<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 30, 1995.
1933 ACT REGISTRATION NO. 2-45481
1940 ACT REGISTRATION NO. 811-2305
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 38 /X/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 38 /X/
</TABLE>
(Check appropriate box or boxes)
------------------
KEMPER INCOME AND
CAPITAL PRESERVATION FUND
(Exact name of Registrant as Specified in Charter)
<TABLE>
<CAPTION>
120 South LaSalle Street, Chicago, Illinois 60603
<S> <C>
(Address of Principal Executive Office) (Zip Code)
</TABLE>
Registrant's Telephone Number, including Area Code: (312) 781-1121
<TABLE>
<S> <C>
Philip J. Collora, Vice President and Secretary With a copy to:
Kemper Income and Capital Preservation Fund Charles F. Custer
120 South LaSalle Street Vedder, Price, Kaufman & Kammholz
Chicago, Illinois 60603 222 North LaSalle Street
(Name and Address of Agent for Service) Chicago, Illinois 60601
</TABLE>
Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Rule 24f-2 Notice for Registrant's fiscal year ended October 31,
1995 was filed on or about November 17, 1995.
It is proposed that this filing will become effective (check appropriate
box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on December 1, 1995 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / this post effective amendment designates a new effective date for a
previously filed post-effective amendment.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
KEMPER INCOME AND CAPITAL PRESERVATION FUND
CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART A
OF FORM N-1A AND PROSPECTUS
<TABLE>
<CAPTION>
ITEM NUMBER
OF FORM N-1A LOCATION IN PROSPECTUS
<C> <S> <C>
1. Cover Page............................... Cover Page
2. Synopsis................................. Summary; Summary of Expenses; Supplement to
Prospectus
3. Condensed Financial Information.......... Financial Highlights; Performance
4. General Description of Registrant........ Summary; Investment Objectives; Policies and
Risk Factors
5. Management of the Fund................... Summary; Investment Manager and Underwriter
5A. Management's Discussion of Fund
Performance.............................. Performance
6. Capital Stock and Other Securities....... Summary; Dividends and Taxes; Purchase of
Shares; Capital Structure
7. Purchase of Securities Being Offered..... Summary; Investment Manager and Underwriter;
Net Asset Value; Purchase of Shares; Special
Features; Supplement to Prospectus
8. Redemption or Repurchase................. Summary; Redemption or Repurchase of Shares
9. Pending Legal Proceedings................ Inapplicable
</TABLE>
<PAGE> 3
KEMPER FIXED INCOME FUNDS
SUPPLEMENT TO PROSPECTUS
DATED DECEMBER 1, 1995
CLASS I SHARES
KEMPER ADJUSTABLE RATE U.S. GOVERNMENT FUND
KEMPER CASH RESERVES FUND
KEMPER DIVERSIFIED INCOME FUND
KEMPER U.S. GOVERNMENT SECURITIES FUND
KEMPER HIGH YIELD FUND
KEMPER INCOME AND CAPITAL PRESERVATION FUND
KEMPER U.S. MORTGAGE FUND
KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND
Kemper Adjustable Rate U.S. Government Fund (the "Adjustable Rate Fund"), Kemper
Cash Reserves Fund (the "Cash Reserves Fund"), Kemper Diversified Income Fund
(the "Diversified Fund"), Kemper U.S. Government Securities Fund (the
"Government Fund"), Kemper High Yield Fund (the "High Yield Fund"), Kemper
Income and Capital Preservation Fund (the "Income and Capital Fund"), Kemper
U.S. Mortgage Fund (the "Mortgage Fund") and Kemper Short-Intermediate
Government Fund (the "Short-Intermediate Government Fund") (collectively, the
"Funds") currently offer four classes of shares to provide investors with
different purchasing options. These are Class A, Class B and Class C shares,
which are described in the prospectus, and Class I shares, which are described
in the prospectus as supplemented hereby.
Class I shares are available for purchase exclusively by the following
investors: (a) tax-exempt retirement plans of Kemper Financial Services, Inc.
("KFS") and its affiliates; and (b) the following investment advisory clients of
KFS and its investment advisory affiliates (including Kemper Asset Management
Company ("KAMCO")) that invest at least $1 million in a Fund: (1) unaffiliated
benefit plans, such as qualified retirement plans (other than individual
retirement accounts and self-directed retirement plans); (2) unaffiliated banks
and insurance companies purchasing for their own accounts; and (3) endowment
funds of unaffiliated non-profit organizations. Class I shares currently are
available for purchase only from Kemper Distributors, Inc., principal
underwriter for the Funds, Share certificates are not available for Class I
shares.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge schedules and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. Class I shares are offered at net asset value without an
initial sales charge and are not subject to a contingent deferred sales charge
or a Rule 12b-1 distribution fee. Also, there is no administrative services fee
charged to Class I shares. As a result of the relatively lower expenses for
Class I shares, the level of income dividends per share (as a percentage of net
asset value) and, therefore, the overall investment return, will be higher for
Class I shares than for Class A, Class B and Class C shares.
<PAGE> 4
The following information supplements the indicated sections of the prospectus.
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
(APPLICABLE TO ALL FUNDS) CLASS I
<S> <C>
Maximum Sales Charge on Purchases
(as a percentage of offering price)...................................................... None
Maximum Sales Charge on Reinvested Dividends............................................... None
Redemption Fees............................................................................ None
Exchange Fee............................................................................... None
Deferred Sales Charge (as a percentage of redemption proceeds)............................. None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND INCOME SHORT-
OPERATING EXPENSES ADJUSTABLE CASH HIGH AND INTERMEDIATE
(as a percentage of average RATE RESERVES DIVERSIFIED GOVERNMENT YIELD CAPITAL MORTGAGE GOVERNMENT
net assets) FUND FUND FUND FUND FUND FUND FUND FUND
---------- -------- ----------- ---------- ----- ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees............. .55% .40% .56% .41% .53% .53% .50% .55%
12b-1 Fees.................. None None None None None None None None
Other Expenses
(estimated)............... .09% .06% .09% .08% .08% .09% .08% .09%
---- ---- ---- ---- ---- ---- ---- ----
Total Operating Expenses.... .64% .46% .65% .49% .61% .62% .58% .64%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
EXAMPLE FUND YEAR YEARS YEARS YEARS
- ------------------------------------------ ------------------------------- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C>
You would pay the following expenses on a Adjustable Rate................ $7 $20 $36 $80
$1,000 investment, assuming (1) 5% annual Cash Reserves.................. $5 $15 $26 $58
return and (2) redemption at the end of
each Diversified.................... $7 $21 $36 $81
time period: Government..................... $5 $16 $27 $62
High Yield..................... $6 $20 $34 $76
Income and Capital............. $6 $20 $35 $77
Mortgage....................... $6 $19 $32 $73
Short-Intermediate
Government..................... $7 $20 $36 $80
</TABLE>
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in Class I shares of a Fund will
bear directly or indirectly.
"Other Expenses" for Class I shares have been estimated for the current fiscal
year.
The Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of any Fund. The
Example should not be considered to be a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.
2
<PAGE> 5
FINANCIAL HIGHLIGHTS
No financial information is presented for Class I shares of the Adjustable Rate
Fund, Cash Reserves Fund, Diversified Fund, Mortgage Fund and the
Short-Intermediate Government Fund since no Class I shares had been issued as of
such Funds' fiscal year end.
GOVERNMENT FUND
<TABLE>
<CAPTION>
JULY 3,
1995 TO
OCT. 31,
1995
---------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $8.88
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .22
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .04
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations .26
- ------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .22
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.92
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (%): 3.02
- ------------------------------------------------------------------------------------------------------------------------
ANNUALIZED RATIOS TO AVERAGE NET ASSETS (%):
Expenses .53
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 7.07
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
HIGH YIELD FUND
<TABLE>
<CAPTION>
DECEMBER 29,
1994 TO
SEPTEMBER 30,
1995
--------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 7.55
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .66
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .39
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.05
- ------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .59
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.01
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (%): 14.37
- ------------------------------------------------------------------------------------------------------------------------
ANNUALIZED RATIOS TO AVERAGE NET ASSETS (%):
Expenses .61
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 10.70
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 6
INCOME AND CAPITAL FUND
<TABLE>
<CAPTION>
JULY 3,
1995 TO
OCT. 31,
1995
---------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $8.52
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain .12
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations .31
- ------------------------------------------------------------------------------------------------------------------------
Less distribution from net investment income .22
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.61
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (NOT ANNUALIZED) (%): 3.65
- ------------------------------------------------------------------------------------------------------------------------
ANNUALIZED RATIOS TO AVERAGE NET ASSETS (%):
Expenses .62
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 6.87
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
SPECIAL FEATURES
Shareholders of a Fund's Class I shares may exchange their shares for (i) shares
of Kemper Money Market Fund--Money Market Portfolio if the shareholders of Class
I shares have purchased shares because they are participants in tax-exempt
retirement plans of KFS and its affiliates and (ii) Class I shares of any other
"Kemper Mutual Fund" listed under "Special Features--Class A Shares--Combined
Purchases" in the prospectus. Conversely, shareholders of Kemper Money Market
Fund--Money Market Portfolio who have purchased shares because they are
participants in tax-exempt retirement plans of KFS and its affiliates may
exchange their shares for Class I shares of "Kemper Mutual Funds" to the extent
that they are available through their plan. Exchanges will be made at the shares
relative net asset values. Exchanges are subject to the limitations set forth in
the prospectus under "Special Features--Exchange Privilege--General."
December 1, 1995
KFIF-1I (12/95)
4
<PAGE> 7
<TABLE>
<S> <C>
TABLE OF CONTENTS
- -----------------------------------------------
Summary 1
- -----------------------------------------------
Summary of Expenses 3
- -----------------------------------------------
Financial Highlights 5
- -----------------------------------------------
Investment Objectives, Policies and Risk
Factors 15
- -----------------------------------------------
Investment Manager and Underwriter 33
- -----------------------------------------------
Dividends and Taxes 37
- -----------------------------------------------
Net Asset Value 38
- -----------------------------------------------
Purchase of Shares 40
- -----------------------------------------------
Redemption or Repurchase of Shares 45
- -----------------------------------------------
Special Features 49
- -----------------------------------------------
Performance 53
- -----------------------------------------------
Capital Structure 54
- -----------------------------------------------
Appendix A--Portfolio Composition 56
- -----------------------------------------------
Appendix B--Ratings of Investments 57
- -----------------------------------------------
</TABLE>
This combined prospectus of the Kemper Fixed Income Funds contains information
about each of the Funds that you should know before investing and should be
retained for future reference. A Statement of Additional Information dated
December 1, 1995, has been filed with the Securities and Exchange Commission and
is incorporated herein by reference. It is available upon request without charge
from the Funds at the address or telephone number on this cover or the firm from
which this prospectus was obtained.
THE FUNDS' SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENT IN A
FUND'S SHARES INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
KEMPER (LOGO)
FIXED
INCOME
FUNDS
PROSPECTUS December 1, 1995
KEMPER FIXED INCOME FUNDS
120 South LaSalle Street, Chicago, Illinois 60603
1-800-621-1048
This prospectus describes a choice of eight fixed income investment portfolios
managed by Kemper Financial Services, Inc.
KEMPER ADJUSTABLE RATE U.S. GOVERNMENT FUND
KEMPER CASH RESERVES FUND
KEMPER DIVERSIFIED INCOME FUND
KEMPER U.S. GOVERNMENT SECURITIES FUND
KEMPER HIGH YIELD FUND
KEMPER INCOME AND CAPITAL PRESERVATION FUND
KEMPER U.S. MORTGAGE FUND
KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND
Kemper Cash Reserves Fund, Kemper U.S. Mortgage Fund and Kemper
Short-Intermediate Government Fund are each a series of Kemper Portfolios.
KEMPER DIVERSIFIED INCOME FUND AND KEMPER HIGH YIELD FUND INVEST PRIMARILY IN
LOWER RATED BONDS, COMMONLY REFERRED TO AS "JUNK BONDS." INVESTMENTS OF THIS
TYPE ARE SUBJECT TO A GREATER RISK OF LOSS OF PRINCIPAL AND INTEREST THAN
INVESTMENTS IN HIGHER RATED SECURITIES. PURCHASERS SHOULD CAREFULLY ASSESS THE
RISKS ASSOCIATED WITH AN INVESTMENT IN THESE FUNDS.
AN INVESTMENT IN KEMPER CASH RESERVES FUND IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 8
KEMPER FIXED INCOME FUNDS
120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603, TELEPHONE 1-800-621-1048
SUMMARY
INVESTMENT OBJECTIVES. The eight open-end, diversified, management investment
companies or portfolios thereof (the "Funds") covered in this combined
prospectus are as follows:
KEMPER ADJUSTABLE RATE U.S. GOVERNMENT FUND (the "Adjustable Rate Fund") seeks
high current income consistent with low volatility of principal.
KEMPER CASH RESERVES FUND (the "Cash Reserves Fund") seeks maximum current
income to the extent consistent with stability of principal from a portfolio of
high quality money market instruments.
KEMPER DIVERSIFIED INCOME FUND (the "Diversified Fund") seeks a high current
return.
KEMPER U.S. GOVERNMENT SECURITIES FUND (the "Government Fund") seeks high
current income, liquidity and security of principal.
KEMPER HIGH YIELD FUND (the "High Yield Fund") seeks the highest level of
current income obtainable from a professionally managed, diversified portfolio
of fixed income securities which the Fund's investment manager considers
consistent with reasonable risk.
KEMPER INCOME AND CAPITAL PRESERVATION FUND (the "Income and Capital Fund")
seeks as high a level of current income as is consistent with prudent investment
management, preservation of capital and ready marketability of its portfolio.
KEMPER U.S. MORTGAGE FUND (the "Mortgage Fund") seeks maximum current return
from U.S. Government securities.
KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND (the "Short-Intermediate Government
Fund") seeks, with equal emphasis, high current income and preservation of
capital from a portfolio composed primarily of short and intermediate-term U.S.
Government securities.
Each Fund (other than the Cash Reserves Fund) may engage in options and
financial futures transactions. The Diversified, High Yield and Income and
Capital Funds each may invest a portion of its assets in foreign securities and
engage in related foreign currency transactions. See "Investment Objectives,
Policies and Risk Factors."
RISK FACTORS. There is no assurance that the investment objective of any Fund
will be achieved and investment in each Fund includes risks that vary in kind
and degree depending upon the investment policies of that Fund. The returns and
net asset value of each Fund will fluctuate (except that the Cash Reserves Fund
seeks to maintain a net asset value of $1.00 per share). Investors should note
that investments in high yield securities by certain Funds (principally the
Diversified and High Yield Funds) entail relatively greater risk of loss of
income and principal than investments in higher rated securities and market
prices of high yield securities may fluctuate more than market prices of higher
rated securities. Foreign investments by certain Funds involve risk and
opportunity considerations not typically associated with investing in U.S.
companies. The U.S. Dollar value of a foreign security tends to decrease when
the value of the U.S. Dollar rises against the foreign currency in which the
security is denominated and tends to increase when the value of the U.S. Dollar
falls against such currency. Thus, the U.S. Dollar value of foreign securities
in a Fund's portfolio, and the Fund's net asset value, may change in response to
changes in currency exchange rates even though the value of the foreign
securities in local currency terms may not have changed. While a Fund's
investments in foreign securities will principally be in developed countries,
the Fund may invest a portion of its assets in developing or "emerging" markets,
which involve exposure to economic structures that are generally less diverse
and mature than in the United States, and to political systems that may be less
stable. There are special risks associated with options, financial futures and
foreign currency transactions and there is no assurance that use of those
investment techniques will be successful. The government guarantee of the U.S.
Government securities in which certain Funds invest (principally the Adjustable
Rate, Government, Mortgage and Short-Intermediate Government Funds) does not
guarantee the market value of the shares of such Funds. Normally,
1
<PAGE> 9
the value of investments in U.S. Government securities, as with most debt
securities, varies inversely with changes in interest rates. See "Investment
Objectives, Policies and Risk Factors."
PURCHASES AND REDEMPTIONS. Each Fund provides investors with the option of
purchasing shares in the following ways:
<TABLE>
<S> <C>
Class A Shares..................... Offered at net asset value plus a maximum sales charge of 4.5%
(3.5% for the Adjustable Rate and Short-Intermediate
Government Funds) of the offering price. No initial sales
charge applies to purchases of Class A shares of the Cash
Reserves Fund, but the applicable sales charge applies for
exchanges of such shares into Class A shares of other Kemper
Mutual Funds. Reduced sales charges apply to purchases of
$100,000 or more. The redemption within one year of Class A
shares purchased at net asset value under the Large Order NAV
Purchase Privilege may be subject to a 1% contingent deferred
sales charge.
Class B Shares..................... Offered at net asset value, subject to a Rule 12b-1
distribution fee and a contingent deferred sales charge that
declines from 4% to zero on certain redemptions made within
six years of purchase. Class B shares automatically convert
into Class A shares (which have lower ongoing expenses) six
years after purchase.
Class C Shares..................... Offered at net asset value without an initial or contingent
deferred sales charge, but subject to a Rule 12b-1
distribution fee. Class C shares do not convert into another
class.
</TABLE>
Each class of shares represents interests in the same portfolio of investments
of a Fund. The minimum initial investment is $1,000 and each investment
thereafter must be at least $100. Shares are redeemable at net asset value,
which may be more or less than original cost, subject, in the case of Class A
shares purchased under the Large Order NAV Purchase Privilege and for Class B
shares, to any applicable contingent deferred sales charge. See "Purchase of
Shares" and "Redemption or Repurchase of Shares."
INVESTMENT MANAGER AND UNDERWRITER. Kemper Financial Services, Inc. ("KFS")
serves as investment manager, principal underwriter and administrator for each
Fund. KFS is paid an investment management fee by each Fund based upon the
average daily net assets of that Fund at an effective annual rate that differs
for each Fund. Kemper Distributors, Inc. ("KDI"), a wholly owned subsidiary of
KFS, is principal underwriter and administrator for each Fund. For Class B
shares and Class C shares, KDI receives a Rule 12b-1 distribution fee of .75 of
1% of average daily net assets. KDI also receives the amount of any contingent
deferred sales charges paid on the redemption of shares. Administrative services
are provided to shareholders under administrative services agreements with KDI.
Each Fund pays an administrative services fee at the annual rate of up to .25 of
1% of average daily net assets of each class of the Fund, which KDI pays to
financial services firms. See "Investment Manager and Underwriter."
DIVIDENDS. The Cash Reserves Fund's net investment income is declared as a
dividend daily, and dividends are reinvested or paid in cash monthly. Each of
the other Funds normally distributes monthly dividends of net investment income
and distributes any net realized short-term and long-term capital gains at least
annually. Income and capital gain dividends of a Fund are automatically
reinvested in additional shares of that Fund, without a sales charge, unless the
shareholder makes a different election. See "Dividends and Taxes."
GENERAL. In the opinion of the staff of the Securities and Exchange Commission,
the use of this combined prospectus may make each Fund liable for any
misstatement or omission in this prospectus regardless of the particular Fund to
which it pertains.
2
<PAGE> 10
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (APPLICABLE TO ALL
FUNDS)(1) CLASS A CLASS B CLASS C
-------- ------------------- -------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases %(2)
(as a percentage of offering price).................... 3.5*/4.5 None None
Maximum Sales Charge on Reinvested Dividends............. None None None
Redemption Fees.......................................... None None None
Exchange Fee............................................. None None None
Deferred Sales Charge (as a percentage of redemption None(3) 4% during the first None
proceeds).............................................. year, 3% during the
second and third
years, 2% during
the fourth and
fifth years and 1%
in the sixth year
</TABLE>
* 3.5% APPLIES TO THE ADJUSTABLE RATE AND SHORT-INTERMEDIATE GOVERNMENT FUNDS
ONLY.
- ---------------
(1) Investment dealers and other firms may independently charge additional fees
for shareholder transactions or for advisory services; please see their
materials for details.
(2) Reduced sales charges apply to purchases of $100,000 or more. See "Purchase
of Shares -- Initial Sales Charge Alternative -- Class A Shares." No initial
sales charge applies to purchases of Class A shares of the Cash Reserves
Fund but the applicable sales charge applies for exchanges into Class A
shares of other Kemper Mutual Funds.
(3) The redemption within one year of shares purchased at net asset value under
the Large Order NAV Purchase Privilege may be subject to a 1% contingent
deferred sales charge. See "Purchase of Shares -- Initial Sales Charge
Alternative -- Class A Shares."
CLASS A SHARES
<TABLE>
<CAPTION>
ANNUAL FUND INCOME SHORT-
OPERATING EXPENSES ADJUSTABLE CASH HIGH AND INTERMEDIATE
(as a percentage of average net RATE RESERVES DIVERSIFIED GOVERNMENT YIELD CAPITAL MORTGAGE GOVERNMENT
assets) FUND FUND FUND FUND FUND FUND FUND FUND
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees................ .55% .40% .56% .41% .53% .53% .50% .55%
12b-1 Fees..................... None None None None None None None None
Other Expenses................. .55% .52% .53% .31% .37% .37% .44% .50%
------- ------- ------- ------- ------- ------- ------- -------
Total Operating Expenses....... 1.10% .92% 1.09% .72% .90% .90% .94% 1.05%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
CLASS B SHARES
<TABLE>
<CAPTION>
ANNUAL FUND INCOME SHORT-
OPERATING EXPENSES ADJUSTABLE CASH HIGH AND INTERMEDIATE
(as a percentage of average net RATE RESERVES DIVERSIFIED GOVERNMENT YIELD CAPITAL MORTGAGE GOVERNMENT
assets) FUND FUND FUND FUND FUND FUND FUND FUND
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees................ .55% .40% .56% .41% .53% .53% .50% .55%
12b-1 Fees(4).................. .75% .75% .75% .75% .75% .75% .75% .75%
Other Expenses................. .55% .64% .73% .53% .49% .53% .54% .61%
------- ------- ------- ------- ------- ------- ------- -------
Total Operating Expenses....... 1.85% 1.79% 2.04% 1.69% 1.77% 1.81% 1.79% 1.91%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(4) Long-term shareholders may pay more than the economic equivalent of the
maximum initial sales charges permitted by the National Association of
Securities Dealers, although KDI believes that it is unlikely because of the
automatic conversion feature described under "Purchase of Shares--Deferred
Sales Charge Alternative--Class B Shares."
3
<PAGE> 11
CLASS C SHARES
<TABLE>
<CAPTION>
ANNUAL FUND INCOME SHORT-
OPERATING EXPENSES ADJUSTABLE CASH HIGH AND INTERMEDIATE
(as a percentage of average RATE RESERVES DIVERSIFIED GOVERNMENT YIELD CAPITAL MORTGAGE GOVERNMENT
net assets) FUND FUND FUND FUND FUND FUND FUND FUND
---------- -------- ----------- ---------- ----- ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees............... .55% .40% .56% .41% .53% .53% .50% .55%
12b-1 Fees(5)................. .75% .75% .75% .75% .75% .75% .75% .75%
Other Expenses................ .49% .63% .53% .48% .43% .50% .44% .44%
----- -------- ----- ----- ----- ------ -------- -----
Total Operating Expenses...... 1.79% 1.78% 1.84% 1.64% 1.71% 1.78% 1.69% 1.74%
======== ====== ======== ========= ==== ===== ======= =========
</TABLE>
- ---------------
(5) As a result of the accrual of 12b-1 fees, long-term shareholders may pay
more than the economic equivalent of the maximum initial sales charges
permitted by the National Association of Securities Dealers.
CLASS A SHARES
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
EXAMPLE
You would pay the following Adjustable Rate $ 46 $69 $ 94 $164
expenses on a $1,000 Cash Reserves $ 9 $29 $ 51 $113
investment, assuming (1) 5% Diversified $56 $78 $102 $172
annual return and (2) Government $52 $67 $ 83 $130
redemption at the end of each High Yield $54 $72 $ 93 $151
time period: Income and Capital $54 $72 $ 93 $151
Mortgage $54 $74 $ 95 $155
Short-Intermediate Government $45 $67 $ 91 $159
</TABLE>
CLASS B SHARES
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
EXAMPLE(6)
You would pay the following Adjustable Rate $ 49 $78 $ 110 $179
expenses on a $1,000 Cash Reserves $48 $76 $107 $167
investment, assuming (1) 5% Diversified $51 $84 $120 $190
annual return and (2) Government $47 $73 $102 $150
redemption at the end of each High Yield $48 $76 $106 $164
time period: Income and Capital $48 $77 $108 $167
Mortgage $48 $76 $107 $168
Short-Intermediate Government $49 $80 $113 $180
You would pay the following Adjustable Rate $ 19 $58 $ 100 $179
expenses on the same Cash Reserves $ 18 $56 $ 97 $167
investment,
assuming no redemption: Diversified $ 21 $64 $ 110 $190
Government $ 17 $53 $ 92 $150
High Yield $ 18 $56 $ 96 $164
Income and Capital $ 19 $57 $ 98 $167
Mortgage $ 18 $56 $ 97 $168
Short-Intermediate Government $ 19 $60 $ 103 $180
</TABLE>
- ---------------
(6) Assumes conversion to Class A shares six years after purchase and was
calculated based upon the assumption that the shareholder was an owner of
the shares on the first day of the first year and the contingent deferred
sales charge was applied as follows: 1 year (3%), 3 years (2%), 5 years (1%)
and 10 years (0%). See "Redemption or Repurchase of Shares -- Contingent
Deferred Sales Charge -- Class B Shares" for more information regarding the
calculation of the contingent deferred sales charge.
4
<PAGE> 12
CLASS C SHARES
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
EXAMPLE
You would pay the following Adjustable Rate $ 18 $56 $ 97 $211
expenses on a $1,000 Cash Reserves $ 18 $56 $ 96 $209
investment,
assuming (1) 5% annual return Diversified $ 19 $58 $ 100 $216
and (2) redemption at the end Government $ 17 $52 $ 89 $194
of each time period: High Yield $ 17 $54 $ 93 $202
Income and Capital $ 18 $56 $ 96 $209
Mortgage $ 17 $53 $ 92 $200
Short-Intermediate Government $ 18 $55 $ 94 $205
</TABLE>
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in a Fund will bear directly or
indirectly. See "Investment Manager and Underwriter" for more information. The
Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of any Fund. THE
EXAMPLE SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The tables below show financial information for each Fund expressed in terms of
one share outstanding throughout the period. The information in the table for
each Fund is covered by the report of the Fund's independent auditors. The
report for each Fund is contained in its Registration Statement and is available
from that Fund. The financial statements contained in each Fund's 1995 Annual
Report to Shareholders (and for Kemper Portfolios, the period from August 1,
1995 to September 30, 1995) are incorporated herein by reference and may be
obtained by writing or calling that Fund.
5
<PAGE> 13
ADJUSTABLE RATE FUND
<TABLE>
<CAPTION>
JULY 1, SEPTEMBER 1,
1991 TO 1987 TO
YEAR ENDED AUGUST 31, AUGUST 31, YEAR ENDED JUNE 30, JUNE 30,
CLASS A SHARES 1995 1994 1993 1992 1991 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period $8.33 8.68 8.63 8.37 8.21 8.21 8.66 8.79 9.00
- --------------------------------------
Income from investment
operations:
Net investment income .48 .34 .47 .63 .13 .79 .81 .87 .52
- --------------------------------------
Net realized and unrealized
gain (loss) (.04) (.29) .02 .22 .17 .02 (.41) (.08) (.14)
- --------------------------------------
Total from investment
operations .44 .05 .49 .85 .30 .81 .40 .79 .38
- --------------------------------------
Less dividends:
Distribution from net
investment income .47 .40 .44 .59 .14 .81 .78 .85 .49
- --------------------------------------
Distribution from net
realized gain -- -- -- -- -- -- .07 .07 .10
- --------------------------------------
Total dividends .47 .40 .44 .59 .14 .81 .85 .92 .59
- --------------------------------------
Net asset value, end of period $8.30 8.33 8.68 8.63 8.37 8.21 8.21 8.66 8.79
- --------------------------------------
TOTAL RETURN (%): 5.52 .59 5.87 10.56 3.62 10.33 4.85 9.64 4.29
- --------------------------------------
RATIOS TO AVERAGE NET ASSETS (%)(A):
Expenses 1.10 .93 .21 .28 1.09 1.07 1.37 1.41 1.51
- --------------------------------------
Net investment income 5.76 3.96 5.44 7.02 9.45 9.62 9.60 10.10 8.63
- --------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B MAY 31, 1994 CLASS C MAY 31, 1994
YEAR ENDED TO YEAR ENDED TO
CLASS B & CLASS C SHARES AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1995 AUGUST 31, 1994
<S> <C> <C> <C> <C>
----------------------------------- -----------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $8.32 8.37 $8.33 8.37
- ------------------------------------------------------------------------------ -----------------------------------
Income from investment operations:
Net investment income .43 .07 .43 .08
- ------------------------------------------------------------------------------ -----------------------------------
Net realized and unrealized gain
(loss) (.04) (.04) (.04) (.04)
- ------------------------------------------------------------------------------ -----------------------------------
Total from investment operations .39 .03 .39 .04
- ------------------------------------------------------------------------------ -----------------------------------
Less distribution from net investment
income .40 .08 .40 .08
- ------------------------------------------------------------------------------ -----------------------------------
Net asset value, end of period $8.31 8.32 $8.32 8.33
- ------------------------------------------------------------------------------ -----------------------------------
TOTAL RETURN (%): 4.84 .34 4.89 .47
- ------------------------------------------------------------------------------ -----------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.85 1.96 1.79 1.88
- ------------------------------------------------------------------------------ -----------------------------------
Net investment income 5.01 3.36 5.07 3.52
- ------------------------------------------------------------------------------ -----------------------------------
</TABLE>
<TABLE>
<CAPTION>
JULY 1, SEPTEMBER 1,
1991 TO 1987 TO
YEAR ENDED AUGUST 31, AUGUST 31, YEAR ENDED JUNE 30, JUNE 30,
ALL CLASSES 1995 1994 1993 1992 1991 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of
period
(in thousands) $129,757 202,815 212,694 174,967 76,749 75,012 75,913 75,704 59,054
- -----------------------------------
Portfolio turnover rate
(%) 308 533 138 309 228 259 278 265 201
- -----------------------------------
</TABLE>
(a) KFS agreed to waive its management fee and to absorb certain other operating
expenses of the Adjustable Rate Fund through December 31, 1992. Thereafter,
these expenses were gradually reinstated through January 31, 1994. Without this
agreement, the ratio of expenses to average net assets and the ratio of net
investment income to average net assets for Class A Shares would have been .99%
and 3.90%, respectively, for fiscal 1994, .95% and 4.70%, respectively, for
fiscal 1993, and .90% and 6.40%, respectively, for fiscal 1992.
6
<PAGE> 14
CASH RESERVES FUND
<TABLE>
<CAPTION>
JANUARY 10,
AUGUST 1, 1995 1992 TO
TO SEPTEMBER 30, YEAR ENDED JULY 31, JULY 31,
1995 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------
Net investment income and dividends declared .01 .05 .03 .02 .01
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): .85 4.99 2.78 2.42 1.57
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%)(B):
Expenses .92 .89 .92 .93 1.39
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 5.11 4.75 2.86 2.42 2.75
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $ 33,666 35,460 52,652 21,751 9,081
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AUGUST 1, 1995
TO SEPTEMBER 30, YEAR ENDED JULY 31,
1995 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
- ----------------------------------------
Net investment income
and dividends declared .01 .04 .02 .02 .03 .05 .07 .07 .05 .04 .05
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): .71 4.08 1.78 1.56 2.65 5.35 6.72 7.36 5.42 4.20 5.49
- ----------------------------------------
RATIOS TO AVERAGE NET
ASSETS (%)(B):
Expenses 1.79 1.78 1.89 1.82 2.22 2.18 2.12 2.08 2.08 2.28 2.41
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 4.24 3.86 1.89 1.53 2.69 5.32 6.52 7.17 5.31 4.19 5.25
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of
period (in thousands) $140,617 172,493 370,930 145,057 147,138 240,994 284,977 285,194 245,604 150,683 47,788
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MAY 31,
TO
AUGUST 1, 1995 YEAR ENDED JULY
TO SEPTEMBER 30, JULY 31, 31,
1995 1995 1994
<S> <C> <C> <C>
CLASS C SHARES
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------
Net investment income and dividends declared .01 .04 --
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): .71 4.08 .42
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.78 1.76 1.80
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 4.25 3.88 2.64
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $2,274 5,078 735
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) KFS agreed to absorb temporarily, certain operating expenses of the Cash
Reserves Fund during a portion of fiscal 1994 and 1993. Without this agreement,
ratios of expenses and net investment income to average net assets for the Class
A shares would have been 1.15% and 2.63%, respectively, for fiscal 1994 and
1.18% and 2.17%, respectively, for fiscal 1993. Ratios of expenses and net
investment income to average net assets for the Class B shares would have been
2.12% and 1.66%, respectively, for fiscal 1994 and 2.07% and 1.28%,
respectively, for fiscal 1993.
7
<PAGE> 15
DIVERSIFIED FUND
<TABLE>
<CAPTION>
DEC. 1, THIRTEEN
1990 YEAR MONTHS
TO ENDED ENDED
YEAR ENDED OCT. 31, OCT. 31, NOV. 30, NOV. 30, YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
---------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period $5.77 6.23 5.65 5.47 4.14 5.48 6.06 6.10 7.55 7.99
- ------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .55 .52 .59 .63 .60 .71 .39 .13 .14 .18
- ------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) on
investments and foreign
currency .16 (.45) .58 .14 1.36 (1.34) .10 .72 (.55) .57
- ------------------------------------------------------------------------------------------------------------------------
Total from investment
operations .71 (.07) 1.17 .77 1.96 (.63) .49 .85 (.41) .75
- ------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment
income .50 .53 .59 .59 .63 .71 .40 .13 .16 .20
- ------------------------------------------------------------------------------------------------------------------------
Distribution from net
realized gain -- -- -- -- -- -- -- .02 .75 .99
- ------------------------------------------------------------------------------------------------------------------------
Paid in surplus -- -- -- -- -- -- .67 .74 .13 --
- ------------------------------------------------------------------------------------------------------------------------
Total dividends .50 .53 .59 .59 .63 .71 1.07 .89 1.04 1.19
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $5.98 5.77 6.23 5.65 5.47 4.14 5.48 6.06 6.10 7.55
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 12.90 1.02 21.60 14.59 50.58 (12.79) 8.59 15.30 (7.64) 9.90
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS (%):
Expenses 1.09 1.12 1.10 1.19 1.21 1.15 .96 .97 .92 .85
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 9.43 8.81 9.74 11.02 13.41 14.32 6.76 3.08 2.01 2.34
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B MAY 31, 1994 CLASS C MAY 31, 1994
YEAR ENDED TO YEAR ENDED TO
OCTOBER 31, 1995 OCTOBER 31, 1994 OCTOBER 31, 1995 OCTOBER 31, 1994
<S> <C> <C> <C> <C>
CLASS B & C SHARES ------------------------------------ ------------------------------------
PER SHARE OPERATING PERFORMANCE:
$5.77 5.94 $5.79 5.95
Net asset value, beginning of period
- ---------------------------------------------------------------------------------- ----------------------------------
Income from investment operations:
Net investment income .49 .19 .50 .20
- ---------------------------------------------------------------------------------- ----------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency .16 (.17) .16 (.17)
- ---------------------------------------------------------------------------------- ----------------------------------
Total from investment operations .65 .02 .66 .03
- ---------------------------------------------------------------------------------- ----------------------------------
Less dividends from net investment income .44 .19 .45 .19
- ---------------------------------------------------------------------------------- ----------------------------------
Net asset value, end of period $5.98 5.77 $6.00 5.79
- ---------------------------------------------------------------------------------- ----------------------------------
TOTAL RETURN (%): 11.87 .35 11.95 .55
- ---------------------------------------------------------------------------------- ----------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 2.04 1.97 1.84 1.96
- ---------------------------------------------------------------------------------- ----------------------------------
Net investment income 8.48 8.01 8.68 8.02
- ---------------------------------------------------------------------------------- ----------------------------------
</TABLE>
<TABLE>
<CAPTION>
DEC. 1, THIRTEEN
1990 YEAR MONTHS
TO ENDED ENDED
YEAR ENDED OCT. 31, OCT. 31, NOV. 30, NOV. 30, YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of
period
(in thousands) $754,222 738,014 328,512 244,620 227,625 179,154 284,497 371,758 431,404 635,290 775,794
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover
rate (%) 286 179 80 57 20 45 102 16 150 181 185
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 16
GOVERNMENT FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning
of year $ 8.35 9.29 9.30 9.32 8.71 9.09 9.02 9.13 9.89 9.14
- ------------------------------------------------------------------------------------------------------------------------
Income from
investment
operations:
Net investment
income .66 .67 .69 .78 .84 .85 .88 .93 .88 1.03
- ------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain
(loss) .56 (.97) (.01) (.02) .61 (.38) .09 (.08) (.65) .77
- ------------------------------------------------------------------------------------------------------------------------
Total from
investment
operations 1.22 (.30) .68 .76 1.45 .47 .97 .85 .23 1.80
- ------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from
net investment
income .65 .64 .69 .78 .84 .85 .90 .96 .91 .83
- ------------------------------------------------------------------------------------------------------------------------
Distribution from
net realized gain -- -- -- -- -- -- -- -- .08 .22
- ------------------------------------------------------------------------------------------------------------------------
Total dividends .65 .64 .69 .78 .84 .85 .90 .96 .99 1.05
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of year $ 8.92 8.35 9.29 9.30 9.32 8.71 9.09 9.02 9.13 9.89
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 15.24 (3.37) 7.60 8.44 17.41 5.53 11.51 9.73 2.35 20.59
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE
NET ASSETS (%):
Expenses .72 .75 .65 .64 .63 .53 .49 .50 .51 .48
- ------------------------------------------------------------------------------------------------------------------------
Net investment
income 7.68 7.58 7.36 8.31 9.24 9.62 9.93 10.20 9.26 10.33
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B MAY 31, 1994 CLASS C MAY 31, 1994
YEAR ENDED TO YEAR ENDED TO
OCTOBER 31, 1995 OCTOBER 31, 1994 OCTOBER 31, 1995 OCTOBER 31, 1994
<S> <C> <C> <C> <C>
CLASS B & C SHARES
-------------------------------------- --------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 8.34 8.67 $ 8.35 8.67
- -------------------------------------------------------------------------------- ------------------------------------
Income from investment operations:
Net investment income .58 .28 .60 .29
- -------------------------------------------------------------------------------- ------------------------------------
Net realized and unrealized gain (loss) .56 (.38) .56 (.38)
- -------------------------------------------------------------------------------- ------------------------------------
Total from investment operations 1.14 (.10) 1.16 (.09)
- -------------------------------------------------------------------------------- ------------------------------------
Less dividends from net investment income .57 .23 .58 .23
- -------------------------------------------------------------------------------- ------------------------------------
Net asset value, end of period $ 8.91 8.34 $ 8.93 8.35
- -------------------------------------------------------------------------------- ------------------------------------
TOTAL RETURN (%): 14.18 (1.15) 14.33 (1.01)
- -------------------------------------------------------------------------------- ------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.69 1.71 1.64 1.68
- -------------------------------------------------------------------------------- ------------------------------------
Net investment income (loss) 6.71 7.09 6.76 7.12
- -------------------------------------------------------------------------------- ------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
-------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end
of year
(in thousands) $4,738,415 4,941,451 6,686,735 6,683,092 5,544,095 4,565,689 4,540,382 4,403,110 4,157,927 2,642,174
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover
rate (%) 362 1,000 550 569 695 497 289 203 278 252
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 17
HIGH YIELD FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 7.74 8.12 7.86 7.30 6.22 8.34 8.95 9.23 9.19 8.66
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .83 .73 .81 .85 .92 1.07 1.09 1.10 1.07 1.08
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .20 (.35) .23 .54 1.15 (2.13) (.58) .09 .01 .50
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.03 .38 1.04 1.39 2.07 (1.06) .51 1.19 1.08 1.58
- ------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .76 .76 .78 .83 .99 1.06 1.12 1.11 1.04 1.05
- ------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- -- -- -- -- -- .36 -- --
- ------------------------------------------------------------------------------------------------------------------------
Total dividends .76 .76 .78 .83 .99 1.06 1.12 1.47 1.04 1.05
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 8.01 7.74 8.12 7.86 7.30 6.22 8.34 8.95 9.23 9.19
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 14.10 4.64 13.92 19.96 36.82 (13.83) 5.91 14.22 12.03 19.09
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .90 .86 .80 .82 .85 .73 .67 .72 .72 .68
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 10.74 9.22 10.22 11.00 14.02 14.46 12.40 12.59 11.42 11.90
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B MAY 31, 1994 CLASS C MAY 31, 1994
YEAR ENDED TO YEAR ENDED TO
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
<S> <C> <C> <C> <C>
-------------------------------------- --------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 7.73 7.96 $ 7.75 7.96
- ------------------------------------------------------------------------------
--------------------------------------
Income from investment operations:
Net investment income .76 .23 .77 .25
- ------------------------------------------------------------------------------
--------------------------------------
Net realized and unrealized gain
(loss) .20 (.23) .20 (.23)
- ------------------------------------------------------------------------------
--------------------------------------
Total from investment operations .96 -- .97 .02
- ------------------------------------------------------------------------------
--------------------------------------
Less dividends from net investment
income .69 .23 .70 .23
- ------------------------------------------------------------------------------
--------------------------------------
Net asset value, end of period $ 8.00 7.73 $ 8.02 7.75
- ------------------------------------------------------------------------------
--------------------------------------
TOTAL RETURN (%): 13.09 -- 13.13 .27
- ------------------------------------------------------------------------------
--------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.77 1.80 1.71 1.74
- ------------------------------------------------------------------------------
--------------------------------------
Net investment income 9.87 8.70 9.93 8.75
- ------------------------------------------------------------------------------
--------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
-------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at
end of year
(in thousands) $3,527,954 3,152,029 1,957,524 1,953,509 1,673,161 1,183,943 1,552,762 978,310 452,771 323,205
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover
rate (%) 99 93 101 69 31 37 45 76 118 95
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 18
INCOME AND CAPITAL FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 7.91 8.97 8.34 8.22 7.70 8.22 8.53 8.44 9.12 8.57
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .61 .61 .63 .67 .74 .80 .84 .89 .95 1.03
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .72 (1.03) .62 .11 .53 (.52) (.26) .12 (.71) .50
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.33 (.42) 1.25 .78 1.27 .28 .58 1.01 .24 1.53
- ------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .62 .59 .62 .66 .75 .80 .89 .92 .92 .98
- ------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- .05 -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total dividends .62 .64 .62 .66 .75 .80 .89 .92 .92 .98
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 8.62 7.91 8.97 8.34 8.22 7.70 8.22 8.53 8.44 9.12
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 17.47 (4.86) 15.48 9.83 17.26 3.60 7.13 12.67 2.63 18.68
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .90 .94 .82 .82 .82 .73 .67 .69 .69 .69
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 7.31 7.34 7.26 8.01 9.21 10.05 10.02 10.53 10.70 11.48
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B MAY 31, 1994 CLASS C MAY 31, 1994
YEAR ENDED TO YEAR ENDED TO
CLASS B & C SHARES OCTOBER 31, 1995 OCTOBER 31, 1994 OCTOBER 31, 1995 OCTOBER 31, 1994
<S> <C> <C> <C> <C>
---------------------------------- ----------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 7.90 8.16 $ 7.90 8.16
--------------------------------
- ----------------------------------------------------------------------------------
Income from investment operations:
Net investment income .51 .23 .53 .23
--------------------------------
- ----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .72 (.26) .72 (.26)
--------------------------------
- ----------------------------------------------------------------------------------
Total from investment operations 1.23 (.03) 1.25 (.03)
--------------------------------
- ----------------------------------------------------------------------------------
Less dividends from net investment income .54 .23 .54 .23
--------------------------------
- ----------------------------------------------------------------------------------
Net asset value, end of period $ 8.59 7.90 $ 8.61 7.90
--------------------------------
- ----------------------------------------------------------------------------------
TOTAL RETURN (%): 16.12 (.45) 16.45 (.44)
--------------------------------
- ----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.81 1.92 1.78 1.89
--------------------------------
- ----------------------------------------------------------------------------------
Net investment income 6.40 6.72 6.43 6.75
--------------------------------
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALL CLASSES
--------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands) $649,427 510,432 569,145 482,009 432,490 394,131 404,995 322,229 255,779 206,108
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 182 163 190 178 115 189 64 34 34 87
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 19
MORTGAGE FUND
<TABLE>
<CAPTION>
AUGUST 1, 1995
TO SEPTEMBER 30, YEAR ENDED JULY 31, JANUARY 10, 1992
CLASS A SHARES 1995 1995 1994 1993 TO JULY 31, 1992
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 7.06 6.96 7.56 7.78 7.81
- ------------------------------------------------------
Income from investment operations:
Net investment income .08 .53 .51 .62 .38
- ------------------------------------------------------
Net realized and unrealized gain (loss) .08 .09 (.59 ) (.21) (.03)
- ------------------------------------------------------
Total from investment operations .16 .62 (.08 ) .41 .35
- ------------------------------------------------------
Less dividends from net investment income .09 .52 .52 .63 .38
- ------------------------------------------------------
Net asset value, end of period $ 7.13 7.06 6.96 7.56 7.78
- ------------------------------------------------------
TOTAL RETURN (%): 2.23 9.48 (1.21) 5.52 4.76
- ------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .94 .89 .99 .97 .94
- ------------------------------------------------------
Net investment income 6.87 7.77 7.00 8.22 8.73
- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AUGUST 1, 1995
TO SEPTEMBER 30, YEAR ENDED JULY 31,
CLASS B SHARES 1995 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $ 7.05 6.96 7.56 7.77 7.25 7.25 7.61 7.58 8.01 8.52 8.47
- -------------------------
Income from investment
operations:
Net investment income .07 .47 .45 .57 .65 .64 .66 .72 .72 .73 .76
- -------------------------
Net realized and
unrealized gain (loss) .08 .09 (.59) (.21) .49 .01 (.36) .07 (.33) (.41) .37
- -------------------------
Total from investment
operations .15 .56 (.14) .36 1.14 .65 .30 .79 .39 .32 1.13
- -------------------------
Less dividends:
Distribution from net
investment income .08 .47 .46 .57 .62 .65 .66 .76 .74 .69 .84
- -------------------------
Distribution from net
realized
gain -- -- -- -- -- -- -- -- .08 .14 .24
- -------------------------
Total dividends .08 .47 .46 .57 .62 .65 .66 .76 .82 .83 1.08
- -------------------------
Net asset value, end of
period $ 7.12 7.05 6.96 7.56 7.77 7.25 7.25 7.61 7.58 8.01 8.52
- -------------------------
TOTAL RETURN (%): 2.09 8.44 (2.00) 4.85 16.36 9.37 4.26 11.12 5.06 3.75 14.30
- -------------------------
RATIOS TO AVERAGE NET
ASSETS (%):
Expenses 1.79 1.75 1.79 1.75 1.86 2.03 1.99 1.98 1.98 2.02 1.99
- -------------------------
Net investment income 6.02 6.91 6.27 7.44 8.70 8.86 9.00 9.62 9.28 8.70 8.94
- -------------------------
</TABLE>
12
<PAGE> 20
MORTGAGE FUND
<TABLE>
<CAPTION>
AUGUST 1, 1995 YEAR ENDED
TO SEPTEMBER 30, JULY 31, MAY 31, 1994
CLASS C SHARES 1995 1995 TO JULY 31, 1994
---------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 7.05 6.95 6.99
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .07 .48 .07
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) .08 .09 (.04)
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations .15 .57 .03
- ------------------------------------------------------------------------------------------------------------------------
Less dividend from net investment income .08 .47 .07
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.12 7.05 6.95
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 2.10 8.65 .47
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.69 1.71 1.55
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 6.12 6.95 6.46
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AUGUST 1, 1995
TO SEPTEMBER 30, YEAR ENDED JULY 31,
ALL CLASSES 1995 1995 1994 1993 1992 1991 1990 1989
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of
period in thousands) $3,493,052 3,528,329 4,158,066 5,639,097 5,602,682 4,879,832 5,178,159 6,193,674
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(%) 249 573 963 551 376 498 206 152
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ALL CLASSES 1988 1987 1986
<S> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of
period in thousands) 6,332,021 6,285,550 4,027,821
- -----------------------
Portfolio turnover rate
(%) 178 139 313
- -----------------------
</TABLE>
13
<PAGE> 21
SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
AUGUST 1, JANUARY 10,
1995 TO 1992 TO
SEPTEMBER 30, YEAR ENDED JULY 31, JULY 31,
CLASS A SHARES 1995 1995 1994 1993(D) 1992
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $8.09 8.11 8.63 8.65 8.59
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .09 .54 .48 .53 .29
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.01) (.03) (.44) (.03) .11
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations .08 .51 .04 .50 .40
- ------------------------------------------------------------------------------------------------------------------------
Less dividends from:
Distribution from net investment income .09 .53 .45 .52 .34
- ------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- .11 -- --
- ------------------------------------------------------------------------------------------------------------------------
Total dividends .09 .53 .56 .52 .34
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.08 8.09 8.11 8.63 8.65
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 1.00 6.58 .41 6.01 4.87
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.05 1.06 1.06 1.04 .95
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 6.56 6.65 5.85 6.06 7.48
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AUGUST 1, FEBRUARY 1,
1995 TO 1989 TO
SEPTEMBER 30, YEAR ENDED JULY 31, JULY 31,
CLASS B SHARES 1995 1995 1994 1993(D) 1992 1991 1990 1989
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $8.06 8.08 8.61 8.64 8.27 8.42 8.70 8.50
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .08 .47 .40 .45 .58 .69 .72 .36
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (.01) (.03) (.44) (.02) .36 (.14) (.27) .14
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations .07 .44 (.04) .43 .94 .55 .45 .50
- ------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .08 .46 .38 .46 .57 .70 .72 .30
- ------------------------------------------------------------------------------------------------------------------------
Distribution from net realized gain -- -- .11 -- -- -- .01 --
- ------------------------------------------------------------------------------------------------------------------------
Total dividends .08 .46 .49 .46 .57 .70 .73 .30
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.05 8.06 8.08 8.61 8.64 8.27 8.42 8.70
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): .87 5.68 (.48) 5.13 11.76 6.85 5.52 5.99
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.91 1.87 1.93 1.87 1.89 2.07 2.10 2.24
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 5.70 5.84 4.95 5.23 6.84 8.19 8.60 8.50
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(d) Per share data for 1993 for the Short-Intermediate Government Fund were
based upon average shares outstanding.
14
<PAGE> 22
SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
AUGUST 1, MAY 31,
1995 TO YEAR ENDED 1994 TO
SEPTEMBER 30, JULY 31, JULY 31,
CLASS C SHARES 1995 1995 1994
------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $8.06 8.08 8.09
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .09 .47 .07
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss (.01) (.03) (.01 )
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations .08 .44 .06
- ------------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income .08 .46 .07
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.06 8.06 8.08
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 1.00 5.73 .77
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.74 1.78 1.83
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 5.87 5.93 5.54
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AUGUST 1,
1995 TO
SEPTEMBER 30, YEAR ENDED JULY 31,
ALL CLASSES 1995 1995 1994 1993 1992 1991 1990
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $ 239,619 246,248 266,640 283,249 191,716 104,279 51,741
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 173 597 916 339 120 180 89
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES FOR ALL FUNDS:
Ratios have been determined on an annualized basis, except that total return is
not annualized and does not reflect the effect of any sales charges. The
Adjustable Rate, Diversified, Government, High Yield and Income and Capital
Funds are separate Massachusetts business trusts and the Cash Reserves, Mortgage
and Short-Intermediate Government Funds are separate portfolios of Kemper
Portfolios, a Massachusetts business trust. See "Capital Structure."
As discussed under "Investment Manager and Underwriter," effective May 31, 1994,
the investment management fee for each Fund changed, resulting in an increased
fee for the Adjustable Rate, Government, High Yield and Income and Capital Funds
and a decreased fee for the Cash Reserves, Diversified, Mortgage and
Short-Intermediate Government Funds.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The following information sets forth each Fund's investment objective and
policies. Each Fund's returns and net asset value will fluctuate (except that
the Cash Reserves Fund seeks to maintain a net asset value of $1.00 per share)
and there is no assurance that any Fund will achieve its objective.
ADJUSTABLE RATE FUND. The Adjustable Rate Fund seeks high current income
consistent with low volatility of principal. Under normal market conditions, the
Fund will, as a fundamental policy, invest at least 65% of its total assets in
adjustable rate securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government Securities"). See "Government
Fund" below concerning U.S. Government Securities and the risks related to those
securities, including the fact that the government guarantee of such securities
in the Fund's
15
<PAGE> 23
portfolio does not guarantee the net asset value of the Fund's shares. The Fund
is designed for the investor who seeks a higher yield than a stable price money
market fund or an insured bank certificate of deposit and less fluctuation in
net asset value than a longer-term bond fund; unlike money market funds,
however, the Fund does not seek to maintain a stable net asset value and, unlike
an insured bank certificate of deposit, the Fund's shares are not insured. There
is no assurance that the Fund will achieve its objective.
Adjustable rate securities bear interest at rates that adjust at periodic
intervals in response to changes in market levels of interest rates generally.
As the interest rates are reset periodically, yields on such securities will
gradually align themselves to reflect changes in market interest rates. The
adjustable interest rate feature of the securities in which the Fund invests
generally will act as a buffer to reduce sharp changes in the Fund's net asset
value in response to normal interest rate fluctuations. As the interest rates on
the Fund's investments are reset periodically, yields of portfolio securities
will gradually align themselves to reflect changes in market rates and should
cause the net asset value of the Fund's shares to fluctuate less dramatically
than it would if the Fund invested in long-term, fixed rate securities.
Adjustable rate securities allow the Fund to participate in increases in
interest rates through periodic adjustments in the interest rate resulting in
both higher current yields and lower price fluctuations. During periods of
declining interest rates, of course, the coupon rates may readjust downward,
resulting in lower yields to the Fund. Further, because of this feature, the
value of adjustable rate mortgages is unlikely to rise during periods of
declining interest rates to the same extent as fixed rate instruments. As with
other mortgage-backed securities, interest rate declines may result in
accelerated prepayment of mortgages, and the proceeds from such prepayments must
be reinvested at lower prevailing interest rates. However, during periods of
rising interest rates, changes in the coupon rate lag behind changes in the
market rate, possibly resulting in a lower net asset value until the coupon
resets to market rates. Thus, investors could suffer some principal loss if they
sold their shares of the Fund before the interest rates on portfolio investments
are adjusted to reflect current market rates. During periods of extreme
fluctuations in interest rates, the Fund's net asset value will fluctuate as
well.
The Fund may invest without limit in Mortgage-Backed Securities, as described
under "Mortgage Fund" below. Mortgage-Backed Securities can have either a fixed
rate of interest or an adjustable rate. Adjustable rate mortgage securities in
which the Fund generally invests would have the same characteristics as
described above with respect to adjustable rate securities. In addition, since
most mortgage securities in the Fund's portfolio will generally have annual
reset caps of 100 to 200 basis points (1-2%), fluctuation in interest rates
above these levels could cause such mortgage securities to "cap out" and to
behave more like long-term, fixed rate debt securities.
To help protect the value of the Fund's portfolio from interest rate
fluctuations, the Fund may engage in interest rate swaps and purchase interest
rate "caps" and "floors." The Fund will enter into these transactions primarily
to preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities the Fund
anticipates purchasing. The Fund intends to use these transactions as a hedge
and not as a speculative investment. There is no assurance that these
transactions will be successful. The Fund will not sell interest rate caps or
floors that it does not own.
Interest rate swaps are the exchange by the Fund with another party of their
respective commitments to pay or receive interest with respect to a notional
(agreed upon) principal amount, for example, an exchange of floating rate
payments for fixed rate payments. Interest rate swaps are generally entered into
to permit the party seeking a floating or fixed rate obligation, as the case may
be, the opportunity to acquire such obligation at a lower rate than is directly
available in the credit market. The success of such a transaction depends in
large part on the availability of fixed rate obligations at a low enough coupon
rate to cover the cost involved.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling the interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor.
16
<PAGE> 24
The Fund may also invest up to 35% of its total assets in securities other than
adjustable rate U.S. Government Securities including, without limitation,
privately issued Mortgage-Backed Securities, commercial paper and other debt
obligations of corporations and other business organizations, certificates of
deposit, bankers' acceptances and time deposits and other debt securities such
as convertible securities and preferred stocks. These securities will, at the
time of purchase, be rated within the two highest grades (Aaa or Aa) assigned by
Moody's Investors Service, Inc.("Moody's"), or (AAA or AA) by Standard & Poor's
Corporation ("S&P"), or will be non-rated but of comparable quality in the
opinion of the investment manager.
The Fund also may invest in obligations collateralized by a portfolio or pool of
mortgages, Mortgage-Backed Securities, U.S. Government Securities or other
assets and may engage in options and financial futures transactions, securities
lending, delayed delivery transactions and other portfolio strategies. See
"Additional Investment Information" below.
Additional information concerning the Adjustable Rate Fund appears in the
"Additional Information--Adjustable Rate Fund" section under "Investment
Policies and Techniques" in the Statement of Additional Information.
CASH RESERVES FUND. The Cash Reserves Fund seeks maximum current income to the
extent consistent with stability of principal from a portfolio of the following
types of U.S. Dollar denominated money market instruments that mature in 12
months or less:
1. Obligations of, or guaranteed by, the U.S. or Canadian Governments, their
agencies or instrumentalities. The two broad categories of U.S. Government debt
instruments are: (a) direct obligations of the U.S. Treasury and (b) securities
issued or guaranteed by agencies and instrumentalities of the U.S. Government.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. Government are backed by the full faith and credit of the United States and
others are backed exclusively by the agency or instrumentality with limited
rights of the issuer to borrow from the U.S. Treasury.
2. Bank certificates of deposit, time deposits or bankers' acceptances limited
to U.S. banks or Canadian chartered banks having total assets in excess of $1
billion.
3. Bank certificates of deposit, time deposits or bankers' acceptances of U.S.
branches of foreign banks having total assets in excess of $10 billion.
4. Commercial paper rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P, or
commercial paper or notes issued by companies with an unsecured debt issue
outstanding currently rated A or higher by Moody's or S&P where the obligation
is on the same or a higher level of priority as the rated issue, and investments
in other corporate obligations such as publicly traded bonds, debentures and
notes rated A or higher by Moody's or S&P.
5. Repurchase agreements of obligations which are suitable for investment under
the categories set forth above. Repurchase agreements are discussed under
"Additional Investment Information" below.
In addition, the Fund limits its investments to securities that meet the quality
and diversification requirements of Rule 2a-7 under the Investment Company Act
of 1940. See "Net Asset Value."
To the extent the Fund purchases Eurodollar certificates of deposit issued by
London branches of U.S. banks, or commercial paper issued by foreign entities,
consideration will be given to their marketability, possible restrictions on
international currency transactions and regulations imposed by the domicile
country of the foreign issuer. Eurodollar certificates of deposit may not be
subject to the same regulatory requirements as certificates issued by U.S. banks
and associated income may be subject to the imposition of foreign taxes. The
Fund will normally invest at least 25% of its net assets in instruments issued
by domestic or foreign banks.
The Fund seeks to maintain its net asset value at $1.00 per share by valuing its
portfolio of investments on the amortized cost method in accordance with Rule
2a-7. While the Fund will make every effort to maintain a fixed net asset value
of $1.00 per share, there can be no assurance that this objective will be
achieved. See "Net Asset Value."
The Fund may invest in instruments bearing rates of interest that are adjusted
periodically or which "float" continuously according to formulae intended to
minimize fluctuations in values of the instruments ("Variable Rate Securities").
The interest rate of Variable Rate Securities is ordinarily determined by
reference to or is a percentage
17
<PAGE> 25
of an objective standard. Generally, the changes in the interest rate on
Variable Rate Securities reduce the fluctuation in the market value of such
securities. Accordingly, as interest rates decrease or increase, the potential
for capital appreciation or depreciation is less than for fixed rate
obligations. Some Variable Rate Securities ("Variable Rate Demand Securities")
have a demand feature entitling the purchaser to resell the securities to the
issuer at an amount approximately equal to amortized cost or the principal
amount thereof plus accrued interest. As is the case for other Variable Rate
Securities, the interest rate on Variable Rate Demand Securities varies
according to some objective standard intended to minimize fluctuation in the
values of the instruments. The Fund determines the maturity of Variable Rate
Securities in accordance with Securities and Exchange Commission rules that
allow the Fund to consider certain of such instruments as having maturities
earlier than the maturity date on the face of the instrument.
Section 4(2) Paper. Subject to its investment objectives and policies, the Fund
may invest in commercial paper issued by major corporations under the Securities
Act of 1933 in reliance on the exemption from registration afforded by Section
3(a)(3) thereof. Such commercial paper may be issued only to finance current
transactions and must mature in nine months or less. Trading of such commercial
paper is conducted primarily by institutional investors through investment
dealers, and individual investor participation in the commercial paper market is
very limited. The Fund also may invest in commercial paper issued in reliance on
the so-called "private placement" exemption from registration afforded by
Section 4(2) of the Securities Act of 1933 ("Section 4(2) paper"). Section 4(2)
paper is restricted as to disposition under the federal securities laws, and
generally is sold to institutional investors such as the Fund who agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors like the
Fund through or with the assistance of the issuer or investment dealers who make
a market in the Section 4(2) paper, thus providing liquidity. The investment
manager considers the legally restricted but readily saleable Section 4(2) paper
to be liquid; however, pursuant to procedures approved by the Board of Trustees,
if a particular investment in Section 4(2) paper is not determined to be liquid,
that investment will be included within the limitation on illiquid securities.
The investment manager monitors the liquidity of the Fund's investments in
Section 4(2) paper on a continuing basis. See "Investment Restrictions" in the
Statement of Additional Information.
DIVERSIFIED FUND. The Diversified Fund seeks high current return. The Fund
pursues its objective by investing primarily in fixed income securities and
dividend-paying common stocks and by writing options. Current return includes
interest income, common stock dividends and any net short-term gains.
Investment in fixed income securities will include corporate debt obligations,
U.S. and Canadian Government securities, obligations of U.S. and Canadian
banking institutions, convertible securities, preferred stocks, and cash and
cash equivalents, including repurchase agreements. Investment in equity
securities will primarily be in dividend-paying common stocks. The percentage of
assets invested in fixed income and equity securities will vary from time to
time depending upon the judgment of the investment manager as to general market
and economic conditions, trends in yields and interest rates and changes in
fiscal or monetary policies. The Fund may invest up to 50% of its total assets
in foreign securities that are traded principally in securities markets outside
the United States. Foreign securities present certain risks in addition to those
presented by domestic securities, including risks associated with currency
fluctuations, possible imposition of foreign governmental regulations or taxes
adversely affecting portfolio securities and generally different degrees of
liquidity, market volatility and availability of information. See "Special Risk
Factors--Foreign Securities" below.
The Fund may invest without limit in high yield, fixed income securities,
commonly referred to as "junk bonds," that are in the lower rating categories
and those that are non-rated. The high yield, fixed income securities (debt and
preferred stock issues, including convertibles and assignments or participations
in loans) in which the Fund may invest normally offer a current yield or yield
to maturity that is significantly higher than the yield available from
securities rated in the four highest categories assigned by S&P or Moody's. The
characteristics of the securities in the Fund's portfolio, such as the maturity
and the type of issuer, will affect yields and yield differentials, which vary
over
18
<PAGE> 26
time. The actual yield realized by the investor is subject, among other things,
to the Fund's expenses and the investor's transaction costs.
The Fund may also purchase options on securities and index options, purchase and
sell financial futures contracts and options on financial futures contracts,
engage in foreign currency transactions, engage in delayed delivery transactions
and lend its portfolio securities. See "Special Risk Factors--Foreign
Securities" and "Additional Investment Information" below. Under normal market
conditions, the Fund will invest at least 65% of its total assets in income
producing investments. In periods of unusual market conditions, the Fund may,
for defensive purposes, temporarily retain all or any part of its assets in cash
or cash equivalents.
There are market and investment risks with any security and the value of an
investment in the Fund will fluctuate over time. In seeking to achieve its
investment objective, the Fund will invest in fixed income securities based on
the investment manager's analysis without relying on any published ratings. The
Fund will invest in a particular fixed income security if in the investment
manager's view, the increased yield offered, regardless of published ratings, is
sufficient to compensate for a reasonable element of assumed risk. Since
investments will be based upon the investment manager's analysis rather than
upon published ratings, achievement of the Fund's goals may depend more upon the
abilities of the investment manager than would otherwise be the case.
Investments in lower rated or non-rated securities, while generally providing
greater income and opportunity for gain than investments in higher rated
securities, entail greater risk of loss of income and principal. (The High Yield
Fund may also invest in lower rated and non-rated securities but may not invest
in dividend-paying common stocks and has more limited option writing authority
than the Diversified Fund.) See "Special Risk Factors--High Yield (High Risk)
Bonds" and "Appendix B--Ratings of Investments" below.
Since interest rates vary with changes in economic, market, political and other
conditions, there can be no assurance that historic interest rates are
indicative of rates that may prevail in the future. The values of fixed income
securities in the Fund's portfolio will fluctuate depending upon market factors
and inversely with current interest rate levels. The market value of equity
securities in the Fund's portfolio will also fluctuate with market and other
conditions.
GOVERNMENT FUND. The Government Fund seeks high current income, liquidity and
security of principal by investing in obligations issued or guaranteed by the
U.S. Government or its agencies, and by obtaining rights to acquire such
securities. The Fund's yield and net asset value will fluctuate and there can be
no assurance that the Fund will attain its objective.
The Fund intends to invest some or all of its assets in Government National
Mortgage Association ("GNMA") Certificates of the modified pass-through type.
These GNMA Certificates are debt securities issued by a mortgage banker or other
mortgagee and represent an interest in one or a pool of mortgages insured by the
Federal Housing Administration or guaranteed by the Veterans Administration.
GNMA guarantees the timely payment of monthly installments of principal and
interest on modified pass-through Certificates at the time such payments are
due, whether or not such amounts are collected by the issuer of these
Certificates on the underlying mortgages.
The National Housing Act provides that the full faith and credit of the United
States is pledged to the timely payment of principal and interest by GNMA of
amounts due on these GNMA Certificates, and an assistant attorney general of the
United States has rendered an opinion that this guarantee by GNMA is a general
obligation of the United States backed by its full faith and credit.
Mortgages included in single family residential mortgage pools backing an issue
of GNMA Certificates have a maximum maturity of 30 years. Scheduled payments of
principal and interest are made to the registered holders of GNMA Certificates
(such as the Fund) each month. Unscheduled prepayments of mortgages included in
these pools occur as a result of the prepayment or refinancing of such mortgages
by homeowners or as a result of the foreclosure of such mortgages. Such
prepayments are passed through to the registered holders of GNMA Certificates
with the regular monthly payments of principal and interest, which has the
effect of reducing future payments on such Certificates. That portion of monthly
payments received by the Fund which represents interest and discount will be
19
<PAGE> 27
included in the Fund's net investment income. See "Dividends and Taxes."
Principal payments on a GNMA Certificate will be reinvested by the Fund.
The balance of the Fund's assets, other than those invested in GNMA Certificates
and options and financial futures contracts as discussed below, will be invested
in obligations issued or guaranteed by the United States or by its agencies.
There are two broad categories of U.S. Government-related debt instruments: (a)
direct obligations of the U.S. Treasury, and (b) securities issued or guaranteed
by U.S. Government agencies. Examples of direct obligations of the U.S. Treasury
are Treasury Bills, Notes, Bonds and other debt securities issued by the U.S.
Treasury. These instruments are backed by the "full faith and credit" of the
United States. They differ primarily in interest rates, the length of maturities
and the dates of issuance. Some obligations issued or guaranteed by agencies of
the U.S. Government are backed by the full faith and credit of the United States
(such as Maritime Administration Title XI Ship Financing Bonds and Agency for
International Development Housing Guarantee Program Bonds) and others are backed
only by the rights of the issuer to borrow from the U.S. Treasury (such as
Federal Home Loan Bank Bonds and Federal National Mortgage Association Bonds).
With respect to securities supported only by the credit of the issuing agency or
by an additional line of credit with the U.S. Treasury, there is no guarantee
that the U.S. Government will provide support to such agencies and such
securities may involve risk of loss of principal and interest. U.S. Government
Securities may include "zero coupon" securities that have been stripped by the
U.S. Government of their unmatured interest coupons (see "Investment Policies
and Techniques--Zero Coupon Government Securities" in the Statement of
Additional Information for a discussion of their features and risks) and
collateralized obligations issued or guaranteed by a U.S. Government agency or
instrumentality (see "Collateralized Obligations" below).
U.S. Government Securities of the type in which the Fund may invest have
historically involved little risk of loss of principal if held to maturity. The
government guarantee of the U.S. Government Securities in the Fund's portfolio,
however, does not guarantee the net asset value of the shares of the Fund. There
are market risks inherent in all investments in securities and the value of an
investment in the Fund will fluctuate over time. Normally, the value of the
Fund's investments varies inversely with changes in interest rates. For example,
as interest rates rise the value of the Fund's investments will tend to decline,
and as interest rates fall the value of the Fund's investments will tend to
increase. In addition, the potential for appreciation in the event of a decline
in interest rates may be limited or negated by increased principal prepayments
in respect to certain Mortgage-Backed Securities, such as GNMA Certificates.
Prepayments of high interest rate Mortgage-Backed Securities during times of
declining interest rates will tend to lower the return of the Fund and may even
result in losses to the Fund if some securities were acquired at a premium. With
respect to U.S. Government Securities supported only by the credit of the
issuing agency or by an additional line of credit with the U.S. Treasury, there
is no guarantee that the U.S. Government will provide support to such agencies
and such securities may involve risk of loss of principal and interest. The Fund
will not invest in Mortgage-Backed Securities issued by private issuers.
The Fund may also write (sell) and purchase options on securities, index
options, financial futures contracts and options on financial futures contracts
in connection with attempts to hedge its portfolio investments and not for
speculation. See "Additional Investment Information" below.
HIGH YIELD FUND. The primary objective of the High Yield Fund is to achieve the
highest level of current income obtainable from a professionally managed,
diversified portfolio of fixed income securities which the investment adviser
considers consistent with reasonable risk. As a secondary objective, the Fund
will seek capital gain where consistent with its primary objective.
The high yield, fixed income securities (debt and preferred stock issues,
including convertibles and assignments or participations in loans) in which the
Fund intends to invest are commonly referred to as "junk bonds" and normally
offer a current yield or yield to maturity that is significantly higher than the
yield available from securities rated in the four highest categories assigned by
S&P or Moody's. The characteristics of the securities in the Fund's portfolio,
such as the maturity and the type of issuer, will affect yields and yield
differentials, which vary over time. The actual yield realized by the investor
is subject, among other things, to the Fund's expenses and the investor's
transaction costs.
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There are market and investment risks with any security and the value of an
investment in the Fund may fluctuate over time. In seeking to achieve its
investment objectives, the Fund will invest in fixed income securities based on
the investment manager's analysis without relying on published ratings. The Fund
will invest in a particular security if in the view of the investment manager
the increased yield offered, regardless of published ratings, is sufficient to
compensate for a reasonable element of assumed risk. Since investments will be
based upon the investment manager's analysis rather than upon published ratings,
achievement of the Fund's goals may depend more upon the abilities of the
investment manager than would otherwise be the case. Investment in high yield
securities, while providing greater income and opportunity for gain than
investment in higher rated securities, entails relatively greater risk of loss
of income and principal. See "Special Risk Factors--High Yield (High Risk)
Bonds" and "Appendix B--Ratings of Investments" below.
As a secondary objective, the Fund will seek capital gain where consistent with
its primary objective. However, the Fund intends to hold portfolio securities to
maturity unless yields on alternative investments, based on current market
prices, are more attractive than those on securities held in the Fund's
portfolio or unless the investment manager determines defensive strategies
should be implemented.
The Fund anticipates that under normal circumstances 90 to 100% of its assets
will be invested in fixed income securities (debt and preferred stock issues,
including convertibles). The Fund may invest in common stocks, rights or other
equity securities when consistent with the Fund's objectives, but will generally
hold such equity investments only as a result of purchases of unit offerings of
fixed income securities which include such securities or in connection with an
actual or proposed conversion or exchange of fixed income securities.
The Fund may invest all or a portion of its assets in money market instruments
such as obligations of the U.S. Government, its agencies or instrumentalities;
other debt securities rated within the three highest grades by Moody's or S&P;
commercial paper rated within the two highest grades by either of such rating
services; bank certificates of deposit or bankers' acceptances of domestic or
Canadian charter banks having total assets in excess of $1 billion; and any of
the foregoing investments subject to short-term repurchase agreements (an
instrument under which the purchaser acquires ownership of the underlying
obligation and the seller agrees, at the time of sale, to repurchase the
obligation at a mutually agreed upon time and price). The Fund may also purchase
and sell options on securities, index options, financial futures contracts and
options on financial futures contracts in connection with attempts to hedge its
portfolio investments and not for speculation; and it may purchase foreign
securities and engage in foreign currency transactions. See "Special Risk
Factors--Foreign Securities" and "Additional Investment Information" below.
INCOME AND CAPITAL FUND. The Income and Capital Fund seeks as high a level of
current income as is consistent with prudent investment management, preservation
of capital and ready marketability of its portfolio by investing primarily in a
diversified portfolio of investment grade debt securities. Specifically, at
least 90% of the Fund's assets will be invested in the following categories: (a)
corporate debt securities which are rated Aaa, Aa, A or Baa by Moody's or AAA,
AA, A or BBB by S&P; (b) obligations of, or guaranteed by, the United States,
its agencies or instrumentalities; (c) obligations (payable in U.S. Dollars) of,
or guaranteed by, the government of Canada or any instrumentality or political
subdivision thereof; (d) commercial paper rated Prime-1 or Prime-2 by Moody's or
A-1 or A-2 by S&P; (e) bank certificates of deposit or bankers' acceptances
issued by domestic or Canadian chartered banks having total deposits in excess
of $1 billion; (f) options on securities, index options, financial futures
contracts and options on financial futures contracts as described under
"Additional Investment Information" in connection with attempts to hedge its
portfolio investments and not for speculation; and (g) cash and cash
equivalents.
There are market and investment risks with any security and the value of an
investment in the Fund may fluctuate over time. Normally, the value of the
Fund's investments varies inversely with changes in interest rates. There can be
no assurance that the objective of the Fund will be achieved. Corporate debt
securities rated within the four highest grades by Moody's or S&P are generally
considered to be "investment grade." Like higher rated securities, securities
rated in the BBB or Baa categories are considered to have adequate capacity to
pay principal and interest, although they may have fewer protective provisions
than higher rated securities and thus may be adversely affected by severe
economic circumstances and are considered to have speculative characteristics.
The Fund may invest up
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<PAGE> 29
to 10% of its total assets in fixed income securities that are rated below BBB
by S&P and Baa by Moody's or are non-rated. For a discussion of lower rated and
non-rated securities, commonly referred to as "junk bonds," and related risks,
see "Special Risk Factors--High Yield (High Risk) Bonds" and "Appendix
B--Ratings of Investments" below. The Fund may also invest in foreign securities
and engage in foreign currency transactions. See "Special Risk Factors--Foreign
Securities" below.
MORTGAGE FUND. The Mortgage Fund seeks maximum current return from a portfolio
of U.S. Government Securities. Additionally, the Fund may engage in options and
financial futures transactions which relate to U.S. Government Securities and
may purchase or sell securities on a when-issued or delayed delivery basis. See
"Additional Investment Information" below for a discussion of such transactions
applicable to the Fund.
As a non-fundamental policy, at least 65% of the Fund's total assets normally
will be invested in "Mortgage-Backed Securities." Mortgage-Backed Securities are
securities that directly or indirectly represent a participation in, or are
secured by and payable from, mortgage loans secured by real property. There are
currently three basic types of Mortgage-Backed Securities: (a) those issued or
guaranteed by the U.S. Government or one of its agencies or instrumentalities,
such as the Government National Mortgage Association ("Ginnie Mae" or "GNMA"),
the Federal National Mortgage Association ("Fannie Mae" or "FNMA") and the
Federal Home Loan Mortgage Corporation ("Freddie Mac" or "FHLMC"); (b) those
issued by private issuers that represent an interest in or are collateralized by
Mortgage-Backed Securities issued or guaranteed by the U.S. Government or one of
its agencies or instrumentalities; and (iii) those issued by private issuers
that represent an interest in or are collateralized by whole mortgage loans or
Mortgage-Backed Securities without a government guarantee but usually having
some form of private credit enhancement. The dominant issuers or guarantors of
Mortgage-Backed Securities today are GNMA, FNMA and FHLMC. GNMA creates mortgage
securities from pools of government guaranteed or insured (Federal Housing
Authority or Veterans Administration) mortgages originated by mortgage bankers,
commercial banks, and savings and loan associations. FNMA and FHLMC issue
Mortgage-Backed Securities from pools of conventional and federally insured
and/or guaranteed residential mortgages obtained from various entities,
including savings and loan associations, savings banks, commercial banks, credit
unions and mortgage bankers. Mortgage-Backed Securities issued by GNMA, FNMA and
FHLMC are considered U.S. Government Securities. The Fund will not invest in
Mortgage-Backed Securities issued by private issuers.
U.S. Government Securities of the type in which the Fund may invest have
historically involved little risk of loss of principal if held to maturity. The
government guarantee of the securities in the Fund, however, does not guarantee
the net asset value of the shares of the Fund. There are market risks inherent
in all investments in securities and the value of an investment in the Fund will
fluctuate over time. Normally, the value of the Fund's investments varies
inversely with changes in interest rates. For example, as interest rates rise,
the value of the Fund's investments will tend to decline and, as interest rates
fall, the value of the Fund's investments will tend to increase. In addition,
the potential for appreciation in the event of a decline in interest rates may
be limited or negated by increased principal prepayments in respect to certain
Mortgage-Backed Securities, such as GNMA Certificates. Prepayment of high
interest rate Mortgage-Backed Securities during times of declining interest
rates will tend to lower the return of the Fund and may even result in losses to
the Fund if some securities were acquired at a premium.
SHORT-INTERMEDIATE GOVERNMENT FUND. The Short-Intermediate Government Fund
seeks, with equal emphasis, high current income and preservation of capital from
a portfolio composed primarily of short and intermediate-term U.S. Government
Securities. Under normal market conditions, the Fund will, as a fundamental
policy, invest at least 65% of its total assets in U.S. Government Securities
and repurchase agreements of U.S. Government Securities. See "Government Fund"
above for a discussion of U.S. Government Securities and the risks related to
those securities, including the fact that the government guarantee of U.S.
Government Securities in the Fund does not guarantee the net asset value of the
shares of the Fund.
Under normal market conditions, the Fund will maintain a Dollar-weighted average
portfolio maturity of more than two years but less than five years. The maturity
of a security held by the Fund will generally be considered to be the time
remaining until repayment of the principal amount of such security, except that
the maturity of a security may be considered to be a shorter period in the case
of (a) contractual rights to dispose of a security, because such rights
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<PAGE> 30
limit the period during which the Fund bears a market risk with respect to the
security, and (b) Mortgage-Backed Securities, because of possible prepayment of
principal on the mortgages underlying such securities. Short and
intermediate-term securities generally are more stable and less susceptible to
principal decline than longer term securities. While short and intermediate-term
securities in most cases offer lower yields than securities with longer
maturities, the Fund will seek to enhance income through limited investment in
fixed income securities other than U.S. Government Securities. The investment
manager believes that investment in short and intermediate-term securities
allows the Fund to seek both high current income and preservation of capital.
There is, however, no assurance that the Fund's objective will be achieved. The
return and net asset value of the Fund will fluctuate over time.
Up to 35% of the total assets of the Fund may be invested in fixed income
securities other than U.S. Government Securities. Such other fixed income
securities include: (a) corporate debt securities that are rated at the time of
purchase within the four highest grades by either Moody's (Aaa, Aa, A, or Baa)
or S&P (AAA, AA, A, or BBB); (b) commercial paper that is rated at the time of
purchase within the two highest grades by either Moody's (Prime-1 or Prime-2) or
S&P (A-1 or A-2); (c) bank certificates of deposit (including term deposits) or
bankers' acceptances issued by domestic banks (including their foreign branches)
and Canadian chartered banks having total assets in excess of $1 billion; and
(d) repurchase agreements with respect to any of the foregoing. Corporate debt
securities rated within the four highest grades by Moody's or S&P are generally
considered to be "investment grade." Like higher rated securities, securities
rated in the BBB or Baa categories are considered to have adequate capacity to
pay principal and interest, although they may have fewer protective provisions
than higher rated securities and thus may be adversely affected by severe
economic circumstances and are considered to have speculative characteristics.
During temporary defensive periods when the investment manager deems it
appropriate, the Fund may invest all or a portion of its assets in cash or
short-term high quality money market instruments, including short-term U.S.
Government Securities and repurchase agreements with respect to such securities.
The yields on these securities tend to be lower than the yields on other
securities to be purchased by the Fund.
The Fund may purchase or sell securities on a when-issued or delayed delivery
basis. The Fund may invest in collateralized obligations which, consistent with
the limitations reflected above, may be privately issued or may be issued or
guaranteed by U.S. Government agencies or instrumentalities. The Fund also may
engage in options or financial futures transactions in connection with attempts
to hedge its portfolio investments and not for speculation. See "Additional
Investment Information" below.
SPECIAL RISK FACTORS--HIGH YIELD (HIGH RISK) BONDS. As stated above, the
Diversified and High Yield Funds intend to invest a substantial portion of their
assets in fixed income securities offering high current income. Subject to its
specific investment objective and policies as described above, the Income and
Capital Fund may invest up to 10% of its assets in such securities. Such high
yield (high risk), fixed income securities ordinarily will be in the lower
rating categories (securities rated below the fourth category) of recognized
rating agencies or will be non-rated. Lower-rated and non-rated securities,
which are commonly referred to as "junk bonds," have widely varying
characteristics and quality. These lower rated and non-rated fixed income
securities are considered, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation and generally will involve more credit risk than securities in
the higher rating categories. Accordingly, an investment in the Diversified or
High Yield Funds may not constitute a complete investment program and may not be
appropriate for all investors.
The market values of such securities tend to reflect individual corporate
developments to a greater extent than do those of higher rated securities, which
react primarily to fluctuations in the general level of interest rates. Such
lower rated securities also are more sensitive to economic conditions than are
higher rated securities. Adverse publicity and investor perceptions regarding
lower rated bonds, whether or not based on fundamental analysis, may depress the
prices for such securities. These and other factors adversely affecting the
market value of high yield securities will adversely affect each Fund's net
asset value.
The investment philosophy of the Diversified and High Yield Funds with respect
to high yield (high risk) bonds is based upon the premise that over the long
term a broadly diversified portfolio of high yield fixed income securities
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<PAGE> 31
should, even taking into account possible losses, provide a higher net return
than that achievable on a portfolio of higher rated securities. The Funds seek
to achieve the highest yields possible while reducing relative risk through (a)
broad diversification, (b) credit analysis by the investment manager of the
issuers in which the Funds invest, (c) purchase of high yield securities at
discounts from par or stated value when practicable and (d) monitoring and
seeking to anticipate changes and trends in the economy and financial markets
that might affect the prices of portfolio securities. The investment manager's
judgment as to the "reasonableness" of the risk involved in any particular
investment will be a function of its experience in managing fixed income
investments and its evaluation of general economic and financial conditions, a
specific issuer's business and management, cash flow, earnings coverage of
interest and dividends, ability to operate under adverse economic conditions,
and fair market value of assets, and of such other considerations as the
investment manager may deem appropriate. The investment manager, while seeking
maximum current yield, will monitor current corporate developments with respect
to portfolio securities and potential investments and to broad trends in the
economy. In some circumstances, defensive strategies may be implemented to
preserve or enhance capital even at the sacrifice of current yield. Defensive
strategies, which may be used singly or in any combination, may include, but are
not limited to, investments in discount securities or investments in money
market instruments as well as futures and options strategies.
High yield (high risk) securities frequently are issued by corporations in the
growth stage of their development. They may also be issued in connection with a
corporate reorganization or a corporate takeover. Companies that issue such high
yielding securities often are highly leveraged and may not have available to
them more traditional methods of financing. Therefore, the risk associated with
acquiring the securities of such issuers generally is greater than is the case
with higher rated securities. For example, during an economic downturn or
recession, highly leveraged issuers of high yield securities may experience
financial stress. During such periods, such issuers may not have sufficient
revenues to meet their interest payment obligations. The issuer's ability to
service its debt obligations may also be adversely affected by specific
corporate developments, or the issuer's inability to meet specific projected
business forecasts, or the unavailability of additional financing. The risk of
loss from default by the issuer is significantly greater for the holders of high
yield securities because such securities are generally unsecured and are often
subordinated to other creditors of the issuer. Although some risk is inherent in
all securities ownership, holders of fixed income securities have a claim on the
assets of the issuer prior to the holders of common stock. Therefore, an
investment in fixed income securities generally entails less risk than an
investment in common stock of the same issuer.
A Fund may have difficulty disposing of certain high yield (high risk)
securities because they may have a thin trading market. Because not all dealers
maintain markets in all high yield securities, the Funds anticipate that such
securities could be sold only to a limited number of dealers or institutional
investors. The lack of a liquid secondary market may have an adverse effect on
the market price and a Fund's ability to dispose of particular issues and may
also make it more difficult for a Fund to obtain accurate market quotations for
purposes of valuing the Fund's assets. Market quotations generally are available
on many high yield issues only from a limited number of dealers and may not
necessarily represent firm bids of such dealers or prices for actual sales.
Zero coupon securities and pay-in-kind bonds involve additional special
considerations. Zero coupon securities are debt obligations that do not entitle
the holder to any periodic payments of interest prior to maturity or a specified
cash payment date when the securities begin paying current interest (the "cash
payment date") and therefore are issued and traded at a discount from their face
amount or par value. The market prices of zero coupon securities are generally
more volatile than the market prices of securities that pay interest
periodically and are likely to respond to changes in interest rates to a greater
degree than do securities paying interest currently having similar maturities
and credit quality. Zero coupon, pay-in-kind or deferred interest bonds carry
additional risk in that, unlike bonds that pay interest throughout the period to
maturity, a Fund will realize no cash until the cash payment date unless a
portion of such securities is sold and, if the issuer defaults, a Fund may
obtain no return at all on its investment.
Current federal income tax law requires the holder of a zero coupon security or
of certain pay-in-kind bonds (bonds which pay interest through the issuance of
additional bonds) to accrue income with respect to these securities prior
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<PAGE> 32
to the receipt of cash payments. To maintain its qualification as a regulated
investment company and avoid liability for federal income and excise taxes, a
Fund will be required to distribute income accrued with respect to these
securities and may be required to dispose of portfolio securities under
disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
Additional information concerning high yield (high risk) securities appears
under "Appendix A--Portfolio Composition of High Yield Bonds" and "Appendix
B--Ratings of Investments."
SPECIAL RISK FACTORS--FOREIGN SECURITIES. The Diversified, High Yield and Income
and Capital Funds have the discretion to invest a portion of their assets in
foreign securities that are traded principally in securities markets outside the
United States. These Funds currently limit investment in foreign securities not
publicly traded in the United States to 50% of total assets in the case of the
Diversified Fund and 25% of total assets in the case of the High Yield and
Income and Capital Funds. These Funds may also invest without limit in U.S.
Dollar denominated American Depository Receipts ("ADRs"), which are bought and
sold in the United States and are not subject to the preceding limitation. In
connection with their foreign securities investments, these Funds may, to a
limited extent, engage in foreign currency exchange, options and futures
transactions as a hedge and not for speculation. See "Additional Investment
Information--Options and Financial Futures Transactions and Foreign Currency
Transactions." The Cash Reserves Fund and the Short-Intermediate Government
Funds may, subject to their respective quality standards, invest in U.S.
Dollar-denominated securities of foreign issuers.
Foreign securities involve currency risks. The U.S. Dollar value of a foreign
security tends to decrease when the value of the U.S. Dollar rises against the
foreign currency in which the security is denominated and tends to increase when
the value of the U.S. Dollar falls against such currency. Fluctuations in
exchange rates may also affect the earning power and asset value of the foreign
entity issuing the security. Dividend and interest payments may be repatriated
based on the exchange rate at the time of disbursement or payment, and
restrictions on capital flows may be imposed. Losses and other expenses may be
incurred in converting between various currencies.
Foreign securities may be subject to foreign government taxes that reduce their
attractiveness. Other risks of investing in such securities include political or
economic instability in the country involved, the difficulty of predicting
international trade patterns and the possible imposition of exchange controls.
The prices of such securities may be more volatile than those of domestic
securities and the markets for such securities may be less liquid. In addition,
there may be less publicly available information about foreign issuers than
about domestic issuers. Many foreign issuers are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic issuers. There is generally less regulation of stock
exchanges, brokers, banks and listed companies abroad than in the United States.
With respect to certain foreign countries, there is a possibility of
expropriation or diplomatic developments that could affect investment in these
countries.
EMERGING MARKETS. While a Fund's investments in foreign securities will
principally be in developed countries, a Fund may make investments in developing
or "emerging" countries, which involve exposure to economic structures that are
generally less diverse and mature than in the United States, and to political
systems that may be less stable. A developing or emerging market country can be
considered to be a country that is in the initial stages of its
industrialization cycle. Currently, emerging markets generally include every
country in the world other than the United States, Canada, Japan, Australia, New
Zealand, Hong Kong, Singapore and most Western European countries. Currently,
investing in many emerging markets may not be desirable or feasible because of
the lack of adequate custody arrangements for a Fund's assets, overly burdensome
repatriation and similar restrictions, the lack of organized and liquid
securities markets, unacceptable political risks or other reasons. As
opportunities to invest in securities in emerging markets develop, a Fund may
expand and further broaden the group of emerging markets in which it invests. In
the past, markets of developing or emerging market countries have been more
volatile than the markets of developed countries; however, such markets often
have provided higher rates of return to investors. The investment manager
believes that these characteristics can be expected to continue in the future.
Many of the risks described above relating to foreign securities generally will
be greater for emerging markets than for developed countries. For instance,
economies in individual developing markets may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross domestic product,
rates of inflation, currency
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<PAGE> 33
depreciation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Many emerging markets have experienced substantial rates of
inflation for many years. Inflation and rapid fluctuations in inflation rates
have had and may continue to have very negative effects on the economies and
securities markets of certain developing markets. Economies in emerging markets
generally are dependent heavily upon international trade and, accordingly, have
been and may continue to be affected adversely by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which they
trade. These economies also have been and may continue to be affected adversely
by economic conditions in the countries with which they trade.
Also, the securities markets of developing countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure, regulatory and
accounting standards in many respects are less stringent than in the United
States and other developed markets. There also may be a lower level of
monitoring and regulation of developing markets and the activities of investors
in such markets, and enforcement of existing regulations has been extremely
limited.
In addition, brokerage commissions, custodial services and other costs relating
to investment in foreign markets generally are more expensive than in the United
States; this is particularly true with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Such settlement problems may cause emerging market securities to be illiquid.
The inability of a Fund to make intended securities purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security caused by settlement problems could
result either in losses to a Fund due to subsequent declines in value of the
portfolio security or, if a Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. Certain emerging
markets may lack clearing facilities equivalent to those in developed countries.
Accordingly, settlements can pose additional risks in such markets and
ultimately can expose a Fund to the risk of losses resulting from a Fund's
inability to recover from a counterparty.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading securities may cease or may be
substantially curtailed and prices for a Fund's portfolio securities in such
markets may not be readily available. A Fund's portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Board of Trustees.
Investment in certain emerging market securities is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in certain emerging market securities and increase the costs
and expenses of a Fund. Emerging markets may require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments, the market could impose temporary
restrictions on foreign capital remittances.
FIXED INCOME. Since most foreign fixed income securities are not rated, a Fund
will invest in foreign fixed income securities based on the investment manager's
analysis without relying on published ratings. Since such investments will be
based upon the investment manager's analysis rather than upon published ratings,
achievement of a Fund's goals may depend more upon the abilities of the
investment manager than would otherwise be the case.
The value of the foreign fixed income securities held by a Fund, and thus the
net asset value of the Fund's shares, generally will fluctuate with (a) changes
in the perceived creditworthiness of the issuers of those securities, (b)
movements in interest rates, and (c) changes in the relative values of the
currencies in which a Fund's investments in fixed income securities are
denominated with respect to the U.S. Dollar. The extent of the fluctuation will
depend on various factors, such as the average maturity of a Fund's investments
in foreign fixed income securities, and the extent to which a Fund hedges its
interest rate, credit and currency exchange rate risks. Many of the foreign
fixed income obligations in which a Fund will invest will have long maturities.
A longer average maturity generally is associated with a higher level of
volatility in the market value of such securities in response to changes in
market conditions.
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<PAGE> 34
Investments in sovereign debt, including Brady Bonds, involve special risks.
Brady Bonds are debt securities issued under a plan implemented to allow debtor
nations to restructure their outstanding commercial bank indebtedness. Foreign
governmental issuers of debt or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal or pay
interest when due. In the event of default, there may be limited or no legal
recourse in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Political conditions, especially a sovereign entity's
willingness to meet the terms of its fixed income securities, are of
considerable significance. Also, there can be no assurance that the holders of
commercial bank loans to the same sovereign entity may not contest payments to
the holders of sovereign debt in the event of default under commercial bank loan
agreements. In addition, there is no bankruptcy proceeding with respect to
sovereign debt on which a sovereign has defaulted, and a Fund may be unable to
collect all or any part of its investment in a particular issue.
Foreign investment in certain sovereign debt is restricted or controlled to
varying degrees, including requiring governmental approval for the repatriation
of income, capital or proceed of sales by foreign investors. These restrictions
or controls may at times limit or preclude foreign investment in certain
sovereign debt or increase the costs and expenses of a Fund. A significant
portion of the sovereign debt in which a Fund may invest is issued as part of
debt restructuring and such debt is to be considered speculative. There is a
history of defaults with respect to commercial bank loans by public and private
entities issuing Brady Bonds. All or a portion of the interest payments and/or
principal repayment with respect to Brady Bonds may be uncollateralized.
PRIVATIZED ENTERPRISES. Investments in foreign securities may include securities
issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. A Fund's investments in the
securities of privatized enterprises include privately negotiated investments in
a government or state-owned or controlled company or enterprise that has not yet
conducted an initial equity offering, investments in the initial offering of
equity securities of a state enterprise or former state enterprise and
investments in the securities of a state enterprise following its initial equity
offering.
In certain jurisdictions, the ability of foreign entities, such as a Fund, to
participate in privatizations may be limited by local law, or the price or terms
on which the Fund may be able to participate may be less advantageous than for
local investors. Moreover, there can be no assurance that governments that have
embarked on privatization programs will continue to divest their ownership of
state enterprises, that proposed privatizations will be successful or that
governments will not re-nationalize enterprises that have been privatized.
In the case of the enterprises in which a Fund may invest, large blocks of the
stock of those enterprises may be held by a small group of stockholders, even
after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.
Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization or management. Such
reorganizations are made in an attempt to better enable these enterprises to
compete in the private sector. However, certain reorganizations could result in
a management team that does not function as well as the enterprises's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which a Fund may invest
enjoy the protection of and receive preferential treatment from the respective
sovereigns that own or control them. After making an initial equity offering
these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
effectively operate in a competitive market and may suffer losses or experience
bankruptcy due to such competition.
DEPOSITORY RECEIPTS. For many foreign securities, there are U.S. Dollar
denominated ADRs, which are bought and sold in the United States and are issued
by domestic banks. ADRs represent the right to receive securities of foreign
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issuers deposited in the domestic bank or a correspondent bank. ADRs do not
eliminate all the risk inherent in investing in the securities of foreign
issuers, such as changes in foreign currency exchange rates. However, by
investing in ADRs rather than directly in foreign issuers' stock, the Fund
avoids currency risks during the settlement period. In general, there is a
large, liquid market in the United States for most ADRs. The Funds may also
invest in European Depository Receipts ("EDRs"), which are receipts evidencing
an arrangement with a European bank similar to that for ADRs and are designed
for use in the European securities markets. EDRs are not necessarily denominated
in the currency of the underlying security.
ADDITIONAL INVESTMENT INFORMATION. A Fund will not normally engage in the
trading of securities for the purpose of realizing short-term profits, but will
adjust its portfolio as considered advisable in view of prevailing or
anticipated market conditions and its investment objective. Accordingly, a Fund
may sell fixed income securities in anticipation of a rise in interest rates and
purchase such securities for inclusion in its portfolio in anticipation of a
decline in interest rates. Frequency of portfolio turnover will not be a
limiting factor should the investment manager deem it desirable to purchase or
sell securities. The portfolio turnover rates for the Funds are listed under
"Financial Highlights." Since securities with maturities of less than one year
are excluded from portfolio turnover rate calculations, the portfolio turnover
rate for the Cash Reserves Fund is zero. High portfolio turnover (over 100%)
involves correspondingly greater brokerage commissions or other transaction
costs. Higher portfolio turnover may result in the realization of greater net
short-term capital gains. In order to continue to qualify as a regulated
investment company for federal income tax purposes, less than 30% of the annual
gross income of a Fund must be derived from the sale or other disposition of
securities and certain other investments held by a Fund for less than three
months. See "Dividends and Taxes" in the Statement of Additional Information.
A Fund (other than the Adjustable Rate, Cash Reserves and Short-Intermediate
Government Funds) may take full advantage of the entire range of maturities of
fixed income securities and may adjust the average maturity of its portfolio
from time to time, depending upon its assessment of relative yields on
securities of different maturities and its expectations of future changes in
interest rates. Thus, the average maturity of a Fund's portfolio may be
relatively short (under 5 years, for example) at some times and relatively long
(over 10 years, for example) at other times. Generally, since shorter term debt
securities tend to be more stable than longer term debt securities, the
portfolio's average maturity will be shorter when interest rates are expected to
rise and longer when interest rates are expected to fall. The effective
Dollar-weighted average portfolio maturity of the Adjustable Rate Fund generally
will range from less than one year to five years. The effective Dollar-weighted
average portfolio maturity of the Short-Intermediate Government Fund generally
will be more than two years but less than five years. The Cash Reserves Fund
will invest only in securities with remaining maturities of 12 months or less
and maintains a Dollar-weighted average portfolio maturity of 90 days or less in
accordance with Rule 2a-7 under the Investment Company Act of 1940.
The Adjustable Rate, Cash Reserves, Mortgage and Short-Intermediate Government
Funds each may not borrow money except as a temporary measure for extraordinary
or emergency purposes and then only in an amount up to one-third of the value of
its total assets in order to meet redemption requests without immediately
selling any portfolio securities. If, for any reason, the current value of a
Fund's total assets falls below an amount equal to three times the amount of its
indebtedness from money borrowed, the Fund will, within three days (not
including Sundays and holidays), reduce its indebtedness to the extent
necessary. A Fund will not borrow for leverage purposes. The Adjustable Rate
Fund may pledge up to 15% of its total assets to secure any such borrowings.
The Diversified, Government, High Yield and Income and Capital Funds may each
borrow money only for temporary or emergency purposes and not for leverage
purposes, and then only in an amount up to 5% of its assets, in order to meet
redemption requests without immediately selling any portfolio securities or
other assets. These Funds, except for the Government Fund, may not pledge their
assets in an amount exceeding the amount of the borrowings secured by such
pledge. The Government Fund may pledge up to 7 1/2% of its assets to secure any
such borrowings.
A Fund will not purchase illiquid securities, including repurchase agreements
maturing in more than seven days, if, as a result thereof, more than 15% of the
Fund's net assets, valued at the time of the transaction, would be invested in
such securities, except that the Cash Reserves and Mortgage Funds may not
purchase illiquid securities if more
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than 10% of their total assets (net assets for Cash Reserves Fund) would be
invested in such securities. See "Investment Policies and
Techniques--Over-the-Counter Options" in the Statement of Additional Information
for a description of the extent to which over-the-counter traded options are in
effect considered as illiquid for purposes of a Fund's limit on illiquid
securities.
Each Fund has adopted certain fundamental investment restrictions which are
presented in the Statement of Additional Information and that, together with the
investment objective and policies of a Fund (for the Adjustable Rate Fund,
however, only those policies specifically designated in this prospectus as
fundamental), cannot be changed without approval by holders of a majority of its
outstanding voting shares. As defined in the Investment Company Act of 1940,
this means the lesser of the vote of (a) 67% of the shares of a Fund present at
a meeting where more than 50% of the outstanding shares are present in person or
by proxy; or (b) more than 50% of the outstanding shares of a Fund. Policies of
the Adjustable Rate Fund that are neither designated as fundamental nor
incorporated into any of the fundamental investment restrictions referred to
above may be changed by the Board of Trustees of the Fund without shareholder
approval.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS. A Fund (other than the Cash Reserves
Fund) may deal in options on securities and securities indexes, which options
may be listed for trading on a national securities exchange or traded
over-the-counter. In connection with their foreign securities investments, the
Diversified, High Yield and Income and Capital Funds may also purchase and sell
foreign currency options.
The Diversified Fund may write (sell) covered call options on up to 100% of net
assets and may write (sell) secured put options on up to 50% of net assets. The
Adjustable Rate, Government, High Yield and Income and Capital Funds each may
write (sell) covered call and secured put options on up to 25% of its net
assets. Each such Fund may purchase put and call options provided that no more
than 5% of its net assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security or other asset at the exercise price
during the option period. A put option gives the purchaser the right to sell,
and the writer the obligation to buy, the underlying security or other asset at
the exercise price during the option period. The writer of a covered call owns
securities or other assets that are acceptable for escrow and the writer of a
secured put invests an amount not less than the exercise price in eligible
securities or other assets to the extent that it is obligated as a writer. If a
call written by a Fund is exercised, the Fund foregoes any possible profit from
an increase in the market price of the underlying security or other asset over
the exercise price plus the premium received. In writing puts, there is a risk
that a Fund may be required to take delivery of the underlying security or other
asset at a disadvantageous price.
Over-the-counter traded options ("OTC options") differ from exchange traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer as a result of the insolvency of such dealer or otherwise, in which event
a Fund may experience material losses. However, in writing options the premium
is paid in advance by the dealer. OTC options are available for a greater
variety of securities and other assets, and a wider range of expiration dates
and exercise prices, than for exchange traded options.
A Fund (other than the Cash Reserves Fund) may engage in financial futures
transactions. Financial futures contracts are commodity contracts that obligate
the long or short holder to take or make delivery of a specified quantity of a
financial instrument, such as a security, or the cash value of a securities
index during a specified future period at a specified price. A Fund will "cover"
futures contracts sold by the Fund and maintain in a segregated account certain
liquid assets in connection with futures contracts purchased by the Fund as
described under "Investment Policies and Techniques" in the Statement of
Additional Information. In connection with their foreign securities investments,
the Diversified, High Yield and Income and Capital Funds may also engage in
foreign currency financial futures transactions. A Fund will not enter into any
futures contracts or options on futures contracts if the aggregate of the
contract value of the outstanding futures contracts of the Fund and futures
contracts subject to outstanding options written by the Fund would exceed 50% of
the total assets of the Fund.
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The Funds may engage in financial futures transactions and may use index options
as an attempt to hedge against market risks. For example, if a Fund owned
long-term bonds and interest rates were expected to rise, it could sell
financial futures contracts. If interest rates did increase, the value of the
bonds in the Fund would decline, but this decline would be offset in whole or in
part by an increase in the value of the Fund's futures contracts. If, on the
other hand, long-term interest rates were expected to decline, the Fund could
hold short-term debt securities and benefit from the income earned by holding
such securities, while at the same time the Fund could purchase futures
contracts on long-term bonds or the cash value of a securities index. Thus, the
Fund could take advantage of the anticipated rise in the value of long-term
bonds without actually buying them. The futures contracts and short-term debt
securities could then be liquidated and the cash proceeds used to buy long-term
bonds.
Futures contracts entail risks. If the investment manager's judgment about the
general direction of interest rates, markets or exchange rates is wrong, the
overall performance may be poorer than if no such contracts had been entered
into. There may be an imperfect correlation between movements in prices of
futures contracts and portfolio assets being hedged. In addition, the market
prices of futures contracts may be affected by certain factors. For example, if
participants in the futures market elect to close out their contracts rather
than meet margin requirements, distortions in the normal relationship between
the underlying assets and futures market could result. Price distortions also
could result if investors in futures contracts decide to make or take delivery
of underlying securities or other assets rather than engage in closing
transactions because of the resultant reduction in the liquidity of the futures
market. In addition, because, from the point of view of speculators, margin
requirements in the futures market are less onerous than margin requirements in
the cash market, increased participation by speculators in the futures market
could cause temporary price distortions. Due to the possibility of price
distortions in the futures market and because of the imperfect correlation
between movements in the prices of securities or other assets and movements in
the prices of futures contracts, a correct forecast of market trends by the
investment manager still may not result in a successful hedging transaction. If
any of these events should occur, a Fund could lose money on the financial
futures contracts and also on the value of its portfolio assets. The costs
incurred in connection with futures transactions could reduce a Fund's return.
Index options involve risks similar to those risks relating to transactions in
financial futures contracts described above. Also, an option purchased by a Fund
may expire worthless, in which case a Fund would lose the premium paid therefor.
A Fund may engage in futures transactions only on commodities exchanges or
boards of trade. A Fund will not engage in transactions in index options,
financial futures contracts or related options for speculation, but only as an
attempt to hedge against changes in interest rates or market conditions
affecting the values of securities which the Fund owns or intends to purchase.
FOREIGN CURRENCY TRANSACTIONS. The Diversified, High Yield and Income and
Capital Funds may each invest a limited portion of its assets in securities
denominated in foreign currencies. These Funds may engage in foreign currency
transactions in connection with their investments in foreign securities but will
not speculate in foreign currency exchange.
The value of the foreign securities investments of a Fund measured in U.S.
Dollars (including ADRs) may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations, and the Fund
may incur costs in connection with conversions between various currencies. A
Fund will conduct its foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded directly between currency
traders (usually large commercial banks) and their customers.
When a Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the U.S. Dollar cost
or proceeds, as the case may be. By entering into a forward contract in U.S.
Dollars for the purchase or sale of the amount of foreign currency involved in
an underlying security transaction, the
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Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the U.S. Dollar and such foreign currency. However, this tends to limit
potential gains that might result from a positive change in such currency
relationships. A Fund may also hedge its foreign currency exchange rate risk by
engaging in foreign currency financial futures and options transactions.
When the investment manager believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. Dollar, it may enter
into a forward contract to sell an amount of foreign currency approximating the
value of some or all of the Fund's securities denominated in such foreign
currency. The forecasting of short-term currency market movement is extremely
difficult and whether such a short-term hedging strategy will be successful is
highly uncertain.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a contract. Accordingly, it may be
necessary for a Fund to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency the Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
A Fund will not enter into forward contracts or maintain a net exposure in such
contracts where the Fund would be obligated to deliver an amount of foreign
currency in excess of the value of the Fund's securities or other assets
denominated in that currency. The Diversified, High Yield and Income and Capital
Funds do not intend to enter into forward contracts for the purchase of a
foreign currency if they would have more than 15% of the value of their total
assets committed to such contracts. The Funds segregate cash or liquid
high-grade securities in an amount not less than the value of each Fund's total
assets committed to forward foreign currency exchange contracts entered into for
the purchase of a foreign currency. If the value of the securities segregated
declines, additional cash or securities are added so that the segregated amount
is not less than the amount of the Fund's commitments with respect to such
contracts. A Fund generally does not enter into a forward contract with a term
longer than one year.
DERIVATIVES. In addition to options and financial futures transactions,
consistent with its objective, each Fund may invest in a broad array of
financial instruments and securities in which the value of the instrument or
security is "derived" from the performance of an underlying asset or a
"benchmark" such as a security index, an interest rate or a foreign currency
("derivatives"). Derivatives are most often used to manage investment risk, to
increase or decrease exposure to an asset class or benchmark (as a hedge or to
enhance return), or to create an investment position indirectly (often because
it is more efficient or less costly than direct investment). The types of
derivatives used by each Fund and the techniques employed by the investment
manager may change over time as new derivatives and strategies are developed or
regulatory changes occur.
SPECIAL RISK FACTORS--OPTIONS, FUTURES, FOREIGN CURRENCIES AND OTHER
DERIVATIVES. The Statement of Additional Information contains further
information about the characteristics, risks and possible benefits of options,
futures, foreign currency and other derivative transactions. See "Investment
Policies and Techniques" in the Statement of Additional Information. The
principal risks are: (a) possible imperfect correlation between movements in the
prices of options, currencies, futures or other derivatives contracts and
movements in the prices of the securities or currencies hedged, used for cover
or that the derivatives intended to replicate; (b) lack of assurance that a
liquid secondary market will exist for any particular option, futures, foreign
currency or other derivatives contract at any particular time; (c) the need for
additional skills and techniques beyond those required for normal portfolio
management; (d) losses on futures contracts resulting from market movements not
anticipated by the investment manager; (e) the possible need to defer closing
out certain options, futures or other derivatives contracts in order to continue
to qualify for beneficial tax treatment afforded "regulated investment
companies" under the Internal Revenue Code; and (f) the possible non-performance
of the counter-party to the derivative contract.
DELAYED DELIVERY TRANSACTIONS. Any of the Funds (other than the Cash Reserves
Fund) may purchase or sell portfolio securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions involve a
commitment by a Fund to purchase or sell securities with payment and delivery to
take place in the future
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(not to exceed 120 days from trade date for the Government Fund) in order to
secure what is considered to be an advantageous price or yield to the Fund at
the time of entering into the transaction. The value of fixed yield securities
to be delivered in the future will fluctuate as interest rates vary. Because a
Fund is required to set aside cash or liquid high-grade securities to satisfy
its commitments to purchase when-issued or delayed delivery securities,
flexibility to manage the Fund's investments may be limited if commitments to
purchase when-issued or delayed delivery securities were to exceed 25% of the
value of its assets.
To the extent a Fund engages in when-issued or delayed delivery transactions, it
will do so for the purpose of acquiring portfolio securities consistent with the
Fund's investment objective and policies. A Fund reserves the right to sell
these securities before the settlement date if deemed advisable.
In when-issued or delayed delivery transactions, delivery of the securities
occurs beyond normal settlement periods, but the Fund would not pay for such
securities or start earning interest on them until they are delivered. However,
when the Fund purchases securities on a when-issued or delayed delivery basis,
it immediately assumes the risks of ownership, including the risk of price
fluctuation. Failure to deliver a security purchased on a when-issued or delayed
delivery basis may result in a loss or missed opportunity to make an alternative
investment. Depending on market conditions, the Fund's when-issued and delayed
delivery purchase commitments could cause its net asset value per share to be
more volatile, because such securities may increase the amount by which its
total assets, including the value of when-issued and delayed delivery securities
it holds, exceed its net assets.
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements, under
which it acquires ownership of a security and the broker-dealer or bank agrees
to repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the Fund's holding period. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
might have expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities and loss of
income. The securities underlying a repurchase agreement will be
marked-to-market every business day so that the value of such securities is at
least equal to the investment value of the repurchase agreement, including any
accrued interest thereon. In addition, the Fund must take physical possession of
the security or receive written confirmation of the purchase and a custodial or
safekeeping receipt from a third party or be recorded as the owner of the
security through the Federal Reserve Book-Entry System. Repurchase agreements
will be limited to transactions with financial institutions believed by the
investment adviser to present minimal credit risk. The investment manager will
monitor on an on-going basis the creditworthiness of the broker-dealers and
banks with which the Funds may engage in repurchase agreements. Repurchase
agreements maturing in more than seven days will be considered as illiquid for
purposes of the Funds' limitations on illiquid securities.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Funds (other than the Government Fund) may lend securities
(principally to broker-dealers) without limit where such loans are callable at
any time and are continuously secured by segregated collateral (cash or U.S.
Government Securities) equal to no less than the market value, determined daily,
of the securities loaned. The Funds will receive amounts equal to dividends or
interest on the securities loaned. The Funds will also earn income for having
made the loan. Any cash collateral pursuant to these loans will be invested in
short-term money market instruments. As with other extensions of credit, there
are risks of delay in recovery or even loss of rights in the collateral should
the borrower of the securities fail financially. However, the loans would be
made only to firms deemed by the investment manager to be of good standing, and
when the investment manager believes the potential earnings to justify the
attendant risk. Management will limit such lending to not more than one-third of
the value of a Fund's total assets.
COLLATERALIZED OBLIGATIONS. Subject to its investment objective and policies, a
Fund may purchase collateralized obligations, including interest only ("IO") and
principal only ("PO") securities. A collateralized obligation is a debt security
issued by a corporation, trust or custodian, or by a U.S. Government agency or
instrumentality, that is collateralized by a portfolio or pool of mortgages,
Mortgage-Backed Securities, U.S. Government Securities or other assets. The
issuer's obligation to make interest and principal payments is secured by the
underlying pool or portfolio of securities. Collateralized obligations issued or
guaranteed by a U.S. Government agency or instrumentality, such as the Federal
Home Loan Mortgage Corporation, are considered U.S. Government Securities for
purposes of this
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prospectus. Privately-issued collateralized obligations collateralized by a
portfolio of U.S. Government Securities are not direct obligations of the U.S.
Government or any of its agencies or instrumentalities and are not considered
U.S. Government Securities for purposes of this prospectus. A variety of types
of collateralized obligations are available currently and others may become
available in the future.
Since the collateralized obligations may be issued in classes with varying
maturities and interest rates, the investor may obtain greater predictability of
maturity than with direct investments in mortgage-backed securities. Classes
with shorter maturities may have lower volatility and lower yield while those
with longer maturities may have higher volatility and higher yield. This
provides the investor with greater control over the characteristics of the
investment in a changing interest rate environment. With respect to interest
only and principal only securities, an investor has the option to select from a
pool of underlying collateral the portion of the cash flows that most closely
corresponds to the investor's forecast of interest rate movements. These
instruments tend to be highly sensitive to prepayment rates on the underlying
collateral and thus place a premium on accurate prepayment projections by the
investor.
A Fund (other than the Cash Reserves Fund) may invest in collateralized
obligations whose yield floats inversely against a specified index rate. These
"inverse floaters" are more volatile than conventional fixed or floating rate
collateralized obligations and the yield thereon, as well as the value thereof,
will fluctuate in inverse proportion to changes in the index upon which interest
rate adjustments are based. As a result, the yield on an inverse floater will
generally increase when market yields (as reflected by the index) decrease and
decrease when market yields increase. The extent of the volatility of inverse
floaters depends on the extent of anticipated changes in market rates of
interest. Generally, inverse floaters provide for interest rate adjustments
based upon a multiple of the specified interest index, which further increases
their volatility. The degree of additional volatility will be directly
proportional to the size of the multiple used in determining interest rate
adjustments.
Additional information concerning collateralized obligations is contained in the
Statement of Additional Information under "Investment Policies and
Techniques--Collateralized Obligations."
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Kemper Financial Services, Inc. ("KFS"), 120 South LaSalle
Street, Chicago, Illinois 60603, is the investment manager of each Fund and
provides each Fund with continuous professional investment supervision. KFS is
one of the largest investment managers in the country and has been engaged in
the management of investment funds for more than forty-five years. KFS and its
affiliates provide investment advice and manage investment portfolios for the
Kemper Funds, Kemper insurance companies, Kemper Corporation and other
corporate, pension, profit-sharing and individual accounts representing
approximately $60 billion under management (including approximately $16 billion
in U.S. Government securities). KFS acts as investment manager or principal
underwriter for 26 open-end and seven closed-end investment companies, with 64
separate investment portfolios, representing more than 3 million shareholder
accounts. KFS is a wholly-owned subsidiary of Kemper Financial Companies, Inc.,
which is a financial services holding company that is more than 99% owned by
Kemper Corporation ("Kemper"), a diversified insurance and financial services
holding company.
Kemper has entered into a definitive agreement with an investor group led by
Zurich Insurance Company ("Zurich") pursuant to which Kemper would be acquired
by the investor group in a merger transaction. As part of the transaction,
Zurich or an affiliate would purchase KFS. The Kemper and Zurich boards have
approved the transaction. In addition, because the transaction would constitute
an assignment of the Funds' investment management agreements with KFS and
potentially, Rule 12b-1 agreements under the Investment Company Act of 1940, and
therefore a termination of such agreements. KFS has received approval of new
agreements from the Funds' boards and shareholders. Consummation of the
transaction is subject to remaining contingencies, including state insurance
department regulatory approvals. The investor group has informed Kemper that it
expects the transaction to close early in 1996.
Responsibility for overall management of each Fund rests with its Board of
Trustees and officers. Professional investment supervision is provided by KFS.
The investment management agreements provide that KFS shall act as each Fund's
investment adviser, manage its investments and provide it with various services
and facilities. For
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Funds that invest in foreign securities, KFS will from time to time use the
services of Kemper Investment Management Company Limited, 1 Fleet Place, London
EC4M 7RQ, a wholly owned subsidiary of KFS, with respect to foreign securities
investments of the Funds including analysis, research, execution and trading
services.
J. Patrick Beimford, Jr. has been the portfolio manager since October, 1995 for
the Government Fund (and from 1981 through May, 1995) and the Mortgage Fund (and
from 1992 through May, 1995). Mr. Beimford (since October, 1995 and from 1992
through May, 1995) is also a portfolio co-manager with Michelle M. Keeley (since
1994) of the Short-Intermediate Government Fund. Mr. Beimford (since October,
1995 and from 1992 through May, 1995) and Elizabeth A. Byrnes (since 1994) are
portfolio co-managers of the Adjustable Rate Fund. Mr. Beimford joined KFS in
April 1976 and is currently an Executive Vice President and Chief Investment
Officer--Fixed Income Investments of KFS and a Vice President of each Fund. He
received a B.S.I.M. in Business from Purdue University, West Lafayette, Indiana,
and an M.B.A. in Finance from the University of Chicago, Chicago, Illinois. Mr.
Beimford is a Chartered Financial Analyst. Ms. Keeley, a First Vice President of
KFS and a Vice President of the Short-Intermediate Government Fund, joined KFS
in 1990 and, prior thereto, worked in the fixed income institutional sales
department of a national securities firm. She received a B.A. in International
Relations from Michigan State University, Lansing, Michigan and an M.M. in
Finance from the Kellogg Graduate School of Business, Northwestern University,
Chicago, Illinois. Ms. Byrnes joined KFS in 1982 and is a First Vice President
of KFS and a Vice President of the Adjustable Rate Fund. She received a B.A.
from Miami University, Oxford, Ohio.
Frank J. Rachwalski, Jr. is the portfolio manager of the Cash Reserves Fund. He
has served in this capacity since the Fund commenced operations in February
1984. Mr. Rachwalski joined KFS in January 1973 and is currently a Senior Vice
President of KFS and a Vice President of the Fund. He received a B.B.A. and an
M.B.A. from Loyola University, Chicago, Illinois.
Michael A. McNamara (since 1990) and Harry E. Resis, Jr. (since 1992) are the
portfolio co-managers of the High Yield Fund. Mr. McNamara joined KFS in
February 1972 and is a Senior Vice President of KFS and a Vice President of the
Fund. He received a B.S. in Business Administration from the University of
Missouri, St. Louis, Missouri, and an M.B.A. in Finance from Loyola University,
Chicago, Illinois. Mr. Resis joined KFS in June, 1988 and is currently a Senior
Vice President of KFS and a Vice President of the Fund. He received a B.A. in
Finance from Michigan State University, East Lansing, Michigan. Mr. Resis holds
a number of NYSE and NASD licenses.
Robert Cessine is the portfolio manager (since 1994) and a Vice President of the
Income and Capital Fund. Mr. Cessine joined KFS in 1993 and is a Senior Vice
President of KFS and director of investment grade corporate and sovereign bond
research. Before joining KFS in 1993, Mr. Cessine was a senior corporate bond
analyst and chairman of the bond selection committee of an investment management
company. He received a B.S. in Economics from the University of Wisconsin,
Madison, Wisconsin, an M.S. in Agricultural and Resource Economics from the
University of Maryland, Baltimore/College Park, Maryland and an M.S. in Finance
from the University of Wisconsin, Madison, Wisconsin. Mr. Cessine is a Chartered
Financial Analyst.
Diversified Income Fund is managed by a team of portfolio managers who are
specialists in the basic sectors in which it invests. Messrs J. Patrick
Beimford, Jr., Robert S. Cessine, Gordon K. Johns, Michael A. McNamara, Harry E.
Resis, Jr., and Jonathan W. Trutter are the members of the team. Mr. Johns
joined Kemper in 1988 and is Executive Vice President of KFS and managing
director of Kemper Investment Management Company Limited in London. Previously,
he was head of international fixed income fund management at an investment bank
in London. He received a B.A. in law from Balliol College in Oxford, United
Kingdom. Mr. Trutter is a First Vice President of KFS. Before joining KFS in
1989, he was a vice president in commercial banking. Mr. Trutter has an A.B.
with dual majors in East Asian Languages and International Relations from the
University of Southern California, Los Angeles California and an M.B.A. from
Kellogg Graduate School of Management at Northwestern University, Chicago,
Illinois. He is also a Certified Public Accountant. See above for information on
the background of Messrs. Beimford, Cessine, McNamara and Resis.
KFS has a Fixed Income Investment Committee that determines overall investment
strategy for fixed income portfolios managed by KFS. The Fixed Income Committee
is currently comprised of the following members: J. Patrick Beimford, Jr.,
Robert S. Cessine, Frank E. Collecchia, George Klein, Michael A. McNamara,
Christopher J.
34
<PAGE> 42
Mier, Frank J. Rachwalski, Jr., Harry E. Resis, Jr., Robert H. Schumacher, John
E. Silvia, Stephen B. Timbers, Jonathan W. Trutter and Christopher T. Vincent.
The portfolio managers work together as a team with the Fixed Income Committee
and various fixed income analysts and traders to manage the Funds. Analysts
provide market, economic and financial research and analysis that is used by the
Fixed Income Committee to establish broad parameters for the Funds, including
duration and cash levels. In addition, credit research by analysts is used by
portfolio managers in selecting securities appropriate for the Funds' policies.
The KFS International Fixed Income Investments area, directed by Gordon K.
Johns, provides research and analysis regarding foreign investments to the
portfolio managers. After investment decisions are made, fixed income traders
execute the portfolio manager's instructions through various broker-dealer
firms.
The Funds pay KFS investment management fees, payable monthly, at the annual
rates shown below. Before May 31, 1994, the Funds paid fees under different fee
schedules that are described in "Investment Manager and Underwriter" in the
Statement of Additional Information.
<TABLE>
<CAPTION>
ADJUSTABLE RATE, INCOME DIVERSIFIED
AND CAPITAL, MORTGAGE CASH AND
AVERAGE DAILY NET ASSETS AND SHORT-INTERMEDIATE GOV'T RESERVES HIGH YIELD GOVERNMENT
- -------------------------------------------- ---------------------------- -------- ---------- ----------
<S> <C> <C> <C> <C>
$0 - $250 million........................... .55% .40% .58% .45%
$250 million - $1 billion................... .52 .38 .55 .43
$1 billion - $2.5 billion................... .50 .35 .53 .41
$2.5 billion - $5 billion................... .48 .32 .51 .40
$5 billion - $7.5 billion................... .45 .30 .48 .38
$7.5 billion - $10 billion.................. .43 .28 .46 .36
$10 billion - $12.5 billion................. .41 .26 .44 .34
Over $12.5 billion.......................... .40 .25 .42 .32
</TABLE>
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with each Fund, Kemper Distributors, Inc.
("KDI"), 120 South LaSalle Street, Chicago, Illinois 60603, a wholly owned
subsidiary of KFS, is the principal underwriter and distributor of each Fund's
shares and acts as agent of each Fund in the sale of its shares. KDI bears all
its expenses of providing services pursuant to the distribution agreement,
including the payment of any commissions. KDI provides for the preparation of
advertising or sales literature and bears the cost of printing and mailing
prospectuses to persons other than shareholders. KDI bears the cost of
qualifying and maintaining the qualification of Fund shares for sale under the
securities laws of the various states and each Fund bears the expense of
registering its shares with the Securities and Exchange Commission. KDI may
enter into related selling group agreements with various broker-dealers,
including affiliates of KDI, that provide distribution services to investors.
KDI also may provide some of the distribution services. Before February 1, 1995,
KFS was the Funds' principal underwriter and distributor.
Class A Shares. KDI receives no compensation from the Funds as principal
underwriter for Class A shares and pays all expenses of distribution of each
Fund's Class A shares under the distribution agreements not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of shares and pays or
allows concessions or discounts to firms for the sale of each Fund's shares.
Class B Shares. For its services under the distribution agreement, KDI receives
a fee from each Fund, payable monthly, at the annual rate of .75% of average
daily net assets of each Fund attributable to Class B shares. This fee is
accrued daily as an expense of Class B shares. KDI also receives any contingent
deferred sales charges. See "Redemption or Repurchase of Shares--Contingent
Deferred Sales Charge--Class B Shares." KDI currently compensates firms for
sales of Class B shares at a commission rate of 3.75%.
Class C Shares. For its services under the distribution agreement, KDI receives
a fee from each Fund, payable monthly, at the annual rate of .75% of average
daily net assets of each Fund attributable to Class C shares. This fee is
accrued daily as an expense of Class C shares. KDI currently pays firms for
sales of Class C shares a distribution fee,
35
<PAGE> 43
payable quarterly, at an annual rate of .75% of net assets attributable to Class
C shares maintained and serviced by the firm. A firm becomes eligible for the
distribution fee based upon assets in accounts in the month of purchase and the
fee continues until terminated by KDI or a Fund.
Rule 12b-1 Plan. Since each distribution agreement provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by KDI to
pay for distribution services for those classes, that agreement is approved and
reviewed separately for the Class B shares and the Class C shares in accordance
with Rule 12b-1 under the Investment Company Act of 1940, which regulates the
manner in which an investment company may, directly or indirectly, bear the
expenses of distributing its shares. The table below shows amounts paid in
connection with each Fund's Rule 12b-1 Plan during its 1995 fiscal year.
<TABLE>
<CAPTION>
DISTRIBUTION EXPENSES DISTRIBUTION FEES CONTINGENT DEFERRED
INCURRED BY PAID BY FUND SALES CHARGES PAID
UNDERWRITER TO UNDERWRITER TO UNDERWRITER
---------------------- ---------------------- -------------------
FUND CLASS B CLASS C CLASS B CLASS C CLASS B
- ------------------------------------- ---------- ------- ---------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Adjustable Rate...................... $ 241,000 69,000 35,000 8,000 30,000
Cash Reserves+....................... $5,789,000 354,000 2,125,000 33,000 1,629,000
Diversified.......................... $2,421,000 84,000 1,925,000 14,000 688,000
Government........................... $2,537,000 109,000 254,000 19,000 91,000
High Yield........................... $7,183,000 424,000 7,344,000 68,000 1,785,000
Income and Capital................... $1,470,000 67,000 289,000 12,000 86,000
Mortgage+............................ $4,770,000 47,000 15,132,000 5,000 4,977,000
Short-Intermediate Government+....... $1,301,000 169,000 1,979,000 19,000 1,011,000
</TABLE>
- ---------------
+ Includes amounts paid during fiscal year ended July 31, 1995 and fiscal period
from August 1, 1995 to September 30, 1995.
If a Rule 12b-1 Plan is terminated in accordance with its terms, the obligation
of a Fund to make payments to KDI pursuant to the Plan 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 a Plan, if for any reason the Plan is terminated in
accordance with its terms. Future fees under the Plan may or may not be
sufficient to reimburse KDI (or KFS as predecessor to KDI) for its expenses
incurred.
ADMINISTRATIVE SERVICES. KDI also provides information and administrative
services for shareholders of each Fund pursuant to administrative services
agreements ("administrative agreements"). KDI may enter into related
arrangements with various financial services firms, such as broker-dealer firms
or banks ("firms"), that provide services and facilities for their customers or
clients who are shareholders of the Funds. Such administrative services and
assistance may include, but are not limited to, establishing and maintaining
shareholder accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding each Fund and its special
features and such other services as may be agreed upon from time to time and
permitted by applicable statute, rule or regulation. KDI bears all its expenses
of providing services pursuant to the administrative agreement, including the
payment of any service fees. For services under the administrative agreements,
each Fund pays KDI a fee, payable monthly, at an annual rate of up to .25% of
average daily net assets of each class of such Fund. With respect to Class A
shares, KDI then pays each firm a service fee at an annual rate of (a) up to
.15% of net assets (.25% for the Cash Reserves, Mortgage and Short-Intermediate
Government Funds) of those accounts that it maintains and services for each Fund
attributable to shares acquired prior to October 1, 1993, and (b) up to .25% of
net assets of those accounts that it maintains and services for each Fund
attributable to Class A shares acquired on or after October 1, 1993. With
respect to Class B shares and Class C shares, KDI pays each firm a service fee,
payable quarterly, at an annual rate of up to .25% of net assets of those
accounts in the Fund that it maintains and services attributable to Class B
shares and Class C shares, respectively. Firms to which service fees may be paid
include broker-dealers affiliated with KDI. A firm becomes eligible for the
service fee based on assets in the accounts in the month following the month of
purchase (in the month of purchase for Class C shares) and the fee continues
until
36
<PAGE> 44
terminated by KDI or a Fund. The fees are calculated monthly and paid quarterly.
KDI may advance to financial services firms the first year service fee related
to Class B shares sold by such firms at a rate of up to .25% of the purchase
price of such shares. As compensation therefor, KDI may retain the
administrative services fee paid by a Fund with respect to such shares for the
first year after purchase. Financial services firms will become eligible for
future service fees with respect to such shares commencing in the thirteenth
month following the month of purchase.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreements not paid to firms to compensate
itself for administrative functions performed for each Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which there is a firm listed on a Fund's records and it is intended
that KDI will pay all the administrative services fee that it receives from each
Fund to firms in the form of service fees. The effective administrative services
fee rate to be charged against all assets of each Fund while this procedure is
in effect will depend upon the proportion of Fund assets that is in accounts for
which there is a firm of record, as well as, with respect to Class A shares
(except for the Cash Reserves, Mortgage and Short-Intermediate Government
Funds), the date when shares representing such assets were purchased.
CUSTODIAN, TRANSFER AGENT 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 02110, as sub-custodian, have custody of all securities and cash
of each Fund maintained in the United States. For Funds that invest in foreign
securities, The Chase Manhattan Bank, N.A., Chase MetroTech Center, Brooklyn,
New York 11245, as custodian, has custody of all securities and cash of each
Fund held outside the United States. IFTC also is the Funds' transfer agent and
dividend-paying agent. Pursuant to a services agreement with IFTC, Kemper
Service Company, an affiliate of KFS, serves as "Shareholder Service Agent" of
the Funds and as such, performs all of IFTC's duties as transfer agent and
dividend-paying agent. For a description of custodian, transfer agent and
shareholder service agent fees payable to IFTC and the Shareholder Service
Agent, see "Investment Manager and Underwriter" in the Statement of Additional
Information.
PORTFOLIO TRANSACTIONS. KFS places all orders for purchases and sales of a
Fund's securities. Subject to seeking best execution of orders, KFS may consider
sales of shares of a Fund and other funds managed by KFS or its affiliates as a
factor in selecting broker-dealers. See "Portfolio Transactions" in the
Statement of Additional Information.
DIVIDENDS AND TAXES
DIVIDENDS. The Cash Reserves Fund's net investment income is declared as a
dividend daily, and dividends are reinvested or paid in cash monthly. Each other
Fund normally declares and distributes monthly dividends of net investment
income and distributes any net realized short-term and long-term capital gains
at least annually.
Dividends paid by a Fund as to each class of its shares will be calculated in
the same manner, at the same time and on the same day. The level of income
dividends per share (as a percentage of net asset value) will be lower for Class
B and Class C shares than for Class A shares primarily as a result of the
distribution services fee applicable to Class B and Class C shares.
Distributions of capital gains, if any, will be paid in the same amount for each
class.
Income dividends and capital gain dividends, if any, of a Fund will be credited
to shareholder accounts in full and fractional shares of the same class of that
Fund at net asset value, except that, upon written request to the Shareholder
Service Agent, a shareholder may select one of the following options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
37
<PAGE> 45
Any dividends of a Fund that are reinvested normally will be reinvested in
shares of the same class of that same Fund. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have dividends of a Fund
invested in shares of the same class of another Kemper Fund at the net asset
value of such class of such other fund. See "Special Features--Class A
Shares--Combined Purchases" for a list of such other Kemper Funds. To use this
privilege of investing dividends of a Fund in shares of another Kemper Fund,
shareholders must maintain a minimum account value of $1,000 in the Fund
distributing the dividends and a minimum account value of $1,000 in the Kemper
Fund in which dividends are reinvested. The Funds reinvest dividend checks (and
future dividends) in shares of that same Fund and class if checks are returned
as undeliverable.
TAXES. Each Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code (the "Code") and, if so
qualified, will not be liable for federal income taxes to the extent its
earnings are distributed. Dividends derived from net investment income and net
short-term capital gains are taxable to shareholders as ordinary income and
long-term capital gain dividends are taxable to shareholders as long-term
capital gain regardless of how long the shares have been held and whether
received in cash or shares. Long-term capital gain dividends received by
individual shareholders are taxed at a maximum rate of 28%. Dividends declared
in October, November or December to shareholders of record as of a date in one
of those months and paid during the following January are treated as paid on
December 31 of the calendar year declared. A portion of the dividends paid by
the Diversified or High Yield Funds may qualify for the dividends received
deduction available to corporate shareholders. However, it is anticipated that
only a small portion, if any, of the dividends paid by such Funds will so
qualify. No portion of the dividends paid by the Adjustable Rate, Cash Reserves,
Government, Income and Capital, Mortgage or Short-Intermediate Government Funds
will qualify for the dividends received deduction.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, will be taxable to the shareholder. If the net asset value of
shares were reduced below the shareholder's cost by dividends representing gains
realized on sales of securities, such dividends would be a return of investment
though taxable as stated above.
Fund dividends that are derived from interest on direct (but not guaranteed)
obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local taxes in certain states. In
other states, arguments can be made that such distributions should be exempt
from state and local taxes based on federal law, 31 U.S.C. Section 3124, and the
U.S. Supreme Court's interpretation of that provision in American Bank and Trust
Co. v. Dallas County, 463 U.S. 855 (1983). Shareholders should consult their tax
advisers regarding the possible exclusion of such portion of their dividends for
state and local income tax purposes.
Each Fund is required by law to withhold 31% of taxable dividends and redemption
proceeds paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social security number) and
in certain other circumstances. Trustees of qualified retirement plans and
403(b)(7) accounts are required by law to withhold 20% of the taxable portion of
any distribution that is eligible to be "rolled over." The 20% withholding
requirement does not apply to distributions from Individual Retirement Accounts
("IRAs") or any part of a distribution that is transferred directly to another
qualified retirement plan, 403(b)(7) account, or IRA. Shareholders should
consult with their tax advisers regarding the 20% withholding requirement.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving dividend reinvestment and periodic
investment and redemption programs. Information for income tax purposes,
including information regarding any foreign taxes and credits, will be provided
after the end of the calendar year. Shareholders are encouraged to retain copies
of their account confirmation statements or year-end statements for tax
reporting purposes. However, those who have incomplete records may obtain
historical account transaction information at a reasonable fee.
NET ASSET VALUE
For each Fund except the Cash Reserves Fund, the net asset value per share is
determined separately for each class by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
a Fund (other than the Cash Reserves
38
<PAGE> 46
Fund) will generally be lower than that of the Class A shares of the Fund
because of the higher expenses borne by the Class B and Class C shares. Fixed
income securities are valued by using market quotations, or independent pricing
services that use prices provided by market makers or estimates of market values
obtained from yield data relating to instruments or securities with similar
characteristics. Portfolio securities that are primarily traded on a domestic
securities exchange or securities listed on the NASDAQ National Market are
valued at the last sale price on the exchange or market where primarily traded
or listed or, if there is no recent sale price available, at the last current
bid quotation. Portfolio securities that are primarily traded on foreign
securities exchanges are generally valued at the preceding closing values of
such securities on their respective exchanges where primarily traded. A security
that is listed or traded on more than one exchange is valued at the quotation on
the exchange determined to be the primary market for such security by the Board
of Trustees or its delegates. Securities not so traded or listed are valued at
the last current bid quotation if market quotations are available. Equity
options are valued at the last sale price unless the bid price is higher or the
ask price is lower, in which event such bid or asked price is used. Exchange
traded fixed income options are valued at the last sale price unless there is no
sale price, in which event current prices provided by market makers are used.
Over-the-counter traded options are valued based upon current prices provided by
market makers. Financial futures and options thereon are valued at the
settlement price established each day by the board of trade or exchange on which
they are traded. Other securities and assets are valued at fair value as
determined in good faith by the Board of Trustees. Because of the need to obtain
prices as of the close of trading on various exchanges throughout the world, the
calculation of net asset value of a Fund investing in foreign securities does
not necessarily take place contemporaneously with the determination of the
prices of the Fund's foreign securities, which may be made prior to the
determination of net asset value. For purposes of determining the net asset
value of a Fund investing in foreign securities, all assets and liabilities
initially expressed in foreign currency values will be converted into U.S.
Dollar values at the mean between the bid and offered quotations of such
currencies against U.S. Dollars as last quoted by a recognized dealer. If an
event were to occur, after the value of a security was so established but before
the net asset value per share was determined, which was likely to materially
change the net asset value, then that security would be valued using fair value
considerations by the Board of Trustees or its delegates. On each day the New
York Stock Exchange (the "Exchange") is open for trading, the net asset value is
determined as of the earlier of 3:00 p.m. Chicago time or the close of the
Exchange.
For the Cash Reserves Fund, the net asset value per share is determined
separately for each class as of the earlier of 3:00 p.m. Chicago time or the
close of the Exchange on each day the Exchange is open for trading. The Fund
seeks to maintain a net asset value of $1.00 per share in each class but there
is no assurance that it will do so. The net asset value per share of a class is
determined by dividing the Fund's net assets attributable to that class by the
total number of shares of the class outstanding. The Fund values its portfolio
instruments at amortized cost, which means that they are valued at their
acquisition cost (as adjusted for amortization of premium or discount) rather
than at current market value. Calculations are made to compare the value of its
investments valued at amortized cost with market-based values. Market-based
values are obtained by using actual quotations provided by market makers,
estimates of market value, or values obtained from yield data relating to
classes of money market instruments published by reputable sources at the mean
between the bid and asked prices for the instruments. If a deviation of 1/2 of
1% or more were to occur between the Fund's $1.00 per share net asset value,
calculated at amortized cost, and the net asset value per share calculated by
reference to market-based quotations, or if there is any other deviation which
the Board of Trustees believes would result in a material dilution to
shareholders or purchasers, the Board of Trustees will promptly consider what
action, if any, should be initiated. In order to value its investments at
amortized cost, the Fund purchases only securities with a maturity of 12 months
or less and maintains a Dollar-weighted average portfolio maturity of 90 days or
less. In addition, the Fund limits its portfolio investments to securities that
meet the quality and diversification requirements of Rule 2a-7. Under the
quality requirements of Rule 2a-7, the Fund may only purchase U.S. Dollar
denominated instruments that are determined to present minimal credit risks and
that are at the time of acquisition "Eligible Securities" as defined in Rule
2a-7. "Eligible Securities" under Rule 2a-7 include only securities that are
rated in the top two rating categories by the required number of nationally
recognized statistical rating organizations (at least two or, if only one such
organization has rated the security, that one organization) or, if unrated, are
deemed comparable in quality. The diversification requirements of Rule 2a-7
provide generally that the Fund may not at the time of acquisition invest more
than 5% of its assets in securities of any one issuer or invest more than 5% of
its assets in
39
<PAGE> 47
securities that are Eligible Securities that have not been rated in the highest
category by the required number of rating organizations or, if unrated, have not
been deemed comparable, except U.S. Government Securities and repurchase
agreements of such securities. See "Investment Objectives and Policies--Cash
Reserves Fund."
PURCHASE OF SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS. Class A shares of each Fund (other than the
Cash Reserves Fund), are sold to investors subject to an initial sales charge.
Class A shares of Cash Reserve Fund exchanged into Class A shares of another
Kemper Mutual Fund are subject to the applicable sales charge of the Kemper
Mutual Fund at the time of the exchange Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial or a contingent deferred sales charge
but are subject to higher ongoing expenses than Class A shares and do not
convert into another class. When placing purchase orders, investors must specify
whether the order is for Class A, Class B or Class C shares.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
---------------------------------- ------------------------ ----------------------------------
<S> <C> <C> <C>
Class A* Maximum initial sales charge of None Initial sales charge waived or
4.5% of the public offering price reduced for certain purchases
(3.5% for the Adjustable Rate and
Short-Intermediate Government
Funds)
Class B Maximum contingent deferred sales 0.75% Shares convert to Class A shares
charge of 4% of redemption six years after issuance
proceeds; declines to zero after
six years
Class C None 0.75% No conversion feature
</TABLE>
- ---------------
* No initial sales charge applies to purchases of Class A shares of the Cash
Reserves Fund, but the applicable sales charge applies for exchanges into
Class A shares of other Kemper Mutual Funds.
The minimum initial investment for each Fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an Individual
Retirement Account is $250 and the minimum subsequent investment is $50. Under
an automatic investment plan, such as Bank Direct Deposit, Payroll Direct
Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion. In order to begin accruing income dividends as soon as
possible, purchasers may wire payment to the Fund's custodian, Investors
Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri 64105.
The Cash Reserves Fund seeks to be as fully invested as possible at all times in
order to achieve maximum income. Since the Fund will be investing in instruments
which normally require immediate payment in Federal Funds (monies credited to a
bank's account with its regional Federal Reserve Bank), the Fund has adopted
certain procedures for the convenience of its shareholders and to ensure that
the Fund receives investable funds. (a) Wire transfer. Orders received by wire
transfer in the form of Federal Funds will be effected at the next determined
net asset value after receipt by the Fund's Shareholder Service Agent and such
shares will receive the dividend for the next calendar day following the day
when the purchase is effective. If payment is wired in Federal Funds, the
payment should be wired to State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, the sub-custodian for the Fund. If payment
is to be wired, the firm which services the account should handle the details of
the transaction. (b) Check. Orders for purchase accompanied by a check or other
negotiable bank draft will be accepted and effected as of the close of the
Exchange on the business day following receipt and such shares
40
<PAGE> 48
will receive the dividend for the next calendar day following the day when the
purchase is effective. (c) Dealer Trades. Orders processed through dealers or
other financial services firms, including trades via Fund/SERV, will be effected
at the net asset value effective on the trade date. These purchases will begin
earning dividends the calendar day following the payment date. See "Dividends
and Taxes" for more information.
Share certificates will not be issued unless requested in writing. It is
recommended that investors not request share certificates unless needed for a
specific purpose. You cannot redeem shares by telephone or wire transfer or use
the telephone exchange privilege if share certificates have been issued. A lost
or destroyed certificate is difficult to replace and can be expensive to the
shareholder (a bond worth 2% or more of the certificate value is normally
required).
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES. The public offering price of
Class A shares for purchasers of the Adjustable Rate and Short-Intermediate
Government Funds choosing the initial sales charge alternative is the net asset
value plus a sales charge, as set forth below.
ADJUSTABLE RATE AND SHORT-INTERMEDIATE GOVERNMENT FUNDS
<TABLE>
<CAPTION>
Sales Charge
----------------------------------
Allowed
to
As a Dealers
As a Percentage as a
Percentage of Percentage
of Net of
Offering Asset Offering
Amount of Purchase Price Value* Price
---- ---- ----
<S> <C> <C> <C>
Less than $100,000........................................ 3.50% 3.63% 3.00%
$100,000 but less than $250,000........................... 3.00 3.09 2.50
$250,000 but less than $500,000........................... 2.50 2.56 2.25
$500,000 but less than $1 million......................... 2.00 2.04 1.75
$1 million and over....................................... .00** .00** ***
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as
discussed below.
*** Commission is payable by KDI as discussed below.
The public offering price of Class A shares for purchasers of the Diversified,
Government, High Yield, Income and Capital and Mortgage Funds choosing the
initial sales charge alternative is the net asset value plus a sales charge, as
set forth below.
DIVERSIFIED, GOVERNMENT, HIGH YIELD, INCOME AND CAPITAL AND MORTGAGE FUNDS
<TABLE>
<CAPTION>
Sales Charge
----------------------------------
Allowed
to
As a Dealers
As a Percentage as a
Percentage of Percentage
of Net of
Offering Asset Offering
Amount of Purchase Price Value* Price
---- ---- ----
<S> <C> <C> <C>
Less than $100,000........................................ 4.50% 4.71% 4.00%
$100,000 but less than $250,000........................... 3.50 3.63 3.00
$250,000 but less than $500,000........................... 2.60 2.67 2.25
$500,000 but less than $1 million......................... 2.00 2.04 1.75
$1 million and over....................................... .00** .00** ***
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as
discussed below.
*** Commission is payable by KDI as discussed below.
Each Fund receives the entire net asset value of all its Class A shares sold.
KDI, the Funds' principal underwriter, retains the sales charge on sales of
Class A shares from which it allows discounts from the applicable public
offering price to investment dealers, which discounts are uniform for all
dealers in the United States and its territories. The normal discount allowed to
dealers is set forth in the above table. Upon notice to all dealers with whom it
has sales agreements, KDI may reallow up to the full applicable sales charge, as
shown in the above table, during periods and for transactions specified in such
notice and such reallowances may be based upon attainment of minimum sales
41
<PAGE> 49
levels. During periods when 90% or more of the sales charge is reallowed, such
dealers may be deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Class A shares of a Fund may be purchased at net asset value to the extent that
the amount invested represents the net proceeds from a redemption of shares of a
mutual fund for which KFS or an affiliate does not serve as investment manager
("non-Kemper fund") provided that: (a) the investor has previously paid either
an initial sales charge in connection with the purchase of the non-Kemper fund
shares redeemed or a contingent deferred sales charge in connection with the
redemption of the non-Kemper fund shares, and (b) the purchase of Fund shares is
made within 90 days after the date of such redemption. To make such a purchase
at net asset value, the investor or the investor's dealer must, at the time of
purchase, submit a request that the purchase be processed at net asset value
pursuant to this privilege. The redemption of the shares of the non-Kemper fund
is, for federal income tax purposes, a sale upon which a gain or loss may be
realized.
Class A shares of a Fund may be purchased at net asset value by: (a) any
purchaser provided that the amount invested in such Fund or other Kemper Mutual
Funds listed under "Special Features--Class A Shares--Combined Purchases" totals
at least $1,000,000 including purchases of Class A shares pursuant to the
"Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features;" or (b) a participant-directed qualified
retirement plan described in Code Section 401(a) or a participant-directed
non-qualified deferred compensation plan described in Code Section 457 provided
in either case that such plan has not less than 200 eligible employees (the
"Large Order NAV Purchase Privilege"). Redemption within one year of shares
purchased under the Large Order NAV Purchase Privilege may be subject to a
contingent deferred sales charge. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Large Order NAV Purchase Privilege."
KDI may in its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of a Fund to
employer sponsored employee benefit plans using the subaccount recordkeeping
system made available through the Shareholder Service Agent at net asset value
in accordance with the Large Order NAV Purchase Privilege up to the following
amounts: 1.00% of the net asset value of shares sold on amounts up to $5 million
in any calendar year, .50% on the next $5 million and .25% on amounts over $10
million in such calendar year. KDI may in its discretion compensate investment
dealers or other financial services firms in connection with the sale of Class A
shares of each Fund to other purchasers at net asset value in accordance with
the Large Order NAV Purchase Privilege up to the following amounts: .70% of the
net asset value of shares sold on amounts up to $3 million, .50% on the next $2
million and .25% on amounts over $5 million. For purposes of determining the
appropriate commission percentage to be applied to a particular sale under the
foregoing schedules, KDI will consider the cumulative amount invested by the
purchaser in a Fund and other Kemper Mutual Funds listed under "Special
Features--Class A Shares--Combined Purchases," including purchases pursuant to
the "Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
referred to above. The privilege of purchasing Class A shares of a Fund at net
asset value under the Large Order NAV Purchase Privilege is not available if
another net asset value purchase privilege is also applicable.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
a Fund, its investment manager, its principal underwriter or certain affiliated
companies, for themselves or members of their families; (b) registered
representatives and employees of broker-dealers having selling group agreements
with KDI and officers, directors and employees of service agents of the Funds,
for themselves or their spouses or dependent children; (c) shareholders who
owned shares of Kemper-Dreman Fund, Inc. ("KDF") on September 8, 1995, and have
continuously owned shares of KDF (or a Kemper Fund acquired by exchange of KDF
shares) since that date, for themselves or members of their families, and (d)
any trust or pension, profit-sharing or other benefit plan for only such
persons. Class A shares may be sold at net asset value in any amount to selected
employees (including their spouses and dependent children) of banks and other
financial services firms that provide administrative services related to order
placement and payment to facilitate transactions in shares of the Funds for
their clients pursuant to an agreement with KDI or one of its affiliates. Only
those employees of such banks and other firms who as part of their usual duties
provide services related to
42
<PAGE> 50
transactions in Fund Class A shares may purchase Fund shares at net asset value
hereunder. Class A shares may be sold at net asset value in any amount to unit
investment trusts sponsored by Everen Securities, Inc. In addition, unitholders
of unit investment trusts sponsored by Everen Securities, Inc. or its
predecessors may purchase a Fund's Class A shares at net asset value through
reinvestment programs described in the prospectuses of such trusts that have
such programs. Class A shares of a Fund may be sold at net asset value through
certain investment advisers registered under the Investment Advisers Act of 1940
and other financial services firms that adhere to certain standards established
by KDI, including a requirement that such shares be sold for the benefit of
their clients participating in a "wrap account" or similar program under which
such clients pay a fee to the investment adviser or other firm. Such shares are
sold for investment purposes and on the condition that they will not be resold
except through redemption or repurchase by the Funds. The Funds may also issue
Class A shares at net asset value in connection with the acquisition of the
assets of or merger or consolidation with another investment company, or to
shareholders in connection with the investment or reinvestment of income and
capital gain dividends.
Effective on a date discussed below, Class A shares of a Fund may be purchased
at net asset value in any amount by members of the plaintiff class in the
proceeding known as Howard and Audrey Tabankin, et al. v. Kemper Short-Term
Global Income Fund, et al., Case No. 93 C 5231 (N.D. IL). This privilege is
generally non-transferrable and continues for the lifetime of individual class
members and for a ten year period for non-individual class members. This
privilege is subject to final approval by the court in the aforementioned
proceeding and will become effective on a date as described in appropriate court
documents, now estimated to be February 1, 1996. To make a purchase at net asset
value under this privilege, the investor must, at the time of purchase, submit a
written request that the purchase be processed at net asset value pursuant to
this privilege specifically identifying the purchaser as a member of the
"Tabankin Class." Shares purchased under this privilege will be maintained in a
separate account that includes only shares purchased under this privilege. For
more details concerning this privilege, class members should refer to the Notice
of (1) Proposed Settlement with Defendants; and (2) Hearing to Determine
Fairness of Proposed Settlement, dated August 31, 1995, issued in connection
with the aforementioned court proceeding. For sales of Fund shares at net asset
value pursuant to this privilege, KDI may at its discretion pay investment
dealers and other financial services firms a concession, payable quarterly, at
an annual rate of up to .25% of net assets attributable to such shares
maintained and serviced by the firm. A firm becomes eligible for the concession
based upon assets in accounts attributable to shares purchased under this
privilege in the month after the month of purchase and the concession continues
until terminated by KDI. The privilege of purchasing Class A shares of a Fund at
net asset value under this privilege is not available if another net asset value
purchase privilege also applies (including the purchase of Class A shares of the
Cash Reserves Fund).
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge --Class B Shares."
43
<PAGE> 51
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by each Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of a Fund will automatically convert to Class A shares of the
same Fund six years after issuance on the basis of the relative net asset value
per share. Class B shareholders of the Funds who originally acquired their
shares as Initial Shares of Kemper Portfolios, formerly known as Kemper
Investment Portfolios ("KIP"), hold them subject to the same conversion period
schedule as that of their KIP Portfolio. Class B shares originally representing
Initial Shares of a KIP Portfolio will automatically convert to Class A shares
of the applicable Fund six years after issuance of the Initial Shares for shares
issued on or after February 1, 1991 and seven years after issuance of the
Initial Shares for shares issued before February 1, 1991. The purpose of the
conversion feature is to relieve holders of Class B shares from the distribution
services fee when they have been outstanding long enough for KDI to have been
compensated for distribution related expenses. For purposes of conversion to
Class A shares, shares purchased through the reinvestment of dividends and other
distributions paid with respect to Class B shares in a shareholder's Fund
account will be converted to Class A shares on a pro rata basis.
PURCHASE OF CLASS C SHARES. The public offering price of the Class C shares of a
Fund is the next determined net asset value. No initial or contingent deferred
sales charge is imposed. Since Class C shares are sold without an initial sales
charge, the full amount of the investor's purchase payment will be invested in
Class C shares for his or her account. KDI pays firms for sales of Class C
shares a distribution fee, payable quarterly, at an annual rate of .75% of net
assets attributable to Class C shares maintained and serviced by the firm. KDI
is compensated by each Fund as distributor and principal underwriter for Class C
shares. See "Investment Manager and Underwriter."
WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment, and for
Cash Reserves Fund, the other Kemper Mutual Fund into which the investor may
wish to exchange in the future. Investors making investments that qualify for
reduced sales charges might consider Class A shares. Investors who prefer not to
pay an initial sales charge and who plan to hold their investment for more than
six years might consider Class B shares. Investors who prefer not to pay an
initial sales charge but who plan to redeem their shares within six years might
consider Class C shares. Orders for Class B shares or Class C shares for
$500,000 or more will be declined. Orders for Class B shares or Class C shares
by employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent will be invested
instead in Class A shares at net asset value where the combined subaccount value
in a Fund or other Kemper Mutual Funds listed under "Special Features--Class A
Shares--Combined Purchases" is in excess of $5 million including purchases
pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features described under "Special Features." For more information
about the three sales arrangements, consult your financial representative or the
Shareholder Service Agent. Financial services firms may receive different
compensation depending upon which class of shares they sell.
GENERAL. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of a Fund for their clients, and KDI may pay them a transaction fee up to
the level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. 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. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to a
Fund.
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell shares
of the Funds. Non-cash compensation includes luxury merchandise and trips to
luxury resorts. In some instances, such discounts, commissions or other
incentives will be offered only to certain firms that sell or are
44
<PAGE> 52
expected to sell during specified time periods certain minimum amounts of shares
of the Funds or other funds underwritten by KDI.
Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of that Fund next determined after receipt by KDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received by KDI prior to the close of its business day will be
confirmed at a price based on the net asset value effective on that day ("trade
date"). The Funds reserve the right to determine the net asset value more
frequently than once a day if deemed desirable. Dealers and other financial
services firms are obligated to transmit orders promptly. Collection may take
significantly longer for a check drawn on a foreign bank than for a check drawn
on a domestic bank. Therefore, if an order is accompanied by a check drawn on a
foreign bank, funds must normally be collected before shares will be purchased.
See "Purchase and Redemption of Shares" in the Statement of Additional
Information.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Funds' shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Funds' shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Funds' transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Funds through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Funds through the Shareholder Service Agent for
these services. This prospectus should be read in connection with such firms'
material regarding their fees and services.
The Funds reserve the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders. Also, from time to time, each
Fund may temporarily suspend the offering of any class of its shares to new
investors. During the period of such suspension, persons who are already
shareholders of such class of the Fund normally are permitted to continue to
purchase additional shares of such class and to have dividends reinvested.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this prospectus.
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require a Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Funds' transfer agent,
the shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557. When certificates for shares have been
issued, they must be mailed to or deposited with the Shareholder Service Agent,
along with a duly endorsed stock power and accompanied by a written request for
redemption. Redemption requests and a stock power must be endorsed by the
account holder with signatures guaranteed by a commercial bank, trust company,
savings and loan association, federal savings bank, member firm of a national
securities exchange or other eligible financial institution. The redemption
request and stock power must be signed exactly as the account is registered
including any special capacity of the registered owner. Additional documentation
may be requested, and a signature guarantee is normally required, from
institutional and fiduciary account holders, such as corporations, custodians
(e.g., under the Uniform Transfers to Minors Act), executors, administrators,
trustees or guardians.
45
<PAGE> 53
The redemption price for shares of a Fund will be the net asset value per share
of that Fund next determined following receipt by the Shareholder Service Agent
of a properly executed request with any required documents as described above.
Payment for shares redeemed will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request
accompanied by any outstanding share certificates in proper form for transfer.
When a Fund is asked to redeem shares for which it may not have yet received
good payment, it may delay transmittal of redemption proceeds until it has
determined that collected funds have been received for the purchase of such
shares, which will be up to 15 days from receipt by a Fund of the purchase
amount. The redemption within one year of Class A shares purchased at net asset
value under the Large Order NAV Purchase Privilege may be subject to a 1%
contingent deferred sales charge (see "Purchase of Shares") and the redemption
of Class B shares may be subject to a contingent deferred sales charge (see
"Contingent Deferred Sales Charge--Class B Shares" below).
Because of the high cost of maintaining small accounts, the Funds reserve the
right to redeem an account (and, in the case of Class B shares, impose any
applicable contingent deferred sales charge) that falls below the minimum
investment level, currently $1,000, as a result of redemptions. Currently,
Individual Retirement Accounts and employee benefit plan accounts are not
subject to this procedure. A shareholder will be notified in writing and will be
allowed 60 days to make additional purchases to bring the account value up to
the minimum investment level before a Fund redeems the shareholder's account.
The investment required to reach that level may be made at net asset value
(without any initial sales charge in the case of Class A shares).
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. A Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The SHAREHOLDER WILL BEAR THE RISK OF LOSS,
including loss resulting from fraudulent or unauthorized transactions, as long
as the reasonable verification procedures are followed. The verification
procedures include recording instructions, requiring certain identifying
information before acting upon instructions and sending written confirmations.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge in the case of Class B
shares) are $50,000 or less and the proceeds are payable to the shareholder of
record at the address of record, normally a telephone request or a written
request by any one account holder without a signature guarantee is sufficient
for redemptions by individual or joint account holders, and trust, executor and
guardian account holders (excluding custodial accounts for gifts and transfers
to minors), provided the trustee, executor or guardian is named in the account
registration. Other institutional account holders and guardian account holders
of custodial accounts for gifts and transfers to minors may exercise this
special privilege of redeeming shares by telephone request or written request
without signature guarantee subject to the same conditions as individual account
holders and subject to the limitations on liability described under "General"
above, provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 15 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. The Funds reserve the right to terminate or modify
this privilege at any time.
46
<PAGE> 54
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which each Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the Fund next determined after receipt of a
request by KDI. However, requests for repurchases received by dealers or other
firms prior to the determination of net asset value (see "Net Asset Value") and
received by KDI prior to the close of KDI's business day will be confirmed at
the net asset value effective on that day. The offer to repurchase may be
suspended at any time. Requirements as to stock powers, certificates, payments
and delay of payments are the same as for redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of a Fund can be redeemed and proceeds sent by federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value of the Fund
effective on that day and normally the proceeds will be sent to the designated
account the following business day. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if the investment manager deems it appropriate under then current
market conditions. Once authorization is on file, the Shareholder Service Agent
will honor requests by telephone at 1-800-621-1048 or in writing, subject to the
limitations on liability described under "General" above. The Funds are not
responsible for the efficiency of the federal wire system or the account
holder's financial services firm or bank. The Funds currently do not charge the
account holder for wire transfers. The account holder is responsible for any
charges imposed by the account holder's firm or bank. There is a $1,000 wire
redemption minimum (including any contingent deferred sales charge). To change
the designated account to receive wire redemption proceeds, send a written
request to the Shareholder Service Agent with signatures guaranteed as described
above or contact the firm through which shares of the Fund were purchased.
Shares purchased by check or through EXPRESS-Transfer or Bank Direct Deposit may
not be redeemed by wire transfer until such shares have been owned for at least
15 days. Account holders may not use this privilege to redeem shares held in
certificated form. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the expedited
redemption privilege. The Funds reserve the right to terminate or modify this
privilege at any time.
CONTINGENT DEFERRED SALES CHARGE--LARGE ORDER NAV PURCHASE PRIVILEGE. A
contingent deferred sales charge of 1% may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege if they
are redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived in the event of: (a)
redemptions by a participant-directed qualified retirement plan described in
Code Section 401(a) or a participant-directed non-qualified deferred
compensation plan described in Code Section 457; (b) redemptions by employer
sponsored employee benefit plans using the subaccount record keeping system made
available through the Shareholder Service Agent; (c) redemption of shares of a
shareholder (including a registered joint owner) who has died; (d) redemption of
shares of a shareholder (including a registered joint owner) who after purchase
of the shares being redeemed becomes totally disabled (as evidenced by a
determination by the federal Social Security Administration); and (e)
redemptions under a Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account.
47
<PAGE> 55
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the shares redeemed excluding amounts not subject to the charge.
<TABLE>
<CAPTION>
YEAR OF CONTINGENT
REDEMPTION DEFERRED
AFTER SALES
PURCHASE CHARGE
- ---------- ----------
<S> <C> <C>
First..................................................................... 4%
Second.................................................................... 3%
Third..................................................................... 3%
Fourth.................................................................... 2%
Fifth..................................................................... 2%
Sixth..................................................................... 1%
</TABLE>
Class B shareholders who originally acquired their shares as Initial Shares of
Kemper Portfolios, formerly known as Kemper Investment Portfolios, hold them
subject to the same CDSC schedule that applied when those shares were purchased,
as follows:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
YEAR OF ---------------------------------------------------------------------------------------
REDEMPTION SHARES PURCHASED ON OR AFTER
AFTER SHARES PURCHASED ON OR AFTER FEBRUARY 1, 1991 AND BEFORE SHARES PURCHASED BEFORE
PURCHASE MARCH 1, 1993 MARCH 1, 1993 FEBRUARY 1, 1991
----------------------- ---------------------------- ---------------------------- -----------------------
<S> <C> <C> <C>
First.................. 4% 3% 5%
Second................. 3% 3% 4%
Third.................. 3% 2% 3%
Fourth................. 2% 2% 2%
Fifth.................. 2% 1% 2%
Sixth.................. 1% 1% 1%
</TABLE>
The following example will illustrate the operation of the contingent deferred
sales charge. Assume that an investor makes a single purchase of $10,000 of a
Fund's Class B shares and that 16 months later the value of the shares has grown
by $1,000 through reinvested dividends and by an additional $1,000 in
appreciation to a total of $12,000. If the investor were then to redeem the
entire $12,000 in share value, the contingent deferred sales charge would be
payable only with respect to $10,000 because neither the $1,000 of reinvested
dividends nor the $1,000 of share appreciation is subject to the charge. The
charge would be at the rate of 3% ($300) because it was in the second year after
the purchase was made.
The rate of the contingent deferred sales charge under the schedule above is
determined by the length of the period of ownership. Investments are tracked on
a monthly basis. The period of ownership for this purpose begins the first day
of the month in which the order for the investment is received. For example, an
investment made in June, 1994 will be eligible for the 3% charge if redeemed on
or after June 1, 1995. In the event no specific order is requested, the
redemption will be made first from Class B shares representing reinvested
dividends and then from the earliest purchase of Class B shares. KDI receives
any contingent deferred sales charge directly.
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below) and (d) for redemptions made
pursuant to any IRA systematic withdrawal based on the shareholder's life
expectancy including, but not limited to, substantially equal
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periodic payments described in Internal Revenue Code Section 72(t)(2)(A)(iv)
prior to age 59 1/2; and (e) for redemptions to satisfy required minimum
distributions after age 70 1/2 from an IRA account (with the maximum amount
subject to this waiver being based only upon the shareholder's Kemper IRA
accounts). The contingent deferred sales charge will also be waived in
connection with the following redemptions of shares held by employer sponsored
employee benefit plans maintained on the subaccount record keeping system made
available by the Shareholder Service Agent: (a) redemptions to satisfy
participant loan advances (note that loan repayments constitute new purchases
for purposes of the contingent deferred sales charge and the conversion
privilege), (b) redemptions in connection with retirement distributions (limited
at any one time to 10% of the total value of plan assets invested in a Fund),
(c) redemptions in connection with distributions qualifying under the hardship
provisions of the Internal Revenue Code and (d) redemptions representing returns
of excess contributions to such plans.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares of a Fund
other than shares of the Cash Reserves Fund not acquired by exchange from
another Kemper Mutual Fund or any other Kemper Mutual Fund listed under "Special
Features--Class A Shares--Combined Purchases" may reinvest up to the full amount
redeemed at net asset value at the time of the reinvestment in Class A shares of
a Fund or of the other listed Kemper Mutual Funds (other than shares of the Cash
Reserves Fund not acquired by exchange from another Kemper Mutual Fund). A
shareholder of a Fund or other Kemper Mutual Fund who redeems Class A shares
purchased under the Large Order NAV Purchase Privilege (see "Purchase of
Shares") or Class B shares and incurs a contingent deferred sales charge may
reinvest up to the full amount redeemed at net asset value at the time of the
reinvestment in Class A shares or Class B shares, as the case may be, of a Fund
or of other Kemper Mutual Funds. The amount of any contingent deferred sales
charge also will be reinvested. These reinvested shares will retain their
original cost and purchase date for purposes of the contingent deferred sales
charge. Also, a holder of Class B shares who has redeemed shares may reinvest up
to the full amount redeemed, less any applicable contingent deferred sales
charge that may have been imposed upon the redemption of such shares, at net
asset value in Class A shares of a Fund or of the other Kemper Mutual Funds
listed under "Special Features--Class A Shares--Combined Purchases." Purchases
through the reinvestment privilege are subject to the minimum investment
requirements applicable to the shares being purchased and may only be made for
Kemper Funds available for sale in the shareholder's state of residence as
listed under "Special Features--Exchange Privilege." The reinvestment privilege
can be used only once as to any specific shares and reinvestment must be
effected within six months of the redemption. If a loss is realized on the
redemption of a Funds' shares, the reinvestment in the same Fund may be subject
to the "wash sale" rules if made within 30 days of the redemption, resulting in
a postponement of the recognition of such loss for federal income tax purposes.
The reinvestment privilege may be terminated or modified at any time.
SPECIAL FEATURES
CLASS A SHARES -- COMBINED PURCHASES. Each Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund, Kemper Small Capitalization Equity Fund, Kemper Income and Capital
Preservation Fund, Kemper Municipal Bond Fund, Kemper Diversified Income Fund,
Kemper High Yield Fund, Kemper U.S. Government Securities Fund, Kemper
International Fund, Kemper State Tax-Free Income Series, Kemper Adjustable Rate
U.S. Government Fund, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper
Target Equity Fund (series are subject to a limited offering period), Kemper
Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund, Kemper U.S.
Mortgage Fund, Kemper Short-Intermediate Government Fund, Kemper-Dreman Fund,
Inc. and Kemper Value+Growth Fund ("Kemper Mutual Funds"). Except as noted
below, there is no combined purchase credit for direct purchases of shares of
Kemper Money Market Fund, Cash Equivalent Fund, Tax-Exempt California Money
Market Fund, Cash Account Trust, Tax-Exempt New York Money Market Fund or
Investors Cash Trust ("Money Market Funds"), which are not considered "Kemper
Mutual Funds" for purposes hereof. For purposes of the Combined Purchases
feature described above as well as for the Letter of Intent and Cumulative
Discount features described below, employer sponsored employee benefit plans
using the subaccount record keeping system made available through
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the Shareholder Service Agent may include: (a) Money Market Funds as "Kemper
Mutual Funds," (b) all classes of shares of any Kemper Mutual Fund, and (c) the
value of any other plan investments, such as guaranteed investment contracts and
employer stock, maintained on such subaccount record keeping system.
CLASS A SHARES -- LETTER OF INTENT. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Kemper Mutual Funds listed above made by any
purchaser within a 24-month period under a written Letter of Intent ("Letter")
provided by KDI. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period. The Letter provides that the first
purchase following execution of the Letter must be at least 5% of the amount of
the intended purchase, and that 5% of the amount of the intended purchase
normally will be held in escrow in the form of shares pending completion of the
intended purchase. If the total investments under the Letter are less than the
intended amount and thereby qualify only for a higher sales charge than actually
paid, the appropriate number of escrowed shares are redeemed and the proceeds
used toward satisfaction of the obligation to pay the increased sales charge.
The Letter for an employer sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Mutual Funds held of record as of the initial purchase date under
the Letter as an "accumulation credit" toward the completion of the Letter, but
no price adjustment will be made on such shares. Only investments in Class A
shares of a Fund are included for this privilege.
CLASS A SHARES -- CUMULATIVE DISCOUNT. Class A shares of a Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a Fund being purchased, the value of all Class A shares of
the above mentioned Kemper Mutual Funds (computed at the maximum offering price
at the time of the purchase for which the discount is applicable) already owned
by the investor.
CLASS A SHARES -- AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Mutual Funds in accordance with the provisions below.
Class A Shares. Class A shares of the Kemper Mutual Funds and shares of the
Money Market Funds listed under "Special Features--Class A Shares--Combined
Purchases" above may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and the Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Series of Kemper Target
Equity Fund are available on exchange only during the Offering Period for such
series as described in the applicable prospectus. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Tax-Exempt New York
Money Market Fund and Investors Cash Trust are available on exchange but only
through a financial services firm having a services agreement with KDI.
Exchanges may only be made for funds that are available for sale in the
shareholder's state of residence. Currently, Tax-Exempt California Money Market
Fund is available for sale only in California and Tax-Exempt New York Money
Market Fund is available for sale only in New York, Connecticut, New Jersey and
Pennsylvania.
Class A shares of a Fund purchased under the Large Order NAV Purchase Privilege
may be exchanged for Class A shares of another Kemper Mutual Fund or a Money
Market Fund under the exchange privilege described above without paying any
contingent deferred sales charge at the time of exchange. If the Class A shares
received on exchange are redeemed thereafter, a contingent deferred sales charge
may be imposed in accordance with the foregoing requirements provided that the
shares redeemed will retain their original cost and purchase date for purposes
of the contingent deferred sales charge.
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Class B Shares. Class B shares of a Fund and Class B shares of any other Kemper
Mutual Fund listed under "Special Features --Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class B
shares may be exchanged without any contingent deferred sales charge being
imposed at the time of exchange. For purposes of the contingent deferred sales
charge that may be imposed upon the redemption of the shares received on
exchange, amounts exchanged retain their original cost and purchase date.
Class C Shares. Class C shares of a Fund and Class C shares of any other Kemper
Mutual Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values.
General. Shares purchased by check or through EXPRESS-Transfer or Bank Direct
Deposit may not be exchanged until they have been owned for at least 15 days. In
addition, shares of a Kemper Mutual Fund (except Kemper Cash Reserves Fund)
acquired by exchange from another Kemper Mutual Fund, or from a Money Market
Fund, may not be exchanged thereafter until they have been owned for 15 days.
The total value of shares being exchanged must at least equal the minimum
investment requirement of the fund into which they are being exchanged.
Exchanges are made based on relative dollar values of the shares involved in the
exchange. There is no service fee for an exchange; however, dealers or other
firms may charge for their services in effecting exchange transactions.
Exchanges will be effected by redemption of shares of the fund held and purchase
of shares of the other fund. For federal income tax purposes, any such exchange
constitutes a sale upon which a gain or loss may be realized, depending upon
whether the value of the shares being exchanged is more or less than the
shareholder's adjusted cost basis of such shares. Shareholders interested in
exercising the exchange privilege may obtain prospectuses of the other funds
from dealers, other firms or KDI. Exchanges may be accomplished by a written
request to Kemper Mutual Funds, Attention: Exchange Department, P.O. Box 419557,
Kansas City, Missouri 64141-6557, or by telephone if the shareholder has given
authorization. Once the authorization is on file, the Shareholder Service Agent
will honor requests by telephone at 1-800-621-1048, subject to the limitations
on liability under "Redemption or Repurchase of Shares -- General." Any share
certificates must be deposited prior to any exchange of such shares. During
periods when it is difficult to contact the Shareholder Service Agent by
telephone, it may be difficult to use the telephone exchange privilege. The
exchange privilege is not a right and may be suspended, terminated or modified
at any time. Except as otherwise permitted by applicable regulations, 60 days'
prior written notice of any termination or material change will be provided.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of any class of the
shares of a Kemper Mutual Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the Kemper
Fund. Exchanges are subject to the terms and conditions described above under
"Exchange Privilege" including the $1,000 minimum investment requirement for the
Kemper Fund acquired on exchange. This privilege may not be used for the
exchange of shares held in certificated form.
EXPRESS-TRANSFER. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $2,500) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in a Fund. Shareholders can also redeem shares (minimum $500 and maximum $2,500)
from their Fund account and transfer the proceeds to their bank, savings and
loan, or credit union checking account. By enrolling in EXPRESS-Transfer, the
shareholder authorizes the Shareholder Service Agent to rely upon telephone
instructions from ANY PERSON to transfer the specified amounts between the
shareholder's Fund account and the predesignated bank, savings and loan or
credit union account, subject to the limitations on liability under "Redemption
or Repurchase of Shares -- General." Once enrolled in EXPRESS-Transfer, a
shareholder can initiate a transaction by calling Kemper Shareholder Services
toll free at 1-800-621-1048 Monday through Friday, 8:00 a.m. to 3:00 p.m.
Chicago time. Shareholders may terminate this privilege by sending written
notice to Kemper Service Company, P.O. Box 419415, Kansas City, Missouri
64141-6415. Termination will become effective as soon as the Shareholder Service
Agent has had a reasonable time to act upon the request. EXPRESS-Transfer
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cannot be used with passbook savings accounts or for tax-deferred plans such as
Individual Retirement Accounts ("IRAs").
BANK DIRECT DEPOSIT. A shareholder may purchase additional shares of a Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan, monthly investments are made automatically from the shareholder's account
at a bank, savings and loan or credit union into the shareholder's Fund account.
By enrolling in Bank Direct Deposit, the shareholder authorizes the Fund and its
agents to either draw checks or initiate Automated Clearing House debits against
the designated account at a bank or other financial institution. This privilege
may be selected by completing the appropriate section on the Account Application
or by contacting the Shareholder Service Agent for appropriate forms. A
shareholder may terminate his or her Plan by sending written notice to Kemper
Service Company, P.O. Box 419415, Kansas City, Missouri 64141-6415. Termination
by a shareholder will become effective within thirty days after the Shareholder
Service Agent has received the request. A Fund may immediately terminate a
shareholder's Plan in the event that any item is unpaid by the shareholder's
financial institution. The Funds may terminate or modify this privilege at any
time.
PAYROLL DIRECT DEPOSIT AND GOVERNMENT DIRECT DEPOSIT. A shareholder may invest
in a Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in a Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) A Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of a class of a Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount to be paid to the owner or a designated
payee monthly, quarterly, semiannually or annually. The $5,000 minimum account
size is not applicable to Individual Retirement Accounts. The minimum periodic
payment is $100. The maximum annual rate at which Class B shares may be redeemed
under a systematic withdrawal plan is 10% of the net asset value of the account.
Shares are redeemed so that the payee will receive payment approximately the
first of the month. Any income and capital gain dividends will be automatically
reinvested at net asset value. A sufficient number of full and fractional shares
will be redeemed to make the designated payment. Depending upon the size of the
payments requested and fluctuations in the net asset value of the shares
redeemed, redemptions for the purpose of making such payments may reduce or even
exhaust the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, a Fund will not knowingly permit additional investments of less
than $2,000 if the investor is at the same time making systematic withdrawals.
KDI will waive the contingent deferred sales charge on redemptions of Class B
shares made pursuant to a systematic withdrawal plan. The right is reserved to
amend the systematic withdrawal plan on 30 days' notice. The plan may be
terminated at any time by the investor or the Funds.
TAX-SHELTERED RETIREMENT PLANS. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
- - Individual Retirement Accounts ("IRAs") trusteed by IFTC. This includes
Simplified Employee Pension Plan ("SEP") IRA accounts and prototype documents.
- - 403(b)(7) Custodial Accounts also trusteed by IFTC. This type of plan is
available to employees of most non-profit organizations.
- - Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans and materials for establishing
them are available from the Shareholder Service Agent upon request. The
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brochures for plans trusteed by IFTC describe the current fees payable to IFTC
for its services as trustee. Investors should consult with their own tax
advisers before establishing a retirement plan.
PERFORMANCE
A Fund may advertise several types of performance information for a class of
shares, including "yield" and, for each Fund except the Cash Reserves Fund,
"average annual total return" and "total return." The Cash Reserves Fund also
may advertise its "effective yield." Performance information will be computed
separately for Class A, Class B and Class C shares. Each of these figures is
based upon historical results and is not representative of the future
performance of any class of a Fund. A Fund with fees or expenses being waived or
absorbed by KFS may also advertise performance information before and after the
effect of the fee waiver or expense absorption.
A Fund's yield is a measure of the net investment income per share earned over a
specific one month or 30-day period (seven-day period for the Cash Reserves
Fund) expressed as a percentage of the maximum offering price of the Fund's
shares at the end of the period. Yield is an annualized figure, which means that
it is assumed that a Fund generates the same level of net investment income over
a one year period. The effective yield for the Cash Reserves Fund is calculated
similarly, but the net investment income earned is assumed to be compounded when
annualized. The Cash Reserves Fund's effective yield will be slightly higher
than its yield due to this compounding. Net investment income is assumed to be
compounded semiannually when it is annualized for Funds other than the Cash
Reserves Fund.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a Fund's
portfolio for the period referenced, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in a Fund
during a specified period. Average annual total return will be quoted for at
least the one, five and ten year periods ending on a recent calendar quarter (or
if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of the Fund for performance purposes). Average annual
total return figures represent the average annual percentage change over the
period in question. Total return figures represent the aggregate percentage or
dollar value change over the period in question.
A Fund's performance may be compared to that of the Consumer Price Index or
various unmanaged bond indexes including, but not limited to, the Salomon
Brothers High Grade Corporate Bond Index, the Lehman Brothers Adjustable Rate
Index, the Lehman Brothers Aggregate Bond Index, the Lehman Brothers
Government/Corporate Bond Index, the Salomon Brothers Long-Term High Yield
Index, the Salomon Brothers 30 Year GNMA Index and the Merrill Lynch Market
Weighted Index and may also be compared to the performance of other mutual funds
or mutual fund indexes with similar objectives and policies as reported by
independent mutual fund reporting services such as Lipper Analytical Services,
Inc. ("Lipper"). Lipper performance calculations are based upon changes in net
asset value with all dividends reinvested and do not include the effect of any
sales charges.
Information may be quoted from publications such as Morningstar, Inc., The Wall
Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago Tribune,
USA Today, Institutional Investor and Registered Representative. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit and other bank products, money market
funds and U.S. Treasury obligations. Bank product performance may be based upon,
among other things, the BANK RATE MONITOR National Index(TM) or various
certificate of deposit indexes. Money market fund performance may be based upon,
among other things, the IBC/Donoghue's Money Fund Report(R) or Money Market
Insight(R), reporting services on money market funds. Performance of U.S.
Treasury obligations may be based upon, among other things, various U.S.
Treasury bill indexes. Certain of these alternative investments may offer fixed
rates of return and guaranteed principal and may be insured. Economic indicators
may include, without limitation, indicators of market rate trends and cost of
funds, such as Federal Home Loan Bank Board 11th District Cost of Funds Index
("COFI").
A Fund may depict the historical performance of the securities in which the Fund
may invest over periods reflecting a variety of market or economic conditions
either alone or in comparison with alternative investments, performance
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indexes of those investments or economic indicators. A Fund may also describe
its portfolio holdings and depict its size or relative size compared to other
mutual funds, the number and make-up of its shareholder base and other
descriptive factors concerning the Fund.
The yield or price volatility of a Fund (particularly the Adjustable Rate Fund)
may be compared to various securities, such as U.S. Government Securities, or
indexes, such as the COFI referred to above or the Constant Maturity Treasury
Index ("CMT") published by the Federal Reserve Board. A Fund may include in its
sales literature and shareholder reports a quotation of the current
"distribution rate" for the Fund. Distribution rate is simply a measure of the
level of dividends distributed for a specified period. It differs from yield,
which is a measure of the income actually earned by the Fund's investments, and
from total return, which is a measure of the income actually earned by, plus the
effect of any realized and unrealized appreciation or depreciation of, such
investments during the period. Distribution rate is, therefore, not intended to
be a complete measure of performance. Distribution rate may sometimes be greater
than yield since, for instance, it may include gains from the sale of options or
other short-term and possibly long-term gains (which may be non-recurring) and
may not include the effect of amortization of bond premiums. As reflected under
"Investment Objectives and Policies--Additional Investment Information," option
writing can limit the potential for capital appreciation.
Class A shares of each Fund other than the Cash Reserves Fund are sold at net
asset value plus a maximum sales charge of 4.5% of the offering price (3.5% for
the Adjustable Rate and Short-Intermediate Government Funds). While the maximum
sales charge is normally reflected in a Fund's Class A performance figures,
certain total return calculations may not include such charge and those results
would be reduced if it were included. Class B shares and Class C shares are sold
at net asset value. Redemptions of Class B shares within the first six years
after purchase may be subject to a contingent deferred sales charge that ranges
from 4% during the first year to 0% after six years. Average annual total return
figures do, and total return figures may, include the effect of the contingent
deferred sales charge for the Class B shares that may be imposed at the end of
the period in question. Performance figures for the Class B shares not including
the effect of the applicable contingent deferred sales charge would be reduced
if it were included.
Each Fund's returns and net asset value will fluctuate and shares of a Fund are
redeemable by an investor at the then current net asset value, which may be more
or less than original cost, except that the Cash Reserves Fund seeks to maintain
a net asset value of $1.00 per share. Redemption of Class B shares may be
subject to a contingent deferred sales charge as described above. Additional
information concerning each Fund's performance appears in the Statement of
Additional Information. Additional information about each Fund's performance
also appears in its Annual Report to Shareholders, which is available without
charge from the applicable Fund.
CAPITAL STRUCTURE
The Adjustable Rate, Diversified, Government, High Yield and Income and Capital
Funds are open-end management investment companies, organized as separate
business trusts under the laws of Massachusetts. The Adjustable Rate Fund was
organized as a business trust under the laws of Massachusetts on May 28, 1987.
Prior to January 1, 1992, the Fund was known as "Kemper Enhanced Government
Income Fund." The Diversified Fund was organized as a business trust under the
laws of Massachusetts on October 24, 1985. Effective January 31, 1986, that Fund
pursuant to a reorganization succeeded to the assets and liabilities of Kemper
Option Income Fund, Inc., a Maryland corporation organized in 1977. Prior to
February 1, 1989, the Fund was known as "Kemper Option Income Fund." The
Government Fund was organized as a business trust under the laws of
Massachusetts on October 24, 1985. Effective January 31, 1986, that Fund
pursuant to a reorganization succeeded to the assets and liabilities of Kemper
U.S. Government Securities Fund, Inc., a Maryland corporation (formerly known as
Kemper Fund For Government Guaranteed Securities, Inc.) organized in 1980 as
successor to a Pennsylvania business trust organized in 1977. The High Yield
Fund was organized as a business trust under the laws of Massachusetts on
October 24, 1985. Effective January 31, 1986, that Fund pursuant to a
reorganization succeeded to the assets and liabilities of Kemper High Yield
Fund, Inc., a Maryland corporation organized in 1977. The Income and Capital
Fund was organized as a business trust under the laws of Massachusetts on
October 24, 1985. Effective January 31, 1986, that Fund pursuant to a
reorganization succeeded to
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the assets and liabilities of Kemper Income and Capital Preservation Fund, Inc.,
a Maryland corporation organized in 1972. The Cash Reserves, Mortgage and
Short-Intermediate Government Funds are separate series, or "Portfolios", of
Kemper Portfolios ("KP"), an open-end management investment company organized as
a business trust under the laws of Massachusetts on August 9, 1985. Effective
November 20, 1987, KP pursuant to a reorganization succeeded to the assets and
liabilities of Investment Portfolios, Inc., a Maryland corporation organized on
March 26, 1982. After such reorganization, KP was known as Investment Portfolios
until February 1, 1991, and thereafter until May 28, 1994, as Kemper Investment
Portfolios, when the name of KP became "Kemper Portfolios." Until December 1,
1989, the Mortgage Fund was known as the "Government Plus Portfolio" and prior
to May 28, 1994, the Mortgage Fund was known as the "Government Portfolio."
Prior to May 28, 1994, the Cash Reserves Fund was known as the Money Market
Portfolio, and the Short-Intermediate Government Fund was known as the
Short-Intermediate Government Portfolio.
Each Fund may issue an unlimited number of shares of beneficial interest in one
or more series or "Portfolios," all having no par value, which may be divided by
the Board of Trustees into classes of shares. While only shares of a single
Portfolio are presently being offered by each Fund (other than those Funds that
are Portfolios of Kemper Portfolios), the Board of Trustees of each Fund may
authorize the issuance of additional classes and additional Portfolios if deemed
desirable, each with its own investment objective, policies and restrictions.
Since the Funds may offer multiple Portfolios, each is known as a "series
company." Shares of a Portfolio have equal noncumulative voting rights and equal
rights with respect to dividends, assets and liquidation of such Portfolio and
are subject to any preferences, rights or privileges of any classes of shares of
the Portfolio. Currently, each Fund offers four classes of shares. These are
Class A, Class B and Class C shares, as well as Class I shares, which are
available for purchase exclusively by the following investors: (a) tax-exempt
retirement plans of KFS and its affiliates; and (b) the following investment
advisory clients of KFS and its investment advisory affiliates that invest at
least $1 million in a Fund: (1) unaffiliated benefit plans, such as qualified
retirement plans (other than individual retirement accounts and self-directed
retirement plans); (2) unaffiliated banks and insurance companies purchasing for
their own accounts; and (3) endowment funds of unaffiliated non-profit
organizations. Shares of each Fund have equal noncumulative voting rights except
that Class B and Class C shares have separate and exclusive voting rights with
respect to each Fund's Rule 12b-1 Plan. Shares of each class also have equal
rights with respect to dividends, assets and liquidation of such Fund subject to
any preferences (such as resulting from different Rule 12b-1 distribution fees),
rights or privileges of any classes of shares of a Fund. Shares of each Fund are
fully paid and nonassessable when issued, are transferable without restriction
and have no preemptive or conversion rights. The Funds are not required to hold
annual shareholder meetings and do not intend to do so. However, they will hold
special meetings as required or deemed desirable for such purposes as electing
trustees, changing fundamental policies or approving an investment management
agreement. Subject to the Agreement and Declaration of Trust of each Fund,
shareholders may remove trustees. If shares of more than one Portfolio for any
Fund are outstanding, shareholders will vote by Portfolio and not in the
aggregate or by class except when voting in the aggregate is required under the
1940 Act, such as for the election of trustees, or when voting by class is
appropriate.
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APPENDIX A--PORTFOLIO COMPOSITION OF HIGH YIELD BONDS
The table below reflects the composition by quality rating of the portfolios of
the Diversified and High Yield Funds. Percentages for each Fund reflect the net
asset weighted average of the percentage for each category on the last day of
each month in the twelve month period ended October 31, 1995. The table reflects
the percentage of total net assets represented by fixed income securities rated
by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation
("S&P"), by unrated fixed income securities and by other assets. The percentage
shown reflects the higher of the Moody's or S&P rating. U.S. Government
securities, whether or not rated, are reflected as Aaa and AAA (highest
quality). Cash equivalents include money market instruments, repurchase
agreements, net payables and receivables, treasuries with a maturity of less
than one year and cash. Other assets include options, financial futures
contracts and equity securities. As noted under "Investment Objectives, Policies
and Risk Factors" the Diversified and High Yield Funds invest in high yielding,
fixed income securities without relying upon published ratings. The allocations
in the table are not necessarily representative of the composition of the
portfolios at other times. Portfolio composition will change over time.
END OF THE MONTH COMPOSITION OF PORTFOLIO BY QUALITY AS AN AVERAGE PERCENTAGE OF
NET ASSETS (NOVEMBER 1, 1994-OCTOBER 31, 1995)
<TABLE>
<CAPTION>
HIGH
MOODY'S/S&P RATING DIVERSIFIED YIELD GENERAL DEFINITION OF
CATEGORY FUND FUND BOND QUALITY
- ------------------------------- ---- ---- -----------------------------
<S> <C> <C> <C>
Cash Equivalents............... 12% 6%
Aaa/AAA........................ 44 2 Highest quality
Aa/AA.......................... 1 0 High quality
A/A............................ 0 0 Upper medium grade
Baa/BBB........................ 3 0 Medium grade
Ba/BB.......................... 11 21 Some speculative elements
B/B............................ 18 60 Speculative
Caa/CCC........................ 2 6 More speculative
Ca/CC, C/C..................... 0 0 Very speculative
D.............................. 0 0 In default
Not Rated, Not in Default...... 6 1
Not Rated, In Default.......... 1 1
Other Assets................... 2 3
---- ----
Net Assets..................... 100% 100%
</TABLE>
The description of each bond quality category set forth in the table above is
intended to be a general guide and not a definitive statement as to how Moody's
and S&P define such rating category. A more complete description of the rating
categories is set forth under "Appendix B--Ratings of Investments." The ratings
of Moody's and S&P represent their opinions as to the quality of the securities
that they undertake to rate. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality.
56
<PAGE> 64
APPENDIX B--RATINGS OF INVESTMENTS
COMMERCIAL PAPER RATINGS
Commercial paper rated by Standard & Poor's Corporation ("S&P") has the
following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better. The issuer has
access to at least two additional channels of borrowing. Basic earnings and cash
flow have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a strong
position within the industry. The reliability and quality of management are
unquestioned. Relative strength or weakness of the above factors determine
whether the issuer's commercial paper is rated A-1 or A-2.
The ratings Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investors Service, Inc. ("Moody's"). Among the factors
considered by it in assigning ratings are the following: (1) evaluation of the
management of the issuer; (2) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which may be inherent in
certain areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
and (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations. Relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated Prime-1 or 2.
CORPORATE BONDS
STANDARD & POOR'S CORPORATION BOND RATINGS
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C. Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI. The rating CI is reserved for income bonds on which no interest is being
paid.
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC. BOND RATINGS
AAA. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins
57
<PAGE> 65
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
58
<PAGE> 66
PROSPECTUS
KEMPER FIXED
INCOME FUNDS
DECEMBER 1, 1995
--------------
KEMPER ADJUSTABLE RATE
U.S. GOVERNMENT FUND
KEMPER CASH RESERVES FUND
KEMPER DIVERSIFIED INCOME FUND
KEMPER U.S. GOVERNMENT
SECURITIES FUND
KEMPER HIGH YIELD FUND
KEMPER INCOME AND CAPITAL
PRESERVATION FUND
KEMPER U.S. MORTGAGE FUND
KEMPER SHORT-INTERMEDIATE
GOVERNMENT FUND
--------------
KEMPER
[KEMPER LOGO]
[KEMPER LOGO] INVESTMENT MANAGER
Kemper Financial Services, Inc.
PRINCIPAL UNDERWRITER:
Kemper Distributors, Inc.
120 South LaSalle Street
Chicago, IL 60603
KFIF-1 (12/95) [RECYCLED PAPER LOGO]
<PAGE> 67
KEMPER INCOME AND CAPITAL PRESERVATION FUND
CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART B
OF FORM N-1A AND STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM NUMBER LOCATION IN STATEMENT OF
OF FORM N-1A ADDITIONAL INFORMATION
---------------------------------------------
<S> <C> <C>
10. Cover Page............................... Cover Page
11. Table of Contents........................ Table of Contents
12. General Information and History.......... Inapplicable
13. Investment Objectives and Policies....... Investment Restrictions; Investment Policies
and Techniques
14. Management of the Fund................... Investment Manager and Underwriter;
Officers and Trustees
15. Control Persons and Principal Holders of
Securities............................... Officers and Trustees
16. Investment Advisory and Other Services... Investment Manager and Underwriter;
Officers and Trustees
17. Brokerage Allocation and Other
Practices................................ Portfolio Transactions
18. Capital Stock and Other Securities....... Shareholder Rights
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Purchase and Redemption of Shares
20. Tax Status............................... Dividends and Taxes
21. Underwriters............................. Investment Manager and Underwriter
22. Calculation of Performance Data.......... Performance
23. Financial Statements..................... Financial Statements
</TABLE>
<PAGE> 68
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 1995
KEMPER ADJUSTABLE RATE U.S. GOVERNMENT FUND (THE "ADJUSTABLE
RATE FUND")
KEMPER CASH RESERVES FUND (THE "CASH RESERVES FUND")
KEMPER DIVERSIFIED INCOME FUND (THE "DIVERSIFIED FUND")
KEMPER U.S. GOVERNMENT SECURITIES FUND (THE "GOVERNMENT FUND")
KEMPER HIGH YIELD FUND (THE "HIGH YIELD FUND")
KEMPER INCOME AND CAPITAL PRESERVATION FUND (THE "INCOME AND
CAPITAL FUND")
KEMPER U.S. MORTGAGE FUND (THE "MORTGAGE FUND")
KEMPER SHORT-INTERMEDIATE GOVERNMENT FUND (THE "SHORT-INTERMEDIATE
GOVERNMENT FUND")
120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the combined
Statement of Additional Information for each of the funds (the "Funds") listed
above. It should be read in conjunction with the combined prospectus of the
Funds dated December 1, 1995. The prospectus may be obtained without charge from
the Funds.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Investment Restrictions................................................. B-1
Investment Policies and Techniques...................................... B-12
Portfolio Transactions.................................................. B-20
Investment Manager and Underwriter...................................... B-21
Purchase and Redemption of Shares....................................... B-28
Dividends and Taxes..................................................... B-29
Performance............................................................. B-31
Officers and Trustees................................................... B-47
Shareholder Rights...................................................... B-52
</TABLE>
The financial statements appearing in each Fund's 1995 Annual Report to
Shareholders (including for Kemper Portfolios, the period from August 1, 1995 to
September 30, 1995) are incorporated herein by reference. The Annual Report for
the Fund for which this Statement of Additional Information is requested
accompanies this document.
KFIF-13 12/95 (LOGO)printed on recycled paper
<PAGE> 69
INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions which,
together with the investment objective and fundamental policies of such Fund,
cannot be changed without approval of a majority of its outstanding voting
shares. As defined in the Investment Company Act of 1940, this means the lesser
of the vote of (a) 67% of the shares of the Fund present at a meeting where more
than 50% of the outstanding shares are present in person or by proxy or (b) more
than 50% of the outstanding shares of the Fund.
THE ADJUSTABLE RATE FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities) if, as a result,
more than 5% of the total value of the Fund's assets would be invested in
securities of that issuer.
(2) Purchase more than 10% of any class of voting securities of any issuer.
(3) Make loans to others provided that the Fund may purchase debt obligations or
repurchase agreements and it may lend its securities in accordance with its
investment objective and policies.
(4) Borrow money except as a temporary measure for extraordinary or emergency
purposes, and then only in an amount up to one-third of the value of its total
assets, in order to meet redemption requests without immediately selling any
portfolio securities. If, for any reason, the current value of the Fund's total
assets falls below an amount equal to three times the amount of its indebtedness
from money borrowed, the Fund will, within three days (not including Sundays and
holidays), reduce its indebtedness to the extent necessary. The Fund will not
borrow for leverage purposes and will not purchase securities or make
investments while borrowings are outstanding.
(5) Pledge, hypothecate, mortgage or otherwise encumber more than 15% of its
total assets and then only to secure borrowings permitted by restriction 4
above. (The collateral arrangements with respect to options, financial futures
and delayed delivery transactions and any margin payments in connection
therewith are not deemed to be pledges or other encumbrances.)
(6) Purchase securities on margin, except to obtain such short-term credits as
may be necessary for the clearance of transactions; however, the Fund may make
margin deposits in connection with options and financial futures transactions.
(7) Make short sales of securities or maintain a short position for the account
of the Fund unless at all times when a short position is open it owns an equal
amount of such securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable for securities of
the same issue as, and equal in amount to, the securities sold short and unless
not more than 10% of the Fund's total assets is held as collateral for such
sales at any one time.
(8) Write or sell put or call options, combinations thereof or similar options
on more than 25% of the Fund's net assets; nor may the Fund purchase put or call
options if more than 5% of the Fund's net assets would be invested in premiums
on put and call options, combinations thereof or similar options; however, the
Fund may buy or sell options on financial futures contracts.
(9) Purchase securities (other than securities of the U.S. Government, its
agencies or instrumentalities including collateralized obligations thereof) if
as a result of such purchase 25% or more of the Fund's total assets would be
invested in any one industry.
(10) Invest in commodities or commodity futures contracts, although it may buy
or sell financial futures contracts and options on such contracts; or in real
estate, although it may invest in securities which are secured by real estate
and securities of issuers which invest or deal in real estate.
(11) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
B-1
<PAGE> 70
(12) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number 4 in the latest
fiscal year and it has no present intention of borrowing during the current
year. The Fund has adopted the following non-fundamental restrictions, which may
be changed by the Board of Trustees without shareholder approval. The Adjustable
Rate Fund may not:
(i) Invest more than 5% of the Fund's total assets in securities of issuers
(other than obligations of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities including collateralized obligations thereof) which with
their predecessors have a record of less than three years continuous operations.
(ii) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(iii) Invest for the purpose of exercising control or management of another
issuer.
(iv) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest in or
sponsor such programs.
(v) Invest more than 15% of its net assets in illiquid securities.
(vi) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(vii) Invest in oil, gas, and other mineral leases.
(viii) Purchase or sell real property (including limited partnership interests
but excluding readily marketable interests in real estate investment trusts and
readily marketable securities of companies which invest in real estate).
(ix) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted securities and securities of issuers which
with their predecessors have a record of less than three years continuous
operation will not exceed 15% of total assets.
(x) Invest more than 10% of its total assets in securities of real estate
investment trusts.
THE CASH RESERVES FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities or make investments other than in accordance with its
investment objective and policies.
(2) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities) if, as a result,
more than 5% of the value of the Fund's net assets would be invested in
securities of that issuer.
(3) Purchase more than 10% of any class of securities of any issuer. All debt
securities and all preferred stocks are each considered as one class.
(4) Invest more than 5% of the Fund's total assets in securities of issuers
(other than obligations of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities) which with their predecessors have a record of less than
three years continuous operation.
(5) Enter into repurchase agreements if more than 10% of the Fund's net assets
valued at the time of the transaction would be subject to repurchase agreements
maturing in more than seven days.
B-2
<PAGE> 71
(6) Make loans to others (except through the purchase of debt obligations or
repurchase agreements or by lending its portfolio securities in accordance with
its investment objective and policies).
(7) Borrow money except as a temporary measure for extraordinary or emergency
purposes and then only in an amount up to one-third of the value of its total
assets (any such borrowings under this section will not be collateralized). If,
for any reason, the current value of the Fund's total assets falls below an
amount equal to three times the amount of its indebtedness from money borrowed,
the Fund will, within three business days, reduce its indebtedness to the extent
necessary. [The Fund will not borrow for leverage purposes, and while borrowings
are outstanding securities will not be purchased.]
(8) Concentrate more than 25% of the Fund's net assets in any one industry;
provided, however, that the Fund intends, under normal conditions, to invest
more than 25% of its net assets in instruments issued by banks in accordance
with its investment objective and policies.
(9) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of Kemper Portfolios or its investment adviser owns
beneficially more than 1/2 of 1% of the securities of such issuer and together
they own more than 5% of the securities of such issuer.
(10) Invest more than 5% of the Fund's total assets in securities restricted as
to disposition under the federal securities laws (except commercial paper issued
under Section 4(2) of the Securities Act of 1933) and no more than 10% of its
assets will be invested in securities which are considered illiquid. [Repurchase
agreements maturing in more than 7 days are considered illiquid for purposes of
this restriction.]
(11) Invest for the purpose of exercising control or management of another
issuer.
(12) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest in or
sponsor such programs.
(13) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
(14) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(15) Issue senior securities as defined in the Investment Company Act of 1940.
(16) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions.
(17) Engage in put or call option transactions.
(18) Invest in commodities or commodity futures contracts; or in real estate,
although it may invest in securities which are secured by real estate and
securities of issuers which invest or deal in real estate.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund has
adopted the following non-fundamental restrictions, which may be changed by the
Board of Trustees without shareholder approval. The Cash Reserves Fund may not:
(i) Invest in oil, gas or other mineral exploration or development programs.
(ii) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(iii) Invest in limited partnership interests in real estate.
B-3
<PAGE> 72
THE DIVERSIFIED FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) With respect to 75% of the Fund's total assets, purchase securities of any
issuer (other than securities issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities) if, as a result, (a) more than 5% of the
Fund's total assets would be invested in securities of that issuer, or (b) the
Fund would hold more than 10% of the outstanding voting securities of that
issuer.
(2) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term obligations
in accordance with its objective and policies are not prohibited and the Fund
may lend its portfolio securities as described in the prospectus.
(3) Borrow money except for temporary or emergency purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed 5%
of the Fund's net assets; or pledge the Fund's securities or receivables or
transfer or assign or otherwise encumber them in an amount exceeding the amount
of the borrowing secured thereby.
(4) Engage in margin purchases except to obtain such short-term credits as may
be necessary for the clearance of transactions; however, the Fund may make
margin deposits in connection with financial futures and options transactions;
nor may the Fund make short sales of securities or maintain a short position
unless, at all times when a short position is open, the Fund owns an equal
amount of such securities or securities convertible into or exchangeable for
securities, without payment of additional consideration, which are equal in
amount to and of the same issue as the securities sold short and such securities
are not subject to outstanding call options, and unless not more than 10% of the
Fund's net assets is held as collateral for such sales at any one time.
(Management does not intend to make such sales except for the purpose of
deferring realization of gain or loss for federal income tax purposes.)
(5) Write (sell) put or call options, combinations thereof or similar options;
nor may it purchase put or call options if more than 5% of the Fund's net assets
would be invested in premiums on the purchase of put and call options,
combinations thereof or similar options; except that the Fund may write covered
call options with respect to its portfolio securities or securities indices, or
write secured put options; and the Fund may enter into closing transactions with
respect to such options, and may buy or sell options on financial futures
contracts.
(6) Concentrate more than 25% of the value of its assets in any one industry.
Water, communications, electric and gas utilities shall each be considered a
separate industry.
(7) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options of such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate.
(8) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(9) Issue senior securities except as permitted under the Investment Company Act
of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number 3 in the latest
fiscal year, though it may borrow in the future as permitted by that investment
restriction. The Fund has adopted the following non-fundamental restrictions,
which may be changed by the Board of Trustees without shareholder approval. The
Diversified Fund may not:
(i) Invest more than 5% of the Fund's total assets in securities of issuers
which with their predecessors have a record of less than three years continuous
operation, and equity securities of issuers which are not readily marketable.
B-4
<PAGE> 73
(ii) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(iii) Invest for the purpose of exercising control or management of another
issuer.
(iv) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest in or
sponsor such programs.
(v) Purchase securities of other investment companies, except in connection with
a merger, consolidation, reorganization or acquisition of assets, unless
immediately thereafter not more than (i) 3% of the total outstanding voting
stock of such company would be owned by the Fund, (ii) 5% of the Fund's total
assets would be invested in any one such company, and (iii) 10% of the Fund's
total assets would be invested in such securities.
(vi) Invest more than 15% of its net assets in illiquid securities.
(vii) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(viii) Invest in oil, gas, and other mineral leases.
(ix) Purchase or sell real property (including limited partnership interests but
excluding readily marketable interests in real estate investment trusts and
readily marketable securities of companies which invest in real estate).
(x) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted securities and securities of issuers which
with their predecessors have a record of less than three years continuous
operation will not exceed 15% of total assets.
(xi) Invest more than 10% of its total assets on securities of real estate
investment assets.
THE GOVERNMENT FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase any securities other than obligations issued or guaranteed by the
United States Government or its agencies, some of which may be subject to
repurchase agreements, except that the Fund may engage in options and financial
futures transactions.
(2) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities) if, as a
result, more than 5% of the Fund's total assets would be invested in securities
of that issuer.
(3) Write or sell put or call options, combinations thereof or similar options
on more than 25% of the Fund's net assets; nor may it purchase put or call
options if more than 5% of the Fund's net assets would be invested in premiums
on put and call options, combinations thereof or similar options; however, the
Fund may buy or sell options on financial futures contracts.
(4) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts; or in real
estate (including real estate limited partnerships), although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate including real estate investment trusts.
(5) Borrow money, except from banks for temporary purposes and then in amounts
not in excess of 5% of the value of the Fund's assets at the time of such
borrowing; or mortgage, pledge or hypothecate any assets except in connection
with any such borrowing and in amounts not in excess of 7 1/2% of the value of
the Fund's assets at the
B-5
<PAGE> 74
time of such borrowing. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the portfolio by enabling the
Fund to meet redemption requests where the liquidation of portfolio securities
is deemed to be disadvantageous or inconvenient.) Borrowings may take the form
of a sale of portfolio securities accompanied by a simultaneous agreement as to
their repurchase.
(6) Make loans, except that the Fund may purchase or hold debt obligations in
accordance with the investment restrictions set forth in paragraph 1 above and
may enter into repurchase agreements for such securities, and may lend its
portfolio securities against collateral consisting of cash, or securities issued
or guaranteed by the U.S. Government or its agencies, which is equal at all
times to at least 100% of the value of the securities loaned.
(7) Act as an underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the disposition of portfolio
securities.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number 5 in the latest
fiscal year and it has no present intention of borrowing during the current
year. The Government Fund has adopted the following non-fundamental restriction
which may be changed by the Board of Trustees without shareholder approval. The
Government Fund may not:
(1) Invest more than 15% of its net assets in illiquid securities.
THE HIGH YIELD FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) With respect to 75% of the Fund's total assets, purchase securities of any
issuer (other than securities issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities) if, as a result, (a) more than 5% of the
Fund's total assets would be invested in securities of that issuer, or (b) the
Fund would hold more than 10% of the outstanding voting securities of that
issuer.
(2) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term obligations
in accordance with its objectives and policies are not prohibited and it may
lend its securities as discussed under "Investment Objectives and
Policies -- Additional Investment Information" in the prospectus.
(3) Borrow money except for temporary or emergency purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed 5%
of the Fund's net assets; or pledge the Fund's securities or receivables or
transfer or assign or otherwise encumber them in an amount exceeding the amount
of the borrowing secured thereby.
(4) Invest more than 25% of the Fund's total assets in fixed income securities
which are payable in currencies other than United States Dollars. (Investments
in such securities may involve risks which differ from investments in securities
of U.S. issuers, such as future political and economic developments, the
possible imposition of governmental restrictions and taxes, as well as currency
fluctuation.)
(5) Engage in margin purchases except to obtain such short-term credits as may
be necessary for the clearance of transactions; however, the Fund may make
margin deposits in connection with financial futures and options transactions;
nor may the Fund make short sales of securities or maintain a short position
unless, at all times when a short position is open, the Fund owns an equal
amount of such securities or securities convertible into or exchangeable for
securities, without payment of additional consideration, which are equal in
amount to and of the same issue as the securities sold short and such securities
are not subject to outstanding call options, and unless not more than 10% of the
Fund's net assets is held as collateral for such sales at any one time.
(Management does not intend to make such sales except for the purpose of
deferring realization of gain or loss for federal income tax purposes.)
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(6) Write or sell put or call options, combinations thereof or similar options
on more than 25% of the Fund's net assets; nor may it purchase put or call
options if more than 5% of the Fund's net assets would be invested in premiums
on put and call options, combinations thereof or similar options; however, the
Fund may buy or sell options on financial futures contracts.
(7) Concentrate more than 25% of the value of its assets in any one industry.
Water, communications, electric and gas utilities shall each be considered a
separate industry.
(8) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate.
(9) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(10) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number 3 in the latest
fiscal year; though it may borrow in the future as permitted by that investment
restriction. The Fund has adopted the following non-fundamental restrictions,
which may be changed by the Board of Trustees without shareholder approval. The
High Yield Fund may not:
(i) Invest more than 5% of the Fund's total assets in securities of issuers
which with their predecessors have a record of less than three years continuous
operation, and equity securities of issuers which are not readily marketable.
(ii) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(iii) Invest for the purpose of exercising control or management of another
issuer.
(iv) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest in or
sponsor such programs.
(v) Purchase securities of other investment companies, except in connection with
a merger, consolidation, reorganization or acquisition of assets, unless
immediately thereafter not more than (i) 3% of the total outstanding voting
stock of such company would be owned by the Fund, (ii) 5% of the Fund's total
assets would be invested in any one such company, and (iii) 10% of the Fund's
total assets would be invested in such securities.
(vi) Invest more than 15% of its net assets in illiquid securities.
(vii) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(viii) Invest in oil, gas, and other mineral leases.
(ix) Purchase or sell real property (including limited partnership interests,
but excluding readily marketable interests in real estate investment trusts and
readily marketable securities of companies which invest in real estate).
(x) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted
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securities and securities of issuers which with their predecessors have a record
of less than three years continuous operation will not exceed 15% of total
assets.
(xi) Invest more than 10% of its total assets in securities of real estate
investment trusts.
THE INCOME AND CAPITAL FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Invest in securities other than those specified under "Investment Objectives
and Policies" in the prospectus. This restriction does not prevent the Fund from
holding common stocks or other corporate securities not qualifying as debt
obligations if such securities are acquired through conversion provisions of
debt securities or from corporate reorganizations. Nor does it prevent the
holding of debt securities whose quality rating is reduced by the rating
services below those specified under "Investment Objectives and Policies" after
purchase by the Fund.
(2) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States or Canadian governments, their agencies or
instrumentalities) if, as a result, more than 5% of the Fund's total assets
would be invested in securities of that issuer.
(3) Purchase more than 10% of any class of securities of any issuer. All debt
securities and all preferred stocks are each considered as one class.
(4) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term obligations
in accordance with its objective and policies are not prohibited and the Fund
may lend its portfolio securities as described under "Investment Objectives and
Policies -- Additional Investment Information" in the prospectus.
(5) Borrow money except for temporary or emergency purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed 5%
of the Fund's net assets; or pledge the Fund's securities or receivables or
transfer or assign or otherwise encumber them in an amount exceeding the amount
of the borrowing secured thereby.
(6) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
financial futures and options transactions.
(7) Write or sell put or call options, combinations thereof or similar options
on more than 25% of the Fund's net assets; nor may it purchase put or call
options if more than 5% of the Fund's net assets would be invested in premiums
on put and call options, combinations thereof or similar options; however, the
Fund may buy or sell options on financial futures contracts.
(8) Concentrate more than 25% of the value of its assets in any one industry.
Water, communications, electric and gas utilities shall each be considered a
separate industry.
(9) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts, and engage in
foreign currency transactions; or in real estate, although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate.
(10) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(11) Issue senior securities except as permitted under the Investment Company
Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number 5 in the latest
fiscal year and it has no present intention of borrowing during the current
year. The Fund has adopted the following non-fundamental restrictions,
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which may be changed by the Board of Trustees without shareholder approval. The
Income and Capital Fund may not:
(i) Invest more than 5% of the Fund's total assets in securities of issuers
which with their predecessors have a record of less than three years continuous
operation, and equity securities of issuers which are not readily marketable.
(ii) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(iii) Invest for the purpose of exercising control or management of another
issuer.
(iv) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest in or
sponsor such programs.
(v) Purchase securities of other investment companies, except in connection with
a merger, consolidation, reorganization or acquisition of assets.
(vi) Invest more than 15% of its net assets in illiquid securities.
(vii) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(viii) Invest in oil, gas, and other mineral leases.
(ix) Purchase or sell real property (including limited partnership interests but
excluding readily marketable interests in real estate investment trusts and
readily marketable securities of companies which invest in real estate).
(x) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted securities and securities of issuers which
with their predecessors have a record of less than three years continuous
operation will not exceed 15% of total assets.
(xi) Invest more than 10% of its total assets in securities of real estate
investment assets.
THE MORTGAGE FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities or make investments other than in accordance with its
investment objective and policies.
(2) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities) if, as a result,
more than 5% of the value of the Fund's net assets would be invested in
securities of that issuer.
(3) Purchase more than 10% of any class of securities of any issuer. All debt
securities and all preferred stocks are each considered as one class.
(4) Invest more than 5% of the Fund's total assets in securities of issuers
(other than obligations of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities) which with their predecessors have a record of less than
three years continuous operation.
(5) Enter into repurchase agreements if more than 10% of the Fund's net assets
valued at the time of the transaction would be subject to repurchase agreements
maturing in more than seven days.
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<PAGE> 78
(6) Make loans to others (except through the purchase of debt obligations or
repurchase agreements or by lending its portfolio securities in accordance with
its investment objective and policies).
(7) Borrow money except as a temporary measure for extraordinary or emergency
purposes and then only in an amount up to one-third of the value of its total
assets (any such borrowings under this section will not be collateralized). If,
for any reason, the current value of the Fund's total assets falls below an
amount equal to three times the amount of its indebtedness from money borrowed,
the Fund will, within three business days, reduce its indebtedness to the extent
necessary. [The Fund will not borrow for leverage purposes, and while borrowings
are outstanding securities will not be purchased.]
(8) Concentrate more than 25% of the Fund's net assets in any one industry.
(9) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of Kemper Portfolios or its investment adviser owns
beneficially more than 1/2 of 1% of the securities of such issuer and together
they own more than 5% of the securities of such issuer.
(10) Invest more than 5% of the Fund's total assets in securities restricted as
to disposition under the federal securities laws (except commercial paper issued
under Section 4(2) of the Securities Act of 1933) and no more than 10% of its
assets will be invested in securities which are considered illiquid. [Repurchase
agreements maturing in more than 7 days are considered illiquid for purposes of
this restriction.]
(11) Invest for the purpose of exercising control or management of another
issuer.
(12) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest in or
sponsor such programs.
(13) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
(14) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(15) Issue senior securities as defined in the Investment Company Act of 1940.
(16) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
financial futures and option transactions.
(17) Write (sell) put or call options, combinations thereof or similar options
except that the Fund may write covered call options on up to 100% of the Fund's
net assets and may write secured put options on up to 50% of the Fund's net
assets; nor may the Fund purchase put or call options if more than 5% of the
Fund's net assets would be invested in premiums on put and call options,
combinations thereof or similar options; however, the Fund may buy or sell
options on financial futures contracts.
(18) Invest in commodities or commodity futures contracts although the Fund may
buy or sell financial futures contracts and options on such contracts; or in
real estate, although it may invest in securities which are secured by real
estate and securities of issuers which invest or deal in real estate.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or total assets will not be considered a violation. The Fund
did not borrow money as permitted by investment restriction number 7 in the
latest fiscal year, and it has no present intention of borrowing during the
current year. The Fund has adopted the following non-fundamental restrictions,
which may be changed by the Board of Trustees without shareholder approval. The
Mortgage Fund may not:
(i) Invest in oil, gas or other mineral exploration or development programs.
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(ii) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(iii) Invest in limited partnership interests in real estate.
THE SHORT-INTERMEDIATE GOVERNMENT FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities or make investments other than in accordance with its
investment objective and policies.
(2) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities) if, as a result,
more than 5% of the value of the Fund's net assets would be invested in
securities of that issuer.
(3) Purchase more than 10% of any class of securities of any issuer. All debt
securities and all preferred stocks are each considered as one class.
(4) Make loans to others (except through the purchase of debt obligations or
repurchase agreements or by lending its portfolio securities in accordance with
its investment objective and policies).
(5) Borrow money except as a temporary measure for extraordinary or emergency
purposes and then only in an amount up to one-third of the value of its total
assets (any such borrowings under this section will not be collateralized). If,
for any reason, the current value of the Fund's total assets falls below an
amount equal to three times the amount of its indebtedness from money borrowed,
the Fund will, within three business days, reduce its indebtedness to the extent
necessary. [The Fund will not borrow for leverage purposes, and while borrowings
are outstanding securities will not be purchased.]
(6) Concentrate more than 10% of the Fund's net assets in any one industry.
(7) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(8) Issue senior securities except as permitted under the Investment Company Act
of 1940.
(9) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
financial futures and option transactions.
(10) Engage in put or call option transactions; however, the Fund may write
(sell) put or call options on up to 25% of its net assets and may purchase put
or call options if no more than 5% of its net assets would be invested in
premiums on put and call options, combinations thereof or similar options; and
the Fund may buy and sell options on financial futures contracts.
(11) Invest in commodities or commodity futures contracts, although it may buy
or sell financial futures contracts and options on such contracts; or in real
estate, although it may invest in securities which are secured by real estate
and securities of issuers which invest or deal in real estate.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund did
not borrow money as permitted by investment restriction number 5 in the latest
fiscal year and it has no present intention of borrowing during the current
year. The Fund has adopted the following non-fundamental restrictions, which may
be changed by the Board of Trustees without shareholder approval. The
Short-Intermediate Government Fund may not:
(i) Invest more than 5% of the Fund's total assets in securities of issuers
(other than obligations of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities, including collateralized obligations thereof) which with
their predecessors have a record of less than three years continuous operation.
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(ii) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of Kemper Portfolios or its investment adviser owns
beneficially more than 1/2 of 1% of the securities of such issuer and together
they own more than 5% of the securities of such issuer.
(iii) Invest for the purpose of exercising control or management of another
issuer.
(iv) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest in or
sponsor such programs.
(v) Purchase securities of other investment companies, except in connection with
a merger, consolidation, reorganization or acquisition of assets. This
restriction does not apply to the Fund to the extent that certain collateralized
obligations may be considered to be issued by an "investment company" (see
"Investment Policies and Techniques --Collateralized Obligations").
(vi) Invest more than 15% of its net assets in illiquid securities.
(vii) Invest in oil, gas or other mineral exploration or development programs.
(viii) Invest in warrants if more than 5% of the Fund's net assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed to
be without value for such purposes.
(ix) Invest in limited partnership interests in real estate.
(x) Invest more than 5% of its total assets in restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have been determined to be liquid pursuant to
procedures adopted by the Board of Trustees, provided that the total amount of
Fund assets invested in restricted securities and securities of issuers which
with their predecessors have a record of less than three years continuous
operation will not exceed 15% of total assets.
(xi) Invest more than 10% of its total assets in securities of real estate
investment trusts.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL. Each Fund may engage in options and financial futures and other
derivatives transactions in accordance with its respective investment objectives
and policies. Each such Fund intends to engage in such transactions if it
appears to the investment manager to be advantageous to do so in order to pursue
its investment objective and also to hedge against the effects of market risks
but not for speculative purposes. The Cash Reserves Fund does not engage in
options and futures transactions. The use of futures and options, and possible
benefits and attendant risks, are discussed below along with information
concerning other investment policies and techniques.
OPTIONS ON SECURITIES. A Fund (other than the Cash Reserves Fund) may write
(sell) "covered" call options on securities as long as it owns the underlying
securities subject to the option or an option to purchase the same underlying
securities, having an exercise price equal to or less than the exercise price of
the "covered" option, or will establish and maintain for the term of the option
a segregated account consisting of cash, U.S. Government Securities or other
liquid high-grade debt obligations ("eligible securities") having a value at
least equal to the fluctuating market value of the optioned securities. A Fund
may write "covered" put options provided that, as long as the Fund is obligated
as a writer of a put option, the Fund will own an option to sell the underlying
securities subject to the option, having an exercise price equal to or greater
than the exercise price of the "covered" option, or it will deposit and maintain
in a segregated account eligible securities having a value equal to or greater
than the exercise price of the option. A call option gives the purchaser the
right to buy, and the writer the obligation to sell, the underlying security at
the exercise price during the option period. A put option gives the purchaser
the right to sell, and the writer the obligation to buy, the underlying security
at the exercise price during the option period. The premium received for writing
an option will reflect, among other things, the current market price of the
underlying
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security, the relationship of the exercise price to such market price, the price
volatility of the underlying security, the option period, supply and demand and
interest rates. The Funds may write or purchase spread options, which are
options for which the exercise price may be a fixed dollar spread or yield
spread between the security underlying the option and another security that is
used as a bench mark. The exercise price of an option may be below, equal to or
above the current market value of the underlying security at the time the option
is written. The buyer of a put who also owns the related security is protected
by ownership of a put option against any decline in that security's price below
the exercise price less the amount paid for the option. The ability to purchase
put options allows a Fund to protect capital gains in an appreciated security it
owns, without being required to actually sell that security. At times a Fund
would like to establish a position in a security upon which call options are
available. By purchasing a call option, a Fund is able to fix the cost of
acquiring the security, this being the cost of the call plus the exercise price
of the option. This procedure also provides some protection from an unexpected
downturn in the market, because a Fund is only at risk for the amount of the
premium paid for the call option which it can, if it chooses, permit to expire.
During the option period the covered call writer gives up the potential for
capital appreciation above the exercise price should the underlying security
rise in value, and the secured put writer retains the risk of loss should the
underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the
security being "called away." For the secured put writer, substantial
depreciation in the value of the underlying security would result in the
security being "put to" the writer. If a covered call option expires
unexercised, the writer realizes a gain in the amount of the premium received.
If the covered call option writer has to sell the underlying security because of
the exercise of a call option, it realizes a gain or loss from the sale of the
underlying security, with the proceeds being increased by the amount of the
premium.
If a secured put option expires unexercised, the writer realizes a gain from the
amount of the premium. If the secured put writer has to buy the underlying
security because of the exercise of the put option, the secured put writer
incurs an unrealized loss to the extent that the current market value of the
underlying security is less than the exercise price of the put option. However,
this would be offset in whole or in part by gain from the premium received.
OVER-THE-COUNTER OPTIONS. As indicated in the prospectus (see "Investment
Objectives and Policies"), the Funds (other than the Cash Reserves Fund) may
deal in over-the-counter traded options ("OTC options"). OTC options differ from
exchange traded options in several respects. They are transacted directly with
dealers and not with a clearing corporation, and there is a risk of
nonperformance by the dealer as a result of the insolvency of such dealer or
otherwise, in which event a Fund may experience material losses. However, in
writing options the premium is paid in advance by the dealer. OTC options are
available for a greater variety of securities, and a wider range of expiration
dates and exercise prices, than are exchange traded options. Since there is no
exchange, pricing is normally done by reference to information from market
makers, which information is carefully monitored by the investment manager and
verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. In the case of OTC options, there can be
no assurance that a continuous liquid secondary market will exist for any
particular option at any specific time. Consequently, a Fund may be able to
realize the value of an OTC option it has purchased only by exercising it or
entering into a closing sale transaction with the dealer that issued it.
Similarly, when a Fund writes an OTC option, it generally can close out that
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it. If a covered
call option writer cannot effect a closing transaction, it cannot sell the
underlying security until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to sell
an underlying security even though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be unable to sell the
securities pledged to secure the put for other investment purposes while it is
obligated as a put writer. Similarly, a purchaser of such put or call option
might also find it difficult to terminate its position on a timely basis in the
absence of a secondary market.
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The Funds understand the position of the staff of the Securities and Exchange
Commission ("SEC") to be that purchased OTC options and the assets used as
"cover" for written OTC options are illiquid securities. The investment manager
disagrees with this position and has found the dealers with which it engages in
OTC options transactions generally agreeable to and capable of entering into
closing transactions. The Funds have adopted procedures for engaging in OTC
options for the purpose of reducing any potential adverse effect of such
transactions upon the liquidity of the Funds' portfolios. A brief description of
such procedures is set forth below.
A Fund will only engage in OTC options transactions with dealers that have been
specifically approved by the investment manager pursuant to procedures adopted
by the Fund's Board of Trustees. The investment manager believes that the
approved dealers should be able to enter into closing transactions if necessary
and, therefore, present minimal credit risks to a Fund. The investment manager
will monitor the creditworthiness of the approved dealers on an ongoing basis. A
Fund currently will not engage in OTC options transactions if the amount
invested by the Fund in OTC options, plus a "liquidity charge" related to OTC
options written by the Fund, plus the amount invested by the Fund in illiquid
securities, would exceed 15% of the Fund's net assets (10% of total assets for
the Mortgage Fund). The "liquidity charge" referred to above is computed as
described below.
The Funds anticipate entering into agreements with dealers to which a Fund sells
OTC options. Under these agreements a Fund would have the absolute right to
repurchase the OTC options from the dealer at any time at a price no greater
than a price established under the agreements (the "Repurchase Price"). The
"liquidity charge" referred to above for a specific OTC option transaction will
be the Repurchase Price related to the OTC option less the intrinsic value of
the OTC option. The intrinsic value of an OTC call option for such purposes will
be the amount by which the current market value of the underlying security
exceeds the exercise price. In the case of an OTC put option, intrinsic value
will be the amount by which the exercise price exceeds the current market value
of the underlying security. If there is no such agreement requiring a dealer to
allow the Fund to repurchase a specific OTC option written by the Fund, the
"liquidity charge" will be the current market value of the assets serving as
"cover" for such OTC option.
OPTIONS ON SECURITIES INDICES. A Fund (other than the Cash Reserves Fund) also
may purchase and write call and put options on securities indices in an attempt
to hedge against market conditions affecting the value of securities that the
Fund owns or intends to purchase, and not for speculation. Through the writing
or purchase of index options, a Fund can achieve many of the same objectives as
through the use of options on individual securities. Options on securities
indices are similar to options on a security except that, rather than the right
to take or make delivery of a security at a specified price, an option on a
securities index gives the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the securities index upon
which the option is based is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Unlike security options, all
settlements are in cash and gain or loss depends upon price movements in the
market generally (or in a particular industry or segment of the market), rather
than upon price movements in individual securities. Price movements in
securities that the Fund owns or intends to purchase will probably not correlate
perfectly with movements in the level of an index since the prices of such
securities may be affected by somewhat different factors and, therefore, the
Fund bears the risk that a loss on an index option would not be completely
offset by movements in the price of such securities.
When a Fund writes an option on a securities index, it will segregate, and
mark-to-market, eligible securities equal in value to 100% of the exercise price
in the case of a put, or the contract value in the case of a call. In addition,
where the Fund writes a call option on a securities index at a time when the
contract value exceeds the exercise price, the Fund will segregate and
mark-to-market, until the option expires or is closed out, cash or cash
equivalents equal in value to such excess.
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<PAGE> 83
A Fund may also purchase and sell options on other appropriate indices, as
available, such as foreign currency indices. Options on a securities index
involve risks similar to those risks relating to transactions in financial
futures contracts described below. Also, an option purchased by a Fund may
expire worthless, in which case the Fund would lose the premium paid therefor.
FINANCIAL FUTURES CONTRACTS. The Funds (except the Cash Reserves Fund) may enter
into financial futures contracts for the future delivery of a financial
instrument, such as a security, or an amount of foreign currency or the cash
value of a securities index. This investment technique is designed primarily to
hedge (i.e., protect) against anticipated future changes in market conditions or
foreign exchange rates which otherwise might affect adversely the value of
securities or other assets which the Fund holds or intends to purchase. A "sale"
of a futures contract means the undertaking of a contractual obligation to
deliver the securities or the cash value of an index or foreign currency called
for by the contract at a specified price during a specified delivery period. A
"purchase" of a futures contract means the undertaking of a contractual
obligation to acquire the securities or cash value of an index or foreign
currency at a specified price during a specified delivery period. At the time of
delivery, in the case of fixed income securities pursuant to the contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate than that specified in the
contract. In some cases, securities called for by a futures contract may not
have been issued at the time the contract was written.
Although some futures contracts by their terms call for the actual delivery or
acquisition of securities or other assets, in most cases a party will close out
the contractual commitment before delivery of the underlying assets by
purchasing (or selling, as the case may be) on a commodities exchange an
identical futures contract calling for delivery in the same month. Such a
transaction, if effected through a member of an exchange, cancels the obligation
to make or take delivery of the underlying securities or other assets. All
transactions in the futures market are made, offset or fulfilled through a
clearing house associated with the exchange on which the contracts are traded. A
Fund will incur brokerage fees when it purchases or sells contracts, and will be
required to maintain margin deposits. At the time a Fund enters into a futures
contract, it is required to deposit with its custodian, on behalf of the broker,
a specified amount of cash or eligible securities, called "initial margin." The
initial margin required for a futures contract is set by the exchange on which
the contract is traded. Subsequent payments, called "variation margin," to and
from the broker are made on a daily basis as the market price of the futures
contract fluctuates. The costs incurred in connection with futures transactions
could reduce a Fund's return. Futures contracts entail risks. If the investment
manager's judgment about the general direction of markets or exchange rates is
wrong, the overall performance may be poorer than if no such contracts had been
entered into.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio assets being hedged. In addition, the market prices of
futures contracts may be affected by certain factors. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin requirements, distortions in the normal
relationship between the assets and futures markets could result. Price
distortions could also result if investors in futures contracts decide to make
or take delivery of underlying securities or other assets rather than engage in
closing transactions because of the resultant reduction in the liquidity of the
futures market. In addition, because, from the point of view of speculators, the
margin requirements in the futures markets are less onerous than margin
requirements in the cash market, increased participation by speculators in the
futures market could cause temporary price distortions. Due to the possibility
of price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities or other assets and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment manager may still not result in a successful hedging
transaction. If any of these events should occur, the Fund could lose money on
the financial futures contracts and also on the value of its portfolio assets.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. A Fund (other than the Cash Reserves
Fund) may purchase and write call and put options on financial futures
contracts. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the period of the option. Upon
exercise, the writer of the option delivers the futures contract to the holder
at the exercise price. A Fund would be required to deposit with its custodian
initial margin and maintenance margin
B-15
<PAGE> 84
with respect to put and call options on futures contracts written by it. A Fund
will establish segregated accounts or will provide cover with respect to written
options on financial futures contracts in a manner similar to that described
under "Options on Securities." Options on futures contracts involve risks
similar to those risks relating to transactions in financial futures contracts
described above. Also, an option purchased by a Fund may expire worthless, in
which case the Fund would lose the premium paid therefor.
DELAYED DELIVERY TRANSACTIONS. The Funds (other than the Cash Reserves Fund) may
purchase or sell portfolio securities on a when-issued or delayed delivery
basis. When-issued or delayed delivery transactions involve a commitment by a
Fund to purchase or sell securities with payment and delivery to take place in
the future in order to secure what is considered to be an advantageous price or
yield to the Fund at the time of entering into the transaction. When the Fund
enters into a delayed delivery transaction, it becomes obligated to purchase
securities and it has all of the rights and risks attendant to ownership of a
security, although delivery and payment occur at a later date. The value of
fixed income securities to be delivered in the future will fluctuate as interest
rates vary. At the time a Fund makes the commitment to purchase a security on a
when-issued or delayed delivery basis, it will record the transaction and
reflect the liability for the purchase and the value of the security in
determining its net asset value. Likewise, at the time a Fund makes the
commitment to sell a security on a delayed delivery basis, it will record the
transaction and include the proceeds to be received in determining its net asset
value; accordingly, any fluctuations in the value of the security sold pursuant
to a delayed delivery commitment are ignored in calculating net asset value so
long as the commitment remains in effect. The Fund generally has the ability to
close out a purchase obligation on or before the settlement date, rather than
take delivery of the security.
To the extent a Fund engages in when-issued or delayed delivery purchases, it
will do so for the purpose of acquiring portfolio securities consistent with the
Fund's investment objective and policies. A Fund reserves the right to sell
these securities before the settlement date if deemed advisable.
REGULATORY RESTRICTIONS. To the extent required to comply with SEC Release No.
IC-10666, when purchasing a futures contract, writing a put option or entering
into a delayed delivery purchase or a forward currency exchange purchase, a Fund
will maintain in a segregated account cash, U.S. Government securities or liquid
high-grade debt obligations equal to the value of such contracts. A Fund will
use cover in connection with selling a futures contract.
A Fund will not engage in transactions in financial futures contracts or options
thereon for speculation, but only in an attempt to hedge against changes in
interest rates or market conditions affecting the value of securities which the
Fund holds or intends to purchase.
FOREIGN CURRENCY OPTIONS. The Diversified, High Yield and Income and Capital
Funds may engage in foreign currency options transactions. A foreign currency
option provides the option buyer with the right to buy or sell a stated amount
of foreign currency at the exercise price at a specified date or during the
option period. A call option gives its owner the right, but not the obligation,
to buy the currency, while a put option gives its owner the right, but not the
obligation, to sell the currency. The option seller (writer) is obligated to
fulfill the terms of the option sold if it is exercised. However, either seller
or buyer may close its position during the option period in the secondary market
for such options any time prior to expiration.
A call rises in value if the underlying currency appreciates. Conversely, a put
rises in value if the underlying currency depreciates. While purchasing a
foreign currency option can protect the Fund against an adverse movement in the
value of a foreign currency, it does not limit the gain which might result from
a favorable movement in the value of such currency. For example, if a Fund were
holding securities denominated in an appreciating foreign currency and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, it would not have to exercise its put. Similarly, if the Fund had
entered into a contract to purchase a security denominated in a foreign currency
and had purchased a foreign currency call to hedge against a rise in value of
the currency but instead the currency had depreciated in value between the date
of purchase and the settlement date, the Fund would not have to exercise its
call but could acquire in the spot market the amount of foreign currency needed
for settlement.
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<PAGE> 85
FOREIGN CURRENCY FUTURES TRANSACTIONS. As part of their financial futures
transactions (see "Financial Futures Contracts" and "Options on Financial
Futures Contracts" above), the Diversified, High Yield and Income and Capital
Funds may use foreign currency futures contracts and options on such futures
contracts. Through the purchase or sale of such contracts, a Fund may be able to
achieve many of the same objectives as through forward foreign currency exchange
contracts more effectively and possibly at a lower cost.
Unlike forward foreign currency exchange contracts, foreign currency futures
contracts and options on foreign currency futures contracts are standardized as
to amount and delivery period and are traded on boards of trade and commodities
exchanges. It is anticipated that such contracts may provide greater liquidity
and lower cost than forward foreign currency exchange contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Diversified, High Yield and
Income and Capital Funds may engage in forward foreign currency transactions. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
("term") from the date of the contract agreed upon by the parties, at a price
set at the time of the contract. These contracts are traded directly between
currency traders (usually large commercial banks) and their customers. The
investment manager believes that it is important to have the flexibility to
enter into such forward contracts when it determines that to do so is in the
best interests of a Fund. A Fund will not speculate in foreign currency
exchange.
If a Fund retains the portfolio security and engages in an offsetting
transaction with respect to a forward contract, the Fund will incur a gain or a
loss (as described below) to the extent that there has been movement in forward
contract prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between a Fund's entering into a
forward contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund would suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain that might result should the value of such currency increase. A
Fund may have to convert its holdings of foreign currencies into U.S. Dollars
from time to time in order to meet such needs as Fund expenses and redemption
requests. Although foreign exchange dealers do not charge a fee for conversion,
they do realize a profit based on the difference (the "spread") between the
prices at which they are buying and selling various currencies.
A Fund will not enter into forward contracts or maintain a net exposure in such
contracts when the Fund would be obligated to deliver an amount of foreign
currency in excess of the value of the Fund's securities or other assets
denominated in that currency. See "Foreign Currency Transactions" under
"Investment Objectives and Policies-- Additional Investment Information" in the
prospectus. A Fund segregates cash or liquid high-grade securities in an amount
not less than the value of the Fund's total assets committed to forward foreign
currency exchange contracts entered into for the purchase of foreign currency.
If the value of the securities segregated declines, additional cash or
securities are added so that the segregated amount is not less than the amount
of the Fund's commitments with respect to such contracts. The Diversified, High
Yield and Income and Capital Funds do not intend to enter into forward contracts
for the purchase of a foreign currency if they would have more than 5% of the
value of their total assets committed to such contracts. A Fund generally will
not enter into a forward contract with a term longer than one year.
COLLATERALIZED OBLIGATIONS. A Fund will currently invest in only those
collateralized obligations that are fully collateralized and that meet the
quality standards otherwise applicable to the Fund's investments. Fully
collateralized means that the collateral will generate cash flows sufficient to
meet obligations to holders of the collateralized obligations under even the
most conservative prepayment and interest rate projections. Thus, the
collateralized obligations are structured to anticipate a worst case prepayment
condition and to minimize the reinvestment rate risk for cash flows between
coupon dates for the collateralized obligations. A worst case prepayment
condition
B-17
<PAGE> 86
generally assumes immediate prepayment of all securities purchased at a premium
and zero prepayment of all securities purchased at a discount. Reinvestment rate
risk may be minimized by assuming very conservative reinvestment rates and by
other means such as by maintaining the flexibility to increase principal
distributions in a low interest rate environment. The effective credit quality
of the collateralized obligations in such instances is the credit quality of the
issuer of the collateral. The requirements as to collateralization are
determined by the issuer or sponsor of the collateralized obligation in order to
satisfy rating agencies, if rated. No Fund currently intends to invest more than
5% of its total assets in collateralized obligations that are collateralized by
a pool of credit card or automobile receivables or other types of assets rather
than a pool of mortgages, Mortgage-Backed Securities or U.S. Government
Securities. Currently, none of the Funds intends to invest more than 10% of its
total assets in inverse floaters. The Cash Reserves Fund does not invest in
inverse floaters.
Payments of principal and interest on the underlying collateral securities are
not passed through directly to the holders of the collateralized obligations as
such. Collateralized obligations often are issued in two or more classes with
varying maturities and stated rates of interest. Because interest and principal
payments on the underlying securities are not passed through directly to holders
of collateralized obligations, such obligations of varying maturities may be
secured by a single portfolio or pool of securities, the payments on which are
used to pay interest on each class and to retire successive maturities in
sequence. These relationships may in effect "strip" the interest payments from
principal payments of the underlying securities and allow for the separate
purchase of either the interest or the principal payments, sometimes called
interest only (IO) and principal only (PO) securities. Collateralized
obligations are designed to be retired as the underlying securities are repaid.
In the event of prepayment on or call of such securities, the class of
collateralized obligation first to mature generally will be paid down first.
Therefore, although in most cases the issuer of collateralized obligations will
not supply additional collateral in the event of such prepayment, there will be
sufficient collateral to secure collateralized obligations that remain
outstanding. It is anticipated that no more than 10% of a Fund's total assets
will be invested in IO and PO securities. Governmentally-issued and
privately-issued IO's and PO's will be considered illiquid for purposes of a
Fund's limitation on illiquid securities, however, the Board of Trustees of a
Fund may adopt guidelines under which governmentally-issued IO's and PO's may be
determined to be liquid.
ZERO COUPON GOVERNMENT SECURITIES. Subject to its investment objective and
policies, a Fund may invest in zero coupon U.S. Government Securities. Zero
coupon bonds are purchased at a discount from the face amount. The buyer
receives only the right to receive a fixed payment on a certain date in the
future and does not receive any periodic interest payments. These securities may
include those created directly by the U.S. Treasury and those created as
collateralized obligations through various proprietary custodial, trust or other
relationships (see "Investment Objectives and Policies--Additional Investment
Information--Collateralized Obligations" in the prospectus). The effect of
owning instruments which do not make current interest payments is that a fixed
yield is earned not only on the original investment but also, in effect, on all
discount accretion during the life of the obligation. This implicit reinvestment
of earnings at the same rate eliminates the risk of being unable to reinvest
distributions at a rate as high as the implicit yield on the zero coupon bond,
but at the same time eliminates any opportunity to reinvest earnings at higher
rates. For this reason, zero coupon bonds are subject to substantially greater
price fluctuations during periods of changing market interest rates than those
of comparable securities that pay interest currently, which fluctuation is
greater as the period to maturity is longer. Zero coupon bonds created as
collateralized obligations are similar to those created through the U.S.
Treasury, but the former investments do not provide absolute certainty of
maturity or of cash flows after prior classes of the collateralized obligations
are retired. No Fund currently intends to invest more than 5% of its net assets
in zero coupon U.S. Government Securities during the current year.
SHORT SALES AGAINST-THE-BOX. The Adjustable Rate, Diversified and Mortgage
Funds may each make short sales against-the-box for the purpose of deferring
realization of gain or loss for federal income tax purposes. A short sale
"against-the-box" is a short sale in which the Fund owns at least an equal
amount of the securities sold short or securities convertible into or
exchangeable for, without payment of any further consideration, securities of
the same issue as, and at least equal in amount to, the securities sold short. A
Fund may engage in such short sales only to the
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<PAGE> 87
extent that not more than 10% of the Fund's total assets (determined at the time
of the short sale) is held as collateral for such sales. No Fund currently
intends, however, to engage in such short sales to the extent that more than 5%
of its net assets will be held as collateral therefor during the current year.
ADDITIONAL INFORMATION--ADJUSTABLE RATE FUND. The interest rates paid on the
adjustable rate securities in which the Adjustable Rate Fund invests generally
are readjusted at intervals of one year or less to an increment over some
predetermined interest rate index. There are three main categories of indices:
those based on U.S. Treasury securities, those derived from a calculated measure
such as a cost of funds index or those based on a moving average of mortgage
rates. Commonly used indices include the one-year, three-year and five-year
constant maturity Treasury rates, the three-month Treasury bill rate, the
180-day Treasury bill rate, rates on longer-term Treasury securities, the 11th
District Federal Home Loan Bank Cost of Funds, the National Median Cost of
Funds, the one-month, three-month, six-month or one-year London Interbank
Offered Rate ("LIBOR"), the prime rate of a specific bank or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury rate,
closely mirror changes in market interest rate levels. Others, such as the 11th
District Home Loan Bank Cost of Funds index, tend to lag behind changes in
market rate levels and tend to be somewhat less volatile.
The Mortgage-Backed Securities either issued or guaranteed by GNMA, FHLMC or
FNMA ("Certificates") are called pass-through Certificates because a pro rata
share of both regular interest and principal payments (less GNMA's FHLMC's or
FNMA's fees and any applicable loan servicing fees), as well as unscheduled
early prepayments on the underlying mortgage pool, are passed through monthly to
the holder of the Certificate (i.e., the Fund). The principal and interest on
GNMA securities are guaranteed by GNMA and backed by the full faith and credit
of the U.S. Government. FNMA guarantees full and timely payment of all interest
and principal, while FHLMC guarantees timely payment of interest and ultimate
collection of principal. Mortgage-Backed Securities from FNMA and FHLMC are not
backed by the full faith and credit of the United States; however, they are
generally considered to offer minimal credit risks. The yields provided by these
Mortgage-Backed Securities have historically exceeded the yields on other types
of U.S. Government Securities with comparable maturities in large measure due to
the prepayment risk discussed below.
If prepayments of principal are made on the underlying mortgages during periods
of rising interest rates, the Adjustable Rate Fund generally will be able to
reinvest such amounts in securities with a higher current rate of return.
However, the Adjustable Rate Fund will not benefit from increases in interest
rates to the extent that interest rates rise to the point where they cause the
current coupon of adjustable rate mortgages held as investments by the
Adjustable Rate Fund to exceed the maximum allowable annual or lifetime reset
limits (or "cap rates") for a particular mortgage. Also, the Adjustable Rate
Fund's net asset value could vary to the extent that current yields on
Mortgage-Backed Securities are different than market yields during interim
periods between coupon reset dates.
During periods of declining interest rates, of course, the coupon rates may
readjust downward, resulting in lower yields to the Adjustable Rate Fund.
Further, because of this feature, the value of adjustable rate mortgages is
unlikely to rise during periods of declining interest rates to the same extent
as fixed-rate instruments. As with other Mortgage-Backed Securities, interest
rate declines may result in accelerated prepayment of mortgages, and the
proceeds from such prepayments must be reinvested at lower prevailing interest
rates.
One additional difference between adjustable rate mortgages and fixed rate
mortgages is that for certain types of adjustable rate mortgage securities, the
rate of amortization of principal, as well as interest payments, can and does
change in accordance with movements in a specified, published interest rate
index. The amount of interest due to an adjustable rate mortgage security holder
is calculated by adding a specified additional amount, the "margin," to the
index, subject to limitations or "caps" on the maximum and minimum interest that
is charged to the mortgagor during the life of the mortgage or to maximum and
minimum changes to that interest rate during a given period. It is these special
characteristics that are unique to adjustable rate mortgages that the Fund
believes make them attractive investments in seeking to accomplish the
Adjustable Rate Fund's objective.
The Fund usually will enter into interest rate swaps on a net basis, i.e., the
two payment streams are netted out, with the Fund receiving or paying, as the
case may be, only the net amounts of the two payments. The net amount of the
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<PAGE> 88
excess, if any, of the Fund's obligations over its entitlement with respect to
each interest rate swap will be accrued on a daily basis and an amount of cash
or high grade liquid debt securities having an aggregate net asset value at
least equal to the accrued excess will be maintained in a segregated account by
the Fund's custodian. To the extent that the Fund enters into interest rate
swaps on other than a net basis, the amount maintained in a segregated account
will be the full amount of the Fund's obligations, if any, with respect to such
interest rate swaps, accrued on a daily basis.
The Adjustable Rate Fund will not enter into any interest rate swap, cap or
floor transaction unless the unsecured senior debt or the claims-paying ability
of the other party thereto is rated in the highest rating category by at least
one nationally recognized rating organization at the time of entering into such
transaction. If there is a default by the other party to such a transaction, the
Adjustable Rate Fund will have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents using standardized swap documents. As a result, the
swap market has become relatively liquid. Caps and floors are more recent
innovations for which standardized documents have not yet been developed and,
accordingly, they are less liquid than swaps. It is anticipated that the
Adjustable Rate Fund will not invest more than 5% of its total assets in
interest rate caps and floors and that the aggregate notional (agreed upon)
principal amount of interest rate swaps entered into by the Fund and the
aggregate contract value of outstanding futures contracts of the Fund and
futures contracts subject to outstanding options written by the Fund will not
exceed 50% of the Fund's total assets. Because interest rate swaps and the
purchase of interest rate caps and floors will be entered into for hedging
purposes, the investment manager believes such obligations will not constitute
senior securities and, accordingly, will not treat them as being subject to the
Fund's borrowing restrictions.
PORTFOLIO TRANSACTIONS
KFS is the investment manager for the Kemper Funds and KFS and its affiliates
also furnish investment management services to other clients including Kemper
Corporation 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.
Dreman Value Advisors, Inc. ("DVA"), a subsidiary of KFS, is investment manager
for Kemper-Dreman Fund, Inc. and sub-adviser for another Kemper Fund. At times
investment decisions may be made to purchase or sell the same investment
securities for a Fund and for one or more of the other clients managed by KFS or
its affiliates. When two or more of such clients are simultaneously engaged in
the purchase or sale of the same security through the same trading facility, the
transactions are allocated as to amount and price in a manner considered
equitable to each.
National securities exchanges have established limitations governing the maximum
number of options in each class which may be written by a single investor or
group of investors acting in concert. An exchange may order the liquidation of
positions found to be in violation of these limits, and it may impose certain
other sanctions. These position limits may restrict the number of options a Fund
will be able to write on a particular security.
The above mentioned factors may have a detrimental effect on the quantities or
prices of securities, options or futures contracts available to a Fund. On the
other hand, the ability of a Fund to participate in volume transactions may
produce better executions for a Fund in some cases. The Board of Trustees of
each Fund believes that the benefits of KFS's organization outweigh any
limitations that may arise from simultaneous transactions or position
limitations.
KFS, in effecting purchases and sales of portfolio securities for the account of
a Fund, will implement each Fund's policy of seeking best execution of orders,
which includes best net prices, except to the extent that KFS may be permitted
to pay higher brokerage commissions for research services as described below.
Consistent with this policy, orders for portfolio transactions 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
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<PAGE> 89
are available for all clients including clients of affiliated companies. Since
it is only supplementary to KFS's own research efforts and must be analyzed and
reviewed by KFS' staff, the receipt of research information is not expected to
materially reduce expenses. In selecting among firms believed to meet the
criteria for handling a particular transaction, KFS may give consideration to
those firms that have sold or are selling shares of the Funds and of other funds
managed by KFS or its affiliates, as well as to those firms that provide market,
statistical and other research information to a Fund and KFS, although KFS is
not authorized to pay higher commissions or, in the case of principal trades,
higher prices to firms that provide such services, except as described below.
KFS may in certain instances be permitted to pay higher brokerage commissions
(not including principal trades) solely for receipt of market, statistical and
other research services. Subject to Section 28(e) of the Securities Exchange Act
of 1934 and procedures that may be adopted by the Board of Trustees of each
Fund, a Fund (except the Cash Reserves, Mortgage and Short-Intermediate
Government Funds) could pay a firm that provides research services to KFS a
commission for effecting a securities transaction for the Fund in excess of the
amount other firms would have charged for the transaction if KFS determines in
good faith that the greater commission is reasonable in relation to the value of
the research services provided by the executing firm viewed in terms either of a
particular transaction or KFS's overall responsibilities to the Fund or other
clients. Not all of such research services may be useful or of value in advising
a particular Fund. Research benefits will be available for all clients of KFS
and its subsidiaries. The investment management fee paid by a Fund to KFS is not
reduced because KFS receives these research services.
The table below shows total brokerage commissions paid by each Fund for the last
three fiscal years and for the most recent fiscal year, the percentage thereof
that was allocated to firms based upon research information provided or sales of
Kemper Mutual Fund Shares.
<TABLE>
<CAPTION>
ALLOCATED TO FIRMS
BASED ON
RESEARCH/SALES OF
KEMPER FUND SHARES
FUND FISCAL 1995 IN FISCAL 1995 FISCAL 1994 FISCAL 1993
- ---------------------------------------- ----------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Adjustable Rate......................... $ 99,000 0% $ 0 $ 0
Cash Reserves........................... $ 0+ 0% $ 0 $ 0
Diversified............................. $ 1,323,000 3% $ 2,938,000 $ 2,363,000
Government.............................. $ 823,000 0% $ 1,071,000 $ 1,000
High Yield.............................. $21,136,000 0% $20,105,000 $12,347,000
Income and Capital...................... $ 1,576,000 0% $ 1,168,000 $ 1,131,000
Mortgage................................ $ 1,598,000+ 1% $ 835,000 $ 873,000
Short-Intermediate Government........... $ 125,000+ 1% $ 15,000 $ 27,000
</TABLE>
- ---------------
+ Includes amounts paid during the fiscal year ended July 31, 1995 and the
fiscal period from August 1, 1995 to September 30, 1995.
The changes in portfolio turnover rates during the last three fiscal years for
the Adjustable Rate Fund, Government Fund, Mortgage Fund and Short-Intermediate
Government Fund were due primarily to strategies related to delayed delivery
transactions. The increase in portfolio turnover rates during the last three
fiscal years for the Diversified Fund were due primarily to the reallocation of
portfolio assets across various market sectors.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Kemper Financial Services, Inc. ("KFS"), 120 South LaSalle
Street, Chicago, Illinois 60603, is each Fund's investment manager. Pursuant to
investment management agreements, KFS acts as each Fund's investment adviser,
manages its investments, administers its business affairs, furnishes office
facilities and equipment, provides clerical, bookkeeping and administrative
services, and permits any of its officers or employees
B-21
<PAGE> 90
to serve without compensation as trustees or officers of a Fund if elected to
such positions. Each investment management agreement provides that each Fund
pays the charges and expenses of its operations, including the fees and expenses
of the trustees (except those who are officers or employees of KFS), independent
auditors, counsel, custodian and transfer agent and the cost of share
certificates, reports and notices to shareholders, brokerage commissions or
transaction costs, costs of calculating net asset value, taxes and membership
dues. Each Fund bears the expenses of registration of its shares with the
Securities and Exchange Commission, while Kemper Distributors, Inc. ("KDI"), as
principal underwriter, pays the cost of qualifying and maintaining the
qualification of each Fund's shares for sale under the securities laws of the
various states. KFS has agreed to reimburse each Fund (except the Government
Fund) to the extent required by applicable state expense limitations should all
operating expenses of each Fund, including the investment management fees of KFS
but excluding taxes, interest, distribution fees, extraordinary expenses,
brokerage commissions or transaction costs and any other properly excludable
expenses, exceed the applicable state expense limitations. 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. Under such state expense limitation, custodian
costs attributable to foreign securities that are in excess of similar domestic
custodian costs are excluded from operating expenses. KFS has agreed to
reimburse the Government Fund should all operating expenses of the Fund,
including the compensation of KFS, but excluding taxes, interest, distribution
services fees, extraordinary expenses and brokerage commissions or transaction
costs, exceed 1% of average daily net assets of the Fund on an annual basis.
The investment management agreements provide that KFS shall not be liable for
any error of judgment or of law, or for any loss suffered by a Fund in
connection with the matters to which the agreements relate, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
KFS in the performance of its obligations and duties, or by reason of its
reckless disregard of its obligations and duties under each agreement.
Each Fund's investment management agreement continues in effect from year to
year so long as its continuation is approved at least annually by (a) a majority
of the trustees who are not parties to such agreement or interested persons of
any such party except in their capacity as trustees of the Fund and (b) by the
shareholders or the Board of Trustees of the Fund. Each Fund's investment
management agreement may be terminated at any time upon 60 days' notice by
either party, or by a majority vote of the outstanding shares of the Fund, and
will terminate automatically upon assignment. If additional Funds become subject
to an investment management agreement, the provisions concerning continuation,
amendment and termination shall be on a Fund by Fund basis. Additional Funds may
be subject to a different agreement.
The current investment management fee rates paid by the Funds are in the
prospectus, see "Investment Manager and Underwriter." The investment management
fees paid by each Fund for its last three fiscal years are shown in the table
below.
<TABLE>
<CAPTION>
FUND 1995 1994 1993
- ----------------------------------------------------------- ----------- ---------- ----------
<S> <C> <C> <C>
Adjustable Rate............................................ $ 887,000 1,022,000* 10,000*
Cash Reserves.............................................. $ 1,346,000+* 1,464,000* 1,029,000*
Diversified................................................ $ 4,152,000 3,226,000 2,010,000
Government................................................. $19,681,000 22,103,000 24,613,000
High Yield................................................. $17,917,000 13,201,000 10,293,000
Income and Capital......................................... $ 2,923,000 2,734,000 2,555,000
Mortgage................................................... $21,526,000+ 28,093,000 32,501,000
Short-Intermediate Government.............................. $ 1,626,000+ 1,617,000 1,390,000
</TABLE>
- ---------------
+ Includes amounts paid during the fiscal year ended July 31, 1995 and the
fiscal period from August 1, 1995 to September 30, 1995.
* Fee waivers and/or expense absorptions in effect during the period, see below.
B-22
<PAGE> 91
KFS agreed temporarily to absorb operating expenses for the Cash Reserves Fund
from October 1, 1992 to May 28, 1994. During the fiscal year ended July 31, 1994
and the period October 1, 1992 to July 31, 1993, KFS absorbed or paid $631,000
and $457,000, respectively, of operating expenses for the Cash Reserves Fund.
Prior to May 31, 1994, the Cash Reserves, Mortgage and Short-Intermediate
Government Funds paid KFS an annual investment management fee, payable monthly,
on a graduated basis of .60% of the first $5 billion of average daily net assets
of all Portfolios of Kemper Portfolios, .55% of the next $5 billion and .50% of
average daily net assets of all Portfolios subject to the agreement over $10
billion.
Beginning January 17, 1992, KFS agreed to waive its full management fee and to
absorb all other operating expenses of the Adjustable Rate Fund through December
31, 1992. For this purpose, "operating expenses" does not include taxes,
interest, extraordinary expenses, brokerage commissions or transaction costs.
Commencing on January 1, 1993, the investment management fee and other operating
expenses were gradually reinstated at the aggregate rate (as a percentage of
average daily net assets) of .07% each month. All expenses were reinstated by
January 31, 1994. If the fee waiver had not been in effect during the fiscal
years ended August 31, 1994 and 1993, KFS would have received management fees of
$1,161,000 and $1,015,000, respectively, from the Fund. Prior to May 31, 1994,
the Adjustable Rate Fund paid KFS an investment management fee, payable monthly,
at the annual rate of .50% of average daily net assets. Prior to January 1,
1992, the Adjustable Rate Fund paid KFS an annual investment management fee,
payable monthly, on a graduated basis of .60% of the first $2 billion of average
daily net assets of the Fund, .55% of the next $2 billion and .50% of average
daily net assets of the Fund over $4 billion.
Prior to May 31, 1994, the Diversified Fund paid KFS an investment management
fee, payable monthly, at the annual rate of .70% of average daily net assets.
Prior to May 31, 1994, the Government Fund paid KFS an investment management
fee, payable monthly, at the annual rate of .55% of the first $200 million of
average daily net assets, .45% of the next $300 million of average daily net
assets, and .35% of average daily net assets over $500 million.
Prior to May 31, 1994, the High Yield Fund paid KFS an investment management
fee, payable monthly, at the annual rate of .65% of the first $75 million of
average daily net assets, .55% of the next $75 million of average daily net
assets, and .50% of average daily net assets over $150 million.
Prior to May 31, 1994, the Income and Capital Fund paid KFS an investment
management fee, payable monthly, at the annual rate of .55% of the first $200
million of average daily net assets, .45% of the next $300 million of average
daily net assets and .35% of average daily net assets over $500 million.
PRINCIPAL UNDERWRITER. Pursuant to separate underwriting and distribution
services agreements ("distribution agreements"), KDI, a wholly owned subsidiary
of KFS, is the principal underwriter and distributor for the shares of each Fund
and acts as agent of each Fund in the continuous offering of its shares. KDI
bears all its expenses of providing services pursuant to the distribution
agreement, including the payment of any commissions. Each Fund pays the cost for
the prospectus and shareholder reports to be set in type and printed for
existing shareholders, and KDI, as principal underwriter, 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. Before February 1, 1995, KFS was the Funds'
principal underwriter and distributor.
Each distribution agreement continues in effect from year to year so long as
such continuance is approved for each class 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 the
agreement. Each agreement automatically terminates in the event of its
assignment and may be terminated for a class at any time without penalty by a
Fund or by KDI upon 60 days notice. Termination by a Fund with respect to a
class may be by vote of a majority of the Board of Trustees, or a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the agreement, or a "majority of the
outstanding voting securities" of the class of the Fund, as defined under the
Investment Company Act of 1940. The agreement may not be amended for a class to
increase the fee to be paid by a Fund with respect to such class without
approval by a majority of the
B-23
<PAGE> 92
outstanding voting securities of such class of the Fund and all material
amendments must in any event be approved by the Board of Trustees in the manner
described above with respect to the continuation of the agreement. The
provisions concerning the continuation, amendment and termination of the
distribution agreement are on a Fund by Fund basis and for each Fund on a class
by class basis.
CLASS A SHARES. The following information concerns the underwriting commissions
paid in connection with the distribution of each Fund's Class A shares for the
fiscal years noted.
<TABLE>
<CAPTION>
COMMISSIONS
COMMISSIONS COMMISSIONS PAID TO
CLASS A SHARES FISCAL YEAR RETAINED BY KDI KDI PAID TO ALL FIRMS KDI AFFILIATED FIRMS
- -------------------------------------- ----------- --------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Adjustable Rate....................... 1995 $ 22,000 $ 161,000 $ 40,000
1994 $ 64,000 676,000 218,000
1993 $ 109,000 1,530,000 304,000
Cash Reserves......................... 1995+ $ 0 0 0
1994* $ 0 0 0
Diversified........................... 1995 $ 75,000 462,000 68,000
1994 $ 115,000 694,000 125,000
1993 $ 156,000 1,017,000 178,000
Government............................ 1995 $ 380,000 2,427,000 325,000
1994 $ 820,000 5,602,000 693,000
1993 $ 3,322,000 24,107,000 3,484,000
High Yield............................ 1995 $ 476,000 3,430,000 435,000
1994 $ 665,000 4,420,000 679,000
1993 $ 1,070,000 7,469,000 1,088,000
Income and Capital.................... 1995 $ 96,000 767,000 110,000
1994 $ 261,000 1,055,000 179,000
1993 $ 223,000 1,767,000 175,000
Mortgage.............................. 1995+ $ 20,000 183,000 29,000
1994* $ 6,000 0 0
Short-Intermediate Government......... 1995+ $ 23,000 220,000 77,000
1994* $ 1,000 6,000 1,000
</TABLE>
- ---------------
+ Includes amounts paid during fiscal year ended July 31, 1995 and fiscal
period from August 1, 1995 to September 30, 1995.
* Class A shares of the Cash Reserves, Mortgage and Short-Intermediate
Government Funds were not available for purchase (except upon conversion of
Class B shares) prior to May 31, 1994.
CLASS B SHARES AND CLASS C SHARES. Class B and Class C shares of each Fund
(other than the Cash Reserves, Mortgage and Short-Intermediate Government Funds)
were not available for purchase prior to May 31, 1994.
Prior to December 1, 1991, KFS (as predecessor to KDI) paid each firm, including
affiliated brokers, a service fee with respect to Class B shares (then called
"Initial Shares") of all Kemper Portfolios, including the Cash Reserves,
Mortgage and Short-Intermediate Government Funds, from the distribution services
fee at the annual rate of .25% on assets maintained and serviced for more than
one year in Fund accounts. Effective December 1, 1991, KDI (and KFS as
predecessor) as administrator pays each firm a service fee as described under
"Investment Manager and Underwriter--Administrative Services." Prior to December
1, 1991, the distribution services fee was paid at the annual rate of 1.25% of
average daily net assets of Kemper Portfolios. Effective December 1, 1991, the
distribution services fee is paid at the annual rate of .75% of average daily
net assets of each such Fund. During the fiscal year ended July 31, 1993, Kemper
Portfolios incurred expenses of and paid KFS a distribution services fee of
B-24
<PAGE> 93
$1,223,000 in the Cash Reserves Fund, $35,859,000 in the Mortgage Fund and
$1,774,000 in the Short-Intermediate Government Fund. The fee payable to KDI
under the Plan is not reduced or offset by the amount of any contingent deferred
sales charges received by KDI. A portion of the aforesaid marketing, sales and
operating expenses could be considered overhead expense.
Since the distribution agreement provides for fees charged to Class B and Class
C shares that are used by KDI to pay for distribution services (see the
prospectus under "Investment Manager and Underwriter"), the agreement (the
"Plan"), is approved and renewed separately for the Class B and Class C shares
in accordance with Rule 12b-1 under the Investment Company Act of 1940, which
regulates the manner in which an investment company may, directly or indirectly,
bear expenses of distributing its shares.
Expenses of the Funds and of KDI (and KFS as predecessor) in connection with the
Rule 12b-1 plans for the Class B and Class C shares are set forth below. A
portion of the marketing, sales and operating expenses shown below could be
considered overhead expense.
<TABLE>
<CAPTION>
CONTINGENT COMMISSIONS OTHER DISTRIBUTION EXPENSES PAID BY KDI
DISTRIBUTION DEFERRED TOTAL PAID BY KDI -------------------------------------------------------
FEES PAID SALES COMMISSIONS TO KDI ADVERTISING MARKETING MISC.
FISCAL BY FUND CHARGES PAID BY KDI AFFILIATED AND PROSPECTUS AND SALES OPERATING INTEREST
CLASS B SHARES YEAR TO KDI TO KDI TO FIRMS FIRMS LITERATURE PRINTING EXPENSES EXPENSES EXPENSE
------ ------------ ---------- ----------- ------------ ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustable
Rate......... 1995 $ 35,000 30,000 116,000 41,000 13,000 3,000 69,000 22,000 18,000
1994* $ 3,000 1,000 27,000 9,000 2,000 1,000 7,000 2,000 1,000
Cash
Reserves....... 1995+ $ 2,125,000 1,629,000 2,810,000 86,000 249,000 63,000 1,607,000 285,000 775,000
1994 $ 1,790,000 1,336,000 3,015,000 81,000 148,000 8,000 1,158,000 81,000 311,000
Diversified.... 1995 $ 1,925,000 688,000 1,155,000 133,000 115,000 16,000 586,000 97,000 452,000
1994* $ 922,000 322,000 479,000 73,000 35,000 15,000 250,000 41,000 168,000
Government..... 1995 $ 254,000 91,000 1,495,000 200,000 131,000 8,000 681,000 86,000 136,000
1994* $ 19,000 12,000 187,000 52,000 11,000 5,000 80,000 10,000 7,000
High
Yield.......... 1995 $ 7,344,000 1,785,000 3,986,000 574,000 335,000 45,000 2,075,000 281,000 461,000
1994* $ 2,493,000 657,000 1,343,000 254,000 85,000 33,000 692,000 108,000 115,000
Income
and
Capital...... 1995 $ 289,000 86,000 876,000 113,000 70,000 7,000 354,000 59,000 104,000
1994* $ 31,000 12,000 164,000 35,000 14,000 5,000 79,000 12,000 10,000
Mortgage....... 1995+ $ 15,132,000 4,977,000 1,496,000 156,000 165,000 72,000 979,000 147,000 1,911,000
1994 $ 23,535,000 7,287,000 6,814,000 1,041,000 326,000 20,000 2,240,000 128,000 2,696,000
Short-Intermediate
Government... 1995+ $ 1,979,000 1,011,000 699,000 64,000 78,000 21,000 416,000 73,000 14,000
1994 $ 2,044,000 810,000 1,946,000 263,000 97,000 4,000 644,000 37,000 105,000
</TABLE>
- ---------------
+ Includes amounts paid during the fiscal year ended July 31, 1995 and the
fiscal period from August 1, 1995 to September 30, 1995.
* Class B shares were first offered on May 31, 1994.
B-25
<PAGE> 94
<TABLE>
<CAPTION>
DISTRIBUTION
FEES PAID OTHER DISTRIBUTION EXPENSES PAID BY KDI
DISTRIBUTION TOTAL BY KDI -----------------------------------------------------------
FEES PAID DISTRIBUTION TO KDI ADVERTISING MARKETING MISC.
CLASS C BY FUND FEES PAID BY AFFILIATED AND PROSPECTUS AND SALES OPERATING INTEREST
SHARES** FISCAL YEAR TO KDI KDI TO FIRMS FIRMS LITERATURE PRINTING EXPENSES EXPENSES EXPENSES
----------- ------------ ------------ ------------ ----------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustable
Rate....... 1995 $ 8,000 11,000 4,000 6,000 2,000 32,000 14,000 4,000
1994 $ 1,000 0 0 3,000 1,000 9,000 3,000 0
Cash
Reserves..... 1995+ $ 33,000 30,000 2,000 36,000 5,000 223,000 42,000 18,000
1994 $ 0 0 0 1,000 0 9,000 2,000 0
Diversified.. 1995 $ 14,000 14,000 1,000 8,000 1,000 42,000 14,000 5,000
1994 $ 1,000 1,000 1,000 1,000 1,000 11,000 2,000 0
Government... 1995 $ 19,000 19,000 2,000 11,000 1,000 60,000 14,000 4,000
1994 $ 1,000 1,000 1,000 1,000 1,000 8,000 2,000 0
High
Yield....... 1995 $ 68,000 67,000 8,000 41,000 4,000 250,000 44,000 18,000
1994 $ 3,000 3,000 3,000 6,000 3,000 51,000 9,000 1,000
Income
and
Capital.... 1995 $ 12,000 12,000 1,000 7,000 1,000 34,000 11,000 2,000
1994 $ 1,000 1,000 1,000 1,000 0 5,000 1,000 0
Mortgage..... 1995+ $ 5,000 5,000 1,000 4,000 1,000 23,000 12,000 2,000
1994 $ 0 0 0 0 0 1,000 0 0
Short-Inter-
mediate
Government. 1995+ $ 19,000 42,000 3,000 15,000 4,000 79,000 21,000 8,000
1994 $ 0 0 0 2,000 0 6,000 1,000 0
</TABLE>
- ---------------
+ Includes amounts paid during the fiscal year ended July 31, 1995 and the
fiscal period from August 1, 1995 to September 30, 1995.
** Class C shares were first offered on May 31, 1994.
ADMINISTRATIVE SERVICES. Administrative services are provided to each Fund under
an administrative services agreement ("administrative agreement") with KDI. KDI
bears all its expenses of providing services pursuant to the administrative
agreement between KDI and the Fund, including the payment of service fees. For
the services under the administrative agreement, each Fund pays KDI an
administrative services fee, payable monthly, at the annual rate of up to .25%
of average daily net assets of Class A, B and C shares of the Fund. Before
February 1, 1995, KFS was the administrator.
KDI has entered into related arrangements with various financial services firms,
such as broker-dealers or banks ("firms"), that provide services and facilities
for their customers or clients who are shareholders of the Fund. The firms
provide such office space and equipment, telephone facilities and personnel as
is necessary or beneficial for providing information and services to their
clients. Such services and assistance may include, but are not limited to,
establishing and maintaining shareholder accounts and records, processing
purchase and redemption transactions, answering routine inquiries regarding the
Fund, assistance to clients in changing dividend and investment options, account
designations and addresses and such other services as may be agreed upon from
time to time and permitted by applicable statute, rule or regulation. With
respect to Class A shares, KDI pays each firm a service fee, payable quarterly,
at an annual rate of (a) up to .15% (.25% for the Cash Reserves, Mortgage and
Short-Intermediate Government Funds) of the net assets in Fund accounts that it
maintains and services attributable to Class A shares acquired prior to October
1, 1993, and (b) up to .25% of net assets of those accounts that it maintains
and services attributable to Class A shares acquired on or after October 1,
1993, in each case commencing with the month after investment. With respect to
Class B shares and Class C shares, KDI pays each firm a service fee, payable
quarterly, at an annual rate of up to .25% of the net assets in Fund accounts
that it maintains and services attributable to Class B shares and Class C
shares, respectively, in each case commencing with the month after investment
(month of investment for Class C shares); provided, however, KDI may for Class B
shares advance the first year service fee as described in the prospectus under
"Investment Manager and Underwriter." Firms to which service fees may be paid
include broker-dealers affiliated with KDI.
B-26
<PAGE> 95
The following information concerns the administrative services fee paid by each
Fund to KDI (or KFS as predecessor).
<TABLE>
<CAPTION>
ADMINISTRATIVE SERVICE FEES TOTAL SERVICE FEES PAID BY SERVICE FEES PAID BY KDI
PAID BY FUND KDI TO FIRMS TO KDI AFFILIATED FIRMS
------------------------------ --------------------------- ------------------------
FUND FISCAL YEAR CLASS A CLASS B CLASS C
- ---- ------------ ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Adjustable Rate...... 1995 $ 299,000 11,000 2,000 320,000 76,000
1994* $ 377,000 1,000 1,000 378,000 78,000
1993 $ 0 N/A N/A 290,000 53,000
Cash Reserves........ 1995+ $ 113,000 664,000 10,000 854,000 59,000
1994** $ 83,000 491,000 0 778,000 45,000
1993 $ 413,000 N/A N/A 413,000 45,000
Diversified.......... 1995 $ 952,000 620,000 5,000 1,582,000 203,000
1994* $ 696,000 283,000 0 1,050,000 162,000
1993 $ 396,000 N/A N/A 396,000 73,000
Government........... 1995 $ 7,831,000 84,000 6,000 7,965,000 1,161,000
1994* $ 8,756,000 6,000 0 8,767,000 1,514,000
1993 $ 9,729,000 N/A N/A 9,729,000 2,135,000
High Yield........... 1995 $ 4,323,000 2,400,000 22,000 6,730,000 783,000
1994* $ 3,405,000 759,000 1,000 3,961,000 569,000
1993 $ 2,850,000 N/A N/A 2,850,000 379,000
Income and Capital... 1995 $ 856,000 95,000 4,000 980,000 108,000
1994* $ 810,000 11,000 0 833,000 106,000
1993 $ 730,000 N/A N/A 730,000 113,000
Mortgage............. 1995+ $ 5,402,000 4,811,000 2,000 10,164,000 1,280,000
1994** $ 4,291,000 7,373,000 0 11,426,000 1,602,000
1993 $13,496,000 N/A N/A 13,496,000 1,978,000
Short-Intermediate
Government......... 1995+ $ 69,000 640,000 6,000 698,000 60,000
1994** $ 26,000 671,000 0 670,000 67,000
1993 $ 589,000 N/A N/A 589,000 52,000
</TABLE>
- ---------------
+ Includes amounts paid during fiscal year ended July 31, 1995 and the fiscal
period from August 1, 1995 to September 30, 1995.
* Class B and Class C shares were first offered on May 31, 1994.
** Class C shares were first offered on May 31, 1994.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for a Fund. Currently, however,
the administrative services fee payable to KDI is based only upon Fund assets in
accounts for which there is a firm listed on the Fund's records and it is
intended that KDI will pay all the administrative services fee that it receives
from a Fund to firms in the form of service fees. The effective administrative
services fee rate to be charged against all assets of a Fund while this
procedure is in effect will depend upon the proportion of Fund assets that is in
accounts for which there is a firm of record, as well as (except for the Cash
Reserves, Mortgage and Short-Intermediate Government Funds), with respect to
Class A shares, the date when shares representing such assets were purchased.
The Board of Trustees of a Fund, in its discretion, may approve basing the fee
to KDI on all Fund assets in the future.
Certain trustees or officers of the Funds are also directors or officers of KFS
or KDI as indicated under "Officers and Trustees."
B-27
<PAGE> 96
CUSTODIAN, TRANSFER AGENT 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 02110, as sub-custodian, have custody of all securities and cash
of each Fund maintained in the United States. The Chase Manhattan Bank, N.A.,
Chase MetroTech Center, Brooklyn, New York 11245, as custodian, has custody of
all securities and cash of each Fund held outside of the United States. They
attend to the collection of principal and income, and payment for and collection
of proceeds of securities bought and sold by each Fund. IFTC is also each Fund's
transfer agent and dividend-paying agent. 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, at a rate of $.10 per $1,000 of average monthly net
assets of each Fund (in the case of the Cash Reserves Fund, at a rate of $.05
per $1,000) plus certain transaction charges and out-of-pocket expense
reimbursement. IFTC receives as transfer agent, and pays to KSvC, annual account
fees of $6 (a maximum of $8 for the Cash Reserves Fund accounts) per account
plus account set up, transaction and maintenance charges, annual fees associated
with the contingent deferred sales charge (Class B only) and out-of-pocket
expense reimbursement. IFTC's fee is reduced by certain earnings credits in
favor of the Fund. The following shows for each Fund's 1995 fiscal year the
shareholder service fees IFTC remitted to KSvC. Prior to February 1, 1995, IFTC
was 50% owned by KFS.
<TABLE>
<CAPTION>
FUND FEES TO KSvC
- ---- ------------
<S> <C>
Adjustable Rate................................................................... 396,000
Cash Reserves+.................................................................... 1,241,000
Diversified....................................................................... 1,650,000
Government........................................................................ 4,925,000
High Yield........................................................................ 4,248,000
Income and Capital................................................................ 840,000
Mortgage+......................................................................... 7,000,000
Short-Intermediate Government+.................................................... 824,000
</TABLE>
- ---------------
+ Includes amounts paid during the fiscal year ended July 31, 1995 and the
fiscal period from August 1, 1995 to September 30, 1995.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Funds' independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Funds' annual financial statements, review certain
regulatory reports and the Funds' federal income tax returns, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Funds. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
PURCHASE AND REDEMPTION OF SHARES
As described in the Funds' prospectus, shares of a Fund are sold at their public
offering price, which is the net asset value per share of the Fund next
determined after an order is received in proper form plus, with respect to Class
A shares of each Fund other than the Cash Reserves Fund, an initial sales
charge. The applicable sales charge applies for exchanges from Class A shares of
Cash Reserves Fund to Class A shares of other Kemper Mutual Funds. The minimum
initial investment is $1,000 and the minimum subsequent investment is $100 but
such minimum amounts may be changed at any time. See the prospectus for certain
exceptions to these minimums. An order for the purchase of shares that is
accompanied by a check drawn on a foreign bank (other than a check drawn on a
Canadian bank in U.S. Dollars) will not be considered in proper form and will
not be processed unless and until the Fund determines that it has received
payment of the proceeds of the check. The time required for such a determination
will vary and cannot be determined in advance.
B-28
<PAGE> 97
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of a Fund will be redeemed by the Fund at the applicable net asset value
per share of such Fund as described in the Funds' prospectus. The redemption
within one year of Class A shares purchased at net asset value under the Large
Order NAV Purchase Privilege described in the prospectus may be subject to a 1%
contingent deferred sales charge (see "Purchase of Shares" in the prospectus).
Redemption of Class B shares may be subject to a contingent deferred sales
charge. When a Fund is asked to redeem shares for which it may not yet have
received good payment, it may delay the mailing of a redemption check until it
has determined that collected funds have been received for the purchase of such
shares, which will be up to 15 days.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A shares or the contingent deferred sales charge for
redemption of Class B shares by certain classes of persons or through certain
types of transactions as described in the prospectus is provided because of
anticipated economies in sales and sales related efforts.
A Fund may suspend the right of redemption or delay payment more than seven days
(a) during any period when the New York Stock Exchange ("Exchange") is closed
other than customary weekend and holiday closings or during any period in which
trading on the Exchange is restricted, (b) during any period when an emergency
exists as a result of which (i) disposal of a Fund's investments is not
reasonably practicable, or (ii) it is not reasonably practicable for the Fund to
determine the value of its net assets, or (c) for such other periods as the
Securities and Exchange Commission may by order permit for the protection of a
Fund's shareholders.
The conversion of Class B shares to Class A shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to each Fund to the effect that (a) the
assessment of the distribution services fee with respect to Class B shares and
not Class A shares does not result in the Fund's dividends constituting
"preferential dividends" under the Internal Revenue Code, and (b) that the
conversion of Class B shares to Class A shares does not constitute a taxable
event under the Internal Revenue Code. The conversion of Class B shares to Class
A shares may be suspended if such assurance is not available. In that event, no
further conversions of Class B shares would occur, and shares might continue to
be subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date as described in the prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. Each Fund normally declares and distributes monthly dividends of net
investment income and distributes any net realized short-term and long-term
capital gains at least annually, except that the Cash Reserves Fund declares
daily dividends of its net investment income.
Cash Reserves Fund. Dividends will be reinvested or paid in cash monthly. If a
shareholder redeems his or her entire account, all dividends accrued to the time
of redemption will be paid at that time. The Fund calculates its dividends based
on its daily net investment income. For this purpose, the net investment income
of the Cash Reserves Fund consists of (a) accrued interest income plus or minus
amortized discount or premium, (b) plus or minus all short-term realized gains
and losses on investments and (c) minus accrued expenses allocated to the Fund.
Expenses are accrued each day. While the Fund's investments are valued at
amortized cost (see "Net Asset Value" in the prospectus), there will be no
unrealized gains or losses on such investments. However, should the net asset
value deviate significantly from market value, the Board of Trustees could
decide to value the investments at market value and then unrealized gains and
losses would be included in net investment income above.
All Funds. A Fund may at any time vary its foregoing dividend practices and,
therefore, reserves the right from time to time to either distribute or retain
for reinvestment such of its net investment income and its net short-term and
long-term capital gains as the Board of Trustees of the Fund determines
appropriate under the then current circumstances. In particular, and without
limiting the foregoing, a Fund may make additional distributions of net
investment income or capital gain net income in order to satisfy the minimum
distribution requirements contained
B-29
<PAGE> 98
in the Internal Revenue Code (the "Code"). Dividends will be reinvested in
shares of the Fund paying such dividends unless shareholders indicate in writing
that they wish to receive them in cash or in shares of other Kemper Funds as
described in the prospectus.
The level of income dividends per share (as a percentage of net asset value)
will be lower for Class B and Class C shares than for Class A shares primarily
as a result of the distribution services fee applicable to Class B and Class C
shares. Distributions of capital gains, if any, will be paid in the same amount
for each class.
TAXES. Each Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Code and, if so qualified, will not be liable
for federal income taxes to the extent its earnings are distributed. One of the
Subchapter M requirements to be satisfied is that less than 30% of a Fund's
gross income during its fiscal year must be derived from gains (not reduced by
losses) from the sale or other disposition of securities and certain other
investments held for less than three months. A Fund may be limited in its
options, futures and foreign currency transactions in order to prevent
recognition of such gains.
A Fund's options, futures and foreign currency transactions are subject to
special tax provisions that may accelerate or defer recognition of certain gains
or losses, change the character of certain gains or losses, or alter the holding
periods of certain of the Fund's securities.
The mark-to-market rules of the Code may require a Fund to recognize unrealized
gains and losses on certain options and futures held by the Fund at the end of
the fiscal year. Under these provisions, 60% of any capital gain or loss
recognized will generally be treated as long-term and 40% as short-term.
However, although certain forward contracts and futures contracts on foreign
currency are marked-to-market, the gain or loss is generally ordinary under
Section 988 of the Code. In addition, the straddle rules of the Code would
require deferral of certain losses realized on positions of a straddle to the
extent that the Fund had unrealized gains in offsetting positions at year end.
Gains and losses attributable to fluctuations in the value of foreign currencies
will be characterized generally as ordinary gain or loss under Section 988 of
the Code. For example, if a Fund sold a foreign bond and part of the gain or
loss on the sale was attributable to an increase or decrease in the value of a
foreign currency, then the currency gain or loss may be treated as ordinary
income or loss. If such transactions result in greater net ordinary income, the
dividends paid by the Fund will be increased; if the result of such transactions
is lower net ordinary income, a portion of dividends paid could be classified as
a return of capital.
At August 31, 1995 the Adjustable Rate Fund had an accumulated net realized
capital loss for federal income tax purposes of approximately $11,586,000, which
is available to offset future taxable capital gains. If not applied, the
carryover expires during the period 1997 through 2004. The Fund does not intend
to distribute realized capital gains until the capital loss carryover is
exhausted.
At October 31, 1995 the Diversified Fund had an accumulated net realized capital
loss for federal income tax purposes of approximately $255,985,000, which is
available to offset future taxable capital gains. If not applied, the carryover
expires during the period 1996 through 2003. The Fund does not intend to
distribute realized capital gains until the capital loss carryover is exhausted.
At October 31, 1995, the Government Fund had an accumulated net realized capital
loss for federal income tax purposes of approximately $628,047,000, which is
available to offset future taxable capital gains. If not applied, the carryover
expires during the period 1998 through 2003. The Fund does not intend to
distribute realized capital gains until the capital loss carryover is exhausted.
At October 31, 1995, the Income and Capital Fund had an accumulated net realized
capital loss for federal income tax purposes of approximately $21,025,000, which
is available to offset future taxable capital gains. If not applied, the
carryover expires during the period 2002 through 2003. The Fund does not intend
to distribute realized capital gains until the capital loss carryover is
exhausted.
B-30
<PAGE> 99
At September 30, 1995, the High Yield Fund had an accumulated net realized
capital loss for federal income tax purposes of approximately $192,130,000,
which is available to offset future taxable capital gains. If not applied, the
carryover expires during the period 1998 through 2004. The Fund does not intend
to distribute realized capital gains until the capital loss carryover is
exhausted.
At September 30, 1995, the Mortgage Fund had an accumulated net realized capital
loss for federal income tax purposes of approximately $1,230,769,000, which is
available to offset future taxable capital gains. If not applied, the carryover
expires during the period 1996 through 2003. The Fund does not intend to
distribute realized capital gains until the capital loss carryover is exhausted.
At September 30, 1995, the Short-Intermediate Government Fund had an accumulated
net realized capital loss for federal income tax purposes of approximately
$18,057,000, which is available to offset future taxable capital gains. If not
applied, the carryover expires during the period 2002 through 2003. The Fund
does not intend to distribute realized capital gains until the capital loss
carryover is exhausted.
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of a Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one year
period ended October 31 in the prior calendar year, minus any overdistribution
in the prior calendar year. For purposes of calculating the required
distribution, foreign currency gains or losses occurring after October 31 are
taken into account in the following calendar year. Each Fund intends to declare
or distribute dividends during the appropriate periods of an amount sufficient
to prevent imposition of the 4% excise tax.
A shareholder who redeems shares of a Fund will recognize capital gain or loss
for federal income tax purposes measured by the difference between the value of
the shares redeemed and the adjusted cost basis of the shares. Any loss
recognized on the redemption of Fund shares held six months or less will be
treated as long-term capital loss to the extent that the shareholder has
received any long-term capital gain dividends on such shares. A shareholder who
has redeemed shares of a Fund (other than shares of the Cash Reserves Fund not
acquired by exchange from another Kemper Mutual Fund) or other Kemper Mutual
Fund listed in the prospectus under "Special Features-- Class A Shares--Combined
Purchases" may reinvest the amount redeemed at net asset value at the time of
the reinvestment in shares of any Fund or in shares of a Kemper Mutual Fund
within six months of the redemption as described in the prospectus under
"Redemption or Repurchase of Shares--Reinvestment Privilege." If a shareholder
realized a loss on the redemption or exchange of a Fund's shares and reinvests
in shares of the same Fund within 30 days before or after the redemption or
exchange, the transactions may be subject to the wash sale rules resulting in a
postponement of the recognition of such loss for federal income tax purposes. An
exchange of a Fund's shares for shares of another fund is treated as a
redemption and reinvestment for federal income tax purposes upon which gain or
loss may be recognized.
A Fund's investment income derived from foreign securities may be subject to
foreign income taxes withheld at the source. Because the amount of a Fund's
investments in various countries will change from time to time, it is not
possible to determine the effective rate of such taxes in advance.
Shareholders who are non-resident aliens are subject to U.S. withholding tax on
ordinary income dividends (whether received in cash or shares) at a rate of 30%
or such lower rate as prescribed by any applicable tax treaty.
PERFORMANCE
As described in the prospectus, each Fund's historical performance or return for
a class of shares may be shown in the form of "yield" and, for each Fund except
the Cash Reserves Fund, "average annual total return" and "total return"
figures. The Cash Reserves Fund also may advertise its "effective yield." These
various measures of performance are described below. Performance information
will be computed separately for each class. KFS agreed to waive its management
fee and to absorb certain operating expenses for the Adjustable Rate Fund and to
absorb
B-31
<PAGE> 100
certain operating expenses for the Cash Reserves Fund for the periods and to the
extent specified in this Statement of Additional Information. See "Investment
Manager and Underwriter." Because of this waiver and expense absorption, the
performance results for the Adjustable Rate Fund and Cash Reserves Fund may be
shown with and without the effect of this waiver and expense absorption.
Performance results not giving effect to waivers and expense absorptions will be
lower.
Yield is a measure of the net investment income per share earned over a specific
one month or 30-day period expressed as a percentage of the maximum offering
price of a Fund's shares at the end of the period. Average annual total return
and total return measure both the net investment income generated by, and the
effect of any realized or unrealized appreciation or depreciation of, the
underlying investments in the Fund's portfolio.
A Fund's yield is computed in accordance with a standardized method prescribed
by rules of the Securities and Exchange Commission. Each Fund's yield shown
below is based on the one month (7 days for Cash Reserves Fund) period ended as
noted.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
FUND (PERIOD ENDED) SHARES SHARES SHARES
- -------------------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Adjustable Rate (8/31/95)................................................. 5.25% 4.77% 4.97%
Cash Reserves (9/30/95)................................................... 4.98 4.12 4.15
Diversified (10/31/95).................................................... 7.10 6.50 6.59
Government (10/31/95)..................................................... 6.16 5.46 5.50
High Yield (9/30/95)...................................................... 9.59 9.02 9.06
Income and Capital (10/31/95)............................................. 5.75 5.10 5.12
Mortgage (9/30/95)........................................................ 5.85 5.24 5.43
Short-Intermediate Government (9/30/95)................................... 4.75 4.00 4.20
</TABLE>
Each Fund's yield is computed by dividing the net investment income per share
earned during the specified one month or 30-day period by the maximum offering
price per share (which is net asset value for Class B and Class C shares) on the
last day of the period, according to the following formula:
a - b
----- 6
YIELD = 2 [ ( cd +1) - 1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period
(which is net asset value for Class B and Class C shares).
In computing the foregoing yield, each Fund follows certain standardized
accounting practices specified by Securities and Exchange Commission rules.
These practices are not necessarily consistent with those that each Fund uses to
prepare its annual and interim financial statements in conformity with generally
accepted accounting principles.
The Cash Reserve Fund's yield is also computed in accordance with a standardized
method prescribed by rules of the Securities and Exchange Commission. Under that
method, the current yield quotation is based on a seven-day period and is
computed as follows. The first calculation is net investment income per share;
which is accrued interest on portfolio securities, plus or minus amortized
discount or premium, less accrued expenses. This number is then divided by the
price per share (expected to remain constant at $1.00) at the beginning of the
period ("base period return"). The result is then divided by 7 and multiplied by
365 and the resulting yield figure is carried to the nearest one-hundredth of
one percent. Realized capital gains or losses and unrealized appreciation or
depreciation of investments are not included in the calculation.
B-32
<PAGE> 101
The Cash Reserve Fund's effective yield is determined by taking the base period
return (computed as described above) and calculating the effect of assumed
compounding. The formula for the effective yield is:
365/7
(base period return + 1) - 1. The Cash Reserve Fund's effective yield for
its Class A, Class B and Class C shares for the seven-day period ended
September 30, 1995 was 5.11%, 4.21% and 4.24%.
Each Fund's average annual total return quotation is computed in accordance with
a standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for a Fund for a specific period is
found by first taking a hypothetical $1,000 investment ("initial investment") in
the Fund's shares on the first day of the period, adjusting to deduct the
maximum sales charge (in the case of Class A shares), and computing the
"redeemable value" of that investment at the end of the period. The redeemable
value in the case of Class B shares includes the effect of the applicable
contingent deferred sales charge that may be imposed at the end of the period.
The redeemable value is then divided by the initial investment, and this
quotient is taken to the Nth root (N representing the number of years in the
period) and 1 is subtracted from the result, which is then expressed as a
percentage. The calculation assumes that all income and capital gains dividends
paid by the Fund have been reinvested at net asset value on the reinvestment
dates during the period. Average annual total return may also be calculated
without deducting the maximum sales charge.
Calculation of a Fund's total return is not subject to a standardized formula,
except when calculated for purposes of the Fund's "Financial Highlights" table
in the Fund's financial statements. Total return performance for a specific
period is calculated by first taking an investment (assumed below to be $10,000)
("initial investment") in a Fund's shares on the first day of the period, either
adjusting or not adjusting to deduct the maximum sales charge (in the case of
Class A shares), and computing the "ending value" of that investment at the end
of the period. The total return percentage is then determined by subtracting the
initial investment from the ending value and dividing the remainder by the
initial investment and expressing the result as a percentage. The ending value
in the case of Class B shares may or may not include the effect of the
applicable contingent deferred sales charge that may be imposed at the end of
the period. The calculation assumes that all income and capital gains dividends
paid by the Fund have been reinvested at net asset value on the reinvestment
dates during the period. Total return may also be shown as the increased dollar
value of the hypothetical investment over the period. Total return calculations
that do not include the effect of the sales charge would be reduced if such
charge were included.
A Fund's performance figures are based upon historical results and are not
representative of future performance. Each Fund's Class A shares are sold at net
asset value plus a maximum sales charge of 4.5% of the offering price (3.5% for
the Adjustable Rate and Short-Intermediate Government Funds). Class B and Class
C shares are sold at net asset value. Redemptions of Class B shares may be
subject to a contingent deferred sales charge that is 4% in the first year
following the purchase, declines by a specified percentage each year thereafter
and becomes zero after six years. Returns and net asset value will fluctuate.
Factors affecting each Fund's performance include general market conditions,
operating expenses and investment management. Any additional fees charged by a
dealer or other financial services firm would reduce the returns described in
this section. Shares of each Fund are redeemable at the then current net asset
value, which may be more or less than original cost.
The figures below show performance information for the Funds for various
periods. Comparative information with respect to certain indices is also
included. Please note the differences and similarities between the investments
which a Fund may purchase and the investments measured by the applicable
indices. The Consumer Price Index is generally considered to be a measure of
inflation. The Lehman Brothers Adjustable Rate Index generally represents the
performance of adjustable rate mortgages during various market conditions. The
Lehman Brothers Aggregate Bond Index generally represents the performance of
intermediate and long-term government bonds and investment grade corporate debt
securities and mortgage-backed securities during various market conditions. The
Lehman Brothers Government/Corporate Bond Index generally represents the
performance of intermediate and long-term government and investment grade
corporate debt securities during various market conditions. The Merrill Lynch
Market Weighted Index generally represents the performance of short- and
intermediate-term Treasury and GNMA securities during various market conditions.
The Salomon Brothers High Grade Corporate Bond Index generally represents the
performance of high grade long-term corporate bonds during various market
conditions. The Salomon Brothers Long-Term High Yield Index generally represents
the performance of high yield debt securities during various
B-33
<PAGE> 102
market conditions. The Salomon Brothers 30 Year GNMA Index generally represents
the performance of GNMA 30-year pass-through mortgages. The foregoing bond
indices are unmanaged. The market prices and yields of corporate and government
bonds will fluctuate. The net asset values and returns of each class of shares
of the Funds will also fluctuate. No adjustment has been made for taxes payable
on dividends. The period indicated was one of fluctuating securities prices and
interest rates.
ADJUSTABLE RATE FUND--AUGUST 31, 1995
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
TOTAL INITIAL CAPITAL GAIN INCOME ENDING PERCENTAGE
RETURN $10,000 DIVIDENDS DIVIDENDS VALUE INCREASE
TABLE Investment(*) REINVESTED REINVESTED(**) (ADJUSTED)(*) (ADJUSTED)(*)
--------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $8,896 9 7,520 16,425 64.3
Five Years 9,976 0 3,809 13,785 37.9
One Year 9,617 0 568 10,185 1.9
CLASS B SHARES
Life of Fund(++) 9,928 0 592 10,222 2.2
One Year 9,988 0 496 10,184 1.8
CLASS C SHARES
Life of Fund(++) 9,940 0 598 DNA DNA
One Year 9,988 0 501 DNA DNA
<CAPTION>
---------------------------------------
TOTAL ENDING PERCENTAGE
RETURN VALUE INCREASE
TABLE (UNADJUSTED)(*) (UNADJUSTED)(*)
------ ----------------- -----------------
<S> <C> <C>
Life of Fund(+) 17,027 70.3
Five Years 14,283 42.8
One Year 10,552 5.5
Life of Fund(++) 10,520 5.2
One Year 10,484 4.8
Life of Fund(++) 10,538 5.4
One Year 10,489 4.9
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
------------------------------------------------------
CONSUMER SALOMON LEHMAN LEHMAN
TOTAL PRICE BROS. HIGH BROS. BROS.
RETURN INDEX GRADE CORP. GOVT./CORP. ADJ. RATE
TABLE (1) INDEX(2) INDEX(3) INDEX(4)
------ -------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Life of Fund(+) 33.7 132.1 111.1 DNA
Life of Fund(++)
Five Years 16.2 73.5 62.3 DNA
One Year 2.6 15.7 11.9 8.7
</TABLE>
<TABLE>
<CAPTION>
SALOMON
BROS. LEHMAN
FUND FUND FUND HIGH LEHMAN BROS.
AVERAGE ANNUAL CLASS CLASS CLASS CONSUMER GRADE BROS. ADJ.
TOTAL RETURN A B C PRICE CORP. GOVT./CORP. RATE
TABLE SHARES SHARES SHARES INDEX(1) INDEX(2) INDEX(3) INDEX(4)
-------------- ------ ------ ------ -------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 6.4 -- -- 3.7 11.1 9.8 DNA
Life of Fund(++) -- 1.8 4.3 2.9 14.1 11.0 7.1
Five Years 6.6 DNA DNA 3.1 11.7 10.2 DNA
One Year 1.9 1.9 4.9 2.6 15.7 11.9 8.7
</TABLE>
- ---------------
DNA--Data not available.
(+) Since September 1, 1987 for Class A Shares.
(++) Since May 31, 1994 for Class B and Class C Shares.
B-34
<PAGE> 103
DIVERSIFIED FUND--OCTOBER 31, 1995
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
TOTAL Initial Capital Gain Income Ending
RETURN $10,000 Dividends Dividends Value
TABLE Investment(*) Reinvested Reinvested(**) (adjusted)(*)
- -------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $ 5,610 715 56,430 62,755
Fifteen Years 5,538 420 36,724 42,682
Ten Years 7,145 235 17,953 25,333
Since 2/1/89(+++) 9,315 0 11,251 20,566
Five Years 13,811 0 9,389 23,200
One Year 9,901 0 885 10,786
CLASS B SHARES
Life of Fund(++) 10,068 0 1,159 10,927
One Year 10,364 0 823 10,887
CLASS C SHARES
Life of Fund(++) 10,084 0 1,173 DNA
One Year 10,362 0 833 DNA
<CAPTION>
TOTAL Percentage Ending Percentage
RETURN Increase Value Increase
TABLE (adjusted)(*) (unadjusted)(***) (unadjusted)(***)
- -------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) 527.6 65,702 557.0
Fifteen Years 326.8 44,687 346.9
Ten Years 153.3 26,524 165.2
Since 2/1/89(+++) 105.7 21,529 115.3
Five Years 132.0 24,320 143.2
One Year 7.9 11,290 12.9
CLASS B SHARES
Life of Fund(++) 9.3 11,227 12.3
One Year 8.9 11,187 11.9
CLASS C SHARES
Life of Fund(++) DNA 11,257 12.6
One Year DNA 11,195 12.0
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
-------------------------------------------------------------------------------------------
Salomon
Salomon Lehman Bros.
TOTAL Consumer Bros. Bros. Long-Term
RETURN Price High Grade Govt./Corp. High Yield
TABLE Index(1) Corp. Index(2) Index(3) Index(5)
- -------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Life of Fund(+) 152.4 483.1 462.8 DNA
Life of Fund(++)
Fifteen Years 80.7 541.4 436.9 610.7
Ten Years 40.9 198.2 160.6 228.3
Since 2/1/89(+++) 26.5 103.5 91.6 115.6
Five Years 14.8 74.9 62.8 156.7
One Year 2.5 23.2 16.6 24.3
</TABLE>
<TABLE>
<CAPTION>
Salomon
AVERAGE ANNUAL Fund Fund Fund Consumer Bros. Lehman Bros.
TOTAL RETURN Class A Class B Class C Price High Grade Govt./Corp.
TABLE Shares Shares Shares Index(1) Corp. Index(2) Index(3)
- --------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 10.5 -- -- 5.2 10.1 9.9
Life of
Fund(++) -- 6.4 8.7 2.7 14.8 11.6
Fifteen Years 10.2 DNA DNA 4.0 13.2 11.9
Ten Years 9.7 DNA DNA 3.5 11.6 10.1
Five Years 18.3 DNA DNA 2.8 11.8 10.2
One Year 7.9 8.9 12.0 2.5 23.2 16.6
<CAPTION>
Salomon
Bros.
AVERAGE ANNUAL Long-Term
TOTAL RETURN High Yield
TABLE Index(5)
- --------------- --------------
<S> <C>
Life of Fund(+) DNA
Life of
Fund(++) 17.5
Fifteen Years 14.0
Ten Years 12.6
Five Years 20.8
One Year 24.3
</TABLE>
- ---------------
DNA--Data not available.
(+) Since June 23, 1977 for Class A Shares.
(++) Since May 31, 1994 for Class B and Class C Shares.
(+++) The Fund's current objective became effective February 1, 1989.
B-35
<PAGE> 104
GOVERNMENT FUND--OCTOBER 31, 1995
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
TOTAL Initial Capital Gain Income Ending Percentage Ending
RETURN $10,000 Dividends Dividends Value Increase Value
TABLE Investment(*) Reinvested Reinvested(**) (adjusted)(*) (adjusted)(*) (unadjusted)(*)
------------- ------------ -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $ 8,000 0 33,530 41,530 315.3 43,480
Fifteen Years 9,409 0 34,431 43,840 338.4 45,923
Ten Years 9,321 0 13,901 23,222 132.2 24,314
Five Year 9,781 0 4,789 14,570 45.7 15,256
One Year 10,206 0 804 11,010 10.1 11,524
CLASS B SHARES
Life of Fund(++) 10,276 0 1,010 10,986 9.9 11,286
One Year 10,684 0 734 11,118 11.2 11,418
CLASS C SHARES
Life of Fund(++) 10,300 0 1,017 DNA DNA 11,317
One Year 10,695 0 738 DNA DNA 11,433
<CAPTION>
TOTAL Percentage
RETURN Increase
TABLE (unadjusted)(*)
-----------------
<S> <C>
CLASS A SHARES
Life of Fund(+) 334.8
Fifteen Years 359.2
Ten Years 143.1
Five Year 52.6
One Year 15.2
CLASS B SHARES
Life of Fund(++) 12.9
One Year 14.2
CLASS C SHARES
Life of Fund(++) 13.2
One Year 14.3
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
---------------------------------------------------------
Consumer Salomon Lehman Salomon
TOTAL Price Bros. High Bros. Bros. 30 Yr.
RETURN Index Grade Corp. Govt./Corp. GNMA
TABLE (1) Index(2) Index(3) Index(6)
-------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Life of Fund(+) 105.4 459.6 423.3 DNA
Life of
Fund(++)
Fifteen Years 80.7 541.4 436.9 470.8
Ten Years 40.9 198.2 160.6 159.7
Five Year 14.8 74.9 62.8 56.2
One Year 2.5 23.2 16.6 15.0
</TABLE>
<TABLE>
<CAPTION>
Salomon Lehman Salomon
AVERAGE ANNUAL Fund Fund Fund Consumer Bros. High Bros. Bros. 30 Yr.
TOTAL RETURN Class A Class B Class C Price Grade Corp. Govt./Corp. GNMA
TABLE Shares Shares Shares Index(1) Index(2) Index(3) Index(6)
------- ------- ------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 9.3 -- -- 4.6 11.3 10.8 DNA
Life of Fund(++) -- 6.9 9.1 2.7 14.8 11.6 10.7
Fifteen Years 10.4 DNA DNA 4.0 13.2 11.9 12.3
Ten Years 8.8 DNA DNA 3.5 11.6 10.1 10.0
Five Year 7.8 DNA DNA 2.8 11.8 10.2 9.3
One Year 10.1 11.2 14.3 2.5 23.2 16.6 15.0
</TABLE>
- ---------------
DNA--Data not available.
(+) Since October 1, 1979 for Class A Shares (when KFS assumed investment
advisory responsibilities for the Fund; prior to that date, the Fund was managed
by another investment adviser that was not affiliated with KFS)
(++) Since May 31, 1994 for Class B and Class C Shares.
B-36
<PAGE> 105
HIGH YIELD FUND--SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
TOTAL Initial Capital Gain Income Ending Percentage Ending
RETURN $10,000 Dividends Dividends Value Increase Value
TABLE Investment(*) Reinvested Reinvested(**) (adjusted)(*) (adjusted)(*) (unadjusted)(*)
- ------------------ ------------- ------------ -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $ 7,938 1,097 61,185 70,220 602.2 73,524
Fifteen Years 10,177 1,053 56,175 67,405 574.1 70,580
Ten Years 8,831 463 20,358 29,652 196.5 31,048
Five Years 12,285 0 9,048 21,333 113.3 22,324
One Year 9,889 0 1,014 10,903 9.0 11,410
CLASS B SHARES
Life of Fund(++) 10,051 0 1,259 11,010 10.1 11,310
One Year 10,349 0 960 11,009 10.1 11,309
CLASS C SHARES
Life of Fund(++) 10,075 0 1,268 DNA DNA 11,343
One Year 10,348 0 965 DNA DNA 11,313
<CAPTION>
TOTAL Percentage
RETURN Increase
TABLE (unadjusted)
- ------------------ -----------------
<S> <C>
CLASS A SHARES
Life of Fund(+) 635.2
Fifteen Years 605.8
Ten Years 210.5
Five Years 123.2
One Year 14.1
CLASS B SHARES
Life of Fund(++) 13.1
One Year 13.1
CLASS C SHARES
Life of Fund(++) 13.4
One Year 13.1
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
-----------------------------------------------------
Salomon
Salomon Bros.
Consumer Bros. Lehman Long-Term
TOTAL Price High Grade Bros. High
RETURN Index Corp. Govt./Corp. Yield
TABLE (1) Index(2) Index(3) Index(5)
- ----------------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Life of Fund(+) 145.1 478.2 451.3 DNA
Life of Fund(++)
Fifteen Years 82.4 521.8 423.8 608.4
Ten Years 41.5 203.5 161.9 224.9
Five Years 15.5 74.6 62.6 144.1
One Year 2.5 20.7 14.8 23.1
</TABLE>
<TABLE>
<CAPTION>
Salomon
Salomon Bros.
Bros. Long-Term
AVERAGE ANNUAL Fund Fund Fund Consumer High Grade Lehman Bros. High
TOTAL RETURN Class A Class B Class C Price Corp. Govt./Corp. Yield
TABLE Shares Shares Shares Index(1) Index(2) Index(3) Index(5)
- --------------- ------- ------- ------- -------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 11.7 -- -- 5.2 10.4 10.1 DNA
Life of Fund
(++) -- 7.4 9.9 2.9 14.4 11.1 17.7
Fifteen Years 13.6 DNA DNA 4.1 13.0 11.7 13.9
Ten Years 11.5 DNA DNA 3.5 11.7 10.1 12.5
Five Years 16.4 DNA DNA 2.9 11.8 10.2 19.5
One Year 9.0 10.1 13.1 2.5 20.7 14.8 23.1
</TABLE>
- ---------------
DNA--Data not available.
(+) Since January 26, 1978 for Class A Shares.
(++) Since May 31, 1994 for Class B and Class C Shares.
B-37
<PAGE> 106
INCOME AND CAPITAL FUND--OCTOBER 31, 1995
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
TOTAL Initial Capital Gain Income Ending Percentage Ending
RETURN $10,000 Dividends Dividends Value Increase Value
TABLE Investment(*) Reinvested Reinvested(**) (adjusted)(*) (adjusted)(*) (unadjusted)(*)
--------------- ------------- ------------ -------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $ 8,282 470 62,044 70,796 608.0 74,124
Fifteen Years 10,524 249 39,464 50,237 402.4 52,599
Ten Years 9,667 120 14,400 24,187 141.9 25,316
Five Years 10,759 79 5,041 15,879 58.8 16,621
One Year 10,473 0 749 11,222 12.2 11,747
CLASS B SHARES
Life of Fund(++) 10,582 0 979 11,261 12.6 11,561
One Year 10,930 0 683 11,313 13.1 11,613
CLASS C SHARES
Life of Fund(++) 10,607 0 987 DNA DNA 11,594
One Year 10,956 0 689 DNA DNA 11,645
<CAPTION>
TOTAL Percentage
RETURN Increase
TABLE (unadjusted)(*)
--------------- -----------------
<S> <C>
Life of Fund(+) 641.2
Fifteen Years 426.0
Ten Years 153.2
Five Years 66.2
One Year 17.5
Life of Fund(++) 15.6
One Year 16.1
Life of Fund(++) 15.9
One Year 16.5
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
-----------------------------------------------------
Salomon Lehman
Bros. Bros. Lehman
TOTAL Consumer High Grade Aggregate Bros.
RETURN Price Corp. Bond Bond Govt./Corp.
TABLE Index(1) Index(2) Index(7) Index(3)
--------------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Life of Fund(+) 220.5 708.4 DNA 661.4
Life of Fund(++)
Fifteen Years 80.7 541.4 436.4 436.9
Ten Years 40.9 198.2 157.2 160.6
Five Years 14.8 74.9 58.5 62.8
One Year 2.5 23.2 15.7 16.6
</TABLE>
<TABLE>
<CAPTION>
Lehman
Salomon Bros.
Bros. Aggregate Lehman
AVERAGE ANNUAL Fund Fund Fund Consumer High Grade Bond Bros.
TOTAL RETURN Class A Class B Class C Price Corp. Bond Index Govt./Corp.
TABLE Shares Shares Shares Index(1) Index(2) (7) Index(3)
- --------------- ------- ------- ------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 9.5 -- -- 5.6 10.2 DNA 9.9
Life of Fund(++) -- 8.7 11.0 2.7 14.8 11.0 11.6
Fifteen Years 11.4 DNA DNA 4.0 13.2 11.9 11.9
Ten Years 9.2 DNA DNA 3.5 11.6 9.9 10.1
Five Years 9.7 DNA DNA 2.8 11.8 9.7 10.2
One Year 12.2 13.1 16.5 2.5 23.2 15.7 16.6
</TABLE>
- ---------------
DNA--Data not available.
(+) Since April 15, 1974 for Class A Shares.
(++) Since May 31, 1994 for Class B and Class C Shares.
B-38
<PAGE> 107
MORTGAGE FUND--SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
TOTAL Initial Capital Gain Income Ending Percentage Ending
RETURN $10,000 Dividends Dividends Value Increase Value
TABLE Investment(*) Reinvested Reinvested(**) (adjusted)(***) (adjusted)(*) (unadjusted)(*)
- ------------------ ------------- ------------ -------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $ 8,716 0 2,953 11,669 16.7 12,222
One Year 10,014 0 792 10,806 8.1 11,315
CLASS B SHARES
Life of Fund(++) 8,376 0 13,316 21,692 116.9 21,692
Ten Years 8,567 0 11,931 20,498 105.0 20,498
Five Years 10,085 0 4,555 14,540 45.4 14,640
One Year 10,486 0 738 10,924 9.2 11,224
CLASS C SHARES
Life of Fund(+++) 10,186 0 960 DNA DNA 11,146
One Year 10,501 0 746 DNA DNA 11,247
<CAPTION>
TOTAL Percentage
RETURN Increase
TABLE (unadjusted)(*)
- ------------------ ---------------
<S> <C>
CLASS A SHARES
Life of Fund(+) 22.2
One Year 13.2
CLASS B SHARES
Life of Fund(++) 116.9
Ten Years 105.0
Five Years 46.4
One Year 12.2
CLASS C SHARES
Life of Fund(+++) 11.5
One Year 12.5
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
-------------------------------------------------
Salomon Merrill
Bros. Lehman Lynch
TOTAL Consumer 30 Yr. Brothers Market
RETURN Price GNMA Govt./Corp. Weighted
TABLE Index(1) Index(6) Index(3) Index(8)
- ----------------- -------- ------- ----------- --------
<S> <C> <C> <C> <C>
Life of Fund(+) 11.1 28.2 33.2 25.1
Life of Fund(++) 45.5 218.3 204.7 DNA
Life of Fund(+++)
Ten Years 41.5 164.3 161.9 DNA
Five Years 15.5 56.6 62.6 48.2
One Year 2.5 13.9 14.8 10.4
</TABLE>
<TABLE>
<CAPTION>
Salomon
AVERAGE Bros. Lehman Merrill Lynch
ANNUAL Fund Fund Fund Consumer 30 Yr. Brothers Market
TOTAL RETURN Class A Class B Class C Price GNMA Govt./Corp. Weighted
TABLE Shares Shares Shares Index(1) Index(6) Index(3) Index(8)
- ------------ -------- -------- -------- -------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 4.2 -- -- 2.9 6.9 8.0 6.1
Life of Fund(++) -- 7.3 -- 3.5 11.2 10.7 DNA
Life of Fund(+++) -- -- 8.4 2.9 10.7 11.1 8.4
Ten Years DNA 7.4 DNA 3.5 10.2 10.1 DNA
Five Years DNA 7.8 DNA 2.9 9.4 10.2 8.2
One Year 8.1 9.2 12.5 2.5 13.9 14.8 10.4
</TABLE>
- ---------------
DNA--Data not available.
(+) Since January 10, 1992 for Class A Shares.
(++) Since October 26, 1984 for Class B Shares.
(+++) Since May 31, 1994 for Class C Shares.
B-39
<PAGE> 108
SHORT-INTERMEDIATE GOVERNMENT FUND--SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
TOTAL Initial Capital Gain Income Ending Percentage Ending
RETURN $10,000 Distributions Dividends Value Increase Value
TABLE Investment(*) Reinvested Reinvested(**) (adjusted)(*) (adjusted)(*) (unadjusted)(*)
- ------------------ ------------- ------------- -------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $ 9,078 73 2,446 11,597 16.0 12,016
One Year 9,735 0 671 10,406 4.1 10,783
CLASS B SHARES
Life of Fund(++) 9,471 95 5,329 14,895 49.0 14,895
Five Years 9,746 86 3,550 13,285 31.8 13,382
One Year 10,088 0 606 10,394 3.9 10,694
CLASS C SHARES
Life of Fund(+++) 9,963 0 799 DNA DNA 10,762
One Year 10,100 0 613 DNA DNA 10,713
<CAPTION>
TOTAL Percentage
RETURN Increase
TABLE (unadjusted)(*)
- ------------------ ---------------
<S> <C>
Life of Fund(+) 20.2
One Year 7.8
Life of Fund(++) 49.0
Five Years 33.8
One Year 6.9
Life of Fund(+++) 7.6
One Year 7.1
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
-----------------------------------------------------------------------------------------------
Salomon
Consumer Bros. Lehman Merrill Lynch
TOTAL Price 30 Yr. Bros. Market
RETURN Index GNMA Govt./Corp. Weighted
TABLE (1) Index(6) Index(3) Index(8)
- --------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Life of Fund(+) 11.1 28.2 33.2 25.1
Life of Fund(++) 26.5 87.6 88.9 74.7
Life of Fund(+++)
Five Years 15.5 56.6 62.6 48.2
One Year 2.5 13.9 14.8 10.4
</TABLE>
<TABLE>
<CAPTION>
Salomon
Bros. Lehman
AVERAGE ANNUAL Fund Fund Fund Consumer 30 Yr. Bros.
TOTAL RETURN Class A Class B Class C Price GNMA Govt./Corp.
TABLE Shares Shares Shares Index(1) Index(6) Index(3)
- ----------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 4.1 -- -- 3.6 9.9 10.0
Life of Fund(++) -- 6.2 -- 2.9 6.9 8.0
Life of Fund(+++) -- -- 5.6 2.9 10.7 11.1
Five Years DNA 5.8 DNA 2.9 9.4 10.2
One Year 4.1 3.9 7.1 2.5 13.9 14.8
<CAPTION>
Merrill Lynch
AVERAGE ANNUAL Market
TOTAL RETURN Weighted
TABLE Index(8)
- ----------------- --------------
<S> <C>
Life of Fund(+) 8.7
Life of Fund(++) 6.1
Life of Fund(+++) 8.4
Five Years 8.2
One Year 10.4
</TABLE>
- ---------------
(+) Since January 10, 1992 for Class A Shares.
(++) Since February 1, 1989 for Class B Shares.
(+++) Since May 31, 1994 for Class C Shares.
FOOTNOTES FOR ALL FUNDS
* The Initial Investment and adjusted amounts for Class A shares were adjusted
for the maximum initial sales charge at the beginning of the period, which is
4.5% for the Diversified Fund, Government Fund, High Yield Fund, Income and
Capital Fund and Mortgage Fund and 3.5% for the Adjustable Rate Fund and
Short-Intermediate Government Fund. The Initial Investment for Class B and Class
C shares was not adjusted. Amounts were adjusted for Class B shares for the
contingent deferred sales charge that may be imposed at the end of the period
based upon the schedule for shares sold currently, see "Redemption or Repurchase
of Shares" in the prospectus. No adjustments were made to Class C shares since
they do not have an initial or contingent deferred sales charge.
** Includes short-term capital gain dividends.
(1) The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. Source is Towers Data Systems.
(2) Salomon Brothers High Grade Corporate Bond Index is on a total return basis
with all dividends reinvested and is comprised of high grade long-term
industrial and utility bonds rated in the top two rating categories. This index
is unmanaged. Source is Towers Data Systems.
(3) The Lehman Brothers Government/Corporate Bond Index is on a total return
basis and is comprised of all publicly issued, non-convertible, domestic debt of
the U.S. Government or any agency thereof, quasi-federal corporation, or
corporate debt guaranteed by the U.S. Government and all publicly issued,
fixed-rate, non-convertible, domestic debt of the three major corporate
classifications: industrial, utility, and financial. Only notes and bonds with a
minimum outstanding principal amount of $1,000,000 and a minimum of one year to
maturity are included. Bonds included must have a rating of at least Baa by
Moody's Investors Service, Inc., BBB by Standard & Poor's Corporation or in the
case of bank bonds not rated by either Moody's or S&P, BBB by Fitch Investors
Service. This index is unmanaged. Source is Towers Data Systems.
(4) The Lehman Brothers Adjustable Rate Index is a broad market capitalization
index of the U.S. Government agency adjustable rate mortgage market. All
securities in the index have coupons that periodically adjust based on a spread
over a published index, and all are guaranteed by an agency of the U.S.
Government. This index is unmanaged. Source is Lehman Brothers Inc.
(5) The Salomon Brothers Long-Term High Yield Bond Index is on a total return
basis with all dividends reinvested and is comprised of high yield bonds with a
par value of $50 million or higher and a remaining maturity of 10 years or
longer rated BB+ or lower by Standard & Poor's Corporation or Ba1 or lower by
Moody's Investors Service, Inc. This index is unmanaged. Source is Salomon
Brothers Inc.
(6) The Salomon Brothers 30 Year GNMA Index is on a total return basis with all
dividends reinvested and is comprised of GNMA 30-year pass throughs of single
family and graduated payment mortgages. In order for a GNMA coupon to be
included in the index, it must have at least $200 million of outstanding coupon
product. This index is unmanaged. Source is Salomon Brothers Inc.
(7) The Lehman Brothers Aggregate Bond Index is on a total return basis and is
comprised of intermediate and long-term government bonds, investment grade
corporate debt securities and mortgage-backed securities. This index is
unmanaged. Source is Lipper Analytical Services, Inc.
(8) The Merrill Lynch Market Weighted Index is an unmanaged index comprised of
the universe of 1-5 year Treasuries plus the Merrill Lynch GNMA Index. The two
components are market value weighted, currently 76% in 1-5 year Treasuries and
24% in GNMAs. Source is Merrill Lynch.
B-40
<PAGE> 109
Investors may want to compare the performance of a Fund to that of certificates
of deposit issued by banks and other depository institutions. Certificates of
deposit represent an alternative income producing product. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. Withdrawal of deposits prior to maturity will normally be
subject to a penalty. Rates offered by banks and other depository institutions
are subject to change at any time specified by the issuing institution. The
shares of a Fund are not insured and net asset value as well as yield will
fluctuate, except that the Cash Reserves Fund seeks to maintain a stable net
asset value of $1.00. Shares of a Fund are redeemable at net asset value which
may be more or less than original cost. The bonds in which the Funds (other than
the Cash Reserves Fund) invest are generally of longer term than most
certificates of deposit and may reflect longer term market interest rate
fluctuations.
Investors also may want to compare the performance of a Fund to that of U.S.
Treasury bills, notes or bonds because such instruments represent alternative
income producing products. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. As noted in the prospectus, the government guarantee of the bonds in
the Adjustable Rate, Government, Mortgage and Short-Intermediate Government
Funds does not guarantee the market value of their respective shares. The net
asset value of a Fund other than the Cash Reserves Fund will fluctuate. Shares
of a Fund are redeemable at net asset value which may be more or less than
original cost (except that the Cash Reserves Fund seeks to maintain a net asset
value of $1.00 per share). Each Fund's yield will also fluctuate.
From time to time, the Adjustable Rate Fund may compare its yield or price
volatility to various securities, such as U.S. Government Securities, or to
certain indices including, but not limited to, the J.P. Morgan one-, three-, and
five-year constant maturity Treasury yield indices, which are based on estimated
Treasury security yields adjusted to constant maturity and the Federal Home Loan
Bank Board 11th District Cost of Funds Index (COFI), which represents the
weighted average cost of funds for savings institutions in Arizona, California
and Nevada and is based on the one month annualized yield of savings deposits,
Federal Home Loan Advances and other borrowings, such as repurchase agreements.
The following tables illustrate an assumed $10,000 investment in Class A shares
of each Fund other than the Cash Reserves, Mortgage and Short-Intermediate
Government Funds, which includes the current maximum sales charge of 4.5% (3.5%
for the Adjustable Rate Fund), with income and capital gain dividends reinvested
in additional shares. The tables for the Mortgage and Short-Intermediate
Government Funds illustrate an assumed $10,000 investment in Class B shares of
these Funds, with income and capital gain dividends reinvested in additional
shares, and do not include the effect of the contingent deferred sales charge.
Each table covers the period from commencement of operations of the Fund to
December 31, 1994.
ADJUSTABLE RATE FUND (9/1/87)
<TABLE>
<CAPTION>
----------DIVIDENDS---------- ---------CUMULATIVE VALUE OF SHARES ACQUIRED--------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1987 $ 96 $ 0 $9,722 $ 96 $ 0 $ 9,818
1988 1,098 0 9,132 1,159 0 10,291
1989 1,122 10 9,185 2,294 10 11,489
1990 1,137 0 8,918 3,388 9 12,315
1991 1,222 0 9,207 4,756 10 13,973
1992 824 0 9,217 5,592 10 14,819
1993 767 0 9,196 6,341 10 15,547
1994 747 0 8,724 6,745 9 15,478
</TABLE>
- --------------------------------------------------------------------------------
B-41
<PAGE> 110
- --------------------------------------------------------------------------------
DIVERSIFIED FUND (6/23/77)
<TABLE>
<CAPTION>
---------DIVIDENDS------------ -------------CUMULATIVE VALUE OF SHARES ACQUIRED------------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1977 $ 427 $ 0 $9,141 $ 427 $ 0 $ 9,567
1978 1,006 132 8,591 1,367 132 10,090
1979 1,350 18 8,898 2,787 154 11,839
1980 1,672 30 9,774 4,830 201 14,805
1981 2,052 0 8,738 6,297 179 15,214
1982 2,420 27 8,592 8,771 204 17,567
1983 2,941 0 8,577 11,697 204 20,478
1984 3,449 0 7,667 13,803 182 21,652
1985 3,604 66 7,534 17,181 248 24,963
1986 3,163 307 6,748 18,381 522 25,651
1987 3,379 367 5,412 17,484 690 23,586
1988 3,847 0 5,475 21,566 698 27,739
1989 4,603 0 5,064 24,238 646 29,948
1990 4,215 0 3,819 21,868 487 26,174
1991 4,665 0 5,050 34,010 644 39,704
1992 4,604 0 5,363 40,723 684 46,770
1993 5,096 0 5,879 49,906 749 56,534
1994 4,438 0 5,217 48,486 665 54,368
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOVERNMENT FUND (10/1/79)
<TABLE>
<CAPTION>
----------DIVIDENDS------------- --------CUMULATIVE VALUE OF SHARES ACQUIRED----------------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1979 $ 203 $ 0 $9,192 $ 207 $ 0 $ 9,399
1980 1,009 0 8,164 1,145 0 9,309
1981 1,197 0 7,180 2,181 0 9,361
1982 1,314 0 8,119 3,912 0 12,031
1983 1,442 0 7,878 5,225 0 13,103
1984 1,686 0 7,806 6,903 0 14,709
1985 1,925 0 8,468 9,523 0 17,991
1986 2,076 0 8,853 12,061 0 20,913
1987 2,228 0 8,173 13,301 0 21,473
1988 2,265 0 7,851 14,985 0 22,836
1989 2,454 0 8,092 17,941 0 26,033
1990 2,526 0 8,066 20,486 0 28,552
1991 2,762 0 8,629 24,849 0 33,478
1992 2,781 0 8,341 26,780 0 35,125
1993 2,662 0 8,242 29,094 0 37,336
1994 2,684 0 7,422 28,770 0 36,192
</TABLE>
- --------------------------------------------------------------------------------
B-42
<PAGE> 111
- --------------------------------------------------------------------------------
HIGH YIELD FUND (1/26/78)
<TABLE>
<CAPTION>
---------DIVIDENDS---------- ---------------CUMULATIVE VALUE OF SHARES ACQUIRED---------------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1978 $ 826 $ 0 $8,950 $ 786 $ 0 $ 9,736
1979 1,098 0 8,227 1,744 0 9,971
1980 1,306 0 7,140 2,737 0 9,877
1981 1,515 0 6,678 4,057 0 10,735
1982 1,793 0 8,041 6,935 0 14,976
1983 2,048 0 8,365 9,254 0 17,620
1984 2,359 0 8,090 11,327 0 19,417
1985 2,684 0 8,787 15,108 0 23,895
1986 2,929 0 9,290 18,968 0 28,258
1987 3,375 1,196 8,690 20,917 1,200 30,807
1988 4,142 0 8,787 25,246 1,215 35,248
1989 4,632 0 7,635 26,155 1,055 34,845
1990 5,116 0 5,688 23,849 786 30,322
1991 5,417 0 7,262 36,262 1,003 44,527
1992 5,075 0 7,678 43,409 1,061 52,148
1993 5,492 0 8,393 53,178 1,159 62,730
1994 5,892 0 7,493 53,104 1,035 61,632
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INCOME AND CAPITAL FUND (4/15/74)
<TABLE>
<CAPTION>
---------DIVIDENDS----------- ---------------CUMULATIVE VALUE OF SHARES ACQUIRED------------------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1974 $ 425 $ 0 $ 9,819 $ 436 $ 0 $ 10,255
1975 939 0 10,077 1,421 0 11,498
1976 955 69 10,535 2,481 72 13,088
1977 1,052 75 10,077 3,415 144 13,636
1978 1,133 0 9,580 4,365 137 14,082
1979 1,397 0 8,873 5,393 127 13,393
1980 1,701 0 7,632 6,229 109 13,970
1981 1,861 0 6,858 7,438 98 14,394
1982 2,183 0 7,994 11,122 115 19,231
1983 2,478 0 7,889 13,422 113 21,424
1984 2,892 0 7,775 16,175 111 24,061
1985 3,191 0 8,396 20,803 120 29,319
1986 3,273 0 8,673 24,793 124 33,590
1987 3,590 0 8,042 26,474 115 34,631
1988 3,933 0 7,975 30,152 114 38,241
1989 4,207 0 7,794 33,607 112 41,513
1990 4,209 0 7,507 36,590 108 44,205
1991 4,313 0 8,080 43,926 116 52,122
1992 4,168 0 8,061 48,039 115 56,215
1993 4,029 355 8,376 53,946 476 62,798
1994 4,578 0 7,507 52,743 426 60,676
</TABLE>
- --------------------------------------------------------------------------------
B-43
<PAGE> 112
- --------------------------------------------------------------------------------
MORTGAGE FUND (10/26/84)
<TABLE>
<CAPTION>
----------DIVIDENDS--------- ----------CUMULATIVE VALUE OF SHARES ACQUIRED------------------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1984 $ 0 $ 0 $ 10,024 $ 0 $ 0 $ 10,024
1985 1,028 0 10,035 1,051 0 11,086
1986 1,286 0 10,036 2,344 0 12,380
1987 1,270 0 9,212 3,389 0 12,600
1988 1,315 0 8,694 4,474 0 13,168
1989 1,326 0 8,800 5,867 0 14,667
1990 1,325 0 8,612 7,098 0 15,710
1991 1,442 0 9,235 9,149 0 18,384
1992 1,457 0 8,917 10,285 0 19,202
1993 1,381 0 8,718 11,410 0 20,128
1994 1,259 0 7,835 11,461 0 19,296
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHORT-INTERMEDIATE GOVERNMENT FUND (2/1/89)
<TABLE>
<CAPTION>
--------DIVIDENDS----------- -------------CUMULATIVE VALUE OF SHARES ACQUIRED-----------------
ANNUAL
ANNUAL CAPITAL REINVESTED
YEAR INCOME GAIN REINVESTED CAPITAL
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS* DIVIDENDS VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1989 $ 741 $ 0 $ 10,024 $ 737 $ 0 $ 10,761
1990 946 0 9,847 1,679 0 11,526
1991 934 0 10,118 2,690 0 12,808
1992 795 0 10,024 3,461 0 13,485
1993 769 100 9,859 4,157 99 14,115
1994 697 0 9,197 4,555 93 13,845
</TABLE>
- --------------------------------------------------------------------------------
* Includes short-term capital gain dividends
The following tables compare the performance of the Class A shares of the Funds
(other than the Mortgage and Short-Intermediate Government Funds, for which the
performance is of the Class B shares) over various periods with that of other
mutual funds within the categories described below according to data reported by
Lipper Analytical Services, Inc. ("Lipper"), New York, New York, which is a
mutual fund reporting service. Lipper performance figures are based on changes
in net asset value, with all income and capital gain dividends reinvested. Such
calculations do not include the effect of any sales charges. Future performance
cannot be guaranteed. Lipper publishes performance analyses on a regular basis.
Each category includes funds with a variety of objectives, policies and market
and credit risks that should be considered in reviewing these rankings.
B-44
<PAGE> 113
ADJUSTABLE RATE FUND
A SHARES
<TABLE>
<CAPTION>
Lipper-Fixed
Income Fund
Performance
Analysis
----------------
Adjustable Rate
Mortgage Funds
----------------
<S> <C>
One Year (Period ended 9/30/95)................................................. 31 of 62
</TABLE>
The Lipper Adjustable Rate Mortgage Funds category includes funds that invest at
least 65% of assets in adjustable rate mortgage securities or other securities
collateralized by or representing an interest in mortgages.
DIVERSIFIED FUND
A SHARES
<TABLE>
<CAPTION>
Lipper-Fixed
Income Fund
Performance
Analysis
------------
General Bond
Funds
------------
<S> <C>
One Year (Period ended 9/30/95)..................................................... 20 of 58
Five Years (Period ended 9/30/95)................................................... 1 of 15
Ten Years (Period ended 9/30/95).................................................... 3 of 8
</TABLE>
The Lipper Fixed Income category reported in the Lipper Mutual Fund Performance
Analysis includes funds which normally have more than 75% of their assets in
fixed income issues. The Fund was ranked 20 out of 58 and 1 out of 15 funds in
the General Bond category for the one and five year periods ended September 30,
1995 according to the Lipper Mutual Fund Performance Analysis. The Lipper
General Bond Funds Category includes funds that intend to keep the bulk of their
assets in corporate and government debt issues.
GOVERNMENT FUND
A SHARES
<TABLE>
<CAPTION>
Lipper-Fixed
Income Fund
Performance
Analysis
Certificate
Edition
------------
GNMA Funds
------------
<S> <C>
One Year (Period ended 9/30/95).................................................... 17 of 49
Five Years (Period ended 9/30/95).................................................. 7 of 27
Ten Years (Period ended 9/30/95)................................................... 2 of 14
</TABLE>
The Lipper GNMA Funds category includes funds that invest a minimum of 65% of
their portfolio in Government National Mortgage Association securities.
B-45
<PAGE> 114
HIGH YIELD FUND
A SHARES
<TABLE>
<CAPTION>
Lipper-Fixed
Income Fund
Performance
Analysis
------------
High Current
Yield Funds
------------
<S> <C>
One Year (Period ended 9/30/95)...................................................... 20 of 108
Five Years (Period ended 9/30/95).................................................... 10 of 61
Ten Years (Period ended 9/30/95)..................................................... 2 of 33
</TABLE>
The Lipper High Current Yield Funds category includes funds which are managed
with an emphasis on high current (relative) yield. There are no quality or
maturity restrictions. The Fund was ranked number 10 out of 1,601 funds in the
Fixed Income category for the five year period ended September 30, 1995
according to data reported by Lipper in the Lipper Mutual Fund Performance
Analysis. For the nine month period ended September 30, 1995, the Fund was
ranked number 48 out of 4,432 funds in the Fixed Income category. The Lipper
Fixed Income category reported in the Lipper Mutual Fund Performance Analysis
includes funds which normally have more than 75% of their assets in fixed income
issues.
INCOME AND CAPITAL FUND
A SHARES
<TABLE>
<CAPTION>
Lipper-Fixed
Income Fund
Performance
Analysis
------------
Corporate
Bond Funds:
"A" Rated
------------
<S> <C>
One Year (Period ended 9/30/95)..................................................... 18 of 109
Five Years (Period ended 9/30/95)................................................... 11 of 47
Ten Years (Period ended 9/30/95).................................................... 8 of 25
</TABLE>
The Lipper Corporate Bond Funds "A" Rated category includes funds which invest
65% of their corporate holdings in the top three grades.
MORTGAGE FUND
B SHARES
<TABLE>
<CAPTION>
Lipper
Performance
Analysis
------------
U.S.
Mortgage
Funds
------------
<S> <C>
One Year (Period ended 9/30/95)..................................................... 20 of 57
Five Years (Period ended 9/30/95)................................................... 11 of 21
Ten Years (Period ended 9/30/95).................................................... 10 of 12
</TABLE>
The Lipper U.S. Mortgage Funds category includes funds that invest at least 65%
of their assets in U.S. Mortgages/Securities issued or guaranteed as to
principal and interest by the U.S. government and certain federal agencies.
SHORT-INTERMEDIATE GOVERNMENT FUND
B SHARES
<TABLE>
<CAPTION>
Lipper
Performance
Analysis
------------
Short U.S.
Gov't Funds
------------
<S> <C>
One Year (Period ended 9/30/95)..................................................... 115 of 135
</TABLE>
The Lipper Short (1-5 year) U.S. Government Funds category includes funds that
invest at least 65% of their assets in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities with average maturities of
five years or less.
B-46
<PAGE> 115
OFFICERS AND TRUSTEES
The officers and trustees of the Funds, their birthdates, their principal
occupations and their affiliations, if any, with KFS, the investment manager and
KDI, the principal underwriter, are as follows (the number following each
person's title is the number of investment companies managed by KFS and its
affiliates, for which he or she holds similar positions):
ALL FUNDS:
DAVID W. BELIN (6/20/28), Trustee (22), 2000 Financial Center, 7th and Walnut,
Des Moines, Iowa; Member, Belin Harris Lamson McCormick, P.C. (attorneys).
LEWIS A. BURNHAM (1/8/33), Trustee (22), 16410 Avila Boulevard, Tampa, Florida;
Director, Management Consulting Services, McNulty & Company; formerly Executive
Vice President, Anchor Glass Container Corporation.
DONALD L. DUNAWAY (3/8/37), Trustee (22), 7515 Pelican Bay Blvd., Naples,
Florida; Retired; formerly, Executive Vice President, A. O. Smith Corporation
(diversified manufacturer).
ROBERT B. HOFFMAN (12/11/36), Trustee (22), 800 N. Lindbergh Boulevard, St.
Louis, Missouri; Senior Vice President and Chief Financial Officer, Monsanto
Company (chemical products); prior thereto, Vice President, FMC Corporation
(manufacturer of machinery and chemicals); prior thereto, Director, Executive
Vice President and Chief Financial Officer, Staley Continental, Inc. (food
products).
DONALD R. JONES (1/17/30), Trustee (22), 1776 Beaver Pond Road, Inverness,
Illinois; Retired; Director, Motorola, Inc. (manufacturer of electronic
equipment and components); formerly, Executive Vice President and Chief
Financial Officer, Motorola, Inc.
DAVID B. MATHIS (4/13/38), Trustee (33), Kemper Center, Long Grove, Illinois;
Chairman, Chief Executive Officer and Director, Kemper Corporation; Director,
KFS and Kemper Financial Companies, Inc.; Chairman of the Board, Lumbermens
Mutual Casualty Company; Director, IMC Global Inc.
SHIRLEY D. PETERSON (9/3/41), Trustee (22), 401 Rosemont Avenue, Frederick,
Maryland; President, Hood College, Maryland; prior thereto, Partner, Steptoe &
Johnson (attorneys); prior thereto, Commissioner, Internal Revenue Service;
prior thereto, Assistant Attorney General, U.S. Department of Justice.
WILLIAM P. SOMMERS (7/22/33), Trustee (22), 333 Ravenswood Avenue, Menlo Park,
California; President and Chief Executive Officer, SRI International (research
and development); prior thereto, Executive Vice President, Iameter (medical
information and educational service provider); prior thereto, Senior Vice
President and Director, Booz, Allen & Hamilton, Inc. (management consulting
firm) (retired), Director, Rohr, Inc., Therapeutic Discovery Corp. and Litton
Industries.
STEPHEN B. TIMBERS (8/8/44), President and Trustee* (33), 120 South LaSalle
Street, Chicago, Illinois; President, Chief Operating Officer and Director,
Kemper Corporation; Chairman, Chief Executive Officer, Chief Investment Officer
and Director, KFS; Director, KDI, Dreman Value Advisors, Inc., Kemper Financial
Companies, Inc. and LTV Corporation.
JOHN E. PETERS (11/4/47), Vice President* (33), 120 South LaSalle Street,
Chicago, Illinois; Senior Executive Vice President and Director, KFS; President
and Director, KDI; Director, Dreman Value Advisors, Inc.
J. PATRICK BEIMFORD, JR. (5/25/50), Vice President* (24), 120 South LaSalle
Street, Chicago, Illinois; Executive Vice President/Chief Investment
Officer--Fixed Income Investments, KFS.
CHARLES F. CUSTER (8/19/28), Vice President and Assistant Secretary* (33), 222
North LaSalle Street, Chicago, Illinois; Partner, Vedder, Price, Kaufman &
Kammholz (attorneys), Legal Counsel to the Fund.
B-47
<PAGE> 116
JEROME L. DUFFY (6/29/36), Treasurer* (33), 120 South LaSalle Street, Chicago,
Illinois; Senior Vice President, KFS.
PHILIP J. COLLORA (11/15/45), Vice President and Secretary* (33), 120 South
LaSalle Street, Chicago, Illinois; Attorney, Senior Vice President and Assistant
Secretary, KFS.
ELIZABETH C. WERTH (10/1/47), Assistant Secretary* (25), 120 South LaSalle
Street, Chicago, Illinois; Vice President, KFS; Vice President and Director of
State Registrations, KDI.
ADJUSTABLE RATE FUND:
ELIZABETH A. BYRNES (2/8/57), Vice President* (2), 120 South LaSalle Street,
Chicago, Illinois; First Vice President, KFS.
DIVERSIFIED FUND:
ROBERT S. CESSINE (1/5/50), Vice President* (3), 120 South LaSalle Street,
Chicago, Illinois; Senior Vice President, KFS; formerly, Vice President,
Wellington Management Company.
GORDON K. JOHNS (1/25/48), Vice President* (2), 1 Fleet Place, London EC4M 7RQ,
Director and Managing Director, Kemper Investment Management Company Limited;
Executive Vice President, KFS; formerly, Director and Head of Fixed Investment
Management, Lazard Investors, Ltd., a London based investment manager.
MICHAEL A. McNAMARA (12/28/44), Vice President* (6), 120 South LaSalle Street,
Chicago, Illinois; Senior Vice President, KFS.
HARRY E. RESIS, JR. (11/24/45), Vice President* (6), 120 South LaSalle Street,
Chicago, Illinois; Senior Vice President, KFS; formerly, First Vice President,
PaineWebber Incorporated.
JONATHAN W. TRUTTER (11/29/57), Vice President* (3), 120 South LaSalle Street,
Chicago, Illinois; First Vice President, KFS.
HIGH YIELD FUND:
MICHAEL A. McNAMARA, see above.
HARRY E. RESIS, JR., see above.
INCOME AND CAPITAL FUND:
ROBERT S. CESSINE, see above.
CASH RESERVES, MORTGAGE AND SHORT-INTERMEDIATE GOVERNMENT FUNDS (KEMPER
PORTFOLIOS):
MICHELLE M. KEELEY (4/24/64), Vice President* (2), 120 South LaSalle Street,
Chicago; First Vice President, KFS.
FRANK J. RACHWALSKI, JR. (3/26/45),Vice President* (9), 120 South LaSalle
Street, Chicago, Illinois; Senior Vice President, KFS.
* Interested persons of the Fund as defined in the Investment Company Act of
1940.
B-48
<PAGE> 117
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Fund, except that Mr. Custer's law firm
receives fees from the Fund as counsel to the Fund. The table below shows
amounts paid or accrued to those trustees who are not designated "interested
persons" during the Fund's 1995 fiscal year except that the information in the
last column is for calendar year 1994.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM
---------------------------------------------------------------------------- PENSION OR
INCOME & RETIREMENT BENEFITS TOTAL COMPENSATION
NAME OF ADJUSTABLE DIVERSIFIED GOVERNMENT HIGH YIELD CAPITAL KEMPER ACCRUED AS PART KEMPER FUNDS
TRUSTEE RATE FUND FUND FUND FUND FUND PORTFOLIOS+ OF FUND EXPENSES PAID TO TRUSTEES**
- -------------------- ----------- ---------- ---------- --------- ----------- ------------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David W.
Belin*... $2,600 5,800 12,300 8,900 4,600 18,100 0 112,200
Lewis A.
Burnham... $2,300 4,100 9,100 6,900 3,400 15,800 0 90,100
Donald L.
Dunaway*... $2,800 5,500 12,600 9,000 4,600 19,000 0 115,400
Robert B.
Hoffman... $2,200 3,800 8,600 6,400 3,200 15,100 0 87,400
Donald R.
Jones... $2,300 4,000 9,000 6,700 3,400 15,700 0 94,300
Shirley D.
Peterson***... $ 400 1,300 2,500 1,600 1,100 2,900 0 0
William P.
Sommers... $2,000 3,600 8,100 6,200 3,100 13,900 0 84,100
</TABLE>
- ---------------
+ Includes Cash Reserves Fund, Mortgage Fund and Short-Intermediate Government
Fund and includes amounts paid during fiscal year ended July 31, 1995 and
fiscal period from August 1, 1995 to September 30, 1995.
* 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. Total deferred amounts and interest accrued through each
Fund's fiscal year+ are $11,600, $43,100, $82,400, $57,900, $30,300 and
$65,200 for Mr. Belin and $12,900, $30,800, $71,700, $50,700, $25,300 and
$59,000 for Mr. Dunaway for the Adjustable Rate Fund, Diversified Fund,
Government Fund, High Yield Fund, Income and Capital Fund and Kemper
Portfolios+, respectively.
** Includes compensation for service on the boards of twenty-four Kemper funds
(including two funds no longer in existence). Also includes amounts for new
funds estimated as if they had existed at the beginning of the year.
*** Appointed to Board in July, 1995. Compensation for each Fund is from July,
1995 to Fund's 1995+ fiscal year end.
As of October 31, 1995, the officers and trustees of the Funds, as a group,
owned less than 1% of the then outstanding shares of each Fund and no person
owned of record 5% or more of the outstanding shares of any class of any Fund,
except that the following owned of record shares of the following Funds.
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS CLASS PERCENTAGE
- ------------------------------- ------------------------------------------------------------ ------ ----------
<S> <C> <C> <C>
</TABLE>
<TABLE>
<S> <C> <C> <C>
Adjustable Rate IFTC Cust FBO Fundminder Inc. A 9.33%
Attn. Trust Operations
127 W. 10th St. 11th Fl.
Kansas City, MO 64105
Builders Prime Window & Supply B 9.01
Russell Lyons/Donald O'Connor PS
401K FBO Forfeiture Account
2nd & Merion
Bridgeport, PA 19405
EVEREN Clearing Corp. B 5.51
111 East Kilbourn Avenue
Milwaukee, WI 53202-6609
Charles Mosser & C 35.26
Annabelle Mosser JTWROS
308 Jesse Street
San Francisco, CA 94103-3002
Reggie Sanders C 19.75
718 Brunson St.
Florence, SC 29506-6128
Income & Capital Anne Weinberg TTEE C 9.75
FBO Gertrude H. Weil TR
DTD 10/08/90
982 Chestnut Run
Gates Mills, OH 44040-9761
</TABLE>
B-49
<PAGE> 118
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS CLASS PERCENTAGE
- ------------------------------- ------------------------------------------------------------ ------ ----------
<S> <C> <C> <C>
Paul K. Christoff TTEE C 7.72
Lindsay Concrete Prod Inc. PSP
DTD 10-1-89
Paul K. Christoff, Attorney
1 Cascade Plaza
Akron, OH 44308-1136
Independent Trust Corp. C 7.28
15255 S. 94th Ave. Ste. 303
Orland Park, IL 60462-3817
Kemper Financial Services, Inc. I 61.70
Profit Sharing Plan
811 Main Street
Kansas City, MO 64105
Economy Employee SVG I 7.97
Kemper Corporation TTEE
120 S. LaSalle St.
Chicago, IL 60603
Kemper Group Plans I 6.65
120 S. LaSalle St.
Chicago, IL 60603
High Yield R. Duffield & C.R. Player, Jr. TTEE C 5.03
Char Rem Unit for Lives of
Donor Ruth McCormick Tankersley
& Kristie Miller U/A 12/08/1993
P.O. Box 401
Barnesville, MD 20838-0401
Kemper Financial Services, Inc. I 47.63
Profit Sharing Plan
811 Main Street
Kansas City, MO 64105
Patterson & Co. I 28.28
PNB Personal Trust Acctg
P.O. Box 7829
Philadelphia, PA 19101-7829
Kemper Group Plans I 5.21
120 S. LaSalle St.
Chicago, IL 60603
Diversified First Trust Corp. C 10.61
444 Sherman St.
Denver, CO 80203-3521
National Financial Corp. C 7.34
One World Financial Center
200 Liberty Street, 4th Floor
New York, NY 10281-1003
Government Donaldson, Lufkin & Jenrette C 9.15
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Micaela Delgado C 5.09
720 President St.
Brooklyn, NY 11215-1208
Kemper Financial Services, Inc. I 62.06
Profit Sharing Plan
811 Main Street
Kansas City, MO 64105
</TABLE>
B-50
<PAGE> 119
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS CLASS PERCENTAGE
- ------------------------------- ------------------------------------------------------------ ------ ----------
<S> <C> <C> <C>
Economy Employee SVG I 14.60
Kemper Corporation TTEE
120 S. LaSalle St.
Chicago, IL 60603
Kemper Group Plans I 9.73
120 S. LaSalle St.
Chicago, IL 60603
Mortgage PaineWebber C 55.34
1000 Harbor Blvd. # 6FLR
Weehawken, NJ 07087-6727
PaineWebber for the Benefit of C 6.35
William A. Billiot
5829 Louis I Avenue
Marrero, LA 70072-5201
PaineWebber for the Benefit of C 6.08
John J. Kain &
Marguerrite R. Kain
Ten. In Common
432 Beverly Garden Dr.
Metairie, LA 70001-2108
Cash Reserves R.A. Giaquinta DDS P/S C 7.84
Robert Giaquinta & Others TTEE PS
FBO R.A. Giaquinta DDS Account-Conver
57 Whippany Rd.
Whippany, NJ 07981-1509
Davis Iron Works, Inc. P/S Plan. C 7.19
3885 Lakefront St.
Waterford, MI 48328-4334
Short-Intermediate Government EVEREN Clearing Corp. A 8.96
111 East Kilbourn Avenue
Milwaukee, WI 53202-6609
National Financial Service Corp. A 6.11
One World Financial Center B 7.14
200 Liberty Street, 4th Floor
New York, NY 10281-1003
FENNA Construction, Inc. C 15.04
13631 Balsam Ln N
Dayton, MN 55327-9616
PaineWebber C 8.48
1000 Harbor Blvd. # 6FLR
Weehawken, NJ 07087-6727
National Financial Corp. C 5.64
One World Financial Center
200 Liberty Street, 4th Floor
New York, NY 10281-1003
Muriel P. Shaffer TTEE C 5.49
Muriel P. Shaffer Inter Vivos
Char Remainder UNITRS
U/A 4/29/94
6061980 Superfine Ln.
Wilmington, DE 19802
</TABLE>
B-51
<PAGE> 120
SHAREHOLDER RIGHTS
The Funds generally are not required to hold meetings of their shareholders.
Under the Agreement and Declaration of Trust of each Fund ("Declaration of
Trust"), however, shareholder meetings will be held in connection with the
following matters: (a) the election or removal of trustees if a meeting is
called for such purpose; (b) the adoption of any contract for which shareholder
approval is required by the Investment Company Act of 1940 ("1940 Act"); (c) any
termination of the Fund or a class to the extent and as provided in the
Declaration of Trust; (d) any amendment of the Declaration of Trust (other than
amendments changing the name of the Fund, supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or inconsistent
provision thereof); (e) (with respect to the Cash Reserves, Mortgage and
Short-Intermediate Government Funds only) as to whether a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class on behalf of the Fund or the shareholders, to the same extent as
the stockholders of a Massachusetts business corporation; and (f) such
additional matters as may be required by law, the Declaration of Trust, the By-
laws of the Fund, or any registration of the Fund with the Securities and
Exchange Commission or any state, or as the trustees may consider necessary or
desirable. The shareholders also would vote upon changes in fundamental
investment objectives, policies or restrictions.
Each trustee serves 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, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) each Fund will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
Trustees may be removed from office by a vote of the holders of a majority of
the outstanding shares at a meeting called for that purpose, which meeting shall
be held upon the written request of the holders of not less than 10% of the
outstanding shares. Upon the written request of ten or more shareholders who
have been such for at least six months and who hold shares constituting at least
1% of the outstanding shares of a Fund stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, each
Fund has undertaken to disseminate appropriate materials at the expense of the
requesting shareholders.
Each Fund's Declaration of Trust provides that the presence at a shareholder
meeting in person or by proxy of at least 30% of the shares entitled to vote on
a matter shall constitute a quorum. Thus, a meeting of shareholders of a Fund
could take place even if less than a majority of the shareholders were
represented on its scheduled date. Shareholders would in such a case be
permitted to take action which does not require a larger vote than a majority of
a quorum, such as the election of trustees and ratification of the selection of
auditors. Some matters requiring a larger vote under the Declaration of Trust,
such as termination or reorganization of a Fund and certain amendments of the
Declaration of Trust, would not be affected by this provision; nor would matters
which under the 1940 Act require the vote of a "majority of the outstanding
voting securities" as defined in the 1940 Act.
Each Fund's Declaration of Trust specifically authorizes the Board of Trustees
to terminate the Fund or any Portfolio or class by notice to the shareholders
without shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of a
Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of each Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by a
Fund or the Fund's trustees. Moreover, the Declaration of Trust provides for
indemnification out of Fund property for all losses and expenses of any
shareholder held personally liable for the obligations of a Fund and each Fund
will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by KFS remote and not
material, since it is limited to circumstances in which a disclaimer is
inoperative and such Fund itself is unable to meet its obligations.
B-52
<PAGE> 121
Report of Independent Auditors
and
Financial Statements
<PAGE> 122
Portfolio of Investments
KEMPER INCOME AND CAPITAL PRESERVATION FUND
PORTFOLIO OF INVESTMENTS AT OCTOBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PRINCIPAL
GOVERNMENT OBLIGATIONS AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT U.S. Treasury Notes and Bonds
OBLIGATIONS 8.875%, 1997 $10,000 $10,611
9.25%, 1998 30,000 32,691
10.75%, 2003 45,000 57,832
6.875%, 2025 5,000 5,357
7.625%, 2025 50,100 58,092
-----------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS--25.3%
(Cost: $159,964) 164,583
-----------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT Republic of Finland, 7.875%, 2004 5,000 5,473
OBLIGATIONS Republic of Italy, 6.875%, 2023 5,000 4,625
Province of Manitoba, 7.75%, 2016 5,000 5,412
Province of Nova Scotia, 8.25%, 2019 4,000 4,481
-----------------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS--3.1%
(Cost: $19,449) 19,991
-----------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS
- ------------------------------------------------------------------------------------------------------------
BANKS - 15.5% Abbey National First Capital, 8.20%, 2004 5,000 5,513
ABN-Amro Holding N.V., 8.25%, 2009 7,000 7,603
Banco Central Hispano, 7.50%, 2005 7,500 7,656
Barnett Bank, 6.90%, 2005 7,500 7,539
Capital One Bank, 8.125%, 2000 7,500 7,929
Citicorp, 7.625%, 2005 5,000 5,303
Crestar Financial Corporation, 8.75%, 2004 5,000 5,636
Dresdner Bank, N.Y., 7.25%, 2015 5,000 5,074
First Fidelity Bancorporation, 9.625%, 1999 5,000 5,535
First USA Bank, 8.10%, 1997 7,500 7,684
Fleet Financial Group, Inc., 8.625%, 2007 5,000 5,656
Kansallis Osake Pankki, 8.65%, 2050 5,000 5,271
NationsBank Corporation, 9.50%, 2004 5,000 5,877
Riggs National Corp., 8.50%, 2006 7,000 7,276
Svenska Handelbamken, 8.35%, 2004 5,000 5,485
Wells Fargo and Company, 8.75%, 2002 5,000 5,551
-----------------------------------------------------------------------------------
100,588
- ------------------------------------------------------------------------------------------------------------
COMMUNICATIONS, MEDIA Continental Cablevision, Inc., 9.50%, 2013 3,685 3,860
AND ELECTRONICS - 8.5% Cox Communications, 6.875%, 2005 7,500 7,497
Digital Equipment Corporation, 7.125%, 2002 7,000 6,919
News American Holdings, Inc., 9.25%, 2013 7,500 8,534
Rogers Cablesystems Limited, 10.00%, 2005 3,500 3,657
Tele-Communications, Inc., 9.80%, 2012 4,350 4,976
Telewest PLC, zero coupon, 2007 8,000 4,700
</TABLE>
8
<PAGE> 123
Portfolio of Investments
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Time Warner Entertainment Company, L.P.,
8.375%, 2033 $7,500 $7,598
Viacom International Inc., 8.00%, 2006 7,500 7,444
-----------------------------------------------------------------------------------
55,185
- ------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS, American Home Products, 7.90%, 2005 7,500 8,167
RETAILING AND Black & Decker Corp., 7.50%, 2003 7,000 7,240
SERVICES - 10.5% Federated Department Stores, 10.00%, 2001 7,500 8,025
Grand Metropolitan Investment Corp., 7.45%, 2035 5,000 5,412
May Department Stores, 7.50%, 2015 7,500 7,733
Philip Morris Inc.
8.25%, 2003 3,500 3,809
7.25%, 2003 4,000 4,100
Philips Electronics N.V., 8.375%, 2006 7,000 7,796
RJR Nabisco, Inc.
8.00%, 2000 3,500 3,671
8.75%, 2005 7,500 7,446
Sears Roebuck Acceptance Corporation, 6.75%, 2005 5,000 5,003
-----------------------------------------------------------------------------------
68,402
- ------------------------------------------------------------------------------------------------------------
DRUGS AND HEALTH Columbia Healthcare, 6.910%, 2005 7,500 7,580
CARE - 1.9% Tenet Healthcare, 8.625%, 2003 4,750 4,869
-----------------------------------------------------------------------------------
12,449
- ------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES - Aegon N.V., 8.00%, 2006 5,000 5,456
9.8% African Development Bank, 9.30%, 2000 4,000 4,471
Associates Corporation, N.A., 8.25%, 1999 5,000 5,350
Commercial Credit, 7.375%, 2005 5,000 5,227
Donaldson, Lufkin & Jenrette, 6.875%, 2005 5,000 4,975
Finova Capital Corporation, 6.625%, 2001 5,000 5,022
General Electric Capital Corporation, 8.625%, 2008 5,000 5,835
Household Finance, 8.00%, 2004 5,000 5,428
Inter-American Development Bank, 7.00%, 2025 7,500 7,555
International Bank for Reconstruction & Development,
14.90%, 1997 3,500 3,957
Lehman Brothers Holdings, 7.125%, 2003 5,000 5,022
United States Leasing International, Inc., 8.75%, 2001 5,000 5,554
-----------------------------------------------------------------------------------
63,852
- ------------------------------------------------------------------------------------------------------------
MANUFACTURING AND American Standard Inc., 10.875%, 1999 3,000 3,270
CONSTRUCTION Case Corporation, 7.25%, 2005 5,000 5,125
MATERIALS - 4.4% CSR America, 6.875%, 2005 7,500 7,570
EG & G Inc., 6.80%, 2005 5,000 4,950
Grumman Corporation, 10.375%, 1999 5,000 5,035
Owens-Illinois, Inc., 11.00%, 2003 2,000 2,220
-----------------------------------------------------------------------------------
28,170
</TABLE>
9
<PAGE> 124
Portfolio of Investments
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OIL, GAS AND Parker & Parsley Petroleum, 8.875%, 2005 $5,000 $5,421
PETROLEUM Petronas Dagangan Bhd, 7.75%, 2015 5,000 5,227
SERVICES - 3.7% Repsol International Finance, 7.00%, 2005 5,000 5,141
USX Corporation, 9.375%, 2012 7,500 8,472
-----------------------------------------------------------------------------------
24,261
- ------------------------------------------------------------------------------------------------------------
PAPER AND FOREST Boise Cascade Company
PRODUCTS - 2.8% 9.850%, 2002 2,000 2,305
9.45%, 2009 5,500 6,503
James River Corporation, 9.25%, 2021 3,500 4,164
West Fraser Timber Co. Ltd., 7.25%, 2002 5,000 5,021
-----------------------------------------------------------------------------------
17,993
- ------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 6.8% Delta Airlines
9.32%, 2009 4,553 4,956
9.75%, 2021 3,000 3,430
Ford Motor Credit, 7.75%, 2005 5,000 5,344
General American Transportation Corp., 10.29%, 1999 5,000 5,613
General Motors Acceptance Corporation, 8.875%, 2010 5,000 5,894
The Hertz Corporation, 7.00%, 2003 5,000 5,032
Penske Truck Leasing, 8.25%, 1999 5,000 5,294
United Airlines
11.21%, 2014 4,000 4,818
9.56%, 2018 3,500 3,727
-----------------------------------------------------------------------------------
44,108
- ------------------------------------------------------------------------------------------------------------
UTILITIES - 2.5% Chesapeake and Potomic Telephone Company
of Virginia, 8.375%, 2029 5,000 5,916
Commonwealth Edison Company, 8.125%, 2007 5,000 5,140
Tenaga, Nasional Berhad, 7.50%, 2025 5,000 4,970
-----------------------------------------------------------------------------------
16,026
-----------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--66.4%
(Cost: $416,689) 431,034
-----------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
MONEY MARKET Yield-5.72% to 5.85%, Due November 1995
INSTRUMENTS
Conagra Inc. 2,800 2,800
Cooper Industries 5,000 4,994
Goldman Sachs Group L.P. 2,300 2,299
Quaker Oats 3,000 2,997
</TABLE>
10
<PAGE> 125
Portfolio of Investments
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sheffield Receivables $5,000 $4,994
Working Capital Management Company L.P. 2,000 2,000
-----------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--3.1%
(Cost: $20,085) 20,084
-----------------------------------------------------------------------------------
TOTAL INVESTMENTS--97.9%
(Cost: $616,187) $635,692
-----------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--2.1% 13,735
-----------------------------------------------------------------------------------
NET ASSETS--100% $649,427
-----------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------
NOTE TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------
Based on the cost of investments of $616,187,000 for federal income tax
purposes at October 31, 1995, the aggregate gross unrealized appreciation was
$22,135,000, aggregate gross unrealized depreciation was $2,630,000 and the net
unrealized appreciation of investments was $19,505,000.
See accompanying Notes to Financial Statements.
11
<PAGE> 126
Report of Independent Auditors
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER INCOME AND CAPITAL PRESERVATION FUND
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Kemper Income and Capital
Preservation Fund as of October 31, 1995, the related statements of operations
for the year then ended and changes in net assets for each of the two years in
the period then ended and the financial highlights for each of the fiscal
periods since 1991. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Kemper Income and Capital Preservation Fund at October 31, 1995,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the fiscal periods since 1991, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 28, 1995
12
<PAGE> 127
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
October 31, 1995
(IN THOUSANDS)
- --------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------
<S> <C>
Investments, at value
(Cost: $616,187) $ 635,692
Cash 1,270
Receivable for:
Fund shares sold 1,106
Investments sold 5,910
Interest 13,176
TOTAL ASSETS 657,154
==========================================================================
- --------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- --------------------------------------------------------------------------
Payable for:
Dividends 1,208
Fund shares redeemed 395
Investments purchased 5,446
Management fee 288
Administrative services fee 104
Custodian and transfer agent fees and related expenses 166
Other 120
Total liabilities 7,727
Net assets $ 649,427
==========================================================================
- --------------------------------------------------------------------------
ANALYSIS OF NET ASSETS
- --------------------------------------------------------------------------
Paid-in capital $ 639,348
Accumulated net realized loss on investments (21,045)
Net unrealized appreciation on investments 19,505
Undistributed net investment income 11,619
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 649,427
==========================================================================
- --------------------------------------------------------------------------
THE PRICING OF SHARES
- --------------------------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price per share
($535,786 divided by 62,158 shares outstanding) $8.62
Maximum offering price per share
(net asset value, plus 4.71% of
net asset value or 4.50% of offering price) $9.03
==========================================================================
CLASS B SHARES
Net asset value and redemption price
(subject to contingent deferred sales charge) per share
($97,425 divided by 11,336 shares outstanding) $8.59
==========================================================================
CLASS C SHARES
Net asset value and redemption price per share
($4,860 divided by 564 shares outstanding) $8.61
==========================================================================
CLASS I SHARES
Net asset value and redemption price per share
($11,356 divided by 1,318 shares outstanding) $8.61
==========================================================================
</TABLE>
See accompanying Notes to Financial Statements.
13
<PAGE> 128
Financial Statements
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year ended October 31, 1995
(IN THOUSANDS)
- --------------------------------------------------------------------------
NET INVESTMENT INCOME
- --------------------------------------------------------------------------
<S> <C>
Interest income $ 44,957
Expenses:
Management fee 2,923
Administrative services fee 954
Distribution services fee 301
Custodian and transfer agent fees and related expenses 964
Professional fees 45
Reports to shareholders 96
Trustees' fees and other 38
Total expenses 5,321
NET INVESTMENT INCOME 39,636
==========================================================================
- --------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------------------------------
Net realized loss on sales of investments (1,822)
Net realized loss from futures transactions (1,132)
Net realized loss (2,954)
Change in net unrealized depreciation on investments 49,840
Net gain on investments 46,886
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 86,522
==========================================================================
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994
- --------------------------------------------------------------------------
OPERATIONS, DIVIDENDS AND CAPITAL SHARE ACTIVITY
- --------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 39,636 39,819
Net realized loss (2,954) (18,072)
Change in net unrealized depreciation 49,840 (49,533)
Net increase (decrease) in net assets
resulting from operations 86,522 (27,786)
Net equalization charges (381) (125)
Distribution from net investment income (40,603) (37,976)
Distribution from net realized gain -- (3,161)
Total dividends to shareholders (40,603) (41,137)
Net increase from capital share transactions 93,457 10,335
TOTAL INCREASE (DECREASE) IN NET ASSETS 138,995 (58,713)
==========================================================================
- --------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------
Beginning of year 510,432 569,145
END OF YEAR (INCLUDING UNDISTRIBUTED
NET INVESTMENT INCOME OF $11,619
AND $13,222, RESPECTIVELY) $649,427 510,432
==========================================================================
</TABLE>
14
<PAGE> 129
Notes to Financial Statements
1 DESCRIPTION OF THE FUND Kemper Income and Capital Preservation Fund is
an open-end management investment company organized
as a business trust under the laws of
Massachusetts. The Fund offers four classes of
shares. Class A shares are sold to investors
subject to an initial sales charge. Class B shares
are sold without an initial sales charge but are
subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge
payable upon certain redemptions. Class B shares
automatically convert to Class A shares six years
after issuance. Class C shares are sold without an
initial or a contingent deferred sales charge but
are subject to higher ongoing expenses than Class A
shares and do not convert into another class.
Class I shares, which are sold to a limited group
of investors, are not subject to initial or
contingent deferred sales charges and have lower
ongoing expenses than other classes. Each share
represents an identical interest in the investments
of the Fund and has the same rights.
2 SIGNIFICANT INVESTMENT VALUATION. Investments are stated at
ACCOUNTING POLICIES value. Fixed income securities are valued by using
market quotations, or independent pricing services
that use prices provided by market makers or
estimates of market values obtained from yield data
relating to instruments or securities with similar
characteristics. Portfolio securities that are
traded on a national securities exchange are valued
at the last sale price on the exchange where
primarily traded or, if there is no recent sale, at
the last current bid quotation. Portfolio
securities that are primarily traded on foreign
securities exchanges are generally valued at the
preceding closing values of such securities on
their respective exchanges where primarily traded.
Securities not so traded are valued at the last
current bid quotation if market quotations are
available. Exchange traded options are valued at
the last sale price unless there is no sale price,
in which event prices provided by market makers are
used. Over-the-counter traded options are valued
based upon prices provided by market makers.
Financial futures and options thereon are valued at
the settlement price established each day by the
board of trade or exchange on which they are
traded. Other securities and assets are valued at
fair value as determined in good faith by the Board
of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME.
Investment transactions are accounted for on the
trade date (date the order to buy or sell is
executed). Interest income is recorded on the
accrual basis and includes premium and discount
amortization on money market instruments and
mortgage-backed securities; it also includes
original issue and market discount amortization on
long-term fixed income securities. Realized gains
and losses from investment transactions are
reported on an identified cost basis.
FUND SHARE VALUATION. Fund shares are sold and
redeemed on a continuous basis at net asset value
(plus an initial sales charge on most sales of
Class A shares). Proceeds payable on redemption of
Class B shares will be reduced by the amount of any
applicable contingent deferred sales charge. On
each day the New York Stock Exchange is open
15
<PAGE> 130
Notes to Financial Statements
for trading, the net asset value per share is
determined as of the earlier of 3:00 p.m. Chicago
time or the close of the Exchange. The net asset
value per share is determined separately for each
class by dividing the Fund's net assets
attributable to that class by the number of shares
of the class outstanding.
FEDERAL INCOME TAXES AND DIVIDENDS TO
SHAREHOLDERS. The Fund has complied with the
special provisions of the Internal Revenue Code
available to investment companies and therefore no
federal income tax provision is required. The
accumulated net realized loss on sales of
investments for federal income tax purposes at
October 31, 1995, amounting to approximately
$21,025,000 is available to offset future taxable
gains. If not applied, the loss carryover expires
during the period 2002 through 2003.
The Fund declares and pays dividends on a
monthly basis. Net realized capital gains, if any,
will be distributed at least annually. Differences
in dividends per share are due to different class
expenses. Dividends payable to its shareholders are
recorded by the Fund on the ex-dividend date.
Dividends are determined in accordance with
income tax principles which may treat certain
transactions differently than generally accepted
accounting principles.
EQUALIZATION ACCOUNTING. A portion of proceeds
from sales and cost of redemptions of Fund shares
is credited or charged to undistributed net
investment income so that income per share
available for distribution is not affected by sales
or redemptions of shares.
3 TRANSACTIONS MANAGEMENT AGREEMENT. The Fund has a management
WITH AFFILIATES agreement with Kemper Financial Services, Inc.
(KFS) and pays a management fee at an annual rate
of .55% of the first $250 million of average daily
net assets declining gradually to .40% of average
daily net assets in excess of $12.5 billion. The
Fund incurred a management fee of $2,923,000 for
the year ended October 31, 1995.
UNDERWRITING AND DISTRIBUTION SERVICES
AGREEMENT. The Fund has an underwriting and
distribution services agreement with Kemper
Distributors, Inc. (KDI). Underwriting commissions
paid in connection with the distribution of Class A
shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS COMMISSIONS
COMMISSIONS ALLOWED BY KDI PAID TO
RETAINED TO RETAIL FIRMS AFFILIATES
BY KDI (INCLUDING AFFILIATES) OF KDI
---------- ---------------------- ------------
<S> <C> <C> <C>
Year ended October 31, 1995 $96,000 767,000 110,000
</TABLE>
For services under the distribution services
agreement, the Fund pays KDI a fee of .75% of
average daily net assets of the Class B and Class C
shares. Pursuant to the agreement, KDI enters into
related selling group agreements with various firms
at various rates for sales of Class B and Class C
shares. In addition, KDI receives any contingent
deferred sales charges (CDSC)
16
<PAGE> 131
Notes to Financial Statements
from redemptions of Class B shares. Distribution
fees and commissions paid in connection with the
sale of Class B and Class C shares and the CDSC
received in connection with the redemption of Class
B shares are as follows:
<TABLE>
<CAPTION>
COMMISSIONS
DISTRIBUTION AND DISTRIBUTION AMOUNTS
FEES AND FEES PAID BY PAID TO
CDSC RECEIVED KDI TO FIRMS AFFILIATES
BY KDI (INCLUDING AFFILIATES) OF KDI
--------------- ---------------------- ----------
<S> <C> <C> <C>
Year ended October 31, 1995 $387,000 888,000 114,000
</TABLE>
ADMINISTRATIVE SERVICES AGREEMENT. The Fund has
an administrative services agreement with KDI. For
providing information and administrative services
to Class A, Class B and Class C shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets of each class. KDI in
turn has various agreements with financial services
firms that provide these services and pays these
firms based on assets of Fund accounts the firms
service. Administrative services fees (ASF) paid
are as follows:
<TABLE>
<CAPTION>
ASF
ASF PAID BY ASF
PAID BY THE KDI TO FIRMS PAID TO
FUND TO KDI (INCLUDING AFFILIATES) AFFILIATES OF KDI
----------- ---------------------- -----------------
<S> <C> <C> <C>
Year ended October 31, 1995 $954,000 980,000 108,000
</TABLE>
SHAREHOLDER SERVICES AGREEMENTS. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. For the year ended
October 31, 1995, the transfer agent remitted
shareholder services fees to KSvC of $840,000.
OFFICERS AND TRUSTEES. Certain officers or
trustees of the Fund are also officers or directors
of KFS. During the year ended October 31, 1995,
the Fund made no direct payments to its officers
and incurred trustees' fees of $21,000 to
independent trustees.
4 INVESTMENT For the year ended October 31, 1995, investment
TRANSACTIONS transactions (excluding short-term instruments)
are as follows (in thousands):
<TABLE>
<S> <C>
Purchases $1,026,727
Proceeds from sales 953,000
</TABLE>
17
<PAGE> 132
Notes to Financial Statements
5 CAPITAL SHARE The following table summarizes the activity in
TRANSACTIONS capital shares of the Fund (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994
------------------------- ------------------------
SHARES AMOUNT SHAres Amount
----------------------------------------------------------------------------
SHARES SOLD
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 11,111 $ 90,463 11,289 $ 93,290
Class B 13,152 110,374 4,160 33,723
Class C 1,023 8,763 50 408
Class I 1,374 11,709 -- --
<CAPTION>
----------------------------------------------------------------------------
SHARES ISSUED IN REINVESTMENT OF DIVIDENDS
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 2,950 24,216 3,192 26,688
Class B 254 2,120 19 149
Class C 10 92 1 5
Class I 26 224 -- --
<CAPTION>
----------------------------------------------------------------------------
SHARES REDEEMED
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (15,124) (121,197) (14,812) (121,231)
Class B (3,307) (28,190) (2,831) (22,697)
Class C (520) (4,413) -- --
Class I (82) (704) -- --
<CAPTION>
----------------------------------------------------------------------------
CONVERSION OF SHARES
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 106 883 5 42
Class B (106) (883) (5) (42)
NET INCREASE
FROM CAPITAL
SHARE TRANSACTIONS $ 93,457 $ 10,335
============================================================================
</TABLE>
18
<PAGE> 133
Financial Highlights
<TABLE>
<CAPTION>
---------------------------------------------------------
CLASS A
---------------------------------------------------------
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 7.91 8.97 8.34 8.22 7.70
Income from investment operations:
Net investment income .61 .61 .63 .67 .74
Net realized and unrealized gain (loss) .72 (1.03) .62 .11 .53
Total from investment operations 1.33 (.42) 1.25 .78 1.27
- ---------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .62 .59 .62 .66 .75
Distribution from net realized gain -- .05 -- -- --
Total dividends .62 .64 .62 .66 .75
Net asset value, end of year $ 8.62 7.91 8.97 8.34 8.22
===============================================================================================================
TOTAL RETURN 17.47% (4.86) 15.48 9.83 17.26
- ---------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
Expenses .90 .94 .82 .82 .82
Net investment income 7.31 7.34 7.26 8.01 9.21
</TABLE>
<TABLE>
<CAPTION>
-------------------- --------------------- -------
CLASS B CLASS C CLASS I
-------------------- --------------------- --------
YEAR MAY 31, YEAR MAY 31, JULY 3,
ENDED 1994 TO ENDED 1994 TO 1995 TO
OCT. 31, OCT. 31, OCT. 31, OCT. 31, OCT. 31,
1995 1994 1995 1994 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.90 8.16 7.90 8.16 8.52
Income from investment operations:
Net investment income .51 .23 .53 .23 .19
Net realized and unrealized gain (loss) .72 (.26) .72 (.26) .12
Total from investment operations 1.23 (.03) 1.25 (.03) .31
Less distribution from net investment income .54 .23 .54 .23 .22
Net asset value, end of period $ 8.59 7.90 8.61 7.90 8.61
================================================================================================================
TOTAL RETURN (NOT ANNUALIZED) 16.12% (.45) 16.45 (.44) 3.65
- ----------------------------------------------------------------------------------------------------------------
ANNUALIZED RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
Expenses 1.81% 1.92 1.78 1.89 .62
Net investment income 6.40% 6.72 6.43 6.75 6.87
- ---------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA FOR ALL CLASSES
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year (in thousands) $649,427 510,432 569,145 482,009 432,490
Portfolio turnover rate 182% 163 190 178 115
</TABLE>
NOTE: Total return does not reflect the effect of any sales charges.
19
<PAGE> 134
KEMPER INCOME AND CAPITAL PRESERVATION FUND
PART C.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(i) Financial statements included in Part A of the Registration
Statement: Financial Highlights.
(ii) Financial statements included in Part B of the Registration
Statement:
Statement of assets and liabilities--October 31, 1995.
Statement of operations for the year ended October 31, 1995.
Statement of changes in net assets for each of the two years in
the period ended October 31, 1995.
Portfolio of investments--October 31, 1995.
Notes to financial statements.
Schedules II, III, IV, V, VI and VII are omitted as the required
information is not present.
Schedule I has been omitted as the required information is presented in
the portfolio of investments at October 31, 1995.
(b) Exhibits
<TABLE>
<S> <C>
99.B1 Amended and Restated Agreement and Declaration of Trust
99.B2 By-Laws
99.B3 Inapplicable
99.B4(a) Text of Share Certificate
99.B4(b) Written Instrument Establishing and Designating Separate Classes of
Shares
99.B5 Investment Management Agreement
99.B6(a) Underwriting and Distribution Services Agreement
99.B6(b) Assignment and Assumption
99.B6(c) Selling Group Agreement
99.B7 Inapplicable
99.B8(a) Custody Agreement (Form 1)
99.B8(b) Custody Agreement (Form 2)
99.B9(a) Agency Agreement
99.B9(b) Supplement to Agency Agreement
99.B9(c) Administrative Services Agreement
99.B9(d) Amendment to Administrative Services Agreement
99.B9(e) Assignment and Assumption
99.B9(f) Amended Appendix I for Administrative Services Agreement
99.B10 Inapplicable
99.B11 Report and Consent of Independent Auditors
99.B12 Inapplicable
99.B13 Inapplicable
99.B14(a) Kemper Retirement Plan Prototype
99.B14(b) Model Individual Retirement Account
99.B15 See 6(a) above (Class B and Class C shares)
99.B16 Performance Calculations*
99.B18 Multi-Distribution System Plan
99.B24 Powers of Attorney
99.485(b) Representation of Counsel (Rule 485(b)).
.27All Financial Data Schedule
.27A Financial Data Schedule
.27B Financial Data Schedule
.27C Financial Data Schedule
.27I Financial Data Schedule
</TABLE>
- ---------------
* Incorporated herein by reference to the Post-Effective Amendment to
Registrant's Registration Statement on Form N-1A identified below.
<TABLE>
<CAPTION>
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. FILING DATE
- ------------- ---------------------------- -----------
<S> <C> <C>
16 29 2/17/89
</TABLE>
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ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Inapplicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of October 31, 1995, there were holders of record of the sole series of
shares of Registrant as follows: 29,675 Class A, 6,046 Class B, 462 Class C and
2,140 Class I.
ITEM 27. INDEMNIFICATION
Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit 1 hereto, which is incorporated herein by reference) provides in effect
that the Registrant will indemnify its officers and trustees under certain
circumstances. However, in accordance with Section 17(h) and 17(i) of the
Investment Company Act of 1940 and its own terms, said Article of the Agreement
and Declaration of Trust does not protect any person against any liability to
the Registrant or its shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question as to whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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ITEM 28.(a) BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information pertaining to business and other connections of the
Registrant's investment adviser is hereby incorporated by reference to the
section of the Prospectus captioned "Investment Manager and Underwriter," and to
the section of the Statement of Additional Information captioned "Investment
Manager and Underwriter."
Kemper Financial Services, Inc., investment adviser of the Registrant, is
investment adviser of:
Kemper Mutual Funds:
Kemper Technology Fund
Kemper Total Return Fund
Kemper Growth Fund
Kemper Small Capitalization Equity Fund
Kemper Income and Capital Preservation Fund
Kemper Money Market Fund
Kemper National Tax-Free Income Series
Kemper Diversified Income Fund
Kemper High Yield Fund
Cash Equivalent Fund
Kemper U.S. Government Securities Fund
Kemper International Fund
Kemper Portfolios
Kemper State Tax-Free Income Series
Tax-Exempt California Money Market Fund
Kemper Adjustable Rate U.S. Government Fund
Kemper Blue Chip Fund
Kemper Global Income Fund
Kemper Target Equity Fund
Cash Account Trust
Investors Cash Trust
Tax-Exempt New York Money Market Fund
Kemper Value Plus Growth Fund
Kemper Quantitative Equity Fund
Kemper Horizon Fund
Kemper Closed-End Funds:
Kemper High Income Trust
Kemper Intermediate Government Trust
Kemper Municipal Income Trust
Kemper Multi-Market Income Trust
Kemper Strategic Municipal Income Trust
The Growth Fund of Spain, Inc.
Kemper Strategic Income Fund
Kemper Financial Services, Inc. also furnishes investment advice to and
manages investment portfolios for other clients including Kemper Investors Fund
and Kemper International Bond Fund.
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Item 28(b) Business and Other Connections of Officers
and Directors of Kemper Financial Services Inc.,
the Investment Advisor
MATHIS, DAVID B.
Director, Kemper Financial Services, Inc.
Director, Federal Kemper Life Assurance Company
Director, Fidelity Life Association
Director, Chairman and Chief Executive Officer, Kemper Corporation
Director, Kemper Financial Companies, Inc.
Director, Kemper Investors Life Insurance Company
Director, IMC Global, Inc.
Trustee, Kemper Funds
Chairman of the Board, Lumbermen's Mutual Casualty Company
TIMBERS, STEPHEN B.
Director, Chairman, Chief Executive Officer and Chief Investment Officer,
Kemper Financial Services, Inc.
Director, Vice President, Kemper Asset Holdings, Inc.
Director, Kemper Distributors, Inc.
Director, Chairman, Kemper Asset Management Company
Director, Chairman, Kemper Service Company
Director, Federal Kemper Life Assurance Company
Director, Dreman Value Advisors, Inc.
Director, Vice President, FKLA Loire Court, Inc.
Vice President, FKLA Realty Corporation
Director, President, Galaxy Offshore, Inc.
Director, Vice President, FLA First Nationwide, Inc.
Director, Vice President, FLA Plate Building, Inc.
Vice President, FLA Realty Corp.
Director, President and Chief Operating Officer, Kemper
Corporation
Director, Chairman, President and Chief Executive Officer, Kemper Financial
Companies, Inc.
Director, President, Kemper International Management, Inc.
Director, Kemper Investors Life Insurance Company
Trustee and President, Kemper Funds
Vice President, Kemper Portfolio Corp.
Director, Vice President, Kemper Real Estate, Inc.
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Director, Vice President, Kemper/Cymrot Management, Inc.
Director, Vice President, Kemper/Cymrot, Inc.
Vice President, KFC Portfolio Corp.
Director, Vice President, KI Arnold Industrial, Inc.
Director, Vice President, KI Canyon Park, Inc.
Director, Vice President, KI Centreville, Inc.
Director, Vice President, KI Colorado Boulevard, Inc.
Director, Vice President, KI Dublin Boulevard, Inc.
Director, Vice President, KI LaFiesta Square, Inc.
Director, Vice President, KI Lewinsville, Inc.
Director, Vice President, KI Monterey Research, Inc.
Director, Vice President, KI Olive Street, Inc.
Director, Vice President, KI Sutter Street, Inc.
Director, Vice President, KI Thornton Boulevard, Inc.
Vice President, KILICO Realty Corporation
Director, Vice President, KR 77 Fitness Center, Inc.
Director, Vice President, KR Avondale Redmond, Inc.
Director, Vice President, KR Black Mountain, Inc.
Director, Vice President, KR Brannan Resources, Inc.
Director, Vice President, KR Clay Capital, Inc.
Director, Vice President, KR Cranbury, Inc.
Director, Vice President, KR Delta Wetlands, Inc.
Director, Vice President, KR Gainesville, Inc.
Director, Vice President, KR Hotels, Inc.
Director, Vice President, KR Lafayette Apartments, Inc.
Director, Vice President, KR Lafayette BART, Inc.
Director, Vice President, KR Palm Plaza, Inc.
Director, Vice President, KR Red Hill Associates, Inc.
Director, Vice President, KR Seagate/Gateway North, Inc.
Director, Vice President, KR Venture Way, Inc.
Director, Vice President, KR Walnut Creek, Inc.
Director, The LTV Corporation
Director, Investment Analysts Society of Chicago
NEAL, JOHN E.
Director, President and Chief Operating Officer, Kemper Financial Services,
Inc.,
Senior Vice President, Kemper Corporation
Director, President, Kemper Service Company
Director, Kemper Distributors, Inc.
Director, Kemper Asset Management Company
Director, Dreman Value Advisors, Inc.
Director, Ardenwood Financial Corporation
Director, Avondale Redmond, Inc.
Director, Black Mountain, Inc.
Director, Brannan Resources, Inc.
Director, Butterfield Financial Corporation
Director, Camelot Financial Corporation
Director, Clay Capital, Inc.
Director, Coast Broadcasting Company
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Director, Crow Canyon, Inc.
Director, Hawaii Kai Development Company
Director, Kacor Gateway, Inc.
Director, Kailua Associates, Inc.
Director, Kacor Trust Deed Company
Director, Community Investment Corporation
Director, Continental Community Development Corporation
Director, President, Kemper Real Estate, Inc.
Director, President, Kemper Cymrot, Inc.
Director, President, Cymrot Management, Inc.
Director, President, FKLA Loire Court, Inc.
Director, Vice President, FKLA Realty Corporation
Director, President, FLA First Nationwide, Inc.
Director, President, FLA Plate Building, Inc.
Director, Vice President, FLA Realty Corporation
Director, Kemper/Lumbermens Properties, Inc.
Director, Senior Vice President, Kemper Real Estate Management Company
Director, KRDC, Inc.
Director, Lafayette Apartments, Inc.
Director, Lafayette Hills, Inc.
Director, Margarita Village Retirement Community, Inc.
Director, Mesa Homes
Director, Mesa Homes Brokerage Company
Director, Mount Doloroes Corporation
Director, Montgomery Gallery, Inc.
Director, Monterey Research Park, Inc.
Director, One Corporate Centre, Inc.
Director, Pacific Homes, Inc.
Director, Palomar Triad, Inc.
Director, Pine/Battery Properties, Inc.
Director, Rancho and Industrial Property Brokerage, Inc.
Director, Rancho California, Inc.
Director, Rancho Regional Shopping Center, Inc.
Director, Red Hill Associates, Inc.
Director, Seagate Associates, Inc.
Director, Seattle Gateway, Inc.
Director, Sutter Street, Inc.
Director, Technology Way, Inc.
Director, Time DC, Inc.
Director, Tourelle Corporation
Director, Two Corporate Centre, Inc.
Director, Venture Way, Inc.
Director, Vice President, Kemper Portfolio Corporation
Director, Vice President, KFC Portfolio Corporation
Director, Vice President, KILICO Realty Corporation
Director, President, KI Arnold Industrial, Inc.
Director, President, KI Canyon Park, Inc.
Director, President, KI Centreville, Inc.
Director, President, KI Colorado Boulevard, Inc.
Director, President, KI Dublin Boulevard, Inc.
Director, President, KI LaFiesta Square, Inc.
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Director, President, KI Lewinsville, Inc.
Director, President, KI Monterey Research, Inc.
Director, President, KI Olive Street, Inc.
Director, President, KI Thornton Boulevard, Inc.
Director, President, KI Sutter Street, Inc.
Director, President, KR 77 Fitness Center, Inc.
Director, President, KR Avondale Redmond, Inc.
Director, President, KR Black Mountain, Inc.
Director, President, KR Brannan Resources, Inc.
Director, President, KR Clay Capital, Inc.
Director, President, KR Cranbury, Inc.
Director, President, KR Delta Wetlands, Inc.
Director, President, KR Gainesville, Inc.
Director, President, KR Hotels, Inc.
Director, President, KR Lafayette Apartments, Inc.
Director, President, KR Lafayette BART, Inc.
Director, President, KR Palm Plaza, Inc.
Director, President, KR Red Hill Associates, Inc.
Director, President, KR Seagate/Gateway North, Inc.
Director, President, KR Venture Way, Inc.
Director, President, KR Walnut Creek, Inc.
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
Director, KRDC, Inc.
Director, RespiteCare
Director, President, SMS Realty Corp.
Director, Urban Shopping Centers, Inc.
Vice President, Kemper-Dreman Fund, Inc.
Vice President, Kemper Value Plus Growth Fund
Vice President, Kemper Quantitative Equity Fund
Vice President, Kemper Horizon Fund
PETERS, JOHN E.
Director, Senior Executive Vice President, Kemper Financial
Services, Inc.
Director, Dreman Value Advisors, Inc.
Director, President, Kemper Distributors, Inc.
Vice President, Kemper Asset Management Company
Vice President, Kemper Funds
Director, Kemper Service Company
FITZPATRICK, JOHN H.
Director, Chief Financial Officer, Kemper Financial Services, Inc.
Director, Ardenwood Financial Corporation
Director, Camelot Financial Corporation
Director, Crow Canyon, Inc.
Director, Hawaii Kai Development Company
Director, Kacor Gateway, Inc.
Director, Kacor Trust Deed Company
Director, Senior Vice President and Chief Financial Officer,
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Federal Kemper Life Assurance Company
Senior Vice President, Chief Financial Officer, Fidelity Life
Association
Director, Vice President, FKLA Loire Court, Inc.
Director, Vice President, FLA First Nationwide, Inc.
Director, Vice President, FLA Plate Building, Inc.
Director, Executive Vice President and Chief Financial Officer,
Kemper Corporation
Director, Executive Vice President and Chief Financial
Officer, Kemper Financial Companies, Inc.
Senior Vice President, Kemper Investors Life Insurance Company
Director, Vice President, Kemper/Cymrot Management, Inc.
Director, Vice President, Kemper/Cymrot, Inc.
Director, Vice President, Kemper/Lumbermens Properties, Inc.
Director, Senior Vice President, Kemper Real Estate Management
Company
Director, KRDC, Inc.
Director, Margarita Village Retirement Community, Inc.
Director, Mesa Homes
Director, Mesa Homes Brokerage Company
Director, Montgomery Gallery, Inc.
Director, One Corporate Centre, Inc.
Director, Pacific Homes, Inc.
Director, Palomar Triad, Inc.
Director, Pine/Battery Properties, Inc.
Director, Rancho and Industrial Property Brokerage, Inc.
Director, Rancho California, Inc.
Director, Rancho Regional Shopping Center, Inc.
Director, Seattle Gateway, Inc.
Director, SMS Realty Corporation
Director, Sutter Street, Inc.
Director, Time DC, Inc.
Director, Two Corporate Centre, Inc.
Director, Vice President, KFC Portfolio Corp.
Director, Vice President, KI Arnold Industrial, Inc.
Director, Vice President, KI Canyon Park, Inc.
Director, Vice President, KI Centreville, Inc.
Director, Vice President, KI Colorado Boulevard, Inc.
Director, Vice President, KI Dublin Boulevard, Inc.
Director, Vice President, KI LaFiesta Square, Inc.
Director, Vice President, KI Lewinsville, Inc.
Director, Vice President, KI Monterey Research, Inc.
Director, Vice President, KI Olive Street, Inc.
Director, Vice President, KI Sutter Street, Inc.
Director, Vice President, KI Thornton Boulevard, Inc.
Director, Vice President, KILICO Realty Corporation
Director, Vice President, KR 77 Fitness Center, Inc.
Director, Vice President, KR Avondale Redmond, Inc.
Director, Vice President, KR Black Mountain, Inc.
Director, Vice President, KR Brannan Resources, Inc.
Director, Vice President, KR Clay Capital, Inc.
Director, Vice President, KR Cranbury, Inc.
Director, Vice President, KR Delta Wetlands, Inc.
Director, Vice President, KR Gainesville, Inc.
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Director, Vice President, KR Hotels, Inc.
Director, Vice President, KR Lafayette Apartments, Inc.
Director, Vice President, KR Lafayette BART, Inc.
Director, Vice President, KR Palm Plaza, Inc.
Director, Vice President, KR Red Hill Associates, Inc.
Director, Vice President, KR Seagate/Gateway North, Inc.
Director, Vice President, KR Venture Way, Inc.
Director, Vice President, KR Walnut Creek, Inc.
BEIMFORD, JR., JOSEPH P.
Executive Vice President, Kemper Financial Services, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
Vice President, Galaxy Offshore, Inc.
Vice President, Investors Cash Trust
Vice President, Kemper Adjustable Rate U.S. Government Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Global Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
Vice President, Kemper Income and Capital Preservation Fund
Vice President, Kemper Intermediate Government Trust
Vice President, Kemper International Bond Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Money Market Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Municipal Income Trust
Vice President, Kemper National Tax-Free Income Series
Vice President, Kemper Portfolios
Vice President, Kemper State Tax-Free Income Series
Vice President, Kemper Strategic Income Fund
Vice President, Kemper Strategic Municipal Income Trust
Vice President, Kemper U.S. Government Securities Fund
Vice President, Sterling Funds
Vice President, Tax-Exempt California Money Market Fund
Vice President, Tax-Exempt New York Money Market Fund
CHAPMAN II, WILLIAM E.
Executive Vice President, Kemper Financial Services, Inc.
Director, Executive Vice President, Kemper Distributors, Inc.
COXON, JAMES H.
Executive Vice President, Kemper Financial Services, Inc.
Director, Vice President, Galaxy Offshore, Inc.
Executive Vice President, Kemper Asset Management Company
FERRO, DENNIS H.
Executive Vice President, Kemper Financial Services, Inc.
Vice President, Kemper International Fund
Director, Managing Director-Equities, Kemper Investment Management
Company Limited
Vice President, Kemper Investors Fund
Vice President, Kemper Target Equity Fund
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Vice President, The Growth Fund of Spain, Inc.
GREENAWALT, JAMES L.
Executive Vice President, Kemper Financial Services, Inc.
Director, Executive Vice President, Kemper Distributors, Inc.
JOHNS, GORDON K.
Executive Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Global Income Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper International Bond Fund
Vice President, Kemper International Management, Inc.
Managing Director and Joint Secretary, Kemper Investment
Management Company Limited
Vice President, Kemper Multi-Market Income Trust
Director, Thames Heritage Parade Limited
LANGBAUM, GARY A.
Executive Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Total Return Fund
Vice President, Kemper Investors Fund
REYNOLDS, STEVEN H.
Executive Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Technology Fund
Vice President, Kemper Total Return Fund
Vice President, Kemper Growth Fund
Vice President, Kemper Small Capitalization Equity Fund
Vice President, Kemper International Fund
Vice President, Kemper Blue Chip Fund
Vice President, Kemper Value Plus Growth Fund
Vice President, Kemper Quantitative Equity Fund
Vice President, Kemper Target Equity Fund
Vice President, Kemper Sterling Funds
Vice President, Kemper Horizon Fund
Vice President, Kemper Investors Fund
Vice President, The Growth Fund of Spain, Inc.
SILIGMUELLER, DALE S.
Executive Vice President, Kemper Financial Services, Inc.
Director, Executive Vice President, Kemper Service Company
BUKOWSKI, DANIEL J.
Senior Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Quantitative Equity Fund
Vice President, Kemper Value Plus Growth Fund
BUTLER, DAVID H.
Senior Vice President, Kemper Financial Services, Inc.
CERVONE, DAVID M.
Senior Vice President, Kemper Financial Services, Inc.
CESSINE, ROBERT S.
Senior Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Income and Capital Preservation Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Multi-Market Income Trust
CHESTER, TRACY McCORMICK
Senior Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Blue Chip Fund
Vice President, Kemper Target Equity Fund
Vice President, Kemper Value Plus Growth Fund
CIARLELLI, ROBERT W.
Senior Vice President, Kemper Financial Services, Inc.
Executive Vice President, Kemper Service Company
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COLLECCHIA, FRANK E.
Senior Vice President, Kemper Financial Services, Inc.
Senior Investment Officer, Federal Kemper Life Assurance
Company
Senior Investment Officer, Fidelity Life Association
Vice President, FKLA Loire Court, Inc.
Vice President, FLA First Nationwide, Inc.
Vice President, FLA Plate Building, Inc.
Vice President, Galaxy Offshore, Inc.
Senior Investment Officer, Kemper Investors Life Insurance
Company
Vice President, KI Arnold Industrial, Inc.
Vice President, KI Canyon Park, Inc.
Vice President, KI Centreville, Inc.
Vice President, KI Colorado Boulevard, Inc.
Vice President, KI Dublin Boulevard, Inc.
Vice President, KI LaFiesta Square, Inc.
Vice President, KI Lewinsville, Inc.
Vice President, KI Monterey Research, Inc.
Vice President, KI Olive Street, Inc.
Vice President, KI Sutter Street, Inc.
Vice President, KI Thornton Boulevard, Inc.
Vice President, KR 77 Fitness Center, Inc.
Vice President, KR Avondale Redmond, Inc.
Vice President, KR Black Mountain, Inc.
Vice President, KR Brannan Resources, Inc.
Vice President, KR Clay Capital, Inc.
Vice President, KR Cranbury, Inc.
Vice President, KR Delta Wetlands, Inc.
Vice President, KR Gainesville, Inc.
Vice President, KR Halawa Associates, Inc.
Vice President, KR Hotels, Inc.
Vice President, KR Lafayette Apartments, Inc.
Vice President, KR Lafayette BART, Inc.
Vice President, KR Palm Plaza, Inc.
Vice President, KR Red Hill Associates, Inc.
Vice President, KR Seagate/Gateway North, Inc.
Vice President, KR Venture Way, Inc.
Vice President, KR Walnut Creek, Inc.
COLLORA, PHILIP J.
Senior Vice President and Assistant Secretary, Kemper Financial
Services, Inc.
Vice President and Secretary, Kemper Funds
Assistant Secretary, Kemper International Management, Inc.
DIERENFELDT, DAVID F.
Senior Vice President, Associate General Counsel,
Assistant Secretary, Kemper Financial Services, Inc.
Vice President and Secretary, Kemper Distributors, Inc.
Secretary, Dreman Value Advisors, Inc.
Assistant Secretary, Galaxy Offshore, Inc.
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Director, Secretary, INVEST Financial Corporation
Secretary, INVEST Financial Corporation Holding Company
Assistant Secretary, Investors Brokerage Services
Insurance Agency, Inc.
Assistant Secretary, Investors Brokerage Services, Inc.
Secretary, Kemper Asset Management Company
Assistant Secretary, Kemper International Management, Inc.
Assistant Secretary, Kemper Investment Management Company
Limited
Vice President and Assistant Secretary, Kemper Investors Fund
Secretary, Kemper Service Company
DUDASIK, PATRICK H.
Senior Vice President, Kemper Financial Services, Inc.
Executive Vice President, Chief Financial Officer and Treasurer,
Dreman Value Advisors, Inc.
Vice President and Treasurer, Kemper Asset Management Company
Treasurer and Chief Financial Officer, Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Kemper Service Company
Director and Treasurer, Kemper Investment Management Company
Limited
DUFFY, JEROME L.
Senior Vice President, Kemper Financial Services, Inc.
Treasurer, Kemper Funds
GALLAGHER, MICHAEL L.
Senior Vice President, Kemper Financial Services, Inc.
Senior Vice President, Kemper Service Company
GLASSMAN, HARVEY
Senior Vice President, Kemper Financial Services, Inc.
GOERS, RICHARD A.
Senior Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Technology Fund
GUENTHER, HAROLD E.
Senior Vice President, Kemper Financial Services, Inc.
Vice President, Galaxy Offshore, Inc.
HUSSEY, KAREN A.
Senior Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Investors Fund
Vice President, Kemper Small Capitalization Equity Fund
INNES, BRUCE D.
Senior Vice President, Kemper Financial Services, Inc.
Co-President, International Association of Corporate and
Professional Recruiters
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KLEIN, GEORGE
Senior Vice President, Kemper Financial Services, Inc.
Director, Executive Vice President, Kemper Asset Management
Company
KORTH, FRANK D.
Senior Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Technology Fund
McNAMARA, MICHAEL A.
Senior Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
MIER, CHRISTOPHER J.
Senior Vice President, Kemper Financial Services, Inc.
Vice President, Kemper National Tax-Free Income Series
Vice President, Kemper Municipal Income Trust
Vice President, Kemper State Tax-Free Income Series
Vice President, Kemper Strategic Municipal Income Trust
Vice President, Sterling Funds
MURRIHY, MAURA J.
Senior Vice President, Kemper Financial Services, Inc.
NATHANSON, IRA
Senior Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Corporation
RABIEGA, CRAIG F.
Senior Vice President, Kemper Financial Services, Inc.
First Vice President, Kemper Service Company
RACHWALSKI, JR. FRANK J.
Senior Vice President, Kemper Financial Services, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
Vice President, Investors Cash Trust
Vice President, Kemper Investors Fund
Vice President, Kemper Money Market Fund
Vice President, Kemper Portfolios
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Vice President, Sterling Funds
Vice President, Tax-Exempt California Money Market Fund
Vice President, Tax-Exempt New York Money Market Fund
REGNER, THOMAS M.
Senior Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Horizon Fund
RESIS, JR., HARRY E.
Senior Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
SCHUMACHER, ROBERT T.
Senior Vice President, Kemper Financial Services, Inc.
SMITH, JR., EDWARD BYRON
Senior Vice President, Kemper Financial Services, Inc.
VINCENT, CHRISTOPHER T.
Senior Vice President, Kemper Financial Services, Inc.
First Vice President, Kemper Asset Management Company
BAZAN, KENNETH M.
First Vice President, Kemper Financial Services, Inc.
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
BOEHM, JONATHAN J.
First Vice President, Kemper Financial Services, Inc.
Senior Vice President, Kemper Service Company
BURROW, DALE R.
First Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Strategic Municipal Income Trust
BYRNES, ELIZABETH A.
First Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Adjustable Rate U.S. Government Fund
Vice President, Kemper Intermediate Government Trust
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CHIEN, CHRISTINE
First Vice President, Kemper Financial Services, Inc.
DeMAIO, CHRIS C.
First Vice President, Kemper Financial Services, Inc.
Vice President and Chief Accounting Officer, Kemper Service
Company
DEXTER, STEPHEN P.
First Vice President, Kemper Financial Services, Inc.
DOYLE, DANIEL J.
First Vice President, Kemper Financial Services, Inc.
FENGER, JAMES E.
First Vice President, Kemper Financial Services, Inc.
HALE, DAVID D.
First Vice President, Kemper Financial Services, Inc.
HARRINGTON, MICHAEL E.
First Vice President, Kemper Financial Services, Inc.
HORTON, ROBERT J.
First Vice President, Kemper Financial Services, Inc.
JACOBS, PETER M.
First Vice President, Kemper Financial Services, Inc.
KEELEY, MICHELLE M.
First Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Intermediate Government Trust
Vice President, Kemper Portfolios
KIEL, CAROL L.
First Vice President, Kemper Financial Services, Inc.
LAUGHLIN, ANN M.
First Vice President, Kemper Financial Services, Inc.
LENTZ, MAUREEN P.
First Vice President, Kemper Financial Services, Inc.
McCRINDLE-PETRARCA, SUSAN
First Vice President, Kemper Financial Services, Inc.
MINER, EDWARD
First Vice President, Kemper Financial Services, Inc.
MURRAY, SCOTT S.
First Vice President, Kemper Financial Services, Inc.
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Vice President, Kemper Service Company
PAYNE, III, ROBERT D.
First Vice President, Kemper Financial Services, Inc.
PANOZZO, ROBERTA L.
First Vice President, Kemper Financial Services, Inc.
RADIS, STEVE A.
First Vice President, Kemper Financial Services, Inc.
RATEKIN, DIANE E.
First Vice President, Assistant General Counsel and Assistant
Secretary, Kemper Financial Services, Inc.
Assistant Secretary, Kemper Distributors, Inc.
SILVIA, JOHN E.
First Vice President, Kemper Financial Services, Inc.
STUEBE, JOHN W.
First Vice President, Kemper Financial Services, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
THOUIN-LEERKAMP, EDITH A.
First Vice President, Kemper Financial Services, Inc.
Director-European Equities, Kemper Investment Management Company Limited
TRUTTER, JONATHAN W.
First Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
WETHERALD, ROBERT F.
First Vice President, Kemper Financial Services, Inc.
WILLSON, STEPHEN R.
First Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Strategic Municipal Income Trust
WITTNEBEL, MARK E.
First Vice President, Kemper Financial Services, Inc.
BARRY, JOANN M.
Vice President, Kemper Financial Services, Inc.
BODEM, RICHARD A.
Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Service Company
C-16
<PAGE> 150
CARNEY, ANNE T.
Vice President, Kemper Financial Services, Inc.
CARTER, PAUL J.
Vice President, Kemper Financial Services, Inc.
CHRISTIANSEN, HERBERT A.
Vice President, Kemper Financial Services, Inc.
First Vice President, Kemper Service Company
COHEN, JERRI I.
Vice President, Kemper Financial Services, Inc.
ESOLA, CHARLES J.
Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Service Company
FRIHART, THORA A.
Vice President, Kemper Financial Services, Inc.
GERACI, AUGUST L.
Vice President, Kemper Financial Services, Inc.
GERICKE, KATHLEEN E.
Vice President, Kemper Financial Services, Inc.
GOLAN, JAMES S.
Vice President, Kemper Financial Services, Inc.
HESS, THOMAS L.
Vice President, Kemper Financial Services, Inc.
HUOT, LISA L.
Vice President, Kemper Financial Services, Inc.
KARWOWSKI, KENNETH F.
Vice President, Kemper Financial Services, Inc.
KNAPP, WILLIAM M.
Vice President, Kemper Financial Services, Inc.
KOCH, DEBORAH L.
Vice President, Kemper Financial Services, Inc.
KOURY, KATHRYN E.
Vice President, Kemper Financial Services, Inc.
KRANZ, KATHY J.
Vice President, Kemper Financial Services, Inc.
KRUEGER, PAMELA D.
Vice President, Kemper Financial Services, Inc.
C-17
<PAGE> 151
KYCE, JOYCE
Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Service Company
LeFEBVRE, THOMAS J.
Vice President, Kemper Financial Services, Inc.
MANGIPUDI, V. RAO
Vice President, Kemper Financial Services, Inc.
McGOVERN, KAREN B.
Vice President, Kemper Financial Services, Inc.
MILLER, MAUREEN A.
Vice President, Kemper Financial Services, Inc.
MITCHELL, KATHERINE H.
Vice President, Kemper Financial Services, Inc.
MURPHY, THOMAS M.
Vice President, Kemper Financial Services, Inc.
NEVILLE, BRIAN P.
Vice President, Kemper Financial Services, Inc.
PANOZZO, ALBERT R.
Vice President, Kemper Financial Services, Inc.
PONTECORE, SUSAN E.
Vice President, Kemper Financial Services, Inc.
QUADRINI, LISA L.
Vice President, Kemper Financial Services, Inc.
ROKOSZ, PAUL A.
Vice President, Kemper Financial Services, Inc.
ROSE, KATIE M.
Vice President, Kemper Financial Services, Inc.
SHULTZ, KAREN D.
Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Service Company
SMITH, ROBERT G.
Vice President, Kemper Financial Services, Inc.
SOPHER, EDWARD O.
Vice President, Kemper Financial Services, Inc.
STROMM, LAWRENCE D.
Vice President, Kemper Financial Services, Inc.
C-18
<PAGE> 152
TEPPER, SHARYN A.
Vice President, Kemper Financial Services, Inc.
VANDEMERKT, RICHARD J.
Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Service Company
WATKINS, JAMES K.
Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Service Company
WERTH, ELIZABETH C.
Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Distributors, Inc.
Assistant Secretary, Kemper Mutual Funds
Assistant Secretary, Kemper International Bond Fund
Assistant Secretary, Kemper Target Equity Fund
Assistant Secretary, Sterling Funds
Assistant Secretary, Kemper-Dreman Fund, Inc.
Assistant Secretary, Kemper Horizon Fund
WIZER, BARBARA K.
Vice President, Kemper Financial Services, Inc.
ZURAWSKI, CATHERINE N.
Vice President, Kemper Financial Services, Inc.
C-19
<PAGE> 153
ITEM 29. PRINCIPAL UNDERWRITER
(a) Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper Mutual
Funds, Kemper Investors Fund, Kemper International Bond
Fund and Kemper-Dreman Fund, Inc.
(b) Information on the officers and directors of Kemper Distributors,
Inc., principal underwriter for the Registrant is set forth below. The
principal business address is 120 South LaSalle Street, Chicago, Illinois
60603.
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES OFFICES WITH
NAME WITH UNDERWRITER REGISTRANT
---- --------------------- -------------
<S> <C> <C>
John E. Peters Principal Director, President Vice President
William E. Chapman, II Director, Executive Vice President None
James L. Greenawalt Director, Executive Vice President None
John E. Neal Director None
Stephen B. Timbers Director President, Trustee
Patrick H. Dudasik Financial Principal, Treasurer
and Chief Financial Officer None
Linda A. Bercher Senior Vice President None
Thomas V. Bruns Senior Vice President None
Terry Cunningham Senior Vice President None
Daniel T. O'Lear Senior Vice President None
John H. Robison, Jr. Senior Vice President None
Henry J. Schulthesz Senior Vice President None
David F. Dierenfeldt Vice President, Secretary None
Carlene D. Merold Vice President None
Elizabeth C. Werth Vice President Assistant Secretary
Kathleen A. Gallichio Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
</TABLE>
(c) Not applicable.
C-20
<PAGE> 154
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All such accounts, books and other documents are maintained at the offices
of the Registrant, the offices of Registrant's investment adviser, Kemper
Financial Services, Inc. and Registrant's principal underwriter, Kemper
Distributors, Inc., 120 South LaSalle Street, Chicago, Illinois 60603, at the
offices of the custodian and transfer agent, Investors Fiduciary Trust Company,
127 West 10th Street, Kansas City, Missouri 64105 or at the offices of the
Shareholder Service Agent, Kemper Service Company, 811 Main Street, Kansas City,
Missouri 64105.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Not applicable.
C-21
<PAGE> 155
S I G N A T U R E S
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, the Registrant
certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused
this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of
Chicago and State of Illinois, on the 28th day of November,
1995.
KEMPER INCOME AND CAPITAL
PRESERVATION FUND
By /s/ Stephen B. Timbers
------------------------------
Stephen B. Timbers, President
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement has been signed below on
November 28, 1995 on behalf of the following persons in the
capacities indicated.
Signature Title
--------- -----
/s/ Stephen B. Timbers President
-------------------------------------- (Principal
Stephen B. Timbers Executive Officer)
and Trustee
/s/David W. Belin* Trustee
--------------------------------------
/s/Lewis A. Burnham* Trustee
--------------------------------------
/s/Donald L. Dunaway* Trustee
--------------------------------------
/s/Robert B. Hoffman* Trustee
--------------------------------------
/s/Donald R. Jones* Trustee
--------------------------------------
/s/David B. Mathis* Trustee
--------------------------------------
/s/Shirley D. Peterson* Trustee
--------------------------------------
/s/William P. Sommers* Trustee
--------------------------------------
/s/ Jerome L. Duffy
-------------------------------------- Treasurer
Jerome L. Duffy (Principal
Financial and
Accounting Officer)
*Philip J. Collora signs this document pursuant to powers of
attorney filed herewith.
/s/ Philip J. Collora
--------------------------------
Philip J. Collora
<PAGE> 156
KEMPER INCOME AND CAPITAL PRESERVATION FUND
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibits
99.B1 Amended and Restated Agreement and Declaration of Trust
99.B2 By-Laws
99.B3 Inapplicable
99.B4(a) Text of Share Certificate
99.B4(b) Written Instrument Establishing and Designating Separate Classes of
Shares
99.B5 Investment Management Agreement
99.B6(a) Underwriting and Distribution Services Agreement
99.B6(b) Assignment and Assumption
99.B6(c) Selling Group Agreement
99.B7 Inapplicable
99.B8(a) Custody Agreement (Form 1)
99.B8(b) Custody Agreement (Form 2)
99.B9(a) Agency Agreement
99.B9(b) Supplement to Agency Agreement
99.B9(c) Administrative Services Agreement
99.B9(d) Amendment to Administrative Services Agreement
99.B9(e) Assignment and Assumption
99.B9(f) Amended Appendix I for Administrative Services Agreement
99.B10 Inapplicable
99.B11 Report and Consent of Independent Auditors
99.B12 Inapplicable
99.B13 Inapplicable
99.B14(a) Kemper Retirement Plan Prototype
99.B14(b) Model Individual Retirement Account
99.B15 See 6(a) above (Class B and Class C shares)
99.B16 Performance Calculations*
99.B18 Multi-Distribution System Plan
99.B24 Powers of Attorney
99.485(b) Representation of Counsel (Rule 485(b)).
.27All Financial Data Schedule
.27A Financial Data Schedule
.27B Financial Data Schedule
.27C Financial Data Schedule
.27I Financial Data Schedule
</TABLE>
- ---------------
* Incorporated herein by reference to the Post-Effective Amendment to
Registrant's Registration Statement on Form N-1A identified below.
<TABLE>
<CAPTION>
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. FILING DATE
- ------------- ---------------------------- -----------
<S> <C> <C>
16 29 2/17/89
</TABLE>
<PAGE> 1
EXHIBIT 99.B1
KEMPER INCOME AND CAPITAL PRESERVATION FUND
AMENDED AND RESTATED
AGREEMENT AND DECLARATION OF TRUST
WHEREAS, Article IX, Section 4 of the Agreement and
Declaration of Trust of Kemper Income and Capital
Preservation Fund dated October 24, 1985, provides that the
Agreement and Declaration of Trust may be amended at any time
by an instrument in writing signed by a majority of the then
Trustees when authorized so to do by vote of Shareholders
holding a majority of the Shares entitled to vote; and
WHEREAS, the holders of a majority of the Shares entitled
to vote have authorized this Amendment and Restatement of
said Agreement and Declaration of Trust;
NOW, THEREFORE, said Agreement and Declaration of Trust
is amended and restated to read in its entirety as follows:
WITNESSETH
WHEREAS, this Trust has been formed for the purposes of
carrying on the business of a management investment company;
and
WHEREAS, in furtherance of such purposes, the Trustees
have acquired and may hereafter acquire assets and
properties, to hold and manage as trustees of a Massachusetts
voluntary association with transferable shares in accordance
with the provisions hereinafter set forth;
NOW, THEREFORE, the Trustees hereby declare that they
will hold all cash, securities and other assets and
properties which they may from time to time acquire in any
manner as Trustees hereunder IN TRUST to manage and dispose
of the same upon the following terms and conditions for the
pro rata benefit of the holders from time to time of shares
in this Trust as hereinafter set forth.
<PAGE> 2
ARTICLE I
Name and Definitions
Name and Registered Agent
Section 1. This Trust shall be known as Kemper Income
and Capital Preservation Fund and the Trustees shall conduct
the business of the Trust under that name or any other name
as they may from time to time determine. The registered
agent for the Trust in Massachusetts shall be CT Corporation
System whose address is 2 Oliver Street, Boston,
Massachusetts or such other person as the Trustees may from
time to time designate.
Definitions
Section 2. Whenever used herein, unless otherwise
required by the context or specifically provided:
(a) The "Trust" refers to the Massachusetts voluntary
association established by this Agreement and Declaration of
Trust, as amended from time to time, pursuant to
Massachusetts General Laws, Chapter 182;
(b) "Trustees" refers to the Trustees of the Trust named
herein or elected in accordance with Article IV and then in
office;
(c) "Shares" mean the equal proportionate transferable
units of interest into which the beneficial interest in the
Trust shall be divided from time to time or, if more than one
series or class of shares is authorized under or pursuant to
Article III, the equal proportionate transferable units of
interest into which each such series or class shall be
divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act
of 1940 (and any successor statute) and the Rules and
Regulations thereunder, all as amended from time to time;
(f) The terms "Affiliated Person", "Assignment",
"Commission", "Interested Person", "Principal Underwriter"
and "vote of a majority of the outstanding voting securities"
shall have the meanings given them in the 1940 Act;
2
<PAGE> 3
(g) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust as amended or restated from time to
time;
(h) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time;
(i) "Net asset value" shall have the meaning set forth
in Section 6 of Article VI hereof;
(j) The terms "series" or "series of Shares" refers to
the one or more separate investment portfolios of the Trust
authorized under or pursuant to Article III into which the
assets and liabilities of the Trust may be divided and the
Shares of the Trust representing the beneficial interest of
Shareholders in such respective portfolios; and
(k) The terms "class" or "class of Shares" refers to the
division of Shares representing any series into two or more
classes authorized under or pursuant to Article III.
ARTICLE II
Nature and Purpose
The Trust is a voluntary association (commonly known as a
business trust) of the type referred to in Chapter 182 of the
General Laws of the Commonwealth of Massachusetts. The Trust
is not intended to be, shall not be deemed to be, and shall
not be treated as, a general or a limited partnership, joint
venture, corporation or joint stock company, nor shall the
Trustees or Shareholders or any of them for any purpose be
deemed to be, or be treated in any way whatsoever as though
they were, liable or responsible hereunder as partners or
joint venturers. The purpose of the Trust is to engage in,
operate and carry on the business of an open-end management
investment company and to do any and all acts or things as
are necessary, convenient, appropriate, incidental or
customary in connection therewith.
3
<PAGE> 4
ARTICLE III
Shares
Division of Beneficial Interest
Section 1. The Shares of the Trust shall be issued in
one or more series as the Trustees may, without Shareholder
approval, authorize from time to time. Each series shall be
preferred over all other series in respect of the assets
allocated to that series as hereinafter provided. The
beneficial interest in each series shall at all times be
divided into Shares (without par value) of such series, each
of which shall, except as provided in the following sentence,
represent an equal proportionate interest in such series with
each other Share of the same series, none having priority or
preference over another Share of the same series. The
Trustees may, without Shareholder approval, divide the Shares
of any series into two or more classes, Shares of each such
class having such preferences and special or relative rights
or privileges (including conversion rights, if any) as the
Trustees may determine. The number of Shares authorized
shall be unlimited, and the Shares so authorized may be
represented in part by fractional Shares. The Trustees may
from time to time divide or combine the shares of any series
or class into a greater or lesser number without thereby
changing the proportionate beneficial interests in the series
or class. Without limiting the authority of the Trustees set
forth in this Section 1 to establish and designate any
further series or class, the Trustees hereby establish and
designate one series of Shares to be known as the "Initial
Portfolio." The establishment and designation of any series
or class of Shares in addition to the foregoing shall be
effective upon the execution by a majority of the then
Trustees of an instrument setting forth such establishment
and designation and the relative rights and preferences of
such series or class. As provided in Article IX, Section 1
hereof, any series or class of Shares (whether or not there
shall then be Shares outstanding of said series or class) may
be terminated by the Trustees by written notice to the
Shareholders of such series or class or by the vote of the
Shareholders of such series or class entitled to vote more
than fifty percent (50%) of the votes entitled to be cast on
the matter. In the event of any such termination, a majority
of the then Trustees shall execute an instrument setting
forth the termination of such series or class.
4
<PAGE> 5
Ownership of Shares
Section 2. The ownership and transfer of Shares shall be
recorded on the books of the Trust or its transfer or similar
agent. No certificates certifying the ownership of Shares
shall be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such
rules as they consider appropriate for the issuance of Share
certificates, the transfer of Shares and similar matters.
The record books of the Trust as kept by the Trust or any
transfer or similar agent of the Trust, as the case may be,
shall be conclusive as to who are the Shareholders of each
series or class and as to the number of Shares of each series
or class held from time to time by each Shareholder.
Investment in the Trust; Assets of a Series
Section 3. The Trustees may issue Shares of the Trust to
such persons and on such terms and, subject to any
requirements of law, for such consideration, which may
consist of cash or tangible or intangible property or a
combination thereof, as they may from time to time authorize.
All consideration received by the Trust for the issue or
sale of Shares of a particular series, together with all
income, earnings, profits, and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation
thereof, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may
be, shall, irrevocably belong to such series of Shares for
all purposes, subject only to the rights of creditors, and
shall be so handled upon the books of account of the Trust
and are herein referred to as "assets of" such series. Any
allocation of the assets of a series among any classes of
Shares of such series shall be made in a manner consistent
with the preferences and special or relative rights or
privileges of such classes.
Right to Refuse Orders
Section 4. The Trust by action of its Trustees shall
have the right to refuse to accept any subscription for its
Shares at any time without any cause or reason therefore
whatsoever. Without limiting the foregoing, the Trust shall
have the right not to accept subscriptions under
circumstances or in amounts as the Trustees in their sole
discretion consider to be disadvantageous to existing
Shareholders and the Trust may from time to time set minimum
5
<PAGE> 6
and/or maximum amounts which may be invested in Shares by a
subscriber.
Order in Proper Form
Section 5. The criteria for determining what constitutes
an order in proper form and the time of receipt of such an
order by the Trust shall be prescribed by resolution of the
Trustees.
When Shares Become Outstanding
Section 6. Shares subscribed for and for which an order
in proper form has been received shall be deemed to be
outstanding as of the time of acceptance of the order
therefor and the determination of the net price thereof,
which price shall be then deemed to be an asset of the Trust.
Merger or Consolidation
Section 7. In connection with the acquisition of all or
substantially all the assets or stock of another investment
company, investment trust, or of a company classified as a
personal holding company under Federal Income Tax laws, the
Trustees may issue or cause to be issued Shares of a series
or class and accept in payment therefor, in lieu of cash,
such assets at their market value, or such stock at the
market value of the assets held by such investment company or
investment trust, either with or without adjustment for
contingent costs or liabilities.
No Preemptive Rights, Etc.
Section 8. Shareholders shall have no preemptive or
other right to receive, purchase or subscribe for any
additional Shares or other securities issued by the Trust.
The Shareholders shall have no appraisal rights with respect
to their Shares and, except as otherwise determined by the
Trustees in their sole discretion, shall have no exchange or
conversion rights with respect to their Shares.
Status of Shares and Limitation of Personal Liability
Section 9. Shares shall be deemed to be personal
property giving only the rights provided in this instrument.
Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the
6
<PAGE> 7
terms of the Declaration of Trust and to have become a party
thereto. The death of a Shareholder during the continuance
of the Trust shall not operate to terminate the same nor
entitle the representative of any deceased Shareholder to an
accounting or to take any action in court or elsewhere
against the Trust or the Trustees, but only to the rights of
said decedent under this Trust. Ownership of Shares shall
not entitle the Shareholder to any title in or to the whole
or any part of the Trust property or right to call for a
partition or division of the same or for an accounting, nor
shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any
officer, employee or agent of the Trust shall have any power
to bind personally any Shareholder, nor except as
specifically provided herein to call upon any Shareholder for
the payment of any sum of money or assessment whatsoever
other than such as the Shareholder may at any time personally
agree to pay.
Shareholder Inspection Rights
Section 10. Any Shareholder or his agent may inspect and
copy during normal business hours any of the following
documents of the Trust: By-Laws, minutes of the proceedings
of the Shareholders and annual financial statements of the
Trust, including a balance sheet and financial statements of
operations. The foregoing rights of inspection of
Shareholders of the Trust are the exclusive and sole rights
of the Shareholders with respect thereto and no Shareholder
of the Trust shall have, as a Shareholder, the right to
inspect or copy any of the books, records or other documents
of the Trust except as specifically provided in this Section
10 of this Article III or except as otherwise determined by
the Trustees.
ARTICLE IV
The Trustees
Number, Designation, Election, Term, Etc.
Section 1.
(a) Initial Trustee. Robert J. Engling, the initial
Trustee, appointed other Trustees pursuant to subsection (c)
of this Section 1 and then resigned.
7
<PAGE> 8
(b) Number. The Trustees serving as such, whether named
above or hereafter becoming Trustees, may increase or
decrease the number of Trustees to a number other than the
number theretofore determined which number shall not be less
than three nor more than fifteen except during the period
that the initial Trustee named above is sole Trustee. No
decrease in the number of Trustees shall have the effect of
removing any Trustee from office prior to the expiration of
his term, but the number of Trustees may be decreased in
conjunction with the removal of a Trustee pursuant to
subsection (e) of this Section 1.
(c) Term and Election. Each Trustee, whether named
above or hereafter becoming a Trustee, shall serve as a
Trustee until the next meeting of Shareholders, if any,
called for the purpose of considering the election or re-
election of such Trustee or of a successor to such Trustee,
and until the election and qualification of his successor, if
any, elected at such meeting, or until such Trustee sooner
dies, resigns, retires or is removed. Upon the election and
qualification of a new Trustee, the Trust estate shall vest
in the new Trustee (together with the continuing or other new
Trustees) without any further act or conveyance. Prior to
any sale of Shares pursuant to any public offering, the
initial Trustee named above shall have the right to appoint
other persons as Trustees each to serve as Trustees as
aforesaid until the first meeting of Shareholders called for
the purpose of the election or re-election of such Trustee or
of a successor to such Trustee.
(d) Resignation and Retirement. Any Trustee may resign
his trust or retire as a Trustee, by written instrument
signed by him and delivered to the other Trustees or to the
Chairman of the Board, if any, the President or the Secretary
of the Trust, and such resignation or retirement shall take
effect upon such delivery or upon such later date as is
specified in such instrument.
(e) Removal. Any Trustee may be removed for cause at
any time by written instrument, signed by at least a
majority of the number of Trustees prior to such removal,
specifying the date upon which such removal shall become
effective. Any Trustee may be removed with or without cause
(i) by the vote of the Shareholders entitled to vote more
than fifty percent (50%) of the votes entitled to be cast on
the matter voting together without regard to series or class
at any meeting called for such purpose, or (ii) by a written
consent filed with the custodian of the Trust's portfolio
securities and executed by the Shareholders entitled to vote
more than fifty percent (50%) of the votes entitled to be
cast on the matter voting together without regard to series
or class.
8
<PAGE> 9
Whenever ten or more Shareholders of record who have been
such for at least six months preceding the date of
application, and who hold in the aggregate Shares
constituting at least one percent of the outstanding Shares
of the Trust, shall apply to the Trustees in writing, stating
that they wish to communicate with other Shareholders with a
view to obtaining signatures to a request for a meeting to
consider removal of a Trustee and accompanied by a form of
communication and request that they wish to transmit, the
Trustees shall within five business days after receipt of
such application inform such applicants as to the approximate
cost of mailing to the Shareholders of record the proposed
communication and form of request. Upon the written request
of such applicants, accompanied by a tender of the material
to be mailed and of the reasonable expenses of mailing, the
Trustees shall, within reasonable promptness, mail such
material to all Shareholders of record at their addresses as
recorded on the books of the Trust. Notwithstanding the
foregoing, the Trustees may refuse to mail such material on
the basis and in accordance with the procedures set forth in
the last two paragraphs of Section 16(c) of the 1940 Act.
(f) Vacancies. Any vacancy or anticipated vacancy
resulting from any reason, including without limitation the
death, resignation, retirement, removal or incapacity of any
of the Trustees, or resulting from an increase in the number
of Trustees by the other Trustees may (but so long as there
are at least three remaining Trustees, need not unless
required by the 1940 Act) be filled either by a majority of
the remaining Trustees, even if less than a quorum, through
the appointment in writing of such other person as such
remaining Trustees in their discretion shall determine or,
whenever deemed appropriate by the remaining Trustees, by the
election by the Shareholders, at a meeting called for such
purpose, of a person to fill such vacancy. Upon the
appointment or election and qualification of a new Trustee as
aforesaid, the Trust estate shall vest in the new Trustee,
together with the continuing Trustees, without any further
act or conveyance, except that any such appointment or
election in anticipation of a vacancy to occur by reason of
retirement, resignation, or increase in number of Trustees to
be effective at a later date shall become effective only at
or after the effective date of said retirement, resignation,
or increase in number of Trustees.
(g) Mandatory Election by Shareholders. Notwithstanding
the foregoing provisions of this Section 1, the Trustees
shall call a meeting of the Shareholders for the election of
one or more Trustees at such time or times as may be required
in order that the provisions of the 1940 Act may be complied
with, and the authority hereinabove provided for the Trustees
to appoint any successor Trustee or Trustees shall be
9
<PAGE> 10
restricted if such appointment would result in failure of the
Trust to comply with any provision of the 1940 Act.
(h) Effect of Death, Resignation, Etc. The death,
resignation, retirement, removal or incapacity of the
Trustees, or any one of them, shall not operate to annul or
terminate the Trust or to revoke or terminate any existing
agency or contract created or entered into pursuant to the
terms of this Declaration of Trust.
(i) No Accounting. Except under circumstances which
would justify his removal for cause, no person ceasing to be
a Trustee as a result of his death, resignation, retirement,
removal or incapacity (nor the estate of any such person)
shall be required to make an accounting to the Shareholders
or remaining Trustees upon such cessation.
Powers
Section 2. The Trustees, subject only to the specific
limitations contained in this Declaration of Trust or
otherwise imposed by the 1940 Act or other applicable law,
shall have, without further or other authorization and free
from any power or control of the Shareholders, full, absolute
and exclusive power, control and authority over the Trust
assets and the business and affairs of the Trust to the same
extent as if the Trustees were the sole and absolute owners
thereof in their own right and to do all such acts and things
as in their sole judgment and discretion are necessary and
incidental to, or desirable for the carrying out of any of
the purposes of the Trust or conducting the business of the
Trust. Any determination made in good faith by the Trustees
of the purposes of the Trust or the existence of any power or
authority hereunder shall be conclusive. In construing the
provisions of this Declaration of Trust, there shall be a
presumption in favor of the grant of power and authority to
the Trustees. Without limiting the foregoing, the Trustees
may adopt By-Laws not inconsistent with this Declaration of
Trust containing provisions relating to the business of the
Trust, the conduct of its affairs, its rights or powers and
the rights or powers of its Shareholders, Trustees, officers,
employees and other agents and may amend and repeal them to
the extent that such By-Laws do not reserve that right to the
Shareholders; fill vacancies in their number, including
vacancies resulting from increases in their number, unless a
vote of the Trust's Shareholders is required to fill such
vacancies pursuant to the 1940 Act; elect and remove such
officers and appoint and terminate such agents as they
consider appropriate; appoint from their own number, and
terminate, any one or more committees consisting of two or
more Trustees, including an executive committee which may,
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when the Trustees are not in session, exercise some or all of
the powers and authority of the Trustees as the Trustees may
determine; appoint an advisory board, the members of which
shall not be Trustees and need not be Shareholders; employ
one or more investment advisers or managers as provided in
Section 6 of this Article IV; employ one or more custodians
of the assets of the Trust and authorize such custodians to
employ subcustodians and to deposit all or any part of such
assets in a system or systems for the central handling of
securities; retain a transfer agent or a Shareholder services
agent, or both; provide for the distribution of Shares by the
Trust, through one or more principal underwriters or
otherwise; set record dates for the determination of
Shareholders with respect to various matters; and in general
delegate such authority as they consider desirable to any
officer of the Trust, to any committee of the Trustees and to
any agent or employee of the Trust or to any such custodian
or underwriter.
In furtherance of and not in limitation of the foregoing,
the Trustees shall have power and authority:
(a) To invest and reinvest in, to buy or otherwise
acquire, to hold, for investment or otherwise, to sell or
otherwise dispose of, to lend or to pledge, to trade in or
deal in securities or interests of all kinds, however
evidenced, or obligations of all kinds, however evidenced, or
rights, warrants, or contracts to acquire such securities,
interests, or obligations, of any private or public company,
corporation, association, general or limited partnership,
trust or other enterprise or organization, foreign or
domestic, or issued or guaranteed by any national or state
government, foreign or domestic, or their agencies,
instrumentalities or subdivisions (including but not limited
to, bonds, debentures, bills, time notes and all other
evidences of indebtedness); negotiable or non-negotiable
instruments; any and all futures contracts; government
securities and money market instruments (including but not
limited to, bank certificates of deposit, finance paper,
commercial paper, bankers acceptances, and all kinds of
repurchase agreements);
(b) To invest and reinvest in, to buy or otherwise
acquire, to hold, for investment or otherwise, to sell or
otherwise dispose of foreign currencies, and funds and
exchanges, and make deposits in banks, savings banks, trust
companies, and savings and loan associations, foreign or
domestic;
(c) To acquire (by purchase, lease or otherwise) and to
hold, use, maintain, develop, and dispose of (by sale or
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<PAGE> 12
otherwise) any property, real or personal, and any interest
therein;
(d) To sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the
assets of the Trust;
(e) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or
property; and to execute and deliver proxies or powers of
attorney to such person or persons as the Trustees shall deem
proper, granting to such person or persons such power and
discretion with relation to securities or property as the
Trustees shall deem proper;
(f) To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of
securities;
(g) To hold any security or property in a form not
indicating any trust, whether in bearer, unregistered or
other negotiable form, or in the name of the Trustees or of
the Trust or in the name of a custodian, subcustodian or
other depositary or a nominee or nominees or otherwise;
(h) Subject to the provisions of Article III, to
allocate assets, liabilities, income and expenses of the
Trust to a particular series of Shares or to apportion the
same among two or more series, provided that any liabilities
or expenses incurred by a particular series shall be payable
solely out of the assets of that series; and to the extent
necessary or appropriate to give effect to the preferences
and special or relative rights or privileges of any classes
of Shares, to allocate assets, liabilities, income and
expenses of a series to a particular class of Shares of that
series or to apportion the same among two or more classes of
Shares of that series;
(i) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
issuer, any security or property of which is or was held in
the Trust; to consent to any contract, lease, mortgage,
purchase or sale of property by such corporation or issuer,
and to pay calls or subscriptions with respect to any
security held in the Trust;
(j) To join with other security holders in acting
through a committee, depositary, voting trustee or otherwise,
and in that connection to deposit any security with, or
transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority
with relation to any security (whether or not so deposited or
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<PAGE> 13
transferred) as the Trustees shall deem proper, and to agree
to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the
Trustees shall deem proper;
(k) To compromise, arbitrate or otherwise adjust claims
in favor of or against the Trust or any matter in
controversy, including but not limited to claims for taxes;
(l) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(m) To borrow funds;
(n) To endorse or guarantee the payment of any notes or
other obligations of any person; to make contracts of
guaranty or suretyship, or otherwise assume liability for
payment thereof; and to mortgage and pledge the Trust
property or any part thereof to secure any of or all such
obligations;
(o) To purchase and pay for entirely out of Trust
property such insurance as they may deem necessary or
appropriate for the conduct of the business, including,
without limitation, insurance policies insuring the assets of
the Trust and payment of distribution and principal on its
portfolio investments, and insurance policies insuring the
Shareholders, Trustees, officers, employees, agents,
investment advisers or managers, principal underwriters, or
independent contractors of the Trust individually against all
claims and liabilities of every nature arising by reason of
holding, being or having held any such office or position, or
by reason of any action alleged to have been taken or omitted
by any such person as Shareholder, Trustee, officer,
employee, agent, investment adviser or manager, principal
underwriter, or independent contractor, including any action
taken or omitted that may be determined to constitute
negligence, whether or not the Trust would have the power to
indemnify such person against such liability; and
(p) To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and
carry out pension, profit-sharing, share bonus, share
purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means
of providing such retirement and other benefits, for any or
all of the Trustees, officers, employees and agents of the
Trust.
The Trustees shall not in any way be bound or limited by
any present or future law or custom in regard to investments
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by trustees of common law trusts. Except as otherwise
provided herein or from time to time in the By-Laws, any
action to be taken by the Trustees may be taken by a majority
of the Trustees present at a meeting of Trustees (if a quorum
by present), within or without Massachusetts, including any
meeting held by means of a conference telephone or other
communications equipment by means of which all persons
participating in the meeting can communicate with each other
simultaneously and participation by such means shall
constitute presence in person at a meeting, or by written
consents of a majority of the Trustees then in office.
Payment of Expenses, Allocation of Liabilities
Section 3. The Trustees are authorized to pay or to
cause to be paid out of the principal or income of the Trust,
or partly out of principal and partly out of income, as they
deem fair, all expenses, fees, charges, taxes and liabilities
incurred or arising in connection with the Trust, or in
connection with the management thereof, including, but not
limited to, the Trustees' compensation and such expenses and
charges for the services of the Trust's officers, employees,
investment adviser or manager, principal underwriter,
auditor, counsel, custodian, transfer agent, shareholder
servicing agent, and such other agents or independent
contractors and such other expenses and charges as the
Trustees may deem necessary or proper to incur.
The assets of a particular series of Shares shall be
charged with the liabilities (including, in the discretion of
the Trustees or their delegate, accrued expenses and
reserves) incurred in respect of such series (but not with
liabilities incurred in respect of any other series) and such
series shall also be charged with its share of any other
liabilities. Any allocation of the liabilities of a series
among classes of Shares of that series shall be done in a
manner consistent with the preferences and special or
relative rights or privileges of such classes. The
determination of the Trustees shall be final and conclusive
as to the amount of liabilities to be charged to one or more
particular series or class. The Trustees may delegate from
time to time the power to make such allocation to one or more
Trustees or to an agent of the Trust appointed for such
purpose. The liabilities with which a series is so charged
are herein referred to as the "liabilities of" such series.
Section 4. The Trustees shall have the power, as
frequently as they may determine, to cause each Shareholder
to pay directly, in advance or arrears, for charges for the
Trust's custodian or transfer or shareholder service or
similar agent, an amount fixed from time to time by the
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<PAGE> 15
Trustees, by setting off such charges due from such
Shareholder from declared but unpaid dividends owed such
Shareholder and/or by reducing the number of Shares in the
account of such Shareholder by that number of full and/or
fractional shares which represents the outstanding amount of
such charges due from such Shareholder.
Ownership of Assets of the Trust
Section 5. Title to all of the assets of each series of
the Trust and of the Trust shall at all times be considered
as vested in the Trustees.
Advisory, Management and Distribution
Section 6. Subject to a favorable vote of a majority of
the outstanding voting securities of a series of the Trust,
the Trustees may on behalf of such series, at any time and
from time to time, contract for exclusive or nonexclusive
advisory and/or management services for such series with a
corporation, trust, association or other organization, every
such contract to comply with such requirements and
restrictions as may be set forth in the By-Laws; and any such
contract may contain such other terms interpretive of or in
addition to said requirements and restrictions as the
Trustees may determine, including, without limitation,
authority to determine from time to time what investments
shall be purchased, held, sold or exchanged and what portion,
if any, of the assets of such series shall be held uninvested
and to make changes in such series' investments. The
Trustees may also, at any time and from time to time,
contract with a corporation, trust, association or other
organization, appointing it exclusive or nonexclusive
distributor or principal underwriter for the Shares, every
such contract to comply with such requirements and
restrictions as may be set forth in the By-Laws; and any such
contract may contain such other terms interpretive of or in
addition to said requirements and restrictions as the
Trustees may determine.
The fact that:
(a) any of the Shareholders, Trustees or officers of
the Trust is a shareholder, director, officer, partner,
trustee, employee, manager, advisor, principal
underwriter, or distributor or agent of or for any
corporation, trust, association, or other organization,
or of or for any parent or affiliate of any organization,
with which an advisory or management or principal
underwriter's or distributor's contract, or transfer,
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<PAGE> 16
shareholder services or other agency contract may have
been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a
Shareholder or has an interest in the Trust, or that
(b) any corporation, trust, association or other
organization with which an advisory or management or
principal underwriter's or distributor's contract, or
transfer, shareholder services or other agency contract
may have been or may hereafter be made also has an
advisory or management contract, or principal
underwriter's or distributor's contract, or transfer,
shareholder services or other agency contract with one or
more other corporations, trusts, associations, or other
organizations, or has other businesses or interests shall
not affect the validity of any such contract or
disqualify any Shareholder, Trustee or officer of the
Trust from voting upon or executing the same or create
any liability or accountability to the Trust or its
Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Voting Powers
Section 1. Subject to the voting provisions of one or
more classes of Shares, the Shareholders shall have power to
vote only: (a) for the election or removal of Trustees as
provided in Article IV, Section 1; (b) with respect to any
investment advisor or manager as provided in Article IV,
Section 6; (c) with respect to any termination or
reorganization of the Trust or any series or class thereof to
the extent and as provided in Article IX, Section 1; (d) with
respect to any amendment of this Declaration of Trust to the
extent and as provided in Article IX, Section 4; and (e) with
respect to such additional matters relating to the Trust as
may be required by law, the 1940 Act, this Declaration of
Trust, the By-Laws or any registration of the Trust with the
Securities and Exchange Commission (or any successor agency)
or any state, or as the Trustees may consider necessary or
desirable.
Each whole Share shall be entitled to one vote as to any
matter on which it is entitled to vote and each fractional
Share shall be entitled to a proportionate fractional vote.
Notwithstanding any other provision of the Declaration of
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<PAGE> 17
Trust, on any matter submitted to a vote of Shareholders all
Shares of the Trust then entitled to vote shall, except to
the extent otherwise required or permitted by the preferences
and special or relative rights or privileges of any class of
Shares, be voted by individual series and not in the
aggregate or by class, except (a) when required by the 1940
Act, Shares shall be voted in the aggregate and not by
individual series; and (b) when the Trustees have determined
that the matter affects only the interests of one or more
series or classes, then only Shareholders of such series or
class shall be entitled to vote thereon. There shall be no
cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy.
A proxy with respect to Shares held in the name of two or
more persons shall be valid if executed by any one of them
unless at or prior to the exercise of the proxy the Trust
receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger.
Until Shares of any series or class are issued, the
Trustees may exercise all rights of Shareholders and may take
any action required by law, this Declaration of Trust or the
By-Laws to be taken by Shareholders of such series or class.
Shareholder Meetings
Section 2. Meetings of Shareholders (including meetings
involving only one or more but less than all series or
classes) may be called and held from time to time for the
purpose of taking action upon any matter requiring the vote
or authority of the Shareholders as herein provided or upon
any other matter deemed by the Trustees to be necessary or
desirable. Such meetings shall be held at the principal
office of the Trust as set forth in the By-Laws of the Trust
or at any such other place within the United States as may be
designated in the call thereof, which call shall be made by
the Trustees or the President of the Trust. Meetings of
Shareholders may be called by the Trustees or such other
person or persons as may be specified in the By-Laws upon
written application by Shareholders holding at least
twenty-five percent (25%) (or ten percent (10%)) if the
purpose of the meeting is to determine if a Trustee is to be
removed from office) of the Shares then outstanding of all
series and classes entitled to vote at such meeting
requesting a meeting be called for a purpose requiring action
by the Shareholders as provided herein or in the By-Laws
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which purpose shall be specified in any such written
application.
Shareholders shall be entitled to at least seven days'
written notice of any meeting of the Shareholders.
Quorum and Required Vote
Section 3. The presence at a meeting of Shareholders in
person or by proxy of Shareholders entitled to vote at least
thirty percent (30%) of all votes entitled to be cast at the
meeting of each series or class entitled to vote as a series
or class shall be a quorum for the transaction of business at
a Shareholders' meeting, except that where any provision of
law or of this Declaration of Trust permits or requires that
the holders of Shares shall vote in the aggregate and not as
a series or class, then the presence in person or by proxy of
Shareholders entitled to vote at least thirty percent (30%)
of all votes entitled to be cast at the meeting (without
regard to series or class) shall constitute a quorum. Any
lesser number, however, shall be sufficient for adjournments.
Any adjourned session or sessions may be held within a
reasonable time after the date set for the original meeting
without the necessity of further notice.
Except when a larger vote is required by any provisions
of the 1940 Act, this Declaration of Trust or the By-Laws, a
majority of the Shares of each series or class voted on the
matter shall decide that matter insofar as that series or
class is concerned, provided that where any provision of law,
this Declaration of Trust or the By-Laws permits or requires
that the holders of Shares vote in the aggregate and not as a
series or class, then a majority of the Shares voted on any
matter (without regard to series or class) shall decide such
matter and a plurality shall elect a Trustee.
Action by Written Consent
Section 4. Any action taken by Shareholders may be taken
without a meeting if Shareholders entitled to vote more than
fifty percent (50%) of the votes entitled to be cast on the
matter of each series or class or, where any provision of
law, this Declaration of Trust or the By-Laws permits or
requires that the holders of Shares vote in the aggregate and
not as a series or class, if Shareholders entitled to vote
more than fifty percent (50%) of the votes entitled to be
cast thereon (without regard to series or class) (or in
either case such larger vote as shall be required by any
provision of this Declaration of Trust or the By-Laws)
consent to the action in writing and such written consents
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are filed with the records of the meetings of Shareholders.
Such consent shall be treated for all purposes as a vote
taken at a meeting of Shareholders.
Additional Provisions
Section 5. The By-Laws may include further provisions
for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
ARTICLE VI
Distributions, Redemptions and Repurchases,
and Determination of Net Asset Value
Distributions
Section 1. The Trustees may in their sole discretion
from time to time distribute to the Shareholders of any
series such income and gains, accrued or realized, as the
Trustees may determine, after providing for actual and
accrued expenses and liabilities of such series (including such
reserves as the Trustees may establish) determined in
accordance with this Declaration of Trust and good accounting
practices. The Trustees shall have full discretion to determine
which items shall be treated as income and which items
as capital and their determination shall be binding upon the
Shareholders. Distributions to any series, if any be made,
shall be in Shares of such series, in cash or otherwise and
on a date or dates determined by the Trustees. At any time
and from time to time in their discretion, the Trustees may
distribute to the Shareholders of any series as of a record
date or dates determined by the Trustees, in Shares of such
series, in cash or otherwise, all or part of any gains realized
on the sale or disposition of property of the series or
otherwise, or all or part of any other principal of the Trust
attributable to the series. Except to the extent otherwise
required or permitted by the preferences and special or
relative rights or privileges of any classes of Shares of
that series, each distribution pursuant to this Section 1
shall be made ratably according to the number of Shares of
the series held by the several Shareholders on the applicable
record date thereof, provided that distributions from assets
of a series may only be made to the holders of the Shares of
such series and provided that no distributions need be made
on Shares purchased pursuant to orders received, or for which
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payment is made, after such time or times as the Trustees may
determine. Any distribution to the Shareholders of a particular
class of Shares shall be made to such Shareholders prorata in
proportion to the number of Shares of such class held by each
of them. Any distribution paid in Shares will be paid at the
net asset value thereof as determined in accordance with this
Declaration of Trust. The Trustees have the power, in their
discretion, to distribute for any year amounts sufficient to
enable the Trust to qualify as a "regulated investment
company" under the Internal Revenue Code as amended (or any
successor thereto) to avoid any liability for federal income
tax in respect of that year.
Redemptions and Repurchases
Section 2. Any holder of Shares of the Trust may, by
presentation of a request in proper form, together with his
certificates, if any, for such Shares, in proper form for
transfer to the Trust or duly authorized agent of the Trust,
request redemption of his shares for the net asset value
thereof determined and computed in accordance with the
provisions of this Section 2 and the provisions of Section 6
of this Article VI.
Upon receipt by the Trust or its duly authorized agent,
as the case may be, of such a request for redemption of
Shares in proper form, such Shares shall be redeemed at the
net asset value per share of the particular series or class
next determined after such request is received or determined
as of such other time fixed by the Trustees as may be
permitted or required by the 1940 Act. The criteria for
determining what constitutes a request for redemption in
proper form and the time of receipt of such request shall be
fixed by the Trustees.
The obligation of the Trust to redeem its Shares as set
forth above in this Section 2 shall be subject to the
condition that such obligation may be suspended by the Trust
by or under authority of the Trustees during any period or
periods when and to the extent permissible under the 1940
Act. If there is such a suspension, any Shareholder may
withdraw any request for redemption which has been received
by the Trust during any such period and the applicable net
asset value with respect to which would but for such
suspension be calculated as of a time during such period.
Upon such withdrawal, the Trust shall return to the
Shareholder the certificates therefor, if any.
The Trust may also purchase, repurchase or redeem Shares
in accordance with such other methods, upon such other terms
and subject to such other conditions as the Trustee may from
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time to time authorize at a price not exceeding the net asset
value of such Shares in effect when the purchase or
repurchase or any contract to purchase or repurchase is made.
Shares redeemed or repurchased by the Trust hereunder shall
be canceled upon such redemption or repurchase without
further action by the Trust or the Trustees and the number of
issued and outstanding Shares of the relevant series and
class shall thereupon by reduced by such amount.
Payment for Shares Redeemed
Section 3. Payment of the redemption price for Shares
redeemed pursuant to this Article VI shall be made by the
Trust or its duly authorized agent after receipt by the Trust
or its duly authorized agent of a request for redemption in
proper form (together with any certificates for such Shares
as provided in Section 2 above) in accordance with
procedures and subject to conditions prescribed by the
Trustees; provided, however, that payment may be postponed
during the period in which the redemption of Shares is
suspended under Section 2 above. Subject to any generally
applicable limitation imposed by the Trustees, any payment on
redemption, purchase or repurchase by the Trust of Shares
may, if authorized by the Trustees, be made wholly or partly
in kind, instead of in cash. Such payment in kind shall be
made by distributing securities or other property,
constituting, in the opinion of the Trustees, a fair
representation of the various types of securities and other
property then held by the series of Shares being redeemed,
purchased or repurchased (but not necessarily involving a
portion of each of the series' holdings) and taken at their
value used in determining the net asset value of the Shares
in respect of which payment is made.
Redemptions at the Option of the Trust
Section 4. The Trust shall have the right at its option
and at any time and from time to time to redeem Shares of any
Shareholder at the net asset value thereof as determined in
accordance with Section 6 of this Article VI, if at such time
such Shareholder owns fewer shares of a series or class than,
or Shares of a series or class having an aggregate net asset
value of less than, an amount determined from time to time by
the Trustees. Any such redemption at the option of the Trust
shall be made in accordance with such other criteria and
procedures for determining the Shares to be redeemed, the
redemption date and the means of effecting such redemption as
the Trustees may from time to time authorize.
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Additional Provisions Relating to Dividends, Redemptions and
Repurchases
Section 5. The completion of redemption, purchase or
repurchase of Shares shall constitute a full discharge of the
Trust and the Trustees with respect to such Shares. No
dividend or distribution (including, without limitation, any
distribution paid upon termination of the Trust or of any
series or class) with respect to, nor any redemption or
repurchase of, the Shares of any series or class shall be
effected by the Trust other than from the assets of such
series.
Determination of Net Asset Value
Section 6. The term "net asset value" of each Share of a
series or class as of any particular time shall be the
quotient obtained by dividing the value, as at such time, of
the net assets of such series or class (i.e., the value of
the assets of such series or class less the liabilities of
such series or class, exclusive of liabilities represented by
the Shares of such series or class) by the total number of
Shares of such series or class outstanding at such time, all
determined and computed in accordance with the Trust's
current prospectus.
The Trustees, or any officer, or officers or agent of the
Trust designated for the purpose by the Trustees shall
determine the net asset value of the Shares of each series or
class, and the Trustees shall fix the time or times as of
which the net asset value of the Shares of each series or
class shall be determined and shall fix the periods during
which any such net asset value shall be effective as to
sales, redemptions and repurchases of, and other transactions
in, the Shares of such series or class, except as such times
and periods for any such transaction may be fixed by other
provisions of this Declaration of Trust or by the By-Laws.
Determinations in accordance with this Section 6 made in
good faith shall be binding on all parties concerned.
How Long Shares are Outstanding
Section 7. Shares of the Trust surrendered to the Trust
for redemption by it pursuant to the provisions of Section 2
of this Article VI shall be deemed to be outstanding until
the redemption price thereof is determined pursuant to this
Article VI and, thereupon and until paid, the redemption
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price thereof shall be deemed to be a liability of the Trust.
Shares of the Trust purchased by the Trust in the open market
shall be deemed to be outstanding until confirmation of
purchase thereof by the Trust and, thereupon and until paid,
the purchase price thereof shall be deemed to be a liability
of the Trust. Shares of the Trust redeemed by the Trust
pursuant to Section 4 of this Article VI shall be deemed to
be outstanding until said Shares are deemed to be redeemed in
accordance with procedures adopted by the Trustees pursuant
to said Section 4.
ARTICLE VII
Compensation and Limitation of Liability of
Trustees and Shareholders
Section 1. The Trustees as such shall be entitled to
reasonable compensation from the Trust if the rate thereof is
prescribed by such Trustees. Nothing herein shall in any way
prevent the employment of any Trustee for advisory,
management, legal, accounting, investment banking or other
services and payment for the same by the Trust, it being
recognized that such employment may result in such Trustee
being considered an Affiliated Person or an Interested
Person.
Limitation of Liability
Section 2. The Trustees shall not be responsible or
liable in any event for any neglect or wrongdoing of any
officer, agent, employee, investment advisor or manager,
principal underwriter or custodian, nor shall any Trustee be
responsible for the act or omission of any other Trustee.
Nothing in this Declaration of Trust shall protect any
Trustee against any liability to which such Trustee would
otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate,
Share or undertaking and every other act or thing whatsoever
executed or done by or on behalf of the Trust or the Trustee
or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or
with respect to their or his capacity as Trustees or Trustee
and neither such Trustees or Trustee nor the Shareholders
shall be personally liable thereon.
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Every note, bond, contract, instrument, certificate or
undertaking made or issued by the Trustees or by any officers
or officer shall give notice that this Declaration of Trust
is on file with the Secretary of State of The Commonwealth of
Massachusetts and shall recite that the same was executed or
made by or on behalf of the Trust by them as Trustees or
Trustee or as officers or officer and not individually and
that the obligations of such instrument are not binding upon
any of them or the Shareholders individually but are binding
only upon the assets and property of the Trust or a
particular series of Shares, and may contain such further
recital as he or they may deem appropriate, but the omission
thereof shall not operate to bind any Trustees or Trustee or
officers or officer or Shareholders or Shareholder
individually.
All persons extending credit to, contracting with or
having any claim against the Trust or a particular series of
Shares shall look only to the assets of the Trust or the
assets of that particular series of Shares, as the case may
be, for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, nor any of the
Trust's officers, employees or agents, whether past, present
or future, shall be personally liable therefor.
Trustees' Good Faith Action, Expert Advice, No Bond or Surety
Section 3. The exercise by the Trustees of their powers
and discretions hereunder shall be binding upon everyone
interested. A Trustee shall be liable only for his own
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office
of Trustee, and for nothing else, and shall not be liable for
errors of judgment or mistakes of fact or law. The Trustees
may take advice of counsel or other experts with respect to
the meaning and operation of this Declaration of Trust and
their duties as Trustees hereunder, and shall be under no
liability for any act or omission in accordance with such
advice or for failing to follow such advice. In discharging
their duties, the Trustees, when acting in good faith, shall
be entitled to rely upon the books of account of the Trust
and upon written reports made to the Trustees by any officer
appointed by them, any independent public accountant and
(with respect to the subject matter of the contract involved)
any officer, partner or responsible employee of any other
party to any contract entered into pursuant to Section 2 of
Article IV. The Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.
24
<PAGE> 25
Liability of Third Persons Dealing with Trustees
Section 4. No person dealing with the Trustees shall be
bound to make any inquiry concerning the validity of any
transaction made or to be made by the Trustees or to see to
the application of any payments made or property transferred
to the Trust or upon its order.
ARTICLE VIII
Indemnification
Subject to the exceptions and limitations contained in
this Article, every person who is, or has been, a Trustee or
officer of the Trust (including persons who serve at the
request of the Trust as directors, officers or trustees of
another organization in which the Trust has an interest as a
shareholder, creditor or otherwise) hereinafter referred to
as a "Covered Person", shall be indemnified by the Trust to
the fullest extent permitted by law against liability and
against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue
of his being or having been such a Trustee, director or
officer and against amounts paid or incurred by him in
settlement thereof.
No indemnification shall be provided hereunder to a
Covered Person:
(a) against any liability to the Trust or its
Shareholders by reason of a final adjudication by the
court or other body before which the proceeding was
brought that he engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(b) with respect to any matter as to which he shall
have been finally adjudicated not to have acted in good
faith in the reasonable belief that his action was in the
best interest of the Trust; or
(c) in the event of a settlement or other
disposition not involving a final adjudication (as
provided in paragraph (a) or (b)) and resulting in a
payment by a Covered Person, unless there has been either
a determination that such Covered Person did not engage
in willful misfeasance, bad faith, gross negligence or
25
<PAGE> 26
reckless disregard of the duties involved in the conduct
of his office by the court or other body approving the
settlement or other disposition or a reasonable
determination, based on a review of readily available
facts (as opposed to a full trial-type inquiry) that he
did not engage in such conduct:
(i) by a vote of a majority of the Disinterested
Trustees acting on the matter (provided that a
majority of the Disinterested Trustees then in office
act on the matter); or
(ii) by written opinion of independent legal
counsel.
The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not affect any other rights to which any
Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be such a Covered
Person and shall inure to the benefit of the heirs, executors
and administrators of such a person. Nothing contained
herein shall affect any rights to indemnification to which
Trust personnel other than Covered Persons may be entitled by
contract or otherwise under law.
Expenses of preparation and presentation of a defense to
any claim, action, suit or proceeding subject to a claim for
indemnification under this Article shall be advanced by the
Trust prior to final disposition thereof upon receipt of an
undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled
to indemnification under this Article, provided that either:
(a) such undertaking is secured by a surety bond or
some other appropriate security or the Trust shall be
insured against losses arising out of any such advances;
or
(b) a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the
Disinterested Trustees then in office act on the matter)
or independent legal counsel in a written opinion shall
determine, based upon a review of the readily available
facts (as opposed to a full trial-type inquiry), that
there is reason to believe that the recipient ultimately
will be found entitled to indemnification.
As used in this Article, a "Disinterested Trustee" is one
(a) who is not an "interested person" of the Trust, as
defined in the 1940 Act (including anyone who has been
exempted from being an "interested person" by any rule,
26
<PAGE> 27
regulation or order of the Commission), and (b) against whom
none of such actions, suits or other proceedings or another
action, suit or other proceeding on the same or similar
grounds is then or has been pending.
As used in this Article, the words "claim", "action",
"suit" or "proceeding" shall apply to all claims, actions,
suits or proceedings (civil, criminal or other, including
appeals), actual or threatened; and the words "liability" and
"expenses" shall include without limitation, attorneys' fees,
cost, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
In case any Shareholder or former Shareholder shall be
held to be personally liable solely by reason of his or her
being or having been a Shareholder and not because of his or
her acts or omissions or for some other reason, the
Shareholder or former Shareholder (or his or her heirs,
executors, administrators or other legal representatives or
in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled to be held
harmless from and indemnified against all loss and expense
arising from such liability but only out of the assets of the
particular series of Shares of which he or she is or was a
Shareholder; provided, however, there shall be no liability
or obligation of the Trust arising hereunder to reimburse any
Shareholder for taxes paid by reason of such Shareholder's
ownership of Shares or for losses suffered by reason of any
changes in value of any Trust assets.
ARTICLE IX
Miscellaneous
Duration, Termination and Reorganization of Trust
Section 1. Unless terminated as provided herein, the
Trust shall continue without limitation of time. The Trust
may be terminated at any time by the Trustees by written
notice to the Shareholders without a vote of the Shareholders
of the Trust or by the vote of the Shareholders entitled to
vote more than fifty percent (50%) of the votes of each
series or class entitled to be cast on the matter. Any
series or class of Shares may be terminated at any time by
the Trustees by written notice to the Shareholders of such
series or class without a vote of the Shareholders of such
series or class or by the vote of the Shareholders of such
27
<PAGE> 28
series or class entitled to vote more than fifty percent
(50%) of the votes entitled to be cast on the matter.
Upon termination of the Trust or of any one or more
series or classes of Shares, after paying or otherwise
providing for all charges, taxes, expenses and liabilities,
whether due or accrued or anticipated, of the particular
series or class as may be determined by the Trustees, the
Trust shall in accordance with such procedures as the
Trustees consider appropriate reduce to the extent necessary
the remaining assets of the particular series to
distributable form in cash or other securities, or any
combination thereof, and distribute the proceeds to the
Shareholders of the series or class involved, ratably
according the number of Shares of such series or class held
by the several Shareholders of such series or class on the
date of termination. Any such distributions with respect to
any series which has one or more classes of Shares
outstanding shall be made ratably to such classes in the same
proportion as the number of Shares of each class bears to the
total number of Shares of the series, except to the extent
otherwise required or permitted by the preferences and
special or relative rights or privileges of any classes of
Shares of any such series.
At any time by the affirmative vote of the Shareholders
of the affected series entitled to vote more than fifty
percent (50%) of the votes entitled to be cast on the matter,
the Trustees may sell, convey and transfer the assets of the
Trust, or the assets belonging to any one or more series, to
another trust, partnership, association or corporation
organized under the laws of any state of the United States,
or to the Trust to be held as assets belonging to another
series of the Trust, in exchange for cash, shares or other
securities (including, in the case of a transfer to another
series of the Trust, Shares of such other series) with such
transfer being made subject to or with the assumption by the
transferee of, the liabilities belonging to each series the
assets of which are so distributed. Following such transfer,
the Trustees shall distribute such cash, shares or other
securities (giving due effect to the assets and liabilities
belonging to and any other differences among the various
series the assets belonging to which have so been
transferred) among the Shareholders of the series the assets
belonging to which have been so transferred; and if all the
assets of the Trust have been so distributed, the Trust shall
be terminated.
28
<PAGE> 29
Filing of Copies, References, Headings
Section 2. The original or a copy of this instrument and
of each amendment hereto shall be kept at the office of the
Trust where it may be inspected by any Shareholder. A copy
of this instrument and of each amendment hereto shall be
filed by the Trust with the Secretary of State of The
Commonwealth of Massachusetts and with the Boston City Clerk,
as well as any other governmental office where such filing
may from time to time be required. Anyone dealing with the
Trust may rely on a certificate by any officer of the Trust
as to whether or not any such amendments have been made and
as to any matters in connection with the Trust hereunder;
and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a
copy of this instrument or of any such amendments. In this
instrument and in any such amendment, references to this
instrument, and all expressions like "herein", "hereof", and
"hereunder", shall be deemed to refer to this instrument as
amended from time to time. Headings are placed herein for
convenience of reference only and shall not be taken as a
part hereof or control or affect the meaning, construction or
effect of this instrument. This instrument may be executed
in any number of counterparts each of which shall be deemed
an original.
Applicable Law
Section 3. This Declaration of Trust is made in The
Commonwealth of Massachusetts, and it is created under and is
to be governed by and construed and administered according to
the laws of said Commonwealth. The Trust shall be of the
type commonly called a Massachusetts business trust, and
without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a
trust.
Amendments
Section 4. This Declaration of Trust may be amended at
any time by an instrument in writing signed by a majority of
the then Trustees when authorized so to do by vote of
Shareholders holding more than fifty percent (50%) of the
Shares of each series entitled to vote, except that an
amendment which in the determination of the Trustees shall
affect the holders of one or more series or classes of Shares
but not the holders of all outstanding series and classes
shall be authorized by vote of the Shareholders holding more
than fifty percent (50%) of the Shares entitled to vote of
29
<PAGE> 30
each series or class affected and no vote of Shareholders of
a series or class not affected shall be required. Amendments
having the purpose of changing the name of the Trust or of
supplying any omission, curing any ambiguity or curing,
correcting or supplementing any provision which is defective
or inconsistent with the 1940 Act or with the requirements of
the Internal Revenue Code and the regulations thereunder for
the Trust's obtaining the most favorable treatment thereunder
available to regulated investment companies shall not require
authorization by Shareholder vote.
IN WITNESS WHEREOF, the undersigned have hereunto set
their hands and seals for themselves and their assigns, as of
this 27th day of May, 1994.
Charles M. Kierscht
-------------------------------
(SEAL) Charles M. Kierscht, Trustee
321 Princeton Road
Hinsdale, Illinois 60521
(signatures continue)
The address of the Trust is:
c/o Kemper Financial Svc., Inc.
120 So. LaSalle Street
Chicago, IL 60603
30
<PAGE> 31
/s/ David W. Belin
-------------------------------
David W. Belin, Trustee
1705 Plaza Circle
Des Moines, Iowa 50322
/s/ Lewis A. Burnham
------------------------------
Lewis A. Burnham, Trustee
16410 Avila Boulevard
Tampa, Florida 33613
/s/ Donald L. Dunaway
------------------------------
Donald L. Dunaway, Trustee
235A North Elm Grove Road
Brookfield, Wisconsin 53005
/s/ Robert B. Hoffman
------------------------------
Robert B. Hoffman, Trustee
1448 North Lake Shore Drive,
Apt. 7-8A
Chicago, IL 60610
/s/ Donald R. Jones
------------------------------
Donald R. Jones, Trustee
1776 Beaver Pond Road
Inverness, Illinois 60067
------------------------------
Charles M. Kierscht, Trustee
321 Princeton Road
Hinsdale, Illinois 60521
/s/ William P. Sommers
-------------------------------
William P. Sommers, Trustee
2181 Parkside Ave.
Hillsborough, California 94010
/s/ Stephen B. Timbers
-------------------------------
Stephen B. Timbers, Trustee
1448 North Lake Shore Drive,
Apt. 12-1/2C
Chicago, Illinois 60610
<PAGE> 32
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
Then personally appeared the afore-named David W. Belin,
Lewis A. Burnham, Donald L. Dunaway, Robert B. Hoffman,
Donald R. Jones, Charles M. Kierscht, William P. Sommers and
Stephen B. Timbers who acknowledged the foregoing instrument
to be their free act and deed, before me this 27th day of
May, 1994.
/s/ Mary A. McCallister
-------------------------------
NOTARY PUBLIC
<PAGE> 1
EXHIBIT 99.B2
BY-LAWS OF
KEMPER INCOME AND CAPITAL PRESERVATION FUND
Section 1. Agreement and Declaration of
Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be
subject to the Agreement and Declaration of Trust, as from time
to time in effect (the "Declaration of Trust"), of Kemper Income
and Capital Preservation Fund, the Massachusetts business trust
established by the Declaration of Trust (the "Trust").
1.2 Principal Office of the Trust; Resident Agent. The
principal office of the Trust shall be located in Chicago,
Illinois. Its resident agent in Massachusetts shall be CT
Corporation System, 2 Oliver Street, Boston, Massachusetts or
such other person as the Trustees may from time to time select.
Section 2. Shareholders
2.1 Shareholder Meetings. Meetings of the shareholders may be
called at any time by the Trustees, by the President or, if the
Trustees and the President shall fail to call any meeting of
shareholders for a period of 30 days after written application of
one or more shareholders who hold at least 25% of all shares
issued and outstanding and entitled to vote at the meeting (or
10% if the purpose of the meeting is to determine if a trustee
shall be removed from office), then such shareholders may call
such meeting. Each call of a meeting shall state the place,
date, hour and purposes of the meeting.
2.2 Place of Meetings. All meetings of the shareholders shall
be held at the principal office of the Trust, or, to the extent
permitted by the Declaration of Trust, at such other place within
the United States as shall be designated by the Trustees or the
President of the Trust.
2.3 Notice of Meetings. A written notice of each meeting of
shareholders, stating the place, date and hour and the purposes
of the meeting, shall be given at least seven days before the
meeting to each shareholder entitled to vote thereat by leaving
such notice with him or at his residence or usual place of
business or by mailing it, postage prepaid, and addressed to such
shareholder at his address as it appears in the records of the
Trust. Such notice shall be given by the Secretary or an
<PAGE> 2
Assistant Secretary or by an officer designated by the Trustees.
No notice of any meeting of shareholders need be given to a
shareholder if a written waiver of notice, executed before or
after the meeting by such shareholder or his attorney thereunto
duly authorized, is filed with the records of the meeting.
2.4 Ballots. No ballot shall be required for any election
unless requested by a shareholder present or represented at the
meeting and entitled to vote in the election.
2.5 Proxies and Voting. Shareholders entitled to vote may vote
either in person or by proxy in writing dated not more than six
months before the meeting named therein, which proxies shall be
filed with the Secretary or other person responsible to record
the proceedings of the meeting before being voted. Unless
otherwise specifically limited by their terms, such proxies shall
entitle the holders thereof to vote at any adjournment of such
meeting but shall not be valid after the final adjournment of
such meeting. At all meetings of shareholders, unless the voting
is conducted by inspectors, all questions relating to the
qualification of voters, the validity of proxies and the
acceptance or rejection of votes shall be decided by the chairman
of the meeting.
Section 3. Trustees
3.1 Committees and Advisory Board. The Trustees may appoint
from their number an executive committee and other committees.
Any such committee may be abolished and reconstituted at any time
and from time to time by the Trustees. Except as the Trustees
may otherwise determine, any such committee may make rules for
the conduct of its business. The Trustees may appoint an
advisory board to consist of not less than two nor more than five
members. The members of the advisory board shall be compensated
in such manner as the Trustees may determine and shall confer
with and advise the Trustees regarding the investments and other
affairs of the Trust. Each member of the advisory board shall
hold office until the first meeting of the Trustees following the
meeting of the shareholders, if any, next following his
appointment and until his successor is appointed and qualified,
or until he sooner dies, resigns, is removed, or becomes
disqualified, or until the advisory board is sooner abolished by
the Trustees.
3.2 Regular Meetings. Regular meetings of the Trustees may be
held without call or notice at such places and at such times as
the Trustees may from time to time determine, provided that
notice of the first regular meeting following any such
determination shall be given to absent Trustees. A regular
meeting of the Trustees may be held without call or notice
2
<PAGE> 3
immediately after and at the same place as any meeting of the
shareholders.
3.3 Special Meetings. Special meetings of the Trustees may be
held at any time and at any place designated in the call of the
meeting, when called by the Chairman of the Board or by two or
more Trustees, sufficient notice thereof being given to each
Trustee by the Secretary or an Assistant Secretary or by the
officer or one of the Trustees calling the meeting.
3.4 Notice. It shall be sufficient notice to a Trustee to send
notice by mail at least three days or by telegram at least
twenty-four hours before the meeting addressed to the Trustee at
his or her usual or last known business or residence address or
to give notice to him or her in person or by telephone at least
twenty-four hours before the meeting. Notice of a meeting need
not be given to any Trustee if a written waiver of notice,
executed by him or her before or after the meeting, is filed with
the records of the meeting, or to any Trustee who attends the
meeting without protesting prior thereto or at its commencement
the lack of notice to him or her. Neither notice of a meeting
nor a waiver of a notice need specify the purposes of the
meeting.
3.5 Quorum. At any meeting of the Trustees, one-third of the
Trustees then in office shall constitute a quorum; provided,
however, a quorum (unless the Board of Trustees consists of two
or fewer persons) shall not be less than two. Any meeting may be
adjourned from time to time by a majority of the votes cast upon
the question, whether or not a quorum is present, and the meeting
may be held as adjourned without further notice.
Section 4. Officers and Agents
4.1 Enumeration; Qualification. The officers of the Trust shall
be a President, a Treasurer, a Secretary and such other officers,
if any, as the Trustees from time to time may in their discretion
elect or appoint. The Trust may also have such agents, if any,
as the Trustees from time to time may in their discretion
appoint. Any officer may be but none need be a Trustee or
shareholder. Any two or more offices may be held by the same
person.
4.2 Powers. Subject to the other provisions of these By-Laws,
each officer shall have, in addition to the duties and powers
herein and in the Declaration of Trust set forth, such duties and
powers as are commonly incident to his or her office as if the
Trust were organized as a Massachusetts business corporation and
such other duties and powers as the Trustees may from time to
time designate.
3
<PAGE> 4
4.3 Election. The President, the Treasurer and the Secretary
shall be elected annually by the Trustees at their first meeting
in each calendar year or at such later meeting in such year as
the Trustees shall determine. Other officers or agents, if any,
may be elected or appointed by the Trustees at said meeting or at
any other time.
4.4 Tenure. The President, Treasurer and Secretary shall hold
office until the first meeting of Trustees in each calendar year
and until their respective successors are chosen and qualified,
or in each case until he or she sooner dies, resigns, is removed
or becomes disqualified. Each other officer shall hold office
and each agent shall retain his or her authority at the pleasure
of the Trustees.
4.5 Chairman of the Board. The Chairman of the Board of
Trustees, if one is so appointed, shall be chosen from among the
Trustees and may hold office only so long as he continues to be a
Trustee. The Chairman of the Board, if any is so appointed,
shall preside at all meetings of the shareholders and of the
Trustees at which he is present; and shall have such other duties
and powers as specified herein and as may be assigned to him by
the Trustee.
4.6 President and Vice Presidents. The President shall be the
chief executive officer of the Trust. The President shall,
subject to the control of the Trustees, have general charge and
supervision of the Trust and shall perform such other duties and
have such other powers as the Trustees shall prescribe from time
to time. Any Vice President shall at the request or in the
absence or disability of the President exercise the powers of the
President and perform such other duties and have such other
powers as shall be designated from time to time by the Trustees.
4.7 Treasurer and Controller. The Treasurer shall be the chief
financial officer of the Trust and, subject to any arrangement
made by the Trustees with a bank or trust company or other
organization as custodian or transfer or shareholder services
agent, shall be in charge of its valuable papers and shall have
such other duties and powers as may be designated from time to
time by the Trustees or by the President. If at any time there
shall be no Controller, the Treasurer shall also be the chief
accounting officer of the Trust and shall have the duties and
power prescribed herein for the Controller. Any Assistant
Treasurer shall have such duties and powers as shall be
designated from time to time by the Trustees.
The Controller, if any be elected, shall be the chief accounting
officer of the Trust and shall be in charge of its books of
account and accounting records. The Controller shall be
responsible for preparation of financial statements of the Trust
4
<PAGE> 5
and shall have such other duties and powers as may be designated
from time to time by the Trustees or the President.
4.8 Secretary and Assistant Secretaries. The Secretary shall
record all proceedings of the shareholders and the Trustees in
books to be kept therefor, which books shall be kept at the
principal office of the Trust. In the absence of the Secretary
from any meeting of shareholders or Trustees, an Assistant
Secretary, or if there be none or if he or she is absent, a
temporary clerk chosen at the meeting shall record the
proceedings thereof in the aforesaid books.
Section 5. Resignations and Removals
Any Trustee may resign his trust or retire as a Trustee in
accordance with procedures set forth in the Declaration of Trust.
Any officer or advisory board member may resign at any time by
delivering his or her resignation in writing to the Chairman of
the Board, the President or the Secretary or to a meeting of the
Trustees. The Trustees may remove any officer or advisory board
member elected or appointed by them with or without cause by the
vote of a majority of the Trustees then in office. Except to the
extent expressly provided in a written agreement with the Trust,
no Trustee, officer, or advisory board member resigning, and no
officer or advisory board member removed, shall have any right to
any compensation for any period following his or her resignation
or removal, or any right to damages on account of such removal.
Section 6. Vacancies
A vacancy in the office of Trustee shall be filed in accordance
with the Declaration of Trust. Vacancies resulting from the
death, resignation, incapacity or removal of any officer may be
filled by the Trustees. Each successor of any such officer shall
hold office for the unexpired term, and in the case of the
President, the Treasurer and the Secretary, until his or her
successor is chosen and qualified, or in each case until he or
she sooner dies, resigns, is removed or becomes disqualified.
Section 7. Shares of Beneficial Interest
7.1 Share Certificates. No certificates certifying the
ownership of shares shall be issued except as the Trustees may
otherwise authorize. In the event that the Trustees authorize
the issuance of share certificates, subject to the provisions of
Section 7.3, each shareholder shall be entitled to a certificate
5
<PAGE> 6
stating the number of shares owned by him or her, in such form as
shall be prescribed from time to time by the Trustees. Such
certificate shall be signed by the President or a Vice President
and by the Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary. Such signatures may be facsimiles if the certificate
is signed by a transfer or shareholder services agent or by a
registrar, other than a Trustee, officer or employee of the
Trust. In case any officer who has signed or whose facsimile
signature has been placed on such certificate shall have ceased
to be such officer before such certificate is issued, it may be
issued by the Trust with the same effect as if he or she were
such officer at the time of its issue.
In lieu of issuing certificates for shares, the Trustees or the
transfer or shareholder services agent may either issue receipts
therefor or may keep accounts upon the books of the Trust for the
record holders of such shares, who shall in either case be
deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and
agreed to the terms hereof.
7.2 Loss of Certificates. In the case of the alleged loss or
destruction or the mutilation of a share certificate, a duplicate
certificate may be issued in place thereof, upon such terms as
the Trustees may prescribe.
7.3 Discontinuance of Issuance of Certificates. The Trustees
may at any time discontinue the issuance of share certificates
and may, by written notice to each shareholder, require the
surrender of share certificates to the Trust for cancellation.
Such surrender and cancellation shall not affect the ownership of
shares in the Trust.
Section 8. Record Date
The Trustees may fix in advance a time, which shall not be more
than 90 days before the date of any meeting of shareholders or
the date for the payment of any dividend or making of any other
distribution to shareholders, as the record date for determining
the shareholders having the right to notice and to vote at such
meeting and any adjournment thereof or the right to receive such
dividend or distribution, and in such case only shareholders of
record on such record date shall have such right, notwithstanding
any transfer of shares on the books of the Trust after the record
date.
6
<PAGE> 7
Section 9. Seal
The seal of the Trust shall, subject to alteration by the
Trustees, consist of a flat-faced circular die with the word
"Massachusetts" together with the name of the Trust, cut or
engraved thereon; but, unless otherwise required by the Trustees,
the seal shall not be necessary to be placed on, and its absence
shall not impair the validity of, any document, instrument, or
other paper executed and delivered by or on behalf of the Trust.
Section 10. Execution of Papers
Except as the Trustees may generally or in particular cases
authorize the execution thereof in some other manner, all deeds,
leases, transfers, contracts, bonds, notes, checks, drafts and
other obligations made, accepted or endorsed by the Trust shall
be signed, and any transfers of securities standing in the name
of the Trust shall be executed, by the President or by one of the
Vice Presidents or by the Treasurer or by whomsoever else shall
be designated for that purpose by the vote of the Trustees and
need not bear the seal of the Trust.
Section 11. Fiscal Year
The fiscal year of the Trust shall end on such date in each year
as the Trustees shall from time to time determine.
Section 12. Amendments
These By-Laws may be amended or repealed, in whole or in part, by
a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such majority.
7
<PAGE> 1
EXHIBIT 99.B4(a)
SHARE CERTIFICATE
[Name]
is the owner of [number] shares
of beneficial interest in the above noted Fund (the "FUND"), of
the series and class, if any, specified, fully paid and
nonassessable, the said shares being issued and held subject to
the provisions of the Agreement and Declaration of Trust of the
Fund, and all amendments thereto, copies of which are on file
with the Secretary of The Commonwealth of Massachusetts. The
said owner by accepting this certificate agrees to and is bound
by all of the said provisions. The shares represented hereby are
transferable in writing by the owner thereof in person or by
attorney upon surrender of this certificate to the Fund properly
endorsed for transfer. This certificate is executed on behalf of
the Trustees of the Fund as Trustees and not individually and the
obligations hereof are not binding upon any of the Trustees,
officers or shareholders individually but are binding only upon
the assets and property of the Fund or, if applicable, the
specified series of the Fund. The shares may be subject to a
contingent deferred sales charge. This certificate is not valid
unless countersigned by the Transfer Agent.
<PAGE> 1
EXHIBIT 99.B4(b)
KEMPER INCOME AND CAPITAL PRESERVATION FUND
WRITTEN INSTRUMENT ESTABLISHING
AND DESIGNATING SEPARATE CLASSES OF SHARES
The undersigned constitute all the Trustees of Kemper Income
and Capital Preservation Fund (the "Fund"), a Massachusetts
business trust governed by an Amended and Restated Agreement and
Declaration of Trust dated May 27, 1994 (the "Amended Declaration
of Trust"). This instrument is executed pursuant to Section 1 of
Article III of the Amended Declaration of Trust in order to
establish and designate separate classes of shares of any series
of the Fund, and it is based in part upon resolutions of the
Board of Trustees of the Fund adopted at a meeting on January 14,
1994.
WHEREAS, Under the Amended Declaration of Trust the Board of
Trustees has the authority, in its discretion and without
shareholder approval, to divide the shares of any series of the
Fund into separate classes of shares;
WHEREAS, This Board of Trustees has previously approved,
subject to various conditions, the division of the shares of each
series of the Fund into four classes of shares, to be named
"Class A Shares," "Class B Shares," "Class C Shares" and "Class I
Shares;"
WHEREAS, This Board of Trustees deems it desirable and in
the best interests of the Fund to divide the shares of each
series of the Fund, whether now existing or hereafter created
(the "series"), into four separate classes of shares to be named,
as previously indicated, "Class A Shares," "Class B Shares,"
"Class C Shares" and "Class I Shares" and to provide investors
with a conversion feature from Class B Shares to the Class A
Shares, which conversion feature would thereby eliminate any
distribution services fee then in effect under any plan adopted
pursuant to Rule 12b-1 of the Investment Company Act of 1940
("1940 Act") for such Class B Shares; and
WHEREAS, This Board of Trustees believes that the creation
of four separate classes of shares as provided herein will be in
the best interests of and will have no negative effects upon the
current shareholders of the Fund;
NOW, THEREFORE, the establishment and designation of
separate classes of shares of any series of the Fund is approved
in accordance with the following provisions:
<PAGE> 2
1. Subject to the conditions hereinafter set forth, the
shares of any series shall be divided into four classes to be
known respectively as the "Class A Shares," the "Class B Shares,"
the "Class C Shares" and the "Class I Shares," which classes
shall have such preferences and special or relative rights and
privileges as may be determined from time to time by this Board
of Trustees subject always to the Amended Declaration of Trust
and the 1940 Act and the rules and regulations thereunder.
2. Subject to the terms of the Amended Declaration of
Trust, the Class A Shares, Class B Shares, Class C Shares and
Class I Shares will have the same rights and privileges except
that:
(A) the Class A Shares
(1) shall be sold subject to an initial sales charge
as described in the prospectus for the Fund as from time to
time in effect or shall be issued to shareholders in
connection with the conversion feature as hereinafter
described;
(2) shall have an administrative service fee;
(3) shall not have a plan of distribution adopted
under Rule 12b-1 of the 1940 Act ("Rule 12b-1 plan") and no
fees payable under the Rule 12b-1 plans for the Class B
Shares or Class C Shares shall be allocated or charged to
the Class A Shares; and
(4) shall have such dividend reinvestment, exchange
and redemption rights and privileges as may be described in
the prospectus for the Fund as from time to time in effect;
and
(B) the Class B Shares
(1) shall be sold without an initial sales charge but
subject to a contingent deferred sales charge imposed upon
the redemption of the Class B shares as described in the
prospectus of the Fund as from time to time in effect;
(2) shall have an administrative service fee;
(3) shall have a Rule 12b-1 plan and any fees payable
from time to time under such plan shall be allocated and
charged to, and any voting rights with respect to such plan
shall be exercisable by, the Class B Shares only;
(4) shall convert to Class A Shares within a specified
number of years as hereinafter described; and
2
<PAGE> 3
(5) shall have such purchase, dividend reinvestment,
exchange and redemption rights and privileges associated
therewith as may be described in the prospectus for the Fund
as from time to time in effect; and
(C) the Class C Shares
(1) shall be sold without any initial sales charge or
any contingent deferred sales charge;
(2) shall have an administrative service fee;
(3) shall have a Rule 12b-1 plan and any fees payable
from time to time under such plan shall be allocated and
charged to, and any voting rights with respect to such plan
shall be exercisable by, the Class C Shares only; and
(4) shall have such purchase, dividend reinvestment,
exchange and redemption rights and privileges associated
therewith as may be described in the prospectus for the Fund
as from time to time in effect; and
(D) the Class I Shares
(1) shall be sold without any initial sales charge or
any contingent deferred sales charge;
(2) shall not have an administrative service fee;
(3) shall not have a Rule 12b-1 plan and no fees
payable under the plans for the Class B Shares or Class C
Shares shall be allocated or charged to the Class I Shares;
and
(4) shall have such dividend reinvestment, exchange
and redemption rights and privileges as may be described in
the prospectus for the Fund as from time to time in effect.
3. Any shares of the Fund that are issued and outstanding
at the time when shares of the Fund are effectively divided into
separate classes of shares as set forth above shall be classified
as Class A Shares.
4. Class A Shares of a series shall be issued to holders
of Class B Shares of the same series pursuant to the following
described conversion feature:
(A) Class B Shares will convert to Class A Shares six
years after issuance of such Class B Shares; provided,
however, that any Class B Shares issued in exchange for
shares originally classified as Initial Shares of Kemper
Portfolios, formerly known as Kemper Investment Portfolios
3
<PAGE> 4
(KP), whether in connection with a reorganization with a
series of KP or otherwise, shall convert to Class A Shares
seven years after issuance of such Initial Shares if such
Initial Shares were issued prior to February 1, 1991;
(B) Class B Shares issued upon reinvestment of income
and capital gain dividends and other distributions will
convert to Class A Shares on a pro rata basis with other
Class B Shares; and
(C) Conversion to Class A Shares shall be based upon
the relative net asset values of the Class A Shares and the
Class B Shares at the time of conversion.
IN WITNESS WHEREOF, the undersigned have this 27th day of
May, 1994 signed these presents.
/s/ Charles M. Kierscht
---------------------------------
Charles M. Kierscht
321 Princeton Road
Hinsdale, Illinois 60521
(signatures continue)
4
<PAGE> 5
/s/ David W. Belin
--------------------------------
David W. Belin, Trustee
1705 Plaza Circle
Des Moines, Iowa 50322
/s/ Lewis A. Burnham
--------------------------------
Lewis A. Burnham, Trustee
16410 Avila Boulevard
Tampa, Florida 33613
/s/ Donald L. Dunaway
---------------------------------
Donald L. Dunaway, Trustee
235A North Elm Grove Road
Brookfield, Wisconsin 53005
/s/ Robert B. Hoffman
--------------------------------
Robert B. Hoffman, Trustee
1448 North Lake Shore Drive,
Apt. 7-8A
Chicago, IL 60610
/s/ Donald R. Jones
---------------------------------
Donald R. Jones, Trustee
1776 Beaver Pond Road
Inverness, Illinois 60067
---------------------------------
Charles M. Kierscht, Trustee
321 Princeton Road
Hinsdale, Illinois 60521
/s/ William P. Sommers
---------------------------------
William P. Sommers, Trustee
2181 Parkside Ave.
Hillsborough, California 94010
/s/ Stephen B. Timbers
---------------------------------
Stephen B. Timbers, Trustee
1448 North Lake Shore Drive,
Apt. 12-1/2C
Chicago, Illinois 60610
<PAGE> 1
EXHIBIT 99.B5
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 28th day of May, 1994, by and
between KEMPER INCOME AND CAPITAL PRESERVATION FUND, a
Massachusetts business trust (the "Fund"), and KEMPER
FINANCIAL SERVICES, INC., a Delaware corporation (the
"Adviser").
WHEREAS, the Fund is an open-end 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 currently offers or intends to offer
Shares in one portfolio, the Initial Portfolio, together with
any other Fund portfolios which may be established later and
served by the Adviser hereunder, being herein referred to
collectively as the "Portfolios" and individually referred to
as a "Portfolio"; and
WHEREAS, the Fund desires at this time to retain the
Adviser to render investment advisory and management services
to the Initial Portfolio, 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 and other
Portfolios hereunder and to manage the investment and
reinvestment of the assets of each such Portfolio in
accordance with the applicable investment objectives and
policies and limitations, and to administer the affairs of
each such Portfolio 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, and to place
orders for the purchase or sale of portfolio securities for
the Fund's account with brokers or dealers selected by it;
and, in connection therewith, the Adviser is authorized as
the agent of the Fund to give instructions to the Custodian
of the Fund as to the deliveries of securities and payments
<PAGE> 2
of cash for the account of the Fund. In connection with the
selection of such brokers or dealers and the placing of such
orders, the Adviser is directed to seek for the Fund best
execution of orders. Subject to such policies as the Board
of Trustees of the Fund determines, the Adviser shall not be
deemed to have acted unlawfully or to have breached any duty,
created by this Agreement or otherwise, solely by reason of
its having caused the Fund to pay a broker or dealer an
amount of commission for effecting a securities transaction
in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction, if
the Adviser determined in good faith that such amount of
commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or
dealer viewed in terms of either that particular transaction
or the Adviser's overall responsibilities with respect to the
clients of the Adviser as to which the Adviser exercises
investment discretion. The Fund recognizes that all research
services and research that the Adviser receives or generates
are available for all clients, and that the Fund and other
clients may benefit thereby. 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 with respect to
which it desires to retain the Adviser to render investment
advisory and management services hereunder, it shall notify
the 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.
2
<PAGE> 3
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 for each Portfolio
computed by applying the following annual rates to the
applicable average daily net assets of the Portfolio:
Applicable Average
Daily Net Assets
<TABLE>
<CAPTION>
(Thousands) Annual Rate
------------------ -----------
<S> <C>
$0 - $ 250,000 .55 of 1%
$ 250,000 - $ 1,000,000 .52 of 1%
$ 1,000,000 - $ 2,500,000 .50 of 1%
$ 2,500,000 - $ 5,000,000 .48 of 1%
$ 5,000,000 - $ 7,500,000 .45 of 1%
$ 7,500,000 - $10,000,000 .43 of 1%
$10,000,000 - $12,500,000 .41 of 1%
Over $12,500,000 .40 of 1%
</TABLE>
The fee as computed above shall be computed separately
for, and charged as an expense of, each Portfolio based upon
the average daily net assets of such Portfolio. 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,
3
<PAGE> 4
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 (including the
Adviser's fee, but excluding interest, taxes, fees incurred
in acquiring and disposing of portfolio securities,
distribution services fees, extraordinary expenses and any
other expenses excludable under state securities law
limitations) exceed any applicable limitation arising under
state securities laws, the Adviser will reduce its fee or
reimburse the Fund for any excess to the extent required by
such state securities laws. 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
calculated in accordance with 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 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
4
<PAGE> 5
asset value of a Portfolio shall be deemed to be the net
asset value of such Portfolio 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 on the date hereof and shall remain in
full force until March 1, 1995, 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 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
5
<PAGE> 6
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.
6
<PAGE> 7
13. 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.
IN WITNESS WHEREOF, the Fund and the Adviser have caused
this Agreement to be executed as of the day and year first
above written.
KEMPER INCOME AND CAPITAL
PRESERVATION FUND
By: /s/ John E. Peters
----------------------------
Title: Vice President
ATTEST:
/s/ Philip J. Collora
-----------------------------
Title: Asst. Secretary
KEMPER FINANCIAL SERVICES, INC.
By: /s/ Patrick H. Dudasik
----------------------------
Title: Sr. Vice President
ATTEST:
/s/ David F. Dierenfeldt
-----------------------------
Title: Asst. Secretary
7
<PAGE> 1
EXHIBIT 99.B6(a)
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 28th day of May, 1994, between KEMPER
INCOME AND CAPITAL PRESERVATION FUND, a Massachusetts business
trust (the "Fund"), and KEMPER FINANCIAL SERVICES, INC., a
Delaware corporation ("KFS").
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 KFS to act as agent 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 KFS 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. KFS shall
appoint various financial service firms ("Firms") to provide
distribution services to investors. 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
distribution services to existing and potential clients of the
Firms. KFS may also provide some of the above services for the
Fund.
KFS accepts such appointment as distributor and principal
underwriter and agrees to render such services and to assume the
obligations herein set forth for the compensation herein
provided. KFS shall for all purposes herein provided be deemed
to be an independent contractor and, unless expressly provided
herein or otherwise authorized, shall have no authority to act
for or represent the Fund in any way. KFS, by separate agreement
with the Fund, may also serve the Fund in other capacities. The
services of KFS to the Fund under this Agreement are not to be
deemed exclusive, and KFS shall be free to render similar
services or other services to others so long as its services
hereunder are not impaired thereby.
<PAGE> 2
In carrying out its duties and responsibilities hereunder,
KFS will, pursuant to separate written contracts, appoint various
Firms to provide advertising, promotion and other distribution
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 KFS and not the Fund.
KFS shall 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.
2. KFS 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 (and related
prospectus) of the Fund under the Securities Act, as KFS 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, KFS may, in its discretion, also
sell shares of the Fund as principal to persons with whom it does
not have selling group agreements.
Shares of any class of any series of the Fund offered for
sale or sold by KFS shall be so offered or sold at a price per
share determined in accordance with the then current prospectus.
The price the Fund shall receive for all shares purchased from it
shall be the net asset value used in determining the public
offering price applicable to the sale of such shares. Any excess
of the sales price over the net asset value of the shares of the
Fund sold by KFS as agent shall be retained by KFS as a
commission for its services hereunder. KFS may compensate Firms
for sales of shares at the commission levels provided in the
Fund's prospectus from time to time. KFS may pay other
commissions, fees or concessions to Firms, and may pay them to
others in its discretion, in such amounts as KFS shall determine
from time to time. KFS shall be entitled to receive and retain
any applicable contingent deferred sales charge as described in
the Fund's prospectus. KFS shall also receive any distribution
services fee payable by the Fund as provided in Section 8 hereof.
KFS 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 or net asset value, as applicable, of the
Fund's shares, and neither KFS nor any such Firms shall withhold
the placing of purchase orders so as to make a profit thereby.
2
<PAGE> 3
3. The Fund will use its best efforts to keep effectively
registered under the Securities Act for sale as herein
contemplated such shares as KFS 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, 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 that 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 KFS 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 KFS from
time to time such information with respect to the Fund and its
shares as KFS may reasonably request for use in connection with
the sale of shares of the Fund.
5. KFS 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 pursuant to this agreement as
may be required. At or prior to the time of issuance of shares,
KFS 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 KFS may specify.
6. KFS shall order shares of the Fund from the Fund only to the
extent that it shall have received purchase orders therefor. KFS
will not make, or authorize Firms or others to make (a) any short
sales of shares of the Fund; or (b) any sales of such shares to
any trustee or officer of the Fund or to any officer or director
of KFS or of any corporation or association furnishing investment
advisory, managerial or supervisory services to the Fund, or to
any corporation or association, unless such sales are made in
accordance with the then current prospectus relating to the sale
of such shares. KFS, 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, KFS 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 KFS or
any employee, representative or agent of KFS. KFS will observe
and be bound by all the provisions of the Agreement and
Declaration of Trust of the Fund (and of any fundamental policies
3
<PAGE> 4
adopted by the Fund pursuant to the Investment Company Act of
1940, notice of which shall have been given to KFS) which at the
time in any way require, limit, restrict, prohibit or otherwise
regulate any action of the part of KFS hereunder.
7. The Fund shall assume and pay all charges and expenses of
its operations not specifically assumed or otherwise to be
provided by KFS under this Agreement. The Fund will pay or cause
to be paid expenses (including the fees and disbursements of its
own counsel) of any registration of the Fund and its shares under
the United States securities laws and 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.
KFS will pay all expenses (other than expenses which one or more
Firms may bear pursuant to any agreement with KFS) incident to
the sale and distribution of the shares issued or sold hereunder,
including, without limiting the generality of the foregoing, all
(a) expenses of printing and distributing any prospectus and of
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 or prospectus, report or other
communication to shareholders in their capacity as such), (b)
expenses of advertising in connection with such offering and (c)
expenses (other than the Fund's auditing expenses) of qualifying
or continuing the qualification of the shares for sale and, in
connection therewith, of qualifying or continuing the
qualification of the Fund as a dealer or broker under the laws of
such states as may be designated by KFS under the conditions
herein specified. No transfer taxes, if any, which may be
payable in connection with the issue or delivery of shares sold
as herein contemplated or of the certificates for such shares
shall be borne by the Fund, and KFS will indemnify and hold
harmless the Fund against liability for all such transfer taxes.
8. For the services and facilities described herein in
connection with Class B shares and Class C shares of each series
of the Fund, the Fund will pay to KFS at the end of each calendar
month a distribution services fee computed at the annual rate of
.75% of average daily net assets attributable to the Class B
shares and Class C shares of each such series. 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 foregoing fee shall be in addition
to and shall not be reduced or offset by the amount of any
contingent deferred sales charge received by KFS under Section 2
hereof.
4
<PAGE> 5
The net asset value 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 class of any series of the Fund shall be deemed to
be the net asset value of such a share as of the close of
business on the last previous day on which such calculation was
made. The distribution services fee for any class of a series of
the Fund shall be based upon average daily net assets of the
series attributable to the class and such fee shall be charged
only to such class.
9. KFS shall prepare reports for the Board of Trustees of the
Fund on a quarterly basis in connection with the Fund's
distribution plan for Class B shares and Class C shares showing
amounts paid to the various Firms and such other information as
from time to time shall be reasonably requested by the Board of
Trustees.
10. To the extent applicable, this Agreement constitutes the
plan for the Class B shares and Class C shares of each series of
the Fund pursuant to Rule 12b-1 under the Investment Company Act
of 1940; and this Agreement and plan shall be approved and
renewed in accordance with Rule 12b-1 for such Class B shares and
Class C shares separately.
This Agreement shall become effective on the date hereof and
shall continue until March 1, 1995; and shall continue from year
to year thereafter only so long as such continuance is approved
in the manner required by the Investment Company Act of 1940.
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 KFS on sixty (60) days
written notice to the other party. The Fund may effect
termination with respect to any class of any series of the Fund
by a vote of (i) a majority of 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 the
class. Without prejudice to any other remedies of the Fund, the
Fund may terminate this Agreement at any time immediately upon
KFS' failure to fulfill any of its obligations hereunder.
This Agreement may not be amended to increase the amount to
be paid to KFS by the Fund for services hereunder with respect to
a class of any series of the Fund without the vote of a majority
of the outstanding voting securities of such class. 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
5
<PAGE> 6
agreement related to this Agreement, cast in person at a meeting
called for such purpose.
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
KFS to receive payments on any unpaid balance of the compensation
described in Section 8 earned prior to such termination.
11. KFS will not use or distribute, or authorize the use,
distribution or dissemination by Firms or others in connection
with the sale of Fund 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. KFS 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 KFS for recovery of any liability of the Fund arising
hereunder allocated to a particular series or class, whether in
accordance with the express terms hereof or otherwise, KFS shall
have recourse solely against the assets of that series or class
to satisfy such claim and shall have no recourse against the
assets of any other series or class 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.
6
<PAGE> 7
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.
IN WITNESS WHEREOF, the Fund and KFS have caused this
Agreement to be executed as of the day and year first above
written.
KEMPER INCOME AND CAPITAL
PRESERVATION FUND
By: /s/ John E. Peters
-----------------------------
Title: Vice President
ATTEST:
/s/ Philip J. Collora
--------------------------
Title: Asst. Secretary
KEMPER FINANCIAL SERVICES, INC.
By: /s/ Patrick H. Dudasik
-----------------------------
Title: Sr. Vice President
ATTEST:
/s/ David F. Dierenfeldt
-------------------------
Title: Asst. Secretary
7
<PAGE> 1
EXHIBIT 99.B6(b)
ASSIGNMENT AND ASSUMPTION
ASSIGNMENT AND ASSUMPTION ("Assignment and Assumption") made
and entered into as of February 1, 1995 by and between Kemper
Financial Services, Inc., a Delaware corporation ("Assignor"),
and Kemper Distributors, Inc., a Delaware corporation
("Assignee").
WHEREAS, Assignor serves as principal underwriter for Kemper
Income and Capital Preservation Fund, a Massachusetts business
trust (the "Fund"), pursuant to that certain Underwriting and
Distribution Services Agreement dated May 28, 1994 by and between
Assignor and the Fund (the "Agreement");
WHEREAS, Assignee is a wholly-owned subsidiary of Assignor;
WHEREAS, It has been proposed that the rights, duties and
responsibilities of Assignor under the Agreement be transferred
to and assumed by Assignee;
WHEREAS, The Fund has determined that such transfer of
rights, duties and responsibilities is reasonable and in the best
interests of the Fund and the Fund's shareholders; and
NOW, THEREFORE, in consideration of the covenants
hereinafter contained, it is hereby agreed by and between the
parties hereto as follows:
1. Assignment and Assumption. Assignor assigns and
transfers to Assignee all of Assignor's rights, interests,
liabilities, duties and obligations under the Agreement
("Assigned Rights and Obligations"). Assignee accepts the
foregoing assignment and transfer of the Assigned Rights and
Obligations and agrees to assume, pay, perform and otherwise be
fully responsible for the same.
2. Further Assurances. From time to time, at the request
of either party, the other party will execute and deliver such
further instruments of assignment, transfer and assumption and
take such further action as may be required to assign, transfer
and assume the Assigned Rights and Obligations.
3. Applicable Law. This Assignment and Assumption shall be
governed by the laws of the State of Illinois.
4. Amendments. This Assignment and Assumption may only be
amended by the written agreement of the parties.
<PAGE> 2
IN WITNESS WHEREOF, the parties have each caused this
Assignment and Assumption to be executed on its behalf by a duly
authorized officer as of the date first written above.
KEMPER FINANCIAL SERVICES, INC.
By: /s/ Patrick H. Dudasik
---------------------------
Its: Senior Vice President
KEMPER DISTRIBUTORS, INC.
By: /s/ James L. Greenawalt
---------------------------
Its: Executive Vice President
The undersigned hereby acknowledges and consents to the foregoing
Assignment and Assumption as of February 1, 1995.
KEMPER INCOME AND CAPITAL PRESERVATION FUND
By: /s/ John E. Peters
------------------------------
Its: Vice President
2
<PAGE> 1
EXHIBIT 99.B6(c)
SELLING GROUP AGREEMENT KEMPER DISTRIBUTORS, INC.
120 South LaSalle Street, Chicago, Illinois 60603
Dear Financial Services Firm:
As principal underwriter and distributor, we invite you to
join a Selling Group for the distribution of shares of the Kemper
Mutual Funds (herein called "Funds"), but only in those states in
which the shares of the respective Funds may legally be offered
for sale. As exclusive agent of each of the Funds, we offer to
sell to you shares of the Funds on the following terms:
1. In all sales of these shares to the public you shall act
as dealer for your own account, and in no transaction shall you
have any authority to act as agent for the issuer, for us, or
for any other member of the Selling Group.
2. Orders received from you will be accepted by us only at
the public offering price applicable to each order, as
established by the Prospectus of each Fund, subject to the
discount, commission or other concession, if any, as provided in
such Prospectus. Upon receipt from you of any order to purchase
shares of a Fund, we shall confirm to you in writing or by wire
to be followed by a confirmation in writing. Additional
instructions may be forwarded to you from time to time. All
orders are subject to acceptance or rejection by us in our sole
discretion.
3. You may offer and sell shares to your customers only at
the public offering price determined in the manner described in
the applicable Prospectus. The public offering price is the net
asset value per share as provided in the applicable Prospectus
plus, with respect to certain Funds, a sales charge from which
you shall receive a discount equal to a percentage of the
applicable offering price as provided in the applicable
Prospectus. You shall receive a sales commission, with respect to
certain Funds, equal to a percentage of the amount invested as
provided in the applicable Prospectus. You shall receive a
distribution service fee, for certain Funds for which such fees
are available, as provided in the applicable Prospectus which fee
shall be payable with respect to such assets, for such periods
and at such intervals as are from time to tome specified by us.
The discounts or other concessions to which you may be entitled
in connection with sales to your customers pursuant to any
special features of a Fund (such as cumulative discounts, letters
of intent, etc., the terms of which shall be as described in the
applicable Prospectus and related forms) shall be in accordance
with the terms of such features. You may receive an
administrative service fee, with respect to certain Funds for
which such fees are available, as provided in the applicable
Prospectus, which fee shall be payable with respect to such
<PAGE> 2
assets, for such periods and at such intervals as are from time
to time specified by us.
4. By accepting this agreement, you agree:
(a) To purchase shares only from us or from your
customers.
(b) That you will purchase shares from us only to cover
purchase orders already received from your customers, or for your
own bona fide investments.
(c) That you will not purchase shares from your
customers at a price lower than the bid price then quoted by or
for the Fund involved. You may, however, sell shares for the
account of your customer to the Fund, or to us as agent for the
Fund, at the bid price currently quoted by or for the Fund and
charge your customer a fair commission for handling the
transaction.
(d) That you will not withhold placing with us orders
received from your customers so as to profit yourself as a result
of such withholding.
5. We will not accept from you any conditional orders for
shares.
6. If any shares confirmed to you under the terms of this
agreement are repurchased by the issuing Fund or by us as agent
for the Fund, or are tendered for repurchase, within seven
business days after the date of our confirmation of the original
purchase order, you shall forthwith refund to us the full
discount, commission, finder's fee or other concession, if any,
allowed or paid to you on such shares.
7. Payment for shares ordered from us shall be in New York
clearing house funds and must be received by the appropriate
Fund's shareholder service agent within seven days after our
acceptance of your order (or such shorter time period as may be
required by applicable regulations). If such payment is not
received, we reserve the right, without notice, forthwith to
cancel the sale or, at our option, to sell the shares ordered
back to the Fund, in which case we may hold you responsible for
any loss, including loss of profit suffered by us as a result of
your failure to make such payment.
8. Shares sold to you hereunder shall be available in
negotiable form for delivery at the appropriate Fund's
shareholder services agent, against payment, unless other
instructions have been given.
9. All sales will be made subject to our receipt of shares
from the Fund. We reserve the right, in our discretion, without
notice, to suspend sales or withdraw the offering of shares
entirely. We reserve the right to modify, cancel or change the
terms of this agreement, upon 15 days prior written notice to
you. Also, the sales charges, discounts, commissions or other
concessions, service fees of any kind provided for hereunder are
subject to change at any time by the Funds and us.
10. All communications to us should be sent to the address
in the heading above. Any notice to you shall be duly given if
mailed or telegraphed to you at the address specified by you
below.
<PAGE> 3
11. This agreement shall be construed in accordance with the
laws of Illinois. This agreement is subject to the Prospectuses
of the Funds from time to time in effect, and, in the event of a
conflict, the terms of the Prospectuses shall control. References
herein to the "Prospectus" of a Fund shall mean the prospectus
and statement of additional information of such Fund as from time
to time in effect. Any changes, modifications or additions
reflected in any such Prospectus shall be effective on the date
of such Prospectus (or supplement thereto) unless specified
otherwise.
12. This agreement is subject to the Additional Stipulations
and Conditions on the reverse side hereof, all of which are a
part of this agreement.
Kemper Distributors, Inc.
By
----------------------------
Authorized Signature
Title
-------------------------
We have read the foregoing agreement and accept and agree to the
terms and conditions thereof.
Firm
-------------------------
Witness
------------------------ By
----------------------------
Authorized Representative
Dated Title
------------------------- -------------------------
<PAGE> 4
ADDITIONAL STIPULATIONS AND CONDITIONS
13. No person is authorized to make any representations
concerning shares of any Fund except those contained in the
Prospectus of such Fund and in printed information subsequently
issued by the Fund or by us as information supplemental to such
Prospectus. If you wish to use your own advertising with respect
to a Fund, all such advertising must be approved by us or by the
Fund prior to use. You shall be responsible for any required
filing of such advertising.
14. Your acceptance of this agreement constitutes a
representation (i) that you are a registered security dealer and
a member in good standing of the National Association of
Securities Dealers, Inc. and that you agree to comply with all
state and federal laws, rules and regulations applicable to
transactions hereunder and to the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., including
specifically Section 26, Article III thereof, or (ii) if you are
offering and selling shares of the Funds only in jurisdictions
outside of the several states, territories and possessions of the
United States and are not otherwise required to be a member of
the National Association of Securities Dealers, Inc., that you
nevertheless agree to conduct your business in accordance with
the spirit of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and to observe the laws
and regulations of the applicable jurisdiction. You likewise
agree that you will not offer to sell shares of any Fund in any
state or other jurisdiction in which they may not lawfully be
offered for sale.
15. You shall make available an investment management
account for your customers through the Funds and shall provide
such office space and equipment, telephone facilities, personnel
and literature distribution as is necessary or appropriate for
providing information and services to your customer. Such
services and assistance may include, but not be limited to,
establishment and maintenance of shareholder accounts and
records, processing purchase and redemption transactions,
answering routine inquiries regarding the Funds, and such other
services as may be agreed upon from time to time and as may be
permitted by applicable statute, rule, or regulation. You agree
to release, indemnify and hold harmless the Funds, us and our
respective representatives and agents from any and all direct or
indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you, your officers,
employees or agents regarding the purchase, redemption or
transfer of registration of shares of the Funds for accounts of
you, your customers and other shareholders or from any
unauthorized or improper use of any on-line computer facilities.
You shall prepare such periodic reports for us as shall
reasonably be requested by us. You shall immediately inform the
Funds or us of all written complaints received by you from Fund
shareholders relating to the maintenance of their accounts and
shall promptly answer all such complaints and other similar
correspondence. You shall provide the Funds and us on a timely
<PAGE> 5
basis with such information as may be required to complete
various regulatory forms.
16. As a result of the necessity to compute the amount of
any contingent deferred sales charge due with respect to the
redemption of shares, you may not hold shares of a Fund imposing
such a charge in an account registered in your name or in the
name of your nominee for the benefit of certain of your customers
except with our prior written consent. Except as otherwise
permitted by us, shares of such a Fund owned by a shareholder
must be in a separate identifiable account for such shareholder.
17. Shares of certain Funds have been divided into separate
classes: Class A Shares, Class B Shares and Class C Shares.
Class A shares are offered at net asset value plus an initial
sales charge. Class B Shares are offered at net asset value
without an initial sales charge but are subject to a contingent
deferred sales charge and a Rule 12b-1 fee and have a conversion
feature. Class C Shares are offered at net asset value without an
initial sales charge or contingent deferred sales charge but are
subject to a Rule 12b-1 fee and have no conversion feature.
Please see the appropriate Prospectuses for a more complete
description of the distinctions between the classes of shares.
It is important to investors not only to choose Funds
appropriate for their investment objectives, but also to choose
the appropriate distribution arrangement, based on the amount
invested and the expected duration of the investment. To assist
investors in these decisions, we have instituted the following
policies with respect to orders for shares of the Funds. The
following policies and procedures with respect to sales of
classes of shares of the Funds apply to each broker/dealer that
distributes shares of the Funds.
1. All purchase orders for $500,000 or more (not including
street name or omnibus accounts) should be for class A Shares.
2. Any purchase order of less than $500,000 may be for
either Class A, Class B or Class C Shares in light of the
relevant facts and circumstances, including:
a. the specific purchase order dollar amount;
b. the length of time the investor expects to hold the
shares; and
c. any other relevant circumstances such as the
availability of purchases under a Letter of Intent, Combined
Purchases or Cumulative Discount Privilege.
There are instances when one pricing structure may be more
appropriate than another. For example, investors who would
qualify for a reduced sales charge on Class A Shares may
determine that payment of a reduced front-end sales charge is
preferable to payment of an ongoing Rule 12b-1 fee. On the other
hand, investors whose orders would not qualify for such a
discount and who plan to hold their investment for more than six
years may wish to defer the sales charge and would consider Class
B Shares. Investors who prefer not to pay an initial sales charge
and who plan to redeem their shares within six years might
consider Class C Shares.
Appropriate supervisory personnel within your organization
must ensure that all employees receiving investor inquiries about
<PAGE> 6
the purchase of shares of the Funds advise the investor of the
available pricing structures offered by the Funds and the impact
of choosing one method over another, including breakpoints and
the availability of Letters of Intent, Combined Purchases and
Cumulative Discounts. In some instances it may be appropriate
for a supervisory person to discuss a purchase with the investor.
18. This agreement shall be in substitution of any prior
selling group agreement between you and us regarding these
shares. This agreement shall not be applicable to the provision
of services for Cash Equivalent Fund, Tax-Exempt California Money
Market Fund, Tax Exempt New York Money Market Fund, Investors
Cash Trust and similar wholesale money market funds. The payment
of related distribution and services fees, shall be subject to
separate services agreements.
<PAGE> 1
EXHIBIT 99.B8(a)
CUSTODY AGREEMENT
AGREEMENT, made the 1st day of March, 1995 by and between
Kemper Income and Capital Preservation Fund, a Massachusetts
business trust having its principal place of business at 120
South LaSalle Street, Chicago, Illinois 60603 ("Fund") and
Investors Fiduciary Trust Company, a trust company organized and
existing under the laws of Missouri, having its principal place
of business at Kansas City, Missouri ("Custodian").
WHEREAS, Fund wants to appoint Investors Fiduciary Trust
Company as Custodian to have custody of a portion of Fund's
portfolio securities and monies pursuant to this Agreement; and,
for purposes related to its foreign investments held outside the
United States, Fund wants another custodian to have custody of
the remainder of Fund's portfolio securities and monies pursuant
to a separate agreement; and
WHEREAS, Investors Fiduciary Trust Company wants to accept
such appointment;
NOW, THEREFORE, for and in consideration of the mutual
promises contained herein, the parties hereto, intending to be
legally bound, mutually covenant and agree as follows:
1. APPOINTMENT OF CUSTODIAN.
Fund hereby constitutes and appoints Investors Fiduciary
Trust Company as Custodian of Fund which is to include:
A. Custody of the securities and monies at any time
owned by Fund and received by Custodian; and
B. Performing certain accounting and record keeping
functions relating to its function as Custodian for Fund and
each of its Portfolios.
2. DELIVERY OF CORPORATE DOCUMENTS.
Fund has delivered or will deliver to Custodian prior to the
effective date of this Agreement, copies of the following
documents and all amendments or supplements thereto,
properly certified or authenticated:
A. Resolutions of the Board of Trustees of Fund
appointing Investors Fiduciary Trust Company as Custodian
hereunder and approving the form of this Agreement; and
<PAGE> 2
B. Resolutions of the Board of Trustees of Fund
authorizing certain persons to give instructions on behalf
of Fund to Custodian and authorizing Custodian to rely upon
written instructions over their signatures.
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. Delivery of Assets
All Fund's securities and monies, except as permitted
by the Investment Company Act of 1940 ("1940 Act"), will be
delivered either to Custodian or to The Chase Manhattan
Bank, N.A., pursuant to a separate custody agreement. Fund
will deliver or cause to be delivered to Custodian on the
effective date of this Agreement, or as soon thereafter as
practicable, and from time to time thereafter, portfolio
securities acquired by it and monies then owned by it except
as permitted by the 1940 Act or from time to time coming
into its possession during the time this Agreement shall
continue in effect. Custodian shall have no responsibility
or liability whatsoever for or on account of securities or
monies not so delivered. All securities so delivered to
Custodian (other than bearer securities) shall be registered
in the name of Fund or its nominee, or of a nominee of
Custodian, or shall be properly endorsed and in form for
transfer satisfactory to Custodian.
B. Safekeeping
Custodian will receive delivery of and keep safely the
assets of Fund delivered to it from time to time. Custodian
will not deliver any such assets to any person except as
permitted by the provisions of this Agreement or any
agreement executed by it according to the terms of this
Agreement. Custodian shall be responsible only for the
monies and securities of Fund held directly by it or its
nominees or sub-custodian under this Agreement; provided
that Custodian's responsibility for any sub-custodian
appointed at the Fund's direction for purposes of (i)
effecting third-party repurchase transactions with banks,
brokers, dealers, or other entities through the use of a
common custodian or sub-custodian; or (ii) providing
depository and clearing agency services with respect to
certain variable rate demand note securities ("special sub-
custodian") shall be further limited as set forth in this
Agreement. Custodian may participate directly or
indirectly through a sub-custodian in the Depository Trust
Company, the Treasury/Federal Reserve Book Entry System,
the Participants Trust Company and any other securities
depository approved by the Board of Trustees of the Fund,
subject to compliance with the provisions of Rule 17f-4
under the 1940 Act including, without limitation, the
2
<PAGE> 3
specific provisions of subsections (a) (1) through (d) (4)
thereof.
C. Registration of Securities
Custodian will hold stocks and other registerable
portfolio securities of Fund registered in the name of Fund
or in the name of any nominee of Custodian for whose
fidelity and liabilities Custodian shall be fully
responsible, or in street certificate form, so-called, with
or without any indication of fiduciary capacity. Unless
otherwise instructed, Custodian will register all such
portfolio securities in the name of its authorized nominee.
D. Exchange of Securities
Upon receipt of instructions, Custodian will exchange,
or cause to be exchanged, portfolio securities held by it
for the account of Fund for other securities or cash issued
or paid in connection with any reorganization,
recapitalization, merger, consolidation, split-up of shares,
change of par value, conversion or otherwise, and will
deposit any such securities in accordance with the terms of
any reorganization or protective plan. Without
instructions, Custodian is authorized to exchange securities
held by it in temporary form for securities in definitive
form, to effect an exchange of shares when the par value of
the stock is changed, and, upon receiving payment therefore,
to surrender bonds or other securities held by it at
maturity or when advised of earlier call for redemption,
except that Custodian shall receive instructions prior to
surrendering any convertible security.
E. Purchases or Sales of Investments of Fund
Fund shall, on each business day on which a purchase or
sale of a portfolio security shall be made by it, deliver to
Custodian instructions which shall specify with respect to
each such transaction:
(1) The name of the issuer and description of the security;
(2) The number of shares or the principal amount purchased
or sold, and accrued interest, if any;
(3) The trade date;
(4) The settlement date;
(5) The date when the securities sold were purchased by
Fund or other information identifying the securities
sold and to be delivered;
3
<PAGE> 4
(6) The price per unit and the brokerage commission, taxes
and other expenses in connection with the transaction;
(7) The total amount payable or receivable upon such
transaction; and
(8) The name of the person from whom or the broker or
dealer through whom the transaction was made.
In accordance with such purchase instructions, Custodian
shall pay for out of monies held for the account of Fund,
but only insofar as monies are available therein for such
purpose, and receive the portfolio securities so purchased
by or for the account of Fund. Such payment shall be made
only upon receipt by Custodian of the securities so
purchased in form for transfer satisfactory to Custodian.
In accordance with such sales instructions, Custodian will
deliver or cause to be delivered the securities thus
designated as sold for the account of Fund to the broker or
other person specified in the instructions relating to such
sale, such delivery to be made only upon receipt of payment
therefor in such form as shall be satisfactory to Custodian,
with the understanding that Custodian may deliver or cause
to be delivered securities for payment in accordance with
the customs prevailing among dealers in securities.
F. Purchases or Sales of Options and Futures
Transactions
Fund will, on each business day on which a purchase or
sale of the following options and/or futures shall be made
by it, deliver to Custodian instructions which shall specify
with respect to each such purchase or sale:
(1) Securities Options
(a) The underlying security;
(b) The price at which purchased or sold;
(c) The expiration date;
(d) The number of contracts;
(e) The exercise price;
(f) Whether opening, exercising, expiring or closing
the transaction;
(g) Whether the transaction involves a put or call;
(h) Whether the option is written or purchased;
(i) Market on which option traded; and
(j) Name and address of the broker or dealer through
whom the sale or purchase was made.
4
<PAGE> 5
(2) Options on Indices
(a) The index;
(b) The price at which purchased or sold;
(c) The exercise price;
(d) The premium;
(e) The multiple;
(f) The expiration date;
(g) Whether the transaction is an opening, exercising,
expiring or closing transaction;
(h) Whether the transaction involves a put or call;
(i) Whether the option is written or purchased; and
(j) Name and address of the broker or dealer through
whom the sale or purchase was made.
(3) Securities Index Futures Transactions
(a) The last trading date specified in the contract
and, when available, the closing level, thereof;
(b) The index level on the date the contract is
entered into;
(c) The multiple;
(d) Any margin requirements;
(e) The need for a segregated margin account (in
addition to instructions; and, if not already in
the possession of Custodian, Fund shall deliver a
substantially complete and executed custodial
safekeeping account and procedural agreement which
shall be incorporated into this Custody
Agreement); and
(f) The name and address of the futures commission
merchant through whom the sale or purchase was
made.
(4) Options on Index Futures Contracts
(a) The underlying index futures contract;
(b) The premium;
(c) The expiration date;
(d) The number of options;
(e) The exercise price;
(f) Whether the transaction involves an opening,
exercising, expiring or closing transaction;
(g) Whether the transaction involves a put or call;
(h) Whether the option is written or purchased; and
(i) The market on which the option is traded.
G. Securities Pledged to Secure Loans
(1) Upon receipt of instructions, Custodian will
release or cause to be released securities held in custody
to the pledgee designated in such instructions by way of
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<PAGE> 6
pledge or hypothecation to cure any loan incurred by Fund;
provided, however, that the securities shall be released
only upon payment to Custodian of the monies borrowed,
except that in cases where additional collateral is required
to secure a borrowing already made, further securities may
be released or caused to be released for that purpose upon
receipt of instructions. Upon receipt of instructions,
Custodian will pay, but only from funds available for such
purpose, any such loan upon redelivery to it of the
securities pledged or hypothecated therefor and upon
surrender of the note or notes evidencing such loan.
(2) Upon receipt of instructions, Custodian will
release securities held in custody to the borrower
designated in such instructions; provided, however, that the
securities shall be released only upon deposit with
Custodian of full cash collateral as specified in such
instructions, and that Fund will retain the right to any
dividends, interest or distribution on such loaned
securities. Upon receipt of instructions and the loaned
securities, Custodian will release the cash collateral to
the borrower.
H. Routine Matters
Custodian will, in general, attend to all routine and
mechanical matters in connection with the sale, exchange,
substitution, purchase, transfer, or other dealings with
securities or other property of Fund except as may be
otherwise provided in this Agreement or directed from time
to time by the Board of Trustees of Fund.
I. Demand Deposit Account
Custodian will open and maintain a demand deposit
account or accounts in the name of Custodian, subject only
to draft or order by Custodian upon receipt of instructions.
All monies received by Custodian from or for the account of
Fund shall be deposited in said account or accounts.
When properly authorized by a resolution of the Board
of Trustees of Fund, Custodian may open and maintain an
additional demand deposit account or accounts in such other
banks or trust companies as may be designated in such
resolution, such accounts, however, to be in the name of
Custodian and subject only to its draft or order.
J. Income and Other Payments to Fund
Custodian will:
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<PAGE> 7
(1) collect, claim and receive and deposit for the
account of Fund all income and other payments which become
due and payable on or after the effective date of this
Agreement with respect to the securities deposited under
this Agreement, and credit the account of Fund with such
income on the payable date;
(2) execute ownership and other certificates and
affidavits for all federal, state and local tax purposes in
connection with the collection of bond and note coupons; and
(3) take such other action as may be necessary or
proper in connection with:
(a) the collection, receipt and deposit of such income
and other payments, including but not limited to the
presentation for payment of:
(1) all coupons and other income items requiring
presentation;
(2) all other securities which may mature or be
called, redeemed, retired or otherwise become
payable and regarding which the Custodian has
actual knowledge, or notice of which is contained
in publications of the type to which it normally
subscribes for such purpose; and
(b) the endorsement for collection, in the name of
Fund, of all checks, drafts or other negotiable
instruments.
Custodian, however, shall not be required to institute
suit or take other extraordinary action to enforce
collection except upon receipt of instructions and upon
being indemnified to its satisfaction against the costs and
expenses of such suit or other actions. Custodian will
receive, claim and collect all stock dividends, rights and
other similar items and deal with the same pursuant to
instructions. Unless prior instructions have been received
to the contrary, Custodian will, without further
instructions, sell any rights held for the account of Fund
on the last trade date prior to the date of expiration of
such rights.
K. Payment of Dividends and Other Distributions
On the declaration of any dividend or other
distribution on the shares of beneficial interest of any
Portfolio ("Portfolio Shares") by the Board of Trustees of
Fund, Fund shall deliver to Custodian instructions with
respect thereto, including a copy of the Resolution of said
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<PAGE> 8
Board of Trustees certified by the Secretary or an Assistant
Secretary of Fund wherein there shall be set forth the
record date as of which shareholders are entitled to receive
such dividend or distribution, and the amount payable per
share on such dividend or distribution.
On the date specified in such Resolution for the
payment of such dividend or other distribution, Custodian
shall pay out of the monies held for the account of Fund,
insofar as the same shall be available for such purposes,
and credit to the account of the Dividend Disbursing Agent
for Fund, such amount as may be necessary to pay the amount
per share payable in cash on Portfolio Shares issued and
outstanding on the record date established by such
Resolution.
L. Portfolio Shares Purchased by Fund
Whenever any Portfolio Shares are purchased by Fund,
Fund or its agent shall advise Custodian of the aggregate
dollar amount to be paid for such shares and shall confirm
such advice in writing. Upon receipt of such advice,
Custodian shall charge such aggregate dollar amount to the
custody account of Fund and either deposit the same in the
account maintained for the purpose of paying for the
purchase of Portfolio Shares or deliver the same in
accordance with such advice.
M. Portfolio Shares Purchased from Fund
Whenever Portfolio Shares are purchased from Fund, Fund
will deposit or cause to be deposited with Custodian the
amount received for such shares. Custodian shall not have
any duty or responsibility to determine that Fund Shares
purchased from Fund have been added to the proper
shareholder account or accounts or that the proper number of
such shares have been added to the shareholder records.
N. Proxies and Notices
Custodian will promptly deliver or mail to Fund all
proxies properly signed, all notices of meetings, all proxy
statements and other notices, requests or announcements
affecting or relating to securities held by Custodian for
Fund and will, upon receipt of instructions, execute and
deliver or cause its nominee to execute and deliver such
proxies or other authorizations as may be required. Except
as provided by this Agreement or pursuant to instructions
hereafter received by Custodian, neither it nor its nominee
shall exercise any power inherent in any such securities,
including any power to vote the same, or execute any proxy,
power of attorney, or other similar instrument voting any of
8
<PAGE> 9
such securities, or give any consent, approval or waiver
with respect thereto, or take any other similar action.
O. Disbursements
Custodian will pay or cause to be paid insofar as funds
are available for the purpose, bills, statements and other
obligations of Fund (including but not limited to
obligations in connection with the conversion, exchange or
surrender of securities owned by Fund, interest charges,
variation margin, dividend disbursements, taxes, management
fees, administration-distribution fees, custodian fees,
legal fees, auditors' fees, transfer agents' fees, brokerage
commissions, compensation to personnel, and other operating
expenses of Fund) pursuant to instructions of Fund setting
forth the name of the person to whom payment is to be made,
the amount of the payment, and the purpose of the payment.
P. Books, Records and Accounts
Custodian acknowledges that all the records it shall
prepare and maintain pursuant to this Agreement shall be the
property of Fund and that upon request of Fund it shall make
Fund's records available to it, along with such other
information and data as are reasonably requested by Fund,
for inspection, audit or copying, or turn said records over
to Fund.
Custodian shall, within a reasonable time, render to
Fund as of the close of business on each day, a detailed
statement of the amounts received or paid and of securities
received or delivered for the account of Fund during said
day. Custodian shall, from time to time, upon request by
Fund, render a detailed statement of the securities and
monies held for Fund under this Agreement, and Custodian
shall maintain such books and records as are necessary to
enable it do so and shall permit such persons as are
authorized by Fund, including Fund's independent public
accountants, to examine such records or to confirm the
contents of such records; and, if demanded, shall permit
federal and state regulatory agencies to examine said
securities, books and records. Upon the written
instructions of Fund or as demanded by federal or state
regulatory agencies, Custodian shall instruct any
sub-custodian to permit such persons as are authorized by Fund
to examine the books, records and securities held by such
sub-custodian which relate to Fund.
Q. Appointment of Sub-Custodian
Notwithstanding any other provisions of this Agreement,
all or any of the monies or securities of Fund may be held
9
<PAGE> 10
in Custodian's own custody or in the custody of one or more
other banks or trust companies acting as sub-custodians as
may be approved by resolutions of Fund's Board of Trustees,
evidenced by a copy thereof certified by the Secretary or
Assistant Secretary of Fund. Any sub-custodian must have
the qualifications required for custodians under the 1940
Act unless exempted therefrom. Any sub-custodian may
participate directly or indirectly in the Depository Trust
Company, the Treasury/Reserve Book Entry System, the
Participants Trust Company and any other securities
depository approved by the Board of Trustees of the Fund to
the same extent and subject to the same conditions as
provided hereunder. Neither Custodian nor sub-custodian
shall be entitled to reimbursement by Fund for any fees or
expenses of any sub-custodian; provided that Custodian shall
not be liable for, and Fund shall hold Custodian harmless
from, the expenses of any special sub-custodian. The
appointment of a sub-custodian shall not relieve Custodian
of any of its obligations hereunder; provided that Custodian
shall be responsible to Fund for any loss, damage, or
expense suffered or incurred by Fund resulting from the
actions or omissions of a special sub-custodian only to the
extent the special sub-custodian is liable to Custodian.
R. Multiple Portfolios
If Fund shall issue shares of more than one Portfolio
during the term hereof, Custodian agrees that all securities
and other assets of Fund shall be segregated by Portfolio
and all books and records, account values or actions shall
be maintained, held, made or taken, as the case may be,
separately for each Portfolio.
S. Other Custodian
Pursuant to instructions, Custodian will transmit
securities and moneys of Fund to The Chase Manhattan Bank,
N.A., as custodian for Fund.
4. INSTRUCTIONS.
A. The term "instructions", as used herein, means
written or oral instructions to Custodian from an authorized
person of Fund. Certified copies of resolutions of the
Board of Trustees of Fund naming one or more persons
authorized to give instructions in the name and on behalf of
Fund may be received and accepted by Custodian as conclusive
evidence of the authority of any person so to act and may be
considered to be in full force and effect (and Custodian
shall be fully protected in acting in reliance thereon)
until receipt by Custodian of notice to the contrary.
Unless the resolution authorizing any person to give
10
<PAGE> 11
instructions specifically requires that the approval of
anyone else shall first have been obtained, Custodian shall
be under no obligation to inquire into the right of the
person giving such instructions to do so. Notwithstanding
any of the foregoing provisions of this Section 4, no
authorizations or instructions received by Custodian from
Fund shall be deemed to authorize or permit any trustee,
officer, employee, or agent of Fund to withdraw any of the
securities or monies of Fund upon the mere receipt of
instructions from such trustee, officer, employee or agent.
B. No later than the next business day immediately
following each oral instruction referred to herein, Fund
shall give Custodian written confirmation of each such oral
instruction. Either party may electronically record any
oral instruction whether given in person or via telephone.
5. LIMITATION OF LIABILITY OF CUSTODIAN
A. Custodian shall hold harmless and indemnify Fund
from and against any loss or liability arising out of
Custodian's failure to comply with the terms of this
Agreement or arising out of Custodian's negligence, willful
misconduct, or bad faith. Custodian may request and obtain
the advice and opinion of counsel for Fund or of its own
counsel with respect to questions or matters of law, and it
shall be without liability to Fund for any action taken or
omitted by it in good faith, in conformity with such advice
or opinion.
B. If Fund requires Custodian in any capacity to
take, with respect to any securities, any action which
involves the payment of money by it, or which in Custodian's
opinion might make it or its nominee liable for payment of
monies or in any other way, Custodian shall be and be kept
indemnified by Fund in an amount and form satisfactory to
Custodian against any liability on account of such action.
C. Custodian shall be entitled to receive, and Fund
agrees to pay to Custodian, on demand, reimbursement for
such cash disbursements, costs and expenses as may be agreed
upon from time to time by Custodian and Fund.
D. Custodian shall be protected in acting as
custodian hereunder upon any instructions, advice, notice,
request, consent, certificate or other instrument or paper
reasonably appearing to it to be genuine and to have been
properly executed and shall, unless otherwise specifically
provided herein, be entitled to receive as conclusive proof
of any fact or matter required to be ascertained from Fund
hereunder, a certificate signed by Fund's President, or
other officer specifically authorized for such purpose.
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<PAGE> 12
E. Without limiting the generality of the foregoing,
Custodian shall be under no duty or obligation to inquire
into, and shall not be liable for:
(1) The validity of the issue of any securities
purchased by or for Fund, the legality of the purchase
thereof or evidence of ownership required by Fund to be
received by Custodian, or the propriety of the decision
to purchase or amount paid therefor;
(2) The legality of the sales of any securities
by or for Fund, or the propriety of the amount paid
therefor;
(3) The legality of the issue or sale of any
shares of Fund, or the sufficiency of the amount to be
received therefor;
(4) The legality of the purchase of any shares of
Fund, or the propriety of the amount to be paid
therefor; or
(5) The legality of the declaration of any
dividend by Fund, or the legality of the issue of any
shares of Fund in payment of any share dividend.
F. Custodian shall not be liable for, or considered
to be the custodian of, any money represented by any check,
draft, wire transfer, clearing house funds, uncollected
funds, or instrument for the payment of money received by it
on behalf of Fund, until Custodian actually receives such
money, provided only that it shall advise Fund promptly if
it fails to receive any such money in the ordinary course of
business, and use its best efforts and cooperate with Fund
toward the end that such money shall be received.
G. Subject to the obligations of Custodian under
Section 3.B. hereof, Custodian shall not be responsible for
loss occasioned by the acts, neglects, defaults or
insolvency of any broker, bank, trust company, or any other
person with whom Custodian may deal in the absence of
negligence, misconduct or bad faith on the part of Custodian.
H. Custodian or any sub-custodian shall provide Fund
for its approval by its Board of Trustees agreements with
banks or trust companies which will act as sub-custodian for
Fund pursuant to this Agreement; and, as set forth in
Section 3.B hereof, Custodian shall be responsible for the
monies and securities of the Fund held by it or its nominees
or sub-custodians under this Agreement, but not for monies
and securities of the Fund held by any special sub-custodian
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<PAGE> 13
except to the extent the special sub-custodian is liable to
Custodian.
6. COMPENSATION.
Fund shall pay to Custodian such compensation at such times
as may from time to time be agreed upon in writing by Custodian
and Fund. Custodian may charge such compensation against monies
held by it for the account of Fund. Custodian shall also be
entitled, notwithstanding the provisions of Sections 5B or 5C
hereof, to charge against any monies held by it for the account
of Fund the amount of any loss, damage, liability or expense for
which it shall be entitled to reimbursement under the provisions
of this Agreement. Custodian shall not be entitled to
reimbursement by Fund for any loss or expenses of any
sub-custodian; provided that Custodian shall not be liable for, and
Fund shall hold Custodian harmless from, the expenses of any
special sub-custodian.
7. TERMINATION.
Either party to this Agreement may terminate the same by
notice in writing, delivered or mailed, postage prepaid, to the
other party hereto and received not less than sixty (60) days
prior to the date upon which such termination shall take effect.
Upon termination of this Agreement, Fund shall pay to Custodian
such compensation for its reimbursable disbursements, costs and
expenses paid or incurred to such date and Fund shall use its
best efforts to obtain a successor custodian. Unless the holders
of a majority of the outstanding shares of Fund vote to have the
securities, funds and other properties held under this Agreement
delivered and paid over to some other person, firm or corporation
specified in the vote, having not less than Two Million Dollars
($2,000,000) aggregate capital, surplus and undivided profits, as
shown by its last published report, and meeting such other
qualifications for custodian as set forth in the Bylaws of Fund,
the Board of Trustees of Fund shall, forthwith upon giving or
receiving notice of termination of this Agreement, appoint as
successor custodian a bank or trust company having such
qualifications. Custodian shall, upon termination of this
Agreement, deliver to the successor custodian so specified or
appointed, at custodian's office, all securities then held by
Custodian hereunder, duly endorsed and in form for transfer, and
all funds and other properties of Fund deposited with or held by
Custodian hereunder, and shall cooperate in effecting changes in
book-entries at the Depository Trust Company, the
Treasury/Federal Reserve Book-Entry System, the Participants
Trust Company and any other securities depository holding assets
of the Fund. In the event no such vote has been adopted by the
shareholders of Fund and no written order designating a successor
custodian shall have been delivered to Custodian on or before the
date when such termination shall become effective, then Custodian
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<PAGE> 14
shall deliver the securities, funds and properties of Fund to a
bank or trust company at the selection of Custodian and meeting
the qualifications for custodian, if any, set forth in the Bylaws
of Fund and having not less than Two Million Dollars ($2,000,000)
aggregate capital, surplus and undivided profits, as shown by its
last published report. Upon either such delivery to a successor
custodian, Custodian shall have no further obligations or
liabilities under this Agreement. Thereafter such bank or trust
company shall be the successor custodian under this Agreement and
shall be entitled to reasonable compensation for its services.
In the event that no such successor custodian can be found, Fund
will submit to its shareholders, before permitting delivery of
the cash and securities owned by Fund to anyone other than a
successor custodian, the question of whether Fund shall be
liquidated or shall function without a custodian. Not-
withstanding the foregoing requirement as to delivery upon
termination of this Agreement, Custodian may make any other
delivery of the securities, funds and property of Fund which
shall be permitted by the 1940 Act and Fund's Agreement and
Declaration of Trust and Bylaws then in effect. Except as
otherwise provided herein, neither this Agreement nor any portion
thereof may be assigned by Custodian without the consent of Fund,
authorized or approved by a resolution of its Board of Trustees.
8. NOTICES.
Notices, requests, instructions and other writings received
by Fund at 120 South LaSalle Street, Chicago, Illinois 60603 or
at such other address as Fund may have designated by certified
resolution of the Board of Trustees to Custodian and notices,
requests, instructions and other writings received by Custodian
at its offices at 21 West 10th Street, Kansas City, Missouri
64105, or to such other address as it may have designated to Fund
in writing, shall be deemed to have been properly given
hereunder.
9. MISCELLANEOUS.
A. This Agreement is executed and delivered in the
State of Missouri and shall be governed by the laws of the
State of Missouri (except as to Section 9.H. hereof which
shall be governed in accordance with the laws of The
Commonwealth of Massachusetts).
B. All the terms and provisions of this Agreement
shall be binding upon, inure to the benefit of, and be
enforceable by the respective successors and assigns of the
parties hereto.
C. No provisions of the Agreement may be amended or
modified in any manner except by a written agreement
properly authorized and executed by both parties hereto.
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<PAGE> 15
D. The captions in this Agreement are included for
convenience of reference only, and in no way define or
delimit any of the provisions hereof or otherwise affect
their construction or effect.
E. This Agreement shall become effective at the close
of business on the date hereof.
F. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and
the same instrument.
G. If any part, term or provision of this Agreement
is by the courts held to be illegal, in conflict with any
law or otherwise invalid, the remaining portion or portions
shall be considered severable and not be affected, and the
rights and obligations of the parties shall be construed and
enforced as if the Agreement did not contain the particular
part, term or provision held to be illegal or invalid.
H. All parties hereto are expressly put on notice of
Fund's Agreement and Declaration of Trust, which is 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 Fund by its representatives as such
representatives and not individually, and the obligations of
Fund hereunder are not binding upon any of the Trustees,
officers or shareholders of Fund individually but are
binding upon only the assets and property of Fund. With
respect to any claim by Custodian for recovery of that
portion of the compensation (or any other liability of Fund
arising hereunder) allocated to a particular Portfolio,
whether in accordance with the express terms hereof or
otherwise, Custodian 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.
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<PAGE> 16
I. This Agreement, together with the Fee Schedule, is
the entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed by their respective authorized officers.
KEMPER INCOME AND CAPITAL
PRESERVATION FUND
By: /s/ John E. Peters
----------------------------
Title: Vice President
--------------------------
Attest: /s/ Philip J. Collora
---------------------
Title: Secretary
----------------------
INVESTORS FIDUCIARY TRUST COMPANY
By: /s/ Joseph F. Smith
------------------------------
Title: E. V. P.
---------------------------
Attest: /s/ Marvin Rau
-----------------------
Title: Secretary
------------------------
16
<PAGE> 1
EXHIBIT 99.B8(b)
FOREIGN CUSTODY AGREEMENT
AGREEMENT dated February 1, 1988 between THE CHASE MANHATTAN
BANK, N.A ("Bank") and KEMPER INCOME AND CAPITAL PRESERVATION
FUND ("Fund").
1. Custody Account. The Bank agrees to establish and
maintain (a) a custody account in the name of the Fund ("Custody
Account") for any and all stocks, shares, bonds, debentures,
notes, mortgages or other obligations for the payment of money
and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the
same or evidencing or representing any other rights or interests
therein and other similar property (hereinafter called
"Securities") and from time to time received by the Bank or its
subcustodian (as defined in the last sentence of Section 3) for
the account of the Fund, and (b) a deposit account in the name of
the Fund ("Deposit Account") for any and all cash in any currency
received by the Bank or its subcustodian for the account of the
Fund, which cash shall not be subject to withdrawal by draft or
check.
2. Maintenance of Securities Abroad. Securities in the
Custody Account shall be held in the country or other
jurisdiction as shall be specified from time to time in
Instructions, provided that such country or other jurisdiction
shall be one in which the principal trading market for such
Securities is located or the country or other jurisdiction in
<PAGE> 2
which such Securities are to be presented for payment or are
acquired for the Custody Account and cash in the Deposit Account
shall be credited to an account in such amounts and in the
country or other jurisdiction as shall be specified from time to
time in Instructions, provided that such country or other
jurisdiction shall be one in which such cash is the legal
currency for the payment of public or private debts.
3. Eligible Foreign Custodians and Securities
Depositories. The Fund's Board of Trustees authorizes the Bank
to hold the Securities in the Custody Account and the cash in the
Deposit Account in custody and deposit accounts, respectively,
which have been established by the Bank with one of its branches,
a branch of a qualified U.S. bank, an eligible foreign custodian
or an eligible foreign securities depository; provided, however,
that the Bank has recommended and the Board has approved the use
of, and the Bank's contract with, such eligible foreign custodian
or eligible foreign securities depository by resolution, and a
certified copy of such resolution has been provided to the Bank.
Furthermore, if one of its branches, a branch of a qualified U.S.
bank or an eligible foreign custodian is selected to act as the
Bank's subcustodian to hold any of the Securities or cash, such
entity is authorized to hold such Securities or cash in its
account with any eligible foreign securities depository in which
it participates. For purposes of this Agreement (a) "qualified
U.S. bank" shall mean a qualified U.S. bank as defined in Rule
17f-5 under the Investment Company Act of 1940 ("Investment
2
<PAGE> 3
Company Act"); (b) "eligible foreign custodian" shall mean (i) a
banking institution or trust company incorporated or organized
under the laws of a country other than the United States that is
regulated as such by that country's government or an agency
thereof and that has shareholders' equity in excess of $200
million in U.S. currency (or a foreign currency equivalent
thereof), (ii) a majority owned direct or indirect subsidiary of
a qualified U.S. bank or bank holding company that is
incorporated or organized under the laws of a country other than
the United States and that has shareholders' equity in excess of
$100 million in U.S. currency (or a foreign currency equivalent
thereof) or (iii) a banking institution or trust company
incorporated or organized under the laws of a country other than
the United States or a majority owned direct or indirect
subsidiary of a qualified U.S. bank or bank holding company that
is incorporated or organized under the laws of a country other
than the United States which has such other qualifications as
shall be authorized or permitted by a rule, regulation,
interpretation or exemptive order promulgated by or under the
authority of the Securities and Exchange Commission, specified in
Instructions and approved by the Bank; and (c) "eligible foreign
securities depository" shall mean a securities depository or
clearing agency, incorporated or organized under the laws of a
country other than the United States, which operates (i) the
central system for handling of securities or equivalent
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<PAGE> 4
book-entries in that country or (ii) a transnational system for
the central handling of securities or equivalent book-entries.
Hereinafter the term "subcustodian" will refer to any branch
of a qualified U.S. bank, any eligible foreign custodian or any
eligible foreign securities depository with which the Bank has
entered an agreement of the type contemplated hereunder regarding
Securities and/or cash held in or to be acquired for the Custody
Account or the Deposit Account.
4. Use of Subcustodian. With respect to Securities and
other assets which are maintained by the Bank in the physical
custody of a subcustodian pursuant to Section 3 (as used in this
Section 4, the term "Securities" means such Securities and other
assets),
(a) The Bank will identify on its books as belonging
to the Fund any Securities held by such subcustodian.
(b) In the event that a subcustodian permits any of
the Securities placed in its care to be held in an eligible
foreign securities depository, such subcustodian will be
required by its agreement with the Bank to identify on its
books such Securities as being held for the account of the
Bank as a custodian for its customers.
(c) Any Securities in the Custody Account held by a
subcustodian of the Bank will be subject only to the
instructions of the Bank or its agents; and any Securities
held in an eligible foreign securities depository for the
4
<PAGE> 5
account of a subcustodian will be subject only to the
instructions of such subcustodian.
(d) The Bank will only deposit Securities in an
account with a subcustodian which includes exclusively the
assets held by the Bank for its customers, and the Bank will
cause such account to be designated by such subcustodian as
a special custody account for the exclusive benefit of
customers of the Bank.
(e) Any agreement the Bank shall enter into with a
subcustodian with respect to the holding of Securities shall
require that (i) the Securities are not subject to any
right, charge, security interest, lien or claim of any kind
in favor of such subcustodian except for their safe custody
or administration and (ii) beneficial ownership of such
Securities is freely transferable without the payment of
money or value other than for safe custody or
administration; provided, however, that the foregoing shall
not apply to the extent that any of the above-mentioned
rights, charges, etc. result from any compensation or other
expenses arising with respect to the safekeeping of
Securities pursuant to such agreement or from any
arrangements made by the Fund with any such subcustodian.
(f) The Bank shall allow independent public
accountants of the Fund such reasonable access to the
records of the Bank relating to the Securities held in the
Custody Account as is required by such accountants in
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<PAGE> 6
connection with their examination of the books and records
pertaining to the affairs of the Fund. The Bank shall,
subject to restrictions under applicable law, also obtain
from any subcustodian with which the Bank maintains the
physical possession of any Securities in the Custody Account
an undertaking to permit independent public accountants of
the Fund such reasonable access to the records of such
subcustodian as may be required in connection with their
examination of the books and records pertaining to the
affairs of the Fund. The Bank shall furnish to the Fund
such reports (or portions thereof) of the Bank's external
auditors as relate directly to the Bank's system of internal
accounting controls applicable to the Bank's duties under
this Agreement. The Bank shall use its best efforts to
obtain and furnish the Fund with similar reports with
respect to each eligible foreign custodian and eligible
foreign securities depository holding Securities of the
Fund.
(g) The Bank will supply to the Fund from time to time
as mutually agreed upon a statement in respect to any
Securities in the Custody Account held by a subcustodian,
including an identification of the entity having possession
of the Securities, and the Bank will send to the Fund an
advice or notification of any transfers of Securities to or
from the Custody Account, indicating, as to Securities
acquired for the Fund, the identity of the entity having
6
<PAGE> 7
physical possession of such Securities. In the absence of
the filing in writing with the Bank by the Fund of
exceptions or objections to any such statement within sixty
(60) days following receipt of the statement, the Fund shall
be deemed to have approved such statement; and in such case
or upon written approval of the Fund of any such statement
the Bank shall, to the extent permitted by law, be released,
relieved and discharged with respect to all matters and
things set forth in such statement as though such statement
had been settled by the decree of a court of competent
jurisdiction in an action in which the Fund and all persons
having any equity interest in the Fund were parties.
(h) The Bank hereby warrants to the Fund that in
its opinion, after due inquiry, the established procedures
to be followed by each of its branches, each branch of a
qualified U.S. bank, each eligible foreign custodian and
each eligible foreign securities depository holding the
Fund's Securities pursuant to this Agreement afford
protection for such Securities at least equal to that
afforded by the Bank's established procedures with respect
to similar securities held by the Bank (and its securities
depositories) in New York.
5. Deposit Account Payments. Subject to the provisions of
Section 7, the Bank shall make, or cause its subcustodians to
make, payments of cash credited to the Deposit Account only
7
<PAGE> 8
(a) in connection with the purchase of Securities for
the Fund and the delivery of such Securities to, or the
crediting of such Securities to the account of, the Bank or
its subcustodian, each such payment to be made at prices as
confirmed by Instructions (as defined in Section 9 hereof)
from Authorized persons (as defined in Section 10 hereof);
(b) for the purchase or redemption of shares of the
capital stock of the Fund and the delivery to, or crediting
to the account of, the Bank or its subcustodian of such
shares to be so purchased or redeemed;
(c) for the payment for the account of the Fund of
dividends, interest, taxes, management or supervisory fees,
capital distributions or operating expenses;
(d) for the payments to be made in connection with the
conversion, exchange or surrender of Securities held in the
Custody Account;
(e) for transmittal either to United Missouri Bank of
Kansas City, National Association, or to Investors Fiduciary
Trust Company, as Custodian for the Fund;
(f) for other proper corporate purposes of the Fund;
or
(g) upon the termination of this Custody Agreement as
hereinafter set forth.
All payments of cash for a purpose permitted by subsection (a),
(b), (c), (d) or (e) of this Section 5 will be made only upon
receipt by the Bank of Instructions from Authorized Persons which
8
<PAGE> 9
shall specify the purpose for which the payment is to be made and
the applicable subsection of this Section 5. In the case of any
payment to be made for the purpose permitted by subsection (f) of
this Section 5, the Bank must first receive a certified copy of a
resolution of the Board adequately describing such payment,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made. Any
payment pursuant to subsection (g) of this Section 5 will be made
in accordance with Section 17.
In the event that any payment made under this Section 5
exceeds the funds available in the Deposit Account, the Bank may,
in its discretion, advance the Fund an amount equal to such
excess and such advance shall be deemed a loan from the Bank to
the Fund, payable on demand, bearing interest at the rate of
interest customarily charged by the Bank on similar loans.
If the Bank causes the Deposit Account to be credited on the
payable date for interest, dividends or redemptions, the Fund
will promptly return to the Bank any such amount or property so
credited upon oral or written notification that neither the Bank
nor its subcustodian can collect such amount or property in the
ordinary course of business. The Bank or its subcustodian, as
the case may be, shall have no duty or obligation to institute
legal proceedings, file a claim or proof of claim in any
insolvency proceeding to take any other action with respect to
the collection of such amount or property beyond its ordinary
collection procedures.
9
<PAGE> 10
6. Custody Account Transactions. Subject to the
provisions of Section 7, Securities in the Custody Account will
be transferred, exchanged or delivered by the Bank or its
subcustodians only
(a) upon sale of such Securities for the Fund and
receipt by the Bank or its subcustodian only of payment
therefor, each such payment to be in the amount confirmed by
Instructions from Authorized persons;
(b) when such Securities are called, redeemed or
retired, or otherwise become payable;
(c) in exchange for or upon conversion into other
Securities along or other Securities and cash pursuant to
any plan or merger, consolidation, reorganization,
recapitalization or readjustment;
(d) upon conversion of such Securities pursuant to
their terms into other Securities;
(e) upon exercise of subscription, purchase or other
similar rights represented by such Securities;
(f) for the purpose of exchanging interim receipts or
temporary Securities for definitive Securities;
(g) for the purpose of delivery either to United
Missouri Bank of Kansas City, National Association, or to
Investors Fiduciary Trust Company, as Custodian for the
Fund;
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<PAGE> 11
(h) for the purpose of redeeming in kind shares of the
Fund against delivery to the Bank or its subcustodian of
such shares to be so redeemed;
(i) for other proper trust purposes of the Fund;
(j) upon the termination of this Custody Agreement as
hereinafter set forth.
All transfers, exchanges or deliveries of Securities in the
Custody Account for a purpose permitted by either subsection (a),
(b), (c), (d), (e), (f) or (g) of this Section 6 will be made,
except as provided in Section 8, only upon receipt by the Bank of
Instructions from Authorized Persons which shall specify the
purpose of the transfer, exchange or delivery to be made and the
applicable subsection of this Section 6. In the case of any
transfer or delivery to be made for the purpose permitted by
subsection (h) of this Section 6, the Bank must first receive
Instructions from Authorized Persons specifying the shares held
by the Bank or its subcustodian to be so transferred or delivered
and naming the person or persons to whom transfers or delivery of
such shares shall be made. In the case of any transfer, exchange
or delivery to be made for the purpose permitted by subsection
(i) of this Section 6, the Bank must first receive a certified
copy of a resolution of the Board adequately describing such
transfer, exchange or delivery, declaring such purpose to be a
proper trust purpose, and naming the person or person to whom
delivery of such Securities shall be made. Any transfer or
11
<PAGE> 12
delivery pursuant to subsection (j) of this Section 6 will be
made in accordance with Section 17.
7. Custody Account Procedures. With respect to any
transaction involving Securities held in or to be acquired for
the Custody Account, the Bank in its discretion may cause the
Deposit Account to be credited on the contractual settlement date
with the proceeds of any sale or exchange of Securities from the
Custody Account and to be debited on the contractual settlement
date for the cost of Securities purchased or acquired for the
Custody Account. The Bank may reverse any such credit or debit
if the transaction with respect to which such credit or debit
were made fails to settle within a reasonable period, determined
by the Bank in its discretion, after the contractual settlement
date, except that if any Securities delivered pursuant to this
Section 7 are returned by the recipient thereof, the Bank may
cause any such credits and debits to be reversed at any time.
With respect to any transactions as to which the Bank does not
determine so to credit or debit the Deposit Account, the proceeds
from the sale or exchange of Securities will be credited and the
cost of such Securities purchased or acquired will be debited to
the Deposit Account on the date such proceeds or Securities are
received by the Bank.
Notwithstanding the preceding paragraph, settlement and
payment for Securities received for, and delivery of Securities
out of, the Custody Account may be effected in accordance with
the customary or established securities trading or securities
12
<PAGE> 13
processing practices and procedures in the jurisdiction or market
in which the transaction occurs, including, without limitation,
delivering Securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such
Securities from such purchaser or dealer.
8. Actions of the Bank. Until the Bank receives
instructions from Authorized Persons to the contrary, the Bank
will, or will instruct its subcustodian to,
(a) present for payment any Securities in the Custody
Account which are called, redeemed or retired or otherwise
become payable and all coupons and other income items which
call for payment upon presentation to the extent that the
Bank or subcustodian is aware of such opportunities for
payment, and hold cash received upon presentation of such
Securities in accordance with the provisions of Sections 2,
3 and 4 of this Agreement;
(b) in respect of Securities in the Custody Account,
execute in the name of the Fund such ownership and other
certificates as may be required to obtain payments in
respect thereof;
(c) exchange interim receipts or temporary Securities
in the Custody Account for definitive Securities;
(d) convert moneys received with respect to Securities
of foreign issue into United States dollars or any other
currency necessary to effect any transaction involving the
13
<PAGE> 14
Securities whenever it is practicable to do so through
customary banking channels, using any method or agency
available, including, but not limited to, the facilities of
the Bank, its subsidiaries, affiliates or subcustodians; and
(e) in the event of any loss of Securities or Cash,
use its best efforts to ascertain the circumstances relating
to such loss and promptly report the same to the Fund.
9. Instructions. As used in this Agreement, the term
"Instructions" means instructions of the Fund received by the
Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction system
acceptable to the Bank which the Bank reasonably believes in good
faith to have been given by Authorized Persons or which are
transmitted with proper testing or authentication pursuant to
terms and conditions which the Bank may specify.
Any Instructions delivered to the Bank by telephone shall
promptly thereafter be confirmed in writing by an Authorized
Person (which confirmation may bear the facsimile signature of
such Person), but the Fund will hold the Bank harmless for its
failure to send such confirmation in writing, the failure of such
confirmation to conform to the telephone instructions received or
the Bank's failure to produce such confirmation at any subsequent
time provided that the Bank has timely advised the Fund of its
failure to send such confirmation in writing or the failure of
such confirmation to conform to the telephone instructions
received. Unless otherwise expressly provided, all Instructions
14
<PAGE> 15
shall continue in full force and effect until cancelled or
superceded. If the Bank requires test arrangements,
authentication methods or other security devices to be used with
respect to instructions, any Instructions given by the Fund
thereafter shall be given and processed in accordance with such
terms and conditions for the use of such arrangements, methods or
devices as the Bank may put into effect and modify from time to
time. The Fund shall safeguard any testkeys, identification
codes or other security devices which the Bank shall make
available to it. The Bank may electronically record any
Instructions given by telephone, and any other telephone
discussions, with respect to the Custody Account.
10. Authorized Persons. As used in this Agreement, the
term "Authorized Persons" means such officers or such agents of
the Fund as have been designated by a resolution of the Board, a
certified copy of which has been provided to the Bank, to act on
behalf of the Fund in the performance of any acts which
Authorized Persons may do under this Agreement. Such persons
shall continue to be Authorized Persons until such time as the
Bank receives instructions from Authorized Persons that any such
officer or agent is no longer an Authorized Person.
11. Nominees. Securities in the Custody Account which are
ordinarily held in registered form may be registered in the name
of the Bank's nominee or, as to any Securities in the possession
of an entity other than the Bank, in the name of such entity's
nominee. The Fund agrees to hold any such nominee harmless from
15
<PAGE> 16
any liability as a holder of record of such Securities. The Bank
may without notice to the Fund cause any such Securities to cease
to be registered in the name of any such nominee and to be
registered in the name of the Fund. In the event that any
Securities registered in the name of the Bank's nominee or held
by one of its subcustodians and registered in the name of such
subcustodian's nominee are called for partial redemption by the
issuer of such Security, the Bank may allot, or cause to be
allotted, the called portion to the respective beneficial holders
of such class of security in any manner the Bank deems to be fair
and equitable.
12. Standard of Care. The Bank shall be responsible for
the performance of only such duties as are set forth herein or
contained in Instructions given to the Bank by Authorized Persons
which are not contrary to the provisions of this Agreement. The
Bank will use reasonable care with respect to the safekeeping of
Securities in the Custody Account. The Bank shall be liable to
the Fund for any loss which shall occur as the result of the
failure of a subcustodian or an eligible foreign securities
depository engaged by such subcustodian to exercise reasonable
care with respect to the safekeeping of such Securities and other
assets to the same extent that the Bank would be liable to the
Fund if the Bank were holding such Securities and other assets in
New York. In the event of any loss to the Fund by reason of the
failure of the Bank or its subcustodian or an eligible foreign
securities depository engaged by such subcustodian to utilize
16
<PAGE> 17
reasonable care, the Bank shall be liable to the Fund to the
extent of the Fund's damages, to be determined based on the
market value of the property which is the subject of the loss at
the date of discovery of such loss and without reference to any
special conditions or circumstances. The Bank shall be held to
the exercise of reasonable care in carrying out this Agreement
but shall be indemnified by, and shall be without liability to,
the Fund for any action taken or omitted by the Bank in good
faith without negligence. The Bank shall be entitled to rely,
and may act, on advice of counsel (who may be counsel for the
Fund) on all matters and shall be without liability for any
action reasonably taken or omitted pursuant to such advice.
The Bank need not maintain any insurance for the benefit of
the Fund. However, the Bank represents and warrants that it
presently maintains a bankers' blanket bond ("Bond") which
provides standard fidelity and non-negligent loss coverage with
respect to securities which may be held by the Bank and
securities which may be held in the offices of foreign banks and
foreign securities depositories which may be utilized by the Bank
pursuant to this Agreement. The Bank agrees that if at any time
the Bank for any reason discontinues such coverage, it shall
immediately notify the Fund in writing. The Bank represents that
only the named insured on the Bond, which includes the Bank but
not any of the Bank's customers, is directly protected against
loss. The Bank represents that while it might resist a claim of
one of its customers to recover for a loss not covered by the
17
<PAGE> 18
Bond, as a practical matter, where a claim is brought and loss is
possibly covered by the Bond, the Bank would give notice of the
claim to its insurer, and the insurer would normally determine
whether to defend the claim against the Bank or to pay the claim
on behalf of the Bank.
All collections of funds or other property paid or
distributed in respect of Securities in the Custody Account shall
be made at the risk of the Fund. The Bank shall have no
liability for any loss occasioned by delay in the actual receipt
of notice by the Bank or by its subcustodian of any payment,
redemption or other transaction regarding Securities in the
Custody Account in respect of which the Bank has agreed to take
action as provided in Section 8 hereof. The Bank shall not be
liable for any action taken in good faith upon Instructions or
upon any certified copy of any resolution of the Board and may
rely on the genuineness of any such documents which it may in
good faith believe to be validly executed. The Bank shall not be
liable for any loss resulting from, or caused by, the direction
of the Fund to maintain custody of any Securities or cash in a
foreign country including, but not limited to, losses resulting
from nationalization, expropriation, currency restrictions, acts
of war or terrorism, insurrection, revolution, nuclear fusion,
fission or radiation, or acts of God.
13. Compliance with Securities and Exchange Commission
Rules and Orders. To the extent that a condition of a rule,
regulation, interpretation or exemptive order promulgated by or
18
<PAGE> 19
under the authority of the Securities and Exchange Commission
applies to the Bank or the Fund each shall be solely responsible
to assure that this Agreement and the maintenance of Securities
and cash under this Agreement complies with any such rule,
regulation, interpretation or exemptive order.
14. Corporate Action. The Bank or its subcustodian is
to forward promptly to the Fund all communications relative to
the Securities in the Custody Account. Such communications as
call for voting or the exercise of rights or other specific
action (including material relative to legal proceedings intended
to be transmitted to security holders) shall be transmitted to
the Fund by means which will permit the Fund to take timely
action. The Bank or its subcustodian will cause its nominee to
execute and deliver to the Fund proxies relating to Securities in
the Custody Account registered in the name of such nominee but
without indicating the manner in which such proxies are to be
voted. Proxies relating to bearer Securities will be delivered
in accordance with written instructions from Authorized Persons.
Bank hereby agrees that Bank shall create, maintain, and
retain all records relating to its activities and obligations
under this Agreement in such manner as will meet the obligations
of the Fund under the Investment Company Act, particularly
Section 31 thereof and Rules 31a-1, 31a-2, and 31a-3 thereunder,
and applicable Federal, state and foreign tax laws and other laws
or administrative rules or procedures, in each case as currently
in effect, which may be applicable to the Fund. All records so
19
<PAGE> 20
maintained in connection with the performance of its duties under
this Agreement shall be preserved and maintained as required by
regulation and, in the event of termination of the Agreement,
shall be available to the Fund or its agent upon request.
15. Fees and Expenses. The Fund agrees to pay to the
Bank from time to time such compensation for its services
pursuant to this Agreement as may be mutually agreed upon in
writing from time to time including reimbursement of the Bank's
reasonable out-of-pocket or incidental expenses, including legal
fees. The Fund hereby agrees to hold the Bank harmless from any
liability or loss resulting from any taxes or other governmental
charges, and any expenses related thereto, which may be imposed,
or assessed with respect to the Custody Account or any Securities
in the Custody Account and also agrees to hold the Bank, its
subcustodians, and their respective nominees harmless from any
liability as a record holder of Securities in the Custody
Account. The Bank is authorized to charge any account of the
Fund for such items and the Bank shall have a lien on Securities
in the Custody Account and on cash in the Deposit Account for any
amount owing to the Bank from time to time under this Agreement.
16. Effectiveness. This Agreement shall be effective on
the date first noted above; provided, however, that the Board has
provided the Bank a certified copy of a resolution that
(i) approves each of the subcustodians listed in Appendix A
hereto and the terms of the custody agreement between the Bank
and each such subcustodian attached as Exhibits I through __
20
<PAGE> 21
hereof, and (ii) states that the Board has determined that the
use of each such subcustodian and the terms of each such
subcustody agreement are consistent with the best interests of
the Fund and its shareholders.
17. Termination. This Agreement may be terminated by the
Fund or the Bank by 60 days written notice to the other, sent by
registered mail, provided that any termination by the Fund shall
be authorized by a resolution of its Board, a certified copy of
which shall accompany such notice of termination, and provided
further, that such resolution shall specify the names of the
persons to whom the Bank shall deliver the Securities in the
Custody Account and to whom the cash in the Deposit Account shall
be paid. If notice of termination is given by the Bank, the Fund
shall, within 60 days following the giving of such notice,
deliver to the Bank a certified copy of a resolution of its Board
specifying the names of the persons to whom the Bank shall
deliver the Securities in the Custody Account and to whom the
cash in the Deposit Account shall be paid. In either case the
Bank will deliver such Securities and cash to the persons so
specified, after deducting therefrom any amounts which the Bank
determines to be owed to it under Section 15. If within 60 days
following the giving of a notice of termination by the Bank, the
Bank does not receive from the Fund a certified copy of a
resolution of the Board specifying the names of the persons to
whom the Bank shall deliver the Securities in the Custody Account
and to whom the cash in the Deposit Account shall be paid, the
21
<PAGE> 22
Bank, at its election, may deliver such Securities and pay such
cash to a bank or trust company doing business in the State of
New York to be held and disposed of pursuant to the provisions of
this Agreement, or to Authorized Persons, or may continue to hold
such Securities and cash until a certified copy of one or more
resolutions as aforesaid is delivered to the Bank. Concurrently
with the delivery of such Securities, the Bank shall deliver to
the Company, or such other person as the Company shall instruct,
the records referred to in Section 14 hereof which are in the
possession or control of the Bank. The obligations of the
parties hereto regarding the use of reasonable care, indemnities
and payment of fees and expenses shall survive the termination of
this Agreement.
18. Notices. Any notice or other communication from the
Fund to the Bank is to be sent to the office of the Bank at 1211
Avenue of the Americas (33rd Floor), New York, New York 10036,
Attention Global Custody Division, or such other address as may
hereafter be given to the Company in accordance with the notice
provisions hereunder, and any notice from the Bank to the Fund is
to be mailed postage prepaid, addressed to the Fund at the
address appearing below, or as it may hereafter be changed on the
Bank's records in accordance with notice hereunder from the Fund.
19. Governing Law and Successors and Assigns. This
Agreement shall be governed by the law of the State of New York
and shall not be assignable by either party, but shall bind the
successors and assigns of the Fund and the Bank.
22
<PAGE> 23
20. Headings. The headings of the paragraphs hereof are
included for convenience of reference only and do not form a part
of this Agreement.
21. Additional Portfolios. If the Fund shall issue shares
of more than one portfolio during the term hereof, the Bank
agrees that all securities and other assets of the Fund shall be
segregated by portfolio and all books and records, account values
or actions shall be maintained, held, made or taken, as the case
may be, separately for each portfolio. Other than as encompassed
by the preceding sentence, references in this Agreement to "the
Fund" are applicable either to the entire trust or to a
particular portfolio or portfolios, as the context may make
reasonable and appropriate. If the Fund has more than one
portfolio, Instructions shall designate the portfolio or
portfolios to which they apply.
22. Disclaimer. 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 Bank for recovery of that portion of
23
<PAGE> 24
the compensation (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 Bank
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.
KEMPER INCOME AND CAPITAL
PRESERVATION FUND
By: /s/ Charles M. Kierscht
----------------------------
President
Address for Record 120 South LaSalle Street
Chicago, Illinois 60603
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Catherine A. Lee
----------------------------
Vice President
24
<PAGE> 1
EXHIBIT 99.B9(a)
AGENCY AGREEMENT
AGREEMENT dated the 1st day of January, 1989, by and between
KEMPER INCOME AND CAPITAL PRESERVATION FUND, a Massachusetts
business trust having its principal place of business at 120
South LaSalle Street, Chicago, IL 60603 ("Fund"), and INVESTORS
FIDUCIARY TRUST COMPANY, a state chartered trust company
organized and existing under the laws of the State of Missouri
having its principal place of business at 127 West 10th Street,
Kansas City, Missouri 64105 ("IFTC").
WHEREAS, Fund wants to appoint IFTC as Transfer Agent and
Dividend Disbursing Agent, and IFTC wants to accept such
appointment;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
1. Documents to be Filed with Appointment.
In connection with the appointment of IFTC as Transfer
Agent and Dividend Disbursing Agent for Fund, there will
be filed with IFTC the following documents:
A. A certified copy of the resolutions of the Board of
Trustees of Fund appointing IFTC as Transfer Agent
and Dividend Disbursing Agent, approving the form of
this Agreement, and designating certain persons to
give written instructions and requests on behalf of
Fund.
B. A certified copy of the Agreement and Declaration of
Trust of Fund and any amendments thereto.
C. A certified copy of the Bylaws of Fund.
D. Copies of Registration Statements filed with the
Securities and Exchange Commission.
E. Specimens of all forms of outstanding share
certificates as approved by the Board of Trustees of
Fund, with a certificate of the Secretary of Fund as
to such approval.
<PAGE> 2
F. Specimens of the signatures of the officers of the
Fund authorized to sign share certificates and
individuals authorized to sign written instructions
and requests on behalf of the Fund.
G. An opinion of counsel for Fund:
(1) With respect to Fund's organization and
existence under the laws of The Commonwealth of
Massachusetts.
(2) With respect to the status of all shares of Fund
covered by this appointment under the Securities
Act of 1933, and any other applicable federal or
state statute.
(3) To the effect that all issued shares are, and
all unissued shares will be when issued, validly
issued, fully paid and non-assessable.
2. Certain Representations and Warranties of IFTC. IFTC
represents and warrants to Fund that:
A. It is a trust company duly organized and existing
and in good standing under the laws of the State of
Missouri.
B. It is duly qualified to carry on its business in the
State of Missouri.
C. It is empowered under applicable laws and by its
Articles of Incorporation and Bylaws to enter into
and perform the services contemplated in this
Agreement.
D. All requisite corporate proceedings have been taken
to authorize it to enter into and perform this
Agreement.
E. It has and will continue to have and maintain the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement.
F. It is, and will continue to be, registered as a
transfer agent under the Securities Exchange Act of
1934.
2
<PAGE> 3
3. Certain Representations and Warranties of Fund. Fund
represents and warrants to IFTC that:
A. It is a business trust duly organized and existing
and in good standing under the laws of The
Commonwealth of Massachusetts.
B. It is an investment company registered under the
Investment Company Act of 1940.
C. A registration statement under the Securities Act of
1933 has been filed and will be effective with
respect to all shares of Fund being offered for sale
at any time and from time to time.
D. All requisite steps have been or will be taken to
register Fund's shares for sale in all applicable
states, including the District of Columbia.
E. Fund and its Trustees are empowered under applicable
laws and by the Fund's Agreement and Declaration of
Trust and Bylaws to enter into and perform this
Agreement.
4. Scope of Appointment.
A. Subject to the conditions set forth in this
Agreement, Fund hereby employs and appoints IFTC as
Transfer Agent and Dividend Disbursing Agent
effective the date hereof.
B. IFTC hereby accepts such employment and appointment
and agrees that it will act as Fund's Transfer Agent
and Dividend Disbursing Agent. IFTC agrees that it
will also act as agent in connection with Fund's
periodic withdrawal payment accounts and other
open-account or similar plans for shareholders, if
any.
C. IFTC agrees to provide the necessary facilities,
equipment and personnel to perform its duties and
obligations hereunder in accordance with industry
practice.
D. Fund agrees to use all reasonable efforts to deliver
to IFTC in Kansas City, Missouri, as soon as they
are available, all its shareholder account records.
E. Subject to the provisions of Sections 20 and 21
hereof, IFTC agrees that it will perform all the
usual and ordinary services of Transfer Agent and
Dividend Disbursing Agent and as agent for the
3
<PAGE> 4
various shareholder accounts, including, without
limitation, the following: issuing, transferring and
cancelling share certificates, maintaining all
shareholder accounts, preparing shareholder meeting
lists, mailing proxies, receiving and tabulating
proxies, mailing shareholder reports and
prospectuses, withholding federal income taxes,
preparing and mailing checks for disbursement of
income and capital gains dividends, preparing and
filing all required U.S. Treasury Department
information returns for all shareholders, preparing
and mailing confirmation forms to shareholders and
dealers with respect to all purchases and
liquidations of Fund shares and other transactions
in shareholder accounts for which confirmations are
required, recording reinvestments of dividends and
distributions in Fund shares, recording redemptions
of Fund shares and preparing and mailing checks for
payments upon redemption and for disbursements to
systematic withdrawal plan shareholders.
5. Compensation and Expenses.
A. In consideration for the services provided hereunder
by IFTC as Transfer Agent and Dividend Disbursing
Agent, Fund will pay to IFTC from time to time
compensation as agreed upon for all services
rendered as Agent, and also, all its reasonable
out-of-pocket expenses and other disbursements
incurred in connection with the agency. Such
compensation will be set forth in a separate
schedule to be agreed to by Fund and IFTC. The
initial agreement regarding compensation is attached
as Exhibit A.
B. Fund agrees to promptly reimburse IFTC for all
reasonable out-of-pocket expenses or advances
incurred by IFTC in connection with the performance
of services under this Agreement including, but not
limited to, postage (and first class mail insurance
in connection with mailing share certificates),
envelopes, check forms, continuous forms, forms for
reports and statements, stationery, and other
similar items, telephone and telegraph charges
incurred in answering inquiries from dealers or
shareholders, microfilm used each year to record the
previous year's transactions in shareholder accounts
and computer tapes used for permanent storage of
records and cost of insertion of materials in
mailing envelopes by outside firms. IFTC may, at
its option, arrange to have various service
providers submit invoices directly to the Fund for
4
<PAGE> 5
payment of out-of-pocket expenses reimbursable
hereunder.
6. Efficient Operation of IFTC System.
A. In connection with the performance of its services
under this Agreement, IFTC is responsible for the
accurate and efficient functioning of its system at
all times, including:
(1) The accuracy of the entries in IFTC's records
reflecting purchase and redemption orders and
other instructions received by IFTC from
dealers, shareholders, Fund or its principal
underwriter.
(2) The timely availability and the accuracy of
shareholder lists, shareholder account
verifications, confirmations and other
shareholder account information to be produced
from IFTC's records or data.
(3) The accurate and timely issuance of dividend and
distribution checks in accordance with
instructions received from Fund.
(4) The accuracy of redemption transactions and
payments in accordance with redemption
instructions received from dealers, shareholders
or Fund or other authorized persons.
(5) The deposit daily in Fund's appropriate special
bank account of all checks and payments received
from dealers or shareholders for investment in
shares.
(6) The requiring of proper forms of instructions,
signatures and signature guarantees and any
necessary documents supporting the rightfulness
of transfers, redemptions and other shareholder
account transactions, all in conformance with
IFTC's present procedures with such changes as
may be deemed reasonably appropriate by IFTC or
as may be reasonably approved by or on behalf of
Fund.
(7) The maintenance of a current duplicate set of
Fund's essential or required records, as agreed
upon from time to time by Fund and IFTC, at a
secure distant location, in form available and
usable forthwith in the event of any breakdown
or disaster disrupting its main operation.
5
<PAGE> 6
7. Indemnification.
A. Fund shall indemnify and hold IFTC harmless from and
against any and all claims, actions, suits, losses,
damages, costs, charges, counsel fees, payments,
expenses and liabilities arising out of or
attributable to any action or omission by IFTC
pursuant to this Agreement or in connection with the
agency relationship created by this Agreement,
provided that IFTC has acted in good faith, without
negligence and without willful misconduct.
B. IFTC shall indemnify and hold Fund harmless from and
against any and all claims, actions, suits, losses,
damages, costs, charges, counsel fees, payments,
expenses and liabilities arising out of or
attributable to any action or omission by IFTC
pursuant to this Agreement or in connection with the
agency relationship created by this Agreement,
provided that IFTC has not acted in good faith,
without negligence and without willful misconduct.
C. In order that the indemnification provisions
contained in this Section 7 shall apply, upon the
assertion of a claim for which either party (the
"Indemnifying Party") may be required to provide
indemnification hereunder, the party seeking
indemnification (the "Indemnitee") shall promptly
notify the Indemnifying Party of such assertion, and
shall keep such party advised with respect to all
developments concerning such claim. The
Indemnifying Party shall be entitled to assume
control of the defense and the negotiations,
if any, regarding settlement of the claim. If the
Indemnifying Party assumes control, the Indemnitee
shall have the option to participate in the defense
and negotiations of such claim at its own expense.
The Indemnitee shall in no event confess, admit to,
compromise, or settle any claim for which the
Indemnifying Party may be required to indemnify it
except with the prior written consent of the
Indemnifying Party, which shall not be unreasonably
withheld.
8. Certain Covenants of IFTC and Fund.
A. All requisite steps will be taken by Fund from time
to time when and as necessary to register the Fund's
shares for sale in all states in which Fund's shares
shall at the time be offered for sale and require
registration. If at any time Fund receives notice
of any stop order or other proceeding in any such
6
<PAGE> 7
state affecting such registration or the sale of
Fund's shares, or of any stop order or other
proceeding under the Federal securities laws
affecting the sale of Fund's shares, Fund will give
prompt notice thereof to IFTC.
B. IFTC hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to
Fund for safekeeping of share certificates, check
forms, and facsimile signature imprinting devices,
if any; and for the preparation or use, and for
keeping account of, such certificates, forms and
devices. Further, IFTC agrees to carry insurance,
as specified in Exhibit B hereto, with insurers
reasonably acceptable to Fund and in minimum amounts
that are reasonably acceptable to Fund, which will
not be changed without the consent of Fund, which
consent shall not be unreasonably withheld, and
which will be expanded in coverage or increased in
amounts from time to time if and when reasonably
requested by Fund. If IFTC determines that it is
unable to obtain any such insurance upon
commercially reasonable terms, it shall promptly so
advise Fund in writing. In such event, Fund shall
have the right to terminate this Agreement upon 30
days notice.
C. To the extent required by Section 31 of the
Investment Company Act of 1940 and Rules thereunder,
IFTC agrees that all records maintained by IFTC
relating to the services to be performed by IFTC
under this Agreement are the property of Fund and
will be preserved and will be surrendered promptly
to Fund on request.
D. IFTC agrees to furnish Fund semi-annual reports of
its financial condition, consisting of a balance
sheet, earnings statement and any other reasonably
available financial information reasonably requested
by Fund. The annual financial statements will be
certified by IFTC's certified public accountants.
E. IFTC represents and agrees that it will use all
reasonable efforts to keep current on the trends of
the investment company industry relating to
shareholder services and will use all reasonable
efforts to continue to modernize and improve its
system without additional cost to Fund.
7
<PAGE> 8
F. IFTC will permit Fund and its authorized
representatives to make periodic inspections of its
operations at reasonable times during business
hours.
G. If IFTC is prevented from complying, either totally
or in part, with any of the terms or provisions of
this Agreement, by reason of fire, flood, storm,
strike, lockout or other labor trouble, riot, war,
rebellion, accidents, acts of God, equipment,
utility or transmission failure or damage, and/or
any other cause or casualty beyond the reasonable
control of IFTC, whether similar to the foregoing
matters or not, then upon written notice to Fund,
the requirements of this Agreement that are affected
by such disability, to the extent so affected, shall
be suspended during the period of such disability;
provided, however, that IFTC shall make reasonable
effort to remove such disability as soon as
possible. During such period, Fund may seek
alternate sources of service without liability
hereunder; and IFTC will use all reasonable
efforts to assist Fund to obtain alternate sources
of service. IFTC shall have no liability to Fund
for nonperformance because of the reasons set forth
in this Section 8.G; but if a disability that, in
Fund's reasonable belief, materially affects IFTC's
ability to perform its obligations under this
Agreement continues for a period of 30 days, then
Fund shall have the right to terminate this
Agreement upon 10 days written notice to IFTC.
9. Adjustment.
In case of any recapitalization, readjustment or other
change in the structure of Fund requiring a change in
the form of share certificates, IFTC will issue or
register certificates in the new form in exchange for,
or in transfer of, the outstanding certificates in the
old form, upon receiving the following:
A. Written instructions from an officer of Fund.
B. Certified copy of any amendment to the Agreement and
Declaration of Trust or other document effecting the
change.
8
<PAGE> 9
C. Certified copy of any order or consent of each
governmental or regulatory authority required by law
for the issuance of the shares in the new form, and
an opinion of counsel that no order or consent of
any other government or regulatory authority is
required.
D. Specimens of the new certificates in the form
approved by the Board of Trustees of Fund, with a
certificate of the Secretary of Fund as to such
approval.
E. Opinion of counsel for Fund:
(1) With respect to the status of the shares of Fund
in the new form under the Securities Act of
1933, and any other applicable federal or state
laws.
(2) To the effect that the issued shares in the new
form are, and all unissued shares will be when
issued, validly issued, fully paid and
non-assessable.
10. Share Certificates.
Fund will furnish IFTC with a sufficient supply of blank
share certificates and from time to time will renew such
supply upon the request of IFTC. Such certificates will
be signed manually or by facsimile signatures of the
officers of Fund authorized by law and Fund's Bylaws to
sign share certificates and, if required, will bear the
trust seal or facsimile thereof.
11. Death, Resignation or Removal of Signing Officer.
Fund will file promptly with IFTC written notice of any
change in the officers authorized to sign share
certificates, written instructions or requests, together
with two signature cards bearing the specimen signature
of each newly authorized officer, all as certified by an
appropriate officer of the Fund. In case any officer of
Fund who will have signed manually or whose facsimile
signature will have been affixed to blank share
certificates will die, resign, or be removed prior to
the issuance of such certificates, IFTC may issue or
register such share certificates as the share
certificates of Fund notwithstanding such death,
resignation, or removal, until specifically directed to
the contrary by Fund in writing. In the absence of such
9
<PAGE> 10
direction, Fund will file promptly with IFTC such
approval, adoption, or ratification as may be required
by law.
12. Future Amendments of Agreement and Declaration of Trust
and Bylaws.
Fund will promptly file with IFTC copies of all material
amendments to its Agreement and Declaration of Trust and
Bylaws and Registration Statement made after the date of
this Agreement.
13. Instructions, Opinion of Counsel and Signatures.
At any time IFTC may apply to any officer of Fund for
instructions, and may consult with legal counsel for
Fund at the expense of Fund, or with its own legal
counsel at its own expense, with respect to any matter
arising in connection with the agency; and it will not
be liable for any action taken or omitted by it in good
faith in reliance upon such instructions or upon the
opinion of such counsel. IFTC is authorized to act on
the orders, directions or instructions of such persons
as the Board of Trustees of Fund shall from time to time
designate by resolution. IFTC will be protected in
acting upon any paper or document, including any orders,
directions or instructions, reasonably believed by it to
be genuine and to have been signed by the proper person
or persons; and IFTC will not be held to have notice of
any change of authority of any person so authorized by
Fund until receipt of written notice thereof from Fund.
IFTC will also be protected in recognizing share
certificates that it reasonably believes to bear the
proper manual or facsimile signatures of the officers of
Fund, and the proper countersignature of any former
Transfer Agent or Registrar, or of a Co-Transfer Agent
or Co-Registrar.
14. Papers Subject to Approval of Counsel.
The acceptance by IFTC of its appointment as Transfer
Agent and Dividend Disbursing Agent, and all documents
filed in connection with such appointment and thereafter
in connection with the agencies, will be subject to the
approval of legal counsel for IFTC, which approval will
not be unreasonably withheld.
15. Certification of Documents.
The required copy of the Agreement and Declaration of
Trust of Fund and copies of all amendments thereto will
10
<PAGE> 11
be certified by the appropriate official of The
Commonwealth of Massachusetts; and if such Agreement and
Declaration of Trust and amendments are required by law
to be also filed with a county, city or other officer or
official body, a certificate of such filing will appear
on the certified copy submitted to IFTC. A copy of the
order or consent of each governmental or regulatory
authority required by law for the issuance of Fund
shares will be certified by the Secretary or Clerk of
such governmental or regulatory authority, under proper
seal of such authority. The copy of the Bylaws and
copies of all amendments thereto and copies of
resolutions of the Board of Trustees of Fund will be
certified by the Secretary or an Assistant Secretary of
Fund.
16. Records.
IFTC will maintain customary records in connection with
its agency, and particularly will maintain those records
required to be maintained pursuant to sub-paragraph
(2)(iv) of paragraph (b) of Rule 31a-1 under the
Investment Company Act of 1940, if any.
17. Disposition of Books, Records and Cancelled
Certificates.
IFTC will send periodically to Fund, or to where
designated by the Secretary or an Assistant Secretary of
Fund, all books, documents, and all records no longer
deemed needed for current purposes and share
certificates which have been cancelled in transfer or in
exchange, upon the understanding that such books,
documents, records, and share certificates will not be
destroyed by Fund without the consent of IFTC (which
consent will not be unreasonably withheld), but will be
safely stored for possible future reference.
18. Provisions Relating to IFTC as Transfer Agent.
A. IFTC will make original issues of share certificates
upon written request of an officer of Fund and upon
being furnished with a certified copy of a
resolution of the Board of Trustees authorizing such
original issue, an opinion of counsel as outlined in
Section 1.G or 9.E of this Agreement, the
certificates required by Section 10 of this
Agreement and any other documents required by
Section 1 or 9 of this Agreement.
11
<PAGE> 12
B. Before making any original issue of certificates,
Fund will furnish IFTC with sufficient funds to pay
any taxes required on the original issue of the
shares. Fund will furnish IFTC such evidence as may
be required by IFTC to show the actual value of the
shares. If no taxes are payable, IFTC will upon
request be furnished with an opinion of outside
counsel to that effect.
C. Shares will be transferred and new certificates
issued in transfer, or shares accepted for
redemption and funds remitted therefor, upon
surrender of the old certificates in form deemed by
IFTC properly endorsed for transfer or redemption
accompanied by such documents as IFTC may deem
necessary to evidence the authority of the person
making the transfer or redemption, and bearing
satisfactory evidence of the payment of any
applicable share transfer taxes. IFTC reserves the
right to refuse to transfer or redeem shares until
it is satisfied that the endorsement or signature on
the certificate or any other document is valid and
genuine, and for that purpose it may require a
guarantee of signature by such persons as may from
time to time be specified in the prospectus related
to such shares or otherwise authorized by Fund.
IFTC also reserves the right to refuse to transfer
or redeem shares until it is satisfied that the
requested transfer or redemption is legally
authorized, and it will incur no liability for the
refusal in good faith to make transfers or
redemptions which, in its judgment, are improper,
unauthorized, or otherwise not rightful. IFTC may,
in effecting transfers or redemptions, rely upon
Simplification Acts or other statutes which protect
it and Fund in not requiring complete fiduciary
documentation.
D. When mail is used for delivery of share
certificates, IFTC will forward share certificates
in "nonnegotiable" form as provided by Fund by first
class mail, all such mail deliveries to be covered
while in transit to the addressee by insurance
arranged for by IFTC.
E. IFTC will issue and mail subscription warrants and
certificates provided by Fund and representing share
dividends, exchanges or split-ups, or act as
Conversion Agent upon receiving written instructions
from any officer of Fund and such other documents as
IFTC deems necessary.
12
<PAGE> 13
F. IFTC will issue, transfer, and split-up certificates
upon receiving written instructions from an officer
of Fund and such other documents as IFTC may deem
necessary.
G. IFTC may issue new certificates in place of
certificates represented to have been lost,
destroyed, stolen or otherwise wrongfully taken,
upon receiving indemnity satisfactory to IFTC, and
may issue new certificates in exchange for, and upon
surrender of, mutilated certificates. Any such
issuance shall be in accordance with the provisions
of law governing such matter and any procedures
adopted by the Board of Trustees of the Fund of
which IFTC has notice.
H. IFTC will supply a shareholder's list to Fund
properly certified by an officer of IFTC for any
shareholder meeting upon receiving a request from an
officer of Fund. It will also supply lists at such
other times as may be reasonably requested by an
officer of Fund.
I. Upon receipt of written instructions of an officer
of Fund, IFTC will address and mail notices to
shareholders.
J. In case of any request or demand for the inspection
of the share books of Fund or any other books of
Fund in the possession of IFTC, IFTC will endeavor
to notify Fund and to secure instructions as to
permitting or refusing such inspection. IFTC
reserves the right, however, to exhibit the share
books or other books to any person in case it is
advised by its counsel that it may be held
responsible for the failure to exhibit the share
books or other books to such person.
19. Provisions Relating to Dividend Disbursing Agency.
A. IFTC will, at the expense of Fund, provide a special
form of check containing the imprint of any device
or other matter desired by Fund. Said checks must,
however, be of a form and size convenient for use by
IFTC.
B. If Fund wants to include additional printed matter,
financial statements, etc., with the dividend
checks, the same will be furnished to IFTC within a
reasonable time prior to the date of mailing of the
dividend checks, at the expense of Fund.
13
<PAGE> 14
C. If Fund wants its distributions mailed in any
special form of envelopes, sufficient supply of the
same will be furnished to IFTC but the size and form
of said envelopes will be subject to the approval of
IFTC. If stamped envelopes are used, they must be
furnished by Fund; or, if postage stamps are to be
affixed to the envelopes, the stamps or the cash
necessary for such stamps must be furnished by Fund.
D. IFTC will maintain one or more deposit accounts as
Agent for Fund, into which the funds for payment of
dividends, distributions, distributions, redemptions
or other disbursements provided for hereunder will
be deposited, and against which checks will be
drawn.
20. Termination of Agreement.
A. This Agreement may be terminated by either party
upon sixty (60) days prior written notice to the
other party.
B. Fund, in addition to any other rights and remedies,
shall have the right to terminate this Agreement
forthwith upon the occurrence at any time of any of
the following events:
(1) Any interruption or cessation of operations by
IFTC or its assigns which materially interferes
with the business operation of Fund.
(2) The bankruptcy of IFTC or its assigns or the
appointment of a receiver for IFTC or its
assigns.
(3) Any merger, consolidation or sale of
substantially all the assets of IFTC or its
assigns.
(4) The acquisition of a controlling interest in
IFTC or its assigns, by any broker, dealer,
investment adviser or investment company except
as may presently exist.
(5) Failure by IFTC or its assigns to perform its
duties in accordance with this Agreement, which
failure materially adversely affects the
business operations of Fund and which failure
continues for thirty (30) days after written
notice from Fund.
14
<PAGE> 15
(6) The registration of IFTC or its assigns as a
transfer agent under the Securities Exchange Act
of 1934 is revoked, terminated or suspended for
any reason.
C. In the event of termination, Fund will promptly pay
IFTC all amounts due to IFTC hereunder. Upon
termination of this Agreement, IFTC shall deliver
all shareholder and account records pertaining to
Fund either to Fund or as directed in writing by
Fund.
21. Assignment.
A. Except for the assignment of responsibilities
pursuant to the Services Agreement ("Services
Agreement") between IFTC and Kemper Service Company
("KSVC"), which Fund has approved, neither this
Agreement nor any rights or obligations hereunder
may be assigned by IFTC without the written consent
of Fund; provided, however, no assignment will
relieve IFTC of any of its obligations hereunder.
B. This Agreement including, without limitation, the
provisions of Section 7 will inure to the benefit of
and be binding upon the parties and their respective
successors and assigns including KSVC pursuant to
the aforesaid Services Agreement.
C. KSVC is authorized by Fund to use the system
services of DST Systems, Inc.
22. Confidentiality.
A. Except as provided in the last sentence of Section
18.J hereof, or as otherwise required by law, IFTC
will keep confidential all records of and
information in its possession relating to Fund or
its shareholders or shareholder accounts and will
not disclose the same to any person except at the
request or with the consent of Fund.
B. Except as otherwise required by law, Fund will keep
confidential all financial statements and other
financial records (other than statements and records
relating solely to Fund's business dealings with
IFTC) and all manuals, systems and other technical
information and data, not publicly disclosed,
relating to IFTC's operations and programs furnished
to it by IFTC pursuant to this Agreement and will
not disclose the same to any person except at the
request or with the consent of IFTC.
15
<PAGE> 16
Notwithstanding anything to the contrary in this
Section 22.B, if an attempt is made pursuant to
subpoena or other legal process to require Fund to
disclose or produce any of the aforementioned
manuals, systems or other technical information and
data, Fund shall give IFTC prompt notice thereof
prior to disclosure or production so that IFTC may,
at its expense, resist such attempt.
23. Survival of Representations and Warranties.
All representations and warranties by either party
herein contained will survive the execution and delivery
of this Agreement.
24. Miscellaneous.
A. This Agreement is executed and delivered in the
State of Illinois and shall be governed by the laws
of said state (except as to Section 24.G hereof
which shall be governed by the laws of The
Commonwealth of Massachusetts).
B. No provisions of this Agreement may be amended or
modified in any manner except by a written agreement
properly authorized and executed by both parties
hereto.
C. The captions in this Agreement are included for
convenience of reference only, and in no way define
or limit any of the provisions hereof or otherwise
affect their construction or effect.
D. This Agreement shall become effective as of the date
hereof.
E. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed
an original but all of which together shall
constitute one and the same instrument.
F. In any part, term or provision of this Agreement is
held by the courts to be illegal, in conflict with
any law or otherwise invalid, the remaining portion
or portions shall be considered severable and not be
affected, and the rights and obligations of the
parties shall be construed and enforced as if the
Agreement did not contain the particular part, term
or provision held to be illegal or invalid.
G. All parties hereto are expressly put on notice of
Fund's Agreement and Declaration of Trust which is
16
<PAGE> 17
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 Fund by its
representatives as such representatives and not
individually, and the obligations of 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 Fund.
With respect to any claim by IFTC for recovery of
that portion of the compensation and expenses (or
any other liability of Fund arising hereunder)
allocated to a particular Portfolio, whether in
accordance with the express terms hereof or
otherwise, IFTC 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.
H. This Agreement, together with the Fee Schedule, is
the entire contract between the parties relating to
the subject matter hereof and supersedes all prior
agreements between the parties.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officer as of the
day and year first set forth above.
KEMPER INCOME AND CAPITAL
PRESERVATION FUND
By /s/ Charles M. Kierscht
---------------------------------
Title: President
ATTEST:
/s/ Robert J. Engling
-------------------------------
Title: Secretary
INVESTORS FIDUCIARY TRUST COMPANY
By /s/ Larry W. Rinne
---------------------------------
Title: President
ATTEST:
/s/ Cheryl J. Naegler
-------------------------------
Title: Assistant Secretary
18
<PAGE> 19
EXHIBIT A
FEE SCHEDULE
<TABLE>
<CAPTION>
Transfer Agency Function Fee Payable by Fund
- ------------------------ -------------------
<S> <C>
1. Maintenance of open shareholder $6.00 per year per
account account.
2. Maintenance of closed shareholder $6.00 per year per
account account.
3. Establishment of new shareholder $4.00 per new account
account.
4. Payment of dividend. $.25 per dividend payment
per account
5. Dividend reinvestment from Kemper $.50 per transaction
Unit Investment Trusts.
6. Process purchase or redemption of $1.00 per transaction
shares transaction.
7. All other shareholder account $1.00 per transaction
transactions.
</TABLE>
The out-of-pocket expenses of IFTC will be reimbursed by Fund in accordance
with the provisions of paragraph 5 of the Agency Agreement. All fees will be
subject to offset by earning allowances under the Custody Agreement between
Fund and IFTC.
<PAGE> 20
EXHIBIT B
IFTC INSURANCE COVERAGE
DESCRIPTION OF POLICY:
Brokers Blanket Bond, Standard Form 14
Covering losses caused by dishonesty of employees,
physical loss of securities on or outside of premises
while in possession of authorized person, loss caused
by forgery or alteration of checks or similar
instruments.
Errors and Omissions Insurance
Covering replacement of destroyed records and computer
errors and omissions.
Special Forgery Bond
Covering losses through forgery or alteration of checks
or drafts of customers processed by insured but drawn
on or against them.
Mail Insurance (applies to all full service operations)
Provides indemnity for the following types of
securities lost in the mails:
Non-negotiable securities mailed to domestic
locations via registered mail.
Non-negotiable securities mailed to domestic
locations via first-class or certified mail.
Non-negotiable securities mailed to foreign
locations via registered mail.
Negotiable securities mailed to all locations via
registered mail.
<PAGE> 1
EXHIBIT 99.B9(b)
Supplement to Agency Agreement
Supplement to Agency Agreement ("Supplement") made as of May
31, 1994 by and between the registered investment company
executing this document (the "Fund") and Investors Fiduciary
Trust Company ("Agent").
WHEREAS, the Fund and Agent are parties to an Agency
Agreement ("Agency Agreement") dated January 1, 1989, as
supplemented from time to time;
WHEREAS, Section 5.A. of the Agency Agreement provides that
the fees payable by the Fund to Agent thereunder shall be as set
forth in a separate schedule to be agreed to by the Fund and
Agent; and
WHEREAS, the parties desire to reflect in this Supplement
the revised fee schedule for the Agency Agreement as in effect as
of the date hereof;
NOW THEREFORE, in consideration of the premises and the
mutual covenants herein provided, the parties agree as follows:
1. The revised fee schedule for services provided by Agent
to the Fund under the Agency Agreement as in effect as of the
date hereof is set forth in Exhibit A attached hereto.
2. This Supplement shall become a part of the Agency
Agreement and subject to its terms and shall supersede all
previous fee schedules under such agreement as of the date
hereof.
IN WITNESS WHEREOF, the Fund and Agent have duly executed
this Supplement as of the day and year first set forth above.
KEMPER INCOME AND CAPITAL
PRESERVATION FUND
By: /s/ John E. Peters
------------------------------
Title: Vice President
INVESTORS FIDUCIARY TRUST COMPANY
By: /s/ Joseph F. Smith
------------------------------
Title: EVP
<PAGE> 2
EXHIBIT A
FEE SCHEDULE (Multiple Classes of Shares)
<TABLE>
<CAPTION>
Transfer Agency Function Fee Payable by Fund
------------------------ -------------------
Class A, C and I Class B
---------------- -------
<S> <C> <C>
1. Annual open shareholder account
fee (per year per account).
a. Non-daily dividend series. $6.00 $6.00
b. Daily dividend series. $8.00 $8.00
2. Annual closed shareholder account
fee (per year per account). $6.00 $6.00
3. Contingent deferred sales charge
account fee (per year per open Not
account). Applicable $2.25
4. Establishment of new shareholder
account (per new account). $4.00 $4.00
5. Payment of dividend (per dividend
per account). $.40 $.40
6. Automated transaction (per
transaction).** $.50 $.50
7. Non-monetary transactions fee
(per year per open account). $2.00 $2.00
8. All other shareholder inquiry,
correspondence and research
transactions (per transaction). $1.25 $1.25
9. Disaster recovery fee (per year
per open and closed account). $.40 $.40
</TABLE>
The out-of-pocket expenses of IFTC will be reimbursed by Fund in accordance
with the provisions of Section 5 of the Agency Agreement. All fees will be
subject to offset by earnings allowances under the Custody Agreement between
Fund and IFTC.
<PAGE> 3
- --------------------
* The new shareholder account fee is not applicable to Class
A Share accounts established in connection with a conversion from
Class B Shares.
** Automated transaction includes, without limitation, money
market series purchases and redemptions, ACH purchases,
systematic exchanges and conversions from Class B Shares to Class
A Shares.
<PAGE> 1
EXHIBIT 99.B9(c)
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT dated this 1st day of August, 1990, by and between
KEMPER INCOME AND CAPITAL PRESERVATION FUND, a Massachusetts
business trust (the "Fund"), and KEMPER FINANCIAL SERVICES, INC.,
a Delaware corporation ("KFS").
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 KFS to provide information and
administrative services for the benefit of the Fund and its
shareholders. In this regard, KFS shall appoint various
broker-dealer firms and other financial services firms ("Firms")
to provide related services and facilities for their clients who
are shareholders of the Fund ("clients"). The Firms shall
provide such office space and equipment, telephone facilities and
personnel as is necessary or beneficial for providing information
and services to shareholders of the Fund. Such services and
assistance may include, but are not limited to, establishing and
maintaining shareholder accounts and records, processing purchase
and redemption transactions, answering routine client inquiries
regarding the Fund and its special features, assistance to
clients in changing dividend and investment options, account
designations and addresses, and such other services as the Fund
or KFS may reasonably request. KFS may also provide some of the
above services for the Fund directly.
KFS accepts such appointment and agrees during such period to
render such services and to assume the obligations herein set
forth for the compensation herein provided. KFS 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.
KFS, by separate agreement with the Fund, may also serve the Fund
in other capacities. In carrying out its duties and
responsibilities hereunder, KFS will appoint various Firms to
provide administrative and other services described herein
directly to or for the benefit of shareholders of the Fund who
may be clients of such Firms. Such Firms shall at all times be
deemed to be independent contractors retained by KFS and not the
Fund. KFS and not the Fund will be responsible for the payment
of compensation to such Firms for such services.
<PAGE> 2
2. For the services and facilities described in Section 1,
the Fund will pay to KFS at the end of each calendar month an
administrative service fee computed at an annual rate of up to
0.25 of 1% of the average daily net assets of the Fund. The
current fee schedule is set forth as Appendix I hereto. 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 such
month and year, respectively. The services of KFS to the Fund
under this Agreement are not to be deemed exclusive, and KFS
shall be free to render similar services or other services to
others.
The net asset value for each share of the Fund 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 the Fund 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.
3. The Fund shall assume and pay all charges and expenses of
its operations not specifically assumed or otherwise to be
provided by KFS under this Agreement.
4. This Agreement may be terminated at any time without the
payment of any penalty by the Fund or by KFS on sixty (60) days
written notice to the other party. Termination of this Agreement
shall not affect the right of KFS to receive payments on any
unpaid balance of the compensation described in Section 2 hereof
earned prior to such termination. This Agreement may not be
amended to increase the amount to be paid to KFS for services
hereunder above .25 of 1% of the average daily net assets of the
Fund without the vote of a majority of the outstanding voting
securities of the Fund. All material amendments to this
Agreement must in any event be approved by vote of the Board of
Trustees of the Fund.
5. 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.
6. 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.
7. 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
2
<PAGE> 3
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.
8. This Agreement shall be construed in accordance with
applicable federal law and (except as to Section 7 hereof which
shall be construed in accordance with the laws of The
Commonwealth of Massachusetts) the laws of the State of Illinois.
IN WITNESS WHEREOF, the Fund and KFS have caused this Agreement
to be executed as of the day and year first above written.
KEMPER INCOME AND CAPITAL KEMPER FINANCIAL SERVICES, INC.
PRESERVATION FUND
By: /s/ Charles M. Kierscht By: /s/ John E. Peters
------------------------ ----------------------------
Title: President Title: Executive Vice President
3
<PAGE> 4
APPENDIX I
KEMPER INCOME AND CAPITAL PRESERVATION FUND
FEE SCHEDULE FOR ADMINISTRATIVE
SERVICES AGREEMENT
Pursuant to Section 2 of the Administrative Services Agreement to
which this Appendix is attached, the Fund and KFS agree that the
initial administrative service fee will be computed at an annual
rate of .15 of 1% (the "Fee Rate"). For purposes of computing
the fee due KFS, the Fee Rate shall be applied against the amount
of assets of the Fund for which a broker-dealer or other
financial services firm is listed on the records of the Fund as
"dealer of record," which shall not include KFS.
Dated: August 1, 1990
KEMPER INCOME AND CAPITAL KEMPER FINANCIAL SERVICES, INC.
PRESERVATION FUND
By: /s/ Charles M. Kierscht By: /s/ John E. Peters
--------------------------- ----------------------------
Title: President Title: Executive Vice President
<PAGE> 1
EXHIBIT 99.B9(d)
AMENDMENT TO ADMINISTRATIVE
SERVICES AGREEMENT
(Class A, B, C and I Shares)
Amendment to Administrative Services Agreement ("Amendment")
made as of May 31, 1994 by and between the registered investment
company executing this document (the "Fund") and Kemper Financial
Services, Inc. ("KFS").
WHEREAS, The Fund and KFS are parties to an Administrative
Services Agreement ("ASF Agreement") dated August 1, 1990, as
supplemented and amended from time to time;
WHEREAS, The Fund currently issues shares in four separate
classes for each series of the Fund, if there is more than one,
being designated as Class A Shares, Class B Shares, Class C
Shares and Class I Shares; and
WHEREAS, The parties want to reflect in this Amendment the
effect upon the fee schedule under the ASF Agreement of the
division of the shares of the Fund into separate classes;
NOW THEREFORE, in consideration of the premises and the
mutual covenants herein provided, the parties agree as follows:
1. The administrative services fee under the ASF Agreement
will be calculated separately for each class of each series of
the Fund as an expense of such class at the annual rates and in
accordance with the procedures specified in the ASF Agreement;
provided, however, that no administrative services fee shall be
payable with respect to the Class I Shares.
2. This Amendment shall become a part of the ASF
Agreement.
IN WITNESS WHEREOF, the Fund and KFS have duly executed this
Amendment as of the day and year first set forth above.
KEMPER INCOME AND CAPITAL
PRESERVATION FUND
By: /s/ John E. Peters
-----------------------------
Title: Vice President
KEMPER FINANCIAL SERVICES, INC.
By: /s/ Patrick H. Dudasik
-----------------------------
Title: Senior Vice President
<PAGE> 1
EXHIBIT 99.B9(e)
ASSIGNMENT AND ASSUMPTION
ASSIGNMENT AND ASSUMPTION ("Assignment and Assumption") made
and entered into as of February 1, 1995 by and between Kemper
Financial Services, Inc., a Delaware corporation ("Assignor"),
and Kemper Distributors, Inc., a Delaware corporation
("Assignee").
WHEREAS, Assignor serves as administrator for Kemper Income
and Capital Preservation Fund, a Massachusetts business trust
(the "Fund"), pursuant to that certain Administrative Services
Agreement dated August 1, 1990 by and between Assignor and the
Fund, as may have been amended, (the "Agreement");
WHEREAS, Assignee is a wholly-owned subsidiary of Assignor;
WHEREAS, It has been proposed that the rights, duties and
responsibilities of Assignor under the Agreement be transferred
to and assumed by Assignee;
WHEREAS, The Fund has determined that such transfer of
rights, duties and responsibilities is reasonable and in the best
interests of the Fund and the Fund's shareholders; and
NOW, THEREFORE, in consideration of the covenants
hereinafter contained, it is hereby agreed by and between the
parties hereto as follows:
1. Assignment and Assumption. Assignor assigns and
transfers to Assignee all of Assignor's rights, interests,
liabilities, duties and obligations under the Agreement
("Assigned Rights and Obligations"). Assignee accepts the
foregoing assignment and transfer of the Assigned Rights and
Obligations and agrees to assume, pay, perform and otherwise be
fully responsible for the same.
2. Further Assurances. From time to time, at the request
of either party, the other party will execute and deliver such
further instruments of assignment, transfer and assumption and
take such further action as may be required to assign, transfer
and assume the Assigned Rights and Obligations.
3. Applicable Law. This Assignment and Assumption shall
be governed by the laws of the State of Illinois.
<PAGE> 2
4. Amendments. This Assignment and Assumption may only be
amended by the written agreement of the parties.
IN WITNESS WHEREOF, the parties have each caused this
Assignment and Assumption to be executed on its behalf by a duly
authorized officer as of the date first written above.
KEMPER FINANCIAL SERVICES, INC.
By: /s/ Patrick H. Dudasik
-----------------------------
Its: Senior Vice President
KEMPER DISTRIBUTORS, INC.
By: /s/ James L. Greenawalt
-----------------------------
Its: Executive Vice President
The undersigned hereby acknowledges and consents to the foregoing
Assignment and Assumption as of February 1, 1995.
KEMPER INCOME AND CAPITAL PRESERVATION FUND
By: /s/ John E. Peters
------------------------------
Its: Vice President
2
<PAGE> 1
EXHIBIT 99.B9(f)
AMENDED APPENDIX I FOR ADMINISTRATIVE
SERVICES AGREEMENT
Amended Appendix I for Administrative Services Agreement
("Amended Appendix I") made as of October 1, 1993 by and between
the registered investment company executing this document (the
"Fund") and Kemper Financial Services, Inc. ("KFS").
WHEREAS, the Fund and KFS are parties to an Administrative
Services Agreement ("ASF Agreement") dated August 1, 1990, as
supplemented from time to time;
WHEREAS, Section 2 of the ASF Agreement provides that the
administrative service fees currently payable by the Fund to KFS
thereunder shall be as set forth in Appendix I thereto subject to
the requirement set forth in said Section 2 that said fees not
exceed an annual rate of .25% of average daily net assets of the
Fund; and
WHEREAS, the parties desire to reflect in this Amended
Appendix I the revised fee schedule for the ASF Agreement as in
effect as of the date hereof;
NOW THEREFORE, in consideration of the premises and the
mutual covenants herein provided, the parties agree as follows:
1. The revised fee schedule for services provided by KFS
to the Fund under the ASF Agreement is as described hereinafter.
The Fund will pay KFS an administrative service fee at a rate
sufficient to reimburse KFS for service fee payments made by KFS
to broker-dealer firms and other financial services firms
("Firms") that are retained by KFS to provide information and
administrative services for their clients as contemplated by
Section 1 of the ASF Agreement. KFS will pay Firms a service fee
at an annual rate of (a) up to.15 of 1% of net assets of those
accounts in the Fund that they maintain and service attributable
to shares acquired prior to October 1, 1993, and (b) up to .25 of
1% of net assets of those accounts in the Fund that they maintain
and service attributable to shares acquired on or after October
1, 1993. For this purpose, Firms shall only include
broker-dealers and other financial services firms listed on the
records of the Fund as "dealer of record," and shall not include
KFS. In no event shall the fee paid to KFS exceed the
limitations set forth in Section 2 of the ASF Agreement.
<PAGE> 2
2. This Amended Appendix I shall become a part of the ASF
Agreement and subject to its terms and shall supersede all
previous fee schedules under such Agreement, including the
current Appendix I thereto, as of the date hereof.
IN WITNESS WHEREOF, the Fund and KFS have duly executed this
Amended Appendix I as of the day and year first set forth above.
KEMPER INCOME AND CAPITAL
PRESERVATION FUND
By: /s/ John E. Peters
----------------------------
Title: Vice President
KEMPER FINANCIAL SERVICES, INC.
By: /s/ Robert Jackson
----------------------------
Title: CFO & Sen. Exec. V.P.
2
<PAGE> 1
EXHIBIT 99.B11
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Kemper Income and Capital Preservation Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Kemper Income and Capital Preservation Fund as
of October 31, 1995, the related statements of operations for the year then
ended and changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the fiscal periods since 1986.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of October 31, 1995, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Kemper Income and Capital Preservation Fund at October 31, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the fiscal periods since 1986, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Chicago, Illinois
November 28, 1995
<PAGE> 2
EXHIBIT 99.B11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors and Reports to Shareholders" and to the
use of our report dated November 28, 1995 in the Registration Statement (Form
N-1A) of Kemper Income and Capital Preservation Fund, and its incorporation by
reference in the related prospectus of Kemper Fixed Income Funds, filed with
the Securities and Exchange Commission in this Post-Effective Amendment No. 38
to the Registration Statement under the Securities Act of 1933 (File No.
2-45481) and in this Amendment No. 38 to the Registration Statement under the
Investment Company Act of 1940 (File No. 811-2305).
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Chicago, Illinois
November 28, 1995
<PAGE> 1
EXHIBIT 99.B14.(a)
KEMPER
RETIREMENT PLAN PROTOTYPE
A Keogh/Corporate Retirement
Plan for Professionals and
Small Corporations
THE KEMPER RED BOOK
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
CHOOSING YOUR PLAN................................... SECTION 1
PLAN INSTALLATION FORMS.............................. SECTION 2
PARTICIPANT RECORDS ................................. SECTION 3
PLAN DOCUMENT ....................................... SECTION 4
</TABLE>
<PAGE> 3
CHOOSING YOUR PLAN
RETIREMENT PLANNING SOLUTIONS THAT BENEFIT BOTH YOU AND YOUR EMPLOYEES
Providing for retirement is an increasing concern for employers, as well
as employees. With a shrinking work force, employers will have to be more
competitive than ever to attract a qualified staff. The rising costs of
traditional pension plans, however, can be a significant financial drain
on a company's profits. So how can a company remain competitive and not
risk its bottom line?
Many employers have discovered that defined contribution plans such as
Money Purchase and Profit Sharing plans provide a viable solution that can
benefit both the company and its employees.
FIND OUT IF ONE OF THESE PLANS IS RIGHT FOR YOU...
With the variety of retirement plans available today, it's often difficult
to know which one is best for your company's needs. If you're a sole
proprietor, independent contractor, owner of a small business or in
private practice, with few or no employees, and are looking for a way to
save for retirement and reduce your tax liabilities, consider one of these
plans.
PROFIT SHARING PLAN
A profit sharing plan is just that - a plan that enables the
employees to participate in the profits of the company. The
flexibility of contribution limits and the relative ease of
maintenance make profit sharing plans an attractive alternative for
both employers and employees.
A profit sharing plan allows employees to participate in the
company's success, thereby giving further incentive for employee
productivity and loyalty. More profits mean higher contributions, up
to legal limits.
MONEY PURCHASE PLAN
A money purchase plan shares many of the same advantages and features
of a profit sharing plan, but has a higher contribution level. It
has the same eligibility requirements, tax benefits and distribution
choices. The difference is in the contribution limits and
requirements.
- Allows for higher contribution levels
- Contribution levels are fixed
Because there is a fixed contribution formula, required contributions
can be easily computed and budgeted. Once a percentage has been
determined, contributions are mandatory each year, and for the same
percentage level - regardless of whether the company is profitable
that year. Failure to contribute the required amount in a year could
result in stiff tax penalties, and jeopardize the qualified status of
the plan.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
TYPE OF PLAN PROFIT SHARING MONEY PURCHASE COMBINATION
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TYPE OF CONTRIBUTION Flexible Fixed Flexible/Fixed
- ------------------------------------------------------------------------------------------------------------
MAXIMUM ANNUAL 15% of 25% of 25% of
CONTRIBUTION LIMIT Eligible Payroll Eligible Payroll Eligible Payroll
- ------------------------------------------------------------------------------------------------------------
PARTICIPANT 25% of Compensation 25% of Compensation 25% of Compensation
ANNUAL LIMIT not to Exceed $30,000 not to Exceed $30,000 not to Exceed $30,000
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
COMBINED MONEY PURCHASE AND PROFIT SHARING PLAN
Many employers like the idea of making contributions as high as 25% of
eligible payroll, but are not comfortable committing to this every year.
Fortunately, the IRS allows a combination or "paired" plan that gives the
"best of both worlds."
- Higher contribution levels of a money purchase plan
- Flexible contribution limits of a profit sharing plan
Paired plans combine the flexibility of a profit sharing plan with the
higher contribution limits of a money purchase pension plan. A combined
plan lets you enjoy control over a portion of the contribution similar to
a profit sharing plan, but also offers the higher contribution limits
found in a money purchase plan. Employees are assured that they will be
provided with at least some level of retirement benefit.
Typically, if an employer wishes to maximize the contribution, he or she
would set the money purchase plan contribution at 10%, which would be
mandatory each year, and allow the remaining 15% to be a part of the
profit sharing plan, which is contingent on whether or not the company can
afford it. That way, the employer is only locked into a 10% mandatory
contribution rather than 25%.
THE KEMPER RED BOOK KEOGH PROTOTYPE
The Plan Document, contained in the last section of this booklet, provides
the plan parameters for self-employed partnerships and corporations, and
has been amended for the Tax Reform Act of 1986. Investors Fiduciary Trust
Company (IFTC) will act as trustee for a plan using Kemper mutual funds.
Kemper Investors Life Insurance Company (KILICO) annuities do not require
a trustee. Before any contributions can be made to the plan, an Adoption
Agreement (see section entitled "Plan Installation Forms") that outlines
the plan parameters must be signed and dated.
ELIGIBILITY
Since the plan is employer-sponsored, the employer has the ability to
establish minimum requirements for plan participation, generally based on
age and years of service. As the employer, you decide how flexible plan
participation will be, keeping within certain minimum requirements set by
the IRS. Of course, eligibility requirements may be lower. Those who must
be eligible for the plan are:
- Any employee over age 21, AND
- Employees who have had at least two years of service, AND
- Employees who are not covered by a collective bargaining agreement.
All employees (including leased and control group) who fulfill eligibility
requirements, except for union employees covered under a collective
bargaining agreement, are eligible participants in the plan. Entry dates
for the plan are semi-annual.
CONTRIBUTIONS
One of the most important benefits of the plan is that the employer's
contributions are a tax-deductible business expense. This special tax
treatment makes it one of the few remaining tax shelters available.
All plan participants employed on the last day of the plan year will share
in the employer's contribution regardless of the hours worked during the
plan year. Terminated participants will share in the employer's
contribution only if they completed at least 501 hours of service during
the plan year in which they terminated.
Compensation is defined as an employee's total gross salary earned while
the employee was actually a plan participant. Rollover contributions are
allowed if the Employer wishes. Employee after-tax contributions are not
allowed under this plan document.
<PAGE> 5
CHOOSING YOUR PLAN
DISTRIBUTIONS
Terminated participants will receive their distribution on the 60th day of
the plan year following separation of service. If the value of the account
is more than $3,500 the participant must agree to take his or her money,
and the participant can choose lump sum or installment payments. If the
account value is $3,500 or less, the participant receives a lump sum
payment. Participants are always 100% vested.
Kemper Financial Services, Inc. will provide self-trusteed, variable
documents which allow you to vary the plan parameters. Please contact your
representative or Kemper Financial Services, Inc. at 1-800-621-5027.
QUESTIONS AND ANSWERS
Q. WHAT IS THE DEADLINE FOR ESTABLISHING A RETIREMENT PLAN?
A. The plan must be established on or before the last day of the taxable
year for which a deduction is to be taken.
Q. DOES "ESTABLISH" MEAN THERE MUST BE ASSETS IN THE PLAN?
A. Yes, at least $250 is required to open and establish the account in
the tax year. The balance of the contribution must comply with tax
deadlines.
Q. WHAT IS THE DEADLINE FOR MAKING CONTRIBUTIONS ONCE THE PLAN IS
ESTABLISHED?
A. Contributions for any year must be made before the latest possible
filing date for the Employer's federal income tax return for that
year, including extensions.
Q. SHOULD I BE BONDED?
A. Yes, Employers should be bonded if the plan covers employees other
than the owner(s) and the owner(s) spouse; the bond must cover at
least 10% of the plan's assets; the face value of the bond may not be
less than $1,000.
Q. WHAT IS MEANT BY "YEAR OF SERVICE" WHEN DETERMINING WHO IS ELIGIBLE
TO PARTICIPATE IN THE PLAN?
A. "Year of Service" for purposes of eligibility means 12 consecutive
months during which an employee completes at least 1,000 hours of
service. The 12-month period begins on the day an employee performs
his or her first hour of service.
Q. WHEN DOES AN EMPLOYEE PARTICIPATE ONCE ELIGIBILITY REQUIREMENTS ARE
MET?
A. The employee becomes a Participant on the first day of the Plan Year,
or the first day of the seventh month of the Plan Year, following
satisfaction of the eligibility requirement. For example, if the Plan
Year is a calendar year and an employee satisfies the eligibility
requirement on March 1, he or she will enter the plan on July 1.
Q. CAN THE EMPLOYEE CONTRIBUTE UNDER THIS PLAN?
A. Pre-tax employee salary reduction contributions may be allowed, but
only if you elect to include the 401(k) arrangement found in Article
XIII of the Profit Sharing Adoption Agreement. After-tax
contributions are not allowed.
Q. WHAT IS SOCIAL SECURITY INTEGRATION?
A. When your overall retirement plan scheme combines Social Security
with your private retirement plan, this is called integration.
Integration allows you to take advantage of the Social Security tax
payments you already make when designing your private retirement
plan's formula. The result favors the highly paid employees because
they receive a larger portion of the total contribution.
Contribution formulas and worksheets for self-employed participants
in integrated plans are available from Kemper Financial Services upon
request.
Q. WHAT IS THE COMPENSATION FOR A SOLE PROPRIETOR?
A. If you are a sole proprietor or your business is a partnership, you
must base contributions on earned income, which is defined as net
profits minus the amount you contributed to the plan. Your net
profits are shown on the Schedule C form for a sole proprietor, and
the schedule K-1 form for a partnership. Contributions for all other
employees are based on gross earnings actually paid for services
rendered.
<PAGE> 6
Q. WHAT DOES IT MEAN TO "AMEND AND RESTATE" A PLAN?
A. To amend and restate your plan means you have updated your plan in
its entirety by replacing the plan document with a new plan document.
This may be necessary if your existing plan document prohibits plan
investments with Kemper or because of changes in the laws governing
qualified retirement plans.
Many employers are now formally updating their plans to comply with
the Tax Reform Act of 1986. These amendments must be retroactive to
the first day of your 1987 plan year unless interim amendments were
adopted for the 1987 and 1988 plan years.
INVESTING YOUR PLAN ASSETS
One of the most important decisions you have to make is where to invest
your plan's assets. The better your plan's investment performance, the
easier it will be for you and your employees to retire in comfort. You'll
want to select investments with a broad range of objectives to meet the
diverse investment needs of your employees, and take great care in
choosing the company that will manage your plan's assets.
...WITH KEMPER
That's why many plans like yours invest their plan assets with Kemper.
Kemper Financial Services, Inc. has managed investments for over 40 years
and has more than $67 billion in assets under management. Kemper offers a
variety of investment products to fit almost every investment objective.
Kemper's mutual funds and annuities provide investments to suit the needs
of either the aggressive or the conservative investor. Employees can
select the investments that best match their specific needs and
requirements. Consider Kemper's experience and professional managers when
choosing the investments for your plan.
FUNDING THE PLAN
...WITH MUTUAL FUNDS
The Employer completes the Employer Contribution Schedule. Each eligible
employee completes an Employee Enrollment Form. All necessary forms and a
check made payable to IFTC should be sent to:
Investors Fiduciary Trust Company
Attn: Retirement Plans
P.O. Box 419356
Kansas City, MO 64141-6356
The IFTC Trustee fee is $12 per account, per participant, per year, with a
$24 maximum charge per participant.
...WITH ANNUITIES
A KILICO Enrollment Application is completed for each plan participant.
Please call Policyholder Services for the proper forms at 1-800-554-5426.
The check should be made payable to Kemper Investors Life Insurance
Company and mailed to:
Kemper Investors Life Insurance Company
P.O. Box 95963
Chicago, IL 60694
There are no trustee fees when using KILICO products.
<PAGE> 7
CHOOSING YOUR PLAN
...WITH UNIT INVESTMENT TRUSTS
For a Kemper Capital Markets enrollment kit, please call Kemper
Capital Markets at 1-800-621-5024. Applications and a check made
payable to IFTC should be sent to:
Investors Fiduciary Trust Company
Attn: Retirement Plans
P.O. Box 419430
Kansas City, MO 64141-6430
The IFTC Trustee fee is $12 per account, per participant, per year,
with a $24 maximum charge per participant.
To obtain additional prospectuses for any of the Kemper products,
containing more complete information including management fees and
expenses, please contact your representative or Kemper Financial Services,
Inc. at 1-800-621-5027. Please read the prospectus carefully before you
invest or send money.
GETTING STARTED
The next two sections, "Plan Installation Forms" and "Participant
Records," provide the necessary forms to complete the installation of
the plan. Please read the instructions at the beginning of each
section carefully before completing the applicable forms.
If you are a sole proprietor and do not have any covered employees,
complete the Adoption Agreement only.
The last section, "Plan Document," is provided for your reference
only.
<PAGE> 8
PLAN INSTALLATION FORMS
GETTING STARTED
COMPLETE THE FOLLOWING DOCUMENTS AND RETURN ORIGINALS TO THE APPROPRIATE
ADDRESS SHOWN UNDER THE PRECEDING SECTION ENTITLED "FUNDING THE PLAN."
REMEMBER TO RETAIN A PHOTOCOPY FOR YOUR RECORDS.
ADOPTION AGREEMENT
Complete the information requested ONLY for the particular type
of plan you've selected (either profit sharing, money purchase or a
combination).
ENROLLMENT FORM
Photocopy and complete an enrollment form for EACH eligible participant.
SUMMARY PLAN DESCRIPTION CARD
Complete this card ONLY if you have Employees.
ASSET TRANSFER FORM
Complete this form ONLY if there are existing plan assets.
<PAGE> 9
"LINE-BY-LINE" INSTRUCTIONS FOR COMPLETING YOUR ADOPTION AGREEMENT
- Specify the type of business entity adopting the plan by checking the
appropriate box.
- Enter the address of the business. This may be a home address if there is
no separate business address.
- Enter the Employer's Taxpayer Identification Number (TIN). If you do not
presently have a TIN for your business, you should apply for one using IRS
Form SS-4. Form SS-4 is available from Kemper Financial Services upon
request.
- Enter the name of the Employer on the blank line provided. If the
Employer is a sole proprietor who does not have a formal business name,
enter the name of the individual adopting the plan.
ARTICLE I
1.17 (A) In most situations the Plan Year End will be December 31, but if
the Employer operates on a fiscal year, then enter the
appropriate date.
(B) If item (b) is left blank, the Limitation Year will be the same
as the Plan Year.
1.18 (A) If this Adoption Agreement is used to establish a new plan,
rather than amend an older plan, check item l.18(a) and skip
item 1.18(b).
(B) Complete item 1.18(b) if this is a restatement of an older plan.
ARTICLE II
2.01 (A) Check (1) or (2) to define the minimum age requirement (if any)
that must be attained before an employee is eligible to
participate in the plan.
(B) Check (1), (2) or (3) to define the minimum service (if any)
that must be completed before an employee is eligible to
participate in the plan. The plan defines a Year of Service as a
12 consecutive month period in which the employee works 1,000
hours or more. The 12 consecutive month period begins on the
date the employee first performs an Hour of Service and each
anniversary thereof.
ARTICLE III
3.01 If this is a MONEY PURCHASE PENSION PLAN, indicate the base
contribution rate in the first blank. The base contribution rate
must equal or exceed 3%. If the plan will be integrated with
Social Security, enter the integration rate in the second blank
and complete the integration level section.
3.04 If this is a PROFIT SHARING PLAN and the contribution allocation
will be integrated with Social Security, complete the
integration level section 13.00. If this is a PROFIT SHARING
PLAN, check here if you wish to include employee salary deferral
contributions. If you do NOT want to allow employee salary
deferral contributions, skip this item and go directly to the
"Effective Date Addendum" of Article V.
ARTICLE XIII
13.00 If this is a Profit Sharing Plan, check here if you wish to
include employee salary deferral contributions. If you do not
want to allow employee salary deferral contributions, skip this
item and go directly to the "Effective Date Addendum."
13.05 Enter a date, which is no later than April 15th, by which a
participant must notify you if he or she has exceeded the dollar
limit for employee salary deferral contributions. For
administrative ease, March 1 is recommended.
13.08(A) Leave blank and skip to item 13.09 if the Employer will not make
regular matching contributions to the plan. Check 13.08(a) if
the Employer intends to match the salary deferral contributions
of ALL participants.
(B) Check 13.08(b) if Highly Compensated Employees will not receive
the Employer's regular matching contribution.
(C) Enter the amount of the Employer's matching contribution on the
line provided. Note that the employer is REQUIRED to make this
matching contribution each year.
(D) If 13.08(d) is left blank, all of a participant's salary
deferral contributions will be matched by the Employer.
Enter a dollar amount and/or percentage on the blank lines
provided to limit the salary deferral contributions eligible for
the matching contribution.
13.09(A) Leave blank and skip to item 13.12 if the Employer will not make
Qualified Matching Contributions to the Plan.
Check 13.09(a) if the Employer intends to contribute Qualified
Matching Contributions for ALL participants.
<PAGE> 10
PLAN INSTALLATION FORMS
(B) Check 13.09 (b) if Highly Compensated Employees will not
receive the Qualified Matching Contribution.
(C) Enter the amount of the Employer's Qualified Matching
Contribution on the line provided. Note that the employer is
REQUIRED to make this Qualified Matching Contribution each
year.
(D) If (d) is left blank, all of a participant's salary deferral
contributions will be eligible for the qualified matching
contribution.
Enter a dollar amount and/or percentage on the blank lines
provided to limit the salary deferral contributions eligible
for the Qualified Matching Contribution.
13.12(A) Check 13.12 (a) if the Employer intends to contribute Qualified
Nonelective Contributions for ALL participants.
(B) Check 13.12 (b) if Highly Compensated Employees will not
receive Qualified Nonelective Contributions.
(C) If (c) is checked, a participant's share of the qualified
nonelective contribution will be based on the participant's
total compensation.
(D) If (d) is checked, only compensation up to the stated dollar
amount will be used to calculate a participant's share of the
qualified nonelective contribution.
SPECIAL RULES FOR SALARY REDUCTION AGREEMENTS
(A)(1) Check (1) and enter a percentage on the line provided if
you wish to establish a maximum deferral percentage.
(2) Check (2) and enter a percentage on the line provided if
you wish to establish a minimum deferral percentage.
(3) Check (3) if no restrictions are imposed on a participant's
salary reduction contributions.
(B) Check (1), (2), (3) OR (4) to restrict when a participant
may stop their salary deferral contributions.
(C) Check (1), (2), (3) OR (4) to indicate when a participant
may resume making salary deferral contributions.
(D) Check (1), (2), (3) OR (4) to indicate how frequently a
participant may change the amount of his or her salary
deferral contributions.
ARTICLE V
EFFECTIVE DATE ADDENDUM
If you are restating an older plan, complete only if the
effective date of the restatement is before January 1,1989
AND these specific provisions have changed as a result of
the restatement. If a provision listed below has changed, the
date on which that provision begins to apply may be later
than your restated effective date if you check the applicable
box. Indicate the later effective date by inserting a date
on the line provided.
If this is a NEW PLAN, skip the Effective Date Addendum and go
directly to "Participation Agreement."
PARTICIPATION AGREEMENT
If the Employer has an ownership interest in another business
which results in a controlled group of businesses as defined
by the Internal Revenue Code, then each related business must
sign the Participation Agreement as a Participating Employer.
The "Signatory Employer" is the Employer who also signs the
Execution Page of the adoption agreement.
If the employer sponsoring this plan has no ownership interest
in any other business, skip the Participation Agreement and go
directly to "Execution Page."
EXECUTION PAGE
The Employer should sign and date the appropriate Adoption
Agreement. The signature of the sole proprietor, general
partner or corporate officer belongs on the line above
"Employer." Whoever witnesses the Employer's signature should
sign on the line beside "Attest."
The Dealer/Agent should complete the dealer information section.
<PAGE> 11
ADOPTION AGREEMENT #001
STANDARDIZED PROFIT SHARING/401(K) PLAN
(PAIRED PROFIT SHARING PLAN)
THE EMPLOYER IS A:
/ / sole proprietorship
/ / partnership
/ / corporation
EMPLOYER'S ADDRESS:
________________________________________________________________________________
Street Address City State Zip Code
EMPLOYER'S FEDERAL TAXPAYER IDENTIFICATION NUMBER (TIN):________________________
THE EMPLOYER HEREBY ESTABLISHES THE ____________________________________________
Name of Employer
PROFIT SHARING PLAN in accordance with all the terms of the KEMPER RETIREMENT
PLAN PROTOTYPE KEOGH/CORPORATE AND TRUST AGREEMENT attached hereto, which the
Employer has received, read, accepts and hereby incorporates into this
STANDARDIZED PROFIT SHARING/401(K) PLAN ADOPTION AGREEMENT #001 with the
following additional terms and conditions:
ARTICLE I
DEFINITIONS
1.17 PLAN YEAR/LIMITATION YEAR
/ / (A) Plan Year means the 12 consecutive month period ending ________.
/ / (B) The Limitation Year is the Plan Year unless the following month
is designated as the last month of the limitation year: ________.
1.18 EFFECTIVE DATE (CHOOSE ONE)
/ / (A) NEW PLAN. The Effective Date of the Plan is the first day of the
Plan Year in which the Plan is adopted.
/ / (B) RESTATED PLAN. The restated Effective Date is _________. This Plan
is a substitution and amendment of an existing retirement plan
originally established _____________. [Note: If the restated
Effective Date is earlier than January 1, 1989, see the Effective
Date Addendum immediately preceding the Participation Agreement.]
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY
ELIGIBILITY CONDITIONS. To become a Participant in the Plan,
an Employee must satisfy the following eligibility conditions:
(A) Age requirement. (Choose one)
/ / (1) Age __________ (specify age, not exceeding 21).
/ / (2) No age requirement.
(B) Service requirement. (Choose one)
/ / (1) One Year of Service.
/ / (2) Two Years of Service without an intervening Break
in Service. See Section 2.03(a) of the Plan.
/ / (3) No service requirement.
ENTRY DATE. Any Employee other than a Member of a Collective
Bargaining Unit will become a Participant on the Plan Entry Date (if
employed on that date) coincident with or immediately following the
date the Employee completes the eligibility conditions described in
Options (a) and (b) of this Adoption Agreement Section 2.01.
<PAGE> 12
PLAN INSTALLATION FORMS
ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
3.01 AMOUNT
The amount of the Employer's annual contribution to the Trust will
equal the amount (or additional amount) the Employer may from time to
time deem advisable, irrespective of whether the Employer has Net
Profits.
3.04 CONTRIBUTION ALLOCATION
Profit Sharing plan - Employer contributions for the plan year will
be allocated to participants' accounts as follows: [NOTE: IF THE
EMPLOYER WILL NOT BE INTEGRATING THE PLAN WITH SOCIAL SECURITY OR
ADOPTING THE PAIRED MONEY PURCHASE PENSION PLAN #002, SKIP STEPS ONE,
TWO AND THREE BELOW AND GO DIRECTLY TO STEP FOUR.]
STEP ONE: Contributions will be allocated to each participant's
account in the ratio that each participant's total compensation bears
to all participants' total compensation, but not in excess of 3% of
each participant's total compensation.
STEP TWO: Any contributions remaining after the allocation in Step
One will be allocated to each participant's account in the ratio
that each participant's compensation for the plan year in excess of
the integration level bears to the excess compensation of all
participants, but not in excess of 3%.
STEP THREE: Any contributions remaining after the allocation in Step
Two will be allocated to each participant's account in the ratio that
the sum of each participant's total compensation plus excess
compensation bears to the sum of all participant's total compensation
plus total excess compensation, but not in excess of the
profit-sharing maximum disparity rate.
STEP FOUR: Any remaining employer contributions or forfeitures will
be allocated to each participant's account in the ratio that each
participant's total compensation for the plan year bears to all
participants' total compensation for that year.
The integration level shall be equal to the amount elected by the
employer in the Adoption Agreement. The taxable wage base (TWB) is
the maximum amount of earnings which may be considered wages for a
year under Section 3121(a)(1) of the Code in effect as of the
beginning of the plan year.
Compensation shall mean compensation as defined in Section 1.12 of
the plan.
The integration level is equal to (Choose one):
/ / Taxable Wage Base (TWB)
/ / $_______ (a dollar amount less than the TWB)
/ / ________ % of TWB (not to exceed 100%)
The maximum Profit Sharing disparity rate is equal to the lesser of:
(a) 2.7% or
(b) the applicable percentage determined in accordance with the
table below:
<TABLE>
<CAPTION>
IF THE INTEGRATION LEVEL:
IS MORE THAN: BUT NOT MORE THAN: THE APPLICABLE PERCENTAGE IS:
- ------------------------ ------------------ -----------------------------
<S> <C> <C>
$0 X(*) 2.7%
X(*) of TWB 80% of TWB 1.3%
80% of TWB Y(**) of TWB 2.4%
</TABLE>
* X = the greater of $10,000 or 20% of the TWB.
**Y = any amount more than 80% of the TWB but less than 100% of the TWB.
If the integration level used is equal to the TWB, the applicable
percentage is 2.7%.
3.17 DEFINED BENEFIT PLAN LIMITATION
If a Participant is or has ever been a participant in a defined
benefit plan maintained by the Employer:
________________________________________________________________
________________________________________________________________
(In the space above, provide language which will satisfy the 1.0
limitation under Code Section 415(e). Such language must preclude
employer discretion.)
<PAGE> 13
ARTICLE XIII
401(k) ARRANGEMENT
13.00 / / CHECK THIS BOX IF THIS PLAN IS A 401(k) PLAN AND COMPLETE THE
FOLLOWING:
13.01 ELIGIBILITY
If the service requirement elected by the Employer at Section 2.01 of
this Adoption Agreement is two (2) years, an Employee's eligibility
to make elective deferrals will be determined as if the service
requirement at Section 2.01 were one (1) year.
13.05 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS
Participants who claim Excess Elective Deferrals for the preceding
taxable year must submit their claims in writing to the plan
administrator by ___________________________________________________.
Specify a date no later than April 15
13.06 ACTUAL DEFERRAL PERCENTAGE TEST
Qualified Matching Contributions and Qualified Nonelective
Contributions may be taken into account as Elective Deferrals for
purposes of calculating the Actual Deferral Percentages. In
determining Elective Deferrals for the purpose of the ADP test, the
employer shall include Qualified Matching Contributions and Qualified
Nonelective Contributions under this plan or any other plan of the
employer, as provided by regulations under the Code.
The amount of Qualified Matching Contributions taken into account as
Elective Deferrals for purposes of calculating the Actual Deferral
Percentage, subject to such other requirements as may be prescribed
by the Secretary of the Treasury, shall be all such Qualified
Matching Contributions.
The amount of Qualified Nonelective Contributions taken into account
as Elective Deferrals for purposes of calculating the Actual Deferral
Percentages, subject to such other requirements as may be prescribed
by the Secretary of the Treasury, shall be all such Qualified
Nonelective Contributions.
13.08 MATCHING CONTRIBUTIONS
The employer will make Matching Contributions to the plan on behalf
of [ELECT (a) or (b) plus (c) and/or (d)]:
/ / (A) All participants.
/ / (B) All participants who are Non Highly Compensated Employees
who make Elective Deferrals to the plan.
/ / (C) The Employer shall contribute and allocate to each
participant's Matching Contribution account an amount equal
to [______] percent of the participant's Elective Deferrals.
/ / (D) The Employer shall not match amounts provided above in
excess of [$______], or in excess of [______] percent, of
the participant's Compensation.
13.09 QUALIFIED MATCHING CONTRIBUTIONS
The Employer will make Qualified Matching Contributions to the plan
on behalf of [ELECT (a) or (b) plus (c) and/or (d)]:
/ / (A) All participants.
/ / (B) All participants who are Non Highly Compensated Employees
who make Elective Deferrals to the plan.
/ / (C) The Employer shall contribute and allocate to each
participant's Qualified Matching Contribution account an
amount equal to [_____] percent of the participant's
Elective Deferrals.
/ / (D) The Employer shall not match amounts provided above in
excess of [$________], or in excess of [_______] percent, of
the participant's Compensation.
<PAGE> 14
PLAN INSTALLATION FORMS
13.10 LIMITATIONS ON MATCHING CONTRIBUTIONS
In computing the Average Contribution Percentage, the Employer shall
take into account, and include as Contribution Percentage Amounts
Elective Deferrals and Qualified Nonelective Contributions under this
plan or any other plan of the Employer, as provided by regulations.
The amount of Qualified Nonelective Contributions that are taken into
account as Contribution Percentage Amounts for purposes of
calculating the Average Contribution Percentage, subject to such
other requirements as may be prescribed by the Secretary of the
Treasury, shall be an amount determined by the Employer.
The amount of Elective Deferrals taken into account as Contribution
Percentage Amounts for purposes of calculating the Average
Contribution Percentage, subject to such other requirements as may be
prescribed by the Secretary of the Treasury, shall be an amount
determined by the Employer.
13.12 QUALIFIED NONELECTIVE CONTRIBUTIONS
The Employer will make Qualified Nonelective Contributions to the
plan. If the Employer does make such contributions to the plan, then
the amount of such contributions for each Plan Year shall be an
amount determined by the Employer.
Allocation of Qualified Nonelective Contributions shall be made to
the accounts of [ELECT ONE]:
/ / (A) All participants
/ / (B) Only Nonhighly Compensated participants
Allocation of Qualified Nonelective Contributions shall be made
[ELECT ONE]:
/ / (C) In the ratio that each participant's Compensation for the
Plan Year bears to the total Compensation of all
participants for such Plan Year.
/ / (D) In the ratio that each participant's Compensation not in
excess of [$______] for the Plan Year bears to the total
Compensation of all participants not in excess of [$______]
for such Plan Year.
SPECIAL RULES FOR SALARY REDUCTION AGREEMENTS
The following rules and restrictions apply to an Employee's salary
reduction agreement:
(A) Limitation on Amount. The Employee's salary reduction
contributions: (Choose at least one)
/ / (1) May not exceed _________% of Compensation for the
Plan Year, subject to the annual additions
limitation described in Part 2 of Article III of
the Plan.
/ / (2) Based on percentages of Compensation must equal at
least _________% of Compensation for the
reduction period.
/ / (3) No maximum limitation other than the annual
additions limitation.
(B) An Employee may revoke, on a prospective basis, a salary
reduction agreement: (Choose one)
/ / (1) Once during any Plan Year but not later than _________
of the Plan Year.
/ / (2) As of any Plan Entry Date.
/ / (3) As of the first day of any month.
/ / (4) Other (specify, but must be at least once per Plan
Year).
(C) An Employee who revokes his or her salary reduction agreement
may file a new salary reduction agreement with an effective
date: (Choose one):
/ / (1) No earlier than the first day of the next Plan Year.
/ / (2) As of any subsequent Plan Entry Date.
/ / (3) As of the first day of any month subsequent to the
month in which he or she revoked an Agreement.
/ / (4) Other (specify, but must be at least once per Plan
Year following the Plan Year of revocation).
(D) A Participant may increase or may decrease, on a prospective
basis, his salary reduction percentage or dollar amount:
/ / (1) As of the beginning of each payroll period.
/ / (2) As of the first day of each month.
/ / (3) As of any Plan Entry Date.
/ / (4) Other (specify, but must permit an increase or a
decrease at least once per Plan Year).
<PAGE> 15
ARTICLE V
EFFECTIVE DATE ADDENDUM
(RESTATED PLANS ONLY)
The Employer must complete this addendum only if the restated
Effective Date specified in Adoption Agreement Section 1.18 is
earlier than January 1,1989, and if a different restated effective
date applies to at least one of the provisions listed in this
addendum.
IDENTIFICATION OF SPECIAL EFFECTIVE DATES
In lieu of the restated Effective Date in Adoption Agreement Section
1.18, the following Special Effective Dates apply:
(Choose whichever elections apply)
/ / (A) COMPENSATION DEFINITION
The Compensation definition of Section 1.12 (other than
the $200,000 limitation) is effective for Plan Years
beginning after ______. [Note: May not be effective
later than the first day of the first Plan Year beginning
after the Employer executes this Adoption Agreement to
restate the Plan for the Tax Reform Act of 1986.]
/ / (B) ELIGIBILITY CONDITIONS
The eligibility conditions specified in Adoption Agreement
Section 2.01 are effective for Plan Years beginning after
December 31, 1988.
/ / (C) CONTRIBUTION/ALLOCATION FORMULA
The contribution formula elected under Adoption Agreement
Section 3.01 is effective for Plan Years beginning after
December 31, 1988.
/ / (D) ELIMINATION OF NET PROFITS
The requirement for the Employer not to have net profits
to contribute to this Plan is effective for Plan Years
beginning after __________________. [Note: The date
specified may not be earlier than December 31, 1985.]
For Plan Years prior to the Special Effective Date, the terms of the
Plan prior to its restatement under this Adoption Agreement will
control for purposes of the designated provisions.
<PAGE> 16
PLAN INSTALLATION FORMS
PARTICIPATION AGREEMENT
FOR PARTICIPATION BY RELATED GROUP MEMBERS (PLAN SECTION 1.30)
The undersigned Employer, by executing this Participation Agreement,
elects to become a Participating Employer in the
____________________________________________________________________
Name of Employer
PROFIT SHARING PLAN as if the Participating Employer were a signatory
to that Agreement. The Participating Employer accepts, and agrees to
be bound by, all of the elections granted under the provisions of the
Plan as made by ________________, the Signatory Employer to the
Execution Page of the Adoption Agreement.
1. The Effective Date of the undersigned Employer's participation in the
designated Plan is: _________________.
2. The undersigned Employer's adoption of this Plan constitutes:
/ / (A) the adoption of a new plan by the Employer.
/ / (B) the adoption of an amendment and restatement of a plan
currently maintained by the Employer, identified as
_________________________________________________________________
and having an original effective date of __________________________.
Dated this ______ day of _______ ,19__.
Attest:__________________________ By: ___________________________
Participating Employer
ACCEPTANCE BY THE SIGNATORY EMPLOYER TO THE EXECUTION PAGE OF THE
ADOPTION AGREEMENT AND BY THE TRUSTEE.
Accepted:________________________ By:____________________________
Date Signatory Employer
Accepted:________________________ Investors Fiduciary Trust Company
Date
By:____________________________
Authorized Signature
EACH PARTICIPATING EMPLOYER MUST COMPLETE A SEPARATE PARTICIPATION AGREEMENT.
TURN THE PAGE FOR IMPORTANT PLAN INFORMATION.
<PAGE> 17
EXECUTION PAGE
The Trustee, by executing this Adoption Agreement, accepts its position and
agrees to all of the obligations, responsibilities and duties imposed upon the
Trustee under this Plan and Trust. The Employer hereby agrees to the provisions
of this Plan and Trust, and in witness of its agreement, the Employer by its
duly authorized officers, has executed this Adoption Agreement on this _______
day of _________,19__.
Attest:______________________________ By:__________________________________
Employer
Investors Fiduciary Trust Company
Accepted:____________________________ By:__________________________________
Date Authorized Signature
USE OF ADOPTION AGREEMENT
Failure to properly complete the elections in this Adoption Agreement may
result in disqualification of the Employer's Plan. The 3-digit number assigned
to this Adoption Agreement is solely for the Plan Sponsor's record keeping
purposes and does not necessarily correspond to the plan number the Employer
assigns to its plan for ERISA reporting purposes. The Plan Sponsor offers the
following Paired Pension Plan with this Paired Profit Sharing Plan, identified
by 3-digit Adoption Agreement number: 002. This Adoption Agreement may be used
only in conjunction with Basic Plan Document 01.
PLAN SPONSOR
The Plan Sponsor identified on the first page of the basic plan document will
notify all adopting Employers of any amendment to this Plan or of any
abandonment or discontinuance by the Plan Sponsor of its maintenance of this
Plan. For inquiries regarding the adoption of the Plan, the Plan Sponsor's
intended meaning of any plan provisions or the effect of the opinion letter
issued to the Plan Sponsor, please contact the Plan Sponsor at the following
address and telephone number: Kemper Financial Services, Inc., 120 South LaSalle
Street, Chicago, Illinois 60603, 1-800-621-1148.
RELIANCE ON OPINION LETTER
If the Employer does not maintain (and has never maintained) any plan other
than this Plan and a Paired Pension Plan, it may rely on the Plan Sponsor's
opinion letter covering this Plan for purposes of plan qualification. For this
purpose, the Employer has not maintained another plan if this Plan, or the
Paired Pension Plan, amended and restated that prior plan and the prior plan
was the same type of plan as the restated plan. If the Employer maintains or
has maintained another plan other than a Paired Pension Plan, including a
welfare benefit fund, as defined in Code Section 419(e), which provides post-
retirement medical benefits for key employees (as defined in Code Section
419A(d)(3)), or an individual medical account (as defined in Code Section
415(1)(2)), the Employer may not rely on this Plan's qualified status unless
it obtains a determination letter from the applicable IRS Key District office.
==============================================================================
FOR DEALER USE ONLY
______________________________________________________________________________
Name or Number of Dealer Address
______________________________________________________________________________
Name or Number of Dealer's Representative
______________________________________________________________________________
Representative's Phone Number
______________________________________________________________________________
Location of Dealer Office in Which Plan Opened
______________________________________________________________________________
Authorized Signature of Dealer Date
<PAGE> 18
PLAN INSTALLATION FORMS
ADOPTION AGREEMENT #002
STANDARDIZED MONEY PURCHASE PENSION PLAN
(PAIRED PENSION PLAN)
THE EMPLOYER IS A:
/ / sole proprietorship
/ / partnership
/ / corporation
EMPLOYER'S ADDRESS:____________________________________________________________
Street Address City State Zip Code
EMPLOYER'S FEDERAL TAXPAYER IDENTIFICATION NUMBER (TIN): ______________________
THE EMPLOYER HEREBY ESTABLISHES THE ___________________________________________
Name of Employer
MONEY PURCHASE PENSION PLAN in accordance with all the terms of the KEMPER
RETIREMENT PLAN PROTOTYPE KEOGH/CORPORATE and TRUST AGREEMENT attached hereto,
which the Employer has received, read, accepts and hereby incorporates into
this STANDARDIZED MONEY PURCHASE PENSION PLAN ADOPTION AGREEMENT #002 with the
following additional terms and conditions:
ARTICLE I
DEFINITIONS
1.17 PLAN YEAR/LIMITATION YEAR
/ / (A) Plan Year means the 12 consecutive month period ending
every __________.
/ / (B) The Limitation Year is the Plan Year unless the following month
is designated as the last month of the limitation year: _______.
1.18 EFFECTIVE DATE (CHOOSE ONE)
/ / (A) NEW PLAN. The "Effective Date" of the Plan is the first day of
the Plan Year in which the Plan is adopted.
/ / (B) RESTATED PLAN. The restated Effective Date is _________. This
Plan is a substitution and amendment of an existing retirement
plan originally established _____________. [Note: If the restated
Effective Date is earlier than January 1, 1989, see the Effective
Date Addendum immediately preceding the Participation
Agreement.]
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY
ELIGIBILITY CONDITIONS. To become a Participant in the Plan, an
Employee must satisfy the following eligibility conditions:
/ / (A) Age requirement: (Choose one)
/ / (1) Age ______ (specify age, not exceeding 21).
/ / (2) No age requirement.
/ / (B) Service Requirement: (Choose one)
/ / (1) One Year of Service.
/ / (2) Two Years of Service, without an intervening Break in
Service. See Section 2.03(A) of the Plan.
/ / (3) No service requirement.
ENTRY DATE. Any Employee other than a Member of a Collective
Bargaining Unit will become a Participant on the Plan Entry Date
(if employed on that date) coincident with or immediately
following the date the Employee completes the eligibility
conditions described in Options (a) and (b) of this Adoption
Agreement Section 2.01.
<PAGE> 19
ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
3.01 AMOUNT
The Employer will contribute for each participant who either
completes more than 500 hours of service during the Plan Year, or is
employed by the Employer on the last day of the Plan Year, an amount
equal to ______% (base contribution percentage, not less than 3%) of
each Participant's Compensation (as defined in Section 1.12 of the
Plan) for the Plan Year, plus _________% (not to exceed the base
contribution percentage by more than the lesser of: (1) the base
contribution percentage, or (2) the maximum disparity rate of such
Participant's Compensation in excess of the integration level.
NOTE: IF THE EMPLOYER ALSO MAINTAINS PAIRED PROFIT SHARING PLAN
#001, ONLY ONE OF THE PLANS MAY BE INTEGRATED.
The integration level shall be equal to the amount elected by the
Employer. The taxable wage base is the maximum amount of earnings
which may be considered wages for a year under Section 3121(a)(1) of
the Code in effect as of the beginning of the Plan Year.
The integration level is equal to: (Choose one)
/ / Taxable Wage Base (TWB)
/ / $_________ (a dollar amount less than the taxable wage base)
/ / __________ % of TWB (not to exceed 100%)
The maximum disparity rate is equal to the lesser of:
(A) 5.7%
(B) the applicable percentage determined in accordance with the
table below.
<TABLE>
<CAPTION>
IF THE INTEGRATION LEVEL:
IS MORE THAN BUT NOT MORE THAN THE APPLICABLE PERCENTAGE IS
- ------------------------- ----------------- ----------------------------
<S> <C> <C>
$0 X(*) 5.7%
X(*) of TWB 80% of TWB 4.3%
80% of TWB Y(**) 5.4%
(*) X = the greater of $10,000 or 20% of the TWB.
(**) Y = any more than 80% of the TWB but less than 100% of the TWB.
</TABLE>
If the integration level is equal to taxable wage base the
applicable percentage is 5.7%.
3.17 DEFINED BENEFIT PLAN LIMITATION
If a Participant is or has ever been a participant in a defined
benefit plan maintained by the Employer:
______________________________________________________________________
______________________________________________________________________
(In the space above, provide language which will satisfy the 1.0
limitation under Code Section 415(e). Such language must preclude
Employer discretion.)
EFFECTIVE DATE ADDENDUM
(RESTATED PLANS ONLY)
The Employer must complete this addendum only if the restated Effective Date
specified in Adoption Agreement Section 1.18 is earlier than January 1, 1989,
and a different restated effective date applies to at least one of the
provisions listed in this addendum.
IDENTIFICATION OF SPECIAL EFFECTIVE DATES. In lieu of the restated Effective
Date in Adoption Agreement Section 1.18, the following Special Effective Dates
apply: (Choose whichever elections apply)
/ / (A) COMPENSATION DEFINITION. The Compensation definition of Section
1.12 (other than the $200,000 limitation) is effective for Plan
Years beginning after ____________. [Note: May not be effective
later than the first day of the first Plan Year beginning after
the Employer executes this Adoption Agreement to restate the
Plan for the Tax Reform Act of 1986.]
/ / (B) ELIGIBILITY CONDITIONS. The eligibility conditions specified in
Adoption Agreement Section 2.01 are effective for Plan Years
beginning after December 31, 1988.
/ / (C) CONTRIBUTION/ALLOCATION FORMULA. The contribution formula
elected under Adoption Agreement Section 3.01 is effective for
Plan Years beginning after December 31, 1988.
For Plan Years prior to the Special Effective Date, the terms of the Plan prior
to its restatement under this Adoption Agreement will control for purposes of
the designated provisions.
<PAGE> 20
PLAN INSTALLATION FORMS
PARTICIPATION AGREEMENT
FOR PARTICIPATION BY RELATED GROUP MEMBERS (PLAN SECTION 1.30)
The undersigned Employer, by executing this Participation Agreement, elects to
become a Participating Employer in the
_______________________________________________________________________________
Name of Employer
MONEY PURCHASE PENSION PLAN as if the Participating Employer were a signatory
to that Agreement. The Participating Employer accepts, and agrees to be bound
by, all of the elections granted under the provisions of the Plan as made
by _________, the Signatory Employer to the Execution Page of the Adoption
Agreement.
1. The Effective Date of the undersigned Employer's participation in the
designated Plan is: ___________________________________.
2. The undersigned Employer's adoption of this Plan constitutes:
/ / (A) The adoption of a new plan by the Employer.
/ / (B) The adoption of an amendment and restatement of a plan
currently maintained by the Employer, identified as
______________________________________________________________________
and having an original effective date of ___________. Dated this ____
day of ______________, 19__.
Attest: ________________________ By: ______________________________
Participating Employer
ACCEPTANCE BY THE SIGNATORY EMPLOYER TO THE EXECUTION PAGE OF THE
ADOPTION AGREEMENT AND BY THE TRUSTEE.
Accepted: ______________________ By: _____________________________
Date Signatory Employer
Accepted: ______________________ Investors Fiduciary Trust Company
Date
BY: _____________________________
Authorized Signature
EACH PARTICIPATING EMPLOYER MUST COMPLETE A SEPARATE PARTICIPATION AGREEMENT.
TURN THE PAGE FOR IMPORTANT PLAN INFORMATION.
<PAGE> 21
EXECUTION PAGE
The Trustee, by executing this Adoption Agreement, accepts its position and
agrees to all of the obligations, responsibilities and duties imposed upon the
Trustee under this Plan and Trust. The Employer hereby agrees to the provisions
of this Plan and Trust, and in witness of its agreement, the Employer, by its
duly authorized officers, has executed this Adoption Agreement on this
__________ day of _______, 19__.
Attest:________________________________ By:__________________________________
Employer
Investors Fiduciary Trust Company
Accepted:______________________________ By:__________________________________
Authorized Signature
USE OF ADOPTION AGREEMENT
Failure to properly complete the elections in this Adoption Agreement may
result in disqualification of the Employer's Plan. The 3-digit number assigned
to this Adoption Agreement is solely for the Plan Sponsor's record keeping
purposes and does not necessarily correspond to the plan number the Employer
assigns to its Plan for ERISA reporting purposes. The Plan Sponsor offers the
following Paired Profit Sharing Plan with this Paired Pension Plan, identified
by 3-digit Adoption Agreement number 001. This Adoption Agreement may be only
used in conjunction with Basic Plan Document 01.
PLAN SPONSOR
The Plan Sponsor identified on the first page of the basic plan document will
notify all adopting Employers of any amendment to this Plan or of any
abandonment or discontinuance by the Plan Sponsor of its maintenance of this
Plan. For inquiries regarding the adoption of the Plan, the Plan Sponsor's
intended meaning of any plan provisions or the effect of the opinion letter
issued to the Plan Sponsor, please contact the Plan Sponsor at the following
address and telephone number: Kemper Financial Services, Inc., 120 South LaSalle
Street, Chicago, Illinois 60603, 1-800-621-1148.
RELIANCE ON OPINION LETTER
If the Employer does not maintain (and has never maintained) any plan other
than this Plan and a Paired Profit Sharing Plan, it may rely on the Plan
Sponsor's opinion letter covering this Plan for purposes of plan qualification.
For this purpose, the Employer has not maintained another plan if this Plan, or
the Paired Profit Sharing Plan, amended and restated that prior plan and the
prior plan was the same type of plan as the restated plan. If the Employer
maintains or later adopts or has maintained another plan other than a Paired
Profit Sharing Plan, including a welfare benefit fund, as defined in Code
Section 419(e), which provides post-retirement medical benefits for key
employees (as defined in Code Section 419A(d)(3)), or an individual medical
account (as defined in Code Section 415(1)(2)), the Employer may not rely on
this Plan's qualified status unless it obtains a determination letter from the
applicable IRS Key District office.
==============================================================================
FOR DEALER USE ONLY
______________________________________________________________________________
Name or Number of Dealer Address
______________________________________________________________________________
Name or Number of Dealer's Representative
______________________________________________________________________________
Representative's Phone Number
______________________________________________________________________________
Location of Dealer Office in Which Plan Opened
______________________________________________________________________________
Authorized Signature of Dealer Date
<PAGE> 22
PLAN INSTALLATION FORMS
EMPLOYEE ENROLLMENT FORM FOR MUTUAL FUNDS
INSTRUCTIONS:
1. Complete this form for each participant.
2. Enclose a check for the sum of all contributions made payable to
Investors Fiduciary Trust Company.
3. Deliver a prospectus(es) to each participant. (Participants should be
provided with a prospectus for each fund in which they are invested.)
Note: If you are enrolling more than five participants or if you are
enrolling participants for a 401(k) plan, you should use the KemFlex
Employer Master Account Application (Form-07) and a separate KemFlex
Employee Enrollment Form (Form-36) for each employee.
PARTICIPANT INFORMATION
______________________________________________________________________________
Name of Plan Date
______________________________________________________________________________
Participant Name
______________________________________________________________________________
Participant Social Security Number Participant Birthday
______________________________________________________________________________
Statement Mailing Address
______________________________________________________________________________
City State Zip Code
INVESTMENT SELECTION
FUND NAME AMOUNT
$
_______________________________________ ______________________
_______________________________________ ______________________
_______________________________________ ______________________
TOTAL $
______________________
THIS FORM SHOULD BE USED ONLY FOR MUTUAL FUND PURCHASES. TO FUND WITH
ANNUITIES, CALL KILICO CUSTOMER SERVICE AT 1-800-554-5426 AND REQUEST FORM
L-1004 (FORM L-1005 FOR 401(k) PLANS). TO FUND WITH UNIT INVESTMENT TRUSTS
CONTACT UIT CUSTOMER SERVICE AT 1-800-422-2848 AND REQUEST A UIT RETIREMENT
PLAN APPLICATION.
<PAGE> 23
PLAN INSTALLATION FORMS
ASSET TRANSFER FORM
INSTRUCTIONS:
This form is provided for your use in substituting the Kemper Red Book
Keogh Retirement Plan Prototype for your present qualified defined
contribution (profit sharing or money purchase pension plan).
1. Consult with your attorney or other tax advisor as to the
consequences of such an amendment.
2. Contact the present custodian bank, trustee or insurance company to
determine their requirements with respect to such transfer of assets.
3. Fill out the appropriate Kemper Red Book Keogh Retirement Plan
Prototype Adoption Agreement and Employee Enrollment Form for Mutual
Funds. Attach this Statement to it, and submit them to Investors
Fiduciary Trust Company, P.O. Box 419356, Kansas City, MO 64141-6356.
4. This statement and a letter of acceptance will be sent to the former
custodian, trustee or insurance company by IFTC. This statement
should suffice as instruction with respect to transmitting the funds
to Investors Fiduciary Trust Company, but the present custodian,
trustee, or insurance company may ask you to use its own form or
instructions, or impose additional requirements.
5. Indicate the total amount transferred on behalf of each participant
in the "Total Account Balance" column opposite the name of each
participant.
We hope this information will be useful to you; if you have any questions,
call Kemper's Sales Support Department at 1-800-621-5027.
To:____________________________________________________________________________
Current Custodian, Trustee or Insurance Company
_______________________________________________________________________________
Street Address
_______________________________________________________________________________
City State Zip Code
The undersigned Employer previously established a qualified retirement plan on
____________, 19____ described as:
_______________________________________________________________________________
Indicate Plan Name - for example, ABC, Inc. Profit Sharing Plan
The undersigned Employer has amended and restated the plan and named Investors
Fiduciary Trust Company as a trustee of the Plan effective ___________, 19____.
The undersigned employer hereby directs the above named custodian bank, trustee
or insurance company now holding assets of the Plan to liquidate all said
assets and transfer the proceeds directly to Investors Fiduciary Trust Company,
P.O. Box 419356, Kansas City, MO 64141-6356, as trustee of the Plan, as amended
and restated.
The following is an accurate description of the allocations of Plan assets. If
you are transferring any voluntary contributions, please notify us of each
account balance.
Participant Total Account Balance
_______________________________________ _____________________________________
_______________________________________ _____________________________________
_______________________________________ _____________________________________
_______________________________________ _____________________________________
Employer's Signature Date
AFTER MAKING A COPY FOR YOUR RECORDS, ATTACH THIS FORM TO THE ADOPTION
AGREEMENT AND THE EMPLOYEE ENROLLMENT FORM FOR MUTUAL FUNDS (PREVIOUS PAGE).
MAIL ALL FORMS TO INVESTORS FIDUCIARY TRUST COMPANY, P.O. BOX 419356,
KANSAS CITY, MO 64141-6356.
<PAGE> 24
PARTICIPANT RECORDS
PARTICIPANT RECORDS
The following forms allow you to complete the administrative details
that are required of you as a plan sponsor. After they have been distributed to
and completed by your employees, they should be kept on record in your
files and should NOT be returned to Kemper.
NOTICE TO INTERESTED PARTIES
If you have employees, this notice should be posted
with other labor relations information bulletins.
BENEFICIARY FORMS
Photocopy and distribute to EACH participant.
Collect and file with other plan records.
PRE-RETIREMENT NOTICE AND WAIVER
Distribute to each affected participant (see instructions).
Collect and file Waiver.
DISTRIBUTION ELECTION FORM
Photocopy and distribute ONLY to employees terminating employment.
Collect and file with other plan records.
<PAGE> 25
NOTICE TO INTERESTED PARTIES
1. Notice To: All Employees of ______________________________________________
Name of Employer
2. _______________________________ has ______________________________________
Name of Employer Adopted/Amended
the plan described below on ______________________________________________
Date
3. Name of Plan _____________________________________________________________
4. 3-Digit Plan Identification Number _______________________________________
5. Opinion Letter Number
/ / PS-D257426a
/ / MP-D257427a
6. Sponsor: Kemper Growth Fund, Inc., 120 South LaSalle Street, Chicago, IL
60603
7. Employer's TIN __________________________________________________________
8. Address of Employer _____________________________________________________
_________________________________________________________________________
9. Address of Key Director having jurisdiction of plan _____________________
_________________________________________________________________________
10. It ____________________ contemplated that the Plan will be submitted to
is/is not
the Internal Revenue Service for an advance determination as to whether
or not it meets the qualification requirements of section 401 of the
Internal Revenue Code with respect to its _______________________________
_________________________________________________________________________
Initial Qualification/Amendment
11. All Employees who have completed ___ Years of Service and attained age ___
are eligible to participate.
12. The IRS _________________ previously issued a determination letter with
has/has not
respect to the qualification of this Plan.
13. You have the right to submit to the Key District Director, at the above
address, either individually or jointly with other interested parties,
your comments as to whether this Plan meets the qualification requirements
of the Internal Revenue Code. You may instead, individually or jointly
with other interested parties, request the Department of Labor to submit,
on your behalf, comments to the Key District Director regarding
qualification of the Plan. If the Department declines to comment on all or
some of the matters you raise, you may, individually, or jointly if your
request was made to the Department jointly, submit your comments on these
matters to the Key District Director.
<PAGE> 26
PARTICIPANT RECORDS
14. The Department of Labor may not comment on behalf of interested parties
unless requested to do so by the lesser of 10 Employees or 10 percent of
the Employees who qualify as interested parties. The number of persons
needed for the Department to comment with respect to this Plan is ______.
If you request the Department to comment, your comment must in writing and
must specify the matters upon which comments are requested, and must also
include: (1) the information contained in items 2 through 9 of this
Notice; and (2) the number of persons needed for the Department to
comment. A request to the Department to comment should be addressed as
follows: Administrator of Pension and Welfare Benefit Programs, U.S.
Department of Labor, 200 Constitution Avenue, N.W., Washington, DC 20216,
Attn: 3001 Comment Request.
15. Comments submitted by you to the Key District Director must be in writing
and received by him by
_________________________________________________________________________
75 days after adoption date
However, if there are matters that you request the Department of Labor to
comment upon on your behalf, and the Department declines, you may submit
comments on these matters to the Key District Director to be received by
him within 15 days from the time the Department notifies you that it will
not comment on a particular matter, or by ___________________________,
75 days after adoption date
whichever is later, but in no event later than ___________________________.
90 days after adoption date
A request to the Department to comment on your behalf must be received by
it by ___________________________ if you wish to preserve your right to
45 days after adoption date
comment on a matter upon which the Department declines to comment, or by
_____________________________ if you wish to waive that right.
55 days after adoption date
16. Detailed instructions regarding the requirements for notification of
interested parties may be found in Sections 16, 17, and 18 of Revenue
Procedure 92-6. Additional information concerning this __________________
adoption/amendment
(including where applicable, an updated copy of the Plan and related Trust
Agreement, a copy of the Adoption Agreement establishing the Plan, and
copies of Section 16 of Revenue Procedure 92-6) is available during the
hours of __________ for inspection and copying. (There is a nominal charge
for copying and mailing.)
<PAGE> 27
DESIGNATION OF BENEFICIARY
ALL PARTICIPANTS MUST COMPLETE. RETURN TO YOUR EMPLOYER.
_______________________________________________________________________________
Name of Plan Date
_______________________________________________________________________________
Last Name First Name MI
_______________________________________________________________________________
Social Security Number
_______________________________________________________________________________
Date of Birth (month, day, year) Sex
I hereby designate the person(s) named below as the beneficiary of my vested
account(s) payable under the Plan by reason of my death. I UNDERSTAND THAT IF I
DESIGNATE ANYONE OTHER THAN MY SPOUSE AS THE SOLE BENEFICIARY, THE SPOUSAL
CONSENT PORTION OF THIS FORM MUST BE SIGNED IN THE PRESENCE OF A NOTARY PUBLIC
OR A REPRESENTATIVE OF THE PLAN.
_______________________________________________________________________________
Name of Beneficiary (Full given name)
_______________________________________________________________________________
Relation to Participant
_______________________________________________________________________________
Address (if different from Participant)
If more than one person is named as beneficiary, any payments to which they may
be entitled will be paid in equal shares to such of the designated persons as
shall then be living; or if none, then pursuant to the terms of Section 8.02 of
the Plan.
I RESERVE THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION. I HEREBY
REVOKE ALL PRIOR DESIGNATIONS (IF ANY) OF PRIMARY BENEFICIARIES AND CONTINGENT
BENEFICIARIES.
____________________________________ ____________________________
Date of this Designation Signature of Participant
CONSENT OF SPOUSE
I, the undersigned spouse of the Participant named in the foregoing
"Designation of Beneficiary," hereby consent to and accept the beneficiary
designation, without regard to whether I survive or predecease my spouse. I
understand this consent allows the beneficiary(ies) named above to be paid
amounts which would otherwise be paid to me. This consent is irrevocable unless
my spouse changes the designation. If my spouse changes the designation I
understand I must file a similar consent to the new designation, or my consent
is no longer effective.
___________________________________ ____________________________________
Date Signature of Spouse
___________________________________________________________________________
Signature of Witness Title
COMPLETE AND RETURN TO EMPLOYER
<PAGE> 28
PARTICIPANT RECORDS
PRE-RETIREMENT SURVIVOR ANNUITY MEMORANDUM
INSTRUCTIONS:
This memorandum must be provided to married money purchase pension plan and
certain profit sharing plan participants unless their spouse is the beneficiary
of at least 50% of the participant's account balance. A participant should
receive this memorandum during the Plan Year in which they turn age 32. They
will have the right to waive it, with spousal consent, during the Plan Year in
which the participant turns age 35. A married participant age 35 or older
should immediately be given this memorandum and the Waiver of Pre-retirement
Survivor Annuity form.
________________________________________________________________________ Plan
Name of Employer
PRE-RETIREMENT SURVIVOR ANNUITY. The Plan requires the Employer to distribute a
pre-retirement survivor annuity to your surviving spouse if your death occurs
before distributions have begun and you and your spouse are married during the
one year period ending on the date of your death.
Under the pre-retirement survivor annuity, your spouse will receive lifetime
monthly annuity payments. The Employer will purchase the annuity contract from
an insurance company using 50% of your vested account balance (including the
proceeds, if any, of life insurance contracts purchased on your behalf under
the Plan). The contract will be given to your surviving spouse as evidence of a
right to receive the annuity payments from the insurance company. Generally,
the Employer may not begin payment of the annuity prior to the date a
participant would have reached age 65 without the surviving spouse's consent.
However, the surviving spouse may elect to have distribution of the
pre-retirement survivor annuity at any time following the participant's death.
If, at the time of your death, 50% of your account balance is less than
$3,500, the Employer will pay your spouse a lump sum payment instead of the
annuity.
WAIVER ELECTION. The Plan requires payment of the pre-retirement survivor
annuity unless you have a valid waiver election in effect on the date of your
death. To have a valid waiver you and your spouse must complete the waiver
election form. YOUR WAIVER ELECTION IS NOT VALID UNLESS YOUR SPOUSE, DURING THE
ELECTION PERIOD, ALSO CONSENTS IN WRITING TO YOUR BENEFICIARY DESIGNATION,
UNLESS YOUR SPOUSE IS THE SOLE PRIMARY BENEFICIARY. Your waiver election is not
valid unless you and your spouse make the election within the election period.
The election period begins on the first day of the Plan Year immediately before
your 35th birthday or, if later, the date you receive this notice. The election
period ends on the date of your death. If you wish, you may waive the
pre-retirement survivor annuity prior to the beginning of the election period.
However, on the first day of the election period mentioned above, you and your
spouse would have to complete a second waiver form. If you terminate
employment, you may waive the pre-retirement survivor annuity at any time after
the date of your termination. You may revoke or make a new waiver election as
often as you like during the election period. You may revoke a waiver election
without your spouse's consent, but your spouse would have to consent to a new
waiver. A waiver election is valid only for the spouse consenting to the
waiver. Therefore, you should inform the Employer of any change in your marital
status.
FINANCIAL EFFECT OF YOUR ELECTION. If you and your spouse do NOT waive the
pre-retirement survivor annuity, the Employer will pay your surviving spouse
the pre-retirement survivor annuity and pay the remaining value of the account
to your designated beneficiary. If the Employer pays your spouse the annuity,
the Plan does not need your spouse's consent to the beneficiary designation.
Under a pre-retirement survivor annuity, your surviving spouse will receive
lifetime income. Benefits will not continue to other beneficiaries after your
spouse's death. Your surviving spouse can choose a lump sum or installment
payments instead of the pre-retirement survivor annuity.
If you and your spouse waive the pre-retirement survivor annuity, the Employer
will pay your entire vested account balance to your designated beneficiary. The
Plan generally requires payment of the death benefit in lump sum. If your
beneficiary receives a lump sum payment, the Employer will provide the
beneficiary a notice of the special tax benefits, if any, available for the
distribution. If your vested account balance at the time of your death exceeds
$3,500, your beneficiary may choose a lump sum or installment payments. Under
the installment method, the Employer will continue payments from your account
until the entire account has been depleted. Furthermore, your vested account
balance will continue to earn investment income. If a vested account balance
remains in the Plan at the time of your primary beneficiary's death, the Plan
will pay the remaining account balance to your primary beneficiary's estate,
unless your beneficiary designation directs otherwise. If you and your spouse
waive the pre-retirement survivor annuity, your spouse must consent to the
identity of the designated beneficiary but does not have to consent to the form
of payment made to the beneficiary.
PROCEDURE. If you and your spouse wish to have the pre-retirement survivor
annuity apply, YOU DO NOT NEED TO MAKE ANY ELECTION. If you and your spouse do
NOT wish to have the pre-retirement survivor annuity apply, sign the enclosed
Waiver of Pre-retirement Survivor Annuity election form within the election
period. We also have enclosed a Designation of Beneficiary Form.
PARTICIPANTS SHOULD RETAIN THIS IN THEIR FILES
<PAGE> 29
WAIVER OF PRE-RETIREMENT SURVIVOR ANNUITY
MARRIED PARTICIPANTS MUST COMPLETE THIS FORM IF THEY WISH TO WAIVE PAYMENT OF A
PRE-RETIREMENT SURVIVOR ANNUITY. RETURN TO YOUR EMPLOYER.
__________________________________________________________________________ Plan
Name of Employer
I elect to waive payment of a pre-retirement survivor annuity if my death
occurs before distributions have begun under the Plan. The Employer has given
me an explanation of the terms of the Pre-retirement Survivor Annuity, my right
to make this waiver election, the time period during which I may make this
waiver election, and the financial effect of my election not to receive the
Pre-retirement Survivor Annuity. I understand I may revoke this election at any
time during the election period.
______________________________________ _______________________________________
Date Signature of Participant
CONSENT OF SPOUSE
I, the undersigned spouse of the Participant named above, consent to the Waiver
of the Pre-retirement Survivor Annuity form of payment. I understand the terms
of the Pre-retirement Survivor Annuity, my right not to consent to this waiver
election, the time period during which my spouse and I may make this waiver
election, and the financial effect of my election not to receive the
Pre-retirement Survivor Annuity. I understand my consent is irrevocable unless
my spouse revokes the waiver election. I further understand my consent is valid
only if I consent, in writing, to my spouse's beneficiary designation or any
change in my spouse's beneficiary designation, unless my spouse has designated
me as sole primary beneficiary.
________________________________ ___________________________________________
Date Signature of Spouse
____________________________________________________________________________
Signature of Witness Title
COMPLETE AND RETURN TO EMPLOYER
<PAGE> 30
PARTICIPANT RECORDS
DISTRIBUTION ELECTION
PARTICIPANTS MUST COMPLETE THIS FORM ONLY IF THEIR ACCOUNT(S) IS OVER $3,500.
RETURN TO YOUR EMPLOYER.
_______________________________________________________________________ Plan
Name of Employer
A. INDICATE THE FORM OF DISTRIBUTION PAYMENT.
I, the undersigned Participant, elect payment of my account balance in
the following manner:
(1) / / I elect to transfer my distribution directly to a Kemper
IRA and defer taxes until I actually receive the money.
(Complete a Kemper IRA application if electing this
option.)
(2) / / In a lump sum.
(3) / / In a series of _______________________________
(monthly, quarterly, or annual)
installments over ____ years.
(4) / / In a qualified joint and survivor annuity contract.
(5) / / I elect to postpone distribution until the age of 65.
___________________________________ __________________________________
Date Signature of Participant
NOTE TO MARRIED MONEY PURCHASE PENSION PLAN AND CERTAIN PROFIT SHARING
PLAN PARTICIPANTS: If you requested payment of your account balance in a
form other than a qualified joint and survivor annuity, your spouse must
consent by signing Section B.
B. CONSENT OF SPOUSE
I, __________________________, spouse of the Participant, hereby consent
to the form of distribution payment elected above. I understand that by
giving this consent I am giving up the right to receive annuity benefit
payments which would otherwise be payable to me for my lifetime. I
understand my consent is irrevocable unless my spouse changes the form of
distribution payment. I understand any change is subject to my consent,
unless my spouse elects to receive the qualified joint and survivor
annuity.
___________________________________ ______________________________________
Date Signature of Participant
___________________________________ ______________________________________
Signature of Witness Title
IMPORTANT NOTE: A PARTICIPANT MAY WAIVE A QUALIFIED JOINT AND SURVIVOR
ANNUITY CONTRACT, AND A SPOUSE MAY CONSENT TO SUCH WAIVER PROVIDED THIS
ELECTION IS MADE WITHIN 90 DAYS OF THE FIRST PLAN DISTRIBUTION.
COMPLETE AND RETURN TO EMPLOYER
<PAGE> 31
PLAN DOCUMENT
RETIREMENT PLAN
PROTOTYPE DOCUMENT
The following Plan Document and Opinion Letters
are part of your permanent plan records and may be consulted to
reference specific plan provisions.
<PAGE> 32
KEMPER RED BOOK
KEOGH RETIREMENT PLAN PROTOTYPE TRUST AGREEMENT
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I, DEFINITIONS
1.01 EMPLOYEE.............................................1
1.02 TRUSTEE..............................................1
1.03 PLAN ................................................1
1.04 ADOPTION AGREEMENT ..................................1
1.05 PLAN ADMINISTRATOR ..................................1
1.06 ADVISORY COMMITTEE...................................1
1.07 EMPLOYEE.............................................1
1.08 SELF-EMPLOYED INDIVIDUAL/OWNER-EMPLOYEE .............1
1.09 HIGHLY COMPENSATED EMPLOYEE..........................1
1.10 PARTICIPANT..........................................2
1.11 BENEFICIARY..........................................2
1.12 COMPENSATION.........................................2
1.13 EARNED INCOME .......................................3
1.14 ACCOUNT..............................................3
1.15 ACCRUED bENEFIT .....................................3
1.16 NONFORFEITABLE.......................................3
1.17 PLAN YEAR/LIMITATION YEAR............................3
1.18 EFFECTIVE DATE ......................................3
1.19 PLAN ENTRY DATE .....................................3
1.20 ACCOUNTING DATE .....................................3
1.21 TRUST................................................3
1.22 TRUST FUND ..........................................3
1.23 NONTRANSFERABLE ANNUITY .............................3
1.24 ERISA ...............................................3
1 25 CODE.................................................3
1 26 SERVICE .............................................3
1 27 HOUR OF SERVICE .....................................3
1.28 DISABILITY...........................................4
1.29 SERVICE FOR PREDECESSOR EMPLOYER ....................4
1.30 RELATED EMPLOYERS....................................4
1.31 LEASED EMPLOYEES ....................................5
1.32 SPECIAL RULES FOR OWNER-EMPLOYEES ...................5
1.33 TAXABLE WAGE BASE ...................................5
1.34 PAIRED PLANS ........................................5
1.35 MEMBER OF A COLLECTIVE BARGAINING UNIT ..............6
1.36 DESIGNATED INVESTMENT COMPANY .......................6
ARTICLE II, EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY..........................................6
2.02 YEAR OF SERVICE - PARTICIPATION .....................6
2.03 BREAK IN SERVICE - PARTICIPATION.....................6
2.04 PARTICIPATION UPON RE-EMPLOYMENT ....................6
2.05 CHANGE IN EMPLOYEE STATUS ...........................6
2.06 ELECTION NOT TO PARTICIPATE .........................6
</TABLE>
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PLAN DOCUMENT
<TABLE>
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ARTICLE III, EMPLOYER CONTRIBUTIONS AND FORFEITURES
3.01 AMOUNT ..............................................7
3.02 DETERMINATION OF CONTRIBUTION .......................7
3.03 TIME OF PAYMENT OF CONTRIBUTION .....................7
3.04 RESERVED ............................................7
3.05 ACCRUAL OF BENEFIT ..................................7
3.06 .....................................................7
3.07 .....................................................7
3.08 .....................................................7
3.09 .....................................................7
3.10 .....................................................8
3.11 .....................................................8
3.12 .....................................................8
3.13 .....................................................8
3.14 .....................................................8
3.15 LIMITATIONS ON ALLOCATIONS ..........................8
3.16 SPECIAL ALLOCATION LIMITATION .......................9
3.17 DEFINED BENEFIT PLAN LIMITATION .....................9
3.18 DEFINITIONS - ARTICLE III ........................9-11
ARTICLE IV, PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS ............11
4.02 PARTICIPANT DEDUCTIBLE CONTRIBUTIONS ...............11
4.03 PARTICIPANT ROLLOVER CONTRIBUTIONS .................11
4.04 PARTICIPANT CONTRIBUTION - FORFEITABILITY...........12
4.05 PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION .12
4.06 PARTICIPANT CONTRIBUTION - ACCRUED BENEFIT..........12
ARTICLE V, TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 NORMAL RETIREMENT AGE ..............................12
5.02 VESTING ............................................12
ARTICLE VI, TIME AND METHOD OF PAYMENT OF BENEFITS
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT ..............13-15
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT ............15-17
6.03 BENEFIT PAYMENT ELECTIONS...........................17
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND
SURVIVING SPOUSES ...............................17-19
6.05 WAIVER ELECTION - QUALIFIED JOINT AND
SURVIVOR ANNUITY ...................................19
6.06 WAIVER ELECTION - PRE-RETIREMENT
SURVIVOR ANNUITY ................................19-20
6.07 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS.......20
ARTICLE VII, TRUSTEE, POWERS AND DUTIES
7.01 INVESTMENT OF TRUST ASSETS .........................21
7.02 VOTING AND OTHER ACTION ............................21
7.03 REPORTS OF THE TRUSTEE AND EMPLOYER ................21
7.04 TRUSTEE FEES AND EXPENSES OF THE ACCOUNT ...........21
7.05 CONCERNING THE TRUSTEE .............................22
7.06 AMENDMENT ..........................................22
7.07 RESIGNATION OR REMOVAL OF TRUSTEE...................22
7.08 TERMINATION OF TRUST ...............................22
7.09 MISCELLANEOUS ......................................22
ARTICLE VIII, PARTICIPANT ADMINISTRATIVE PROVISIONS
8.01 BENEFICIARY DESIGNATION ............................23
8.02 NO BENEFICIARY DESIGNATION..........................23
8.03 PERSONAL DATA TO COMMITTEE..........................23
8.04 ADDRESS FOR NOTIFICATION............................23
8.05 ASSIGNMENT OR ALIENATION ...........................23
8.06 NOTICE OF CHANGE IN TERMS ..........................24
</TABLE>
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<TABLE>
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8.07 LITIGATION AGAINST THE TRUST .......................24
8.08 INFORMATION AVAILABLE...............................24
8.09 APPEAL PROCEDURE FOR DENIAL OF BENEFITS ............24
8.10 PARTICIPANT DIRECTION OF INVESTMENT ................24
ARTICLE IX, ADVISORY COMMITTEE - DUTIES WITH RESPECT TO
PARTICIPANT'S ACCOUNTS
9.01 MEMBERS' COMPENSATION, EXPENSES ....................25
9.02 TERM ...............................................25
9.03 POWERS .............................................25
9.04 GENERAL ............................................25
9.05 FUNDING POLICY .....................................25
9.06 MANNER OF ACTION ...................................25
9.07 INTERESTED MEMBER ..................................25
9.08 INDIVIDUAL ACCOUNTS ................................25
9.09 VALUE OF PARTICIPANT'S ACCRUED BENEFIT .............26
9.10 ALLOCATIONS AND DISTRIBUTION OF NET INCOME
GAIN OR lOSS .......................................26
9.11 INDIVIDUAL STATEMENT................................26
9.12 ACCOUNT CHARGED ....................................26
9.13 MISSING BENEFICIARY ................................26
ARTICLE X, PROVISIONS RELATING TO INSURANCE
10.01 INSURANCE BENEFIT OR ANNUITY ......................27
10.02 FORM OF CONTRACT AND PREMIUM ......................27
10.03 LIMITATION OF LIFE INSURANCE PROTECTION ...........27
ARTICLE XI, MISCELLANEOUS
11.01 EVIDENCE ..........................................28
11.02 NO RESPONSIBILITY FOR EMPLOYER ACTION .............28
11.03 FIDUCIARIES NOT INSURERS ..........................28
11.04 WAIVER OF NOTICE ..................................28
11.05 SUCCESSORS.........................................28
11.06 WORD USAGE ........................................28
11.07 EMPLOYER'S RIGHT TO PARTICIPATE....................28
11.08 EMPLOYMENT NOT GUARANTEED .........................28
ARTICLE XII, EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
12.01 EXCLUSIVE BENEFIT .................................29
12.02 AMENDMENT BY EMPLOYER..............................29
12.03 AMENDMENT BY PLAN SPONSOR..........................30
12.04 DISCONTINUANCE.....................................30
12.05 MERGER/DIRECT TRANSFER.............................30
12.06 TERMINATION........................................31
ARTICLE XIII, CODE SECTION 401(k) ARRANGEMENTS
13.01 ELIGIBILITY........................................32
13.02 SALARY REDUCTION AGREEMENT ........................32
13.03 DEFINITIONS ....................................32-33
13.04 ELECTIVE DEFERRALS - CONTRIBUTION LIMITATION ......33
13.05 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS ......33-34
13.06 ACTUAL DEFERRAL PERCENTAGE TEST ...................34
13.07 DISTRIBUTION OF EXCESS CONTRIBUTIONS...............35
13.08 MATCHING CONTRIBUTIONS ............................35
13.09 QUALIFIED MATCHING CONTRIBUTIONS ..................35
13.10 LIMITATIONS ON MATCHING CONTRIBUTIONS ..........35-36
13.11 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS ....36
13.12 QUALIFIED NONELECTIVE CONTRIBUTIONS ...............36
13.13 DISTRIBUTION REQUIREMENTS..........................37
</TABLE>
<PAGE> 35
PLAN DOCUMENT
ARTICLE I
DEFINITIONS
1.01 "EMPLOYER" means each employer who adopts this Plan by executing an
Adoption Agreement.
1.02 "TRUSTEE" means Investors Fiduciary Trust Company.
1.03 "PLAN" means the retirement plan established or continued by the
Employer in the form of this Agreement, including the Adoption Agreement
which the Employer has executed.
1.04 "ADOPTION AGREEMENT" means the document executed by the Employer and the
Trustee by which the Employer establishes or continues this Plan.
1.05 "PLAN ADMINISTRATOR" is the Employer unless the Employer designates
another person to hold the position of Plan Administrator. In addition
to his other duties, the Plan Administrator has full responsibility for
compliance with the reporting and disclosure rules under ERISA with
respect to this Agreement.
1.06 "ADVISORY COMMITTEE" means the Employer's Advisory Committee as from
time to time constituted.
1.07 "EMPLOYEE" means any employee of the employer maintaining the Plan or of
any other employer required to be aggregated with such employer under
Code Section 4l4(b), (c), (m) or (o). The term employee shall also
include any leased employee deemed to be an employee of any employer
described in the previous paragraph as provided in Code Section 4l4(n)
or (o).
1.08 "SELF-EMPLOYED INDIVIDUAL/OWNER-EMPLOYEE." "Self-Employed Individual"
means an individual who has Earned Income (or who would have had Earned
Income but for the fact that the trade or business did not have net
earnings) for the taxable year from the trade or business for which the
Plan is established. "Owner-Employee" means a Self-Employed Individual
who is the sole proprietor in the case of a sole proprietorship. If the
Employer is a partnership, "Owner-Employee" means a Self-Employed
Individual who is a partner and owns more than 10% of either the capital
or profits interest of the partnership.
1.09 "HIGHLY COMPENSATED EMPLOYEE" means an Employee who, during the Plan
Year or during the preceding 12-month period:
(A) is a 5% owner of the Employer (applying the constructive
ownership rules of Code Section 318, and applying the principles
of Code Section 318, for an unincorporated entity);
(B) has Compensation in excess of $75,000 (as adjusted by the
Commissioner of Internal Revenue for the relevant year);
(C) has Compensation in excess of $50,000 (as adjusted by the
Commissioner of Internal Revenue for the relevant year) and is
part of the top-paid 20% group of Employees (based on
Compensation for the relevant year);
(D) has Compensation in excess of 50% of the dollar amount prescribed
in Code Section 415(b)(1)(A) (relating to defined benefit plans)
and is an officer of the Employer.
If the Employee satisfies the definition in clause (b), (c) or (d) in
the Plan Year but not during the preceding 12-month period and does not
satisfy clause (a) in either period, the Employee is a Highly
Compensated Employee only if he is one of the 100 most highly
compensated Employees for the Plan Year. The number of officers taken
into account under clause (d) will not exceed the greater of 3 or 10% of
the total number (after application of the Code Section 414(q)
exclusions) of Employees, but no more than 50 officers. If no Employee
satisfies the Compensation requirement in clause (d) for the relevant
year, the Advisory Committee will treat the highest paid officer as
satisfying clause (d) for that year.
For purposes of this Section, "Compensation" means Compensation as
defined in Section 1.12, and Compensation must include: (i) elective
deferrals under a Code Section 401(k) arrangement or under a Simplified
Employee Pension maintained by the Employer; and (ii) amounts paid by
the Employer which are not currently includible in the Employee's gross
income because of Code Sections 125 (cafeteria plans) or 403(b)
(tax-sheltered annuities). The Advisory Committee must make the
determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of the top paid 20% group, the
top 100 paid Employees, the number of officers includible in clause (d)
and the relevant Compensation, consistent with Code Section 414(q) and
regulations issued under that Code section. The Employer may make a
calendar year election to determine the Highly Compensated Employees for
the Plan Year, as prescribed by Treasury regulations. A calendar year
election must apply to all plans and arrangements of the Employer. For
purposes of applying any nondiscrimination test required under the Plan
or under the Code, in a manner consistent with applicable Treasury
regulations, the Advisory Committee will not treat as a separate
Employee a family member (a spouse, a lineal ascendant or descendant, or
a spouse of lineal ascendant or descendant) of a Highly Compensated
Employee described in clause (a) of this Section, or a family member of
one of the ten Highly Compensated Employees with the greatest
Compensation for the Plan Year, but will treat the Highly Compensated
Employee and all family members as a single Highly Compensated Employee.
This aggregation rule applies to a family member even if that family
member is a Highly Compensated Employee without family aggregation.
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<PAGE> 36
The term "Highly Compensated Employee" also includes any former Employee
who separated from Service (or has a deemed Separation from Service, as
determined under Treasury regulations) prior to the Plan Year, performs
no Service for the Employer during the Plan Year, and was a Highly
Compensated Employee either for the separation year or any Plan Year
ending on or after his 55th birthday. If the former Employee's
Separation from Service occurred prior to January 1, 1987, he is a
Highly Compensated Employee only if he satisfied clause (a) of this
Section 1.09 or received Compensation in excess of $50,000 during: (1)
the year of his Separation from Service (or the prior year); or (2) any
year ending after his 54th birthday.
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid
group, the top 100 Employees, the number of Employees treated as
officers and the Compensation that is considered, will be made in
accordance with Code Section 414(q) and the regulations thereunder.
1.10 "PARTICIPANT" is any Employee other than a Member of a Collective
Bargaining Unit who is eligible to be and becomes a Participant in
accordance with the provisions of Section 2.01.
1.11 "BENEFICIARY" is a person designated by a Participant who is or may
become entitled to a benefit under the Plan. A Beneficiary who becomes
entitled to a benefit under the Plan remains a Beneficiary under the
Plan until the Trustee has fully distributed his benefit to him. A
Beneficiary's right to (and the Plan Administrator's, the Advisory
Committee's or a Trustee's duty to provide to the Beneficiary)
information or data concerning the Plan does not arise until he first
becomes entitled to receive a benefit under the Plan.
1.12 "COMPENSATION" means compensation as that term is defined in Section
3.18(b) of the Plan. If compensation for any prior plan year is taken
into account in determining an employee's contributions or benefits for
the current year, the compensation for such prior year is subject to the
applicable annual compensation limit in effect for that prior year. For
this purpose, for years beginning before January 1, 1990, the applicable
annual compensation limit is $200,000. For any self-employed individual
covered under the plan, compensation will mean earned income.
Compensation shall include only that compensation which is actually paid
to the participant during the applicable period. Except as provided
elsewhere in this plan, the applicable period shall be the plan year.
Furthermore, notwithstanding the above, the definition of compensation
includes elective contributions made by the Employer on the Employee's
behalf. "Elective contributions" are amounts excludible from the
Employee's gross income under Code Section 402(a)(8) (relating to a Code
Section 401(k) arrangement), Code Section 402(h) (relating to a
Simplified Employee Pension), Code Section 125 (relating to a cafeteria
plan) or Code Section 403(b) (relating to a tax-sheltered annuity) and
contributed at the Employee's election. The term "Compensation" does
not include:
(A) Employer contributions (other than "elective contributions") to a
plan of deferred compensation to the extent the contributions are
not included in the gross income of the Employee for the taxable
year in which contributed, on behalf of an Employee to a
Simplified Employee Pension Plan to the extent such contributions
are excludible from the Employee's gross income, and any
distributions from a plan of deferred compensation, regardless of
whether such amounts are includible in the gross income of the
Employee when distributed.
(B) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by an
Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture.
(C) Amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option.
(D) Other amounts which receive special tax benefits, such as
premiums for group term life insurance (but only to the extent
that the premiums are not includible in the gross income of the
Employee), or contributions made by an Employer (whether or not
under a salary reduction agreement) towards the purchase of an
annuity contract described in Code Section 403(b) (whether or
not the contributions are excludible from the gross income of the
Employee), other than "elective contributions," if elected in the
Employer's Adoption Agreement.
Any reference in this Plan to Compensation is a reference to the
definition in this Section 1.12, unless the Plan reference specifies a
modification to this definition. The Advisory Committee will take into
account only Compensation actually paid for the relevant period.
For any Plan Year beginning after December 31, 1988, the Advisory
Committee must take into account only the first $200,000 (or such larger
amount as the Commissioner of Internal Revenue may prescribe under Code
Section 415(d)) of any Participant's Compensation, except that the dollar
increase in effect on January 1 of any calendar year is effective for
years beginning in such calendar year and the first adjustment to the
$200,000 limitation is effected on January 1,1990. If a plan determines
compensation on a period of time that contains fewer than 12 calendar
months, then the annual compensation limit is an amount equal to the
annual compensation limit for the calendar year in which the
compensation period begins multiplied by the ratio obtained by dividing
the number of full months in the period by 12. The $200,000
Compensation limitation applies to the combined Compensation of the
Employee and of any family member aggregated with the Employee under
Section 1.09 and who is either (i) the Employee's spouse; or (ii) the
Employee's lineal descendant who has not attained age 19 before the
close of the year. If, as a result of the application of such rules, the
adjusted $200,000 limitation is exceeded, then (except for purposes of
determining the portion of compensation up to the integration level if
this plan provides for permitted disparity, the Advisory Committee will
apply the contribution and allocation provisions of Article III by
prorating the $200,000 (or adjusted) limitation among the affected
individuals in proportion to each such individual's Compensation
determined prior to application of this limitation.
2
<PAGE> 37
PLAN DOCUMENT
NONDISCRIMINATION. For purposes of determining whether the Plan
discriminates in favor of Highly Compensated Employees: Compensation
means Compensation as defined in this Section 1.12.
Notwithstanding the preceding sentence, compensation for a participant
in a defined contribution plan who is permanently and totally disabled
(as defined in Code Section 22(e)(3)) is the compensation such
Participant would have received for the limitation year if the
participant had been paid at the rate of compensation paid immediately
before becoming permanently and totally disabled; such imputed
compensation for the disabled Participant may be taken into account
only if the participant is not a highly compensated employee (as
defined in Code Section 414(g)) and contributions made on behalf of
such participant are nonforfeitable when made.
1.13 "EARNED INCOME" means net earnings from self-employment in the trade
or business with respect to which the Employer has established the
Plan, provided personal services of the individual are a material
income producing factor. The Advisory Committee will determine net
earnings without regard to items excluded from gross income and the
deductions allocable to those items. Net earnings are reduced by
contributions by the employer to a qualified plan to the extent
deductible under Code Section 404. The Advisory Committee will
determine net earnings after the deduction allowed to the
Self-Employed Individual for all contributions made by the Employer
to a qualified plan and, for Plan Years beginning after December 31,
1989, the deduction allowed to the Self-Employed under Code
Section 164(f) for self-employment taxes.
1.14 "ACCOUNT" means the separate account(s) which the Advisory Committee
or the Trustee maintains for a Participant under the Employer's Plan.
1.15 "ACCRUED BENEFIT" means the amount standing in a Participant's
Account(s) as of any date derived from both Employer contributions and
Employee contributions and earnings thereon including rollovers
whether vested before or after death and including the proceeds of
insurance contracts on the participant's life, if any.
1.16 "NONFORFEITABLE" means a Participant's or Beneficiary's unconditional
claim, legally enforceable against the Plan, to the Participant's
Accrued Benefit.
1.17 "PLAN YEAR" means the fiscal year, of the Plan, the consecutive month
period specified in the Employer's Adoption Agreement. The Employer's
Adoption Agreement also must specify the "Limitation Year" applicable
to the limitations on allocations described in Article III. If the
Employer maintains Paired Plans, each Plan must have the same Plan
Year.
1.18 "EFFECTIVE DATE" of this Plan is the date specified in the Employer's
Adoption Agreement.
1.19 "PLAN ENTRY DATE" means the first day of the Plan Year or the first
day of the sixth month of the Plan Year.
1.20 "ACCOUNTING DATE" is the last day of an Employer's Plan Year. Unless
otherwise specified in the Plan, the Advisory Committee will make all
Plan allocations for a particular Plan Year as of the Accounting Date
of that Plan Year.
1.21 "TRUST" means the separate Trust created under the Employer's Plan.
1.22 "TRUST FUND" means all property of every kind held or acquired by the
Trustee under the Employer's Plan, other than incidental benefit
insurance contracts.
1.23 "NONTRANSFERABLE ANNUITY" means an annuity which by its terms provides
that it may not be sold, assigned, discounted, pledged as collateral
for a loan or security for the performance of an obligation or for any
purpose to any person other than Kemper Investors Life Insurance
Company. If the Trustee distributes an annuity contract, the contract
must be a Nontransferable Annuity.
1.24 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
l.25 "CODE" means the Internal Revenue Code of 1986, as amended.
1.26 "SERVICE" means any period of time the Employee is in the employ of
the Employer, including any period the Employee is on an unpaid leave
of absence authorized by the Employer under a uniform,
nondiscriminatory policy applicable to all Employees. "Separation from
Service" means a separation from Service with the Employer maintaining
this Plan.
1.27 "HOUR OF SERVICE" means:
(A) Each Hour of Service for which the Employer, either directly
or indirectly, pays an Employee, or for which the Employee is
entitled to payment, for the performance of duties for the
Employer. The Advisory Committee credits Hours of Service
under this paragraph (a) to the Employee for the computation
period in which the Employee performs the duties, irrespective
of when paid;
(B) Each Hour of Service for back pay, irrespective of mitigation
of damages, to which the Employer has agreed or for which the
Employee has received an award. The Advisory Committee credits
Hours of Service under this paragraph (b) to the Employee for
the computation period(s) to which the award or the agreement
pertains rather than for the computation period in which the
award, agreement or payment is made; and
3
<PAGE> 38
(C) Each Hour of Service for which the Employer, either directly
or indirectly, pays an Employee, or for which the Employee is
entitled to payment (irrespective of whether the employment
relationship is terminated) for reasons other than for the
performance of duties during a computation period, such as
leave of absence, vacation, holiday, sick leave, illness,
incapacity (including disability), layoff, jury duty or
military duty. The Advisory Committee will credit no more than
501 Hours of Service under this paragraph (c) to an Employee
on account of any single continuous period during which the
Employee does not perform any duties (whether or not such
period occurs during a single computation period). The
Advisory Committee credits Hours of Service under this
paragraph (c) in accordance with the rules of paragraphs (b)
and (c) of Labor Reg. Section 2530.200b-2, which the Plan, by
this reference, specifically incorporates in full within this
paragraph (c).
The Advisory Committee will not credit an Hour of Service under more
than one of the above paragraphs. A computation period for purposes of
this Section 1.27 is the Plan Year, Year of Service period, Break in
Service period or other period, as determined under the Plan provision
for which the Advisory Committee is measuring an Employee's Hours of
Service. The Advisory Committee will resolve any ambiguity with
respect to the crediting of an Hour of Service in favor of the
Employee.
An Employee for whom a record of hours worked is not maintained shall
be credited with 45 Hours of Service for each week in which he or she
completes at least one Hour of Service.
Solely for purposes of determining whether the Employee incurs a Break
in Service under any provision of this Plan, the Advisory Committee
must credit Hours of Service during an Employee's unpaid absence
period due to maternity or paternity leave. The Advisory Committee
considers an Employee on maternity or paternity leave if the
Employee's absence is due to the Employee's pregnancy, the birth of
the Employee's child, the placement with the Employee of an adopted
child, or the care of the Employee's child immediately following the
child's birth or placement. The Advisory Committee credits Hours of
Service under this paragraph on the basis of the number of Hours of
Service the Employee would receive if he were paid during the absence
period or, if the Advisory Committee cannot determine the number of
Hours of Service the Employee would receive, on the basis of 8 hours
per day during the absence period. The Advisory Committee will credit
only the number (not exceeding 501) of Hours of Service necessary to
prevent an Employee's Break in Service. The Advisory Committee credits
all Hours of Service described in this paragraph to the computation
period in which the absence period begins or, if the Employee does not
need these Hours of Service to prevent a Break in Service in the
computation period in which his absence period begins, the Advisory
Committee credits these Hours of Service to the immediately following
computation period.
Hours of service will also be credited for any individual considered
an employee for purposes of this Plan under Code Section 414(n) or
Section 414(o) and the regulations thereunder.
1.28 "DISABILITY" means inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than 12
months. The permanence and degree of such impairment shall be
supported by medical evidence. The Plan considers a Participant
disabled on the date the Advisory Committee determines the Participant
satisfies the definition of disability. The Advisory Committee may
require a Participant to submit to a physical examination in order to
confirm disability. The Advisory Committee will apply the provisions
of this Section 1.28 in a nondiscriminatory, consistent and uniform
manner.
1.29 "SERVICE FOR PREDECESSOR EMPLOYER"
If the Employer maintains the plan of a predecessor employer, the Plan
treats service of the Employee with the predecessor employer as
service with the Employer. If the Employer does not maintain the plan
of a predecessor employer, the Plan does not credit service with the
predecessor employer.
1.30 "RELATED EMPLOYERS"
A related group is a controlled group of corporations (as
defined in Code Section 414(b)), trades or businesses (whether or not
incorporated) which are under common control (as defined in Code
Section 414(c)), or an affiliated service group (as defined in Code
Section 414(m) or in Code Section 414(o)). If the Employer is a member
of a related group, the term "Employer" includes the related group
members for purposes of crediting Hours of Service, determining Years
of Service and Breaks in Service under Articles II and V, applying the
limitations on allocations in Part 2 of Article III, applying the top
heavy rules and the minimum allocation requirements of Article III,
the definitions of Employee, Highly Compensated Employee, Compensation
and Leased Employee, and for any other purpose required by the
applicable Code section or by a Plan provision. However, an Employer
may contribute to the Plan only by being a signatory to the Execution
Page of the Adoption Agreement or to a Participation Agreement to the
Employer's Adoption Agreement. If one or more of the Employer's
related group members becomes Participating Employers by executing a
Participation Agreement to the Employer's Adoption Agreement, the term
"Employer" includes the participating related group members, for all
purposes of the Plan, and "Plan Administrator" means the Employer that
is the signatory to the Execution Page of the Adoption Agreement.
All Employees of the Employer or of any member of the Employer's
related group, are eligible to participate in the Plan, irrespective
of whether the related group member directly employing the Employee is
a Participating Employer.
4
<PAGE> 39
PLAN DOCUMENT
1.31 "LEASED EMPLOYEES"
The Plan treats a Leased Employee as an Employee of the Employer. A
Leased Employee is an individual (who otherwise is not an Employee of
the Employer) who, pursuant to a leasing agreement between the
Employer and any other person, has performed services for the Employer
(or for the Employer and any persons related to the Employer
determined in accordance with Code Section 414(n)(6) on a substantially
full-time basis for at least one year and who performs services
historically performed by employees in the Employer's business field.
If a Leased Employee is treated as an Employee by reason of this
Section 1.31 of the Plan, "Compensation" includes Compensation from
the leasing organization which is attributable to services performed
for the Employer. Contributions or benefits provided a leased employee
by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by
the recipient employer.
SAFE HARBOR PLAN EXCEPTION. The Plan does not treat a Leased Employee
as an Employee if the leasing organization covers the employee in a
safe harbor plan and, prior to application of this safe harbor plan
exception, 20% or less of the Employer's Employees (other than Highly
Compensated Employees) are Leased Employees. A safe harbor plan is a
money purchase pension plan providing immediate participation, full
and immediate vesting, and a nonintegrated contribution formula equal
to at least 10% of the employee's compensation without regard to
employment by the leasing organization on a specified date. The safe
harbor plan must determine the 10% contribution on the basis of
compensation as defined in Code Section 415(c)(3) plus elective
contributions (as defined in Section 1.12).
OTHER REQUIREMENTS. The Advisory Committee must apply this Section
1.31 in a manner consistent with Code Sections 414(n) and 414(o) and
the regulations issued under those Code sections. If a Leased
Employee is a Participant in the Plan and also participates in a
defined contribution plan maintained by the leasing organization,
then the Advisory Committee will determine the Leased Employee's
allocation of Employer contributions under Article III without
taking into account the Leased Employee's allocation, if any, under
the leasing organization's plan.
1.32 "SPECIAL RULES FOR OWNER-EMPLOYEES"
The following special provisions and restrictions apply to
Owner-Employees:
If this plan provides contributions or benefits for one or more
owner-employees who control both the business for which this plan is
established and one or more other trades or businesses, this plan and
the plan established for other trades or businesses must, when looked
at as a single plan, satisfy sections 401(a) and (d) for the
employees of this and all other trades or businesses.
If the plan provides contributions or benefits for one or more
owner-employees who control one or more other trades or businesses,
the employees of the other trades or businesses must be included in a
plan which satisfies sections 401(a) and (d) and which provides
contributions and benefits not less favorable than provided for
owner-employees under this plan.
If an individual is covered as an owner-employee under the plans of
two or more trades or businesses which are not controlled and the
individual controls a trade or business, then the contributions or
benefits of the employees under the plan of the trades or businesses
which are controlled must be as favorable as those provided for him
under the most favorable plan of the trade or business which is not
controlled.
For purposes of the preceding paragraphs, an owner-employee, or two or
more owner-employees, will be considered to control a trade or
business if the owner-employee, or two or more owner-employees
together:
(1) own the entire interest in an unincorporated trade or
business, or
(2) in the case of a partnership, own more than 50 percent of
either the capital interest or the profits interest in the
partnership.
For purposes of the preceding sentence, an owner-employee, or two or
more owner-employees shall be treated as owning any interest in a
partnership which is owned, directly or indirectly, by a partnership
which such owner-employee, or such two or more owner-employees, are
considered to control within the meaning of the preceding sentence.
1.33 "TAXABLE WAGE BASE" means 100% of the taxable wage base as determined
under Section 230 of the Social Security Act in effect on the first
day of the plan year.
1.34 "PAIRED PLANS" means the Employer has adopted two Standardized Plan
Adoption Agreements offered with this Kemper Retirement Plan Prototype
Keogh/Corporate, one Adoption Agreement being a Paired Profit Sharing
Plan and one Adoption Agreement being a Paired Pension Plan. A Paired
Profit Sharing Plan may include a Code Section 401(k) arrangement. A
Paired Pension Plan must be a money purchase pension plan. Paired
Plans must be the subject of a favorable opinion letter issued by
the National Office of the Internal Revenue Service.
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1.35 "MEMBER OF A COLLECTIVE BARGAINING UNIT" means any employee who is
included in a unit and whose terms and conditions of employment are
covered by a collective bargaining agreement between the Employer and
employee representatives which does not provide for participation in
the Plan, provided that there is evidence that, in connection with
such agreement, retirement benefits were the subject of good-faith
bargaining. For this purpose, the term "employee representatives" does
not include any organization more than half of whose members are
employees who are owners, officers or executives of the Employer.
1.36 "DESIGNATED INVESTMENT COMPANY" means any registered investment
company the investment manager or principal underwriter of which is
Kemper Financial Services, Inc. or an affiliate.
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 "ELIGIBILITY"
Each Employee becomes a Participant in the Plan in accordance with the
participation option selected by the Employer in its Adoption
Agreement. If this Plan is a restated Plan, each Employee who was a
Participant in the Plan on the day before the Effective Date continues
as a Participant in the Plan.
2.02 "YEAR OF SERVICE - PARTICIPATION"
For purposes of an Employee's participation in the Plan under Adoption
Agreement Section 2.01, the Plan takes into account all of his Years
of Service with the Employer, except that if an Employee has a Break
in Service before satisfying the Plan's requirement for eligibility,
Service before such break will not be taken into account. "Year of
Service" means a 12 consecutive month period during which the Employee
completes not less than 1,000 Hours of Service, measuring the
beginning of the first 12 month period from the Employment
Commencement Date, and each anniversary thereof. "Employment
Commencement Date" means the date on which the Employee first performs
an Hour of Service for the Employer.
2.03 "BREAK IN SERVICE - PARTICIPATION"
An Employee incurs a "Break in Service" if during any 12 consecutive
month period he does not complete more than 500 Hours of Service with
the Employer. The "12 consecutive month period" under this Section 2.03
is the same 12 consecutive month period for which the Plan measures
"Years of Service" under Section 2.02.
TWO-YEAR ELIGIBILITY. If the Employer elects a 2 years of service
condition for eligibility purposes under Adoption Agreement Section
2.01, the Plan treats an Employee who incurs a one year Break in
Service and who has never become a Participant as a new Employee on
the date he first performs an Hour of Service for the Employer after
the Break in Service.
2.04 "PARTICIPATION UPON RE-EMPLOYMENT"
A Participant whose employment terminates re-enters the Plan as a
Participant on the date of his re-employment. An Employee who
satisfies the Plans' eligibility conditions but who terminates
employment prior to becoming a Participant becomes a Participant on
the later of the Plan Entry Date on which he would have entered the
Plan had he not terminated employment or the date of his
re-employment. Any Employee who terminates employment prior to
satisfying the Plan's eligibility conditions becomes a Participant in
accordance with Adoption Agreement Section 2.01.
2.05 "CHANGE IN EMPLOYEE STATUS"
If a Participant has not incurred a Separation from Service but ceases
to be eligible to participate in the Plan, by reason of becoming a
member of a Collective Bargaining Unit, the Advisory Committee must
treat the Participant as an excluded employee during the period such a
Participant is a Member of a Collective Bargaining Unit. The Advisory
Committee determines a Participant's sharing in the allocation of
Employer contributions by disregarding his Compensation paid by the
Employer for services rendered in his capacity as a Member of a
Collective Bargaining Unit. However, during such period of exclusion,
the Participant, without regard to employment classification,
continues to receive credit for vesting under Article V for each
included Year of Service and the Participant' Account continues to
share fully in Trust Fund allocations under Section 9.11.
If an excluded employee who is not a Participant becomes eligible to
participate in the Plan by reason of a change in employment
classification, he will participate in the Plan immediately if he has
satisfied the eligibility conditions of Section 2.01 and would have
been a Participant had he not been an excluded employee during his
period of Service. Furthermore, the Plan takes into account all of the
Participant's included Years of Service with the Employer as an
Excluded Employee for purposes of vesting credit under Article V.
In the event a participant is no longer a member of an eligible class
of employees and becomes ineligible to participate but has not
incurred a break in service, such employee will participate
immediately upon returning to an eligible class of employees. If such
participant incurs a break in service, eligibility will be determined
under the break in service rules of the plan.
2.06 "ELECTION NOT TO PARTICIPATE"
The Plan does not permit an otherwise eligible Employee nor any
Participant to elect not to participate in the Plan.
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PLAN DOCUMENT
ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
PART 1. AMOUNT OF EMPLOYER CONTRIBUTIONS AND PLAN ALLOCATIONS:
SECTIONS 3.01 THROUGH 3.06
3.01 "AMOUNT"
For each Plan Year, the Employer contributes to the Trust the amount
determined by application of the contribution option selected by the
Employer in its Adoption Agreement. The Employer may not make a
contribution to the Trust for any Plan Year to the extent the
contribution would exceed the Participants' Maximum Permissible
Amounts.
The Trustee, upon written request from the Employer, must return to
the Employer the amount of the Employer's contribution made by the
Employer by mistake of fact or the amount of the Employer's
contribution disallowed as a deduction under Code Section 404. The
Trustee will not return any portion of the Employer's contribution
under the provisions of this paragraph more than one year after:
(A) The Employer made the contribution by mistake of fact; or
(B) The disallowance of the contribution as a deduction, and then,
only to the extent of the disallowance.
The Trustee will not increase the amount of the Employer contribution
returnable under this Section 3.01 for any earnings attributable to
the contribution, but the Trustee will decrease the Employer
contribution returnable for any losses attributable to it. The Trustee
may require the Employer to furnish it whatever evidence the Trustee
deems necessary to enable the Trustee to confirm the amount the
Employer has requested be returned is properly returnable under ERISA.
3.02 "DETERMINATION OF CONTRIBUTION"
The Employer, from its records, determines the amount of any
contributions to be made by it to the Trust under the terms of the
Plan.
3.03 "TIME OF PAYMENT OF CONTRIBUTION"
The Employer may pay its contribution for each Plan Year in one or
more installments without interest. The Employer must make its
contribution to the Trustee within the time prescribed by the Code or
applicable Treasury regulations.
3.04 "RESERVED"
3.05 "ACCRUAL OF BENEFIT"
The accrual of benefit shall be determined on the basis of the Plan
Year. In determining the amount of the Employer contribution to a
participant's account, only compensation with respect to that part of
a Plan Year the employee is actually a participant shall be taken into
account.
Employer contributions will be allocated to each Participant who
either completes 500 hours of service during the Plan Year or who is
employed by the Employer on the last day of the Plan Year.
PART 2. LIMITATIONS ON ALLOCATIONS: SECTIONS 3.06 THROUGH 3.09
[Note: Sections 3.06 through 3.09 apply only to Participants in this
Plan who do not participate, and who have never participated, in
another qualified plan or in a welfare benefit fund as defined in Code
Section 419(e) or an individual medical account as defined in Code
Section 415(1)(2) maintained by the Employer.
3.06 The amount of Annual Additions which the Advisory Committee may
allocate under this Plan on a Participant's behalf for a Limitation
Year may not exceed the Maximum Permissible Amount. If the amount the
Employer otherwise would contribute to the Participant's Account would
cause the Annual Additions for the Limitation Year to exceed the
Maximum Permissible Amount, the Employer will reduce the amount of its
contribution so the Annual Additions for the Limitation Year will
equal the Maximum Permissible Amount.
3.07 Prior to the determination of the Participant's actual Compensation
for a Limitation Year, the Advisory Committee may determine the
Maximum Permissible Amount on the basis of the Participant's estimated
annual Compensation for such Limitation Year. The Advisory Committee
must make this determination on a reasonable and uniform basis for all
Participants similarly situated.
3.08 As soon as is administratively feasible after the end of the
Limitation Year, the Advisory Committee will determine the Maximum
Permissible Amount for such Limitation Year on the basis of the
Participant's actual Compensation for such Limitation Year.
3.09 If, pursuant to Section 3.08 there is an Excess Amount with respect to
a Participant for a Limitation Year, the Advisory Committee will
dispose of such Excess Amount as follows:
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<PAGE> 42
(A) The Advisory Committee will return any nondeductible voluntary
Employee contributions to the Participant to the extent the
return would reduce the Excess Amount.
(B) If after the application of paragraph (a) an excess amount
still exists, and the Participant is covered by the Plan at
the end of the Limitation Year, the Excess Amount in the
Participant's account will be used to reduce Employer
Contributions (including any allocation of forfeitures) for
such Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary.
(C) If, after the application of paragraph (b), an Excess Amount
still exists, and the Plan does not cover the Participant at
the end of the Limitation Year, then the Advisory Committee
will hold the Excess Amount unallocated in a suspense account.
The Advisory Committee will apply the suspense account to
reduce Employer Contributions for all remaining Participants
in the next Limitation Year, and in each succeeding Limitation
Year if necessary.
(D) The Advisory Committee will not distribute any Excess
Amount(s) to Participants or to former Participants. If a
suspense account is in existence at any time during a
limitation year pursuant to this section, it will not
participate in the allocation of the trust's investment gains
and losses. If a suspense account is in existence at any time
during a particular limitation year, all amounts in the
suspense account must be allocated and reallocated to
participants' accounts before any employer or any employee
contributions may be made to the plan for that limitation
year.
[Note: Sections 3.10 through 3.15 apply if, in addition to this Plan,
the Participant is covered under another qualified master or prototype
defined contribution plan maintained by the Employer, a welfare
benefit fund, as defined in Code Section 419(e) maintained by the
Employer or an individual medical account, as defined in Code Section
415(1)(2) maintained by the Employer which provides an annual
addition during any Limitation Year.]
3.10 The annual additions which may be credited to a participant's account
under this plan for any such limitation year will not exceed the
maximum permissible amount reduced by the annual additions credited to
a participant's account under the other plans and welfare benefit
funds for the same limitation year. If the annual additions with
respect to the participant under other defined contribution plans and
welfare benefit funds maintained by the employer are less than the
maximum permissible amount and the employer contribution that would
otherwise be contributed or allocated to the participant's account
under this plan would cause the annual additions for the limitation
year to exceed this limitation, the amount contributed or allocated
will be reduced so that the annual additions under all such plans and
funds for the limitation year will equal the maximum permissible
amount. If the annual additions with respect to the participant under
such other defined contribution plans and welfare benefit funds in the
aggregate are equal to or greater than the maximum permissible amount,
no amount will be contributed or allocated to the participant's
account under this plan for the limitation year.
3.11 Prior to the determination of the Participant's actual Compensation
for the Limitation Year, the Advisory Committee may determine the
amounts referred to in 3.10 above on the basis of the Participant's
estimated annual Compensation for such Limitation Year. The Advisory
Committee will make this determination on a reasonable and uniform
basis for all Participants similarly situated.
3.12 As soon as is administratively feasible after the end of the
Limitation Year, the Advisory Committee will determine the amounts
referred to in 3.10 on the basis of the Participant's actual
Compensation for such Limitation Year.
3.13 If pursuant to Section 3.12, a Participant's Annual Additions under
this Plan and all such other plans result in an Excess Amount, such
Excess Amount will consist of the Amounts last allocated. The Advisory
Committee will determine the Amounts last allocated by treating the
Annual Additions attributable to a welfare benefit fund or individual
medical account as allocated first, irrespective of the actual
allocation date under the welfare benefit fund.
3.14 If the Advisory Committee allocates an Excess Amount to a Participant
on an allocation date of this Plan which coincides with an allocation
date of another plan, the Excess Amount attributed to this Plan equals
the product of:
(i) the total Excess Amount allocated as of such date (including
any amount which the Advisory Committee would have allocated
but for the limitations of Code Section 415), times
(ii) the ratio of (1) the amount allocated to the Participant as of
such date under this Plan divided by (2) the total amount
allocated as of such date under all qualified master or
prototype defined contribution plans (determined without
regard to the limitations of Code Section 415).
3.15 The Advisory Committee will dispose of any Excess Amounts attributed
to this Plan as provided in Section 3.09.
[Note: Section 3.16 applies only to Participants who, in addition to
this Plan, participate in one or more qualified plans which are
qualified defined contribution plans other than a Master or Prototype
plan maintained by the Employer during the Limitation Year.]
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PLAN DOCUMENT
3.16 "SPECIAL ALLOCATION LIMITATION"
The amount of Annual Additions which the Advisory Committee may
allocate under this Plan on behalf of any Participant are limited in
accordance with the provisions of Section 3.10 through 3.15, as though
the other plan were a Master or Prototype plan.
3.17 "DEFINED BENEFIT PLAN LIMITATION"
If the Employer maintains a defined benefit plan, or has ever
maintained a defined benefit plan which the Employer has terminated,
then the sum of the defined benefit plan fraction and the defined
contribution plan fraction for any Participant for any Limitation Year
must not exceed 1.0. The annual additions which may be credited to the
participant's account under this plan for any limitation year will be
limited in accordance with Section 3.17 of the adoption agreement. To
the extent necessary to satisfy the limitations of this Section 3.17,
the Employer will reduce the Participant's projected annual benefit
under the defined benefit plan under which the Participant
participates. The Employer also must provide in an addendum to its
Adoption Agreement the manner in which the Plan will satisfy the
top-heavy requirements of Code Section 416 after taking into account
the existence (or prior maintenance) of the defined benefit plan.
3.18 "DEFINITIONS - ARTICLE III"
For purposes of this Article III, the following terms mean:
(A) "ANNUAL ADDITION" - The sum of the following amounts
allocated on behalf of a Participant for a Limitation Year, of
(i) all Employer contributions; (ii) all forfeitures; and
(iii) all Employee contributions. Except to the extent
provided in Treasury regulations, Annual Additions include
excess contributions described in Code Section 401(k), excess
aggregate contributions described in Code Section 401(m) and
excess deferrals described in Code Section 402(g),
irrespective of whether the plan distributes or forfeits such
excess amounts. Annual Additions also include Excess Amounts
reapplied to reduce Employer contributions under Section 3.09.
Amounts allocated after March 31, 1984, to an individual
medical account (as defined in Code Section 415(1)(2))
included as part of a defined benefit pension or annuity plan
maintained by the Employer are Annual Additions. Furthermore,
Annual Additions include contributions paid or accrued after
December 31, 1985, for taxable years ending after December
31,1985, attributable to post-retirement medical benefits
allocated to the separate account of a key employee (as
defined in Code Section 419A(d)(3)) under a welfare benefit
fund (as defined in Code Section 419(e)) maintained by the
Employer. For this purpose, any excess amount applied in the
limitation year to reduce employer contributions will be
considered annual additions for such limitation year.
(B) "COMPENSATION" - For purposes of applying the limitations of
Part 2 of this Article III, "Compensation" means a
participant's earned income, wages, salaries, and fees for
professional services and other amounts received (without
regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of
employment with the employer maintaining the plan to the
extent that the amounts are includible in gross income
(including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of
profits, commissions on insurance premiums, tips, bonuses,
fringe benefits, reimbursements and expense allowances), and
excluding the following:
(I) Employer contributions to a plan of deferred
compensation which are not includible in the
employee's gross income for the taxable year in which
contributed, or employer contributions under a
simplified employee pension plan to the extent such
contributions are deductible by the employee, or any
distributions from a plan of deferred compensation;
(II) Amounts realized from the exercise of a nonqualified
stock option, or when restricted stock (or property)
held by the employee either becomes freely
transferable or is no longer subject to a substantial
risk of forfeiture;
(III) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
(IV) other amounts which received special tax benefits, or
contributions made by the employer (whether or not
under a salary reduction agreement) towards the
purchase of an annuity described in section 403(b) of
the Internal Revenue Code (whether or not the amounts
are actually excludible from the gross income of the
employee).
For purposes of applying the limitations of this article,
compensation for a limitation year is the compensation actually paid
or includible in gross income during such limitation year.
Notwithstanding the preceding sentence, compensation for a participant
in a defined contribution plan who is permanently and totally disabled
(as defined in Section 22(e)(3) of the Code) is the compensation such
participant would have received for the limitation year if the
participant would have received for the limitation year if the
participant had been paid at the rate of compensation paid immediately
before becoming permanently and totally disabled; such imputed
compensation for the disabled participant may be taken into account
only if the participant is not a highly compensated employee (as
defined in Section 414(g) of the Code) and contributions made on
behalf of such participant are nonforfeitable when made.
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<PAGE> 44
(C) "EMPLOYER" - The Employer that adopts this Plan and any
related employers described in Section 1.30. Solely for
purposes of applying the limitations of Part 2 of this Article
III, the Advisory Committee will determine related employers
described in Section 1.30 by modifying Code Sections 414(b)
and (c) in accordance with Code Section 415(h).
(D) "EXCESS AMOUNT" - The excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible
Amount.
(E) "LIMITATION YEAR" - The period selected by the Employer under
Adoption Agreement Section 1.17. All qualified plans of the
Employer must use the same Limitation Year. If the Employer
amends the Limitation Year to a different 12 consecutive
month period, the new Limitation Year must begin on a date
within the Limitation Year for which the Employer makes the
amendment, creating a short Limitation Year.
(F) "MASTER OR PROTOTYPE PLAN" - A plan the form of which is the
subject of a favorable opinion letter from the Internal
Revenue Service.
(G) "MAXIMUM PERMISSIBLE AMOUNT" - The lesser of (i) $30,000 (or,
if greater, one-fourth of the defined benefit dollar
limitation under Code Section 415(b)(1)(A)), or (ii) 25% of the
Participant's Compensation for the Limitation Year. If there
is a short Limitation Year because of a change in Limitation
Year, the Advisory Committee will multiply the $30,000 (or
adjusted) limitation by the following fraction:
Number of months in the short Limitation Year: 12
The 25% compensation limitation shall not apply to any
contribution for medical benefits (within the meaning of Code
Section 401(h) or 419A(f)(2) which is otherwise treated as an
annual addition under Code Section 415(l)(1) or 419A(d)(2).
(H) "DEFINED CONTRIBUTION PLAN" - A retirement plan which
provides for an individual account for each participant and
for benefits based solely on the amount contributed to the
participant's account, and any income, expenses, gains and
losses, and any forfeitures of accounts of other participants
which the plan may allocate to such participant's account. The
Advisory Committee must treat all defined contribution plans
(whether or not terminated) maintained by the Employer as a
single plan. Solely for purposes of the limitations of Part 2
of this Article III, the Advisory Committee will treat
employee contributions made to a defined benefit plan
maintained by the Employer as a separate defined contribution
plan. The Advisory Committee also will treat as a defined
contribution plan an individual medical account (as defined in
Code Section 415(1)(2)) included as part of a defined benefit
plan maintained by the Employer and, for taxable years ending
after December 31,1985, a welfare benefit fund under Code
Section 419(e) maintained by the Employer to the extent there
are post-retirement medical benefits allocated to the separate
account of a key employee (as defined in Code Section
419A(d)(3)).
(I) "DEFINED BENEFIT PLAN" - A retirement plan which does not
provide for individual accounts for Employer contributions.
The Advisory Committee must treat all defined benefit plans
(whether or not terminated) maintained by the Employer as a
single plan.
[Note: The definitions in paragraphs (j) and (k) apply only if
the limitation described in Section 3.17 applies to the
Employer's Plan.]
(J) "DEFINED BENEFIT PLAN FRACTION" -PROJECTED annual benefit of
the Participant under the defined benefit plan(s) The lesser of
(I) 125% of the dollar limitation determined under
Code Section 415 (b) and (d) for the Limitation Year,
or
(II) 140% of the Participant's average Compensation
for his high three (3) consecutive Years of Service
To determine the denominator of this fraction, the
Advisory Committee will make any adjustment required under
Code Section 415(b) and will determine a Year of Service,
unless otherwise provided in an addendum to Adoption Agreement
Section 3.06, as a Plan Year in which the Employee completed
at least 1,000 Hours of Service. The "projected annual
benefit" is the annual retirement benefit (adjusted to an
actuarially equivalent straight life annuity if the plan
expresses such benefit in a form other than a straight life
annuity or qualified joint and survivor annuity) of the
Participant under the terms of the defined benefit plan on the
assumptions he continues employment until his normal
retirement age (or current age, if later) as stated in the
defined benefit plan, his compensation continues at the same
rate as in effect in the Limitation Year under consideration
until the date of his normal retirement age and all other
relevant factors used to determine benefits under the defined
benefit plan remain constant as of the current Limitation Year
for all future Limitation Years.
CURRENT ACCRUED BENEFIT. If the Participant accrued benefits
in one or more defined benefit plans maintained by the
Employer which were in existence on May 6, 1986, the dollar
limitation used in the denominator of this fraction will not
be less than the Participant's Current Accrued Benefit. A
Participant's Current Accrued Benefit is the sum of the annual
benefits under such defined benefit plans which the
Participant had accrued as of the end of the 1986 Limitation
Year (the last Limitation Year beginning before January
1, 1987), determined without regard to any cost of living
adjustment occurring after May 5, 1986. This Current Accrued
Benefit rule applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements
of Code Section 415 as in effect at the end of the 1986
Limitation Year.
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PLAN DOCUMENT
Notwithstanding the above, if the participant was a
participant as of the first day of the first limitation year
beginning after December 31, 1986, in one or more defined
benefit plans maintained by the employer which were in
existence on May 6, 1986, the denominator of this fraction
will not be less than 125 percent of the sum of the annual
benefits under such plans which the participant had accrued as
of the close of the last limitation year beginning before
January 1,1987, disregarding any changes in the terms and
conditions of the plan after May 5, 1986. The preceding
sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of
Section 415 for all limitation years beginning before January
1, 1987
(k) "DEFINED CONTRIBUTION PLAN FRACTION" - Section 5.5 Defined
contribution fraction: A fraction, the numerator of which is
the sum of the annual additions to the participant's account
under all the defined contribution plans (whether or not
terminated) maintained by the employer for the current and all
prior limitation years (including the annual additions
attributable to the participant's nondeductible employee
contributions to all defined benefit plans, whether or not
terminated, maintained by the employer, and the annual
additions attributable to all welfare benefit funds, as
defined in Section 419(e) of the Code, and individual medical
accounts, as defined in Section 415(1)(2) of the Code,
maintained by the employer), and the denominator of which is
the sum of the maximum aggregate amounts for the current and
all prior limitation years of service with the employer
(regardless of whether a defined contribution plan was
maintained by the employer). The maximum aggregate amount in
any limitation year is the lesser of 125 percent of the
dollar limitation determined under Sections 415(b) and (d) of
the Code in effect under Section 415(c)(1)(A) of the Code or
35 percent of the participant 's compensation for such year.
If the employee was a participant as of the end of the first
day of the first limitation year beginning after December 31,
1986, in one or more defined contribution plans maintained by
the employer which were in existence on May 6, 1986, the
numerator of this fraction will be adjusted if the sum of this
fraction and the defined benefit fraction would otherwise
exceed 1.0 under the terms of this plan. Under the adjustment,
an amount equal to the product of (l) the excess of the sum of
the fractions over 1.0 times (2) the denominator of this
fraction, will be permanently subtracted from the numerator of
this fraction. The adjustment is calculated using the
fractions as they would be computed as of the end of the last
limitation year beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the
plan made after May 5, 1986, but using the Section 415
limitation applicable to the first limitation year beginning
on or after January 1, 1987.
The annual addition for any limitation year beginning before
January 1, 1987, shall not be recomputed to treat all employee
contributions as annual additions.
The average compensation for the three consecutive years of
service with the employer that produces the highest average.
ARTICLE IV
PARTICIPANT CONTRIBUTIONS
4.01 "PARTICIPANT ON DEDUCTIBLE CONTRIBUTIONS"
This Plan does not permit Participant nondeductible contributions. If,
prior to the adoption of this Plan, the Plan accepted Participant
nondeductible contributions for a Plan Year beginning after December
31, 1986, those contributions must satisfy the requirements of Code
Section 401(m) and must be maintained in a separate account which
will be nonforfeitable at all times. This Section 4.01 does not
prohibit the Plan's acceptance of Participant nondeductible
contributions prior to the first Plan Year commencing after the Plan
Year in which the Employer adopts this Plan.
4.02 "PARTICIPANT DEDUCTIBLE CONTRIBUTIONS"
The Plan will not accept Participant deductible contributions which
are made for a taxable year beginning after December 31, 1986.
Contributions made prior to that date will be maintained in a separate
account which will be nonforfeitable at all times. The account will
share in the gains and losses of the trust in the same manner as
described in Section 9.10 of the Plan. No part of the deductible
voluntary contribution account will be used to purchase life
insurance. Subject to Article VI, joint and survivor annuity
requirements (if applicable), the participant may withdraw any part of
the deductible voluntary contribution account by making a written
application to the Advisory Committee.
4.03 "PARTICIPANT ROLLOVER CONTRIBUTIONS"
Any Participant, with the Employer's written consent and after filing
with the Employer the form prescribed by the Advisory Committee, may
contribute cash or other property to the Trust other than as a
voluntary contribution if the contribution is a "rollover
contribution" which the Code permits an employee to transfer either
directly or indirectly from one qualified plan to another qualified
plan. Before accepting a rollover contribution, the Trustee may
require an Employee to furnish satisfactory evidence that the proposed
transfer is in fact a "rollover contribution" which the Code permits
an employee to make to a qualified plan. A rollover contribution is
not an Annual Addition under Part 2 of Article III.
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<PAGE> 46
The Employer will invest the rollover contribution in a segregated
investment Account for the Participant's sole benefit unless the
Employer in its sole discretion, agrees to invest the rollover
contribution as part of the Trust Fund. The Employer will not have
any investment responsibility with respect to a Participant's
segregated rollover Account. The Participant, however, from time to
time, may direct the Employer in writing as to the investment of his
segregated rollover Account in shares of a Designated Investment
Company, annuity contract(s) or life insurance sold or distributed by
Kemper Financial Services, Inc. A Participant's segregated rollover
Account alone will bear any extraordinary expenses resulting from
investments made at the direction of the Participant. As of the
Accounting Date (or other valuation date) for each Plan Year, the
Advisory Committee will allocate and credit the net income (or net
loss) from a Participant's segregated rollover Account and the
increase or decrease in the fair market value of the assets of a
segregated rollover Account solely to that Account. The Employer is
not liable nor responsible for any loss resulting to any Beneficiary,
nor to any Participant, by reason of any sale or investment made or
other action taken pursuant to and in accordance with the direction of
the Participant. In all other respects, the Employer will administer
and distribute a rollover contribution in the same manner as any
Employer contribution made to the Trust.
An eligible Employee, prior to satisfying the Plan's eligibility
conditions, may make a rollover contribution to the Trust to the same
extent and in the same manner as a Participant. If an Employee makes a
rollover contribution to the Trust prior to satisfying the Plan's
eligibility conditions, the Advisory Committee and Trustee must treat
the Employee as a Participant for all purposes of the Plan except the
Employee is not a Participant for purposes of sharing in Employer
contributions under the Plan until he actually becomes a Participant
in the Plan. If the Employee has a Separation from Service prior to
becoming a Participant, the Trustee will distribute his rollover
contribution Account to him as if it were an Employer contribution
Account.
4.04 "PARTICIPANT CONTRIBUTION - FORFEITABILITY"
A Participant's Accrued Benefit is, at all times, 100% Nonforfeitable.
4.05 "PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION"
A Participant, by giving prior written notice to the Trustee, may
withdraw all or any part of the value of his Accrued Benefit derived
from his Participant contributions described in this Article IV. A
distribution of Participant contributions must comply with the joint
and survivor requirements described in Article VI, if those
requirements apply to the Participant. A Participant may not exercise
his right to withdrawn the value of his Accrued Benefit derived from
his Participant contributions more than once during any Plan Year. The
Trustee, in accordance with the direction of the Advisory Committee,
will distribute a Participant's unwithdrawn Accrued Benefit
attributable to his Participant contributions in accordance with the
provisions of Article VI applicable to the distribution of the
Participant's Nonforfeitable Accrued Benefit.
4.06 "PARTICIPANT CONTRIBUTION - ACCRUED BENEFIT"
The Advisory Committee must maintain, or must direct the Trustee to
maintain, a separate Account(s) in the name of each Participant to
reflect the Participant's Accrued Benefit under the Plan derived from
his Participant contributions. A Participant's Accrued Benefit derived
from his Participant contributions as of any applicable date is the
balance of his separate Participant contribution Account(s). A
separate account will be maintained by the trustee for the
nondeductible employee contribution of each participant.
ARTICLE V
TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 "NORMAL RETIREMENT AGE"
Normal Retirement Age is age 65.
5.02 "VESTING"
All contributions made by or on behalf of each participant, together
with all earnings thereon, shall immediately become, and at all times
shall remain, fully vested in such participant, and nonforfeitable.
The minimum allocation required (to the extent required to be
nonforfeitable under Section 416(b)) may not be forfeited under Code
Sections 411(a)(3)(B) or 411(a)(3)(D).
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PLAN DOCUMENT
ARTICLE VI
TIME AND METHOD OF PAYMENT OF BENEFITS
6.01 "TIME OF PAYMENT OF ACCRUED BENEFIT"
Unless, pursuant to Section 6.03, the Participant or the Beneficiary
elects in writing to a different time or method of payment, the
Advisory Committee will direct the Trustee to commence distribution of
a Participant's Nonforfeitable Accrued Benefit in accordance with this
Section 6.01. A Participant must consent, in writing, to any
distribution required under this Section 6.01 if the present value of
the Participant's Nonforfeitable Accrued Benefit, at the time of the
distribution to the Participant, exceeds $3,500 and the Participant
has not attained the later of Normal Retirement Age or age 62.
Furthermore, the Participant's spouse also must consent, in writing,
to any distribution, for which Section 6.04 requires the spouse's
consent. For all purposes of this Article VI, the term "annuity
starting date" means the first day of the first period for which the
Plan pays an amount as an annuity or in any other form. A distribution
date under this Article VI unless otherwise specified within the Plan,
is the 60th day of the Plan Year, or as soon as administratively
practicable following that distribution date. For purposes of the
consent requirements under this Article VI, if the present value of
the Participant's Nonforfeitable Accrued Benefit, at the time of any
distribution, exceeds $3,500, the Advisory Committee must treat that
present value as exceeding $3,500 for purposes of all subsequent Plan
distributions to the Participant.
If the value of a participant's vested account balance derived from
employer and employee contribution exceeds (or at the time of any
prior distribution exceeded) $3,500, and the account balance is
immediately distributable, the participant and the participant's
spouse (or where either the participant or the spouse has died, the
survivor) must consent to any distribution of such account balance.
The consent of the participant and the participant's spouse shall be
obtained in writing within the 90-day period ending on the annuity
starting date. The annuity starting date is the first day of the first
period for which an amount is paid an annuity or any other form. The
plan administrator shall notify the participant and the participant's
spouse of the right to defer any distribution until the participant's
account balance is no longer immediately distributable. Such
notification shall include a general description of the material
features, and explanation of the relative values of, the optional
forms of benefit available under the plan in a manner that would
satisfy the notice requirements of Code Section 417(a)(3), and shall be
provided no less than 30 days and no more than 90 days prior to the
annuity starting date. Notwithstanding the foregoing, only the
participant need consent to the commencement of a distribution in the
form of a qualified joint and survivor annuity while the account
balance is immediately distributable. (Furthermore, if payment in the
form of a qualified joint and survivor annuity is not required with
respect to the participant pursuant to Section 6.04(E) of the plan,
only the participant need consent to the distribution of an account
balance that is immediately distributable.) Neither the consent of the
participant nor the participant's spouse shall be required to the
extent that a distribution is required to satisfy Code Section
401(a)(9) or to the extent that a distribution is required to satisfy
Code Sections 401(a)(9) or 415. In addition, upon termination of this
plan, if the plan does not offer an annuity option (purchased from a
commercial provider) and if the employer or any entity within the same
controlled group as the employer does not maintain another defined
contribution plan (other than an employee stock ownership plan as
defined in section 4975(e)(7) of the Code), the participant's account
balance may, without the participant's consent, be distributed
to the participant. However, if any entity within the same controlled
group as the employer maintains another defined contribution plan
(other than an employee stock ownership plan as defined in section
4975(e)(7) of the Code) then the participant's account balance will be
transferred, without the participant's consent, to the other plan if
the participant does not consent to an immediate distribution.
Notwithstanding the foregoing, only the participant need consent to
the commencement of a distribution in the form of a qualified joint
and survivor annuity while the account balance is immediately
distributable. (Furthermore, if payment in the form of a qualified
joint and survivor annuity is not required with respect to the
participant pursuant to Section 6.04(E) of the plan, only the
participant need consent to the distribution for an account balance
that is immediately distributable). Neither the consent of the
participant nor the participant's spouse shall be required to the
extent that a distribution is required to satisfy Section 401(a)(9)
or Section 415 of the Code. In addition, upon termination of this
plan, if the plan does not offer an annuity option (purchased from a
commercial provider), the participant's account balance may, without
the participant's consent, be distributed to the participant or
transferred to another defined contribution plan (other than an
employee stock ownership plan as defined in Section 4975(e)(7) of the
Code) within the same controlled group.
An account balance is immediately distributable if any part of the
account balance could be distributed to the participant (or surviving
spouse) before the participant attains or would have attained if not
deceased the later of normal retirement age or age 62.
For purposes of determining the applicability of the foregoing consent
requirements to distributions made before the first day of the first
plan year beginning after December 31, 1988, the participant's vested
account balance shall not include amounts attributable to accumulated
deductible employee contributions within the meaning of Section
72(o)(5)(B) of the Code.
(A) SEPARATION FROM SERVICE FOR A REASON OTHER THAN DEATH. For a
Participant who separates from Service with the Employer for a
reason other than death, the Advisory Committee will direct
the Trustee to commence distribution of the Participant's
Accrued Benefit, as follows:
(1) PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT NOT
EXCEEDING $3,500. In a lump sum, on the 60th day
following the close of the Plan Year in which the
Participant's Separation from Service occurs.
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<PAGE> 48
(2) PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT EXCEEDS
$3,500. In a form and at the time elected by the
Participant, pursuant to Section 6.03. In the absence
of an election by the Participant, the Advisory
Committee will direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in a
lump sum (or, if applicable, the normal annuity form
of distribution required under Section 6.04), on the
60th day following the close of the Plan Year in
which the latest of the following events occurs: (a)
the Participant attains Normal Retirement Age; (b)
the Participant attains age 62; or (c) the
Participant separates from Service. Notwithstanding
the foregoing, the failure of a participant and
spouse to consent to a distribution while a benefit
is immediately distributable shall be deemed to be an
election to defer commencement of payment of any
benefit sufficient to satisfy this section.
(3) DISABILITY. If the Participant terminates employment
because of disability, in lump sum, no later than the
60th day following the close of the Plan Year in
which the participant terminates employment because
of disability, subject to the requirements of this
Article VI and subject to the applicable mandatory
commencement dates described in Paragraphs (1) and
(2).
(B) REQUIRED BEGINNING DATE. If any distribution commencement date
described under Paragraph (A) of this Section 6.01, either by
Plan provision or by Participant election (or nonelection), is
later than the Participant's Required Beginning Date, the
Advisory Committee instead must direct the Trustee to make
distribution under this Section 6.01 on the Participant's
Required Beginning Date. A Participant's Required Beginning
Date is the April 1 following the close of the calendar year
in which the Participant attains age 70-1/2. However, if the
Participant, prior to incurring a Separation from Service,
attained age 70-1/2 by January 1, 1988, and, for the five Plan
Year period ending in the calendar year in which he attained
age 70-1/2 and for all subsequent years, the Participant was
not a more than 5% owner (as defined in Section 1.09(a)), the
Required Beginning Date is the April 1 following the close of
the calendar year in which the Participant separates from
Service, or, if earlier, the April 1 following the close of
the calendar year in which the Participant becomes a more than
5% owner. Furthermore, if a Participant attained age 70-1/2
during 1988 and did not incur a Separation from Service prior
to January 1,1989, his Required Beginning Date is April 1,
1990. A mandatory distribution at the Participant's Required
Beginning Date will be in lump sum (or, if applicable, the
normal annuity form of distribution required under Section
6.04) unless the Participant, pursuant to the provisions of
this Article VI, makes a valid election to receive an
alternative form of payment.
(1) GENERAL RULE. The required beginning date of a
participant is the first day of April of the calendar
year following the calendar year in which the
participant attains age 70-1/2.
(2) TRANSITIONAL RULES. The required beginning date of a
participant who attains age 70-1/2 before January
1, 1988, shall be determined in accordance with (a) or
(b) below:
(A) NON-FIVE PERCENT OWNERS. The required
beginning date of a participant who is not a
five-percent owner is the first day of April
of the calendar year following the calendar
year in which the later of retirement or
attainment of age 70-1/2 occurs.
(B) FIVE-PERCENT OWNERS. The required beginning
date of a participant who is a five-percent
owner during any year beginning after
December 31, 1979, is the first day of April
following the later of:
(i) the calendar year in which the
participant attains age 70-1/2, or
(ii) the earlier of the calendar year
with or within which ends the plan
year in which the participant
becomes a five-percent owner, or the
calendar year in which the
participant retires.
The required beginning date of a participant who is not a
five-percent owner who attains age 70-1/2 during 1988 and who
has not retired as of January 1, 1989, is April 1, 1990.
(3) FIVE-PERCENT OWNER. A participant is treated as a
five-percent owner for purposes of this section if
such participant is a five-percent owner as defined
in Section 416(i) of the Code (determined in
accordance with Section 416 but without regard to
whether the plan is top-heavy) at any time during
the plan year ending with or within the calendar
year in which such owner attains age 66-1/2 or any
subsequent plan year.
(4) Once distributions have begun to a five-percent owner
under this section, they must continue to be
distributed, even if the participant ceases to be a
five-percent owner in a subsequent year.
(C) DEATH OF THE PARTICIPANT. The Advisory Committee will direct
the Trustee, in accordance with this Section 6.01(C), to
distribute to the Participant's Beneficiary the Participant's
Nonforfeitable Accrued Benefit remaining in the Trust at the
time of the Participant's death.
(1) DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT
DOES NOT EXCEED $3,500. The Advisory Committee,
subject to the requirements of Section 6.04, must
direct the Trustee to pay the deceased Participant's
Nonforfeitable Accrued Benefit in a single cash sum,
as soon as administratively practicable following the
Participant's death or, if later, the date on which
the Advisory Committee receives notification of or
otherwise confirms the Participant's death.
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<PAGE> 49
PLAN DOCUMENT
(2) DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT EXCEED
$3,500. The Advisory Committee will direct the Trustee to pay
the deceased Participant's Nonforfeitable Accrued Benefit at
the time and in the form elected by the Participant or, if
applicable by the Beneficiary, as permitted under this Article
VI. In the absence of an election, subject to the requirements
of Section 6.04, the Advisory Committee will direct the
Trustee to distribute the Participant's undistributed
Nonforfeitable Accrued Benefit in a lump sum on the first
distribution date following the close of the Plan Year in
which the Participant's death occurs or, if later, the first
distribution date following the date the Advisory Committee
receives notification of or otherwise confirms the
Participant's death.
If the death benefit is payable to the Participant's surviving
spouse in full, the surviving spouse, in addition to the
distribution options provided in this Section 6.01(C), may
elect distribution at any time or in any form (other than a
joint and survivor annuity) this Article VI would permit for a
Participant.
Subject to Article VI Joint and Survivor Annuity Requirements,
the requirements of this Article shall apply to any
distribution of a participant's interest and will take
precedence over any inconsistent provisions of this plan.
Unless otherwise specified, the provisions of this Article
apply to the calendar year beginning after December 31, 1984.
All distributions required under this Article shall be
determined and made in accordance with the proposed
regulations under Section 401(a)(9), including the minimum
distribution incidental benefit requirement of Section
1.401(a)(9)-2 of the proposed regulations.
6.02 "METHOD OF PAYMENT OF ACCRUED BENEFIT"
Subject to the annuity distribution requirements, if any, prescribed
by Section 6.04, and any restrictions prescribed by Section 6.03, a
Participant or Beneficiary may elect distribution under one, or any
combination, of the following methods: (a) by payment in a lump sum;
or (b) by payment in monthly, quarterly or annual installments over a
fixed reasonable period of time, not exceeding the life or life
expectancy of the Participant, or the joint and last survivor life or
life expectancy of the Participant and an individual the Participant
designates as his Beneficiary (his "designated Beneficiary").
The distribution options permitted under this Section 6.02 are
available only if the present value of the Participant Nonforfeitable
Accrued Benefit, at the time of the distribution to the Participant,
exceeds $3,500. To facilitate installment payments under this Article
VI, the Advisory Committee may direct the Trustee to segregate all or
any part of the Participant's Accrued Benefit in a separate Account.
The Trustee will invest the Participant's segregated Account in
Federally insured interest bearing savings account(s) or time
deposit(s) (or a combination of both), or in other fixed income
investments. A segregated Account remains a part of the Trust, but it
alone shares in any income it earns, and it alone bears any expense or
loss it incurs. A Participant or Beneficiary may elect to receive an
installment distribution in the form of a Nontransferable Annuity
Contract. Under an installment distribution, the Participant or
Beneficiary, at any time, may elect to accelerate the payment of all,
or any portion, of the Participant's unpaid Nonforfeitable Accrued
Benefit, subject to the requirements of Section 6.04.
(A) MINIMUM DISTRIBUTION REQUIREMENTS FOR PARTICIPANTS.
The Advisory Committee may not direct the Trustee to
distribute the Participant's Nonforfeitable Accrued Benefit,
nor may the Participant elect to have the Trustee distribute
his Nonforfeitable Accrued Benefit, under a method of
payment which, as of the Required Beginning Date, does not
satisfy the minimum distribution requirements under Code
Section 401(a)(9) and the applicable Treasury regulations. The
minimum distribution for a calendar year equals the
Participant's Nonforfeitable Accrued Benefit as of the latest
valuation date preceding the beginning of the calendar year
divided by the Participant's life expectancy or, if
applicable, the joint and last survivor expectancy of the
Participant and his designated Beneficiary (as determined
under Section 8.01, subject to the requirements of the Code
Section 401(a)(9) regulations). The Advisory Committee will
increase the Participant's Nonforfeitable Accrued Benefit, as
determined on the relevant valuation date, for contributions
allocated after the valuation date and by December 31 of the
valuation calendar year, and will decrease the valuation by
distributions made after the valuation date and by December 31
of the valuation calendar year. For purposes of this
valuation, the Advisory Committee will treat any portion of
the minimum distribution for the first distribution calendar
year made after the close of that year as a distribution
occurring in that first distribution calendar year. In
computing a minimum distribution the Advisory Committee must
use the unisex life expectancy multiples under Treas. Reg.
Section 1.72-9. The Advisory Committee, only upon the
participant's written request, will not compute the minimum
distribution for a calendar year subsequent to the first
calendar year for which the Plan requires a minimum
distribution by redetermining the applicable life expectancy.
Otherwise, the Advisory Committee will redetermine the joint
life and last survivor expectancy of the Participant and a
nonspouse designated Beneficiary in a manner which takes into
account any adjustment to a life expectancy other than the
Participant's life expectancy.
If the Participant's spouse is not his designated Beneficiary,
a method of payment to the Participant (whether by Participant
election or by Advisory Committee direction) may not provide
more than incidental benefits to the Beneficiary. For Plan
Year beginning after December 31, 1988, the Plan must satisfy
the minimum distribution incidental benefit ("MDIB")
requirement in the Treasury regulations issued under Code
Section 401(a)(9) for distributions made on or after the
Participant's Required Beginning Date and before the
Participant's death. To satisfy the MDIB requirement, the
Advisory Committee will compute the minimum distribution
required by this Section 6.02(A) by substituting the
applicable MDIB divisor for the applicable life expectancy
factor, if the MDIB divisor is a lesser number. Following the
Participant's death, the Advisory Committee will compute the
minimum distribution required by this Section 6.02(A) solely
on the basis of the applicable life expectancy factor and will
disregard the MDIB factor.
15
<PAGE> 50
For Plan Years beginning prior to January l, 1989, the Plan
satisfies the incidental benefits requirement if the
distributions to the Participant satisfied the MDIB
requirement or if the present value of the retirement benefits
payable solely to the Participant is greater than 50% of the
present value of the total benefits payable to the Participant
and his Beneficiaries. The Advisory Committee must determine
whether benefits to the Beneficiary are incidental as of the
date the Trustee is to commence payment of the retirement
benefits to the Participant, or as of any date the Trustee
redetermines the payment period to the Participant.
The minimum distribution for the first distribution calendar
year is due by the Participant's Required Beginning Date. The
minimum distribution for each subsequent distribution calendar
year, including the calendar year in which the Participant's
Required Beginning Date falls, is due by December 31 of that
year. If the Participant receives distribution in the form of
a Nontransferable Annuity Contract, the distribution satisfies
this Section 6.02(A) if the contract complies with the
requirements of Code Section 401(a)(9) and the applicable
Treasury regulations.
(B) MINIMUM DISTRIBUTION REQUIREMENTS FOR BENEFICIARIES.
If any portion of the Participant's interest is payable to a
designated beneficiary, method of distribution to the
Participant's Beneficiary must satisfy Code Section 401(a)(9)
and the applicable Treasury regulations. If the Participant's
death occurs after his Required Beginning Date or, if earlier,
the date the Participant commences an irrevocable annuity
pursuant to Section 6.04, the method of payment to the
Beneficiary must provide for completion of payment over a
period which does not exceed the payment period which had
commenced for the Participant. If the Participant's death
occurs prior to his Required Beginning Date, and the
Participant had not commenced an irrevocable annuity pursuant
to section 6.04, the method of payment to the Beneficiary,
subject to Section 6.04, must provide for completion of
payment to the Beneficiary over a period not exceeding (i) by
December 31 of the calendar year containing the fifth
anniversary of the Participant's; or (ii) if the Beneficiary
is a designated Beneficiary, the designated Beneficiary's life
expectancy. The Advisory Committee may not direct payment of
the Participant's Nonforfeitable Accrued Benefit over a period
described in clause (ii) unless the Trustee will commence
payment to the designated Beneficiary no later than the
December 31 following the close of the calendar year in which
the Participant's death occurred or, if later, and the
designated Beneficiary is the Participant's surviving spouse,
December 31 of the calendar year in which the Participant
would have attained age 70-1/2. If the Trustee will make
distribution in accordance with clause (ii), the minimum
distribution for a calendar year equals the Participant's
Nonforfeitable Accrued Benefit as of the latest valuation date
preceding the beginning of the calendar year divided by the
designated Beneficiary's life expectancy. The Advisory
Committee must use the unisex life expectancy multiples under
Treas. Section Reg. 1.72-9 for purposes of applying this
paragraph. The Advisory Committee, only upon the written
request of the Participant or of the Participant's surviving
spouse, may recalculate the life expectancy of the
Participant's surviving spouse no more frequently than
annually, but may not recalculate the life expectancy of a
nonspouse designated Beneficiary after the Trustee commences
payment to the designated Beneficiary. The Advisory Committee
will apply this paragraph by treating any amount paid to the
Participant's child, which becomes payable to the
Participant's surviving spouse upon the child's attaining the
age of majority, as paid to the Participant' surviving spouse.
Upon the Beneficiary's written request, the Advisory Committee
must direct the Trustee to accelerate payment of all, or any
portion, of the Participant's unpaid Accrued Benefit, as soon
as administratively practicable following the effective date
of that request.
If the participant has not made an election pursuant to this
Section 6.02 by the time of his or her death, the
participant's designated beneficiary must elect the method of
distribution no later than the earlier of (1) December 31 of
the calendar year in which distributions would be required to
begin under this Section, or (2) December 31 of the calendar
year which contains the fifth anniversary of the date of death
of the participant. If the participant has no designated
beneficiary, or if the designated beneficiary does not elect a
method of distribution, distribution of the participant's
entire interest must be completed by December 31 of the
calendar year containing the fifth anniversary of the
participant's death.
For purposes of this Section 6.02, if the surviving spouse
dies after the participant, but before payments to such spouse
begin, the provisions of this Section 6.02, with the exception
of paragraph (b) therein, shall be applied as if the surviving
spouse were the participant.
For the purposes of this Section 6.02, distribution of a
participant's interest is considered to begin on the
Participant's required beginning date (or the date
distribution is required to begin to the surviving spouse). If
distribution in the form of an annuity irrevocably commences
to the Participant before the required beginning date, the
date distribution is considered to begin is the date
distribution actually commences.
APPLICABLE LIFE EXPECTANCY. The life expectancy (or joint and
last survivor expectancy) calculated using the attained age of
the Participant (or designated Beneficiary as of the
Participant's (or designated Beneficiary's) birthday in the
applicable calendar year reduced by one for each calendar year
which has elapsed since the date life expectancy was first
calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as so
recalculated. The applicable calendar year shall be the first
distribution calendar year, and if life expectancy is being
recalculated such succeeding calendar year.
16
<PAGE> 51
PLAN DOCUMENT
DISTRIBUTION CALENDAR YEAR. A calendar year for which a
minimum distribution is required. For distributions beginning
before the participant's death, the first distribution
calendar year is the calendar year immediately preceding the
calendar year which contains the participant's required
beginning date. For distributions beginning after the
participant's death, the first distribution calendar year is
the calendar year in which distributions are required to begin
pursuant to this Section 6.02 above.
6.03 "BENEFIT PAYMENT ELECTIONS"
Not earlier than 90 days before nor later than 30 days before the
Participant's annuity starting date, the Plan Administrator must
provide a benefit notice to a Participant who is eligible to make an
election under this Section 6.03. The benefit notice must explain the
optional forms of benefit in the Plan, including the material features
and relative values of those options, and the Participant's right to
defer distribution until he attains the later of Normal Retirement Age
or age 62.
If a Participant or Beneficiary makes an election prescribed by this
Section 6.03, the Advisory Committee will direct the Trustee to
distribute the Participant's Nonforfeitable Accrued Benefit in
accordance with that election. Any election under this Section 6.03 is
subject to the requirements of Section 6.02 and of Section 6.04. The
Participant or Beneficiary must make an election under this Section
6.03 by filing his election with the Advisory Committee at any time
before the Trustee otherwise would commence to pay a Participant's
Accrued Benefit in accordance with the requirements of Article VI.
(A) PARTICIPANT ELECTIONS AFTER SEPARATE FROM SERVICE. If the
present value of a Participant's Nonforfeitable Accrued
Benefit exceeds $3,500, he may elect to have the Trustee
commence distribution as of any distribution date, but not
earlier than the first distribution date of the first Plan
Year following the Participant's separation from service. The
Participant may reconsider an election at any time prior to
the annuity starting date and elect to commence distribution
as of any other distribution date. A Participant who has not
separated from Service may elect distribution as of any
distribution date following his attainment of Normal
Retirement Age.
(B) PARTICIPANT ELECTIONS PRIOR TO TERMINATION OF EMPLOYMENT. No
distribution options are permitted prior to a Participant's
Separation of Service.
(C) DEATH BENEFIT ELECTIONS. If the present value of the deceased
Participant's Nonforfeitable Accrued Benefit exceeds $3,500,
the Participant's Beneficiary may elect to have the Trustee
distribute the Participant's Nonforfeitable Accrued Benefit in
a form and within a period permitted under Section 6.02. The
Beneficiary's election is subject to any restrictions
designated in writing by the Participant and not revoked as of
his date of death.
(D) TRANSITIONAL ELECTIONS. Notwithstanding the provisions of
Section 6.01 and 6.02, if the Participant (or Beneficiary)
signed a written distribution designation prior to January 1,
1984, the Advisory Committee must distribute the Participant's
Nonforfeitable Accrued Benefit in accordance with that
designation, subject however, to the requirements, if
applicable, of Sections 6.04, 6.05 and 6.06. This Section
6.03(D) does not apply to a pre-1984 distribution designation,
and the Advisory Committee will not comply with that
designation, if any of the following applies: (1) the method
of distribution would have disqualified the Plan under Code
Section 401(a)(9) as in effect on December 31, 1983; (2) the
Participant did not have an Accrued Benefit as of December
31, 1983; (3) the distribution designation does not specify the
timing and form of the distribution and the death
Beneficiaries (in order of priority); (4) the substitution of
a Beneficiary modifies the payment period of the distribution;
or, (5) the Participant (or Beneficiary) modifies or revokes
the distribution designation. In the event of a revocation,
the Plan must distribute, no later than December 31 of the
calendar year following the year of revocation, the amount
which the Participant would have received under Section
6.02(A) if the election had not been in effect or, if the
Beneficiary revokes the election, the amount which the
Beneficiary would have received under Section 6.02(B) if the
election had not been in effect. The Advisory Committee will
apply this Section 6.03(D) to rollovers and transfers in
accordance with Part J of the Code Section 401(a)(9)
regulations.
6.04 "ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES"
(A) JOINT AND SURVIVOR ANNUITY. The Advisory Committee must direct
the Trustee to distribute a married or unmarried Participant's
Nonforfeitable Accrued Benefit in the form of a qualified
joint and survivor annuity, unless the Participant makes a
valid waiver election (described in Section 6.05) within the
90 day period ending on the annuity starting date. The
participant may elect to have such annuity distributed upon
attainment of the earliest retirement age under the plan. The
earliest retirement age is the earliest date on which, under
the plan, the participant could elect to receive retirement
benefits. If, as of the annuity starting date, the participant
is married, a qualified joint and survivor annuity is an
immediate annuity which is purchasable with the Participant's
Nonforfeitable Accrued Benefit and which provides a life
annuity for the Participant and a survivor annuity payable for
the remaining life of the Participant's surviving spouse equal
to not less than 50% and not more than 100% of the amount of
the annuity payable during the life of the Participant. If, as
of the annuity starting date, the Participant is not married,
a qualified joint and survivor annuity is an immediate life
annuity for the Participant which is purchasable with the
Participant's Nonforfeitable Accrued Benefit. On or before the
annuity starting date, the Advisory Committee, without
Participant or spousal consent, must direct the Trustee to pay
the Participant's Nonforfeitable Accrued Benefit in a lump
sum, in lieu of a qualified joint and survivor annuity, in
accordance with Section 6.01, if the Participant's
Nonforfeitable Accrued Benefit is not greater than $3,500.
This Section 6.04(A) applies only to a Participant who has
completed at least one Hour of Service with the Employer after
August 23, 1984.
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(B) PRE-RETIREMENT SURVIVOR ANNUITY. If a married Participant dies
prior to his annuity starting date, the Advisory Committee
will direct the Trustee to distribute a portion of the
Participant's Nonforfeitable Accrued Benefit to the
Participant's surviving spouse in the form of a pre-retirement
survivor annuity, unless the Participant has a valid waiver
election (as described in Section 6.06) in effect within the
election period, or unless the Participant and his spouse were
not married throughout the one year period ending on the date
of his death. The surviving spouse may elect to have such
annuity distributed within a reasonable period after the
participant's death. The period which begins on the first day
of the plan year in which the participant attains age 35 and
ends on the date of the participant's death. If a participant
separates from service prior to the first day of the plan
year in which age 35 is attained, with respect to the account
balance as of the date of separation, the election period
shall begin on the date of separation. A pre-retirement
survivor annuity is an annuity which is purchasable with 50%
of the Participant's Nonforfeitable Accrued Benefit
(determined as of the date of the Participant's death) and
which is payable for the life of the Participant's surviving
spouse. The value of the pre-retirement survivor annuity is
attributable to Employer contributions and to Employee
contributions in the same proportion as the Participant's
Nonforfeitable Accrued Benefit is attributable to those
contributions. If the present value of the pre-retirement
survivor annuity does not exceed $3,500, the Advisory
Committee, on or before the annuity starting date (as
determined under Section 6.01(C)), must direct the Trustee to
make a lump sum distribution to the Participant's surviving
spouse, in lieu of a pre-retirement survivor annuity. This
Section 6.04(B) applies only to a Participant who dies after
August 22, 1984, and either (i) completes at least one Hour of
Service with the Employer after August 22, 1984, or (ii)
separated from Service with at least 10 Years of Service (as
defined in Section 5.06) and completed at least one Hour of
Service with the Employer in a Plan Year beginning after
December 31, 1975.
(C) SURVIVING SPOUSE ELECTIONS. If the present value of the
pre-retirement survivor annuity exceeds $3,500, the
Participant's surviving spouse may elect to have the Trustee
commence payment of the pre-retirement survivor annuity at any
time following the date of the Participant's death, but not
later than the mandatory distribution periods described in
Section 6.02, and may elect either or any combination of the
two forms of payment described in Section 6.02, in lieu of the
pre-retirement survivor annuity. In the absence of an election
by the surviving spouse, the Advisory Committee must direct
the Trustee to distribute the pre-retirement survivor annuity
on the first distribution date following the close of the Plan
Year in which the latest of the following events occurs (i)
the Participant's death; (ii) the date the Advisory Committee
receives notification of or otherwise confirms the
Participant's death; (iii) the date the Participant would have
attained Normal Retirement Age; or (iv) the date the
Participant would have attained age 62.
(D) SPECIAL RULES. If the Participant has in effect a valid waiver
election regarding the qualified joint and survivor annuity or
the pre-retirement survivor annuity, the Advisory Committee
must direct the Trustee to distribute the Participant's
Nonforfeitable Accrued Benefit in accordance with Sections
6.01, 6.02 and 6.03. For purposes of applying this Article VI,
the Advisory Committee treats a former spouse as the
Participant's spouse or surviving spouse, and a current spouse
will not be treated as the spouse or surviving spouse, to the
extent provided under a qualified domestic relations order
described in Section 6.07. The provisions of this Section
6.04, and of Sections 6.05 and 6.06, apply separately to the
portion of the Participant's Nonforfeitable Accrued Benefit
subject to the qualified domestic relations order and to the
portion of the Participant's Nonforfeitable Accrued Benefit
not subject to that order. The spouse (surviving spouse) is
the spouse or surviving spouse of the participant, provided
that a former spouse will be treated as the spouse or
surviving spouse and a current spouse will not be treated as
the spouse or surviving spouse to the extent provided under a
qualified domestic relations order as described in Section
414(p) of the Code.
(E) PROFIT SHARING PLAN EXCEPTION. If the Plan is a profit sharing
plan, the preceding provisions of this Section 6.04 do not
apply to any Participant in the Plan except: (1) a Participant
as respects whom the Plan is a direct or indirect transferee
from a plan subject to the Code Section 417 requirements and
the Plan received the transfer after December 31, 1984, unless
the transfer is an elective transfer described in Section
12.06; (2) a Participant who elects a life annuity
distribution (if Section 12.02 of the Plan requires the Plan
to provide a life annuity distribution option); and (3) a
Participant whose benefits under a defined benefit plan
maintained by the Employer are offset by benefits provided
under this Plan. Sections 6.05 and 6.06 only apply to
Participants to whom the preceding provisions of this Section
6.04 apply.
This Section shall apply to a participant in a profit-sharing
plan, and to any distribution, made on or after the first day
of the first plan year beginning after December 31, 1988, from
or under a separate account attributable solely to accumulated
deductible employee contributions, as defined in Section
72(o)(5)(B) of the Code, and maintained on behalf of a
participant in a money purchase pension plan (including a
target benefit plan), if the following conditions are
satisfied: (1) the participant does not or cannot elect
payments in the form of a life annuity; and (2) on the death
of a participant, the participant's vested account balance
will be paid to the participant's surviving spouse, but if
there is no surviving spouse, or if the surviving spouse has
consented in a manner conforming to a qualified election, then
to the participant's designated beneficiary. The surviving
spouse may elect to have distribution of the vested account
balance commence within the 90-day period following the date
of the participant's death. The account balance shall be
adjusted for gains or losses occurring after the participant's
death in accordance with the provision of the plan governing
the adjustment of account balances for other types of
distributions. This section Section 6.04(E) shall not be
operative with respect to a participant in a profit-sharing
plan if the plan is a direct or indirect transferee of a
defined benefit plan, money purchase plan, a target benefit
plan, stock bonus, or profit-sharing plan which is subject to
the survivor annuity requirements of Section 401(a)(11) and
Section 417. If this Section 6.04(E) is operative, then the
provisions of this Article, other than this Section 6.04,
shall be inoperative.
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The participant may waive the spousal death benefit described in this
Section at any time provided that no such waiver shall be effective
unless it satisfies the conditions of Section 6.05 (other than the
notification requirement referred to therein) that would apply to the
participant's waiver of the qualified pre-retirement survivor annuity.
For purposes of this Section 6.04(E), vested account balance shall
mean, in the case of a money purchase pension plan or a target benefit
plan, the participant's separate account balance attributable solely
to accumulated deductible employee contributions within the meaning of
Section 72(o)(5)(B) of the Code. In the case of a profit-sharing plan,
vested account balance shall have the same meaning as Nonforfeitable
Accrued Benefit.
6.05 "WAIVER ELECTION - QUALIFIED JOINT AND SURVIVOR ANNUITY"
Not earlier than 90 days before nor later than 30 days before the
Participant's annuity starting date, the Plan Administrator must
provide the Participant a written explanation of the terms and
conditions of the qualified joint and survivor annuity, the
Participant's right to make, and the effect of, an election to waive
the joint and survivor form of benefit, the rights of the
Participant's spouse regarding the waiver election and the
Participant's right to make, and the effect of, a revocation of a
waiver election. The Plan does not limit the number of times the
Participant may revoke a waiver of the qualified joint and survivor
annuity or make a new waiver during the election period.
A married Participant's waiver election is not valid unless (a) the
Participant's spouse (to whom the survivor annuity is payable under
the qualified joint and survivor annuity) has consented in writing to
the waiver election, the spouse's consent acknowledges the effect of
the election, and a notary public or the Plan Administrator (or his
representative) witnesses the spouse's consent, (b) the election
designates a specific beneficiary, including any class of
beneficiaries or any contingent beneficiaries, which may not be
changed without spousal consent (or the spouse expressly permits
designations by the participant without any further spousal consent;
(c) the spouse consents to the alternate form of payment designated by
the Participant or to any change in that designated form of payment,
and (d) unless the spouse is the Participant's sole primary
Beneficiary, the spouse consents to the Participant's Beneficiary
designation or to any change in the Participant's Beneficiary
designation. The spouse's consent to a waiver of the qualified joint
and survivor annuity is irrevocable, unless the Participant revokes
the waiver election. The spouse may execute a blanket consent to any
form of payment designation or to any Beneficiary designation made by
the Participant, if the spouse acknowledges the right to limit that
consent to a specific designation but, in writing, waives that right.
The consent requirements of this Section 6.05 apply to a former spouse
of the Participant, to the extent required under a qualified domestic
relations order described in Section 6.07. A revocation of a prior
waiver may be made by a participant without the consent of the spouse
at any time before the commencement of benefits. The number of
revocations shall not be limited. No consent obtained under this
provision shall be valid unless the participant has received notice as
provided in this Section 6.05.
The Plan Administrator will accept as valid a waiver election which
does not satisfy the spousal consent requirements if the Plan
Administrator establishes the Participant does not have a spouse, the
Plan Administrator is not able to locate the Participant's spouse, the
Participant is legally separated or has been abandoned (within the
meaning of State law) and the Participant has a court order to that
effect, or other circumstances exist under which the Secretary of the
Treasury will excuse the consent requirement. If the Participant's
spouse is legally incompetent to give consent, the spouse's legal
guardian (even if the guardian is the Participant) may give consent.
Any consent obtained from a spouse shall be effective only with
respect to such spouse.
6.06 "WAIVER ELECTION - PRE-RETIREMENT SURVIVOR ANNUITY"
The Plan Administrator must provide a written explanation of the
pre-retirement survivor annuity to each married Participant, within
the following period which ends last: (1) the period beginning on the
first day of the Plan Year in which the Participant attains age 32 and
ending on the last day of the Plan Year in which the Participant
attains age 35; (2) a reasonable period ending after an Employee
becomes a Participant; (3) a reasonable period ending after the joint
and survivor rules become applicable to the Participant; or (4) a
reasonable period ending after a fully subsidized pre-retirement
survivor annuity no longer satisfies the requirements for a fully
subsidized benefit. A reasonable period described in clauses (2), (3)
and (4) is the two-year period beginning one year before and ending
one year after the applicable event. If the Participant separates from
Service before attaining age 35, clauses (1), (2), (3) and (4) do not
apply and the Plan Administrator must provide the written explanation
within the two-year period beginning one year before and ending one
year after the Separation from Service. The written explanation must
describe, in a manner consistent with Treasury regulations, the terms
and conditions of the pre-retirement survivor annuity comparable to
the explanation of the qualified joint and survivor annuity required
under Section 6.05. The Plan does not limit the number of times the
Participant may revoke a waiver of the pre-retirement survivor annuity
or make a new waiver during the election period.
A Participant's waiver election of the pre-retirement survivor annuity
is not valid unless (a) the Participant makes the waiver election no
earlier than the first day of the Plan Year in which he attains age 35
and (b) the Participant's spouse (to whom the pre-retirement survivor
annuity is payable) satisfies the consent requirements described in
Section 6.05, except the spouse need not consent to the form of
benefit payable to the designated Beneficiary. The spouse's consent to
the waiver of the pre-retirement survivor annuity is irrevocable,
unless the Participant revokes the waiver election. Irrespective of
the time of election requirement described in clause (a), if the
Participant separates from Service prior to the first day of the Plan
Year in which he attains age 35, the Plan Administrator will accept a
waiver election as respects the Participant's Accrued Benefit
attributable to his Service prior to his Separation from Service. If
the participant thereafter returns to employment with the employer,
the applicable period for such participant shall be redetermined.
Pre-age 35
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<PAGE> 54
waiver: A participant who will not yet attain age 35 as of the end of
any current Plan Year may make a special qualified election to waive
the qualified pre-retirement survivor annuity for the period beginning
on the date of such election and ending on the first day of the Plan
Year in which the participant will attain age 35. Such election shall
not be valid unless the participant receives a written explanation of
the qualified pre-retirement survivor annuity in such terms as are
comparable to the explanation required under Section 6.05. Qualified
pre-retirement survivor annuity coverage will be automatically
reinstated as of the first day of the Plan Year in which the
participant attains age 35. Any new waiver on or after such date shall
be subject to the full requirements of this Article.
Notwithstanding the other requirements of this Section 6.06, the
respective notices prescribed by this Section need not be given to a
participant if (1) the plan "fully subsidizes" the costs of a
qualified joint and survivor annuity or qualified pre-retirement
survivor annuity, and (2) the plan does not allow the participant to
waive the qualified joint and survivor annuity or qualified
pre-retirement survivor annuity and does not allow a married
participant to designate a nonspouse beneficiary. For purposes of this
Section 6.06, a plan fully subsidizes the costs of a benefit if no
increase in cost, or decrease in benefits to the participant may
result from the participant's failure to elect another benefit. Any
consent obtained from a spouse shall be effective only with respect to
such spouse.
6.07 "DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS"
Nothing contained in this Plan prevents the Trustee, in accordance
with the direction of the Advisory Committee, from complying with the
provisions of a qualified domestic relations order (as defined in Code
Section 414(p)). This Plan specifically permits distribution to an
alternate payee under a qualified domestic relations order at any time,
irrespective of whether the Participant has attained his earliest
retirement age (as defined under Code Section 414(p)) under the Plan.
A distribution to an alternate payee prior to the Participant's
attainment of earliest retirement age is available only if: (l) the
order specifies distribution at that time or permits an agreement
between the Plan and the alternate payee to authorize an earlier
distribution; and (2) if the present value of the alternate payee's
benefits under the Plan exceeds $3,500, and if the order requires, the
alternate payee consents to any distribution occurring prior to the
Participant's attainment of earliest retirement age. Nothing in this
Section 6.07 permits a Participant a right to receive distribution at
a time otherwise not permitted under the Plan nor does it permit the
alternate payee to receive a form of payment not permitted under the
Plan.
The Plan Administrator must establish reasonable procedures to
determine the qualified status of a domestic relations order. Upon
receiving a domestic relations order, the Plan Administrator promptly
will notify the Participant and any alternate payee named in the
order, in writing, of the receipt of the order and the Plan's
procedures for determining the qualified status of the order. Within a
reasonable period of time after receiving the domestic relations
order, the Plan Administrator must determine the qualified status of
the order and must notify the Participant and each alternate payee, in
writing, of its determination. The Plan Administrator must provide
notice under this paragraph by mailing to the individual's address
specified in the domestic relations order, or in a manner consistent
with Department of Labor regulations.
If any portion of the Participant's Nonforfeitable Accrued Benefit is
payable during the period the Plan Administrator is making its
determination of the qualified status of the domestic relations order,
the Advisory Committee must make a separate accounting of the amounts
payable. If the Plan Administrator determines the order is a qualified
domestic relations order within 18 months of the date amounts first
are payable following receipt of the order, the Advisory Committee
will direct the Trustee to distribute the payable amounts in
accordance with the order. If the Plan Administrator does not make its
determination of the qualified status of the order within the 18-month
determination period, the Advisory Committee will direct the Trustee
to distribute the payable amounts in the manner the Plan would
distribute if the order did not exist and will apply the order
prospectively if the Plan Administrator later determines the order is
a qualified domestic relations order.
To the extent it is not inconsistent with the provisions of the
qualified domestic relations order, the Advisory Committee may direct
the Trustee to invest any partitioned amount in a segregated
subaccount or separate account and to invest the account in Federally
insured, interest-bearing savings account(s) or time deposit(s) (or a
combination of both), or in other fixed income investments. A
segregated subaccount remains a part of the Trust, but it alone shares
in any income it earns, and it alone bears any expense or loss it
incurs. The Trustee will make any payments or distributions required
under this Section 6.07 by separate benefit checks of other separate
distribution to the alternate payee(s).
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<PAGE> 55
PLAN DOCUMENT
ARTICLE VII
TRUSTEE, POWERS AND DUTIES
7.01 "INVESTMENT OF TRUST ASSETS"
The Trustee shall accept and hold in the Trust such contributions of
money on behalf of the Employer and Participants as it may receive
from time to time, but not more frequently than once each month, from
the Employer. All such contributions of money shall be accompanied by
written instructions from the Employer specifying the Participants'
sub-accounts to which they are to be credited, the amount to be
invested in and the choice of Designated Investment Company stock, and
by furnishing such instructions the Employer represents to the Trustee
that the same are in accordance with any uniform rules adopted by the
Employer and made known to Participants. If written instructions are
not received, or if received, are in the opinion of the Trustee
unclear, the Trustee may hold all or a portion of the contributions in
cash without liability for rising security prices or distributions,
pending receipt of written instructions or clarification. A
Participant, through his Employer, may request an exchange of all or
part of the investment company shares held hereunder for any other
investment company shares eligible for purchase under the Plan, upon
terms and conditions and within the limitations imposed by the then
current prospectuses of the respective investment companies.
Investment in shares of the Designated Investment Company shall be
made at the price and in the manner in which such shares are then
being publicly offered by such investment company. All dividends and
capital gain distributions received on such shares shall be reinvested
in such shares. If any distribution on shares of the fund may be
received at the election of the shareholder in additional shares or in
cash or other property, the Trustee shall elect to receive it in
additional shares. Sales charges attributable to the acquisition of
shares shall be charged to the account of the Participant for which
such shares are acquired. All investment company shares acquired by
the Trustee shall be registered in the name of the Trustee or of its
registered nominee.
The Employer shall remit directly to the insurance company any
premiums life insurance or annuities which constitute contributions
under the Plan, and the Trustee shall have no duty to account
therefor. Any such life insurance and/or annuity contracts shall be
issued in restricted and nontransferable form and be held by the
Employer.
7.02 "VOTING AND OTHER ACTIONS"
The Trustee shall deliver, or cause to be executed and delivered, to
the Employer all notices, prospectuses, financial statements, proxies,
and proxy soliciting material relating to shares of Designated
Investment Company stock held pursuant to the Plan. The Trustee shall
not vote any of the shares of the Fund held hereunder.
7.03 "REPORTS OF THE TRUSTEE AND EMPLOYER"
The Trustee shall keep accurate and detailed records of all receipts,
investments, disbursements and other transactions under this Trust.
Not later than forty-five (45) days after the close of each Plan Year
(or after the Trustee's resignation or removal pursuant to Section XI
hereof), the Trustee shall file with the Employer and each Participant
or Beneficiary for whom account is maintained by the Trustee under
this Agreement a written report or reports reflecting the receipts,
disbursements and other transactions effected by it during such Plan
Year (or period ending with such resignation or removal) and the
assets and liabilities of such account at its close. Upon the
expiration of a period of sixty (60) days immediately following the
date on which such reports are filed, the Trustee shall be forever
released and discharged from all liability and accountability to
anyone with respect to its acts, transactions, duties, obligations or
responsibility as shown in or reflected by such reports, except with
respect to any such acts or transactions as to which written
objections have been filed with the Trustee within such sixty day
period.
The Employer shall furnish to the Trustee, and the Trustee shall
furnish to the Employer, such information relevant to the Plan and
Trust as may be required under the Internal Revenue Code and any
Regulations issued or forms adopted by the Treasury Department
thereunder.
The Trustee shall keep such records, make such identifications, and
file with the Internal Revenue Service such returns and other
information concerning the Trust as may be required of it under the
Internal Revenue Code and any Regulations issued or forms adopted by
the Treasury Department thereunder.
7.04 "TRUSTEE FEES AND EXPENSES OF THE ACCOUNT"
Any income taxes or other taxes of any kind whatsoever that may be
levied or assessed upon or in respect of the Trust, any transfer taxes
incurred in connection with the investment and reinvestment of the
assets of the Trust, all other administrative expenses incurred by the
Trustee in the performance of its duties including fees for legal
services rendered to the Trustee, and such compensation to the Trustee
as may be agreed upon from time to time between the Trustee and the
Employer shall be paid from the assets of the Trust and shall, unless
allocable to the Accounts of specific Participants, be charged
proportionately to their respective accounts.
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<PAGE> 56
7.05 "CONCERNING THE TRUSTEE"
The Trustee shall not be responsible in any way for the collection of
contributions provided for under the Plan, the purpose or propriety of
any distribution made pursuant to Section V hereof, or any other
action taken at the Employer's request. Nor shall the Trustee be
responsible for the administration of the Plan, its validity or
effect, or the qualification of the Plan or of the Trust Agreement
under the provisions of the Internal Revenue Code. The Trustee shall
not be required to examine the Plan or be charged with notice of its
provisions. The Trustee shall not be required to take any action upon
receipt of any notice from the Internal Revenue Service except to
forward a copy thereof to the Employer with a request for written
instructions. The Employer shall at all times fully indemnify and save
harmless the Trustee, its successors and assigns, from and against any
and all loss resulting from liability to which the Trustee may be
subject by reason of any act or conduct (except willful misconduct or
gross negligence) in its capacity as Trustee hereunder, including all
expenses reasonably incurred in its defense, in case the Employer
fails to provide such defense. The Trustee shall be under no duty to
take any action other than as herein specified with respect to the
Trust unless the Employer shall furnish the Trustee with instructions
in proper form and as authorized by the terms of the Plan; or to
defend or engage in any suit with respect to the Trust unless the
Trustee shall have first agreed in writing to do so and shall have
been fully indemnified to the satisfaction of the Trustee. The Trustee
shall be protected in acting upon any written order from the Employer
or any other notice, request, consent, certificate or other instrument
or paper believed by it to be genuine and to have been properly
executed, and, so long as it acts in good faith, in taking or omitting
to take any other action. The Trustee shall not be liable for interest
on any cash or cash balances maintained in the Trust pending
investment in accordance with appropriate directions from the
Employer.
7.06 "AMENDMENT"
If the Employer's plan fails to attain or retain qualification, such
plan will no longer participate in the prototype Plan and will be
considered an individually designed plan.
7.07 "RESIGNATION OR REMOVAL OF TRUSTEE"
The Trustee may resign at any time upon thirty (30) days notice in
writing to the Employer, and may be removed by the Employer at any
time upon thirty (30) days notice in writing to the Trustee. Upon such
resignation or removal, the Employer shall appoint a successor
Trustee. Upon receipt by the Trustee of written acceptance of such
appointment by the successor Trustee, the Trustee shall transfer and
pay over to such successor the assets of the Trust Account and all
records pertaining thereto. The Trustee is authorized, however, to
reserve such sum of money as it may deem advisable for payment of all
its fees, compensation, costs and expenses, or for payment of any
other liability constituting a charge on or against the assets of the
Trust or on or against the Trustee, with any balance of such reserve
remaining after the payment of all such items to be paid over to the
successor Trustee. The successor Trustee shall hold the assets paid
over to it under terms similar to those of this Agreement that qualify
under section 401 of the Code. If within thirty (30) days after the
Trustee's resignation or removal the Employer has not appointed a
successor Trustee which has accepted such appointment, the Trustee
shall, unless it elects to terminate the Trust pursuant to Section
XII, appoint such successor itself.
7.08 "TERMINATION OF TRUST"
The Trustee may elect to terminate the Trust if within thirty (30)
days after its resignation or removal pursuant to Section X the
Employer has not appointed a successor Trustee which has accepted such
appointment. The Trustee shall terminate the Trust upon receiving
notice of the Employer's death, if the Employer is a sole proprietor,
or upon receiving notice of the termination of the partnership, if the
Employer is a partnership, or upon receiving notice of the dissolution
of the corporation, if the Employer is a corporation, unless provision
is made by a successor to the business of the Employer for the
continuation of the Plan and this Agreement upon terms satisfactory to
the Trustee.
Termination of the Trust shall be effected by distributing all assets
thereof to the Participants and their designated beneficiaries
pursuant to the direction of the Employer (or in the absence of such
direction as determined by the Trustee), as on the termination of the
Plan. Upon the completion of such distribution, the Trustee shall be
relieved from all further liability with respect to all amounts so
paid.
7.09 "MISCELLANEOUS"
At no time shall it be possible for any part of the assets of the
Trust to be used for or diverted to purposes other than for the
exclusive benefit of Participants and Beneficiaries.
Any notice from the Trustee to the Employer, Participant or
Beneficiary provided for in this Agreement shall be effective if sent
by first class mail to the last address of record.
Upon receipt of a written request from the Employer, the Trustee shall
transfer the assets in the Trust for a Participant to any other
qualified plan maintained by the Employer for the benefit of such
Participant; and the Trustee shall have no further liability under the
Plan and Trust with respect to any assets so transferred.
This Agreement shall bind and inure to the benefit of the personal
representatives, successors and assigns of the Employer and the
Trustee.
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PLAN DOCUMENT
ARTICLE VIII
PARTICIPANT ADMINISTRATIVE PROVISIONS
8.01 "BENEFICIARY DESIGNATION"
Any Participant may from time to time designate, in writing, any
person or persons, contingently or successively, to whom the Trustee
will pay his Accrued Benefit (including any life insurance proceeds
payable to the Participant's Account) on event of his death and the
Participant may designate the form and method of payment. The Advisory
Committee will prescribe the form for the written designation of
Beneficiary and, upon the Participant's filing the form with the
Advisory Committee, the form effectively revokes all designations
filed prior to that date by the same Participant.
COORDINATION WITH SURVIVOR REQUIREMENTS. If the joint and survivor
requirements of Article VI apply to the Participant, this Section 8.01
does not impose any special spousal consent requirements on the
Participant's Beneficiary designation. However, in the absence of
spousal consent (as required by Article VI) to the Beneficiary
designation: (1) any waiver of the joint and survivor annuity or of
the pre-retirement survivor annuity is not valid; and (2) if the
Participant dies prior to his annuity starting date, the Beneficiary
designation will apply only to the portion of the death benefit which
is not payable as a pre-retirement survivor annuity.
PROFIT SHARING PLAN EXCEPTION. If the Plan is a profit sharing plan,
and the Employer elects to apply the joint and survivor requirements
only to Participants described in Section 6.04(E), the Beneficiary
designation of a married Participant who is not described in Section
6.04(E) is not valid unless the Participant's spouse consents (in a
manner described in Section 6.05) to the Beneficiary designation. The
spousal consent requirement in this paragraph does not apply if the
Participant and his spouse are not married throughout the one year
period ending on the date of the Participant's death, or if the
Participant's spouse is the Participant's sole primary Beneficiary.
8.02 "NO BENEFICIARY DESIGNATION"
If a Participant fails to name a Beneficiary in accordance with
Section 8.01, or if the Beneficiary named by a Participant predeceases
him or dies before complete distribution of the Participant's Accrued
Benefit as prescribed by the Participant's Beneficiary form, then the
Trustee will pay the Participant's Accrued Benefit in accordance with
Section 6.02 in the following order of priority:
(A) The Participant's surviving spouse;
(B) The Participant's surviving children, including adopted
children, in equal shares;
(C) The Participant's surviving parents, in equal shares; or
(D) The legal representative of the estate of the last to die of
the Participant and his Beneficiary.
The Advisory Committee will direct the Trustee as to the method and to
whom the Trustee will make payment under this Section 8.02. If a
benefit is forfeited because the participant or beneficiary cannot be
found, such benefit will be reinstated if a claim is made by the
participant or beneficiary.
8.03 "PERSONAL DATA TO COMMITTEE"
Each Participant and each Beneficiary of a deceased Participant must
furnish to the Advisory Committee such evidence, data or information
as the Advisory Committee considers necessary or desirable for the
purpose of administering the Plan. The provisions of this Plan are
effective for the benefit of each Participant upon the condition
precedent that each Participant will furnish promptly full, true and
complete evidence, data and information when requested by the Advisory
Committee, provided the Advisory Committee advises each Participant of
the effect of his failure to comply with its request.
8.04 "ADDRESS FOR NOTIFICATION"
Each Participant and each Beneficiary of a deceased Participant must
file with the Advisory Committee from time to time, in writing, his
post office address and any change of post office address. Any
communication, statement or notice addressed to a Participant, or
Beneficiary, at his last post office address filed with the Advisory
Committee, or as shown on the records of the Employer, binds the
Participant, or Beneficiary, for all purposes of this Plan.
8.05 "ASSIGNMENT OR ALIENATION"
Subject to Code Section 414(p) relating to qualified domestic
relations orders or domestic relations orders entered into before
January 1, 1985, neither a Participant nor a Beneficiary may
anticipate, assign or alienate voluntarily or involuntarily (either at
law or in equity) any benefit provided under the Plan, and the Trustee
will not recognize any such anticipation, assignment or alienation.
Furthermore, a benefit under the Plan is not subject to attachment,
garnishment, levy, execution or other legal or equitable process.
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8.06 "NOTICE OF CHANGE IN TERMS"
The Plan Administrator, within the time prescribed by ERISA and the
applicable regulations, must furnish all Participants and
Beneficiaries a summary description of any material amendment to the
Plan or notice of discontinuance of the Plan and all other information
required by ERISA to be furnished without charge.
8.07 "LITIGATION AGAINST THE TRUST"
A court of competent jurisdiction may authorize any appropriate
equitable relief to redress violations of ERISA or to enforce any
provisions of ERISA or the terms of the Plan. A fiduciary may receive
reimbursement of expenses properly and actually incurred in the
performance of his duties with the Plan.
8.08 "INFORMATION AVAILABLE"
Any Participant in the Plan or any Beneficiary may examine copies of
the Plan description, latest annual report, any bargaining agreement,
this Plan and Trust, contract or any other instrument under which the
Plan was established or is operated. The Plan Administrator will
maintain all of the items listed in this Section 8.08 in his office,
or in such other place or places as he may designate from time to time
in order to comply with the regulations issued under ERISA, for
examination during reasonable business hours. Upon the written request
of a Participant or Beneficiary the Plan Administrator must furnish
him with a copy of any item listed in this Section 8.08. The Plan
Administrator may make a reasonable charge to the requesting person
for the copy so furnished.
8.09 "APPEAL PROCEDURE FOR DENIAL OF BENEFITS"
The Plan Administrator must provide adequate notice in writing to any
Participant or to any Beneficiary ("Claimant") whose claim for
benefits under the Plan the Advisory Committee has denied. The Plan
Administrator's notice to the Claimant must set forth:
(A) The specific reason for the denial;
(B) Specific references to pertinent Plan provisions on which the
Advisory Committee based its denial;
(C) A description of any additional material and information
needed for the Claimant to perfect his claim and an
explanation of why the material or information is needed; and
(D) That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Advisory Committee
within 75 days after receipt of the Plan Administrator's
notice of denial of benefits. The Plan Administrator's notice
must further advise the Claimant that his failure to appeal
the action to the Advisory Committee in writing within the
75-day period will render the Advisory Committee's
determination final, binding and conclusive.
If the Claimant should appeal to the Advisory Committee, he, or his
duly authorized representative, may submit, in writing, whatever
issues and comments he, or his duly authorized representative, feels
are pertinent. The Claimant, or his duly authorized representative,
may review pertinent Plan documents. The Advisory Committee will
re-examine all facts related to the appeal and make a final
determination as to whether the denial of benefits is justified under
the circumstances. The Advisory Committee must advise the Claimant of
its decision within 60 days of the Claimant's written request for
review, unless special circumstances (such as a hearing) would make
the rendering of a decision within the 60-day limit unfeasible, but in
no event may the Advisory Committee render a decision respecting a
denial for a claim for benefits later than 120 days after its receipt
of a request for review.
The Plan Administrator's notice of denial of benefit must identify the
name of each member of the Advisory Committee and the name and address
of the Advisory Committee member to whom the Claimant may forward
his appeal.
8.10 "PARTICIPANT DIRECTION OF INVESTMENT"
A Participant has the right to direct the Employer with respect to the
investment or re-investment of the assets comprising the Participant's
individual Account only if the Employer consents in writing to permit
such direction. If the Employer consents to Participant direction of
investment, the Employer and each Participant must execute a letter
agreement as a part of this Plan containing such conditions,
limitations and other provisions they deem appropriate before the
Employer will follow any Participant direction as respects the
investment or re-investment of any part of the Participant's
individual Account. The Employer is not liable for any loss, nor is
liable for any breach, resulting from a Participant's direction of the
investment of any part of his individual Account.
24
<PAGE> 59
PLAN DOCUMENT
ARTICLE IX
ADVISORY COMMITTEE -
DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS
9.01 "MEMBERS' COMPENSATION, EXPENSES"
The Employer must appoint an Advisory Committee to administer the
Plan, the members of which may or may not be Participants in the Plan,
or which may be the Plan Administrator acting alone. The members of
the Advisory Committee will serve without compensation for services as
such, but the Employer will pay all expenses of the Advisory
Committee, including the expense for any bond required under ERISA.
9.02 "TERM"
Each member of the Advisory Committee serves until the appointment of
his successor.
9.03 "POWERS"
In case of a vacancy in the membership of the Advisory Committee, the
remaining members of the Advisory Committee may exercise any and all
of the powers, authority, duties and discretion conferred upon the
Advisory Committee pending the filling of the vacancy.
9.04 "GENERAL"
The Advisory Committee has the following powers and duties:
(A) To select a Secretary, who need not be a member of
the Advisory Committee;
(B) To determine the rights of eligibility of an Employee
to participate in the Plan, the value of a
Participant's Accrued Benefit and the Nonforfeitable
percentage of each Participant's Accrued Benefit;
(C) To adopt rules of procedure and regulations necessary
for the proper and efficient administration of the
Plan provided the rules are not inconsistent with the
terms of this Agreement;
(D) To enforce the terms of the Plan and the rules and
regulations it adopts;
(E) To direct the Trustee as respects the crediting and
distribution of the Trust;
(F) To review and render decisions respecting a claim for
(or denial of a claim for) a benefit under the Plan;
(G) To furnish the Employer with information which the
Employer may require for tax or other purposes;
(H) To engage the service of agents whom it may deem
advisable to assist it with the performance of its
duties;
(I) To establish and maintain a funding standard account
and to make credits and charges to the account to the
extent required by and in accordance with the
provisions of the Code.
The Advisory Committee must exercise all of its powers, duties
and discretion under the Plan in a uniform and
nondiscriminatory manner.
9.05 "FUNDING POLICY"
The Advisory Committee will review, not less often than annually, all
pertinent Employee information and Plan data in order to establish the
funding policy of the Plan and to determine the appropriate methods of
carrying out the Plan's objectives.
9.06 "MANNER OF ACTION"
The decision of a majority of the members appointed and qualified
controls.
9.07 "INTERESTED MEMBER"
No member of the Advisory Committee may decide or determine any matter
concerning the distribution, nature or method of settlement of his own
benefits under the Plan, except in exercising an election available to
that member in his capacity as a Participant, unless the Plan
Administrator is acting alone in the capacity of the Advisory
Committee.
9.08 "INDIVIDUAL ACCOUNTS"
The Advisory Committee will maintain, or direct the Trustee to
maintain, a separate Account, or multiple Accounts, in the name of
each Participant to reflect the Participant's Accrued Benefit under
the Plan.
The Advisory Committee will make its allocations, or request the
Trustee to make its allocations, to the Accounts of the Participants
in accordance with the provisions of Section 9.11. The Advisory
Committee may direct the Trustee to maintain a temporary segregated
investment Account in the name of a Participant to prevent a
distortion of income, gain or loss allocations under Section 9.11. The
Advisory Committee must maintain records of its activities.
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<PAGE> 60
9.09 "VALUE OF PARTICIPANT'S ACCRUED BENEFIT"
The value of each Participant's Accrued Benefit consists of that
proportion of the net worth (at fair market value) of the Employer's
Trust Fund which the net credit balance in his Account (exclusive of
the cash value of incidental benefit insurance contracts) bears to the
total net credit balance in the Accounts (exclusive of the cash value
of the incidental benefit insurance contracts) of all Participants
plus the cash surrender value of any incidental benefit insurance
contracts held by the Employer on the Participant's life.
For purposes of a distribution under the Plan, the value of a
Participant's Accrued Benefit is its value as of the valuation date
immediately preceding the date of the distribution.
9.10 "ALLOCATIONS AND DISTRIBUTION OF NET INCOME GAIN OR LOSS"
A "valuation date" under this Plan is each Accounting Date. As of each
valuation date, the Advisory Committee must adjust Accounts to reflect
net income, gain or loss since the last valuation date. The valuation
period is the period beginning the day after the last valuation date
and ending on the current valuation date.
The assets of the trust will be valued annually at fair market value
as of the last day of the plan year. On such date, the earnings and
losses of the trust will be allocated to each participant's account in
the ratio that such account balance bears to all account balances.
TRUST FUND ACCOUNTS. The allocation provisions of this paragraph apply
to all Participant Accounts other than segregated investment Accounts.
The Advisory Committee first will adjust the Participant Accounts, as
those Accounts stood at the beginning of the current valuation period,
for amounts charged during the valuation period to the Accounts in
accordance with Section 9.12 (relating to distributions) and Section
10.01 (relating to insurance premiums), for the cash value of
incidental benefit insurance contracts and for the amount of any
Account which the Trustee has fully distributed since the immediately
preceding valuation date. The Advisory Committee subject to Section
9.12, will allocate the net income, gain or loss pro rata to the
adjusted Participant Accounts. The allocable net income, gain or loss
is the net income (or net loss), including the increase or decrease in
the fair market value of assets, since the last valuation date.
SEGREGATED INVESTMENT ACCOUNTS. A segregated investment Account
receives all income it earns and bears all expense or loss it incurs.
ADDITIONAL RULES. An Excess Amount or suspense account
described in Part 2 of Article III does not share in the allocation of
net income, gain or loss described in this Section 9.10. If the
Employer's Plan includes a Code Section 401(k) arrangement, the
Employer may specify in its Adoption Agreement alternate valuation
provisions authorized by that Adoption Agreement. This Section 9.10
applies solely to the allocation of net income, gain or loss of the
Trust. The Advisory Committee will allocate the Employer contributions
in accordance with Article III.
9.11 "INDIVIDUAL STATEMENT"
As soon as practicable after the Accounting Date of each Plan Year,
but within the time prescribed by ERISA and the regulations under
ERISA, the Plan Administrator will deliver to each Participant (and to
each Beneficiary) a statement reflecting the condition of his Accrued
Benefit in the Trust as of that date and such other information ERISA
requires be furnished the Participant or Beneficiary. No Participant,
except a member of the Advisory Committee, has the right to inspect
the records reflecting the Account of any other Participant.
9.12 "ACCOUNT CHARGED"
The Advisory Committee will charge all distributions made to a
Participant or to his Beneficiary from his Account against the Account
of the Participant when made.
9.13 "MISSING BENEFICIARY"
If the Employer shall be unable to locate any Beneficiary entitled to
receive payment of any death benefit payable hereunder, after
reasonable search, for a period of two years after such benefit
becomes payable, the amount of such benefit shall cease to be payable
to such Beneficiary, and shall become payable instead to the personal
representative of such former Participant.
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<PAGE> 61
PLAN DOCUMENT
ARTICLE X
PROVISIONS RELATING TO INSURANCE
10.01 "INSURANCE BENEFIT ANNUITY"
The Employer in accordance with the direction of the respective
Participants in accordance with any uniform rules adopted by the
Employer and made known to Participants may elect to invest
contributions to the Plan in incidental life insurance benefits or
one or more annuity contracts distributed by Kemper Financial
Services, Inc. or an affiliate, provided, however, that:
(A) ORDINARY LIFE. The premiums paid for ordinary life
insurance on the life of a Participant must at all times
be less than 50% of the Employer contributions made on
behalf of such Participant. For purposes of these
incidental insurance provisions, ordinary life insurance
contracts are contracts with both nondecreasing death
benefits and nonincreasing premiums.
(B) TERM. The premiums paid for term, universal and all
other life insurance which is not ordinary life insurance
on the life of any Participant may not exceed 25% of the
Employer contributions made on behalf of such
Participant.
(C) COMBINATION. If both ordinary life and term insurance are
purchased on the life of any Participant, the sum of the term
insurance premium plus one-half of the ordinary life premiums
may not exceed 25% of the Employer contributions made on
behalf of such Participant.
(D) ANNUITIES. The terms of any annuity contract purchased
and distributed by the Plan to a Participant shall comply
with the requirements of this Plan.
Such direction of the participant's creates a segregated
asset account. Except as provided in this Section 10.01
and Section 8.10, each participant will have a ratable
interest in all assets of the trust. It will be the
Employer's responsibility to see that the limitations of
this Article X are not exceeded.
10.02 "FORM OF CONTRACT AND PREMIUM"
The Employer shall apply for any contract under this Article X and
each application for contract, and the contracts themselves, shall
nominate and designate the Participant as sole owner, but each
contract shall be held by the Employer and shall be restricted and
not transferable.
The Employer shall pay directly to the insurance company all
amounts pursuant to an election under this Article X and shall
charge the premiums on any such contract(s) against the
contributions by or on behalf of such Participant. After payment
of any premium, the Employer shall remit the balance of such
contributions to the Trustee hereunder. The Employer shall hold
all contracts issued under the Plan and fully account for same to
the Trustee upon written request.
In the event of any conflicts between the terms of this Plan and
the terms of any insurance contracts hereunder, the Plan provisions
shall control.
Any dividends or credits earned on insurance contracts will be
allocated to the participant's account derived from employer
contributions for whose benefit the contract is held.
10.03 "LIMITATION OF LIFE INSURANCE PROTECTION"
The Employer shall not continue any life insurance protection for
any Participant beyond his actual termination of employment.
If the Employer holds any insurance contract(s) on the life of a
Participant when the Participant terminates his employment, subject
to Article VI, the Employer shall transfer the contract(s) to the
Participant endorsed so as to vest in the transferee all right,
title and interest to the contract(s), free and clear of the Plan;
subject, however, to restrictions as to surrender or payment of
benefits as the issuing insurance company may permit and as the
Employer shall direct.
Subject to Article VI, Joint and Survivor Annuity Requirements, the
contracts on a participant's life will be converted to cash or an
annuity or distributed to the participant upon commencement of
benefits.
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ARTICLE XI MISCELLANEOUS
11.01 "EVIDENCE"
Anyone required to give evidence under the terms of the Plan may do
so by certificate, affidavit, document or other information which the
person to act in reliance may consider pertinent, reliable and
genuine, and to have been signed, made or presented by the proper
party or parties. Both the Advisory Committee and the Trustee are
fully protected in acting and relying upon any evidence described
under the immediately preceding sentence.
11.02 "NO RESPONSIBILITY FOR EMPLOYER ACTION"
Neither the Trustee nor the Advisory Committee has any obligation or
responsibility with respect to any action required by the Plan to be
taken by the Employer, any Participant or eligible Employee, or for
the failure of any of the above persons to act or make any payment or
contribution, or to otherwise provide any benefit contemplated under
this Plan. Furthermore, the Plan does not require the Trustee or the
Advisory Committee to collect any contribution required under the
Plan, or to determine the correctness of the amount of any Employer
contribution. Neither the Trustee nor the Advisory Committee need
inquire into or be responsible for any action or failure to act on
the part of the others. Any action required of a corporate Employer
must be by its Board of Directors or its designate.
11.03 "FIDUCIARIES NOT INSURERS"
The Trustee, the Advisory Committee, the Plan Administrator and the
Employer in no way guarantee the Trust Fund from loss or
depreciation. The Employer does not guarantee the payment of any
money which may be or becomes due to any person from the Trust Fund.
The liability of the Advisory Committee and the Trustee to make any
payment from the Trust Fund at any time and all times is limited to
the then available assets of the Trust.
11.04 "WAIVER OF NOTICE"
Any person entitled to notice under the Plan may waive the notice.
11.05 "SUCCESSORS"
The Plan is binding upon all persons entitled to benefits under the
Plan, their respective heirs and legal representatives, upon the
Employer, its successors and assigns, and upon the Trustee, the
Advisory Committee, the Plan Administrator and their successors.
11.06 "WORD USAGE"
Words used in the masculine also apply to the feminine where
applicable, and wherever the context of the Employer's Plan dictates,
the plural includes the singular and the singular includes the
plural.
11.07 "EMPLOYER'S RIGHT TO PARTICIPATE"
If the Employer's Plan fails to attain or retain qualification under
section 401 of the Code, the Plan will no longer participate in this
Kemper Simplified Prototype Retirement Plan and will be considered an
individually-designed plan.
11.08 "EMPLOYMENT NOT GUARANTEED"
Nothing contained in this Plan, or with respect to the establishment
of the Trust, or any modification of amendment to the Plan or Trust,
or in the creation of any Account, or the payment of any benefit,
gives any Employee, Employee-Participant or any Beneficiary any right
to continue employment, any legal or equitable right against the
Employer, or Employee of the Employer, or against the Trustee, or its
agents or employees, or against the Plan Administrator, except as
expressly provided by the Plan, the Trust, ERISA or by a separate
agreement.
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PLAN DOCUMENT
ARTICLE XII
EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
12.01 "EXCLUSIVE BENEFIT"
Any contribution made by the employer because of a mistake of fact
must be returned to the employer within one year of the contribution.
In the event that the Commissioner of Internal Revenue determines
that the plan is not initially qualified under the Internal Revenue
Code, any contribution made incident to that initial qualification by
the employer must be returned to the employer within one year after
the date the initial qualification is denied, but only if the
application for the qualification is made by the time prescribed by
law for filing the employer's return for the taxable year in which
the plan is adopted, or such later date as the Secretary of the
Treasury may prescribe.
12.02 "AMENDMENT BY EMPLOYER"
The Employer may change the choice of options in the adoption
agreement and add overriding language in the adoption agreement when
such language is necessary to satisfy Section 415 or Section 416 of
the Code because of the required aggregation of multiple plans, and
add certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause
the plan to be treated as individually designed. An employer that
amends the plan for any other reason, including a waiver of the
minimum funding requirement under Section 412(d), will no longer
participate in this master or prototype plan and will be considered
to have an individually designed plan.
No amendment may authorize or permit any of the Trust Fund (other
than the part which is required to pay taxes and administration
expenses) to be used for or diverted to purposes other than for the
exclusive benefit of the Participants or their Beneficiaries or
estates. No amendment may cause or permit any portion of the Trust
Fund to revert to or become a property of the Employer. The Employer
also may not make any amendment which affects the rights, duties or
responsibilities of the Trustee, the Plan Administrator or the
Advisory Committee without the written consent of the affected
Trustee, the Plan Administrator or the affected member of the
Advisory Committee.
If the plan's vesting schedule is amended, or the plan is amended in
any way that directly or indirectly affects the computation of the
participant's nonforfeitable percentage or if the plan is deemed
amended by an automatic change to or from a top-heavy vesting
schedule, each participant with at least 3 years of service with the
employer may elect, within a reasonable period after the adoption of
the amendment or change, to have the nonforfeitable percentage
computed under the plan without regard to such amendment or change.
For participants who do not have at least one hour of service in any
plan year beginning after December 31, 1988, the preceding sentence
shall be applied by substituting "five years of service" for "three
years of service" where such language appears.
The period during which the election may be made shall commence with
the date the amendment is adopted or deemed to be made and shall end
on the latest of:
(1) 60 days after the amendment is adopted;
(2) 60 days after the amendment becomes effective; or
(3) 60 days after the participant is issued written notice of
the amendment by the employer or plan administrator.
Furthermore, if the vesting schedule of a plan is amended, in the
case of an employee who is a participant as of the later of the date
such amendment is adopted or the date it becomes effective, the
nonforfeitable percentage (determined as of such date) of such
employee's right to his employer-derived accrued benefit will not be
less than his percentage computed under the plan without regard to
such amendment.
CODE SECTION 411(D)(6) PROTECTED BENEFITS. An amendment (including
the adoption of this Plan as a restatement of an existing plan) may
not decrease a Participant's Accrued Benefit, except to the extent
permitted under Code Section 412(c)(8), and may not reduce or
eliminate Code Section 411 (d)(6) protected benefits determined
immediately prior to the adoption date (or, if later, the effective
date) of the amendment. An amendment reduces or eliminates Code
Section 411 (d)(6) protected benefits if the amendment has the effect
of either (1) eliminating or reducing an early retirement benefit or
a retirement-type subsidy (as defined in Treasury regulations), or
(2) except as provided by Treasury regulations, eliminating an
optional form of benefit. The Advisory Committee must disregard an
amendment to the extent application of the amendment would fail to
satisfy this paragraph. If the Advisory Committee must disregard an
amendment because the amendment would violate clause (1) or clause
(2), the Advisory Committee must maintain a schedule of the early
retirement option or other optional forms of benefit the Plan must
continue for the affected Participants.
The Employer must make all amendments in writing. Each amendment must
state the date to which it is either retroactively or prospectively
effective. See Section 11.08 for the effect of certain amendments
adopted by the Employer.
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12.03 "AMENDMENT BY PLAN SPONSOR"
The Plan Sponsor, without the Employer's consent, may amend the Plan
and Trust, from time to time, in order to conform the Plan and Trust
to any requirement for qualification of the Plan and Trust under the
Internal Revenue Code. The Plan Sponsor may not amend the Plan in any
manner which would modify any election made by the Employer under the
Plan without the Employer's written consent.
For purposes of sponsoring organization amendments, the mass
submitter shall be recognized as the agent of the sponsoring
organization. If the sponsoring organization does not adopt the
amendments made by the mass submitter, it will no longer be identical
to or a minor modifier of the mass submitter plan.
12.04 "DISCONTINUANCE"
The Employer has the right, at any time, to suspend or discontinue
its contributions under the Plan, and to terminate, at any time, this
Plan and the Trust created under this Agreement. The Plan will
terminate upon the first to occur of the following:
(A) The date terminated by action of the Employer;
(B) The date the Employer is judicially declared bankrupt or
insolvent, unless the proceeding authorizes continued
maintenance of the Plan;
(C) The dissolution, merger, consolidation or reorganization
of the Employer or the sale by the Employer of all or
substantially all of its assets, unless the successor or
purchaser makes provision to continue the Plan, in which
event the successor or purchaser must substitute itself
as the Employer under this Plan.
In the event of a complete discontinuance of contributions under the
plan, the account balance of each affected participant will be
nonforfeitable.
12.05 "MERGER/DIRECT TRANSFER"
The Trustee may not consent to, or be a party to, any merger or
consolidation with another plan, or to a transfer of assets or
liabilities to another plan, unless immediately after the merger,
consolidation or transfer (if the plan is then terminated), the
surviving Plan provides each Participant a benefit equal to or
greater than the benefit each Participant would have received had the
Plan terminated immediately before the merger or consolidation or
transfer. The Trustee possesses the specific authority to enter into
merger agreements or direct transfer of assets agreements with the
trustees of other retirement plans described in Code Section 401(a),
including an elective transfer, and to accept the direct transfer of
plan assets, or to transfer plan assets, as a party to any such
agreement.
The Trustee may accept a direct transfer of plan assets on behalf of
an Employee prior to the date the Employee satisfies the Plan's
eligibility conditions. If the Trustee accepts such a direct transfer
of plan assets, the Advisory Committee and Trustee must treat the
Employee as a Participant for all purposes of the Plan except the
Employee is not a Participant for purposes of sharing in Employer
contributions under the Plan until he actually becomes a Participant
in the Plan.
The Trustee, after August 9,1988, may not consent to, or be a
party to a merger, consolidation or transfer of assets with a defined
benefit plan, except with respect to an elective transfer. The
Trustee will hold, administer and distribute the transferred assets
as a part of the Trust Fund and the Trustee must maintain a separate
Employer contribution Account for the benefit of the Employee on
whose behalf the Trustee accepted the transfer in order to reflect
the value of the transferred assets. Unless a transfer of assets to
this Plan is an elective transfer, the Plan will preserve all Code
Section 411(d)(6) protected benefits with respect to those
transferred assets, in the manner described in Section 13.02. A
transfer is an elective transfer if: (1) the transfer satisfies the
first paragraph of this Section 13.06; (2) the transfer is voluntary,
under a fully informed election by the Participant; (3) the
Participant has an alternative that retains his Code Section
411(d)(6) protected benefits (including an option to leave his
benefit in the transferor plan, if that plan is not terminating); (4)
the transfer satisfies the applicable spousal consent requirements of
the Code; (5) the transferor plan satisfies the joint and survivor
notice requirements of the Code, if the Participant's transferred
benefit is subject to those requirements; (6) the Participant has a
right to immediate distribution from the transferor plan, in lieu of
the elective transfer; (7) the transferred benefit is at least the
greater of the single sum distribution provided by the transferor
plan for which the Participant is eligible or the present value of
the Participant's accrued benefit under the transferor plan payable
at that plan's normal retirement age; (8) the Participant has a 100%
Nonforfeitable interest in the transferred benefit; and (9) the
transfer otherwise satisfies applicable Treasury regulations. An
elective transfer may occur between qualified plans of any type. Any
direct transfer of assets from a defined benefit plan after August 9,
1988, which is not an elective transfer will render the Employer's
Plan individually designed.
DISTRIBUTION RESTRICTIONS UNDER CODE SECTION 401(K). If the Plan
receives a direct transfer (by merger or otherwise) of elective
contributions (or amounts treated as elective contributions) under a
Plan with a Code Section 401(k) arrangement, the distribution
restrictions of Code Sections 401(k)(2) and (10) continue to apply
to those transferred elective contributions.
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<PAGE> 65
PLAN DOCUMENT
12.06 "TERMINATION"
Upon termination of the Plan, the distribution provisions of Article
VI remain operative, with the following exceptions:
(1) If the present value of the Participant's Nonforfeitable
Accrued Benefit does not exceed $3,500, the Advisory
Committee will direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit to him in
lump sum as soon as administratively practicable after
the Plan terminates; and
(2) If the present value of the Participant's Nonforfeitable
Accrued Benefit exceeds $3,500, the Participant or the
Beneficiary, in addition may elect to have the Trustee
commence distribution of his Nonforfeitable Accrued
Benefit as soon as administratively practicable after the
Plan terminates.
To liquidate the Trust, the Advisory Committee will
purchase a deferred annuity contract for each Participant
which protects the Participant's distribution rights
under the Plan, if the Participant's Nonforfeitable
Accrued Benefit exceeds $3,500 and the Participant does
not elect an immediate distribution pursuant to Paragraph
(2). The Trust will continue until the Trustee in
accordance with the direction of the Advisory Committee
has distributed all of the benefits under the Plan.
On each valuation date, the Advisory Committee will
credit any part of a Participant's Accrued Benefit
retained in the Trust with its proportionate share of the
Trust's income, expenses, gains and losses, both realized
and unrealized. Upon termination of the Plan, the Amount,
if any, in a suspense account under Article III will
revert to the Employer, subject to the conditions of the
Treasury regulations permitting such a reversion. A
resolution or amendment to freeze all future benefit
accrual but otherwise to continue maintenance of this
Plan, is not a termination for purposes of this Section
12.06.
DISTRIBUTION RESTRICTIONS UNDER CODE SECTION 401(K). If
the Employer's Plan includes a Code Section 401(k)
arrangement or if transferred assets described in Section
13.06 are subject to the distribution restrictions of Code
Sections 401(k)(2) and (10), the special distribution
provisions of this Section 12.06 are subject to the
restrictions of this paragraph. The portion of the Participant's
Nonforfeitable Accrued Benefit attributable to elective
contributions (or to amounts treated under the Code
Section 401(k) arrangement as elective contributions) is
not distributable on account of Plan termination, as
described in this Section 12.06, unless: (a) the
Participant otherwise is entitled under the Plan to a
distribution of that portion of his Nonforfeitable
Accrued Benefit; or (b) the Plan termination occurs
without the establishment of a successor plan. A
successor plan under clause (b) is a defined contribution
plan (other than an ESOP) maintained by the Employer (or
by a related employer) at the time of the termination of
the Plan or within the period ending twelve months after
the final distribution of assets. A distribution made
after March 31, 1988, pursuant to clause (b), must be part
of a lump sum distribution to the Participant of his
Nonforfeitable Accrued Benefit.
In the event of the termination or partial termination of
the plan, the account balance of each affected
participant will be nonforfeitable.
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ARTICLE XIII
CODE SECTION 401(k) ARRANGEMENTS
13.01 "ELIGIBILITY"
This Article XIII applies to an Employer's Plan only if the Plan
includes a Code Section 401(k) arrangement.
An employee's eligibility to make Elective Deferrals may not be
conditioned upon the completion of more than one (1) year of service
or the attainment of more than age twenty-one (21). An employee's
eligibility to receive Matching Contributions, Qualified Matching
Contributions, or Qualified Nonelective Contributions may be
conditioned upon the completion of up to two (2) years of service. No
contributions or benefits (other than Matching Contributions or
Qualified Matching Contributions) may be conditioned upon an
employee's Elective Deferrals.
The Employer must specify a reasonable period in the Adoption
Agreement of at least once each calendar year during which a
participant may elect to commence Elective Deferrals. Such election
may not be made retroactively. A participant's election to commence
elective Deferrals must remain in effect until modified or
terminated.
The Employer must also specify in the Adoption Agreement a reasonable
period at least once each calendar year to terminate an election or
to modify the amount or frequency of his or her Elective Deferrals.
13.02 "SALARY REDUCTION AGREEMENT"
The Employer will elect in its Adoption Agreement the terms of the
Code Section 401(k) arrangement under the Plan.
Any Employee eligible to participate in the Plan may file a salary
reduction agreement with the Advisory Committee. The salary reduction
agreement may not be effective earlier than the following date which
occurs last: (i) the Employee's Plan Entry Date (or, in the case of
a reemployed Employee, his reparticipation date under Article II);
(ii) the execution date of the Employee's salary reduction agreement;
(iii) the date the Employer adopts the Code Section 401(k)
arrangement by executing the Adoption Agreement; or (iv) the
effective date of the Code Section 401(k) arrangement, as specified
in the Employer's Adoption Agreement. A salary reduction agreement
must specify the amount of Compensation (as defined in Section 1.12)
or percentage of Compensation the Employee wishes to defer. The
salary reduction agreement will apply only to Compensation which
becomes currently available to the Employee after the effective
date of the salary reduction agreement. The Employer will apply a
reduction election to all Compensation (and to increases in such
Compensation) unless the Employee specifies in his salary reduction
agreement to limit the election to certain Compensation. The Employer
will specify in Adoption Agreement Section 3.01 the rules and
restrictions applicable to the Employee's salary reduction
agreements, however, under no circumstances, may a salary reduction
agreement or other deferral mechanism be adopted retroactively.
13.03 "DEFINITIONS"
For purposes of this Article XIII:
(1) "ACTUAL DEFERRAL PERCENTAGE" shall mean, for a specified
group of participants for a Plan Year, the average of the
ratios (calculated separately for each participant in
such group) of (1) the amount of employer contributions
actually paid over to the trust on behalf of such
participant for the Plan Year to (2) the participant's
Compensation for such Plan Year to (whether or not the
employee was a participant for the entire Plan Year).
Employer contributions on behalf of any participant shall
include: (1) any Elective Deferrals made pursuant to the
participant's deferral election, including Excess
Elective Deferrals of Highly Compensated Employees, but
excluding Elective Deferrals that are taken into account
in the Contribution Percentage test (provided the ADP
test is satisfied both with and without exclusion of
these Elective Deferrals); and (2) at the election of the
employer, Qualified Nonelective Contributions and
Qualified Matching Contributions. For purposes of
computing Actual Deferral Percentages, an employee who
would be a participant but for the failure to make
Elective Deferrals shall be treated as a participant on
whose behalf no Elective Deferrals are made.
(2) "AGGREGATE LIMIT" shall mean the sum of (i) 125 percent
of the greater of the ADP of the Nonhighly Compensated
Employees for the Plan Year or the ACP of Nonhighly
Compensated Employees under the plan subject to Code
Section 401(m) for the Plan Year beginning with or
within the Plan Year of the CODA and (ii) the lesser of
200% or two plus the lesser of such ADP or ACP. "Lesser"
is substituted for "greater" in (i) above, and "greater"
is substituted for "lesser" after "two plus the" in (ii),
if it would result in a larger Aggregate Limit.
(3) "AVERAGE CONTRIBUTION PERCENTAGE" shall mean the average
of the Contribution Percentages of the Eligible
Participants in a group.
(4) "CONTRIBUTION PERCENTAGE" shall mean the ratio (expressed
as a percentage) of the participant's Contribution
Percentage Amounts to the participant's Compensation for
the Plan Year (whether or not the employee was a
participant for the entire Plan Year).
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PLAN DOCUMENT
(5) "CONTRIBUTION PERCENTAGE AMOUNTS" shall mean the sum of
the Employee Contributions, Matching Contributions, and
Qualified Matching Contributions (to the extent not taken
into account for purposes of the ADP test) made under the
plan on behalf of the participant for the Plan Year. If
so elected in the adoption agreement the employer may
include Qualified Nonelective Contributions in the
Contribution Percentage Amounts. The employer also may
elect to use Elective Deferrals in the Contribution
Percentage Amounts so long as the ADP test is met before
the Elective Deferrals are used in the ACP test and
continues to be met following the exclusion of those
Elective Deferrals that are used to meet the ACP test.
(6) "ELECTIVE DEFERRALS" shall mean any employer
contributions made to the plan at the election of the
participant, in lieu of cash compensation, and shall
include contributions made pursuant to a salary reduction
agreement or other deferral mechanism. With respect to
any taxable year, a participant's Elective Deferral is
the sum of all Employer contributions made on behalf of
such participant pursuant to an election to defer under
any qualified CODA as described in Code Section 401(k),
any simplified employee pension cash or deferred
arrangement as described in Code Section 402(h)(1)(B),
any eligible deferred compensation plan under Code
Section 457, any plan as described under Code Section
501(c)(18), and any employer contributions made on behalf
of a participant for the purchase of an annuity contract
under Code Section 403(b) pursuant to a salary reduction
agreement.
(7) "ELIGIBLE PARTICIPANT" shall mean any employee who is
eligible to make an Employee Contribution, or an Elective
Deferral (if the employer takes such contributions into
account in the calculation of the Contribution
Percentage), or to receive a Matching Contribution
(including forfeitures) or a Qualified Matching
Contribution.
(8) "EXCESS AGGREGATE CONTRIBUTIONS" shall mean, with respect
to any Plan Year, the excess of:
(a) The aggregate Contribution Percentage Amounts
taken into account in computing the numerator of
the Contribution Percentage actually made on
behalf of Highly Compensated Employees for such
Plan Year, over
(b) The maximum Contribution Percentage Amounts
permitted by the ACP test (determined by
reducing contributions made on behalf of Highly
Compensated Employees in order of their
Contribution Percentages beginning with the
highest of such percentages).
(9) "EXCESS CONTRIBUTIONS" shall mean, with respect to any
Plan Year, the excess of:
(a) The aggregate amount of employer contributions
actually taken into account in computing the ADP
of Highly Compensated Employees for such Plan
Year, over
(b) The maximum amount of such contributions
permitted by the ADP test (determined by
reducing contributions made on behalf of Highly
Compensated Employees in order of the ADPs,
beginning with the highest of such percentages).
(10) "EXCESS ELECTIVE DEFERRALS" shall mean those Elective
Deferrals that are includible in a participant's gross
income under Section 402(g) of the Code to the extent such
participant's Elective Deferrals for a taxable year
exceed the dollar limitation under such Code section.
Excess Elective Deferrals shall be treated as annual
additions under the plan.
(11) "MATCHING CONTRIBUTION" shall mean an employer
contribution made to this or any other defined
contribution plan on behalf of a participant on account
of an Employee Contribution made by such participant, or
on account of a participant's Elective Deferral, under a
plan maintained by the employer.
(12) "QUALIFIED NONELECTIVE CONTRIBUTIONS" shall mean
contributions (other than Matching Contributions or
Qualified Matching Contributions) made by the employer
and allocated to participants' accounts that the
participants may not elect to receive in cash until
distributed from the plan; that are nonforfeitable when
made; and that are distributable only in accordance with
the distribution provisions that are applicable to
Elective Deferrals and Qualified Matching Contributions.
13.04 "ELECTIVE DEFERRALS - CONTRIBUTION LIMITATION"
No participant shall be permitted to have Elective Deferrals made
under this plan, or any other qualified plan maintained by the
Employer, during any taxable year, in excess of the dollar limitation
contained in Section 402(g) of the Code in effect at the beginning of
such taxable year.
13.05 "DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS"
A participant may assign to this plan any Excess Elective Deferrals
made during a taxable year of the participant by notifying the plan
administrator on or before the date specified in the adoption
agreement of the amount of the Excess Elective Deferrals to be
assigned to the plan.
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<PAGE> 68
Notwithstanding any other provision of the plan, Excess Elective
Deferrals, plus any income and minus any loss allocable thereto,
shall be distributed no later than April 15 to any participant to
whose account Excess Elective Deferrals were assigned for the
preceding year and who claims Excess Elective Deferrals for such
taxable year.
Determination of income or loss: Excess Elective Deferrals shall be
adjusted for any income or loss up to the date of distribution. The
income or loss allocable to Excess Elective Deferrals is the sum of:
(1) income or loss allocable to the participant's Elective Deferral
account for the taxable year multiplied by a fraction, the numerator
of which is such participant's Excess Elective Deferrals for the year
and the denominator is the participant's account balance attributable
to Elective Deferrals without regard to any income or loss occurring
during such taxable year; and (2) ten percent of the amount
determined under (1) multiplied by the number of whole calendar
months between the end of the participant's taxable year and the date
of distribution, counting the month of distribution if distribution
occurs after the 15th of such month.
13.06 "ACTUAL DEFERRAL PERCENTAGE TEST"
The Actual Deferral Percentage (hereinafter "ADP") for participants
who are Highly Compensated Employees for each Plan Year and the ADP
for participants who are Nonhighly Compensated Employees for the same
Plan Year must satisfy one of the following tests:
(1) The ADP for participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP for
participants who are Nonhighly Compensated Employees for
the same Plan Year multiplied by 1.25; or
(2) The ADP for participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP for
participants who are Nonhighly Compensated Employees for
the same Plan Year multiplied by 2.0, provided that the
ADP for participants who are Highly Compensated Employees
does not exceed the ADP for participants who are
Nonhighly Compensated Employees by more than two (2)
percentage points.
SPECIAL RULES:
1. The ADP for any participant who is a Highly
Compensated Employee for the Plan Year and who
is eligible to have Elective Deferrals (and
Qualified Nonelective Contributions or Qualified
Matching Contributions, or both, if treated as
Elective Deferrals for purposes of the ADP test)
allocated to his or her accounts under two or
more arrangements described in Section 401(k)
of the Code, that are maintained by the
employer, shall be determined as if such
Elective Deferrals (and, if applicable, such
Qualified Nonelective Contributions or Qualified
Matching Contributions, or both) were made under
a single arrangement. If a Highly Compensated
Employee participates in two or more cash or
deferred arrangements that have different Plan
Years, all cash or deferred arrangements ending
with or within the same calendar year shall be
treated as a single arrangement.
2. In the event that this plan satisfies the
requirements of Ssections 401(k), 401(a)(4), or
410(b) of the Code only if aggregated with one
or more other plans, or if one or more other
plans satisfy the requirements of such sections
of the Code only if aggregated with this plan,
then this Section shall be applied by determin-
ing the ADP of employees as if all such plans
were a single plan. For Plan Years beginning
after December 31, 1989, plans may be aggregated
in order to satisfy Section 401(k) of the Code
only if they have the same Plan Year.
3. For purposes of determining the ADP of a
participant who is a five-percent owner or one
of the ten most highly paid Highly Compensated
Employees, the Elective Deferrals (and Qualified
Nonelective Contributions or Qualified Matching
Contributions, or both, if treated as Elective
Deferrals for purposes of the ADP test) and
Compensation of such participant shall include
the Elective Deferrals (and, if applicable
Qualified Nonelective Contributions and
Qualified Matching Contributions, or both) and
Compensation for the Plan Year of Family Members
(as defined in Section 414(g)(6) of the Code).
Family Members, with respect to such Highly
Compensated Employees, shall be disregarded as
separate employees in determining the ADP both
for participants who are Nonhighly Compensated
Employees and for participants who are Highly
Compensated Employees.
4. For purposes of determining the ADP test,
Elective Deferrals, Qualified Nonelective
Contributions and Qualified Matching
Contributions must be made before the last day
of the twelve-month period immediately following
the Plan Year to which contributions relate.
5. The employer shall maintain records sufficient
to demonstrate satisfaction of the ADP test and
the amount of Qualified Nonelective
Contributions of Qualified Matching
Contributions, or both, used in such test.
6. The determination and treatment of the ADP
amounts of any participant shall satisfy such
other requirements as may be prescribed by the
Secretary of the Treasury.
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<PAGE> 69
PLAN DOCUMENT
13.07 "DISTRIBUTION OF EXCESS CONTRIBUTIONS"
Notwithstanding any other provision of this plan, Excess
Contributions, plus any income and minus any loss allocable thereto,
shall be distributed no later than the last day of each Plan Year to
participants to whose accounts such Excess Contributions were
allocated for the preceding Plan Year. If such excess amounts are
distributed more than 2-1/2 months after the last day of the Plan
Year in which such excess amounts arose, a ten (10) percent excise
tax will be imposed on the employer maintaining the plan with respect
to such amounts. Such distributions shall be made to Highly
Compensated Employees on the basis of the respective portions of the
Excess Contributions attributable to each of such employees. Excess
Contributions shall be allocated to Participants who are subject to
the family member aggregation rules of Section 414(g)(6) of the Code
in the manner prescribed by the regulations.
Excess Contributions (including the amounts recharacterized) shall be
treated as annual additions under the plan.
Determination of Income or Loss: Excess Contributions shall be
adjusted for any income or loss up to the date of distribution. The
income or loss allocable to Excess Contributions is the sum of: (1)
income or loss allocable to the participant's Elective Deferral
account (and, if applicable, the Qualified Nonelective Contribution
account or the Qualified Matching Contribution account or both) for
the Plan Year multiplied by a fraction, the numerator of which is
such participant's Excess contributions for the year and the
denominator is the participant's account balance attributable to
Elective Deferrals (and Qualified Nonelective Contributions or
Qualified Matching Contributions, or both, if any of such
contributions are included in the ADP test) without regard to any
income or loss occurring during such Plan Year; and (2) ten percent
of the amount determined under (1) multiplied by the number of whole
calendar months between the end of the Plan Year and the date of
distribution, counting the month of distribution if distribution
occurs after the 15th of such month.
Accounting for Excess Contributions: Excess Contributions shall be
distributed from the participant's Elective Deferral account and
Qualified Matching Contribution account (if applicable) in proportion
to the participant's Elective Deferrals and Qualified Matching
Contributions (to the extent used in the ADP test) for the Plan Year.
Excess Contributions shall be distributed from the participant's
Qualified Nonelective Contribution account only to the extent that
such Excess Contributions exceed the balance in the participant's
Elective Deferral account and Qualified Matching Contribution
account.
13.08 "MATCHING CONTRIBUTIONS"
If elected by the employer in the adoption agreement, the employer
will make Matching Contributions to the plan.
13.09 "QUALIFIED MATCHING CONTRIBUTIONS"
If elected by the employer in the adoption agreement, the employer
will make Qualified Matching Contributions to the plan.
13.10 "LIMITATIONS ON MATCHING CONTRIBUTIONS"
The ACP for participants who are Highly Compensated Employees for
each Plan Year and the ACP for participants who are Nonhighly
Compensated Employees for the same Plan Year must satisfy one of the
following tests:
(A) The ACP for participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ACP for
participants who are Nonhighly Compensated Employees for
the same Plan Year multiplied by 1.25; or
(B) The ACP for participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ACP for
participants who are Nonhighly Compensated Employees for
the same Plan Year multiplied by two (2), provided that
the ACP for participants who are Highly Compensated
Employees does not exceed the ACP for participants who
are Nonhighly Compensated Employees by more than two (2)
percentage points.
SPECIAL RULES:
1. Multiple Use: If one or more Highly Compensated
Employees participate in both a CODA and a plan
subject to the ACP test maintained by the
employer and the sum of the ADP or ACP of those
Highly Compensated Employees subject to either
or both tests exceeds the Aggregate Limit, then
the ACP of those Highly Compensated Employees
who also participate in a CODA will be reduced
(beginning with such Highly Compensated Employee
whose ACP is the highest) so that the limit is
not exceeded. The amount by which each Highly
Compensated Employee's Contribution Percentage
Amounts is reduced shall be treated as an Excess
Aggregate Contribution. The ADP or ACP of the
Highly Compensated Employees are determined
after any corrections required to meet the ADP
or ACP tests. Multiple use does not occur if
either the ADP or ACP of the Highly Compensated
Employees does not exceed 1.25 multiplied by the
ADP or ACP of the Nonhighly Compensated
Employees.
2. For purposes of this Section, the Contribution
Percentage for any participant who is a Highly
Compensated Employee and who is eligible to have
Contribution Percentage Amounts allocated to his
or her account under two or more plans described
in Section 401(a) of the Code, or arrangements
described in Section 401(k) of the Code that are
maintained by the employer, shall be determined
as if the total of such Contribution Percentage
Amounts was made under each plan. If a Highly
Compensated Employee participates in two or more
cash or deferred arrangements that have
different plan years, all cash or deferred
arrangements ending with or within the same
calendar year shall be treated as a single
arrangement.
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<PAGE> 70
3. In the event that this plan satisfies the
requirements of Sections 401(m), 401(a)(4) or
410(b) of the Code only if aggregated with one
or more other plans, or if one or more other
plans satisfy the requirements of such sections
of the Code only if aggregated with this plan,
then this Section shall be applied by
determining the Contribution Percentage of
employees as if all such plans were a single
plan. For plan years beginning after December
31, 1989, plans may be aggregated in order to
satisfy Section 401(m) of the Code only if they
have the same Plan Year.
4. For purposes of determining the Contribution
percentage of a participant who is a
five-percent owner or one of the most highly
paid Highly Compensated Employees, the
Contribution Percentage Amounts and Compensation
of such participant shall include the
Contribution Percentage Amounts and Compensation
for the Plan Year of Family Members (as defined
in Section 414(g)(6) of the Code). Family
Members, with respect to Highly Compensated
Employees, shall be disregarded as separate
employees in determining the Contribution
Percentage both for participants who are
Nonhighly Compensated Employees and for
participants who are Highly Compensated
Employees.
5. For purposes of determining the Contribution
Percentage test, Employee Contributions are
considered to have been made in the Plan Year in
which contributed to the trust. Matching
Contributions and Qualified Nonelective
Contributions will be considered made for a Plan
Year if made no later than the end of the
twelve-month period beginning on the day after
the close of the Plan Year.
6. The employer shall maintain records sufficient
to demonstrate satisfaction of the ACP test and
the amount of Qualified Nonelective
Contributions or Qualified Matching
Contributions, or both, used in such test.
7. The determination and treatment of the
Contribution Percentage of any participant shall
satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
13.11 "DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS"
Notwithstanding any other provision of this plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable
thereto, shall be distributed no later than the last day of each Plan
Year to participants whose accounts such Excess Aggregate
Contributions were allocated for the preceding Plan Year. Excess
Aggregate Contributions shall be allocated to participants who are
subject to the family member aggregation rules of Section 414(g)(6)
of the Code in the manner prescribed by the regulations. If such
Excess Aggregate Contributions are distributed more than 2-1/2 months
after the last day of the Plan Year in which such excess amounts
arose, a ten (10) percent excise tax will be imposed on the employer
maintaining the plan with respect to those amounts. Excess Aggregate
Contributions shall be treated as annual additions under the plan.
Determination of Income or Loss: Excess Aggregate Contributions shall
be adjusted for any income or loss up to the date of distribution.
The income or loss allocable to Excess Aggregate Contributions is the
sum of: (1) income or loss allocable to the participant's Employee
Contribution account, Matching Contribution account (if any, and if
all amounts therein are not used in the ADP test) and, if applicable,
Qualified Nonelective Contribution account and Elective Deferral
account for the Plan Year multiplied by a fraction, the numerator of
which is such participant's Excess Aggregate Contributions for the
year and the denominator is the participant's account balance(s)
attributable to Contribution Percentage Amounts without regard to any
income or loss occurring during such Plan Year; and (2) ten percent
of the amount determined under (1) multiplied by the number of whole
calendar months between the end of the Plan Year and the date of
distribution, counting the month of distribution if distribution
occurs after the 15th of such month.
Accounting for Excess Aggregate Contributions: Excess Aggregate
Contributions shall be distributed on a pro rata basis from the
participant's Matching Contribution account and qualified Matching
Contribution account (and, if applicable, the participant's Qualified
Nonelective Contribution account or Elective Deferral account, or
both).
Such determination shall be made after first determining Excess
Elective Deferrals pursuant to Section 13.03(10) and then
determining Excess Contributions pursuant to Section 13.03(9).
13.12 "QUALIFIED NONELECTIVE CONTRIBUTIONS"
The employer may elect to make Qualified Nonelective Contributions
under the plan on behalf of employees as provided in the adoption
agreement.
In addition, in lieu of distributing Excess Contributions as provided
in Section 13.07 of the plan, or Excess Aggregate Contributions as
provided in Section 13.11 of the plan, and to the extent elected by
the employer in the adoption agreement, the employer may make
Qualified Nonelective Contributions on behalf of Nonhighly
Compensated Employees that are sufficient to satisfy either the
Actual Deferral Percentage test or the Average Contribution
Percentage test, or both, pursuant to regulations under the Code.
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<PAGE> 71
PLAN DOCUMENT
13.13 "DISTRIBUTION REQUIREMENTS"
Elective Deferrals, Qualified Nonelective Contributions, and
Qualified Matching Contributions, and income allocable to each are
not distributable to a participant or his or her beneficiary or
beneficiaries, in accordance with such participant's or beneficiary
or beneficiaries election, earlier than upon separation from service,
death, or disability.
Such amounts may also be distributed upon:
1. Termination of the plan without the establishment of
another defined contribution plan.
2. The disposition by a corporation to an unrelated
corporation of substantially all of the assets (within
the meaning of Section 409(d)(2) of the Code) used in a
trade or business of such corporation if such corporation
continues to maintain this plan after the disposition,
but only with respect to employees who continue
employment with the corporation acquiring such assets.
3. The disposition by a corporation to an unrelated entity
of such corporation's interest in a subsidiary (within
the meaning of Section 409(d)(3) of the Code) if such
corporation continues to maintain this plan, but only
with respect to employees who continue employment with
such subsidiary.
4. The attainment of age 59-1/2.
All distributions that may be made pursuant to one or
more of the foregoing distributable events are subject to
the spousal and participant consent requirements (if
applicable) contained in Sections 401(a)(11) and 417 of
the Code.
37
<PAGE> 72
IRS Letters
Serial No. D257426a
Serial No. D257427a
Dated: 3/19/91
<PAGE> 73
AMENDATORY AGREEMENT
Adoption of 401(a)(31) Model Amendment (Revenue Procedure 93-12)
Kemper Growth Fund, as Prototype Plan Sponsor ("Sponsor"), makes this
Amendatory Agreement to the Kemper Retirement Plan Prototype.
WITNESSETH
WHEREAS, it is necessary to amend the Prototype Plan basic plan
document to provide plan participants with the option of electing a direct
transfer of any eligible rollover distribution to an eligible retirement plan;
and
WHEREAS, the Prototype Plan gives the Sponsor authority, without the
approval of any adopting employer, to make amendments necessary to conform the
Prototype Plan to any requirement for qualification under the Internal Revenue
Code.
NOW THEREFORE, in consideration of the above premises, the Sponsor as
designated agent for all sponsoring organizations for purposes of making plan
amendments hereby amends the Prototype Plan to include the following amendment,
as an appendix to the basic plan document. This amendment, which is identical
to the model language in the Appendix of Revenue Procedure 93-12, applies to
any plan maintained by an employer under the Prototype Plan.
APPENDIX TO BASIC PLAN DOCUMENT
ARTICLE VI
6.02(C). THIS ARTICLE APPLIES TO DISTRIBUTIONS MADE ON OR AFTER JANUARY 1,
1993.
Notwithstanding any provision of the plan to the contrary that would
otherwise limit a distributee's election under the Article, a Distributee may
elect, at the time and in the manner prescribed by the plan administrator, to
have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.
6.02(D). DEFINITIONS.
(1) ELIGIBLE ROLLOVER DISTRIBUTION: An eligible rollover
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include: any distribution that is on of a series of substantially equal
periodic payments (not less frequently than annually) make for the life (or
life expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated beneficiary,
or for a specified period of ten years or more; any distribution to the extent
such distribution is required under section 401(a)(9) of the Code; and the
portion of any distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation with respect to
employer securities).
(2) ELIGIBLE RETIREMENT PLAN: An eligible retirement plan is an
individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's
eligible rollover distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement annuity.
(3) DISTRIBUTEE: A distributee includes an employee or former
employee. In addition, the employee's or former employee's surviving spouse
and the employee's or former employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in
section 414(p) of the Code, are distributees with regard to the interest of the
spouse or former spouse.
(4) DIRECT ROLLOVER: A direct rollover is a payment by the plan to
the eligible retirement plan specified by the distributee.
With respect to each adopting employer's plan maintained under this Prototype
Plan, this amendment is effective as of January 1, 1993.
IN WITNESS WHEREOF, the Sponsor has executed this Amendatory Agreement on the
20th day of January, 1993.
Kemper Growth Fund
By /s/ Paul Murphy
-----------------------------------------------------------
"Sponsor's" Authorized Representative
<PAGE> 74
APPENDIX ARTICLE B
RESOLVED, that Kemper Growth Fund ("Sponsor"), in its capacity as a prototype
sponsoring organization under IRS Revenue Procedure 89-9, amend the Prototype
Plan basic plan document by adopting Appendix Article B, a copy of which is
attached to this resolution. The amendment will be effective for all adopting
employers of the Prototype Plan for plan years beginning after December 31,
1993.
Adopted this seventeenth day of February, 1994.
Kemper Financial Services, Inc.
By: Paul Murphy
-------------------------------------------
*Sponsor's Authorized Representative
ARTICLE B
APPENDIX TO BASIC PLAN DOCUMENT
This Article is necessary to comply with the Omnibus Budget
Reconciliation Act of 1993 (OBRA '93) and is an integral part of the basic plan
document. Section 11.07 applies to any modification or amendment of this
Article.
In addition to other applicable limitations set forth in the plan,
and notwithstanding any other provision of the plan to the contrary, for plan
years beginning on or after January 1, 1994, the annual compensation of each
employee taken into account under the plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding
12 months, over which compensation is determined (determination period)
beginning in such calendar year. If a determination period consists of fewer
than 12 months, the OBRA '93 annual compensation limit will be multiplied by a
fraction, the numerator of which is the number of months in the determination
period, and the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference
in this plan to the limitation under Section 401(a)(17) of the Code shall mean
the OBRA '93 annual compensation limit set forth in this provision.
If compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the current plan
year, the compensation for that prior determination period is subject to the
OBRA '93 annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning before the first
day of the first plan year beginning on or after January 1, 1994, the OBRA '93
annual compensation limit is $150,000.
<PAGE> 75
Kemper Financial Services, Inc.
120 South LaSalle Street
Chicago, IL 60603
<PAGE> 1
EXHIBIT 99.B14.(b)
INDIVIDUAL RETIREMENT TRUST ACCOUNT FORM (UNDER SECTION 408(a) OF THE
INTERNAL REVENUE CODE)
KEEP FOR YOUR RECORDS.
FORM 5305 DO NOT FILE WITH
INDIVIDUAL RETIREMENT TRUST ACCOUNT INTERNAL REVENUE
(REV. OCTOBER 1992) SERVICE
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
<TABLE>
<S><C>
State of } SS / / Amendment
----------------------------------------------------------------------------
County of
---------------------------------------------------------------------------
Grantor's name Grantor's date of birth
--------------------------------- --------------------------------------
Grantor's address Grantor's social security number
------------------------------ ----------------------------
Trustee's name INVESTORS FIDUCIARY TRUST COMPANY
------------------------------------------------------------------------------------------------
Trustee's address or principal place of business KANSAS CITY, MISSOURI
--------------------------------------------------------------
</TABLE>
The Grantor whose name appears above is establishing an Individual Retirement
Account under section 408(a) to provide for his or her retirement and for the
support of his or her beneficiaries after death. The Trustee named above has
given the Grantor the disclosure statement required under Regulations section
1.406-6. The Grantor has assigned the trust __________ dollars ($_______) in
cash. The Grantor and the Trustee made the following agreement:
ARTICLE I
The Trustee may accept additional cash contributions on behalf of the Grantor
for a tax year of the Grantor. The total cash contributions are limited to
$2,000 for the tax year unless the contribution is a rollover described in
section 402(c) (but only after December 31, 1992), 403(a)(4), 403(b)(8),
408(d)(3), or an employer contribution to a simplified employee pension plan as
described in section 408(1). Rollover contributions before January 1, 1993,
include rollovers described in section 402(a)(5), 402(a)(7), 403(a)(4),
403(b)(8), 408(d)(3) or an employer contribution to a simplified employee
pension plan described in section 408(k).
ARTICLE II
The Grantor's interest in the balance in the trust account is nonforfeitable.
ARTICLE III
1. No part of the trust funds may be invested in life insurance contracts, nor
may the assets of the trust account be commingled with other property except in
a common trust fund or common investment fund (within the meaning of section
408(a)(5).
2. No part of the trust funds may be invested in collectibles (within the
meaning of section 408(m).
ARTICLE IV
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Grantor's interest in the trust account shall be made in
accordance with the following requirements and shall otherwise comply with
section 408(a)(6) and Proposed Regulations section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations section
1. 401(a)(9)-2, the provisions of which are herein incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Grantor under paragraph 3, or to the surviving spouse under paragraph 4,
other than in the case of a life annuity, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the Grantor and
the surviving spouse and shall apply to all subsequent years. The life
expectancy of a nonspouse beneficiary may not be recalculated.
3. The Grantor's entire interest in the trust account must be, or begin to be,
distributed by the Grantor's required beginning date, April 1 following the
calendar year end in which the Grantor reaches age 70 1/2. By that date, the
Grantor may elect, in a manner acceptable to the trustee, to have the balance
in the trust account distributed in:
(A) A single sum payment.
(B) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the life of the grantor.
(C) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of the
Grantor and his or her designated beneficiary.
(D) Equal or substantially equal annual payments over a specified period that
may not be longer than the Grantor's life expectancy.
(E) Equal or substantially equal payments over a specified period that may not
be longer than the joint life and last survivor expectancy of the Grantor and
his or her designated beneficiary.
4. If the Grantor dies before his or her entire interest is distributed to him
or her, the entire remaining interest will be distributed as follows:
(A) If the Grantor dies on or after distribution of his or her interest has
begun, distribution must continue to be made in accordance with paragraph 3.
(B) If the Grantor dies before distribution of his or her interest has begun,
the entire remaining interest will, at the election of the Grantor or, if the
Grantor has not so elected, at the election of the beneficiary or
beneficiaries, either
(I) Be distributed by the December 31 of the year containing the fifth
anniversary of the Grantor's death, or
(II) Be distributed in equal or substantially equal payments over the life or
life expectancy of the designated beneficiary or beneficiaries starting by
December 31 of the year following the year of the Grantor's death. If, however,
the beneficiary is the Grantor's surviving spouse, then this distribution is
not required to begin before December 31 of the year in which the Grantor would
have turned age 70 1/2.
(C) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has irrevocably
commenced, distributions are treated as having begun on the Grantor's required
beginning date, even though payments may actually have been made before that
date.
(D) If the Grantor dies before his or her entire interest has been distributed
and if the beneficiary is other than the surviving spouse, no additional cash
contributions or rollover contributions may be accepted in the account.
5. In the case of a distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each year,
divide the Grantor's entire interest in the trust as of the close of business
on December 31 of the preceding year by the life expectancy of the Grantor (or
the joint life and last survivor expectancy of the Grantor and the Grantor's
designated beneficiary, or the life expectancy of the designated beneficiary,
whichever applies). In the case of distributions under paragraph 3, determine
the initial life expectancy (or joint life and last survivor expectancy) using
the attained ages of the Grantor and designated beneficiary as of their
birthdays in the year the Grantor reaches age 70 1/2. In the case of a
distribution in accordance with paragraph 4(b)(ii), determine life expectancy
using the attained age of the designated beneficiary as of the beneficiary's
birthday in the year distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
<PAGE> 2
INDIVIDUAL RETIREMENT TRUST ACCOUNT FORM (CONTINUED)
ARTICLE V
1. The Grantor agrees to provide the Trustee with information necessary for the
Trustee to prepare any reports required under section 408(i) and Regulations
1.408-5 and 1.408-6.
2. The Trustee agrees to submit reports to the Internal Revenue Service and the
Grantor as prescribed by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and related
regulations will be invalid.
ARTICLE VII
This agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signature appear below.
ARTICLE VIII
1. DEFINITIONS: "Designated Investment Company" shall mean any Kemper Mutual
Fund, or any other registered investment company with the same investment
advisor or principal underwriter, if certified to the Trustee as being
available for investment pursuant to this trust.
2. INVESTMENT OF ACCOUNT ASSETS: The amount of each contribution shall be
applied to the purchase of shares of a Designated Investment Company at the
price and in the manner in which such shares are then being publicly offered by
such investment company. All dividends and capital gain distributions received
on the shares of a Designated Investment Company other than Kemper Bond
Enhanced Securities Trust shall be reinvested in such shares. Any distributions
from the Kemper Bond Enhanced Securities Trust shall be invested in one of the
other Designated Investment Companies set forth in the prospectus and selected
by the Grantor, or in the absence of a selection will be invested in the Kemper
Money Market Fund-Government Securities Portfolio.
3. DISTRIBUTIONS: Notwithstanding the provisions of Article IV, if the Grantor
or a beneficiary does not choose a method of distribution in accordance with
Article IV, the Trustee is authorized, but is not required, to elect a
distribution option other than a single sum payment, to make distributions
pursuant to such election in kind, and to liquidate sufficient shares of a
Designated Investment Company to withhold federal income tax from distributions
as required by law. Further, the Trustee shall not be responsible for any
distribution or failure to distribute in the absence of written instructions
acceptable to the Trustee from the Trustee from the Grantor or beneficiary in
accordance with Article IV including, but not limited to, any tax or penalty
resulting from such distribution or failure to distribute.
4. AMENDMENT AND TERMINATION: The Grantor may, at any time, and from time to
time, terminate the Trust in whole or in part by delivering to the Trustee a
signed written copy of such termination and the Grantor delegated to the
Trustee the right to amend the Trust (including retroactive amendments) by
written notice to the Grantor mailed to his last address known to the Trustee,
and the Grantor shall be deemed to have consented to any such amendment,
provided that no amendment shall cause or permit any part of the asset of the
Trust Account to be diverted to purposes other than for the exclusive benefit
of the Grantor or beneficiaries, and no amendment shall be made except in
accordance with any applicable laws and regulations affecting this Trust.
5. RESIGNATION OR REMOVAL OF TRUSTEE: The Trustee may resign at any time upon
thirty (30) days of notice in writing to the Grantor, and may be removed by the
Grantor at any time upon thirty (30) days notice in writing to the Trustee.
Upon such resignation or removal, the Grantor shall appoint a successor
Trustee, which successor shall be a "bank" as defined in section 408(n). Upon
receipt by the Trustee of written acceptance of such appointment by the
successor Trustee, the Trustee shall transfer and pay over to such successor
the assets of the Trust Account and all records pertaining thereto. The Trustee
is authorized, however, to reserve such sum of money as it may deem advisable
for payment of all its fees, compensation, costs and expenses, or for payment
of any other liability constituting a charge on or against the assets of the
Trust Account or on or against the Trustee, which any balance of such reserve
remaining after the payment of such items to be paid over to the successor
Trustee. The successor Trustee shall hold the assets paid over to it under
terms similar to those of this Agreement that qualify under the provisions of
the Internal Revenue Code. If within thirty (30) days after the Trustee's
resignation or removal the Grantor has not appointed a successor trustee, which
has accepted with appointment, the Trustee shall appoint such successor itself.
6. TRUSTEE'S ANNUAL FEES: The Grantor shall be charged by the Trustee for its
services here-under in such amount as the Trustee shall establish from time to
time. Sufficient shares may be liquidated from the Trust Account to pay the
fee. The annual fee in effect on the date of this agreement is set forth in the
Application Guide. A different fee may be substituted at any time upon written
notice to the Grantor. A Grantor who does not consent to such new fee should
terminate this agreement pursuant to Paragraph 4 of Article IX within 30 days
of the notice to the new fee. If no such termination is made within 30 days of
the notice of the new fee, the Grantor will be deemed to have consented to the
new fee.
7. STATE LAW REQUIREMENTS: This Trust shall be construed, administered and
enforced according to the laws of the State of Missouri.
8. EXCESS CONTRIBUTIONS: If, because of an erroneous assumption as to earned
income for any other reason, a contribution which is an excess contribution is
made on behalf the Grantor for any year, adjustment of such excess contribution
shall be in accordance with the provisions of this paragraph. The full amount
of such excess contribution and net income attributable thereto shall be
distributed to the Grantor, in cash or kind upon written notice to the Trustee
from the Grantor which states the amount of such excess contribution.
9. INALIENABILITY OF BENEFITS: The benefits provided hereunder shall not be
subject to alienation, assignment, garnishment, attachment, execution or levy
of any kind, and any attempt to cause such benefits to be subjected shall not
be recognized, except to such extent as may be required by law.
10. EXCHANGE PRIVILEGE: With respect to any of the Designated Investment
Company shares, the Grantor may, upon submission of written instructions
acceptable to the Trustee, cause such shares to be exchanged for shares of any
other Designated Investment Company meeting the requirements of this Trust upon
the terms and within the limitations imposed by the then current prospectus of
such investment company.
11. DESIGNATION OF BENEFICIARY: The Grantor shall have the right, by written
notice to the Trustee, to designate or change a beneficiary to receive any
benefit to which such Grantor may be entitled in the event of the Grantor's
death prior to the complete distribution of such benefit. If no such designation
is in effect on a Grantor's death, the beneficiary shall be the Grantor's
estate.
12. RESPONSIBILITY AS TO CONTRIBUTIONS OR DISTRIBUTIONS: Neither the Trustee
nor the Designated Investment Company will under any circumstances be
responsible for the timing, purpose or propriety of any contribution or of any
distribution made hereunder, nor shall the Trustee or the Designated Investment
Company incur any liability or responsibility for any tax imposed account of
any such contribution or distribution. Without limiting the generality of the
foregoing, neither the Trustee nor the Designated Investment Company is
obligated to make any distribution absent a specific direction from the Grantor
or the designated beneficiary to do so.
[KEMPER MUTUAL FUNDS LOGO]
INVESTMENT MANAGER:
Kemper Financial Services, Inc.
PRINCIPAL UNDERWRITER:
Kemper Distributors, Inc.
120 South LaSalle Street
Chicago, Illinois 60603
Trustee Signature INVESTORS FIDUCIARY TRUST COMPANY Grantor's Signature
- --------------------------------------------------------------------------------
IRA-10B 2/95 203932
<PAGE> 3
IRA DISCLOSURE STATEMENT IMPORTANT--PLEASE RETAIN
IRAs: AN INTRODUCTION
WHAT IS AN IRA?
Your Individual Retirement Account (IRA) is a trust created for the exclusive
benefit of you and your beneficiaries. It is created by a written instrument
that meets the following requirements:
- - Contribution restrictions stated in Article I of the trust instrument.
- - Investment restrictions stated in Article III of the trust instrument.
- - Distribution of benefits requirements contained in Article IV of the trust
instrument.
- - The trustee is a bank as defined in the Internal Revenue Code.
- - You will have a non-forfeitable interest in your account.
ESTABLISHING THE PLAN
HOW DO I ESTABLISH MY KEMPER IRA?
Read this disclosure statement and retain it for your files.
Complete and sign the correct application. (2 applications are necessary if
both you and your spouse wish to establish an IRA).
MAKE CHECK PAYABLE TO THE KEMPER FUND OF YOUR CHOICE, AND MAIL COMPLETED
APPLICATION AND CONTRIBUTION TO:
INVESTORS FIDUCIARY TRUST COMPANY (IFTC)
P.O. BOX 419356
KANSAS CITY, MO 64141-6356
MAY I REVOKE MY IRA?
You have the right to revoke your account within seven days of the date on
which your application was signed. To revoke your account write to IFTC at the
address referenced above.
ELIGIBILITY
WHO CAN ADOPT AN IRA?
You may adopt an IRA if you are receiving compensation from employment,
earnings from self-employment or alimony, and have not attained age 70 1/2. You
may also adopt an IRA if you have received a qualifying rollover distribution
from another plan within the preceding 60 days or if you wish to transfer
assets from another IRA. See "Rollover/Transfer of Assets" section on the
following page.
WHAT ABOUT A NON-WORKING SPOUSE?
A spousal IRA allows an individual who qualifies for an IRA and his or her
non-working spouse to set up two IRA accounts: one for each spouse. See
"Contribution Limits" section below.
CONTRIBUTION LIMITS
HOW MUCH CAN I CONTRIBUTE EACH YEAR?
If you are receiving compensation you may contribute the lesser of $2,000 or
100% of your compensation.
For a year in which you are receiving compensation, but your spouse is not, you
can set up an IRA for your spouse and contribute the lesser of: $2,250 or 100%
of your compensation. The maximum contribution must be split between the two
accounts so that no more than $2,000 is placed in either account.
No contribution will be allowed for the year in which you attain age 70 1/2 and
thereafter.
FOR MY IRA, WHAT IS CONSIDERED COMPENSATION?
Compensation is defined as wages, salaries or professional fees, other amounts
received for personal services actually rendered (including income earned from
self-employment), and any taxable alimony received. It does not include earnings
from property such as interest, rents and dividends. If your compensation is
not includable in gross income (such as income earned from sources outside the
United States, it is not treated as compensation in determining the maximum
limitation for the deduction.
WHEN CAN A CONTRIBUTION BE MADE?
Your annual contribution may be made during the taxable year or no later than
the due date for filing your federal income tax return not including extensions.
WHAT HAPPENS IF I OVER-CONTRIBUTE TO MY IRA?
There is a 6% annual excise tax on contributions to an IRA over the annual
contributions limit. However, if you withdraw the excess contribution and
earnings thereon from the IRA before the due date for filing your federal
income tax return (including extensions) for the year of the excess
contribution, the excise tax is not imposed, the withdrawn contribution is not
taxable and the withdrawn earnings are taxable in the year the excess
contribution was made.
If the excess is not withdrawn, you may use the excess as part of next year's
contribution by reducing the next year's contribution by the amount of the
excess. You will, however, be liable for the 6% excise tax on the
over-contributed amount for each year it remains an excess contribution.
HOW DOES MY MARITAL STATUS AFFECT MY IRA?
Since a contribution is available to each eligible individual, both husband
and wife can contribute if each individually is eligible and each adopts a
separate individual retirement savings program. The contribution limitation is
computed separately for each spouse, whether or not they file a joint tax
return.
CAN MY EMPLOYER CONTRIBUTE TO MY IRA?
Yes, but these contributions are included in your gross income as compensation
and must be claimed as a deduction on your federal income tax return, just as
if you had received the money and made the contribution.
DEDUCTION LIMITS
HOW MUCH CAN I DEDUCT EACH YEAR?
If you and your spouse are not covered by a retirement plan at work, the
amount you can deduct is the same as the amount you can contribute (see
"Contribution Limit" above). If you or your spouse are covered by a retirement
plan at work, the $2,000 limit is reduced $10 for each $50 that your adjusted
gross income exceeds:
$40,000 (married filing jointly), $25,000 (single), or $0 (married filing
separately), and the $2,250 limit is reduced $10 for each $44.44 that your
adjusted gross income exceeds $40,000.
DISTRIBUTION FROM YOUR IRA
WHEN CAN I TAKE MONEY OUT OF MY IRA?
You can begin to take money out of your IRA without penalty after age 59 1/2,
but you must begin to take money out by April 1 following the year in which you
attain age 70-1/2.
WHAT IF I TAKE A DISTRIBUTION BEFORE AGE 59 1/2?
There is an additional tax equal to 10% of the taxable amount of a distribution
before age 59 1/2, unless you are disabled or take your distributions as a
series of substantially equal periodic payments over your life or life
expectancy or the joint lives or life expectancies of you and your beneficiary.
The amounts of such periodic payments may not be changed before the later of
five years or at attainment of age 59 1/2.
HOW ARE MY DISTRIBUTIONS TAXED?
The distributions are generally taxed as ordinary income in the year they are
received. Distributions are non-taxable to the extent they represent a return
of non-deductible contributions.
The non-taxable percentage of such a distribution is determined by dividing
the undistributed non-deductible contributions to all your IRAs by the total
value of all your IRAs (including SEPs and rollover IRAs).
DO I HAVE A CHOICE ON HOW TO RECEIVE MY DISTRIBUTIONS UPON RETIREMENT?
Yes, subject to the minimum distribution incidental benefit (MDIB) requirement
described below, distributions may be taken as:
- - Regular payments over the joint lives or life expectancies of you and your
designated beneficiary.
- - An annuity purchased with the money in your IRA payable over the joint lives
or life expectancies of you and your beneficiary.
- - Annuity or regular payments over any period shorter than the above.
- - A lump sum.
WHAT IS THE MINIMUM ANNUAL DISTRIBUTION?
The amount to be distributed for each year (commencing with the year in which
you attain age 70 1/2) must be at least an amount equal to the quotient
obtained by dividing the value of the IRA by your life expectancy or by the
joint and last survivor life expectancy of you and your designated beneficiary,
subject to the MDIB requirement described on the next page. The minimum
distribution for the year in which you attain age 70 1/2 may be deferred until
April 1 of the following year. Note that if you elect to defer the minimum
distribution for the year you attain age 70 1/2 to the following year, you will
be required to take 2 years' minimum distributions in that year. Life expectancy
and joint and last survivor expectancy are computed by use of the tables
contained in IRS Publication 590. For purposes of this computation, the life
expectancy of you or your spouse may be recalculated annually, while the life
expectancy of a nonspouse beneficiary may not be recalculated.
<PAGE> 4
IRA DISCLOSURE STATEMENT (CONTINUED)
WHAT IS THE MINIMUM DISTRIBUTION INCIDENTAL BENEFIT (MDIB) REQUIREMENT?
The MDIB Requirement requires that a death benefit under an IRA be incidental
to the primary purpose of the IRA which is to provide your retirement benefits.
Thus, if your designated beneficiary is more than 10 years younger, you must
assume he or she is exactly 10 years younger than you to determine your joint
and last survivor life expectancy.
WHAT IF I HAVE MORE THAN ONE IRA?
If you have more than one IRA, you may take the total amount of your minimum
distribution amounts from one IRA or you may allocate it among your IRAs.
WHAT IF I TAKE AN AMOUNT LESS THAN DESCRIBED ABOVE?
A 50% excise tax will be imposed on the difference between the minimum payout
required and the amount actually paid, unless the underdistribution was due to
reasonable cause.
WHAT ABOUT FEDERAL INCOME TAX WITHHOLDING?
The Trustee may be required to withhold 10% from any taxable distribution from
an IRA unless you elect no withholding at the time your distributions begin.
Whether or not you allow the Trustee to withhold, you may be required to make
quarterly estimated tax payments.
SPECIAL CONSIDERATIONS
CAN I USE MY IRA AS COLLATERAL FOR A LOAN?
No. If you use any portion of your IRA as security for a loan the portion so
used will be treated as distributed to you.
HAS THIS PLAN BEEN SUBMITTED TO THE IRS FOR APPROVAL?
The use of IRS Form 5305 (included in this packet) makes such submission
unnecessary.
ROLLOVER/TRANSFER OF ASSETS DO DISTRIBUTIONS FROM MY EMPLOYER'S TAX-QUALIFIED
PLAN QUALIFY FOR IRA ROLLOVER TREATMENT?
Yes, part or all of a lump-sum distribution or a series of distributions if
made during one calendar year as the result of termination of employment,
attainment of age 59 1/2, disability, death, or plan termination may be rolled
over into an IRA.
You do not have to roll over the total taxable amount of the distribution, but
whatever portion is not rolled over will be taxed as ordinary income in the
year received and will not qualify for either long-term capital gains or
special averaging. The maximum amount that can be rolled over is the total
distribution minus the dollar amount of any voluntary non-deductible
contributions you made.
Please consult your accountant regarding current IRS regulations on the tax
treatment of rollovers from tax-qualified plans.
WHEN MUST THE ROLLOVER BE COMPLETED?
The check and application must be sent to the IRA trustee within 60 days of
receipt of a qualifying distribution.
CAN I TAKE A TAX DEDUCTION FOR A ROLLOVER?
No. You are not allowed to take a tax deduction for the amount transferred
from a qualified employer's plan or retirement savings program to an IRA.
WHAT IS THE DIFFERENCE BETWEEN A ROLLOVER AND A DIRECT TRANSFER OF ASSETS?
With a rollover, you actually receive the distribution from an IRA or qualified
employer's plan. A direct transfer of assets occurs when the existing trustee or
custodian makes the check payable and sends the distribution directly to the
new trustee or custodian.
A rollover distribution from an IRA may be made to you only once a year. The
one year period begins on the date you receive the IRA distribution. There is
no minimum holding period for a direct transfer of assets from one trustee to
another.
WHAT STEPS DO I NEED TO TAKE TO PROCESS A ROLLOVER OR DIRECT TRANSFER OF
ASSETS?
You can do a rollover by notifying your current IRA trustee or custodian in
writing that you wish to take a distribution from your IRA and roll over to a
new IRA. Once the distribution is received you may either endorse the check over
to the new trustee or deposit the check received and issue a new check for the
amount received to the new trustee and send it along with an IRA Application to
the new trustee.
To accomplish a direct transfer of assets, you simply notify your existing
trustee in writing of your intentions. Then send a copy of the letter along
with an IRA application to the new trustee. Your old trustee will send your
distribution directly to the new trustee.
REPORTING REQUIREMENTS
DOES THE IRA REQUIRE A LOT OF PAPERWORK EACH YEAR?
No, unless you have to pay an excise or penalty tax or you received a
nontaxable distribution or you made a nondeductible contribution (other than a
rollover), no special income tax return is required. If an excise or penalty tax
is due you must file IRS Form 5329 with your Form 1040. If you designate an IRA
contribution as nondeductible you must attach Form 8606 to your 1040 for the
year of the nondeductible contribution and for any year you take a
non-deductible distribution (other than a rollover to another IRA).
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP)
DOES THE KEMPER IRA QUALIFY FOR A SEP?
Yes, but the SEP must be established and maintained by your employer. More
information about establishing a SEP is available from Kemper upon request.
WHAT IS THE MAXIMUM DEDUCTION FOR A SEP-IRA?
The lesser of 15% of your compensation with respect to the sponsoring employer
or $30,000.
FINANCIAL DISCLOSURE
WHAT ELSE DO I NEED TO KNOW ABOUT KEMPER'S IRAs?
Information about the fund or trust you have selected is included in the
appropriate prospectus. The acquisition cost and how the value of your account
changes are described in the prospectus.
A SHARES
If $1,000 is invested in Kemper Technology Fund, Kemper Total Return Fund,
Kemper Growth Fund, Kemper Small Capitalization Equity Fund, Kemper
International Fund or Kemper Blue Chip Fund, the amount of the sales charge
will be $57.50. If $1,000 is invested in Kemper Target Equity Funds, the amount
of the sales charge will be $50. If $1,000 is invested in Kemper High Yield
Fund, Kemper Income and Capital Preservation Fund, Kemper Diversified Income
Fund, Kemper Global Income Fund, Kemper U.S. Mortgage Fund or Kemper U.S.
Government Securities Fund, the amount of the sales charge will be $45. If
$1,000 is invested in Kemper Adjustable Rate U.S. Government Fund or Kemper
Short-Intermediate Government Fund, the amount of the sales charge will be $35.
If $1,000 is invested in Kemper Money Market Fund-Government Securities
Portfolio or Kemper Money Market Fund-Money Market Portfolio, there will be no
sales charge.
B SHARES
If $1,000 is invested in Kemper Mutual Funds B shares, there is no initial
sales charge. B shares are subject to an annual distribution fee and, on
redemption, may be subject to a contingent deferred sales charge and have a
conversion priveledge to A shares after 6 years.
C SHARES
If $1,000 is invested in Kemper Mutual Funds C shares, there is no initial
sales charge. C shares are subject to an annual distribution fee and have no
conversion priveledge.
There is an annual $12 trustee fee for the Kemper Family of Funds. An
individual holding two or more accounts in Kemper Family of Funds will be
charged a maximum of $24. The fees may be paid either by separate check or will
be automatically deducted from your account by IFTC. This fee is subject to
change as provided in Article IX, Paragraph 6 of the trust instrument. These
fees are paid either by a separate check or by the liquidation of sufficient
shares or units. If not paid by a separate check, IFTC will automatically
deduct the annual trustee fee on or about May 1. If an account is opened after
May 1, IFTC will deduct the $12 annual trustee fee on or about December 1 in
the year the account is opened. (See "Application Guide" for more details.)
This fee is subject to change upon notice by IFTC to you as provided in Article
IX, Paragraph 6 of the trust instrument.
The deadline for an IRA contribution is generally April 15 of the year
following the taxable year for which the contribution will apply. IFTC and
Kemper will not be responsible for postal delays or delays resulting from
incomplete applications. Applications received by IFTC postmarked after the
deadline and improperly completed applications will be returned to the sender.
IRA-10A 7/94 [KEMPER MUTUAL FUNDS LOGO]
203921
<PAGE> 5
<TABLE>
<S> <C>
IRA APPLICATION (PLEASE PRINT) FOR ASSISTANCE IN COMPLETING THIS FORM, CALL
KEMPER SHAREHOLDER SERVICES AT 1-800-621-1048.
1. INFORMATION ABOUT YOU For internal use only
Name ___________________________________________________________________________
Address ________________________________________________________________________
City _______________________________ State _____________________ Zip ___________
Daytime Phone Number(_____)_____________________________________________
Social Security Number ________/___________/_________ Date of Birth ____/____/____
2. YOUR BENEFICIARIES (PLEASE INCLUDE SOCIAL SECURITY NUMBERS FOR ALL BENEFICIARIES)
Primary Beneficiary Name _____________________________________ Secondary Beneficiary Name ________________________________________
Address ______________________________________________________ Address ___________________________________________________________
City _____________________________ State __________ Zip ______ City _____________________________ State _______________ Zip ______
Relationship__________________________________________________ Relationship ______________________________________________________
SS#_____________/_____/__________ Date of Birth ____/____/____ SS# _______________ /______ /__________ Date of Birth ____/____/____
3. TYPE OF IRA (CHECK ONLY ONE)
/ / Individual / / Simplified Employee Plan (SEP) / / Spousal
4. TYPE OF TRANSACTION (CHECK ALL BOXES THAT APPLY)
/ / Contribution: (CIRCLE ONE) A. Individual B. Employer (ONLY APPLIES TO SEPS)
/ / Direct Transfer of Assets (PLEASE ATTACH IRA TRANSFER FORM)
/ / Rollover from: (CIRCLE ONE) A. Another Annual B. Another IRA, where the initial contribution C. A Qualified
Contribution IRA was from a qualified retirement plan Retirement Plan
/ / I have reached the age of 59 1/2 and am eligible to take a distribution without tax penalty from my IRA: (CIRCLE ONE)
A. IRA Distribution Form B. Please send my
is attached dividends in cash
5. YOUR INVESTMENT CHOICES ($250 MINIMUM PER FUND TO ESTABLISH AN IRA. $50 IF NUMBER 7 [BANK DIRECT DEPOSIT] SELECTED.)
(SEE FRONT CARD FOR FUND NAMES. NOTE NUMBER 9 BELOW REGARDING RECEIPT OF PROSPECTUS.)
/ / A Shares / / B Shares / / C Shares 199___ 199___
(PLEASE CHOOSE SHARE CLASS) (CIRCLE ONE) (CIRCLE ONE)
Indiv/Employer Indiv/Employer
Contribution Contribution Rollover Transfer
Fund Name _____________________________ $__________ $__________ $__________ __________%
Fund Name _____________________________ $__________ $__________ $__________ __________%
Fund Name _____________________________ $__________ $__________ $__________ __________%
Trustee Fee (OPTIONAL) $____________
6. TELEPHONE EXCHANGES
I authorize exchanges between Kemper Mutual Funds upon instruction from any person by telephone. / / YES / / NO
NOTE: IF NEITHER BOX IS CHECKED, THE TELEPHONE EXCHANGE PRIVILEGE WILL BE PROVIDED.
7. BANK DIRECT DEPOSIT
I authorize the Fund's agent to draw checks or initiate Automated Clearing House ("ACH") debits against the bank account on the
attached voided check in the amount of $_____ (minimum $50), beginning on the ____ day of _____ month and on the same day of each
month thereafter. If the date falls on a weekend or holiday, funds will be invested on the next business day. The investment will be
applied to the following Fund account(s). A $50 minimum per Fund applies.
Fund Name ______________________________ $_______________ (NOTE: THE BANK ACCOUNT MUST
Fund Name ______________________________ $_______________ HAVE CHECK OR DRAFT WRITING
Fund Name ______________________________ $_______________ PRIVILEGES.)
8. YOUR FINANCIAL REPRESENTATIVE
Representative _____________________________ Name of Firm ________________________________________________________
Address_____________________________________ City __________________________ State __________________ Zip ________
Rep. Daytime Phone (___)___________ Rep.#____________ Dealer #______________ Branch #______________
9. YOUR SIGNATURE BY SIGNING THIS APPLICATION ESTABLISHING AN IRA, THE UNDERSIGNED:
- - Establishes an Individual Retirement Account pursuant to the Employee Retirement Income Security Act of 1974 and in accordance
with all the terms of the Trust Agreement on Form 5305;
- - Appoints Investors Fiduciary Trust Company, or its successors, as Trustee of the account;
- - States that he or she has received, read, accepts and specifically incorporates herein the Trust Agreement on Form 5305 and
Disclosure Statement;
- - Agrees to promptly give instructions to the Trustee necessary to enable the Trustee to carry out its duties under the Trust
Agreement and;
- - Agrees that he or she has received and read the prospectus for the investment(s) selected and that this account will be
subject to the prospectus as amended from time to time.
Under penalties of perjury, I certify that the number shown on this form is my correct social security number, and that I have not
been notified by the IRS that I am subject to back-up withholding. I certify that I have the power and authority to establish this
account and select the privileges requested. Account holders can request the following telephone privilege on this application:
telephone exchange transactions. Please note that the telephone exchange privilege is automatic unless the account holder refuses
it. Neither a Fund nor its agents will be liable for any loss, expense or cost arising out of any telephone request pursuant to
this privilege, including any fraudulent or unauthorized request, and THE ACCOUNT HOLDER WILL BEAR THE RISK OF LOSS, so long as the
Fund or its agent reasonably believes, based upon reasonable verification procedures, that the telephonic instructions are genuine.
The verification procedures include recording instructions, requiring certain identifying information before acting upon
instructions, and sending written confirmations.
Your Signature _________________________________________________ Date ____________________________________________________________
IRA-10 2/95 203911
</TABLE>
<PAGE> 6
IRA APPLICATION GUIDE
1. INFORMATION ABOUT YOU
Fill this section out completely.
2. YOUR BENEFICIARIES
You can change your beneficiaries by writing a letter of instruction to
Investors Fiduciary Trust Company, c/o Kemper Service Company, P.O. Box 419415,
Kansas City, MO 64141-6415. Reference your name, fund, and fund account number.
If you have more than one beneficiary, please identify the primary and
secondary beneficiary.
3. TYPE OF IRA
INDIVIDUAL: A working individual may contribute up to $2,000 or 100% of
compensation, whichever is less.
SIMPLIFIED EMPLOYEE PLAN (SEP): Must be established and maintained by the
employer. The maximum contribution is the lesser of 15% of your compensation
or $30,000. For more information on establishing a SEP, call Kemper
Shareholder Services at 1-800-621-1048.
SPOUSAL: Two applications are necessary if both you and your spouse wish to
establish an IRA. If you're contributing for both you and your non-working
spouse, the maximum contribution is the lesser of 100% of your compensation or
$2,250. The maximum contribution must be split between the two accounts so that
no more than $2,000 is placed in either account.
4. TYPE OF TRANSACTION
DIRECT TRANSFER OF ASSETS: When changing custodians on an existing IRA, the IRA
must be released by the present custodian. To obtain information concerning the
transfer of IRA assets call Kemper Shareholder Services at 1-800-621-1048.
ROLLOVER: With a rollover, you actually receive a distribution from an IRA, or
qualified employer's plan. Once the distribution is received, you may either
endorse the check over to the new trustee or deposit the check received and,
within 60 days of receipt, issue a new check for the amount received to the new
trustee and send it along with an IRA Application to the new trustee.
You may roll over your IRA as many times as you wish. However, each time you do
roll over, the funds must remain with the new trustee for at least 12 months.
(PLEASE NOTE: CONTACT YOUR ACCOUNTANT ABOUT THE TAX CONSEQUENCES OF RECEIVING
A CASH DISTRIBUTION FROM YOUR EMPLOYER'S TAX-QUALIFIED PLAN BEFORE
FORWARDING A CHECK TO KEMPER TO OPEN AN IRA. UNDER CURRENT IRS PROVISIONS, THERE
MAY BE TAX LIABILITY ASSOCIATED WITH TAKING PHYSICAL POSSESSION OF YOUR
DISTRIBUTION, INSTEAD OF AUTOMATICALLY TRANSFERRING YOUR BALANCE INTO A KEMPER
IRA).
5. YOUR INVESTMENT CHOICES
Elect your investment choice(s) from among the Kemper Funds for which you have
received a prospectus. The minimum investment to establish an IRA is $250 per
Fund; the minimum subsequent investment is $50. The minimum initial investment
is $50 per Fund if the Bank Direct Deposit option is selected.
TRUSTEE FEE
There is an annual $12 trustee fee for the Kemper Family of Funds.
An individual holding two or more accounts in Kemper Family of Funds will be
charged a maximum of $24. The fees may be paid either by separate check or will
be automatically deducted from your account by Investors Fiduciary Trust
Company. This fee is subject to change as provided in Article IX of the
Individual Retirement Trust Account Form.
WHEN AND HOW THE $12 FEE IS AUTOMATICALLY DEDUCTED
If the $12 annual trustee fee is not paid by separate check, Investors
Fiduciary Trust Company will automatically deduct the $12 fee from your
account. Annual trustee fees are assessed on a calendar year basis.
If you opened your account prior to May 1st of the calendar year, the fee will
be deducted on May 1st. If you opened your account after May 1st of that
calendar year, the $12 fee will be deducted on December 1st. In every calendar
year after the year in which you opened your account, the fee will be deducted
on May 1st.
WHAT TO DO IF YOU ELECT TO PAY THE $12 ANNUAL FEE DIRECTLY
- - You may pay the first year fee by including $12 with your first contribution
and making the proper entry in Section 5 of the IRA Application.
- - If you elect to send in the $12 annual fee by separate check in subsequent
years, make sure to do so prior to the May 1st automatic deduction. Send a
letter referencing the exact name on your account, the fund name and the
account number. Make your check payable to Investors Fiduciary Trust Company
and mail to Investors Fiduciary Trust Company, c/o Kemper Service Company, P.O.
Box 419356, Kansas City, MO 64141-6356.
6. TELEPHONE EXCHANGES
To make exchanges, call 1-800-621-1048. Please see the prospectus for exchange
privilege limitations. The exchange privilege may be modified, suspended or
terminated by a Fund.
7. BANK DIRECT DEPOSIT
With Bank Direct Deposit, you can make automatic contributions for as little as
$50 from your checking account into your Kemper IRA. There is no service
charge, no checks to write and it's a great way to invest for the future.
8. YOUR FINANCIAL REPRESENTATIVE
You must complete this section if you have a financial representative. The
information is necessary for proper identification of the account and can be
obtained from your representative.
9. YOUR SIGNATURE
Please be sure to sign and date this section.
10. RETURN YOUR APPLICATION
IF NOT A TRANSFER...
Mail the IRA APPLICATION, a check made payable to Kemper Fund of your choice
(and the IRA DISTRIBUTION FORM if applicable) to:
INVESTORS FIDUCIARY TRUST COMPANY - C/O KEMPER SERVICE COMPANY
P.O. BOX 419356 - KANSAS CITY, MO 64141-6356
FOR TRANSFERS ONLY...
Mail the IRA Application, IRA Transfer Form (and the IRA Distribution form if
applicable) to:
INVESTORS FIDUCIARY TRUST COMPANY - C/O KEMPER SERVICE COMPANY
P.O. BOX 419222 - KANSAS CITY, MO 64141-6222
FOR MORE INFORMATION
If you need further information, please contact your financial representative
directly or call Kemper Shareholder Services at 1-800-621-1048 7:00 a.m. to
6:00 p.m. Central Time (Monday-Friday) and 9:00 a.m. to 2:00 p.m. (Saturday).
If you have tax or legal questions, contact your tax advisor or any district
office of the IRS.
[KEMPER MUTUAL FUNDS LOGO]
<PAGE> 1
EXHIBIT 99.B18
KEMPER MUTUAL FUNDS
MULTI-DISTRIBUTION SYSTEM PLAN
WHEREAS, each investment company adopting this
Multi-Distribution System Plan (each a "Fund" and collectively
the "Funds") is an open-end management investment company
registered under the Investment Company Act of 1940 (the "1940
Act");
WHEREAS, Kemper Financial Services, Inc. ("KFS") and/or
Dreman Value Advisors, Inc. ("DVA") serves as investment adviser
and Kemper Distributors, Inc. ("KDI") serves as principal
underwriter for each Fund;
WHEREAS, each Fund has a non-Rule 12b-1 administrative
services agreement with KDI providing for a service fee at an
annual rate of up to .25% of average daily net assets
("Administrative Plan");
WHEREAS, each Fund has established a Multi-Distribution
System enabling each Fund, as reflected in its prospectus, to
offer investors the option of purchasing shares (a) with a
front-end sales load (which may vary among Funds) and a service
fee (the "Front-End Load Option" or "Class A shares");
(b) without a front-end sales load, but subject to a Contingent
Deferred Sales Charge ("CDSC") (which may vary among Funds), a
Rule 12b-1 plan providing for a distribution fee and a service
fee (the "Deferred Option" or "Class B shares"); (c) without a
front-end sales load or CDSC but subject to a Rule 12b-1 Plan
providing for a distribution fee and to a service fee (the "Level
Load Option" or "Class C shares"); and (d) for certain Funds,
without a front-end load, CDSC, distribution fee or service fee
("Institutional Option" or "Class I shares"); and
WHEREAS, Rule 18f-3 under the 1940 Act permits open-end
management investment companies to issue multiple classes of
voting stock representing interests in the same portfolio
notwithstanding Sections 18(f)(1) and 18(i) under the 1940 Act
if, among other things, such investment companies adopt a written
plan setting forth the separate arrangement and expense
allocation of each class and any related conversion features or
exchange privileges;
NOW, THEREFORE, each Fund, wishing to be governed by Rule
18f-3 under the 1940 Act, hereby adopts this Multi-Distribution
System Plan as follows:
<PAGE> 2
1. Each class of shares will represent interests in the
same portfolio of investments of a Fund (or series), and be
identical in all respects to each other class, except as set
forth below. The only differences among the various classes of
shares of the same Fund (or series) will relate solely to:
(a) different distribution fee payments associated with any Rule
12b-1 Plan for a particular class of shares and any other costs
relating to implementing or amending such Plan (including
obtaining shareholder approval of such Plan or any amendment
thereto), which will be borne solely by shareholders of such
classes; (b) different service fees; (c) different shareholder
servicing fees; (d) different Class Expenses, which will be
limited to the following expenses determined by the Trustees to
be attributable to a specific class of shares: (i) printing and
postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses, and proxy statements
to current shareholders of a specific class; (ii) Securities and
Exchange Commission (the "Commission") registration fees incurred
by a specific class; (iii) litigation or other legal expenses
relating to a specific class; (iv) Trustee fees or expenses
incurred as a result of issues relating to a specific class; and
(v) accounting expenses relating to a specific class; (e) the
voting rights related to any 12b-1 Plan affecting a specific
class of shares; (f) conversion features; (g) exchange
privileges; and (h) class names or designations. Any additional
incremental expenses not specifically identified above that are
subsequently identified and determined to be properly applied to
one class of shares of a Fund (or series) shall be so applied
upon approval by a majority of the Trustees of such Fund,
including a majority of the Trustees who are not interested
persons of the Fund.
2. Under the Multi-Distribution System, certain expenses
may be attributable to a Fund, but not to a particular series or
class thereof. All such expenses will be borne by each class on
the basis of the relative aggregate net assets of the classes,
except in the case of a Fund that has series, in which case they
will first be allocated among series, based upon the relative
aggregate net assets of such series. Expenses that are
attributable to a particular series, but not to a particular
class thereof, will be borne by each class of such series on the
basis of the relative aggregate net assets of the classes.
Notwithstanding the foregoing, the underwriter, the investment
manager or other provider of services to any Fund may waive or
reimburse the expenses of a specific class or classes to the
extent permitted under Rule 18f-3 under the 1940 Act.
A class of shares may be permitted to bear expenses that are
directly attributable to such class including: (a) any
distribution fees associated with any Rule 12b-1 Plan for a
particular class and any other costs relating to implementing or
amending such Plan (including obtaining shareholder approval of
such Plan or any amendment thereto); (b) any service fees
attributable to such class; (c) any shareholder servicing fees
<PAGE> 3
attributable to such class; and (d) any Class Expenses determined
by the Trustees to be attributable to such class.
3. After a shareholder's Class B shares have been
outstanding for six years, they will automatically convert to
Class A shares of the same Fund (or series) at the relative net
asset values of the two classes and will thereafter not be
subject to a Rule 12b-1 Plan; provided, however, that any Class B
Shares issued in exchange for shares originally classified as
Initial Shares of Kemper Portfolios, formerly known as Kemper
Investment Portfolios (KP), whether in connection with a
reorganization with a series of KP or otherwise, shall convert to
Class A shares seven years after issuance of such Initial Shares
if such Initial Shares were issued prior to February 1, 1991.
Class B shares issued upon reinvestment of income and capital
gain dividends and other distributions will be converted to Class
A shares on a pro rata basis with the Class B shares.
4. Any conversion of shares of one class to shares of
another class is subject to the continuing availability of a
ruling of the Internal Revenue Service or an opinion of counsel
to the effect that the conversion of shares does not constitute a
taxable event under federal income tax law. Any such conversion
may be suspended if such a ruling or opinion is no longer
available.
5. To the extent exchanges are permitted, shares of any
class of a Fund will be exchangeable with shares of the same
class of another Fund, or with money market fund shares as
described in the applicable prospectus. Exchanges will comply
with all applicable provisions of Rule 11a-3 under the 1940 Act.
For purposes of calculating the time period remaining on the
conversion of Class B shares to Class A shares, Class B shares
received on exchange retain their original purchase date.
6. Dividends paid by a Fund (or series) as to each class
of its shares, to the extent any dividends are paid, will be
calculated in the same manner, at the same time, on the same day,
and will be in the same amount, except that any distribution
fees, service fees, shareholder servicing fees and Class Expenses
allocated to a class will be borne exclusively by that class.
7. Any distribution arrangement of a Fund, including
distribution fees and front-end and deferred sales loads, will
comply with Article III, Section 26, of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
8. All material amendments to this Plan for a Fund must be
approved by a majority of the members of the Fund's governing
board, including a majority of the board members who are not
interested persons of the Fund.
<PAGE> 4
Any open-end investment company may establish a
Multi-Distribution System and adopt this Multi-Distribution
System Plan by approval of a majority of the members of any such
company's governing board, including a majority of the board
members who are not interested persons of such company.
<PAGE> 1
EXHIBIT 99.B24
POWER OF ATTORNEY
The person whose signature appears below hereby appoints
Charles F. Custer, Stephen B. Timbers and Philip J. Collora
and each of them, any of whom may act without the joinder of
the others, as his attorney-in-fact to sign and file on his
behalf individually and in the capacity stated below such
registration statements, amendments, post-effective
amendments, exhibits, applications and other documents with
the Securities and Exchange Commission or any other
regulatory authority as may be desirable or necessary in
connection with the public offering of shares of Kemper
Income and Capital Preservation Fund.
Signature Title Date
--------- ----- ----
/s/ Stephen B. Timbers Trustee October 12, 1995
---------------------------
<PAGE> 2
POWER OF ATTORNEY
The person whose signature appears below hereby appoints
Charles F. Custer, Stephen B. Timbers and Philip J. Collora
and each of them, any of whom may act without the joinder of
the others, as his attorney-in-fact to sign and file on his
behalf individually and in the capacity stated below such
registration statements, amendments, post-effective
amendments, exhibits, applications and other documents with
the Securities and Exchange Commission or any other
regulatory authority as may be desirable or necessary in
connection with the public offering of shares of Kemper
Income and Capital Preservation Fund.
Signature Title Date
--------- ----- ----
/s/ David W. Belin Trustee October 12, 1995
--------------------------
<PAGE> 3
POWER OF ATTORNEY
The person whose signature appears below hereby appoints
Charles F. Custer, Stephen B. Timbers and Philip J. Collora
and each of them, any of whom may act without the joinder of
the others, as his attorney-in-fact to sign and file on his
behalf individually and in the capacity stated below such
registration statements, amendments, post-effective
amendments, exhibits, applications and other documents with
the Securities and Exchange Commission or any other
regulatory authority as may be desirable or necessary in
connection with the public offering of shares of Kemper
Income and Capital Preservation Fund.
Signature Title Date
--------- ----- ----
/s/ Lewis A. Burnham Trustee October 12, 1995
--------------------------
<PAGE> 4
POWER OF ATTORNEY
The person whose signature appears below hereby appoints
Charles F. Custer, Stephen B. Timbers and Philip J. Collora
and each of them, any of whom may act without the joinder of
the others, as his attorney-in-fact to sign and file on his
behalf individually and in the capacity stated below such
registration statements, amendments, post-effective
amendments, exhibits, applications and other documents with
the Securities and Exchange Commission or any other
regulatory authority as may be desirable or necessary in
connection with the public offering of shares of Kemper
Income and Capital Preservation Fund.
Signature Title Date
--------- ----- ----
/s/ Donald L. Dunaway Trustee October 12, 1995
--------------------------
<PAGE> 5
POWER OF ATTORNEY
The person whose signature appears below hereby appoints
Charles F. Custer, Stephen B. Timbers and Philip J. Collora
and each of them, any of whom may act without the joinder of
the others, as his attorney-in-fact to sign and file on his
behalf individually and in the capacity stated below such
registration statements, amendments, post-effective
amendments, exhibits, applications and other documents with
the Securities and Exchange Commission or any other
regulatory authority as may be desirable or necessary in
connection with the public offering of shares of Kemper
Income and Capital Preservation Fund.
Signature Title Date
--------- ----- ----
/s/ Robert B. Hoffman Trustee October 12, 1995
--------------------------
<PAGE> 6
POWER OF ATTORNEY
The person whose signature appears below hereby appoints
Charles F. Custer, Stephen B. Timbers and Philip J. Collora
and each of them, any of whom may act without the joinder of
the others, as his attorney-in-fact to sign and file on his
behalf individually and in the capacity stated below such
registration statements, amendments, post-effective
amendments, exhibits, applications and other documents with
the Securities and Exchange Commission or any other
regulatory authority as may be desirable or necessary in
connection with the public offering of shares of Kemper
Income and Capital Preservation Fund.
Signature Title Date
--------- ----- ----
/s/ Donald R. Jones Trustee October 12, 1995
--------------------------
<PAGE> 7
POWER OF ATTORNEY
The person whose signature appears below hereby appoints
Charles F. Custer, Stephen B. Timbers and Philip J. Collora
and each of them, any of whom may act without the joinder of
the others, as his attorney-in-fact to sign and file on his
behalf individually and in the capacity stated below such
registration statements, amendments, post-effective
amendments, exhibits, applications and other documents with
the Securities and Exchange Commission or any other
regulatory authority as may be desirable or necessary in
connection with the public offering of shares of Kemper
Income and Capital Preservation Fund.
Signature Title Date
--------- ----- ----
/s/ David B. Mathis Trustee October 12, 1995
--------------------------
<PAGE> 8
POWER OF ATTORNEY
The person whose signature appears below hereby appoints
Charles F. Custer, Stephen B. Timbers and Philip J. Collora
and each of them, any of whom may act without the joinder of
the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity
stated below such registration statements, amendments,
post-effective amendments, exhibits, applications and other
documents with the Securities and Exchange Commission or any
other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Kemper
Income and Capital Preservation Fund.
Signature Title Date
--------- ----- ----
/s/ Shirley D. Peterson Trustee October 12, 1995
--------------------------
<PAGE> 9
POWER OF ATTORNEY
The person whose signature appears below hereby appoints
Charles F. Custer, Stephen B. Timbers and Philip J. Collora
and each of them, any of whom may act without the joinder of
the others, as his attorney-in-fact to sign and file on his
behalf individually and in the capacity stated below such
registration statements, amendments, post-effective
amendments, exhibits, applications and other documents with
the Securities and Exchange Commission or any other
regulatory authority as may be desirable or necessary in
connection with the public offering of shares of Kemper
Income and Capital Preservation Fund.
Signature Title Date
--------- ----- ----
/s/ William P. Sommers Trustee October 12, 1995
--------------------------
<PAGE> 1
EXHIBIT 99.485(b)
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
November 28, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Kemper Income and Capital Preservation Fund
To The Commission:
We are counsel to the above-referenced investment company (the "Fund")
and as such have participated in the preparation and review of Post-Effective
Amendment No. 38 to the Fund's registration statement being filed pursuant to
Rule 485(b) under the Securities Act of 1933. In accordance with paragraph
(b)(4) of Rule 485, we hereby represent that such amendment does not contain
disclosures which would render it ineligible to become effective pursuant to
paragraph (b) thereof.
Very truly yours,
/s/ Vedder, Price, Kaufman & Kammholz
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1995 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055185
<NAME> KEMPER INCOME AND CAPITAL PRESERVATION FUND
<SERIES>
<NUMBER> 0
<NAME> COMBINED FOR ALL CLASSES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 616,187
<INVESTMENTS-AT-VALUE> 635,692
<RECEIVABLES> 20,192
<ASSETS-OTHER> 1,270
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 657,154
<PAYABLE-FOR-SECURITIES> 5,446
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,281
<TOTAL-LIABILITIES> 7,727
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 639,348
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 11,619
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (21,045)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,505
<NET-ASSETS> 649,427
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 44,957
<OTHER-INCOME> 0
<EXPENSES-NET> (5,321)
<NET-INVESTMENT-INCOME> 39,636
<REALIZED-GAINS-CURRENT> (2,954)
<APPREC-INCREASE-CURRENT> 49,840
<NET-CHANGE-FROM-OPS> 86,522
<EQUALIZATION> (381)
<DISTRIBUTIONS-OF-INCOME> (40,603)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 138,995
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (2,923)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (5,321)
<AVERAGE-NET-ASSETS> 547,487
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS CONBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1995 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055185
<NAME> KEMPER INCOME AND CAPITAL PRESERVATION FUND
<SERIES>
<NUMBER> 1
<NAME> CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 62,158
<SHARES-COMMON-PRIOR> 63,115
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 535,786
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,217
<NUMBER-OF-SHARES-REDEEMED> (15,124)
<SHARES-REINVESTED> 2,950
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 7.91
<PER-SHARE-NII> .61
<PER-SHARE-GAIN-APPREC> .72
<PER-SHARE-DIVIDEND> (.62)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.62
<EXPENSE-RATIO> .009
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1995 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055185
<NAME> KEMPER INCOME AND CAPITAL PRESERVATION FUND
<SERIES>
<NUMBER> 2
<NAME> CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 11,336
<SHARES-COMMON-PRIOR> 1,343
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 97,425
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,153
<NUMBER-OF-SHARES-REDEEMED> (3,413)
<SHARES-REINVESTED> 253
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 7.90
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> .72
<PER-SHARE-DIVIDEND> (.54)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.59
<EXPENSE-RATIO> .018
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROMT HE 1995 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055185
<NAME> KEMPER INCOME AND CAPITAL PRESERVATION FUND
<SERIES>
<NUMBER> 3
<NAME> CLASS C
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 564
<SHARES-COMMON-PRIOR> 51
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4,860
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,024
<NUMBER-OF-SHARES-REDEEMED> (520)
<SHARES-REINVESTED> 11
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 7.90
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> .72
<PER-SHARE-DIVIDEND> (.54)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.61
<EXPENSE-RATIO> .018
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE 1995 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055185
<NAME> KEMPER INCOME AND CAPITAL PRESERVATION FUND
<SERIES>
<NUMBER> 4
<NAME> CLASS I
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
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<OTHER-ITEMS-ASSETS> 0
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<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
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<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 11,356
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,374
<NUMBER-OF-SHARES-REDEEMED> (82)
<SHARES-REINVESTED> 26
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 8.52
<PER-SHARE-NII> .19
<PER-SHARE-GAIN-APPREC> .12
<PER-SHARE-DIVIDEND> (.22)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.61
<EXPENSE-RATIO> .006
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
