUIVALENT FUND
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
CASH EQUIVALENT FUND
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
IMPORTANT NEWS
FOR SHAREHOLDERS
JULY 1995
WHILE WE ENCOURAGE YOU TO READ THE FULL TEXT OF THE ENCLOSED PROXY STATEMENT,
HERE'S A BRIEF OVERVIEW OF MAJOR MATTERS TO BE VOTED UPON.
Q & A QUESTIONS AND ANSWERS
<TABLE>
<S> <C>
Q. WHAT IS HAPPENING?
A. Kemper Corporation -- not your fund -- has agreed to be acquired
by an investor group led by Zurich Insurance Company through a
merger. Zurich is an internationally recognized market leader in
life and non-life insurance and reinsurance and is increasingly
involved in the financial services industry. As part of the
merger, your fund's investment manager, Kemper Financial
Services, Inc. (KFS), will be sold to a subsidiary of Zurich. In
order for KFS to serve as investment manager of your fund after
the merger, it is necessary for your fund to approve a new
investment management agreement.
The following pages elaborate on Zurich, the proposed new
investment management agreement and the fund board's evaluation
of Zurich's plans for KFS. A vote is also being sought on the
election of trustees to the Board of Trustees, the selection of
independent auditors and, if applicable, a Rule 12b-1 plan* (the
provisions of which are the same as in the current Rule 12b-1
plan).
Q. WHY AM I BEING ASKED TO VOTE ON THE PROPOSED NEW INVESTMENT
MANAGEMENT AGREEMENT?
A. The Investment Company Act of 1940 requires a vote whenever there
is a change in control of an investment manager. Kemper
Corporation's merger with Zurich is such a change of control and
requires a fund shareholder vote upon a new investment management
agreement with each fund. If applicable, a vote upon the Rule
12b-1 distribution plan with your fund is also required.
Q. WHAT HAPPENED WITH KEMPER CORPORATION'S INTENTION LAST YEAR TO
MERGE WITH CONSECO, INC.?
A. The agreement was terminated by mutual consent of Kemper and
Conseco.
</TABLE>
* Rule 12b-1 of the Investment Company Act of 1940 specifies the terms that an
investment company (mutual fund) must comply with when using fund assets to
pay for the distribution of fund shares. Kemper Distributors, Inc., the
principal underwriter and distributor for each fund, distributes, according to
a Rule 12b-1 plan, the shares of each fund except Investors Cash Trust.
<PAGE> 3
<TABLE>
<S> <C>
Q. HOW WILL THE KEMPER/ZURICH MERGER AFFECT ME AS A FUND
SHAREHOLDER?
A. Your fund and your fund investment will not change. You will
still own the same shares in the same fund.
The terms of the new management agreement are the same as the
current management agreement. If the new investment management
agreement and Rule 12b-1 plan are approved, your fund shares will
not change, the advisory fees charged to your fund will not
change and, if applicable, the fee rate payable under your fund's
12b-1 plan will not change.
Zurich has committed to provide all resources necessary to
provide your fund with top quality investment management and
shareholder services.
Q. WILL THE INVESTMENT ADVISORY AND RULE 12B-1 FEES (IF APPLICABLE)
BE THE SAME?
A. Yes, the investment advisory and Rule 12b-1 fees paid by your
fund will remain the same.
Q. HOW DO THE BOARD MEMBERS OF MY FUND SUGGEST THAT I VOTE?
A. After careful consideration, the board members of your fund,
including the independent members, recommend that you vote "For"
all the items on the enclosed proxy card.
Q. WHO IS PAYING THE COST OF THE SHAREHOLDER MEETING AND THIS PROXY
SOLICITATION?
A. Kemper Corporation and Zurich Insurance Company -- not your
fund -- are paying all costs of the fund's shareholder meeting
and proxy solicitation.
Q. WHOM DO I CALL FOR MORE INFORMATION?
A. Please call the firm through which you purchased your shares or
1-800-231-8568.
</TABLE>
ABOUT THE PROXY CARD
[Illustration of front of a proxy card,
without actual text of the proposals to be voted upon]
Because each fund must vote separately, you are being sent a proxy card for each
fund account that you have. Please vote all issues shown on each proxy card that
you receive.
Please vote on each issue using blue or black ink to mark an X in one of the
three boxes provided on each proxy card. On Item 1 (election of trustees), mark
"For All," "Withhold All" or "For All Except". If you mark an X in the "For
All" Except box, you should print the number(s) relating to the individual(s)
for whom you wish to withhold authority. On all other Items, mark "For",
"Against" or "Abstain". Then sign, date and return each of your proxy cards in
the accompanying postage-paid envelope. All registered owners of an account, as
shown in the address on the card, must sign the card. If you are signing for a
corporation, trust or estate, please indicate your title or position.
THANK YOU FOR MAILING YOUR PROXY CARD PROMPTLY!
<PAGE> 4
CASH EQUIVALENT FUND
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
INVESTORS CASH TRUST
TAX-EXEMPT NEW YORK MONEY MARKET FUND
120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603
TELEPHONE 1-800-231-8568
July 7, 1995
Dear Shareholder:
As you read in the Questions and Answers (Q & A) on the outside cover,
Kemper Corporation has agreed to be acquired by an investor group led by Zurich
Insurance Company through a merger. Zurich is an internationally recognized
market leader in life and non-life insurance and reinsurance and is increasingly
involved in the financial services industry. (More information about Zurich can
be found inside the proxy statement.)
We're sending this proxy statement to you because your vote is important to
the planned Kemper merger. Your fund's investment manager, Kemper Financial
Services, Inc. (KFS), is a subsidiary of Kemper Corporation. Because of the
Zurich/Kemper merger, it is necessary for your fund to approve a new investment
management agreement and, except for Investors Cash Trust, the adoption of a new
Rule 12b-1 Plan.
As you review these materials, please keep in mind that Kemper Corporation
and KFS -- not your fund -- are being acquired by Zurich. If the new investment
management agreement and Rule 12b-1 Plan are approved, YOUR FUND SHARES WILL NOT
CHANGE, THE ADVISORY FEES CHARGED TO YOUR FUND WILL NOT CHANGE, AND, IF
APPLICABLE, THE FEE RATE PAYABLE UNDER YOUR FUND'S RULE 12B-1 PLAN WILL NOT
CHANGE. Further, you should continue to receive the high quality investment
management and shareholder services that you have come to expect over the years.
Your Fund Board has approved the proposals and recommends them for your
approval. I encourage you to vote in favor of the proposals. PLEASE VOTE NOW TO
HELP SAVE THE COST OF ADDITIONAL SOLICITATIONS.
As always, we thank you for your confidence and support.
Sincerely,
Stephen B. Timbers
President
<PAGE> 5
CASH EQUIVALENT FUND
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
INVESTORS CASH TRUST
TAX-EXEMPT NEW YORK MONEY MARKET FUND
120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603
TELEPHONE 1-800-231-8568
NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS
SEPTEMBER 19, 1995 AND PROXY STATEMENT
July 7, 1995
To the Shareholders:
You are invited to attend a joint special meeting of shareholders of the
following Funds (each a "Fund" and collectively the "Funds"):
Cash Equivalent Fund ("CEF")
Tax-Exempt California Money Market Fund ("TECMF")
Investors Cash Trust ("ICT")
Tax-Exempt New York Money Market Fund ("TNYMF")
The meeting will be held in Room 17L on the 17th Floor at the offices of the
Funds, 120 South LaSalle Street, Chicago, Illinois on Tuesday, September 19,
1995 at 2:30 p.m., Chicago time, for the following purposes and to transact such
other business as may properly come before the meeting or any adjournment of the
meeting:
1. To elect nine (9) Trustees to the Board of Trustees.
2. To ratify or reject the selection of Ernst & Young LLP as independent
auditors for the current fiscal year.
3. To approve or disapprove a new investment management agreement with
Kemper Financial Services, Inc. or its successor on the same terms as
the current agreement.
4. For CEF, TECMF and TNYMF only, to approve or disapprove a new Rule 12b-1
distribution plan with Kemper Distributors, Inc. or its successor on the
same terms as the current plan.
The Board of Trustees of each Fund has selected the close of business on June
23, 1995 as the record date for the determination of shareholders of each Fund
entitled to notice of and to vote at the meeting. Shareholders are entitled to
one vote for each share held.
- --------------------------------------------------------------------------------
PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD. SIGN, DATE
AND RETURN IT IN THE ENVELOPE PROVIDED. TO SAVE THE COST OF ADDITIONAL
SOLICITATIONS, PLEASE MAIL YOUR PROXY PROMPTLY.
- --------------------------------------------------------------------------------
<PAGE> 6
The accompanying proxy is solicited by the Boards of Trustees (the "Boards") of
the Funds for voting at the joint special meeting of shareholders of the Funds
to be held on Tuesday, September 19, 1995, and at any and all adjournments
thereof (the "Meeting"). This proxy statement was first mailed to shareholders
on or about July 7, 1995.
THE SERIES FUNDS. CEF and ICT are each a "series company" that issues various
series of shares. (Each series also is sometimes described herein as a "Fund.")
Each series has its own investment objective and policies and operates
independently for purposes of investments, dividends and redemptions.
The series of CEF are: Money Market Portfolio ("MMP"); Government Securities
Portfolio ("GSP") and Tax Exempt Portfolio ("TEP").
The series of ICT are: Government Securities Portfolio ("GSP") and Treasury
Portfolio ("TP").
The shareholders of each Fund are being asked to vote on Items 1 through 3. The
shareholders of CEF, TECMF and TNYMF are also being asked to vote on Item 4. On
Item 1 (election of trustees) and Item 2 (ratification of selection of
auditors), each Fund will vote in the aggregate and not by series. On Item 3
(approval of new investment management agreement), TECMF and TNYMF will vote in
the aggregate, while in the case of CEF and ICT, each series will vote
separately. On Item 4 (approval of new Rule 12b-1 Plan) TECMF and TNYMF will
vote in the aggregate, while in the case of CEF, each series will vote
separately. The Board of each Fund recommends an affirmative vote on all items.
The vote required to approve each item is described under the section of this
proxy statement entitled "Miscellaneous."
The following table indicates which Funds are solicited with respect to each
Item:
<TABLE>
<CAPTION>
ITEM CEF TECMF ICT TNYMF
- ------------------------------------------- --- ----- --- -----
<C> <S> <C> <C> <C> <C>
1. Elect Trustees........................ X X X X
2. Ratify Selection of Auditors.......... X X X X
3. Approval of New Investment Management
Agreement............................. X X X X
4. Approval of New Rule 12b-1 Plan....... X X X
</TABLE>
The Board of each Fund has fixed the close of business on June 23, 1995 as the
record date for the determination of shareholders of each Fund entitled to
notice of and to vote at the Meeting. As of May 31, 1995, shares of the Funds
were issued and outstanding as follows:
<TABLE>
<CAPTION>
FUND SHARES
---------------------------------- --------------
<S> <C>
CEF
MMP............................. 3,447,316,397
GSP............................. 1,670,448,454
TEP............................. 1,028,913,314
TECMF............................. 94,430,057
ICT
GSP............................. 196,964,976
TP.............................. 67,449,232
TNYMF............................. 15,468,852
</TABLE>
2
<PAGE> 7
ITEM 1. ELECTION OF BOARD OF TRUSTEES
At the Meeting, nine (9) trustees are to be elected to constitute the Board of
each Fund. Currently, the size of the ICT and TNYMF Boards is fixed at nine
trustees with no vacancies; the size of the CEF and TECMF Boards is fixed at
nine trustees, with seven positions filled and two vacancies.
ICT AND TNYMF. Messrs. Belin, Burnham, Dunaway, Hoffman, Jones and Sommers were
last elected to each Board by shareholders at a special meeting held on
September 25, 1991. Mr. Mathis was appointed to each Board on March 11, 1995 to
fill a vacancy. Mr. Timbers was appointed to each Board on January 23, 1992 and
Ms. Peterson was appointed to each Board on June 15, 1995, each to fill a
vacancy created by an expansion of the size of the Board. Messrs. Mathis and
Timbers and Ms. Peterson are standing for election by shareholders for the first
time at the Meeting.
CEF AND TECMF. Messrs. Belin, Burnham, Dunaway, Hoffman and Sommers were last
elected to each Board by shareholders at a special meeting held on November 5,
1985 for CEF and June 21, 1988 for TECMF. Mr. Jones was appointed to each Board
on July 26, 1988 to fill a vacancy and Mr. Timbers was appointed to each Board
on January 23, 1992 to fill a vacancy created by an expansion of the size of the
Board. Mr. Mathis and Ms. Peterson have been nominated to fill the current
vacancies. Messrs. Jones, Mathis and Timbers and Ms. Peterson are standing for
election by shareholders for the first time at the Meeting.
It is intended that the proxies will be voted for the election of the nominees
described below. Each trustee so elected will serve as a trustee of the
respective Fund until the next meeting of shareholders, if any, called for the
purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns or is removed as provided
in the Agreement and Declaration of Trust of each Fund ("Declaration of Trust").
Since the Funds do not hold annual meetings, trustees will hold office for an
indeterminate period.
All the nominees listed below have consented to serve as trustees of the
respective Funds, if elected. In case any nominee shall be unable or shall fail
to act as a trustee by virtue of an unexpected occurrence, the proxies may be
voted for such other person(s) as shall be determined by the persons acting
under the proxies in their discretion.
<TABLE>
<CAPTION>
YEAR FIRST
NAME (DATE OF BIRTH), PRINCIPAL BECAME
OCCUPATION AND AFFILIATIONS A TRUSTEE
- -------------------------------------------------- -----------------
<S> <C>
</TABLE>
<TABLE>
<S> <C>
David W. Belin (6/20/28) 1979 -- CEF
Member, Belin Harris Lamson McCormick, P.C., 1987 -- TECMF
Attorneys 1990 -- ICT
1990 -- TNYMF
Lewis A. Burnham (1/8/33) 1979 -- CEF
Partner, Business Resources Group; formerly, 1987 -- TECMF
Executive Vice President, Anchor Glass Container 1990 -- ICT
Corporation 1990 -- TNYMF
</TABLE>
3
<PAGE> 8
<TABLE>
<CAPTION>
YEAR FIRST
NAME (DATE OF BIRTH), PRINCIPAL BECAME
OCCUPATION AND AFFILIATIONS A TRUSTEE
- -------------------------------------------------- -----------------
<S> <C>
Donald L. Dunaway (3/8/37) 1980 -- CEF
Retired; formerly, Executive Vice President, A. 1987 -- TECMF
O. Smith Corporation 1990 -- ICT
1990 -- TNYMF
Robert B. Hoffman (12/11/36) 1981 -- CEF
Senior Vice President and Chief Financial 1987 -- TECMF
Officer, Monsanto Company; formerly Vice 1990 -- ICT
President, FMC Corporation; prior thereto, 1990 -- TNYMF
Director, Executive Vice President and Chief
Financial Officer, Staley Continental, Inc.
Donald R. Jones (1/17/30) 1988 -- CEF
Retired; Director, Motorola, Inc.; formerly, 1988 -- TECMF
Executive Vice President and Chief Financial 1990 -- ICT
Officer, Motorola,Inc. 1990 -- TNYMF
David B. Mathis* (4/13/38) 1995 -- ICT
Chairman, Chief Executive Officer and Director, 1995 -- TNYMF
Kemper Corporation; Director, Kemper Financial
Services, Inc. ("KFS"), Kemper Financial
Companies, Inc. ("KFC"), several other Kemper
Corporation subsidiaries, IMC Global Inc. and
Lumbermens Mutual Casualty Company.
Shirley D. Peterson (9/3/41) 1995 -- ICT
President, Hood College; formerly, partner, 1995 -- TNYMF
Steptoe & Johnson (attorneys) January,
1993 - December, 1994; prior thereto,
Commissioner, Internal Revenue Service,
February, 1992 - January, 1993; prior thereto,
Assistant Attorney General, U.S. Department of
Justice.
William P. Sommers (7/22/33) 1979 -- CEF
President and Chief Executive Officer, SRI 1987 -- TECMF
International; formerly, Executive Vice 1990 -- ICT
President, Iameter; prior thereto, Senior Vice 1990 -- TNYMF
President and Director, Booz, Allen & Hamilton,
Inc. (Retired); Director, Rohr, Inc.; Director,
Therapeutic Discovery Corp.; Director, Litton
Industries.
Stephen B. Timbers* (8/8/44) 1992 -- All Funds
President, Chief Operating Officer and Director,
Kemper Corporation; Chairman, Chief Executive
Officer, Chief Investment Officer and Director,
KFS; Director, KFC, several other Kemper
Corporation subsidiaries, Gillett Holdings, Inc.
and LTV Corporation.
</TABLE>
- ---------------
* Interested persons of the Funds as defined in the Investment Company Act of
1940 ("1940 Act") because of their positions with KFS, the investment manager
of the Funds.
4
<PAGE> 9
All the nominees, except Messrs. Mathis and Timbers and Ms. Peterson, serve as
board members of 21 Kemper Funds. Mr. Mathis serves as a board member of 28
Kemper Funds, Mr. Timbers serves as a board member and president of 31 Kemper
Funds and Ms. Peterson serves as a board member of 18 Kemper Funds. Mr. Mathis
has been nominated to serve as a board member of 31 Kemper Funds and Ms.
Peterson has been nominated to serve as a board member of 21 Kemper Funds. A
"Kemper Fund" is an investment company for which KFS serves as investment
manager.
The Board of Trustees of each Fund has a nominating committee, the members of
which are Messrs. Burnham, Jones and Sommers. It proposed the nominees for
election by the shareholders; and the Board of Trustees, including the non-
interested trustees, concurred. The nominating committee met two times during
each Fund's most recently completed fiscal year. Shareholders wishing to submit
the name of a candidate for consideration by the nominating committee should
submit their recommendations to the secretary of the applicable Fund.
Each Fund's audit committee is composed of Messrs. Dunaway, Hoffman and Jones.
The audit committee met three times during each Fund's most recently completed
fiscal year except for CEF, which only met twice during the Fund's most recently
completed fiscal year. The audit committee of each Fund makes recommendations
regarding the selection of independent auditors for the Fund, confers with the
independent auditors regarding the Fund's financial statements, the results of
audits and related matters and performs such other tasks as the Board of
Trustees of that Fund assigns.
The Board of each Fund met eight times during the Fund's most recently completed
fiscal year. Each then current trustee attended 75% or more of the respective
meetings of the Board and the committees of which he was a member that were held
during that period.
Each Fund pays trustees who are not interested persons of such Fund a monthly
retainer and an attendance fee for each Board meeting and committee meeting
attended, plus expense reimbursement. As reflected above, the trustees currently
serve as trustees of various investment companies for which KFS serves as
investment manager. Trustees or officers who are "interested persons" receive no
compensation from any Fund.
5
<PAGE> 10
The table below shows, for each trustee entitled to receive compensation from
the Funds, the aggregate compensation paid or accrued by each Fund for its most
recently completed fiscal year and the total compensation that Kemper Funds paid
to each trustee during the calendar year 1994. The trustees do not receive any
pension or retirement benefits from any Fund.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
KEMPER FUNDS
PAID TO
NAME OF TRUSTEE CEF TECMF ICT TNYMF TRUSTEES(2)
- ------------------------------------ ------- ----- ----- ----- ------------
<S> <C> <C> <C> <C> <C>
David W. Belin(1)................... $11,500 1,800 1,800 600 $112,200
Lewis A. Burnham.................... 8,700 1,500 1,700 500 90,100
Donald L. Dunaway(1)................ 11,200 2,000 2,000 600 115,400
Robert B. Hoffman................... 8,200 1,500 1,600 500 87,400
Donald R. Jones..................... 8,900 1,600 1,700 600 94,300
William P. Sommers.................. 8,500 1,400 1,500 500 84,100
</TABLE>
- ---------------
(1) Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with the Funds. Deferred amounts accrue interest
monthly at a rate equal to the yield of Kemper Money Market Fund -- Money
Market Portfolio.
(2) Includes compensation for service on the boards of 23 Kemper Funds
(including two Kemper Funds no longer in existence). Also includes amounts
for new portfolios estimated as if they had existed at the beginning of the
year. Ms. Peterson was appointed to the Boards of ICT and TNYMF on June 15,
1995 (and is not a current trustee of CEF and TECMF); and therefore, is not
included in the above table.
FUND OFFICERS. Information about the executive officers of the Funds, with
their respective dates of birth and terms as Fund officers indicated, is set
forth below (other than information about Mr. Timbers, president of each Fund
since 3/11/95, which is reflected above).
J. Patrick Beimford, Jr. (5/25/50), vice president of each Fund since 1/21/93,
is executive vice president and director of fixed income investments of KFS.
Philip J. Collora (11/15/45), vice president of CEF, TNYMF and ICT since 3/2/90
and TECMF since 2/25/87, and secretary of each Fund since 1/25/95, is senior
vice president and assistant secretary of KFS.
Jerome L. Duffy (6/29/36), treasurer of CEF since 8/9/85, treasurer of TECMF
since 2/25/87, treasurer of ICT and TNYMF since 3/2/90, is senior vice president
of KFS.
John E. Peters (11/4/47), vice president of each Fund since 1/14/94, is senior
executive vice president of KFS and president of Kemper Distributors, Inc.
Frank J. Rachwalski, Jr. (3/26/45), vice president of CEF since 1/27/83, vice
president of TECMF since 5/12/87, vice president of ICT since 3/17/90 and vice
president of TNYMF since 3/17/90, is senior vice president of KFS.
John W. Steube (1/07/49), vice president of CEF since 1/28/82, is vice president
of KFS.
Elizabeth C. Werth (10/1/47), assistant secretary of each Fund since 3/17/90, is
vice president and director of state registrations of KFS.
The officers of each Fund are elected by the Board of the Fund on an annual
basis to serve until their successors are elected and qualified
6
<PAGE> 11
SHAREHOLDINGS
Listed below is the number of shares of each Fund owned beneficially by each
trustee or nominee as of May 31, 1995. Also shown is the number of shares owned
beneficially by the trustees and officers as a group. In each case, the amounts
shown are less than 1% of the outstanding shares of each Fund or any series of
CEF or ICT.
<TABLE>
<CAPTION>
TRUSTEES
AND
OFFICERS
AS A
FUND BELIN BURNHAM DUNAWAY HOFFMAN JONES MATHIS PETERSON SOMMERS TIMBERS GROUP
- ------------------ ------- ------- ------- ------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CEF
MMP.............. 3,045 0 1,012 0 0 0 0 0 0 4,057
GSP.............. 0 0 0 0 0 0 0 0 0 0
TEP.............. 13,031 0 0 0 0 0 0 0 0 13,031
TECMF............. 0 0 0 0 0 0 0 0 0 0
ICT
GSP.............. 0 0 0 0 0 0 0 0 0 0
TP............... 0 0 0 0 0 0 0 0 0 0
TNYMF............. 0 0 0 0 0 0 0 1,082 0 1,082
</TABLE>
As of May 31, 1995, no person is known to the Funds to own beneficially more
than five percent of the shares of any Fund (or any series thereof), except as
indicated below:
<TABLE>
<CAPTION>
NUMBER
OF % OF
FUND NAME AND ADDRESS SHARES SERIES
- ------------------------ ---------------------------------------- ----------- ------
<S> <C> <C> <C>
</TABLE>
<TABLE>
<S> <C> <C> <C>
Cash Equivalent Fund Special Custody Account for the 243,516,954 7.06
-- Money Market Exclusive Benefit of Customers of
Portfolio Hilliard Lyons
5th Fl.
4th Ave. & Muhammed Ali Blvd.
Louisville, KY 40202
Roney & Co. 173,681,765 5.04
One Griswold
Detroit, MI 48226-5102
-- Tax Exempt Special Custody Account for the 94,397,335 9.17
Portfolio Exclusive Benefit of Customers of
Hilliard Lyons
4th Ave. & Muhammed Ali Blvd.
Louisville, KY 40202
J.B. Hanauer & Company 58,698,597 5.7
Gatehall Corporate Center
4 Gatehall Drive
Parsippany, NJ 07054
Investors Cash Trust Clark County Nevada Treasurer 112,000,000 56.86
-- Government 225 Bridger Avenue
Securities Las Vegas, NV 89101
Portfolio
Spring Branch ISD 22,598,100 11.47
General Concentration
955 Campbell Road
Houston, TX 77024
Cook County Illinois Construction Fund 12,473,126 6.33
118 N. Clark Street, Rm. 500
Chicago, IL 60602
</TABLE>
7
<PAGE> 12
<TABLE>
<CAPTION>
NUMBER
OF % OF
FUND NAME AND ADDRESS SHARES SERIES
- ------------------------ ---------------------------------------- ----------- ------
<S> <C> <C> <C>
-- Treasury Portfolio Clark County Nevada Treasurer 22,232,217 32.96
225 Bridger Avenue
Las Vegas, NV 89101
Federated Rural Electric Ins. Co. 9,640,427 14.29
P.O. Box 15147
Lenexa, KS 66285
First of America-Michigan 7,602,667 11.27
P.O. Box 4042
Kalamazoo, MI 49003
Wharton County General Fund 5,271,580 7.82
100 S. Fulton
Box 606
Wharton, TX 77488
Angelina County General Fund 3,888,267 5.76
P.O. Box 908
Lufkin, TX 75901
</TABLE>
ITEM 2. SELECTION OF INDEPENDENT AUDITORS
A majority of the members of each Fund's Board who are not "interested" persons
of the Fund has selected Ernst & Young LLP, independent auditors, to audit the
books and records of the Fund for the current fiscal year. This firm has served
in this capacity for each Fund since the Fund was organized and has no direct or
indirect financial interest in a Fund except as independent auditors. The
selection of Ernst & Young LLP as independent auditors of each Fund is being
submitted to the shareholders for ratification. A representative of Ernst &
Young LLP is expected to be present at the Meeting and will be available to
respond to any appropriate questions raised at the Meeting and may make a
statement.
BOARD OF TRUSTEES RECOMMENDATION
The Board of each Fund recommends that shareholders vote FOR the ratification of
the selection of independent auditors.
ITEM 3. NEW INVESTMENT MANAGEMENT AGREEMENT
INTRODUCTION
Kemper Financial Services, Inc. ("KFS") is the investment adviser and manager
for each Fund. The indirect parent of KFS, which is Kemper Corporation
("Kemper"), has entered into an Agreement and Plan of Merger dated as of May 15,
1995 (the "Merger Agreement"), with Zurich Insurance Company ("Zurich"),
Insurance Partners, L.P. ("IP"), Insurance Partners Offshore (Bermuda), L.P.
("IP Bermuda" and, together with IP, "Insurance Partners") and ZIP Acquisition
Corp. ("ZIP"), whereby ZIP will be merged with and into Kemper and Kemper will
continue as the surviving corporation (the "Kemper merger"). In connection with
the Kemper merger, Kemper has agreed to sell KFS to KFS
8
<PAGE> 13
Acquisition Corp., a wholly-owned, indirect subsidiary of Zurich, by merging KFS
and KFS Acquisition Corp. (the "KFS Sale"), with the surviving corporation ("New
KFS") continuing with the name "Kemper Financial Services, Inc." The terms of
the KFS Sale are set forth in a separate Agreement and Plan of Merger among
Kemper, KFS, KFC and KFS Acquisition Corp. dated May 15, 1995 (the "KFS Merger
Agreement"). It is currently contemplated that the KFS Sale will occur
immediately before or immediately after the Kemper merger, although it is
possible that the KFS sale could be deferred until a later date. (The Kemper
merger and related KFS Sale are hereinafter referred to together as the
"Merger").
Consummation of the Kemper merger would constitute an "assignment," as that term
is defined in the Investment Company Act of 1940 (the "1940 Act"), of each
Fund's current investment management agreement with KFS. As required by the 1940
Act, each current investment management agreement provides for its automatic
termination in the event of its assignment. In anticipation of the Merger, a new
investment management agreement ("management agreement") between each Fund and
KFS or New KFS (which may be referred to as KFS' successor) is being proposed
for approval by shareholders of each Fund. A copy of the form of the new
management agreement is attached hereto as Exhibit A. THE NEW MANAGEMENT
AGREEMENT FOR EACH FUND IS ON THE SAME TERMS AS THE CURRENT MANAGEMENT
AGREEMENT.
BOARD OF TRUSTEES RECOMMENDATION
The Board of each Fund met on May 5, 1995, May 31, 1995 and June 15, 1995 to
consider the Merger and its anticipated effects upon KFS and the investment
management and other services provided to the Funds by KFS and its affiliates.
On June 15, 1995 the Board of each Fund, including a majority of the trustees
who are not parties to such agreement or interested persons of any such party,
voted to approve the new management agreement and to recommend it to
shareholders for their approval.
For information about each Board's deliberations and the reasons for its
recommendation, please see "Board of Trustees Evaluation" near the end of this
Item 3.
The Board of each Fund recommends that shareholders vote FOR approval of the new
management agreement.
INVESTMENT MANAGEMENT AGREEMENT
Each current and new management agreement provides that the Fund's investment
manager will act as investment adviser, manage the Fund's investments,
administer its business affairs, furnish offices, necessary facilities and
equipment, provide clerical, bookkeeping and administrative services and permit
any of its officers or employees to serve without compensation as trustees or
officers of the Fund if duly elected to such positions. Under each management
agreement, the Fund agrees to assume and pay the charges and expenses of its
operations including, by way of example, the compensation of the trustees other
than those
9
<PAGE> 14
affiliated with the investment manager, charges and expenses of independent
auditors, of legal counsel, of any transfer or dividend disbursing agent, of any
registrar of the Fund and of the custodian (including fees for safekeeping of
securities), costs of calculating net asset value, all costs of acquiring and
disposing of portfolio securities, interest, if any, on obligations incurred by
the Fund, costs of share certificates, membership dues in the Investment Company
Institute or any similar organization, reports and notices to shareholders,
other like miscellaneous expenses and all taxes and fees to federal, state or
other governmental agencies.
Listed below are the annual management fee rates payable under the management
agreement for each of the Funds, except ICT, which pays .15 of 1%. The
investment management fee and the expense limitation are computed for each Fund
as follows: for TECMF and TNYMF based upon average daily net assets of the Fund;
for ICT, based upon average daily net assets of each series of the Fund; for the
MMP and GSP series of CEF, based upon average daily net assets of those series
in the aggregate; and for the TEP series of CEF, which is subject to a separate
agreement, based upon average daily net assets of that series, individually.
<TABLE>
<CAPTION>
APPLICABLE ASSETS MANAGEMENT FEE
- --------------------------------------------------- --------------
<S> <C>
$0 - $500 million.................................. .22 of 1%
$500 million - $1 billion.......................... .20 of 1%
$1 billion - $2 billion............................ .175 of 1%
$2 billion - $3 billion............................ .16 of 1%
$3 billion and over................................ .15 of 1%
</TABLE>
Exhibit D reflects the management fees paid by each Fund to KFS for the Fund's
most recently completed fiscal year.
With respect to ICT, TECMF and TNYMF, each management agreement provides that
the Fund's investment manager will reimburse the Fund should the operating
expenses of the Fund, including the investment management fee, but excluding
taxes, interest, distribution fees, extraordinary expenses and brokerage
commissions or transaction costs, and any other properly excludable expenses,
exceed on an annual basis the applicable state expense limitations. For ICT and
TECMF, the Funds believe that the most restrictive state expense limitation
currently in effect would require that such operating expenses not exceed 2.5%
of the first $30 million of average daily net assets, 2% of the next $70 million
and 1.5% of average daily net assets over $100 million. For TNYMF, the Funds
believe there is no applicable state expense limitation. KFS has agreed to
temporarily waive fees and absorb expenses for TNYMF and ICT in addition to the
limitations described above. (See Exhibit C).
With respect to CEF, the management agreement provides that the investment
manager will reimburse the Fund should operating expenses of the Fund exceed on
an annual basis for the MMP and GSP series, in the aggregate, .90 of 1% of the
first $500 million; .80 of 1% of the next $500 million; .75 of 1% of the next $1
billion and .70 of 1% thereafter and for the TEP series 1.5% of the first
10
<PAGE> 15
$30 million of average daily net assets and 1% thereafter. For this purpose,
operating expenses include the investment management fee but exclude interest,
taxes, extraordinary expenses, brokerage commissions and transaction costs and
distribution fees.
The amounts of waived fees and absorbed expenses for the Funds' most recently
completed fiscal year are included in Exhibit D.
Each management agreement provides that the Fund's investment manager shall not
be liable for any error of judgment or of law, or for any loss suffered by the
Fund in connection with the matters to which the management agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Fund's investment manager in the performance of its
obligations and duties or by reason of its reckless disregard of its obligations
and duties under the management agreement.
Each management agreement may be terminated for such Fund or series thereof
without penalty upon sixty (60) days written notice by either party, or by a
majority vote of the outstanding shares of the Fund or series thereof, and
automatically terminates in the event of its assignment.
The new management agreement for each Fund will be dated as of the date of the
consummation of the Kemper merger. The Kemper merger is expected to occur in the
fourth quarter of 1995, but in no event later than February 28, 1996. The new
management agreement will be in effect for an initial term ending on the same
date as would the current management agreement but for the Kemper merger and may
continue thereafter from year to year if specifically approved at least annually
by vote of "a majority of the outstanding voting securities" of such Fund, as
defined under the 1940 Act, or by the Board, and, in either event, the vote of a
majority of the trustees who are not parties to the agreement or interested
persons of any such party, cast in person at a meeting called for such purpose.
KFS has acted as investment adviser and manager for each Fund since it commenced
public offering of its shares as shown below. Also shown is the date of each
current management agreement, the date when the current management agreement was
last approved by the trustees and the shareholders of each Fund,
11
<PAGE> 16
the purpose of the last submission to shareholders of the current management
agreement and the date to which the current management agreement continues.
<TABLE>
<CAPTION>
COMMENCEMENT APPROVAL OF CURRENT CURRENT
OF DATE OF AGREEMENT BY AGREEMENT
INVESTMENT CURRENT ---------------------------- CONTINUED BY
FUND OPERATIONS AGREEMENT TRUSTEES SHAREHOLDERS(A)(D) TRUSTEES TO
- ----------- ------------ --------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
CEF
MMP....... 03/16/79 12/01/86 09/09/94 11/04/86 12/01/95
GSP....... 03/16/79 12/01/86 09/09/94 11/04/86 12/01/95
TEP....... 07/09/82(b) 10/14/88 09/09/94 10/10/88 12/01/95
TECMF...... 06/02/87 06/01/87 09/09/94 06/21/88 12/01/95
ICT
GSP....... 09/27/90 10/01/91(c) 09/09/94 09/25/91 12/01/95
TP........ 12/17/91 10/01/91(c) 09/09/94 11/24/92 12/01/95
TNYMF...... 12/13/90 10/18/90 09/09/94 12/19/91 12/01/95
</TABLE>
- ---------------
(a) The purpose of the last submission to shareholders was: for the MMP and GSP
series of CEF and the GSP series of ICT, to approve an amendment to the
current management agreement; for TECMF, the TP series of ICT and TNYMF, to
approve continuation of the current management agreement; and for the TEP
series of CEF, to approve continuation of the current management agreement
in connection with its reorganization as the successor to Tax-Exempt Money
Market Fund.
(b) As successor to Tax-Exempt Money Market Fund.
(c) Agreement amended 12/01/93 to lower management fee.
(d) On September 9, 1994, the Boards approved new investment management
agreements with KFS in anticipation of the termination of the current
agreements because of a proposed merger involving Kemper and Conseco, Inc.
(the "Conseco/Kemper Merger"). As with the Merger, consummation of the
Conseco/Kemper Merger would have constituted an "assignment" and, therefore,
a termination of each management agreement. In anticipation of the
Conseco/Kemper Merger and in order to assure that KFS could continue to
serve as investment manager to the Funds, new agreements were approved by
the Boards and submitted to shareholders for approval. By agreement of
Kemper and Conseco, Inc., the Conseco/Kemper Merger did not occur and,
therefore, the new agreements were not voted upon by shareholders.
INFORMATION CONCERNING ZURICH AND THE MERGER
The following information concerning Zurich and Insurance Partners has been
provided to the Funds by Zurich and Insurance Partners, respectively. The
information concerning the Merger has been provided to the Funds by Kemper.
Founded in 1872, Zurich is a multinational, public corporation organized under
the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of the Zurich Insurance
Group. Zurich and the Zurich Insurance Group provide an extensive range of
insurance products and services, while having branch offices and subsidiaries in
more than 40 countries throughout the world. Zurich Insurance Group is
particularly strong in the insurance of international companies and
organizations. Over the past few
12
<PAGE> 17
years, Zurich's global presence, particularly in the United States, has been
strengthened by means of selective acquisitions. IP and IP Bermuda are parallel
investment partnerships established to participate jointly in acquisitions,
recapitalizations, demutualizations and other structured transactions in the
insurance industry. (IP and IP Bermuda are together referred to as "Insurance
Partners"). Insurance Partners was formed by Centre Reinsurance Holdings Limited
(a subsidiary of Zurich), Keystone, Inc. (formerly the Robert M. Bass Group,
Inc.) and The Chase Manhattan Corporation. IP is located at 201 Main Street,
Fort Worth, TX 76102 and IP Bermuda is located at 41 Cedar Avenue, Hamilton HM-
EX, Bermuda. ZIP is a newly-formed majority-owned subsidiary of Zurich. ZIP is
approximately 80% owned by Zurich Holding Company of America, Inc. (which, in
turn, is a wholly-owned subsidiary of Zurich) and 13.274% and 6.726% owned by IP
and IP Bermuda, respectively. ZIP is located at 1400 American Lane, Schaumburg,
IL 60196. KFS Acquisition Corp. is a newly-formed wholly-owned subsidiary of
Zurich Holding Company of America, Inc. Prior to consummation of the KFS Sale,
New KFS will be registered as an investment adviser under the Investment
Advisers Act of 1940. KFS Acquisition Corp., a Delaware corporation, and Zurich
Holding Company of America, Inc., a Delaware corporation, are both located at
1400 American Lane, Schaumburg, IL 60196.
Under the Merger Agreement, ZIP will merge with and into Kemper, with Kemper as
the surviving corporation. Each share of Kemper common stock will be converted
in the Kemper merger into the right to receive $49.50 cash, for an aggregate
acquisition price of approximately $2.1 billion. The closing of the Kemper
merger will take place on the third business day after all the closing
conditions are satisfied, but not later than February 28, 1996. It is expected
that the Kemper merger will close in the fourth quarter of 1995. However, if the
closing conditions are satisfied prior to January 4, 1996, ZIP may elect to
delay the closing of the Kemper merger to a later date (not later than January
4, 1996). It is currently contemplated that contemporaneously with the Kemper
merger closing (either immediately before or immediately after) Kemper will sell
KFS to Zurich by merging KFS and KFS Acquisition Corp., with the surviving
corporation ("New KFS") continuing with the name "Kemper Financial Services,
Inc." It is possible, however, that the Kemper merger could be consummated, but
that the KFS Sale could be deferred until a later date (not later than January
4, 1996). Immediately prior to the KFS Sale, KFS will cause those of its
wholly-owned subsidiaries designated by Zurich to be merged with and into,
direct or indirect, wholly-owned subsidiaries of New KFS (each of which may
later be referred to as the successor to such KFS subsidiaries). The
consideration for the KFS Sale is $900 million although, at the election of
Zurich, it may be increased to $1 billion.
It is further contemplated that prior to the Merger: (1) an employee stock
ownership plan will acquire from KFC approximately 55% of the voting common
stock of a new corporation ("Newco") formed to acquire Kemper's securities
brokerage segment, principally Kemper Securities, Inc. ("KSI"); (2) non-voting
common stock representing an approximately 1% equity interest in Newco will be
distributed to the management of KSI and; (3) the balance of Newco's voting
13
<PAGE> 18
common stock will be distributed to the holders of Kemper common stock (the "KSI
ESOP Sale").
It is further contemplated that prior to the Merger: (1) KFS will transfer the
net cash proceeds from the sale of State Street Boston Corporation stock owned
by KFS (approximately $105 million) to Kemper; (2) KFS will transfer $50 million
in cash to Kemper; (3) KFS will transfer to Kemper the proceeds of its sale of
Supervised Services Company (approximately $23 million); and (4) at the written
request of ZIP, KFS or any of its subsidiaries will dividend or otherwise
transfer cash to Kemper in such amounts as ZIP may reasonably request.
To confirm and clarify certain contractual relationships between Kemper and
Lumbermens Mutual Casualty Company ("Lumbermens") prior to, as a result of and
following the Merger, Lumbermens, Zurich, Insurance Partners, ZIP, Kemper and
KFS entered into a letter agreement dated May 15, 1995 (the "Lumbermens
Agreement"). The Lumbermens Agreement, among other things, (1) permits the
continued use of the "Kemper" name by Kemper and KFS (or its successor) and (2)
obligates New KFS to reimburse Lumbermens for certain amounts that may be due to
Lumbermens by Kemper, if Kemper has not paid such amounts. As of March 31, 1995,
the total potential liability was $35.2 million.
The Lumbermens Agreement provides that, to the extent permitted by law,
Lumbermens intends to continue to engage KFS (or its successor), or its
subsidiaries, for at least three years to provide investment management services
for not less than 80% of the investment assets of Lumbermens (excluding benefit
plan assets held in trust) managed by KFS or its subsidiaries as of May 15,
1995. In connection therewith, the Lumbermens Agreement permits Lumbermens, and
Lumbermens intends, contemporaneously with the KFS Sale to invest in New KFS an
aggregate amount of up to $100 million or such lesser amount as is necessary to
purchase (1) either 9.9% of the shares of common stock of New KFS or an amount
of convertible preferred stock of New KFS that is convertible into 9.9% of the
shares of New KFS and (2) pro rata with Zurich, all other equity and debt
securities purchased from New KFS by Zurich. In the event of such investment,
Lumbermens will receive representation on the Board of Directors of New KFS that
is proportionate to Lumbermens' equity interest in New KFS; but in any event, at
least one individual designated by Lumbermens will be elected to the Board of
Directors of New KFS. It is currently contemplated that Lumbermens would
designate Mr. David B. Mathis for election to the Board of Directors of New KFS
(see "Other Information -- KFS"). The address of Lumbermens is: One Kemper
Drive, Long Grove, Illinois 60049. If the percentage of Lumbermens' investment
assets managed by New KFS drops below 50% of Lumbermens' investment assets
(excluding benefit plan assets held in trust), then Zurich or New KFS may
purchase Lumbermens investment in New KFS at fair market value. On the seventh
anniversary of the closing of the KFS Sale, Lumbermens will have the right to
demand that all its shares of New KFS be registered under the Securities Act of
1933.
Zurich has informed the Funds that as of May 31, 1995, no stockholder of Zurich,
either individually or as a "group" (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended), is known to beneficially own
14
<PAGE> 19
more than 10% of the outstanding shares of Zurich's voting securities. KFS
informed the Funds that, as of May 31, 1995, KFS shared power to vote and
dispose of 189,980 preferred shares of Centre Reinsurance Holdings Limited, a
Zurich affiliate, which were held by various non-investment company clients of
KFS.
The common stockholders of Kemper will be voting on the Kemper merger. The
Merger is subject to various conditions such as governmental and insurance
regulatory approvals and filings and consummation of the KSI ESOP sale. Neither
the Kemper merger nor the KFS Sale is subject to financing, although each may
involve financing. Zurich has guaranteed the obligations of ZIP and Insurance
Partners to consummate the Kemper merger and has guaranteed the obligations of
KFS Acquisition Corp. to consummate the KFS Sale.
It is a condition to the closing of the Merger that all directors and officers
of Kemper and its subsidiaries (including KFS), whose resignations have been
requested by ZIP, not less than ten days prior to the closing, shall have
resigned or been removed from office, effective as of the closing. No such
resignations have been requested nor are currently contemplated for KFS and its
subsidiaries.
The Merger Agreement also provides as a condition to the closing of the Merger
that the shareholders of registered investment companies for which Kemper or any
subsidiary acts as investment adviser or sub-adviser (the "KFS Advised Funds")
representing at least 90% of the total net assets of the KFS Advised Funds as of
April 30, 1995 shall have approved the new management agreements (the "90%
condition"). At that date, net assets of the KFS Advised Funds totalled
approximately $42 billion. If, for example, a "majority" (as defined under
"Miscellaneous") of the shares of each of enough KFS Advised Funds to total at
least $38 billion (90% of $42 billion) were voted to approve new management
agreements, then the 90% condition would be satisfied. If the shareholders of a
particular Fund do not approve the new management agreement, Kemper, Zurich and
Insurance Partners nevertheless intend to proceed with the Merger (assuming all
conditions precedent have been satisfied or waived, including the 90%
condition). In that event, the Board of such Fund would take such action as it
deemed to be in the best interests of its shareholders, including, if necessary,
seeking exemptive relief from the SEC so that KFS (or its successor) could
provide investment management services to the Fund on an interim basis. If the
Merger is not consummated for any reason, then the current management agreement
with each Fund will continue.
BOARD OF TRUSTEES EVALUATION
On April 10, 1995, the Board of each Fund was informed that Kemper had entered
into an agreement in principle with an investor group led by Zurich pursuant to
which Kemper would be acquired by the investor group in a merger transaction and
KFS would be sold. Thereafter, each Board was given Zurich financial reports and
other information regarding Zurich. In addition, counsel to the Funds and the
independent trustees prepared and distributed an analysis of the Boards'
fiduciary obligations. At a special meeting on May 5, 1995, the
15
<PAGE> 20
trustees discussed the initial information provided about Zurich and reviewed
their fiduciary obligations. Zurich senior management personnel, who were
present by invitation, presented a review of matters including Zurich's history,
strategy and general plans. There was extended discussion of, and questioning
about, Zurich's plans for KFS and the Funds, some of which were to be addressed
in definitive merger documents (which had not yet been executed). Each Board
agreed at that time to hold another special meeting for further consideration of
the Merger and its effect on the Funds. Prior to that meeting, and from time to
time thereafter, each Board received a variety of materials concerning Zurich
and the Merger. The definitive merger documents were signed on May 15, 1995 and
the special Board meeting was held on May 31, 1995. There was further discussion
of, and questioning about, the terms of the Merger and Zurich's plans for New
KFS and the Funds, including the financial aspects of the Merger and proforma
financial statements of New KFS. As a result of their investigation and
consideration of the Merger and the new management agreements, at its meeting on
June 15, 1995, the Board of each Fund voted to approve the new management
agreement and to recommend it to the shareholders of the Fund for their
approval.
During its deliberations, each Board used outside assistance in its analysis of
financial and other aspects of the Merger to help evaluate the potential effects
upon KFS and the Funds. Throughout the review process the independent trustees
of each Board had the assistance of legal counsel.
Each Board obtained from KFS and Zurich information regarding the respective
organizations, the Merger, and the future plans of the parties. Included in the
information furnished to and discussed with the Boards were financial statements
and other representations of financial condition of Zurich and certain of its
subsidiaries, independent reports and analyses regarding Zurich and pro forma
financial statements of New KFS giving effect to the Merger. The New KFS pro
forma financial statements reflected anticipated borrowings by New KFS of $650
million, the sale of State Street Boston Corporation stock holdings and transfer
of the proceeds thereof, the $50 million dividend to Kemper and the sale of
Supervised Services Company and transfer of the proceeds thereof.
In connection with their deliberations, the Boards of the Funds obtained certain
assurances from Zurich, including the following:
- - Zurich looks upon New KFS as a core business in a core strategic market and
expects it to be an important part of Zurich's global asset management
strategy. With that focus, Zurich will devote to New KFS and its affairs all
attention and resources that are necessary to provide for each Fund top
quality investment management, shareholder, administrative and product
distribution services.
- - The Merger will not result in any change in any Fund's investment objectives
or policies.
- - The Merger is not expected to result in any adverse change in the investment
management or operations of the Funds, or the investment personnel managing
16
<PAGE> 21
such Funds; Zurich neither plans nor proposes at the present time to make any
material change in the composition of senior management or personnel of KFS,
except to fill certain open positions; and Zurich neither plans nor proposes
to make any adverse change in the manner in which investment advisory services
are rendered to each Fund.
- - Zurich is committed to the continuance, without interruption, of services of
the type and quality currently provided by KFS and its subsidiaries, or
superior thereto.
- - Zurich plans to maintain or enhance the KFS facilities and organization.
- - The KFS senior management and the Boards will be involved in decisions
materially affecting the KFS organization as it relates to the Funds.
- - In order to retain and attract key personnel, Zurich intends for New KFS to
maintain overall compensation and performance incentive policies and practices
at market levels or better.
Zurich, Kemper and KFS assured each Board that they intend to comply with
Section 15(f) of the 1940 Act. Section 15(f) provides a non-exclusive safe
harbor for an investment adviser to an investment company or any of its
affiliated persons to receive any amount or benefit in connection with a change
in control of the investment adviser so long as two conditions are met. First,
for a period of three years after the transaction, at least 75% of the board
members of the investment company must not be interested persons of such
investment adviser. The Board of ICT and TNYMF presently consists of nine
trustees, two of whom, Messrs. David B. Mathis and Stephen B. Timbers, are
interested persons of KFS. The Board of CEF and TECMF presently consists of
seven trustees, one of whom, Mr. Timbers, is an interested person of KFS. As
proposed (see Item 1 -- "Election of Board of Trustees"), the Board of CEF and
TECMF would consist of nine trustees, two of whom, Messrs. Mathis and Timbers,
are interested persons of KFS. Accordingly, the composition of the Board of each
Fund, currently and as proposed, would be in compliance with this provision of
Section 15(f)*. Second, an "unfair burden" must not be imposed upon the
investment company as a result of such transaction or any express or implied
terms, conditions or understandings applicable thereto. The term "unfair burden"
is defined in Section 15(f) to include any arrangement during the two-year
period after the transaction whereby the investment adviser, or any interested
person of any such adviser, receives or is entitled to receive any compensation,
directly or indirectly, from the investment company or its shareholders (other
than fees for bona fide investment advisory or other services) or from any
person in connection with the purchase or sale of securities or other property
to, from or on behalf of the investment company (other than bona fide ordinary
compensation as principal underwriter for such investment company). Zurich,
Kemper and KFS are not aware of any express or implied term, condition,
arrangement or understanding that would impose an "unfair burden" on any Fund as
a result of the Merger.
- ---------------
* After consummation of the Merger and subject to compliance with Section 15(f),
it is expected that a senior executive of Zurich will be proposed to be
nominated to each Board.
17
<PAGE> 22
Zurich, Kemper and KFS have agreed that they, and their affiliates, will take no
action that would have the effect of imposing an "unfair burden" on any Fund as
a result of the Merger. Zurich and Kemper have undertaken to pay the costs of
preparing and distributing proxy materials to and of holding the meetings of the
Funds' shareholders as well as other fees and expenses in connection with the
Merger, including the fees and expenses of legal counsel to the Funds and the
independent trustees and for other outside assistance to help analyze the Merger
from a financial perspective.
In connection with each Board's approval of the new management agreement, the
Board considered that the terms of the Merger Agreement and the KFS Merger
Agreement do not require any change in the Fund's investment objective or
policies, the investment management or operation of the Fund, or the investment
personnel managing the Fund. If, after the Merger, changes in New KFS are
proposed that might materially affect its services to a Fund, the Fund's Board
will consider the effect of those changes and take such action as it deems
advisable under the circumstances.
In evaluating each new management agreement, each Board took into account that
the new management agreement for each Fund, including the terms relating to the
services to be provided and the fees and expenses payable by such Fund, is on
the same terms as the current management agreement. Each Board noted that, in
previously approving the continuation of the current management agreements, the
Board had considered a number of factors, including the nature and quality of
services provided by KFS; investment performance, both of the Fund itself and
relative to that of competitive investment companies; investment management fees
and expense ratios of the Fund and competitive investment companies; KFS
profitability from managing the Funds; fall-out benefits to KFS from its
relationship to the Funds, including revenues derived from services provided to
the Funds by affiliates of KFS; and the potential benefits to KFS and to the
Funds and their shareholders of receiving research services from broker/dealer
firms in connection with the allocation of portfolio transactions to such firms.
The Board discussed the Merger, the financial condition of Zurich and the pro
forma financial statements of New KFS with the senior management of KFS and
Zurich and among themselves. Zurich senior management personnel and
representatives advised the Board that Zurich expects the operating cash flows
from New KFS to be more than sufficient to service debt and pay for operating
and other expenses. The Board also considered that Zurich is a large,
well-established company with substantial resources and, as noted above, has
undertaken to devote such resources as are necessary to provide each Fund with
top quality services.
As a result of their investigation and consideration of the Merger and the new
management agreements, at its meeting on June 15, 1995, the Board of each Fund
voted to approve the new management agreement and to recommend it to the
shareholders of the Fund for their approval.
18
<PAGE> 23
The Board of each Fund recommends that shareholders vote FOR approval of the new
management agreement.
ITEM 4. NEW RULE 12B-1 DISTRIBUTION PLAN OF CEF, TECMF AND TNYMF ONLY
INTRODUCTION
Rule 12b-1 under the 1940 Act provides, among other things, that an investment
company (mutual fund) may bear expenses of distributing its shares only pursuant
to a plan (a "Rule 12b-1 Plan") adopted in accordance with Rule 12b-1. Pursuant
to an administration, shareholder services and distribution agreement and, in
the case of CEF, an underwriting agreement (collectively, "distribution
agreement"), Kemper Distributors, Inc. ("KDI") serves as distributor,
administrator and principal underwriter to CEF, TECMF and TNYMF to provide
information and services for existing and potential shareholders. Since the
distribution agreement provides for fees that are used by KDI to pay for
distribution and administration services, the distribution agreement and the
plan contained therein are approved and reviewed in accordance with Rule 12b-1.
Consummation of the Kemper merger may constitute an "assignment," as that term
is defined in the 1940 Act, of each Fund's Rule 12b-1 Plan. Each Fund's Rule
12b-1 Plan provides for its automatic termination in the event of its
assignment. In anticipation of the Merger, a new Rule 12b-1 Plan is being
submitted for shareholder approval of the shareholders of CEF, TECMF and TNYMF.
THE NEW RULE 12B-1 PLAN IS ON THE SAME TERMS AS THE FUND'S CURRENT RULE 12B-1
PLAN, except that, in the case of CEF, the terms of the underwriting agreement
are included in the new Rule 12b-1 Plan but not as a separate agreement as is
currently the case. A form of the new Rule 12b-1 Plan for each of these Funds is
attached hereto as Exhibit B. NO CHANGE IN FEES IS BEING PROPOSED.
On June 15, 1995, the Board of each Fund, including a majority of the "non-
interested" trustees, voted to approve the new Rule 12b-1 Plan for each Fund,
and directed that it be submitted to the shareholders of each Fund at the
Meeting, along with a recommendation that the shareholders approve such Rule
12b-1 Plan.
If the new Rule 12b-1 Plan is approved by a Fund (or series thereof), it will
become effective for that Fund (or series thereof) and will replace the current
Rule 12b-1 Plan upon consummation of the Kemper merger. If the shareholders of a
Fund (or series thereof) do not approve the new Rule 12b-1 Plan, the Board of
that Fund would consider appropriate action.
DESCRIPTION OF THE NEW RULE 12B-1 PLAN
As noted above, a form of the new Rule 12b-1 Plan is attached as Exhibit B and
this summary is qualified in its entirety by reference to Exhibit B. THE TERMS
OF THE NEW RULE 12B-1 PLAN DESCRIBED BELOW ARE THE SAME AS IN THE CURRENT RULE
12B-1 PLAN for CEF, TECMF and TNYMF.
19
<PAGE> 24
Before February 1, 1995, KFS served as each Fund's principal underwriter. On
February 1, 1995, KFS assigned and transferred to KDI, and KDI assumed, all of
the rights, interests, liabilities, duties and obligations of KFS under the
distribution agreement with each Fund (which agreement also constitutes the
Fund's Rule 12b-1 Plan). Such assignment and assumption did not constitute an
"assignment" under the 1940 Act, since there was no change of control because
KDI is a wholly-owned subsidiary of KFS.
Under each Fund's new Rule 12b-1 Plan, KDI shall appoint various financial
services firms, such as broker-dealers or banks, to provide cash management
services for their customers or clients through the Fund. The firms are to
provide such office space and equipment, telephone facilities, personnel and
literature distribution as is necessary or appropriate for providing information
and services to the firms' clients. For its services under the distribution
agreement, KDI receives annual fees as a percentage of average daily net assets,
payable monthly, at the rates shown below. The fees are accrued daily as an
expense of the Funds.
<TABLE>
<CAPTION>
FUND FEE RATE
- --------------------------------------------------------- ---------
<S> <C>
CEF -- MMP and GSP....................................... .38 of 1%
CEF -- TEP............................................... .33 of 1%
TECMF.................................................... .33 of 1%
TNYMF.................................................... .50 of 1%
</TABLE>
KDI has related services agreements with various broker-dealer firms to provide
cash management and other services for Fund shareholders. KDI also has services
agreements with banking firms to provide such services, except for certain
underwriting or distribution services which the banks may be prohibited from
providing under the Glass-Steagall Act, for their clients who wish to invest in
the Fund. If the Glass-Steagall Act should prevent banking firms from acting in
any capacity or providing any of the described services, management will
consider what action, if any, is appropriate. Management does not believe that
termination of a relationship with a bank would result in any material adverse
consequences to the Funds. Banks or other financial services firms may be
subject to various state laws regarding the services described above and may be
required to register as dealers pursuant to state law. KDI normally pays such
firms at annual rates shown below for the accounts of the Funds that the firms
maintain and service. KDI may in its discretion pay certain firms additional
amounts. KDI may elect to keep a portion of the total distribution fee to
compensate itself for functions performed for the Funds or to pay for sales
materials or other promotional activities.
<TABLE>
<CAPTION>
RATES OF PAYMENTS TO
FUND FIRMS
- ---------------------------------------------- -----------------------
<S> <C>
CEF
MMP......................................... .15 of 1% to .40 of 1%
GSP......................................... .15 of 1% to .40 of 1%
TEP......................................... .15 of 1% to .33 of 1%
TECMF......................................... .15 of 1% to .33 of 1%
TNYMF......................................... .50 of 1%
</TABLE>
20
<PAGE> 25
The table below shows, for each Fund, the date the Rule 12b-1 Plan was adopted,
the date last approved by the trustees and the date to which it continues.
<TABLE>
<CAPTION>
DATE APPROVED DATE
FUND ADOPTED BY TRUSTEES CONTINUES TO
- -------------------------------- -------- ----------- ------------
<S> <C> <C> <C>
CEF
MMP........................... 10/14/88 9/9/94(a)(b) 12/1/95
GSP........................... 10/14/88 9/9/94(a)(b) 12/1/95
TEP........................... 10/14/88 9/9/94(a)(b) 12/1/95
TECME........................... 6/1/87 9/9/94(a)(b) 12/1/95
TNYMF........................... 3/25/91 9/9/94(a)(b) 12/1/95
</TABLE>
- ---------------
(a) Trustee approval of continuation of Rule 12b-1 Plan with KFS. Assignment of
Rule 12b-1 Plan from KFS to KDI was approved by trustees on December 8,
1994.
(b) On September 9, 1994, the Boards approved new Rule 12b-1 Plans with KFS in
anticipation of the termination of the current Rule 12b-1 Plans because of a
proposed merger involving Kemper and Conseco, Inc. (the "Conseco/Kemper
Merger"). As with the Merger, consummation of the Conseco/Kemper Merger
would have constituted an "assignment" and, therefore, a termination of each
Rule 12b-1 Plan. In anticipation of the Conseco/Kemper Merger, new 12b-1
Plans were approved by the Boards and submitted to shareholders for
approval. By agreement of Kemper and Conseco, Inc., the Conseco/Kemper
Merger did not occur and, therefore, the new 12b-1 Plans were not voted upon
by shareholders.
As principal underwriter for the Funds, KDI acts as agent of the Funds in the
sale of their shares. KDI pays all its expenses under the distribution agreement
including, without limitation, services fees to firms. The Fund pays the cost
for the prospectus and shareholder reports to be set in type and printed for
existing shareholders, and KDI pays for the printing and distribution of copies
thereof used in connection with the offering of shares to prospective investors.
KDI also pays for supplementary sales literature and advertising costs.
Since the fees payable to KDI under the distribution agreement are based upon
percentages of the average daily net assets as provided above and not upon the
actual expenditures of KDI, the expenses of KDI, which may include overhead
expense, may be more or less than the fees received by it under the distribution
agreement. If the distribution agreement is terminated in accordance with its
terms, the obligation of the Fund to make payments to KDI pursuant to the
distribution agreement will cease and the Fund will not be required to make any
payments past the termination date. Thus, there is no legal obligation for the
Fund to pay any expenses incurred by KDI in excess of its fees under the
distribution agreement, if for any reason the distribution agreement is
terminated in accordance with its terms. Future fees under the distribution
agreement may or may not be sufficient to reimburse KDI for its cumulative
expenses incurred.
21
<PAGE> 26
Shown below are the amounts that each Fund paid to KFS (and KDI as its
successor) under the distribution agreement.
<TABLE>
<CAPTION>
FISCAL
YEAR 12B-1 FEES
FUND END PAID BY FUND
- ---------------------------------------------- ------- ------------
<S> <C> <C>
CEF
MMP......................................... 7/31/94 $ 13,430,000
GSP......................................... 7/31/94 8,053,000
TEP......................................... 7/31/94 4,354,000
TECMF......................................... 9/30/94 370,000
TNYMF......................................... 3/31/95 60,000
</TABLE>
The new Rule 12b-1 Plan will be in effect for an initial term ending on the same
date as would the current Rule 12b-1 Plan but for the Kemper merger and may
continue thereafter from year to year for a Fund (or series thereof) if
specifically approved at least annually by vote of "a majority of the
outstanding voting securities" of that Fund (or series thereof), as defined
under the 1940 Act, or by the Board, including, in either event, the vote of a
majority of the "non-interested" trustees, cast in person at a meeting called
for such purpose.
Pursuant to the new Rule 12b-1 Plan, KDI will prepare reports to the Board of a
Fund on a quarterly basis showing the amounts paid to the various firms and such
other information as from time to time the Board may reasonably request. Rule
12b-1 requires the Board to review such reports at least quarterly.
In approving the new Rule 12b-1 Plan, the Board of each Fund determined, as with
the current Rule 12b-1 Plan, that there is a reasonable likelihood that the new
Rule 12b-1 Plan would benefit the Fund and its shareholders. In doing so, each
Board considered several factors, including that the new Rule 12b-1 Plan would
(i) enable investors to continue to receive cash management and other services
from the financial services firm through which the investor purchased shares of
the Fund and to attract new investors and assets to the Funds to the benefit of
each Fund and its shareholders; (ii) facilitate distribution of each Fund's
shares; (iii) help maintain the competitive position of each Fund; and (iv)
permit possible economies of scale through increased Fund size.
BOARD OF TRUSTEES RECOMMENDATION
As a result of their consideration of the foregoing factors, the Board of each
Fund voted to approve the new Rule 12b-1 Plan and to submit it to the
shareholders for their approval.
The Board of each Fund recommends that shareholders vote FOR approval of the new
Rule 12b-1 Plan.
22
<PAGE> 27
OTHER INFORMATION
KFS
KFS is a wholly owned subsidiary of Kemper Financial Companies, Inc., ("KFC"), a
financial services holding company. Kemper, an insurance and financial services
holding company, owns more than 99% of the voting securities of KFC. The address
of KFS is 120 South LaSalle Street, Chicago, Illinois 60603. The address of KFC
and Kemper is One Kemper Drive, Long Grove, Illinois 60049.
Since June 30, 1993, no trustee or nominee for election as a trustee of any Fund
purchased or sold securities, or as of May 31, 1995, beneficially owned in the
aggregate, more than 1% of the outstanding securities of KFC, Kemper or Zurich.
As of May 31, 1995, none of the non-interested trustees, or non-interested
nominees, beneficially owned any securities of KFC, Kemper or Zurich.
The investment companies to which KFS renders investment management services,
and the related management fees, are identified in Exhibit C.
The names, addresses and principal occupations of the principal executive
officer and the directors of KFS are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- ------------------------------ --------------------------------------------
<S> <C>
James R. Boris, Director Chairman and Chief Executive Officer, Kemper
77 West Wacker Drive Securities, Inc. and Executive Vice
Chicago, Illinois 60601 President, Kemper
David B. Mathis, Director Chairman and Chief Executive Officer, Kemper
One Kemper Drive
Long Grove, Illinois 60049
John E. Neal, Director President and Chief Operating Officer, KFS
120 South LaSalle Street
Chicago, Illinois 60603
John E. Peters, Director Senior Executive Vice President, KFS
120 South LaSalle Street
Chicago, Illinois 60603
Stephen B. Timbers, Chairman, President and Chief Operating Officer,
Chief Executive Officer and Kemper; Chairman, Chief Executive Officer
Director and Chief Investment Officer, KFS
120 South LaSalle Street
Chicago, Illinois 60603
</TABLE>
Upon consummation of the KFS Sale, it is expected that Messrs. Mathis, Neal,
Peters and Timbers and one or more senior executive officers of Zurich will
become directors of New KFS.
CUSTODIAN AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary Trust Company
("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as custodian, and
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02210, as sub-custodian, have custody of all securities and cash of each Fund.
They attend to the collection of principal and income, and payment for
23
<PAGE> 28
and collection of proceeds of securities bought and sold by the Funds. IFTC is
also each Fund's transfer agent and dividend-paying agent. Prior to February 1,
1995, IFTC was owned equally by KFS and DST Systems, Inc., a company that is not
affiliated with KFS. On January 31, 1995, KFS and DST Systems, Inc. sold IFTC to
State Street Boston Corporation. Pursuant to a services agreement with IFTC,
Kemper Service Company ("KSVC"), an affiliate of KFS, serves as "Shareholder
Service Agent."
IFTC receives an annual fee as custodian for each Fund, payable monthly, on a
graduated basis ranging from $.40 to $.05 per $1,000 of average monthly net
assets of the Fund plus certain transaction charges and out-of-pocket expense
reimbursement. (The effective custodian fee rate is based upon the average net
assets of all Kemper Mutual Funds of the money market type for which IFTC serves
as custodian.) IFTC receives as transfer agent, and pays to KSVC, annual account
fees of a maximum of $13 plus out-of-pocket expense reimbursement. Kemper
Clearing Corp. ("KCC"), an affiliate of KFS, pursuant to an agreement with KSVC,
performs bookkeeping, data processing and shareholder services for KCC clients
who are shareholders of CEF, TNYMF and TECMF.
For the most recently completed fiscal year the Funds incurred custodian and
transfer agent fees to IFTC and IFTC remitted shareholder service fees to KSVC
as set forth in Exhibit D. It is anticipated that KSVC (or its successor) will
continue to provide transfer agent services after consummation of the Merger. It
is anticipated that KCC (or its successor) will continue to provide bookkeeping,
data processing and shareholder services after consummation of the Merger.
ADMINISTRATOR -- ICT ONLY. Pursuant to an administrative services agreement
("administrative agreement"), KDI provides information and administrative
services for shareholders. Before February 1, 1995, KFS served as ICT's
administrator. The administrative agreement provides that KDI shall appoint
various financial services firms ("firms"), such as broker-dealers and banks, to
provide administrative services for their customers or clients who are
shareholders of the Fund. The firms are to provide such office space and
equipment, telephone facilities and personnel as is necessary or appropriate for
providing information and services to Fund shareholders. If the Glass-Steagall
Act should prevent banking firms from acting in any capacity or providing any of
the described services, management will consider what action, if any, is
appropriate. Management does not believe that termination of a relationship with
a bank would result in any material adverse consequences to the Fund. Banks or
other financial services firms may be subject to various state laws regarding
the services described above and may be required to register as dealers pursuant
to state law.
KDI has related services agreements with various firms to provide administrative
services for Fund shareholders. Such services and assistance may include, but
are not limited to, establishing and maintaining shareholder accounts and
records, processing purchase and redemption transactions, providing automatic
investment in Fund shares of client account balances, answering routine
inquiries regarding the Fund, assisting clients in changing account options,
designations and addresses, and such other services as may be agreed upon from
time to time and as may be permitted by applicable statute, rule or regulation.
KDI also has
24
<PAGE> 29
services agreements with banking firms to provide the above listed services,
except for certain distribution services that the banks may be prohibited from
providing for their clients who wish to invest in the Fund. KDI also may provide
some of the above services for the Fund.
The Fund has agreed to pay KDI an annual administrative services fee under the
administrative agreement, payable monthly, of .10% of average daily net assets
of each series of the Fund. KDI may elect to keep a portion of the total
administrative fee to compensate itself for administrative functions performed
for the Fund. KDI normally pays firms a monthly service fee at an annual rate
that ranges between .05% and .10% of average net assets of those Fund accounts
that they maintain and service. The administrative services fees paid by ICT to
KFS (and KDI as its successor) for the most recently completed fiscal year are
set forth in Exhibit D. It is anticipated that KDI (or its successor) will
continue to provide administrative services after consummation of the Merger.
UNDERWRITER -- ICT ONLY. KDI is the principal underwriter for the Fund and acts
as agent of the Fund in the sale of its shares. Before February 1, 1995, KFS
served as ICT's underwriter. The Fund pays the cost for the prospectus and
shareholder reports to be set in type and printed for existing shareholders, and
KDI pays for the printing and distribution of copies thereof used in connection
with the offering of shares to prospective investors. KDI also pays for
supplementary sales literature and advertising costs. It is anticipated that KDI
(or its successor) will continue to serve as ICT's underwriter after
consummation of the Merger.
ALLOCATION OF PORTFOLIO TRANSACTIONS. KFS is the investment manager for the
Funds and KFS and its affiliates also furnish investment management services to
other clients including the KFS Advised Funds, Kemper and the Kemper insurance
companies. KFS is the sole shareholder of Kemper Asset Management Company and
Kemper Investment Management Company Limited. These three entities share some
common research and trading facilities. At times investment decisions may be
made to purchase or sell the same investment securities for one or more Fund and
for one or more of the other clients advised by KFS. When two or more of such
clients are simultaneously engaged in the purchase or sale of the same security,
the transactions are allocated as to amount and price in a manner considered
equitable to each and so that each receives, to the extent practicable, the
average price of such transactions.
The above mentioned factors may have a detrimental effect on the quantities or
prices of securities available to a Fund. On the other hand, the ability of a
Fund to participate in volume transactions may produce better execution for the
Fund in some cases. The Board of each Fund believes that the benefits of KFS'
organization outweigh any limitations that may arise from simultaneous
transactions.
KFS, in effecting purchases and sales of portfolio securities for the account of
a Fund, implements the Fund's policy of seeking best execution of orders, which
includes best net prices. Consistent with this policy, orders for portfolio
transactions
25
<PAGE> 30
are placed with broker-dealer firms giving consideration to the quality,
quantity and nature of each firm's professional services which include
execution, clearance procedures, wire service quotations and statistical and
other research information provided to a Fund and KFS. Any research benefits
derived are available for all clients, including clients of affiliated
companies. Since statistical and other research information is only
supplementary to research efforts of KFS and still must be analyzed and reviewed
by its staff, the receipt of research information is not expected to materially
reduce its expenses. In selecting among firms believed to meet the criteria for
handling a particular transaction, KFS may give consideration to those firms
that provide market, statistical and other research information to the Fund and
KFS. KFS is not authorized to pay higher commissions or in the case of principal
trades, higher prices, to firms that provide such services. The Fund may
purchase instruments issued by banks that are receiving service payments or
commissions; however, no preferences will be given in making such portfolio
purchases. Money market instruments are normally purchased in principal
transactions directly from the issuer or from an underwriter or market maker.
There are normally no brokerage commissions paid for such purchases. Purchases
from underwriters include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers include the
spread between the bid and ask prices.
No Fund paid any brokerage commissions during its most recently completed fiscal
year.
MISCELLANEOUS
GENERAL
The cost of preparing, printing and mailing the enclosed proxy, accompanying
notice and proxy statement and all other costs in connection with solicitation
of proxies will be paid by Kemper and Zurich, including any additional
solicitation made by letter, telephone or telegraph. In addition to solicitation
by mail, certain officers and representatives of the Funds, officers and
employees of KFS and certain financial services firms and their representatives,
who will receive no extra compensation for their services, may solicit proxies
by telephone, telegram or personally. In addition, Kemper and Zurich may retain
a firm to solicit proxies on behalf of each Fund's Board and the boards of the
other KFS Advised Funds, the fee for which will be borne by Kemper and Zurich. A
COPY OF YOUR FUND'S ANNUAL REPORT AND ANY MORE RECENT SEMI-ANNUAL REPORT ARE
AVAILABLE WITHOUT CHARGE UPON REQUEST BY WRITING TO THE FUND, 120 SOUTH LASALLE
STREET, CHICAGO, ILLINOIS 60603 OR BY CALLING 1-800-231-8568.
PROPOSALS OF SHAREHOLDERS
As Massachusetts business trusts, the Funds are not required to hold annual
shareholder meetings, but each will hold special meetings as required or deemed
desirable. Since the Funds do not hold regular meetings of shareholders, the
anticipated date of the next special shareholders meeting cannot be provided.
Any shareholder proposal that may properly be included in the proxy solicitation
26
<PAGE> 31
material for a special shareholder meeting must be received by the applicable
Fund no later than four months prior to the date when proxy statements are
mailed to shareholders.
OTHER MATTERS TO COME BEFORE THE MEETING
The Boards of Trustees of the Funds are not aware of any matters that will be
presented for action at the Meeting other than the matters set forth herein.
Should any other matters requiring a vote of shareholders arise, the proxy in
the accompanying form will confer upon the person or persons entitled to vote
the shares represented by such proxy the discretionary authority to vote the
shares as to any such other matters in accordance with their best judgment in
the interest of the Fund.
VOTING, QUORUM
Each share of a Fund is entitled to one vote on each matter submitted to a vote
of the shareholders of that Fund at the Meeting; no shares have cumulative
voting rights.
Each valid proxy will be voted in accordance with the instructions on the proxy
and as the persons named in the proxy determine on such other business as may
come before the Meeting. If no instructions are given, the proxy will be voted
FOR the election of the persons who have been nominated as trustees for such
Fund and FOR Items 2, 3 and 4 (Item 4 does not apply to ICT.) Shareholders who
execute proxies may revoke them at any time before they are voted, either by
writing to the Fund or in person at the time of the Meeting. Proxies given by
telephone or electronically transmitted instruments may be counted if obtained
pursuant to procedures designed to verify that such instructions have been
authorized.
Item 1 (election of trustees) requires a plurality vote of the shares of each
Fund. This means that the nine nominees receiving the largest number of votes
will be elected. Item 2 (ratification of selection of independent auditors)
requires the affirmative vote of a majority of the shares voting on the matter.
Item 3 (approval of new investment management agreement) and Item 4 (approval of
new Rule 12b-1 Plan) require the affirmative vote of a "majority of the
outstanding voting securities" of the applicable Fund. The term "majority of the
outstanding voting securities" as defined in the 1940 Act means: the affirmative
vote of the lesser of (1) 67% of the voting securities of the Fund present at
the meeting if more than 50% of the outstanding shares of the Fund are present
in person or by proxy or (2) more than 50% of the outstanding shares of the
Fund.
On Items 1 and 2, each Fund will vote in the aggregate and not by series. On
Item 3, TECMF and TNYMF will vote in aggregate, while in the case of CEF and
ICT, each series will vote separately. On Item 4, TECMF and TNYMF will vote in
aggregate, while in the case of CEF, each series will vote separately.
The Declaration of Trust of each Fund provides that the presence at a
shareholder meeting in person or by proxy of at least 30% of the shares of a
Fund
27
<PAGE> 32
constitutes a quorum for that Fund. Thus, the meeting for a particular Fund
could not take place on its scheduled date if less than 30% of the shares of
that Fund were represented. If, by the time scheduled for the meeting, a quorum
of shareholders of a Fund is not present or if a quorum is present but
sufficient votes in favor of any of the items are not received, the persons
named as proxies may propose one or more adjournments of the meeting for that
Fund to permit further soliciting of proxies from its shareholders. Any such
adjournment will require the affirmative vote of a majority of the shares of the
Fund as to which the meeting is being adjourned present (in person or by proxy)
at the session of the meeting to be adjourned. The persons named as proxies will
vote in favor of any such adjournment if they determine that such adjournment
and additional solicitation are reasonable and in the interest of the respective
Fund's shareholders.
In tallying shareholder votes, abstentions and "broker non-votes" (i.e., shares
held by brokers or nominees as to which (i) instructions have not been received
from the beneficial owners or persons entitled to vote and (ii) the broker or
nominee does not have discretionary voting power on a particular matter) will be
counted for purposes of determining whether a quorum is present for purposes of
convening the Meeting. On Item 1, abstentions and broker non-votes will have no
effect; the nine nominees receiving the largest number of votes will be elected.
On Item 2, abstentions and broker non-votes will not be counted as "votes cast"
and will have no effect on the result of the vote. On Items 3 and 4 abstentions
and broker non-votes will be considered to be both present at the Meeting and
issued and outstanding and, as a result, will have the effect of being counted
as voted against the Items.
The Board of Trustees of each Fund recommends an affirmative vote on all items.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
By order of the Boards of Trustees,
Philip J. Collora
Secretary
28
<PAGE> 33
EXHIBIT A
FORM OF
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this day of , 199 , by and between
, a Massachusetts business trust (the "Fund"), and
KEMPER FINANCIAL SERVICES, INC., a Delaware corporation (the "Adviser").
WHEREAS, the Fund is an open-end, diversified management investment company
registered under the Investment Company Act of 1940, the shares of beneficial
interest ("Shares") of which are registered under the Securities Act of 1933;
WHEREAS, the Fund is authorized to issue Shares in separate series or portfolios
with each representing the interests in a separate portfolio of securities and
other assets;
WHEREAS, the Fund desires at this time to retain the Adviser to render
investment advisory and management services to the portfolio[s] of the Fund
known as the (the "Initial Portfolio[s]"), and the Adviser is
willing to render such services;
NOW THEREFORE, in consideration of the mutual covenants hereinafter contained,
it is hereby agreed by and between the parties hereto as follows:
1. The Fund hereby employs the Adviser to act as the investment adviser for the
Initial Portfolio[s] and other Portfolios hereunder and to manage the investment
and reinvestment of the assets of such Portfolios in accordance with the
applicable investment objectives and policies and limitations, and to administer
the affairs of such Portfolios to the extent requested by and subject to the
supervision of the Board of Trustees of the Fund for the period and upon the
terms herein set forth. The investment of funds shall be subject to all
applicable restrictions of the Agreement and Declaration of Trust and By-Laws of
the Fund as may from time to time be in force.
The Adviser accepts such employment and agrees during such period to render such
services, to furnish office facilities and equipment and clerical, bookkeeping
and administrative services for the Fund, to permit any of its officers or
employees to serve without compensation as trustees or officers of the Fund if
elected to such positions and to assume the obligations herein set forth for the
compensation herein provided. The Adviser shall for all purposes herein provided
be deemed to be an independent contractor and, unless otherwise expressly
provided or authorized, shall have no authority to act for or represent the Fund
in any way or otherwise be deemed an agent of the Fund. It is understood and
agreed that the Adviser, by separate agreements with the Fund, may also serve
the Fund in other capacities.
2. In the event that the Fund establishes one or more portfolios other than the
Initial Portfolio[s] with respect to which it desires to retain the Adviser to
render investment advisory and management services hereunder, it shall notify
the
A-1
<PAGE> 34
Adviser in writing. If the Adviser is willing to render such services, it shall
notify the Fund in writing whereupon such portfolio or portfolios shall become a
Portfolio or Portfolios hereunder.
3. For the services and facilities described in Section 1, the Fund will pay to
the Adviser at the end of each calendar month, an investment management fee
computed at an annual rate of
[See table on page 10 of proxy statement for each Fund's management fee.]
The fee as computed above shall be allocated as an expense of each Portfolio
based upon the relative daily net assets of such Portfolios [see page 10 of
proxy statement for description of allocation among CEF Portfolios]. For the
month and year in which this Agreement becomes effective or terminates, there
shall be an appropriate proration on the basis of the number of days that the
Agreement is in effect during the month and year, respectively.
4. The services of the Adviser to the Fund under this Agreement are not to be
deemed exclusive, and the Adviser shall be free to render similar services or
other services to others so long as its services hereunder are not impaired
thereby.
5. In addition to the fee of the Adviser, the Fund shall assume and pay any
expenses for services rendered by a custodian for the safekeeping of the Fund's
securities or other property, for keeping its books of account, for any other
charges of the custodian, and for calculating the net asset value of the Fund as
provided in the prospectus of the Fund. The Adviser shall not be required to pay
and the Fund shall assume and pay the charges and expenses of its operations,
including compensation of the trustees (other than those affiliated with the
Adviser), charges and expenses of independent auditors, of legal counsel, of any
transfer or dividend disbursing agent, and of any registrar of the Fund, costs
of acquiring and disposing of portfolio securities, interest, if any, on
obligations incurred by the Fund, costs of share certificates and of reports,
membership dues in the Investment Company Institute or any similar organization,
costs of reports and notices to shareholders, other like miscellaneous expenses
and all taxes and fees payable to federal, state or other governmental agencies
on account of the registration of securities issued by the Fund, filing of trust
documents or otherwise. The Fund shall not pay or incur any obligation for any
expenses for which the Fund intends to seek reimbursement from the Adviser as
herein provided without first obtaining the written approval of the Adviser. The
Adviser shall arrange, if desired by the Fund, for officers or employees of the
Adviser to serve, without compensation from the Fund, as trustees, officers or
agents of the Fund if duly elected or appointed to such positions and subject to
their individual consent and to any limitations imposed by law.
If expenses borne by the Fund for those Portfolios which the Adviser manages in
any fiscal year [see pages 10-11 of proxy statement for description of expense
limitations] The expense limitation guarantee shall be allocated to each such
Portfolio upon a fee reduction or reimbursement based upon the relative average
daily net assets of each such Portfolio [See pages 10-11 of proxy statement for
A-2
<PAGE> 35
description of allocation among CEF Portfolios]. If for any month the expenses
of the Fund properly chargeable to the income account shall exceed 1/12 of the
percentage of average net assets allowable as expenses, the payment to the
Adviser for that month shall be reduced and if necessary the Adviser shall make
a refund payment to the Fund so that the total net expense will not exceed such
percentage. As of the end of the Fund's fiscal year, however, the foregoing
computations and payments shall be readjusted so that the aggregate compensation
payable to the Adviser for the year is equal to the percentage set forth in
Section 3 hereof of the average net asset value as determined as described
herein throughout the fiscal year, diminished to the extent necessary so that
the total of the aforementioned expense items of the Fund shall not exceed the
expense limitation. The aggregate of repayments, if any, by the Adviser to the
Fund for the year shall be the amount necessary to limit the said net expense to
said percentage in accordance with the foregoing.
The net asset value for each Portfolio shall be calculated in accordance with
the provisions of the Fund's prospectus or at such other time or times as the
trustees may determine in accordance with the provisions of the Investment
Company Act of 1940. On each day when net asset value is not calculated, the net
asset value of a share of a Portfolio shall be deemed to be the net asset value
of such a share as of the close of business on the last day on which such
calculation was made for the purpose of the foregoing computations.
6. Subject to applicable statutes and regulations, it is understood that
trustees, officers or agents of the Fund are or may be interested in the Adviser
as officers, directors, agents, shareholders or otherwise, and that the
officers, directors,shareholders and agents of the Adviser may be interested in
the Fund otherwise than as a trustee, officer or agent.
7. The Adviser shall not be liable for any error of judgment or of law or for
any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Adviser in the performance of its
obligations and duties or by reason of its reckless disregard of its obligations
and duties under this Agreement.
8. This Agreement shall become effective with respect to the Initial
Portfolio[s] on the date hereof and shall remain in full force until
, 199 , unless sooner terminated as hereinafter provided. This
Agreement shall continue in force from year to year thereafter with respect to
each Portfolio, but only as long as such continuance is specifically approved
for each Portfolio at least annually in the manner required by the Investment
Company Act of 1940 and the rules and regulations thereunder; provided, however,
that if the continuation of this Agreement is not approved for a Portfolio, the
Adviser may continue to serve in such capacity for such Portfolio in the manner
and to the extent permitted by the Investment Company Act of 1940 and the rules
and regulations thereunder.
This Agreement shall automatically terminate in the event of its assignment and
may be terminated at any time without the payment of any penalty by the Fund or
by the Adviser on sixty (60) days written notice to the other party. The Fund
A-3
<PAGE> 36
may effect termination with respect to any Portfolio by action of the Board of
Trustees or by vote of a majority of the outstanding voting securities of such
Portfolio.
This Agreement may be terminated with respect to any Portfolio at any time
without the payment of any penalty by the Board of Trustees or by vote of a
majority of the outstanding voting securities of such Portfolio in the event
that it shall have been established by a court of competent jurisdiction that
the Adviser or any officer or director of the Adviser has taken any action which
results in a breach of the covenants of the Adviser set forth herein.
The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Investment Company Act of
1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of the Adviser to
receive payments on any unpaid balance of the compensation described in Section
3 earned prior to such termination.
9. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
10. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
11. All parties hereto are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund hereunder
are not binding upon any of the trustees, officers, or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund. With
respect to any claim by the Adviser for recovery of that portion of the
investment management fee (or any other liability of the Fund arising hereunder)
allocated to a particular Portfolio, whether in accordance with the express
terms hereof or otherwise, the Adviser shall have recourse solely against the
assets of that Portfolio to satisfy such claim and shall have no recourse
against the assets of any other Portfolio for such purpose.
12. This Agreement shall be construed in accordance with applicable federal law
and (except as to Section 11 hereof which shall be construed in accordance with
the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
A-4
<PAGE> 37
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to be
executed as of the day and year first above written.
[FUND]
By:
Title:
ATTEST:
Title:
KEMPER FINANCIAL SERVICES, INC.
By:
Title:
ATTEST:
Title:
A-5
<PAGE> 38
EXHIBIT B
FORM OF
ADMINISTRATION, SHAREHOLDER SERVICES AND
DISTRIBUTION AGREEMENT
AGREEMENT made this day of , 199 , by and between
, a Massachusetts business trust (the "Fund"), and KEMPER
DISTRIBUTORS, INC., a Delaware corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to act as administrator, distributor and
principal underwriter for the distribution of shares of beneficial interest
(hereinafter called "shares") of the Fund in jurisdictions wherein shares of the
Fund may legally be offered for sale; provided, however, that the Fund in its
absolute discretion may (a) issue or sell shares directly to holders of shares
of the Fund upon such terms and conditions and for such consideration, if any,
as it may determine, whether in connection with the distribution of subscription
or purchase rights, the payment or reinvestment of dividends or distributions,
or otherwise; or (b) issue or sell shares at net asset value to the shareholders
of any other investment company, for which KDI shall act as exclusive
distributor, who wish to exchange all or a portion of their investment in shares
of such other investment company for shares of the Fund.
KDI shall appoint various broker-dealers and other financial services firms
("Firms") to provide a cash management service for their clients through the
Fund. The Firms shall provide such office space and equipment, telephone
facilities, personnel, literature distribution, advertising and promotion as is
necessary or beneficial for providing information and services to potential and
existing shareholders of the Fund and to assist the Fund's shareholder service
agent in servicing accounts of the Firm's clients who own Fund shares
("clients"). Such services and assistance may include, but are not limited to,
establishment and maintenance of shareholder accounts and records, processing
purchase and redemption transactions, automatic investment in Fund shares of
client account cash balances, answering routine client inquiries regarding the
Fund, assistance to clients in changing dividend options, account designations
and addresses, and such other services as the Fund or KDI may reasonably
request. KDI may also provide some of the above services for the Fund directly.
KDI accepts such appointment and agrees during the term hereof to render such
services and to assume the obligations herein set forth for the compensation
herein provided. KDI shall for all purposes herein provided be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Fund in any way or otherwise
be deemed an agent of the Fund. It is understood and agreed that KDI, by
separate agreement with the Fund, may also serve the Fund in other capacities.
The services of KDI to the Fund under this Agreement are not to be deemed
B-1
<PAGE> 39
exclusive, and KDI shall be free to render similar services or other services to
others.
In carrying out its duties and responsibilities hereunder, KDI will, pursuant to
separate administration services and selling group agreements ("services
agreements"), appoint various Firms to provide administrative, distribution and
other services contemplated hereunder directly to or for the benefit of existing
and potential shareholders who may be clients of such Firms. Such Firms shall at
all times be deemed to be independent contractors retained by KDI and not the
Fund. KDI and not the Fund will be responsible for the payment of compensation
to such Firms for such services.
KDI will use its best efforts with reasonable promptness to sell such part of
the authorized shares of the Fund remaining unissued as from time to time shall
be effectively registered under the Securities Act of 1933 ("Securities Act"),
at prices determined as hereinafter provided and on terms hereinafter set forth,
all subject to applicable Federal and state laws and regulations and to the
Agreement and Declaration of Trust of the Fund. The price the Fund shall receive
for all shares purchased from the Fund shall be the net asset value used in
determining the public offering price applicable to the sale of such shares.
2. KDI shall sell shares of the Fund to or through qualified Firms in such
manner, not inconsistent with the provisions hereof and the then effective
registration statement of the Fund under the Securities Act (and related
prospectus), as KDI may determine from time to time, provided that no Firm or
other person shall be appointed or authorized to act as agent of the Fund
without the prior consent of the Fund. In addition to sales made by it as agent
of the Fund, KDI may, in its discretion, also sell shares of the Fund as
principal to persons with whom it does not have services agreements.
Shares of the Fund offered for sale or sold by KDI shall be so offered or sold
at a price per share determined in accordance with the then current prospectus
relating to the sale of such shares except as departure from such prices shall
be permitted by the rules and regulations of the Securities and Exchange
Commission; provided, however, that any public offering price for shares of the
Fund shall be the net asset value per share. The net asset value per share of
the Fund shall be determined in the manner and at the times set forth in the
then current prospectus of the Fund relating to such shares.
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price of the Fund's shares,
and neither KDI nor any such Firms shall withhold the placing of purchase orders
so as to make a profit thereby.
3. The Fund will use its best efforts to keep effectively registered under the
Securities Act for sale as herein contemplated such shares as KDI shall
reasonably request and as the Securities and Exchange Commission shall permit to
be so registered. Notwithstanding any other provision hereof, the Fund may
terminate,
B-2
<PAGE> 40
suspend or withdraw the offering of shares whenever, in its sole discretion, it
deems such action to be desirable.
4. The Fund will execute any and all documents and furnish any and all
information which may be reasonably necessary in connection with the
qualification of its shares for sale (including the qualification of the Fund as
a dealer where necessary or advisable) in such states as KDI may reasonably
request (it being understood that the Fund shall not be required without its
consent to comply with any requirement which in its opinion is unduly
burdensome). The Fund will furnish to KDI from time to time such information
with respect to the Fund and its shares as KDI may reasonably request for use in
connection with the sale of shares of the Fund.
5. KDI shall issue and deliver or shall arrange for various Firms to issue and
deliver on behalf of the Fund such confirmations of sales made by it as agent
pursuant to this Agreement as may be required. At or prior to the time of
issuance of shares, KDI will pay or cause to be paid to the Fund the amount due
the Fund for the sale of such shares. Certificates shall be issued or shares
registered on the transfer books of the Fund in such names and denominations as
KDI may specify.
6. KDI shall order shares of the Fund from the Fund only to the extent that it
shall have received purchase orders therefor. KDI will not make, or authorize
any Firms or others to make, any short sales of shares of the Fund. KDI, as
agent of and for the account of the Fund, may repurchase the shares of the Fund
at such prices and upon such terms and conditions as shall be specified in the
current prospectus of the Fund. In selling or reacquiring shares of the Fund for
the account of the Fund, KDI will in all respects conform to the requirements of
all state and Federal laws and the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., relating to such sale or reacquisition,
as the case may be, and will indemnify and save harmless the Fund from any
damage or expense on account of any wrongful act by KDI or any employee,
representative or agent of KDI. KDI will observe and be bound by all the
provisions of the Agreement and Declaration of Trust of the Fund (and of any
fundamental policies adopted by the Fund pursuant to the Investment Company Act
of 1940, notice of which shall have been given to KDI) which at the time in any
way require, limit, restrict or prohibit or otherwise regulate any action on the
part of KDI.
7. The Fund shall assume and pay all charges and expenses of its operations not
specifically assumed or otherwise to be provided by KDI under this Agreement.
The Fund will pay or cause to be paid expenses (including the fees and
disbursements of its own counsel) and all taxes and fees payable to the Federal,
state or other governmental agencies on account of the registration or
qualification of securities issued by the Fund or otherwise. The Fund will also
pay or cause to be paid expenses incident to the issuance of shares of
beneficial interest, such as the cost of share certificates, issue taxes, and
fees of the transfer agent. KDI will pay all expenses (other than expenses which
one or more Firms may bear pursuant to any agreement with KDI) incident to the
sale and distribution of the shares issued or sold hereunder including, without
limiting the generality of the foregoing, all expenses of printing and
distributing any prospectus and of
B-3
<PAGE> 41
preparing, printing and distributing or disseminating any other literature,
advertising and selling aids in connection with the offering of the shares for
sale (except that such expenses need not include expenses incurred by the Fund
in connection with the preparation, typesetting, printing and distribution of
any registration statement, prospectus or report or other communication to
shareholders in their capacity as such) and expenses of advertising in
connection with such offering.
8. For the services and facilities described herein, the Fund will pay to KDI at
the end of each calendar month a distribution services fee computed at an annual
rate of
[See table on page 20 of the proxy statement for each Fund's distribution fee.]
For the month and year in which this Agreement becomes effective or terminates,
there shall be an appropriate proration on the basis of the number of days that
the Agreement is in effect during the month and year, respectively.
The net asset value of each series of shares of the Fund ("Portfolio") shall be
calculated in accordance with the provisions of the Fund's current prospectus.
On each day when net asset value is not calculated, the net asset value of a
share of any Portfolio shall be deemed to be the net asset value of such a share
as of the close of business on the last day on which such calculation was made
for the purpose of the foregoing computations.
9. KDI shall prepare reports for the Board of Trustees of the Fund on a
quarterly basis showing amounts paid to the various Firms, the basis for any
discretionary payments made to such Firms and such other information as from
time to time shall be reasonably requested by the Board of Trustees.
This Agreement shall become effective with respect to the Initial Portfolio on
the date hereof and shall continue until , 199 and shall continue
from year to year thereafter with respect to each Portfolio, but only so long as
such continuance is specifically approved for each Portfolio at least annually
by a vote of the Board of Trustees of the Fund including the trustees who are
not interested persons of the Fund and who have no direct or indirect financial
interest in this Agreement or in any agreement related to this Agreement.
This Agreement may not be amended to increase the amount to be paid to KDI for
services hereunder without the vote of a majority of the outstanding voting
securities of each Portfolio of the Fund. All material amendments to this
Agreement must in any event be approved by a vote of the Board of Trustees of
the Fund including the trustees who are not interested persons of the Fund and
who have no direct or indirect financial interest in this Agreement or in any
agreement related to this Agreement, cast in person at a meeting called for such
purpose.
10. This Agreement shall automatically terminate in the event of its assignment
and may be terminated at any time without the payment of any penalty by the Fund
or by KDI on sixty (60) days written notice to the other party. The Fund may
effect termination with respect to any Portfolio by a vote of (i) a majority of
B-4
<PAGE> 42
the Board of Trustees, (ii) a majority of the trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in
this Agreement or in any agreement related to this Agreement, or (iii) a
majority of the outstanding voting securities of a Portfolio.
The terms "assignment", "interested" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth in the Investment Company
Act of 1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of KDI to receive
payments on any unpaid balance of the compensation described in Section 8 earned
prior to such termination.
11. KDI will not use or distribute or authorize the use, distribution or
dissemination by Firms or others in connection with the sale of the shares any
statements, other than those contained in the Fund's current prospectus, except
such supplemental literature or advertising as shall be lawful under Federal and
state securities laws and regulations, and will furnish the Fund with copies of
all such material.
12. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
13. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
14. All parties hereto are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund hereunder
are not binding upon any of the trustees, officers or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund. With
respect to any claim by KDI for recovery of that portion of the distribution
services fees (or any other liability of the Fund arising hereunder) allocated
to a particular Portfolio, whether in accordance with the express terms hereof
or otherwise, KDI shall have recourse solely against the assets of that
Portfolio to satisfy such claim and shall have no recourse against the assets of
any other Portfolio for such purpose.
15. This Agreement shall be construed in accordance with applicable federal law
and (except as to Section 14 hereof which shall be construed in accordance with
the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
16. This Agreement is the entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.
B-5
<PAGE> 43
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be executed
as of the day and year first above written.
[FUND]
By:
Title:
ATTEST:
Title:
KEMPER DISTRIBUTORS, INC.
By:
Title:
ATTEST:
Title:
B-6
<PAGE> 44
EXHIBIT C
FUNDS AND MANAGEMENT FEES
<TABLE>
<CAPTION>
TOTAL NET ASSETS* MANAGEMENT
FUND (MILLIONS) FEE**
- -------------------------------------------------------------------- -----------
<S> <C> <C>
</TABLE>
<TABLE>
<S> <C> <C>
Kemper Technology Fund............................ $ 786 A
Kemper Total Return Fund.......................... 2,842 A
Kemper Growth Fund................................ 2,269 A
Kemper Small Capitalization Equity Fund........... 655 F
Kemper Income and Capital Preservation Fund....... 548 B
Kemper National Tax-Free Income Series
1. Kemper Municipal Bond Fund................... 3,634 C
2. Kemper Intermediate Municipal Bond Fund...... 13 B
Kemper Diversified Income Fund.................... 768 A
Kemper High Yield Fund............................ 3,517 A
Kemper U.S. Government Securities Fund............ 4,889 C
Kemper International Fund......................... 369 D
Kemper International Bond Fund.................... 7 D
Kemper State Tax-Free Income Series
1. Kemper California Tax-Free Income Fund....... 1,139 B
2. Kemper New York Tax-Free Income Fund......... 329 B
3. Kemper Florida Tax-Free Income Fund.......... 123 B
4. Kemper Texas Tax-Free Income Fund............ 16 B
5. Kemper Ohio Tax-Free Income Fund............. 31 B
6. Kemper Michigan Tax-Free Income Fund......... 2 B
7. Kemper New Jersey Tax-Free Income Fund....... 4 B
8. Kemper Pennsylvania Tax-Free Income Fund..... 2 B
Kemper Portfolios
1. Kemper Cash Reserves Fund.................... 214 E
2. Kemper U.S. Mortgage Fund.................... 3,652 B
3. Kemper Short-Intermediate Government Fund.... 250 B
Kemper Adjustable Rate U.S. Government Fund....... 150 B
Kemper Blue Chip Fund............................. 155 A
Kemper Global Income Fund......................... 172 D
Kemper Money Market Fund.......................... G
1. Money Market Portfolio....................... 3,998
2. Government Securities Portfolio.............. 586
3. Tax-Exempt Portfolio......................... 738
Cash Equivalent Fund
1. Money Market Portfolio....................... 3,451 H
2. Government Securities Portfolio.............. 1,687 H
Cash Equivalent Fund
1. Tax-Exempt Portfolio......................... 1,020 H
Tax-Exempt California Money Market Fund........... 94 H
Cash Account Trust................................ H
1. Money Market Portfolio....................... 397
2. Government Securities Portfolio.............. 150
3. Tax-Exempt Portfolio......................... 70
Investors Cash Trust***
1. Government Securities Portfolio.............. 197 0.15%
</TABLE>
C-1
<PAGE> 45
<TABLE>
<CAPTION>
TOTAL NET ASSETS* MANAGEMENT
FUND (MILLIONS) FEE**
- -------------------------------------------------------------------- -----------
<S> <C> <C>
2. Treasury Portfolio........................... 67 0.15%
Tax-Exempt New York Money Market Fund............. 15 H
Kemper High Income Trust.......................... 200 0.85%
Kemper Intermediate Government Trust.............. 278 0.80%
Kemper Municipal Income Trust..................... 672 0.55%
Kemper Multi-Market Income Trust.................. 215 0.85%
Kemper Strategic Municipal Income Trust........... 126 0.60%
The Growth Fund of Spain, Inc. ................... 221 1.00%
Kemper Strategic Income Fund...................... 45 0.85%
Kemper Investors Fund
1. Money Market Portfolio....................... 65 0.50%
2. Total Return Portfolio....................... 626 0.55%
3. High Yield Portfolio......................... 265 0.60%
4. Equity Portfolio............................. 336 0.60%
5. Government Securities Portfolio.............. 96 0.55%
6. International Portfolio...................... 125 0.75%
7. Small Capitalization Equity Portfolio........ 18 0.65%
Kemper Target Equity Fund
1. Kemper Retirement Fund Series I.............. 105 0.50%
2. Kemper Retirement Fund Series II ............ 172 0.50%
3. Kemper Retirement Fund Series III ........... 123 0.50%
4. Kemper Retirement Fund Series IV ............ 151 0.50%
5. Kemper Retirement Fund Series V.............. 134 0.50%
6. Kemper Retirement Fund Series VI............. 3 0.50%
7. Kemper Worldwide 2004 Fund................... 30 0.60%
Sterling Funds
1. Equity Fund.................................. 0 I
2. Total Return Fund............................ 0 I
3. U.S. Government Securities Fund.............. 0 J
4. Municipal Bond Fund.......................... 0 J
5. Government Money Market Fund................. 0 K
</TABLE>
- ---------------
* Total Net Assets, in millions, as of May 31, 1995.
** Scheduled annual management fees payable to KFS as a percentage of average
daily net assets.
*** KFS has agreed to temporarily absorb or pay operating expenses of the
Investors Cash Trust portfolios to the extent, if any, that such expenses
exceed 0.80% of average daily net assets of such portfolios.
(A) .58 of 1% of the first $250 million, .55 of 1% of the next $750 million, .53
of 1% of the next $1.5 billion, .51 of 1% of the next $2.5 billion, .48 of
1% of the next $2.5 billion, .46 of 1% of the next $2.5 billion, .44 of 1%
of the next $2.5 billion and .42 of 1% thereafter.
(B) .55 of 1% of the first $250 million, .52 of 1% of the next $750 million, .50
of 1% of the next $1.5 billion, .48 of 1% of the next $2.5 billion, .45 of
1% of the next $2.5 billion, .43 of 1% of the next $2.5 billion, .41 of 1%
of the next $2.5 billion and .40 of 1% thereafter. KFS is currently waiving
its management fee for Kemper Intermediate Municipal Bond Fund, Kemper
C-2
<PAGE> 46
Michigan Tax-Free Income Fund, Kemper New Jersey Tax-Free Income Fund and
Kemper Pennsylvania Tax-Free Income Fund.
(C) .45 of 1% of the first $250 million, .43 of 1% of the next $750 million, .41
of 1% of the next $1.5 billion, .40 of 1% of the next $2.5 billion, .38 of
1% of the next $2.5 billion, .36 of 1% of the next $2.5 billion, .34 of 1%
of the next $2.5 billion and .32 of 1% thereafter.
(D) .75 of 1% of the first $250 million, .72 of 1% of the next $750 million, .70
of 1% of the next $1.5 billion, .68 of 1% of the next $2.5 billion, .65 of
1% of the next $2.5 billion, .64 of 1% of the next $2.5 billion, .63 of 1%
of the next $2.5 billion and .62 of 1% thereafter.
(E) .40 of 1% of the first $250 million, .38 of 1% of the next $750 million, .35
of 1% of the next $1.5 billion, .32 of 1% of the next $2.5 billion, .30 of
1% of the next $2.5 billion, .28 of 1% of the next $2.5 billion, .26 of 1%
of the next $2.5 billion and .25 of 1% thereafter.
(F) Base investment management fee of .65 of 1% of average daily net assets plus
or minus an incentive fee based upon the investment performance of the fund
as compared with the performance of the Standard & Poor's 500 Stock Index
which may result in a total fee ranging from .35 of 1% to .95 of 1%.
(G) .50% of the first $215 million; .375% of the next $335 million; .30% of the
next $250 million; .25% thereafter (on the identified series in the
aggregate).
(H) .22% of the first $500 million; .20% of the next $500 million; .175% of the
next $1 billion; .16% of the next $1 billion; .15% thereafter (on the
identified series in the aggregate). KFS has agreed to temporarily absorb
operating expenses of the Cash Account Trust portfolios to the extent, if
any, that such expenses exceed the following percentages of average daily
net assets; Money Market Portfolio (1.00%), Government Securities Portfolio
(0.90%) and Tax-Exempt Portfolio (0.80%). In addition, from time to time,
KFS may voluntarily absorb certain additional expenses of the Cash Account
Trust portfolios. KFS has also agreed to temporarily absorb or pay
operating expenses of Tax-Exempt New York Money Market Fund to the extent,
if any, that such expenses exceed 0.80% of average net assets of the Fund.
(I) .80% of the first $250 million; .79% of the next $750 million; .77% of the
next $1.5 billion; .75% thereafter.
(J) .65% of the first $250 million; .64% of the next $750 million; .62% of the
next $1.5 billion; .60% thereafter.
(K) .50% of the first $250 million; .49% of the next $750 million; .47% of the
next $1.5 billion; .45% thereafter.
C-3
<PAGE> 47
EXHIBIT D
FEES AND EXPENSES
<TABLE>
<CAPTION>
TECMF TNYMF
------- -------
CEF ICT
-------------------------------- -----------------
MMP GSP TEP GSP TP
---------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal Year End........ 7/31/94 7/31/94 7/31/94 9/30/94 3/31/95 3/31/95 3/31/95
Management Fees Paid to
KFS.................. $5,895,000 3,535,000 2,659,000 247,000 207,000 57,000 26,000
Effective Management
Fee Rate............. .17% .17 .20 .22 .15 .15 .22
Waived Management Fees
and Expenses Absorbed
by KFS............... $ N/A N/A N/A N/A (117,000) (53,000) (41,000)
Custodian, Transfer
Agent Fees Paid by
Fund to IFTC......... $7,682,000 3,484,000 1,005,000 73,000 13,000 4,000 16,000
Shareholder Service
Fees Paid by IFTC
to KSVC.............. $7,408,000 3,317,000 903,000 62,000 1,000 1,000 14,000
Administrative Services
Fees Paid by Fund to
KFS or KDI........... $ N/A N/A N/A N/A 138,000 38,000 N/A
Effective
Administrative
Service Fee Rate..... N/A N/A N/A N/A .10 .10 N/A
</TABLE>
D-1
<PAGE> 48
THANK YOU FOR MAILING YOUR PROXY CARD PROMPTLY!
We appreciate your continuing support and look
forward to serving your future investment needs.
<PAGE> 49
CASH EQUIVALENT FUND
MONEY MARKET PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
TAX-EXEMPT PORTFOLIO
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
INVESTORS CASH TRUST
GOVERNMENT SECURITIES PORTFOLIO
TREASURY PORTFOLIO
TAX-EXEMPT NEW YORK MONEY MARKET FUND
[RECYCLE LOGO] Printed on recycled paper K795-C
<PAGE> 50
<TABLE>
<S> <C> <C> <C>
For Withhold For All
[FUND NAME] 1. To elect the following as trustees: All All Except
[ACCOUNT NUMBER] / / / / / /
[SHARE COUNT] 01) David N. Belin, 02) Lewis A. Burnham, 03) Donald L. Dunaway, 04)
Robert B. Hoffman, 05) Donald R. Jones, 06) David B. Mathis, 07) Shirley
D. Peterson, 08) Stephen B. Timbers, 09) William P. Sommers
--------------------------------------------------------------------------
[ADDRESSEE AND ADDRESS] To withhold authority to vote on any individual nominees, print
the number(s) on the line above.
2. Ratify or reject the selection of For Against Abstain
/ / / / / /
Ernst & Young LLP as the Fund's
independent auditors for the current
fiscal year.
3. Approve or disapprove a new investment / / / / / /
management agreement Kemper Financial
Services, Inc. or its successor on
the same terms as the current agreement.
4. [For CEF, TECMF and TNYNF only], Approve / / / / / /
or disapprove a new Rule 12b-1 distribution
plan with Kemper Distributors, Inc. or its
successor on the same terms as the current
plan.
Signature(s) (All registered owners of accounts shown to the left must
sign. If signing for a corporation, estate or trust, please indicate your
capacity or title.)
</TABLE>
X
- -------------------------------------------------------------------------------
Signature Date
X
- -------------------------------------------------------------------------------
Signature Date
PLEASE VOTE YOUR PROXY CARD TODAY!
<PAGE> 51
PLEASE VOTE PROMPTLY!
Your vote is needed! Please vote on the reverse side of this form and sign in
the space provided. Return your completed proxy in the enclosed envelope
today.
You may receive additional proxies for your other accounts. These
are not duplicates; you should sign and return each proxy card in order for
your votes to be counted. Please return them as soon as possible to help save
the cost of additional mailings.
The signers of this proxy hereby appoint Stephen B. Timbers and Donald L.
Dunaway, and each of them, attorneys and proxies, with power of substitution
in each, to vote all shares for the signers at the special meeting of
shareholders to be held September 19, 1995, and at any adjournments thereof, as
specified herein, and in accordance with their best judgement, on any other
business that may properly come before this meeting. If no specification is
made herein, all shares will be voted "FOR" the proposals set forth on this
proxy.
The proxy is solicited by the Board of the Fund which recommends a vote "FOR"
all matters.
