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STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 20, 1995
KEMPER MONEY MARKET FUND
120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603
(800) 621-1048
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the prospectus of Kemper Money Market Fund (the
"Fund") dated November 20, 1995. The prospectus may be obtained without charge
by calling or writing the Fund.
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TABLE OF CONTENTS
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PAGE
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Investment Restrictions............................................. B-1
Municipal Securities................................................ B-4
Investment Manager.................................................. B-5
Portfolio Transactions.............................................. B-6
Purchase and Redemption of Shares................................... B-7
Dividends, Net Asset Value and Taxes................................ B-8
Performance......................................................... B-9
Officers and Trustees............................................... B-14
Special Features.................................................... B-16
Shareholder Rights.................................................. B-16
Appendix--Ratings of Investments.................................... B-18
</TABLE>
The financial statements appearing in the Fund's 1995 Annual Report to
Shareholders are incorporated herein by reference. The Fund's Annual Report
accompanies this Statement of Additional Information.
KMMF-13 11/95
LOGO
printed on recycled paper
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted for its Money Market Portfolio, Government Securities
Portfolio and Tax-Exempt Portfolio certain investment restrictions which,
together with the investment objective and policies of each Portfolio, cannot
be changed for a Portfolio without approval by holders of a majority of such
Portfolio's 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
Portfolio present at a meeting where more than 50% of the outstanding shares
of the Portfolio are present in person or by proxy; or (b) more than 50% of
the outstanding shares of the Portfolio.
THE MONEY MARKET PORTFOLIO may not:
(1) Purchase common stocks, preferred stocks, warrants, other equity
securities, state bonds, municipal bonds or industrial revenue bonds (except
through the purchase of debt obligations in accordance with its investment
objective and policies).
(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 value of the
Portfolio's 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 Portfolio'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.
(5) Enter into repurchase agreements if, as a result thereof, more than 10% of
the Portfolio's total assets valued at the time of the transaction would be
subject to repurchase agreements maturing in more than seven days.
(6) Make loans to others (except through the purchase of debt obligations or
repurchase agreements 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, in order to meet redemption requests without immediately selling any
money market instruments (any such borrowings under this section will not be
collateralized). If, for any reason, the current value of the Portfolio's
total assets falls below an amount equal to three times the amount of its
indebtedness from money borrowed, the Portfolio will, within three business
days, reduce its indebtedness to the extent necessary. The Portfolio will not
borrow for leverage purposes.
(8) 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.
(9) Write, purchase or sell puts, calls or combinations thereof.
(10) Concentrate more than 25% of the value of its assets in any one industry;
provided, however, that the Portfolio reserves freedom of action to invest up
to 100% of its assets in certificates of deposit or bankers' acceptances when
management considers it to be in the best interests of the Portfolio in
attaining its investment objective.
(11) 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.
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(12) Invest more than 5% of the Portfolio'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).
(13) Invest for the purpose of exercising control or management of another
issuer.
(14) 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.
(15) 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.
(16) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
(17) Underwrite securities issued by others except to the extent the Portfolio
may be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities.
(18) Issue senior securities as defined in the Investment Company Act of 1940.
THE GOVERNMENT SECURITIES PORTFOLIO may not:
(1) Purchase securities or make investments other than in accordance with its
investment objective and policies.
(2) Enter into repurchase agreements if, as a result thereof, more than 10% of
the Portfolio's total assets valued at the time of the transaction would be
subject to repurchase agreements maturing in more than seven days.
(3) Make loans to others (except through the purchase of debt obligations or
repurchase agreements 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
instruments (any such borrowings under this section will not be
collateralized). If, for any reason, the current value of the Portfolio's
total assets falls below an amount equal to three times the amount of its
indebtedness from money borrowed, the Portfolio will, within three business
days, reduce its indebtedness to the extent necessary. The Portfolio will not
borrow for leverage purposes.
(5) 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.
(6) Underwrite securities issued by others except to the extent the Portfolio
may be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities.
(7) Issue senior securities as defined in the Investment Company Act of 1940.
THE TAX-EXEMPT PORTFOLIO may not:
(1) Purchase securities if as a result of such purchase 25% or more of the
Portfolio's total assets would be invested in any one industry or in any one
state. Municipal Securities and obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities are not considered an industry
for purposes of this restriction.
(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 Portfolio's assets would be invested
in the
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securities of such issuer. For purposes of this limitation, the Portfolio will
regard the entity which has the primary responsibility for the payment of
interest and principal as the issuer.
(3) Invest more than 5% of the Portfolio's total assets in industrial
development bonds sponsored by companies which with their predecessors have
less than three years' continuous operation.
(4) Make loans to others (except through the purchase of debt obligations or
repurchase agreements 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, in order to meet redemption requests without immediately selling any
money market instruments (any such borrowings under this section will not be
collateralized). If, for any reason, the current value of the Portfolio's
total assets falls below an amount equal to three times the amount of its
indebtedness from money borrowed, the Portfolio will, within three business
days, reduce its indebtedness to the extent necessary. The Portfolio will not
borrow for leverage purposes.
(6) Make short sales of securities or purchase securities on margin, except to
obtain such short-term credits as may be necessary for the clearance of
transactions.
(7) Write, purchase or sell puts, calls or combinations thereof, although the
Portfolio may purchase Municipal Securities subject to Standby Commitments in
accordance with its investment objective and policies.
(8) 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.
(9) Invest more than 5% of the Portfolio'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).
(10) Invest for the purpose of exercising control or management of another
issuer.
(11) Invest in commodities or commodity futures contracts or in real estate
except that the Portfolio may invest in Municipal Securities secured by real
estate or interests therein.
(12) Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in Municipal 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 Portfolio
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.
If a Portfolio adheres to a percentage restriction 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 Portfolios did not borrow money, as permitted by investment
restrictions number 7 (Money Market Portfolio), number 4 (Government
Securities Portfolio) and number 5 (Tax-Exempt Portfolio), in the latest
fiscal year; and they have no present intention of borrowing during the coming
year. In any event, borrowings would only be as permitted by such
restrictions. The Tax-Exempt Portfolio may invest more than 25% of its total
assets in industrial development bonds.
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MUNICIPAL SECURITIES
Municipal Securities which the Tax-Exempt Portfolio may purchase include,
without limitation, debt obligations issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities such
as airports, bridges, highways, housing, hospitals, mass transportation,
public utilities, schools, streets, and water and sewer works. Other public
purposes for which Municipal Securities may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses and
obtaining funds to loan to other public institutions and facilities.
Municipal Securities, such as industrial development bonds, are issued by or
on behalf of public authorities to obtain funds for purposes including
privately operated airports, housing, conventions, trade shows, ports, sports,
parking or pollution control facilities or for facilities for water, gas,
electricity or sewage and solid waste disposal. Such obligations, which may
include lease arrangements, are included within the term Municipal Securities
if the interest paid thereon qualifies as exempt from federal income tax.
Other types of industrial development bonds, the proceeds of which are used
for the construction, equipment, repair or improvement of privately operated
industrial or commercial facilities, may constitute Municipal Securities,
although current federal tax laws place substantial limitations on the size of
such issues.
Municipal Securities generally are classified as "general obligation" or
"revenue." General obligation notes are secured by the issuer's pledge of its
full credit and taxing power for the payment of principal and interest.
Revenue notes are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source. Industrial development bonds
which are Municipal Securities are in most cases revenue bonds and generally
do not constitute the pledge of the credit of the issuer of such bonds.
Examples of Municipal Securities that are issued with original maturities of
one year or less are short-term tax anticipation notes, bond anticipation
notes, revenue anticipation notes, construction loan notes, pre-refunded
municipal bonds, warrants and tax-free commercial paper.
Tax anticipation notes typically are sold to finance working capital needs of
municipalities in anticipation of receiving property taxes on a future date.
Bond anticipation notes are sold on an interim basis in anticipation of a
municipality issuing a longer term bond in the future. Revenue anticipation
notes are issued in expectation of receipt of other types of revenue such as
those available under the Federal Revenue Sharing Program. Construction loan
notes are instruments insured by the Federal Housing Administration with
permanent financing by "Fannie Mae" (the Federal National Mortgage
Association) or "Ginnie Mae" (the Government National Mortgage Association) at
the end of the project construction period. Pre-refunded municipal bonds are
bonds which are not yet refundable, but for which securities have been placed
in escrow to refund an original municipal bond issue when it becomes
refundable. Tax-free commercial paper is an unsecured promissory obligation
issued or guaranteed by a municipal issuer. The Tax-Exempt Portfolio may
purchase other Municipal Securities similar to the foregoing, which are or may
become available, including securities issued to pre-refund other outstanding
obligations of municipal issuers.
The federal bankruptcy statutes relating to the adjustments of debts of
political subdivisions and authorities of states of the United States provide
that, in certain circumstances, such subdivisions or authorities may be
authorized to initiate bankruptcy proceedings without prior notice to or
consent of creditors, which proceedings could result in material adverse
changes in the rights of holders of obligations issued by such subdivisions or
authorities.
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Litigation challenging the validity under state constitutions of present
systems of financing public education has been initiated or adjudicated in a
number of states, and legislation has been introduced to effect changes in
public school finances in some states. In other instances there has been
litigation challenging the issuance of pollution control revenue bonds or the
validity of their issuance under state or federal law which ultimately could
affect the validity of those Municipal Securities or the tax-free nature of
the interest thereon.
INVESTMENT MANAGER
INVESTMENT MANAGER. Kemper Financial Services, Inc. ("KFS") is the Fund's
investment manager. Pursuant to an investment management agreement, KFS acts
as the Fund's investment adviser, manages its investments, administers its
business affairs, furnishes office facilities and equipment, provides
clerical, bookkeeping and administrative services, provides shareholder and
information services and permits any of its officers or employees to serve
without compensation as trustees or officers of the Fund if elected to such
positions. The Fund pays the expenses of its operations, including the fees
and expenses of independent auditors, counsel, custodian and transfer agent
and the cost of share certificates, reports and notices to shareholders, costs
of calculating net asset value, brokerage commissions or transaction costs,
taxes, registration fees, the fees and expenses of qualifying the Fund and its
shares for distribution under federal and state securities laws and membership
dues in the Investment Company Institute or any similar organization. The
Fund's expenses generally are allocated among the Portfolios on the basis of
relative net assets at the time of allocation, except that expenses directly
attributable to a particular Portfolio are charged to that Portfolio.
The investment management agreement continues in effect from year to year for
each Portfolio so long as its continuation is approved at least annually (a)
by 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 of each Portfolio or the Board of
Trustees. If continuation is not approved for a Portfolio, the investment
management agreement nevertheless may continue in effect for the Portfolios
for which it is approved and KFS may continue to serve as investment manager
for the Portfolio for which it is not approved to the extent permitted by the
Investment Company Act of 1940. The agreement may be terminated at any time
upon 60 days notice by either party, or by a majority vote of the outstanding
shares of a Portfolio with respect to that Portfolio, and will terminate
automatically upon assignment. Shareholders of each Portfolio will vote
separately upon continuation of the investment management agreement and upon
other matters affecting only an individual Portfolio. Additional Portfolios
may be subject to a different agreement. The agreement provides that KFS shall
not be liable for any error of judgment or of law, or for any loss suffered by
the Fund in connection with the matters to which the agreement relates, 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 the agreement.
For the services and facilities furnished, the Fund pays an annual investment
management fee, payable monthly, on a graduated basis of .50% of the first
$215 million of average daily net assets of the Fund, .375% on the next $335
million, .30% on the next $250 million and .25% of average daily net assets of
the Fund over $800 million. KFS has agreed to reimburse the Fund should all
operating expenses of the Fund, including the investment management fee of KFS
but excluding taxes, interest, extraordinary expenses and brokerage
commissions or transaction costs, exceed 1 1/2% of the first $30 million of
average net assets of the Fund and 1% of average net assets over $30 million
on an annual basis. The investment management fee and the expense limitation
are computed based upon the average daily net assets of all Portfolios of the
Fund managed by KFS and are allocated among such Portfolios based upon the
relative net assets of each Portfolio.
B-5
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For its services as investment adviser and manager and for facilities
furnished during the fiscal years ended July 31 indicated, the Fund incurred
investment management fees for the Portfolios as shown.
<TABLE>
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PORTFOLIO 1995 1994 1993
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<S> <C> <C> <C>
Money Market................................ $10,924,000 $11,439,000 $13,397,000
Government Securities....................... $ 1,637,000 $ 1,840,000 $ 2,169,000
Tax Exempt.................................. $ 2,072,000 $ 2,100,000 $ 2,088,000
</TABLE>
PRINCIPAL UNDERWRITER. Kemper Distributors, Inc. ("KDI"), an affiliate of KFS,
is the principal underwriter for shares of the Fund and acts as agent of the
Fund in the sale of its shares. The Fund pays the cost for the prospectus and
shareholder reports to be set in type and printed for existing shareholders,
and KDI pays for the printing and distribution of copies thereof used in
connection with the offering of shares to prospective investors. KDI also pays
for supplementary sales literature and advertising costs. Terms of
continuation, termination and assignment under the underwriting agreement are
identical to those described above with regard to the investment management
agreement, except that termination other than upon assignment requires six
months notice and shares are voted in the aggregate and not by Portfolio
whenever shareholders vote with respect to such agreement.
Certain officers or trustees of the Fund are also directors or officers of KFS
and KDI as indicated under "Officers and Trustees."
CUSTODIAN AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary Trust Company
("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as custodian, and
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of the Fund. They attend to the collection of principal and income, and
payment for and collection of proceeds of securities bought and sold by the
Fund. IFTC is also the Fund's transfer 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, as transfer
agent, and pays to KSvC, annual account fees of a maximum of $8 per account
plus account set-up, transaction, maintenance and out-of-pocket expense
reimbursement. For the fiscal year ended July 31, 1995, IFTC remitted
shareholder service fees in the amount of $7,656,000 to KSvC as Shareholder
Service Agent.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Fund's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to
do so by the Fund. Shareholders will receive annual audited financial
statements and semi-annual unaudited financial statements.
PORTFOLIO TRANSACTIONS
Portfolio transactions are undertaken principally to pursue the objective of
each Portfolio in relation to movements in the general level of interest
rates, to invest money obtained from the sale of Portfolio shares, to reinvest
proceeds from maturing portfolio securities and to meet redemptions of
Portfolio shares. This may increase or decrease the yield of a Portfolio
depending upon management's ability to correctly time and execute such
transactions. Since a Portfolio's assets are invested in securities with short
maturities, its portfolio will turn over several times a year. Securities with
maturities of less than one year are excluded from required portfolio turnover
rate calculations, so each Portfolio's portfolio turnover rate for reporting
purposes is zero.
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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 security for a Portfolio and for one or more of the other
clients of 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.
KFS, in effecting purchases and sales of portfolio securities for the account
of each Portfolio, will implement the Fund's policy of seeking the best
execution of orders, which includes best net prices. Consistent with this
policy, orders for portfolio transactions are placed with broker-dealer firms
giving consideration to the quality, quantity and nature of the firm's
professional services which include execution, clearance procedures,
reliability and other factors. In selecting among the firms believed to meet
the criteria for handling a particular transaction, KFS may give consideration
to those firms that provide market, statistical and other research information
to the Fund and KFS, although KFS is not authorized to pay higher prices to
firms that provide such services. Any research benefits derived 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. The Fund expects that purchases and sales of
portfolio securities usually will be principal transactions. Portfolio
securities will normally be purchased directly from the issuer or from an
underwriter or market maker for the securities. There are normally no
brokerage commissions paid by the Fund for such purchases and none were paid
by any Portfolio during the Fund's last three fiscal years. Purchases from
underwriters include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked prices.
PURCHASE AND REDEMPTION OF SHARES
Shares of each Portfolio are sold at their net asset value next determined
after an order and payment are received in the form described in the Fund's
prospectus. There is no sales charge. The minimum initial investment in any
Portfolio 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. The Fund may waive the minimum for purchases by
trustees, directors, officers or employees of the Fund or KFS and its
affiliates and the $3 monthly fee assessed on accounts below $1,000. An
investor wishing to open an account should use the Account Application Form
available from the Fund and choose one of the methods of purchase described in
the Fund's prospectus. 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.
Upon receipt by the Shareholder Service Agent, of a request for redemption in
proper form, shares will be redeemed by the Fund at the applicable net asset
value as described in the Fund's prospectus. A shareholder may elect to use
either the regular or expedited redemption procedures.
The 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
B-7
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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 Portfolio's investments is not reasonably practicable, or (ii) it is not
reasonably practicable for the Portfolio 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 the Fund's shareholders.
Although it is the Fund's present policy to redeem in cash, if the Board of
Trustees determines that a material adverse effect would be experienced by the
remaining shareholders if payment were made wholly in cash, the Fund will pay
the redemption price in whole or in part by a distribution of portfolio
securities in lieu of cash, in conformity with the applicable rules of the
Securities and Exchange Commission, taking such securities at the same value
used to determine net asset value, and selecting the securities in such manner
as the Board of Trustees may deem fair and equitable. If such a distribution
occurs, shareholders receiving securities and selling them could receive less
than the redemption value of such securities and in addition could incur
certain transaction costs. Such a redemption would not be as liquid as a
redemption entirely in cash. The Fund has elected to be governed by Rule 18f-1
under the Investment Company Act of 1940 pursuant to which the Fund is
obligated to redeem shares of a Portfolio solely in cash up to the lesser of
$250,000 or 1% of the net assets of the Portfolio during any 90-day period for
any one shareholder of record.
DIVIDENDS, NET ASSET VALUE AND TAXES
DIVIDENDS. Dividends are declared daily and paid monthly. Shareholders will
receive dividends in additional shares of the same Portfolio unless they elect
to receive cash. Dividends will be reinvested monthly at the net asset value
normally on the 25th of each month if a business day, otherwise on the prior
business day. The Fund will pay shareholders who redeem their entire accounts
all unpaid dividends at the time of redemption not later than the next
dividend payment date.
Each Portfolio calculates its dividends based on its daily net investment
income. For this purpose, the net investment income of a Portfolio consists of
(a) accrued interest income plus or minus amortized discount or premium
(excluding market discount for the Tax-Exempt Portfolio), (b) plus or minus
all short-term realized gains and losses on portfolio assets and (c) minus
accrued expenses allocated to the Portfolio. Expenses of the Fund are accrued
each day. While each Portfolio's investments are valued at amortized cost,
there will be no unrealized gains or losses on portfolio securities. However,
should the net asset value of a Portfolio deviate significantly from market
value, the Board of Trustees could decide to value the portfolio securities at
market value and then unrealized gains and losses would be included in net
investment income above.
NET ASSET VALUE. As described in the prospectus, each Portfolio values its
portfolio instruments at amortized cost, which does not take into account
unrealized capital gains or losses. This involves initially valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method
provides certainty in valuation, it may result in periods during which value,
as determined by amortized cost, is higher or lower than the price the
Portfolio would receive if it sold the instrument. Calculations are made to
compare the value of a Portfolio's investments valued at amortized cost with
market values. Market valuations 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 net
asset value per share calculated by reference to market values and a
Portfolio's $1.00 per share net asset value, or if there were any other
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deviation that the Board of Trustees of the Fund believed would result in a
material dilution to shareholders or purchasers, the Board of Trustees would
promptly consider what action, if any, should be initiated. If a Portfolio's
net asset value per share (computed using market values) declined, or were
expected to decline, below $1.00 (computed using amortized cost), the Board of
Trustees of the Fund might temporarily reduce or suspend dividend payments in
an effort to maintain the net asset value at $1.00 per share. As a result of
such reduction or suspension of dividends or other action by the Board of
Trustees, an investor would receive less income during a given period than if
such a reduction or suspension had not taken place. Such action could result
in investors receiving no dividends for the period during which they held
shares and receiving, upon redemption, a price per share lower than that which
they paid. On the other hand, if a Portfolio's net asset value per share
(computed using market values) were to increase, or were anticipated to
increase, above $1.00 (computed using amortized cost), the Board of Trustees
of the Fund might supplement dividends in an effort to maintain the net asset
value at $1.00 per share.
TAXES. Interest on indebtedness which is incurred to purchase or carry shares
of a mutual fund portfolio which distributes exempt-interest dividends during
the year is not deductible for federal income tax purposes. Further, the Tax-
Exempt Portfolio may not be an appropriate investment for persons who are
"substantial users' of facilities financed by industrial development bonds
held by the Tax-Exempt Portfolio or are "related persons' to such users; such
persons should consult their tax advisers before investing in the Tax-Exempt
Portfolio.
The "Superfund Act of 1986" (the "Superfund Act") imposes a separate tax on
corporations at a rate of 0.12 percent of the excess of such corporation's
"modified alternative minimum taxable income" over $2 million. A portion of
tax-exempt interest, including exempt-interest dividends from the Tax-Exempt
Portfolio, may be includible in modified alternative minimum taxable income.
Corporate shareholders are advised to consult their tax advisers with respect
to the consequences of the Superfund Act.
PERFORMANCE
As reflected in the prospectus, the historical performance calculation for a
Portfolio may be shown in the form of "yield," "effective yield," "total
return," "average annual total return" and, for the Tax-Exempt Portfolio only,
"tax equivalent yield." These various measures of performance are described
below.
Each Portfolio's yield is 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 for each Portfolio 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 (excluding market
discount for the Tax-Exempt Portfolio), 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.
Each Portfolio'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: (base period return +
1)/365/7/ - 1.
Average annual total return ("AATR") is found for a specific period by first
taking a hypothetical $1,000 investment ("initial investment") on the first
day of the period and computing the "redeemable value" of that investment at
the end of the period. The redeemable value is then divided by the initial
investment, and this quotient is taken to
B-9
<PAGE>
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 dividends have been reinvested at net asset value
on the reinvestment dates.
Total return is not calculated according to a standard formula, except when
calculated for the "Financial Highlights" table in the financial statements.
Total return is calculated similarly to AATR but is not annualized. It may be
shown as a percentage or the increased dollar value of the hypothetical
investment over the period.
All performance information shown below is for periods ended July 31, 1995.
<TABLE>
<CAPTION>
*TAX- AATR TOTAL TOTAL TOTAL
YIELD EFFECTIVE YIELD EQUIVALENT YIELD AATR 5 AATR RETURN RETURN RETURN
PORTFOLIO 7 DAYS 7 DAYS 7 DAYS 1 YR. YRS. 10 YRS. 1 YR. 5 YRS. 10 YRS.
- --------- ------ --------------- ---------------- ----- ---- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market............ 5.5% 5.7% -- 5.2% 4.7% 6.1% 5.3% 25.3% 80.8%
Government Securities... 5.5 5.7 -- 5.2 4.6 6.0 5.4 25.1 78.6
Tax-Exempt.............. 3.7 3.8 5.9% 3.4 3.4 4.2** 3.5 18.1 38.1**
</TABLE>
- -------
* Based upon a marginal federal income tax rate of 37.1%.
**Since 9/10/87.
The tax equivalent yield of the Tax-Exempt Portfolio is computed by dividing
that portion of the Portfolio's yield (computed as described above) which is
tax-exempt by (one minus the stated federal income tax rate) and adding the
result to that portion, if any, of the yield of the Portfolio that is not tax-
exempt. For additional information concerning tax-exempt yields, see "Tax-
Exempt versus Taxable Yield" below.
Each Portfolio's yield fluctuates, and the publication of an annualized yield
quotation is not a representation as to what an investment in a Portfolio will
actually yield for any given future period. Actual yields will depend not only
on changes in interest rates on money market instruments during the period in
which the investment in a Portfolio is held, but also on such matters as
Portfolio expenses.
Money market mutual funds allow smaller investors to participate in the money
market and to receive money market yields that previously were available only
to those investors with large sums of money. Prior to the introduction of the
first money market mutual funds, small investors wanting to manage their cash
reserves had a limited choice of bank products available with a predetermined
set of interest rates such as passbook savings accounts and checking accounts.
Currently, there are hundreds of money market funds managing billions of
dollars for millions of investors. Kemper Money Market Fund is one of the
largest money market funds.
Investors have an extensive choice of money market funds and money market
deposit accounts and the information below may be useful to investors who wish
to compare the past performance of the Money Market Portfolio, the Government
Securities Portfolio and the Tax-Exempt Portfolio with that of their
competitors. Past performance cannot be a guarantee of future results.
As indicated in the prospectus (see "Performance"), the performance of the
Fund's Portfolios may be compared to that of other mutual funds tracked by
Lipper Analytical Services, Inc. ("Lipper"). Lipper performance calculations
include the reinvestment of all capital gain and income dividends for the
periods covered by the calculations. A Portfolio's performance also may be
compared to other money market funds reported by IBC/Donoghue's Money Fund
Report(R), or Money Market Insight(R), reporting services on money market
funds. As reported by IBC/Donoghue's, all investment results represent total
return (annualized results for the period net of management fees and expenses)
and one year investment results are effective annual yields assuming
reinvestment of dividends.
Lipper and IBC/Donoghue's reported the following results for the Money Market
Portfolio and the Government Securities Portfolio.
B-10
<PAGE>
LIPPER ANALYTICAL SERVICES, INC. IBC/DONOGHUE'S
<TABLE>
<CAPTION>
MONEY MARKET
PORTFOLIO'S
RANKING VS
MONEY MARKET
PERIOD ENDED 8/31/95 INSTRUMENT FUNDS
- -------------------- ----------------------
<S> <C>
1 Year............... 34 out of 256
3 Months............. 30 out of 283
1 Month.............. 38 out of 285
<CAPTION>
GOVERNMENT
SECURITIES
PORTFOLIO'S RANKING VS
U.S. GOVERNMENT
PERIOD ENDED 8/31/95 MONEY MARKET FUNDS
- -------------------- ----------------------
<S> <C>
1 Year............... 5 out of 107
3 Months............. 11 out of 114
1 Month.............. 11 out of 114
</TABLE>
<TABLE>
<CAPTION>
MONEY AVERAGE YIELD
MARKET ALL TAXABLE
PERIOD ENDED PORTFOLIO'S MONEY MARKET
8/31/95 YIELD FUNDS
- ------------ ----------- -------------
<S> <C> <C>
1 Year........... 5.45% 5.25%
1 Month.......... 5.43 5.27
7 Days**......... 5.43 5.25
<CAPTION>
GOVERNMENT AVERAGE YIELD
SECURITIES ALL TAXABLE
PERIOD ENDED PORTFOLIO'S GOVERNMENT
8/31/95 YIELD MONEY FUNDS
- ------------ ----------- -------------
<S> <C> <C>
1 Year........... 5.48% 5.05%
1 Month.......... 5.46 5.09
7 Days**......... 5.47 5.07
</TABLE>
According to IBC/Donoghue's, for the one-year period ended August 31, 1995,
the Money Market Portfolio ranked by yield #20 among 217 General Purpose Money
Funds (this category does not include money market funds whose shares are
marketed primarily to institutional investors). According to IBC/Donoghue's,
for the one-year period ended August 31, 1995, the Government Securities
Portfolio ranked by yield #5 among 195 Taxable Government Money Funds (this
category does not include taxable government money funds whose shares are
marketed primarily to institutional investors). For the one year period ended
August 31, 1995, the Tax-Exempt Portfolio ranked by yield #7 among 123 Tax-
Free Money Funds (this category does not include tax-free money funds whose
shares are marketed primarily to institutional investors or state specific
tax-free money funds). The Money Market Portfolio ranked #2 among 83 General
Purpose Money Funds with a ten-year history according to IBC/Donoghue's as of
December 31, 1994. The Government Securities Portfolio ranked #3 among 54
Government Money Funds with a ten-year history according to IBC/Donoghue's as
of December 31, 1994. The number of shareholder accounts in the Fund was
approximately 285,000 at September 29, 1995, including 237,000 in the Money
Market Portfolio, 28,000 in the Government Securities Portfolio, and 19,000 in
the Tax-Exempt Portfolio. The value of shares in the Fund as of August 31,
1995 was approximately $5.5 billion, including $4.1 billion in the Money
Market Portfolio, $616 million in the Government Securities Portfolio and $762
million in the Tax-Exempt Portfolio. The Money Market Portfolio was the 24th
largest in total assets of 659 Taxable Money Market Funds reported by
IBC/Donoghue's as of August 31, 1995.
The following investment comparisons are based upon information reported by
Lipper and IBC/Donoghue's. In the comparison of the Tax-Exempt Portfolio's
performance versus the comparison yields, the performance of that Portfolio
has been adjusted on a taxable equivalent basis assuming a marginal federal
tax rate of 37.1% (see "Tax-Exempt versus Taxable Yield" below for more
information concerning taxable equivalent performance).
LIPPER ANALYTICAL SERVICES, INC. IBC/DONOGHUE'S
<TABLE>
<CAPTION>
TAX-EXEMPT
PORTFOLIO'S
RANKING VS TAX-
EXEMPT
PERIOD ENDED 8/31/95 MONEY MARKET FUNDS
- -------------------- ------------------
<S> <C>
1 Year.................. 5 out of 122
3 Months................ 5 out of 129
1 Month................. 4 out of 130
</TABLE>
<TABLE>
<CAPTION>
AVERAGE YIELD
TAX- ALL TAX-FREE
PERIOD ENDED EXEMPT MONEY MARKET
8/31/95 PORTFOLIO FUNDS
- ------------ --------- -------------
<S> <C> <C>
1 Year............. 3.62% 3.25%
1 Month............ 3.66 3.22
7 Days***.......... 3.66 3.21
</TABLE>
B-11
<PAGE>
<TABLE>
<CAPTION>
LIPPER LIPPER
TAX-EXEMPT TAX-EXEMPT MONEY
MONEY PORTFOLIO MARKET
TAX- MARKET TAXABLE INSTRUMENT
EXEMPT FUND EQUIVALENT FUNDS
PERIOD PORTFOLIO AVERAGE BASIS* AVERAGE
- ------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1 Year Ended
8/31/95 3.62% 3.19% 5.76% 5.17%
</TABLE>
<TABLE>
<CAPTION>
TAX-
EXEMPT AVERAGE
PORTFOLIO YIELD ALL
TAXABLE TAXABLE
PERIOD ENDED EQUIVALENT MONEY MARKET
8/31/95 BASIS* FUNDS
- ------------ ---------- ------------
<S> <C> <C>
1 Year............. 5.76% 3.25%
1 Month............ 5.82 3.22
7 Days***.......... 5.82 3.21
</TABLE>
- -------
*Source: Kemper Financial Services, Inc. (not reported by IBC/Donoghue's).
**For Period Ended 8/30/94.
***For Period Ended 8/29/94.
For the ten, five and one year periods ended September 29, 1995, Lipper ranked
the Money Market Portfolio #5 of 107, #19 of 172 and #32 of 251, respectively,
among Money Market Instrument Funds. Lipper also ranked the Money Market
Portfolio #1 in such category for the periods shown below.
<TABLE>
<CAPTION>
NUMBER
OF
FUNDS
IN PERIOD
ATEGORYC PERIOD ENDING
- -------- -------- --------
<S> <C> <C>
41......................................................... 3 Years 12/31/80
23......................................................... 5 Years 12/31/80
50......................................................... 3 Years 12/31/81
34......................................................... 5 Years 12/31/81
110......................................................... 3 Years 12/31/84
81......................................................... 4 Years 12/31/84
66......................................................... 5 Years 12/31/84
109......................................................... 4 Years 12/31/85
80......................................................... 5 Years 12/31/85
142......................................................... 5 Years 12/31/88
39......................................................... 10 Years 12/31/88
54......................................................... 10 Years 12/31/89
33......................................................... 12 Years 12/31/89
64......................................................... 10 Years 12/31/90
79......................................................... 10 Years 12/31/91
31......................................................... 15 Years 12/31/92
36......................................................... 15 Years 12/31/93
</TABLE>
As indicated in the prospectus, a Portfolio's performance also may be compared
on a before or after-tax basis to various bank products, including the average
rate of bank and thrift institution money market deposit accounts, interest
bearing checking accounts and 6-month maturity certificates of deposit as
reported in the BANK RATE MONITOR National Index(TM) of 100 leading bank and
thrift institutions as published by the BANK RATE MONITOR(TM), N. Palm Beach,
Florida 33408. The rates published by the BANK RATE MONITOR National Index(TM)
are averages of the personal account rates offered on the Wednesday prior to
the date of publication by 100 large banks and thrifts in the top ten
Consolidated Standard Metropolitan Statistical Areas.
With respect to money market deposit accounts and interest bearing checking
accounts, account minimums range upward from $2,000 in each institution and
compounding methods vary. Interest bearing checking accounts generally offer
unlimited check writing while money market deposit accounts generally restrict
the number of checks that may be written. If more than one rate is offered,
the lowest rate is used. Rates are determined by the financial institution and
are subject to change at any time specified by the institution. Generally, the
rates offered for these products take market conditions and competitive
product yields into consideration when set. Bank
B-12
<PAGE>
products represent a taxable alternative income producing product. Bank and
thrift institution deposit accounts may be insured. Shareholder accounts in
the Fund are not insured. Bank passbook savings accounts compete with money
market mutual fund products with respect to certain liquidity features but may
not offer all of the features available from a money market mutual fund, such
as check writing. Bank passbook savings accounts normally offer a fixed rate
of interest while the yield of the Fund fluctuates. Bank checking accounts
normally do not pay interest but compete with money market mutual fund
products with respect to certain liquidity features (e.g., the ability to
write checks against the account). Bank certificates of deposit may offer
fixed or variable rates for a set term. (Normally, a variety of terms are
available.) Withdrawal of these deposits prior to maturity will normally be
subject to a penalty. In contrast, shares of the Fund are redeemable at the
net asset value (normally, $1.00 per share) next determined after a request is
received, without charge.
The table below compares the seven day average yields of the Money Market
Portfolio and the Government Securities Portfolio at August 31, 1995 with the
rates for money market deposit accounts, interest bearing checking accounts
and 6-month maturity certificates of deposit reported for August 31, 1995 for
the BANK RATE MONITOR National Index(TM) for each of the ten Consolidated
Standard Metropolitan Statistical Areas that are covered by that index and for
all areas combined. The information provided below is historical and is not
necessarily representative of future performance of any type of bank product
or of any Portfolio of the Fund. The rates reported by the BANK RATE
MONITOR(TM) are not necessarily representative of the rates offered by banks
outside of the scope of report. Furthermore, rate information for one area of
the country is not necessarily representative of rates in other areas. The
rates provided for the bank accounts assume no compounding and are for the
lowest minimum deposit required to open an account. Higher rates may be
available for large deposits.
<TABLE>
<CAPTION>
GOVERNMENT
MONEY MARKET INTEREST 6-MONTH MONEY MARKET SECURITIES
DEPOSIT ACCOUNTS CHECKING CERTIFICATES OF PORTFOLIO PORTFOLIO
AREA STATED RATE STATED RATE DEPOSIT RATE YIELD YIELD
- ---- ---------------- ----------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
New York................ 3.01% 1.49% 4.88% 5.43% 5.47%
Los Angeles............. 2.32 1.03 4.99 5.43 5.47
Chicago................. 3.15 1.75 5.40 5.43 5.47
San Francisco........... 2.35 1.01 4.90 5.43 5.47
Philadelphia............ 2.41 1.21 4.16 5.43 5.47
Detroit................. 2.92 1.85 4.81 5.43 5.47
Boston.................. 3.01 1.40 5.09 5.43 5.47
Houston................. 3.13 1.58 4.78 5.43 5.47
Dallas.................. 3.09 1.51 4.77 5.43 5.47
Washington.............. 3.01 2.32 5.11 5.43 5.47
NATIONAL INDEX.......... 2.84 1.52 4.89 5.43 5.47
</TABLE>
Since January, 1984, the Money Market Portfolio has had a higher yield than
the BANK RATE MONITOR National Index(TM) for both money market deposit
accounts and for interest bearing checking accounts for 604 out of 604 weeks
through August 31, 1995
Investors may also want to compare a Portfolio's performance to that of U.S.
Treasury bills or notes because such instruments represent alternative income
producing products. Treasury obligations are issued in selected denominations.
Rates of U.S. 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. Generally, the values of obligations with shorter
maturities will fluctuate less than those with longer maturities. Each
Portfolio's yield will fluctuate. Also, while each Portfolio seeks to maintain
a net asset value per share of $1.00, there is no assurance that it will be
able to do so.
B-13
<PAGE>
TAX-EXEMPT VERSUS TAXABLE YIELD. You may want to determine which investment--
tax-exempt or taxable--will provide you with a higher after-tax return. To
determine the taxable equivalent yield, simply divide the yield from the tax-
exempt investment by the sum of [1 minus your marginal tax rate]. The tables
below are provided for your convenience in making this calculation for
selected tax-exempt yields and taxable income levels. These yields are
presented for purposes of illustration only and are not representative of any
yield that the Tax-Exempt Portfolio may generate. Both tables are based upon
current law as to the 1995 federal tax rate schedules.
TAXABLE EQUIVALENT YIELD TABLE FOR PERSONS WHOSE ADJUSTED GROSS INCOME IS
UNDER $114,700
<TABLE>
<CAPTION>
YOUR A TAX-EXEMPT YIELD OF:
TAXABLE INCOME MARGINAL 2% 3% 4% 5% 6% 7%
FEDERAL TAX IS EQUIVALENT TO A TAXABLE
SINGLE JOINT RATE YIELD OF:
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$23,350-$56,550 $39,000-$94,250 28.0% 2.78 4.17 5.56 6.94 8.33 9.72
- ---------------------------------------------------------------------------
Over $56,550 Over $94,250 31.0 2.90 4.35 5.80 7.25 8.70 10.14
- ---------------------------------------------------------------------------
</TABLE>
TAXABLE EQUIVALENT YIELD TABLE FOR PERSONS WHOSE ADJUSTED GROSS INCOME IS OVER
$114,700*
<TABLE>
<CAPTION>
YOUR A TAX-EXEMPT YIELD OF:
TAXABLE INCOME MARGINAL 2% 3% 4% 5% 6% 7%
FEDERAL TAX IS EQUIVALENT TO A TAXABLE
SINGLE JOINT RATE YIELD OF:
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$56,550-$117,950 $94,250-$143,600 31.9% 2.94 4.41 5.87 7.34 8.81 10.28
- --------------------------------------------------------------------------------
$117,950-$256,500 $143,600-$256,500 37.1 3.18 4.77 6.36 7.95 9.54 11.13
- --------------------------------------------------------------------------------
Over $256,500 Over $256,500 40.8 3.38 5.07 6.76 8.45 10.14 11.82
- --------------------------------------------------------------------------------
</TABLE>
*This table assumes at least $3.75 of itemized deductions for each $100 of
adjusted gross income over $114,700. For a married couple with adjusted gross
income between $172,050 and $294,550 (single between $114,700 and $237,200),
add 0.7% to the tax rate for each personal and dependency exemption. The
taxable equivalent yield is the tax-exempt yield divided by: 100% minus the
adjusted tax rate. For example, if the table tax rate is 37.1% and you are
married with no dependents, the adjusted tax rate is 38.5% (37.1% + 0.7% +
0.7%). For a tax-exempt yield of 6%, the taxable equivalent yield is about
9.76% (6% / (100% - 38.5%)).
OFFICERS AND TRUSTEES
The officers and trustees of the Funds, their birthdates, their principal
occupations and their affiliations, if any, with KFS and KDI 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):
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).
B-14
<PAGE>
ROBERT B. HOFFMAN (12/11/36), Trustee (22), 800 North 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, Kemper Financial Companies, Inc., and IMC Global Inc.; Chairman of the
Board, Lumbermens Mutual Casualty Company.
SHIRLEY D. PETERSON, (9/3/41), Trustee (22), 401 Rosemont Avenue, Frederick,
Maryland; President, Hood College; 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, Kemper Financial Companies, Inc.,
Dreman Value Advisors, Inc. and LTV Corporation.
JOHN E. PETERS (11/4/47), Vice President* (33), 120 South LaSalle Street,
Chicago, Illinois; Senior Executive Vice President, KFS; President and
Director, KDI; Director, Dreman Value Advisors, Inc.
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.
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.
J. PATRICK BEIMFORD, Jr. (5/25/50), Vice President* (24), 120 South LaSalle
Street, Chicago, Illinois; Executive Vice President and Chief Investment
Officer--Fixed Income, KFS.
FRANK 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.
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
B-15
<PAGE>
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>
PENSION OR TOTAL COMPENSATION
RETIREMENT BENEFITS FROM FUND AND
AGGREGATE COMPENSATION ACCRUED AS PART OF KEMPER FUND COMPLEX
NAME OF TRUSTEE FROM FUND FUND EXPENSES PAID TO TRUSTEES**
- --------------- ----------------------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
David W. Belin*......... $14,400 $0 $112,200
Lewis A. Burnham........ $ 9,400 $0 $ 90,100
Donald L. Dunaway*...... $13,900 $0 $115,400
Robert B. Hoffman....... $ 9,200 $0 $ 87,400
Donald R. Jones......... $ 9,700 $0 $ 94,300
Shirley D. Peterson***.. $ 0 $ 0 $ 0
William P. Sommers...... $ 8,200 $ 0 $ 84,100
</TABLE>
- -------
* Includes current fees deferred and interest pursuant to deferred
compensation agreements with the Fund. 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 July
31, 1995 are $107,000 for Mr. Belin and $79,000 for Mr. Dunaway.
** Includes compensation for service on twenty-three 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.
*** Elected to board in September, 1995.
As of October 16, 1995, the officers and trustees of the Fund, as a group,
owned less than 1% of the outstanding shares of each Portfolio and no person
owned of record 5% or more of the outstanding shares of any Portfolio.
SPECIAL FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM. If you own $5,000 or more of a Portfolio's
shares you may provide for the payment from your account of any requested
dollar amount to be paid to you or your designated payee monthly, quarterly,
semi-annually or annually. The $5,000 minimum account size is not applicable
to Individual Retirement Accounts. Dividend distributions 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, redemptions for the purpose of making
such payments may reduce or even exhaust the account. The program may be
amended on thirty days notice by the Fund and may be terminated at any time by
the shareholder or the Fund.
TAX-SHELTERED RETIREMENT PROGRAMS. The Shareholder Service Agent provides
retirement plan services and documents and can establish your account 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) 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 contribution per participant is the lesser of 25% of
compensation or $30,000.
Brochures describing the above plans as well as providing 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 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.
SHAREHOLDER RIGHTS
The Fund generally is not required to hold meetings of its shareholders. Under
the Agreement and Declaration of Trust of the 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
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of any contract for which shareholder approval is required by the Investment
Company Act of 1940 ("1940 Act"); (c) any termination of the Fund 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 or
any Portfolio, establishing a Portfolio, supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or inconsistent
provision thereof); (e) as to whether a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class
action 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
his 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) the 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 the 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,
the Fund has undertaken to disseminate appropriate materials at the expense of
the requesting shareholders.
The 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 the 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 the 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.
The Declaration of Trust specifically authorizes the Board of Trustees to
terminate the Fund (or any Portfolio) 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 the
Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Fund or the 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 the Fund and the
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 the Fund itself is unable to meet its obligations.
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APPENDIX--RATINGS OF INVESTMENTS
COMMERCIAL PAPER RATINGS
A-1, A-2 AND PRIME-1, PRIME-2 COMMERCIAL PAPER RATINGS
Commercial paper rated by Standard & Poor's Corporation 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, A-2 or A-3.
The ratings Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investors Service, Inc. 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, 2 or 3.
MIG-1 AND MIG-2 MUNICIPAL NOTES
Moody's ratings for state and municipal notes and other short-term loans will
be designated Moody's Investment Grade (MIG). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance in bond risk are of lesser importance in the short run. Loans
designated MIG-1 are of the best quality, enjoying strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both. Loans designated
MIG-2 are of high quality, with margins of protection ample although not so
large as in the preceding group.
STANDARD & POOR'S CORPORATION BOND RATINGS
AAA. This is the highest rating assigned by Standard & Poor's Corporation to a
debt obligation and indicates an extremely strong capacity to pay principal
and interest.
AA. Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A. Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
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.
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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
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.
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