<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 15, 1995.
1933 ACT REGISTRATION NO. 2-47008
1940 ACT REGISTRATION NO. 811-2353
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
<TABLE>
<CAPTION>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
<S> <C>
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 39 /X/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 39 /X/
</TABLE>
(Check appropriate box or boxes)
------------------
KEMPER NATIONAL TAX-FREE INCOME SERIES
(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, With a copy to:
Vice President and Secretary
Kemper Municipal Bond 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 its 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 September 30,
1994 was filed on or about November 25, 1994.
It is proposed that this filing will become effective (check appropriate
box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on March 15, 1995 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1) of Rule 485
/ / 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 NATIONAL TAX-FREE INCOME SERIES
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
<S> <C> <C>
1. Cover Page.............................. Cover Page
2. Synopsis................................ Summary; Summary of Expenses; Supplement to
Prospectus
3. Condensed Financial Information......... Financial Highlights; Performance; Supplement
to Prospectus
4. General Description of Registrant....... Summary; Investment Objectives and Policies
5. Management of the Fund.................. Summary; Investment Manager and Underwriter
5A. Management's Discussion of Financial
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 TAX-FREE INCOME FUNDS
SUPPLEMENT TO PROSPECTUS
DATED MARCH 15, 1995
CLASS I SHARES
Kemper Municipal Bond Fund
Kemper Intermediate Municipal Bond Fund
Kemper National Tax-Free Income Series offers two investment portfolios,
Kemper Municipal Bond Fund ("Municipal Fund") and Kemper Intermediate
Municipal Bond Fund ("Intermediate Municipal Fund"), which 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. (Kemper State Tax-Free Income Series, which is also
included in the Kemper Tax-Free Income Funds combined prospectus, does not
offer Class I shares.)
Class I shares of the Funds are available for purchase exclusively by 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 the Fund: (1) unaffiliated benefit 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, or Kemper Clearing Corp.,
affiliates of KFS and KAMCO. Share certificates are not available for Class
I shares.
The primary distinctions among the classes of 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.
The following information for the Class I shares supplements the referenced
sections of the prospectus.
<PAGE> 4
SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES (APPLICABLE TO BOTH FUNDS)
<TABLE>
<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>
Inter.
Muni. Muni.
Fund Fund
----- ------
<S> <C> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (restated) . . . . . . . . . . . . . . . . . . . . . . . . . .41% .55%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None
Other Expenses (estimated) . . . . . . . . . . . . . . . . . . . . . . . . . .03% .03%
---- ----
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 44% .58%
==== ====
</TABLE>
<TABLE>
<CAPTION>
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the Muni. Fund $5 $14 $25 $55
following expenses Inter. Muni. Fund $6 $19 -- --
on a $1,000
investment,
assuming (1) 5%
annual return
and (2) redemption
at the end of each
time period:
</TABLE>
2
<PAGE> 5
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 the Fund will
bear directly or indirectly.
As discussed in the prospectus under "Investment Manager and Underwriter,"
effective May 31, 1994, the investment management fee for the Municipal Fund
was changed. "Management Fees" have been restated based upon the new
management fee.
"Other Expenses" for Municipal Fund Class I Shares, which were not available
for purchase prior to May 31, 1994, have been estimated for the current fiscal
year.
The Intermediate Municipal Fund commenced public offering of its shares on
November 1, 1994, thus expenses are shown for only the one year and three year
periods. As discussed more fully under "Investment Manager and Underwriter"
in the Statement of Additional Information, KFS agreed to waive its full
investment management fee for the Intermediate Municipal Fund until May 1,
1995. Thereafter, the full management fee is to be instituted gradually under
a schedule determined by KFS. The table for the Intermediate Municipal Fund
reflects the full management fee rate without any waiver and estimated "Other
Expenses" 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 the 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.
FINANCIAL HIGHLIGHTS
No financial information is presented for Class I Shares of the Municipal Fund
since no Class I Shares had been issued as of September 30, 1994, the fiscal
year end for the Municipal Fund, or for Class I shares of the Intermediate
Municipal Fund, which commenced operations on November 1, 1994.
March 15, 1995
KNTIS-1I (03/95)
3
<PAGE> 6
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- --------------------------------------------
<S> <C>
Summary 1
- -------------------------------------------------
Summary of Expenses 3
- -------------------------------------------------
Financial Highlights 6
- -------------------------------------------------
Investment Objectives and Policies 13
- -------------------------------------------------
Investment Manager and Underwriter 22
- -------------------------------------------------
Dividends and Taxes 25
- -------------------------------------------------
Net Asset Value 29
- -------------------------------------------------
Purchase of Shares 29
- -------------------------------------------------
Redemption or Repurchase of Shares 34
- -------------------------------------------------
Special Features 37
- -------------------------------------------------
Performance 40
- -------------------------------------------------
Capital Structure 42
- -------------------------------------------------
Account Application
- -------------------------------------------------
</TABLE>
This combined prospectus of the Kemper Tax-Free 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 March 15, 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 Trusts 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.
(LOGO)
KEMPER
TAX-FREE INCOME
FUNDS
PROSPECTUS MARCH 15, 1995
KEMPER TAX-FREE INCOME FUNDS
120 South LaSalle Street, Chicago, Illinois 60603 1-800-621-1048
Kemper Tax-Free Income Funds are two open-end management investment companies
("Trusts"), Kemper National Tax-Free Income Series and Kemper State Tax-Free
Income Series, that together offer a choice of ten investment portfolios
("Funds") to investors seeking a high level of income exempt from federal income
tax and, in the case of certain Funds, from the income taxes of a particular
state:
KEMPER MUNICIPAL BOND FUND
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
KEMPER CALIFORNIA TAX-FREE INCOME FUND
KEMPER FLORIDA TAX-FREE INCOME FUND
KEMPER MICHIGAN TAX-FREE INCOME FUND
KEMPER NEW JERSEY TAX-FREE INCOME FUND
KEMPER NEW YORK TAX-FREE INCOME FUND
KEMPER OHIO TAX-FREE INCOME FUND
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND
KEMPER TEXAS TAX-FREE INCOME FUND
<PAGE> 7
KEMPER TAX-FREE INCOME FUNDS
120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603, TELEPHONE 1-800-621-1048
SUMMARY
INVESTMENT OBJECTIVES; PERMITTED INVESTMENTS. Kemper Tax-Free Income Funds are
two open-end management investment companies ("Trusts"), Kemper National
Tax-Free Income Series (the "National Trust") and Kemper State Tax-Free Income
Series (the "State Trust"), that together offer a choice of ten investment
portfolios ("Funds"). The National Trust consists of two "National Funds" that
invest primarily in Municipal Securities and have different portfolio maturity
policies and the State Trust consists of eight "State Funds" that invest
primarily in the Municipal Securities of a particular state.
Each National Fund seeks to provide as high a level of current interest income
that is exempt from federal income taxes as is consistent with preservation of
capital, through investment in a professionally managed, diversified portfolio
of Municipal Securities.
KEMPER MUNICIPAL BOND FUND ("Municipal Fund"). The dollar-weighted average
portfolio maturity of the Municipal Fund is expected normally to be longer than
10 years, although it is not limited as to portfolio maturity.
KEMPER INTERMEDIATE MUNICIPAL BOND FUND ("Intermediate Municipal Fund"). As a
non-fundamental policy, the dollar-weighted average portfolio maturity of the
Intermediate Municipal Fund, under normal market conditions, will be between 3
and 10 years.
Each State Fund seeks to provide a high level of current income that is exempt
from federal income taxes and, in the case of certain Funds, the income taxes of
a particular state, through a professionally managed, non-diversified portfolio
of Municipal Securities.
KEMPER CALIFORNIA TAX-FREE INCOME FUND ("California Fund") seeks income exempt
from federal and California income taxes.
KEMPER FLORIDA TAX-FREE INCOME FUND ("Florida Fund") seeks income exempt from
federal income taxes.
KEMPER MICHIGAN TAX-FREE INCOME FUND ("Michigan Fund") seeks income exempt from
federal and Michigan income taxes.
KEMPER NEW JERSEY TAX-FREE INCOME FUND ("New Jersey Fund") seeks income exempt
from federal and New Jersey income taxes.
KEMPER NEW YORK TAX-FREE INCOME FUND ("New York Fund") seeks income exempt from
federal, New York State and New York City income taxes.
KEMPER OHIO TAX-FREE INCOME FUND ("Ohio Fund") seeks income exempt from federal
and Ohio income taxes.
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND ("Pennsylvania Fund") seeks income
exempt from federal and Pennsylvania income taxes.
KEMPER TEXAS TAX-FREE INCOME FUND ("Texas Fund") seeks income exempt from
federal income taxes.
For the Municipal Fund, all Municipal Securities will be rated at the time of
purchase within the four highest grades assigned by Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"), Fitch Investors
Service, Inc. ("Fitch") or Duff & Phelps Credit Rating Co. ("Duff") or any other
Nationally Recognized Statistical Rating Organization (as designated by the
Securities and Exchange Commission), provided that up to 10% of the Municipal
Fund's net assets may be invested in Municipal Securities that are lower rated
or unrated. For the Intermediate Municipal Fund and the State Funds, all
Municipal Securities will, at the time of purchase, be within the four highest
ratings of Moody's, S&P, Fitch or Duff or any other Nationally Recognized
Statistical Rating Organization or will be of comparable quality as determined
by the Funds' investment manager, provided that up to 10% of a Fund's net assets
may be invested without regard to this limitation. Each Fund may also purchase
and sell put and call options and financial futures contracts and options
thereon. See "Investment Objectives and Policies" and "Dividends and Taxes."
1
<PAGE> 8
RISK FACTORS. There is no assurance that the investment objective of any Fund
will be achieved. There are market and investment risks with any security and
the value of an investment in a Fund will fluctuate over time. Normally the
value of a Fund's investments varies inversely with changes in interest rates.
The returns and net asset value of each Fund will fluctuate. As
"non-diversified" funds, each State Fund may invest a relatively high percentage
of its assets in a limited number of issuers, making those Funds more
susceptible to economic, political or regulatory occurrences than a diversified
fund. There are special risks associated with options and financial futures
transactions and there is no assurance that their use will be successful. See
"Investment Objectives and Policies."
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%
(2.75% for the Intermediate Municipal Fund) of the offering
price. 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 investments 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") is
the investment manager for each Fund. KFS was the first to offer a managed
municipal bond fund (the Municipal Fund) and currently manages approximately $8
billion of tax-exempt investments. KFS is paid an investment management fee at
an annual rate that differs among the Funds. Kemper Distributors, Inc. ("KDI"),
an affiliate 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 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."
INVESTORS IN A FUND. Each Fund is designed for persons who are seeking a high
level of income exempt from federal income taxes and, in the case of certain
State Funds, from income taxes of a particular state. Through a single
investment in shares of a Fund, investors receive the benefits of professional
management and liquidity. Additionally, each Fund offers the economic advantages
of block purchases of securities and relief from administrative details such as
accounting for distributions and the safekeeping of securities. The tax
exemption of Fund dividends for federal income tax and, if applicable,
particular state or local tax purposes does not necessarily result in exemption
under the income or other tax laws of any other state or local taxing authority.
The laws of the several states and local taxing authorities vary with respect to
the taxation of interest income and investments, and shareholders are advised to
consult their own tax advisers as to the status of their accounts under state
and local tax laws. The Funds may not be appropriate investments for qualified
retirement plans and Individual Retirement Accounts.
DIVIDENDS. Each Fund declares daily dividends of its net investment income on
shares for which it has received payment. Each Fund normally distributes monthly
dividends of net investment income and distributes any net
2
<PAGE> 9
realized capital gains 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 Trust liable for any
misstatement or omission in this prospectus regardless of the particular Trust
to which it pertains.
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
(APPLICABLE TO ALL FUNDS)(1) CLASS A(2) CLASS B CLASS C
---------- ------------------ -------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases %
(as a percentage of offering price)................. 4.5 None None
2.75% Inter.
Mun.
Fund Only
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 None
proceeds)........................................... first year, 3%
during the second
and third years,
2% during the
fourth and fifth
years and 1% in
the sixth year
</TABLE>
- ---------------
(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."
(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."
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
MUNICIPAL INTER. MUN. CALIFORNIA FLORIDA MICHIGAN NEW JERSEY NEW YORK OHIO PENNSYLVANIA TEXAS
CLASS A SHARES FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
--------- ----------- ---------- ------- -------- ---------- -------- ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees
(restated)........... .41% .55% .52% .55% .55% .55% .54% .55% .55% .55%
12b-1 Fees............. None None None None None None None None None None
Other Expenses(4)...... .22% .40% .20% .24% .37% .37% .21% .27% .37% .35%
-------- -------- ------- ------ ------ ------- ------ ---- ------ -----
Total Operating
Expenses............. .63% .95% .72% .79% .92% .92% .75% .82% .92% .90%
======== ======== ======= ====== ====== ======= ====== ==== ======== =====
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL INTER. MUN. CALIFORNIA FLORIDA MICHIGAN NEW JERSEY NEW YORK OHIO PENNSYLVANIA TEXAS
CLASS B SHARES FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
--------- ----------- ---------- ------- -------- ---------- -------- ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees
(restated)........... .41% .55% .52% .55% .55% .55% .54% .55% .55% .55%
12b-1 Fees(5).......... .75% .75% .75% .75% .75% .75% .75% .75% .75% .75%
Other Expenses
(estimated)(4)....... .40% .50% .35% .40% .42% .42% .42% .42% .42% .48%
-------- -------- ------- ------ ------ ------- ------ ---- ------ -----
Total Operating
Expenses............. 1.56% 1.80% 1.62% 1.70% 1.72% 1.72% 1.69% 1.72% 1.72% 1.78%
======== ======== ======= ====== ====== ======= ====== ===== ====== =====
</TABLE>
- ---------------
(4) "Other Expenses" for the Inter. Mun., Michigan, New Jersey and Pennsylvania
Funds have been estimated for the current fiscal year.
(5) 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> 10
<TABLE>
<CAPTION>
MUNICIPAL INTER. MUN. CALIFORNIA FLORIDA MICHIGAN NEW JERSEY NEW YORK OHIO PENNSYLVANIA TEXAS
CLASS C SHARES FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
--------- ----------- ---------- ------- -------- ---------- -------- ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees
(restated)........... .41% .55% .52% .55% .55% .55% .54% .55% .55% .55%
12b-1 Fees(4)(6)....... .75% .75% .75% .75% .75% .75% .75% .75% .75% .75%
Other Expenses
(estimated).......... .37% .45% .29% .34% .40% .40% .34% .37% .40% .47%
-------- -------- ------- ------ ------ ------- ------ ---- ------ -----
Total Operating
Expenses............. 1.53% 1.75% 1.56% 1.64% 1.70% 1.70% 1.63% 1.67% 1.70% 1.77%
======== ======== ======= ====== ====== ======= ====== ==== ====== =====
</TABLE>
- ---------------
(4) "Other Expenses" for the Inter. Mun., Michigan, New Jersey and Pennsylvania
Funds have been estimated for the current fiscal year.
(6) 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.
EXAMPLE
<TABLE>
<CAPTION>
1 3 10
CLASS A SHARES FUND YEAR YEARS 5 YEARS YEARS
---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
You would pay the following expenses Municipal Fund $ 51 $ 64 $79 $ 120
on a $1,000 investment, assuming Inter. Mun. Fund $ 37 $ 57 -- --
(1) 5% annual return and (2) California Fund $ 52 $ 67 $83 $ 130
redemption
at the end of each time period: Florida Fund $ 53 $ 69 $87 $ 138
Michigan Fund $ 54 $ 73 -- --
New Jersey Fund $ 54 $ 73 -- --
New York Fund $ 52 $ 68 $85 $ 134
Ohio Fund $ 53 $ 70 $88 $ 142
Pennsylvania Fund $ 54 $ 73 -- --
Texas Fund $ 54 $ 72 $93 $ 151
</TABLE>
<TABLE>
<CAPTION>
1 3 10
CLASS B SHARES(7) FUND YEAR YEARS 5 YEARS YEARS
---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
You would pay the following expenses Municipal Fund $ 47 $ 71 $ 97 $ 137
on a $1,000 investment, assuming Inter. Mun. Fund $ 49 $ 79 -- --
(1) 5% annual return and (2) California Fund $ 47 $ 73 $ 100 $ 146
redemption
at the end of each time period: Florida Fund $ 48 $ 76 $ 104 $ 154
Michigan Fund $ 48 $ 76 -- --
New Jersey Fund $ 48 $ 76 -- --
New York Fund $ 48 $ 75 $ 104 $ 152
Ohio Fund $ 48 $ 76 $ 105 $ 157
Pennsylvania Fund $ 48 $ 76 -- --
Texas Fund $ 49 $ 78 $ 108 $ 165
You would pay the following Municipal Fund $ 16 $ 49 $ 85 $ 137
expenses on the same investment, Inter. Mun. Fund $ 18 $ 57 -- --
assuming no redemption: California Fund $ 16 $ 51 $ 88 $ 146
Florida Fund $ 17 $ 54 $ 92 $ 154
Michigan Fund $ 17 $ 54 -- --
New Jersey Fund $ 17 $ 54 -- --
New York Fund $ 17 $ 53 $ 92 $ 152
Ohio Fund $ 17 $ 54 $ 93 $ 157
Pennsylvania Fund $ 17 $ 54 -- --
Texas Fund $ 18 $ 56 $ 96 $ 165
</TABLE>
- ---------------
(7) 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> 11
<TABLE>
<CAPTION>
1 3 10
CLASS C SHARES FUND YEAR YEARS 5 YEARS YEARS
---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
You would pay the following expenses Municipal Fund $ 16 $ 48 $83 $ 182
on a $1,000 investment, assuming Inter. Mun. Fund $ 18 $ 55 -- --
(1) 5% annual return and (2) California Fund $ 16 $ 49 $85 $ 186
redemption
at the end of each time period: Florida Fund $ 17 $ 52 $89 $ 194
Michigan Fund $ 17 $ 54 -- --
New Jersey Fund $ 17 $ 54 -- --
New York Fund $ 17 $ 51 $89 $ 193
Ohio Fund $ 17 $ 53 $91 $ 198
Pennsylvania Fund $ 17 $ 54 -- --
Texas Fund $ 18 $ 56 $96 $ 208
</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. As discussed under "Investment Manager and Underwriter," effective
May 31, 1994, the investment management fee for each Fund changed. "Management
Fees" have been restated based upon the new management fee. "Other Expenses" for
Class B shares and Class C shares, which were not available for purchase prior
to May 31, 1994, have been estimated for the current fiscal year.
As discussed under "Investment Manager and Underwriter" in the Statement of
Additional Information, KFS has waived its investment management fee and
absorbed certain other operating expenses of both the Texas Fund and the Ohio
Fund since each commenced operations. These expenses are being gradually
instituted. The tables for the Texas Fund and the Ohio Fund reflect the full
management fee rate without any waiver and "Other Expenses" without the effect
of any expense absorption.
The Intermediate Municipal Fund commenced public offering of its shares on
November 1, 1994 and the Michigan, New Jersey and Pennsylvania Funds commenced
public offering on March 15, 1995, thus expenses for those funds are shown for
only the one year and three year periods. As discussed more fully under
"Investment Manager and Underwriter" in the Statement of Additional Information,
KFS agreed to waive its full investment management fee for the Intermediate
Municipal Fund until May 1, 1995 and for the Michigan, New Jersey and
Pennsylvania Funds until September 15, 1995. Thereafter, the full management fee
will be instituted gradually under schedules determined by KFS. The tables for
these Funds reflect the full management fee rate without any waiver and
estimated "Other Expenses" 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.
FINANCIAL HIGHLIGHTS
The tables below show financial information for each Fund except the Michigan,
New Jersey and Pennsylvania Funds expressed in terms of one share outstanding
throughout the period. The information in the table for each Fund except the
Intermediate Municipal Fund is covered by the report of the Trusts' independent
auditors. The report is contained in each Trust's Registration Statement and is
available from that Trust. The financial statements contained in each Trust's
1994 Annual Report to Shareholders are incorporated herein by reference and may
be obtained by writing or calling that Trust.
5
<PAGE> 12
MUNICIPAL FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
CLASS A SHARES 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.95 10.29 10.05 9.40 9.59 9.40 9.08 9.61 8.44 7.75
- ------------------------------------------
Income from investment operations:
Net investment income .55 .61 .65 .69 .69 .70 .70 .70 .74 .75
- ------------------------------------------
Net gain (loss) on investments (.92) .82 .35 .62 (.19) .19 .34 (.51) 1.15 .66
- ------------------------------------------
Total from investment operations (.37) 1.43 1.00 1.31 .50 .89 1.04 .19 1.89 1.41
- ------------------------------------------
Less dividends from:
Net investment income .56 .62 .63 .66 .69 .70 .72 .72 .72 .72
- ------------------------------------------
Net realized gain on investments .33 .15 .13 -- -- -- -- -- -- --
- ------------------------------------------
Total dividends .89 .77 .76 .66 .69 .70 .72 .72 .72 .72
- ------------------------------------------
Net asset value, end of period $ 9.69 10.95 10.29 10.05 9.40 9.59 9.40 9.08 9.61 8.44
- ------------------------------------------
TOTAL RETURN (%): (3.67) 14.50 10.36 14.36 5.25 9.74 11.88 1.80 23.17 18.87
- ------------------------------------------
RATIOS TO AVERAGE NET
ASSETS (%):
Expenses .60 .47 .48 .48 .49 .49 .51 .53 .52 .57
- ------------------------------------------
Net investment income 5.42 5.78 6.44 6.97 7.14 7.26 7.55 7.29 8.08 9.12
- ------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1994
TO
SEPTEMBER 30, 1994
------------------
CLASS B & C SHARES CLASS B CLASS C
------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.95 $ 9.95
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .14 .16
- ---------------------------------------------------------------------------------------------------
Net gain (loss) on investments (.26 ) (.26 )
- ---------------------------------------------------------------------------------------------------
Total from investment operations (.12 ) (.10 )
- ---------------------------------------------------------------------------------------------------
Less dividends from:
Net investment income .16 .16
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments -- --
- ---------------------------------------------------------------------------------------------------
Total dividends .16 .16
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.67 $ 9.69
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN (%): (1.24 ) (1.03 )
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.56 1.53
- ---------------------------------------------------------------------------------------------------
Net investment income 4.55 4.56
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
ALL CLASSES 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of
period (in
thousands) $3,716,997 4,072,626 3,154,972 2,465,928 2,070,200 1,835,412 1,480,836 1,195,939 905,874 603,950
- ---------------------
Portfolio turnover
rate (%) 50 52 32 29 30 37 30 27 39 7
- ---------------------
</TABLE>
6
<PAGE> 13
INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
NOVEMBER 1, 1994
TO
JANUARY 31, 1995
CLASS A SHARES ----------------
(UNAUDITED)
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $9.50
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .12
- ----------------------------------------------------------------------------------------------------
Net gain (loss) on investments .22
- ----------------------------------------------------------------------------------------------------
Total from investment operations .34
- ----------------------------------------------------------------------------------------------------
Less dividends from net investment income .12
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $9.72
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 3.53
- ----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses .41
- ----------------------------------------------------------------------------------------------------
Net investment income .33
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 1, 1994
TO
JANUARY 31, 1995
-------------------
CLASS B & C SHARES CLASS B CLASS C
------- -------
(UNAUDITED)
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $9.50 $9.50
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .10 .10
- ---------------------------------------------------------------------------------------------------
Net gain (loss) on investments .22 .23
- ---------------------------------------------------------------------------------------------------
Total from investment operations .32 .33
- ---------------------------------------------------------------------------------------------------
Less dividends from net investment income .10 .10
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $9.72 $9.73
- ---------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 3.27 3.44
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.32 1.23
- ---------------------------------------------------------------------------------------------------
Net investment income .25 .28
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 1, 1994
TO
JANUARY 31, 1995
ALL CLASSES ----------------
(UNAUDITED)
<S> <C>
SUPPLEMENTAL DATA:
Net asset at end of period
(in thousands) 10,672
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 29
- ----------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 14
CALIFORNIA FUND
<TABLE>
<CAPTION>
OCTOBER 1,
1989 TO
YEAR ENDED AUGUST 31, AUGUST 31, YEAR ENDED SEPTEMBER 30,
CLASS A SHARES 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------------------------------------ ---------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period $8.01 7.57 7.31 6.96 7.17 7.03 6.76 7.11 6.33 5.81
- --------------------
Income from
investment
operations:
Net investment
income .39 .44 .46 .46 .43 .49 .50 .50 .55 .56
- --------------------
Net gain (loss) on
investments (.44) .53 .29 .35 (.09) .22 .27 (.35) .78 .52
- --------------------
Total from
investment
operations (.05) .97 .75 .81 .34 .71 .77 .15 1.33 1.08
- --------------------
Less dividends:
Distribution from
net investment
income .39 .44 .46 .46 .43 .49 .50 .50 .55 .56
- --------------------
Distribution from
net realized gain
on investments .30 .09 .03 -- .12 .08 -- -- -- --
- --------------------
Distribution in
excess of net
realized gain on
investments .05 -- -- -- -- -- -- -- -- --
- --------------------
Total dividends .74 .53 .49 .46 .55 .57 .50 .50 .55 .56
- --------------------
Net asset value, end
of period $7.22 8.01 7.57 7.31 6.96 7.17 7.03 6.76 7.11 6.33
- --------------------
TOTAL RETURN (%): (.74) 13.21 10.47 12.00 4.86 10.36 11.72 2.51 21.78 19.16
- --------------------
RATIOS TO AVERAGE
NET ASSETS (%):
Expenses .74 .63 .64 .66 .64 .63 .63 .65 .67 .76
- --------------------
Net investment
income 5.30 5.68 6.11 6.43 6.58 6.78 7.15 6.92 7.76 8.78
- --------------------
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1994
TO
AUGUST 31, 1994
------------------
CLASS B & C SHARES CLASS B CLASS C
------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $7.23 $7.23
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .08 .08
- ------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (.01) (.01)
- ------------------------------------------------------------------------------------------------------
Total from investment operations .07 .07
- ------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .08 .08
- ------------------------------------------------------------------------------------------------------
Total dividends .08 .08
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.22 $7.22
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 1.05 .96
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.60 1.56
- ------------------------------------------------------------------------------------------------------
Net investment income 4.48 4.76
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 1,
1989 TO
YEAR ENDED AUGUST 31, AUGUST 31, YEAR ENDED SEPTEMBER 30,
ALL CLASSES 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
----------------------------------------- ---------- ----------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL
DATA:
Net assets at
end of period
(in thousands) $1,168,449 1,331,377 1,182,891 973,408 736,824 546,432 384,971 291,550 186,045 93,608
- ---------------
Portfolio
turnover rate
(%) 37 59 15 17 15 25 27 44 17 35
- ---------------
</TABLE>
8
<PAGE> 15
FLORIDA FUND
<TABLE>
<CAPTION>
APRIL 25,
1991 TO
YEAR ENDED AUGUST 31, AUGUST 31,
CLASS A SHARES 1994 1993 1992 1991
---------------------------- ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.98 10.22 9.69 9.50
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income .52 .58 .64 .23
----------------------------------------------------------------------------
Net gain (loss) on investments (.52) .81 .53 .19
----------------------------------------------------------------------------
Total from investment operations -- 1.39 1.17 .42
- ------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .52 .58 .64 .23
----------------------------------------------------------------------------
Distribution from net realized gain on investments .35 .05 -- --
----------------------------------------------------------------------------
Total dividends .87 .63 .64 .23
- ------------------------------------------------------------------------------
Net asset value, end of period $10.11 10.98 10.22 9.69
- ------------------------------------------------------------------------------
TOTAL RETURN (%): (.11) 13.96 12.51 4.27
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%)(A):
Expenses absorbed by the Fund .79 .63 .25 --
- ------------------------------------------------------------------------------
Net investment income 5.04 5.48 6.25 6.52
- ------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (%)(A):
Operating Expenses -- .64 .67 .86
- ------------------------------------------------------------------------------
Net investment income -- 5.47 5.83 5.66
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1994
TO
AUGUST 31, 1994
------------------
CLASS B & C SHARES CLASS B CLASS C
------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.13 $10.13
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .11 .11
---------------------------------------------------------------------------------------------------
Net gain (loss) on investments (.03 ) (.03 )
---------------------------------------------------------------------------------------------------
Total from investment operations .08 .08
- -----------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .11 .11
---------------------------------------------------------------------------------------------------
Total dividends .11 .11
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $10.10 $10.10
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN (%): .74 .75
- -----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses absorbed by the Fund 1.70 1.54
- -----------------------------------------------------------------------------------------------------
Net investment income 4.28 4.52
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
APRIL 25,
1991 TO
YEAR ENDED AUGUST 31, AUGUST 31,
ALL CLASSES 1994 1993 1992 1991
------------------------------ ------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $124,721 129,702 109,276 41,923
- ---------------------------------------------------------------------------
Portfolio turnover rate (%) 53 35 20 33
- ---------------------------------------------------------------------------
</TABLE>
9
<PAGE> 16
NEW YORK FUND
<TABLE>
<CAPTION>
JULY 1, DECEMBER 31,
1990 TO 1985 TO
YEAR ENDED AUGUST 31, AUGUST 31, YEAR ENDED JUNE 30, JUNE 30,
CLASS A SHARES 1994 1993 1992 1991 1990 1990 1989 1988 1987 1986
----------------------------------- ---------- ------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of period $11.59 10.97 10.41 9.90 10.02 10.22 9.63 9.75 9.62 9.50
- -------------------------
Income from investment
operations:
Net investment income .58 .63 .65 .69 .12 .72 .64 .55 .53 .16
-----------------------
Net gain (loss) on
investments (.60) .72 .56 .51 (.12) (.18) .59 (.12) .13 .12
-----------------------
Total from investment
operations (.02) 1.35 1.21 1.20 -- .54 1.23 .43 .66 .28
- -------------------------
Less dividends:
Distribution from net
investment income .58 .63 .65 .69 .12 .72 .64 .55 .53 .16
-----------------------
Distribution from net
realized gain on
investments .26 .10 -- -- -- .02 -- -- -- --
- -------------------------
Total dividends .84 .73 .65 .69 .12 .74 .64 .55 .53 .16
- -------------------------
Net asset value, end of
period $10.73 11.59 10.97 10.41 9.90 10.02 10.22 9.63 9.75 9.62
- -------------------------
TOTAL RETURN (%): (.19) 12.82 12.07 12.54 .02 5.53 13.18 4.56 6.97 2.78
- -------------------------
RATIOS TO AVERAGE NET
ASSETS (%)(B):
Expenses .76 .67 .66 .72 .72 .72 1.42 1.97 2.05 1.59
- -------------------------
Net investment income 5.29 5.69 6.12 6.45 6.45 6.33 5.25 5.41 4.58 4.11
- -------------------------
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1994
TO
AUGUST 31, 1994
-----------------
CLASS B & C SHARES CLASS B CLASS C
------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.77 $ 10.77
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .12 .12
-------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (.04) (.04)
-------------------------------------------------------------------------------------------------------
Total from investment operations .08 .08
- ---------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .12 .12
- ---------------------------------------------------------------------------------------------------------
Total dividends .12 .12
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.73 $ 10.73
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): .75 .70
- ---------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Expenses 1.68 1.63
- ---------------------------------------------------------------------------------------------------------
Net investment income 4.36 4.68
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
JULY 1, DECEMBER 31,
1990 TO 1985 TO
YEAR ENDED AUGUST 31, AUGUST 31, YEAR ENDED JUNE 30, JUNE 30,
ALL CLASSES 1994 1993 1992 1991 1990 1990 1989 1988 1987 1986
------------------------------------- ---------- ------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of
period
(in thousands) $342,839 354,461 290,464 229,350 174,911 165,847 55,406 4,220 4,184 2,068
- -----------------------
Portfolio turnover rate
(%) 43 36 16 26 33 32 32 9 67 91
- -----------------------
</TABLE>
10
<PAGE> 17
OHIO FUND
<TABLE>
<CAPTION>
MARCH 22,
YEAR ENDED 1993 TO
AUGUST 31, AUGUST 31,
CLASS A SHARES 1994 1993
------------ -----------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.98 9.50
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .53 .24
-------------------------------------------------------------------------------------------
Net gain on investments (.41) .48
-------------------------------------------------------------------------------------------
Total from investment operations .12 .72
- ---------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .53 .24
-------------------------------------------------------------------------------------------
Distribution from net realized gain on investment .01 --
- ---------------------------------------------------------------------------------------------
Total dividends .54 .24
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.56 9.98
- ---------------------------------------------------------------------------------------------
TOTAL RETURN (%): 1.23 7.54
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%)(C):
Expenses absorbed by the Fund .02 --
- ---------------------------------------------------------------------------------------------
Net investment income 5.44 5.21
- ---------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (%)(C):
Operating expenses .82 .86
- ---------------------------------------------------------------------------------------------
Net investment income 4.64 4.36
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1994
TO
AUGUST 31, 1994
-----------------
CLASS B & C SHARES CLASS B CLASS C
------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $9.54 $9.54
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .14 .14
-----------------------------------------------------------------------------------------------------
Net gain on investments .02 .02
-----------------------------------------------------------------------------------------------------
Total from investment operations .16 .16
- -------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .14 .14
- -------------------------------------------------------------------------------------------------------
Total dividends .14 .14
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.56 $9.56
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): 1.55 1.55
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%)(C):
Expenses absorbed by the Fund .22 .21
- -------------------------------------------------------------------------------------------------------
Net investment income 4.72 5.04
- -------------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (%)(C):
Operating expenses 1.72 1.67
- -------------------------------------------------------------------------------------------------------
Net investment income 3.22 3.58
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARCH 22,
YEAR ENDED 1993 TO
ALL CLASSES AUGUST 31, AUGUST 31,
1994 1993
------------ -----------
<S> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $ 23,769 15,530
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 103 17
- ---------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 18
<TABLE>
<CAPTION>
TEXAS FUND
NOVEMBER 1,
YEAR ENDED 1991 TO
AUGUST 31, AUGUST 31,
CLASS A SHARES 1994 1993 1992
----------------- -----------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.69 9.95 9.50
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .56 .60 .50
------------------------------------------------------------------------------------
Net gain on investments (.42) .74 .45
------------------------------------------------------------------------------------
Total from investment operations .14 1.34 .95
- --------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .56 .60 .50
------------------------------------------------------------------------------------
Distribution from net realized gain on investments .13 -- --
------------------------------------------------------------------------------------
Total dividends .69 .60 .50
- --------------------------------------------------------------------------------------
Net asset value, end of period $10.14 10.69 9.95
- --------------------------------------------------------------------------------------
TOTAL RETURN (%): 1.28 13.89 10.15
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%)(D):
Expenses absorbed by the Fund .36 .08 --
- --------------------------------------------------------------------------------------
Net investment income 5.38 5.79 5.98
- --------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (%)(D):
Operating expenses .90 .79 .93
- --------------------------------------------------------------------------------------
Net investment income 4.82 5.08 5.05
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1994
TO
AUGUST 31, 1994
------------------
CLASS B & C SHARES CLASS B CLASS C
------- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.17 $10.17
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .12 .12
--------------------------------------------------------------------------------------------------
Net gain on investments (.02 ) (.02 )
--------------------------------------------------------------------------------------------------
Total from investment operations .10 .10
- ----------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net investment income .12 .12
--------------------------------------------------------------------------------------------------
Total dividends .12 .12
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $10.15 $10.15
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN (%): .92 .88
- ----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%)(D):
Expenses absorbed by the Fund 1.24 1.23
- ----------------------------------------------------------------------------------------------------
Net investment income 4.44 3.96
- ----------------------------------------------------------------------------------------------------
OTHER RATIOS TO AVERAGE NET ASSETS (%)(D):
Operating expenses 1.78 1.77
- ----------------------------------------------------------------------------------------------------
Net investment income 3.90 3.42
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 1,
YEAR ENDED 1991 TO
AUGUST 31, AUGUST 31,
ALL CLASSES 1994 1993 1992
------------------ -----------
<S> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $15,409 12,341 7,810
- -------------------------------------------------------------------------------------
Portfolio turnover rate (%) 58 47 18
- -------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 19
NOTES:
(a) The management fee and certain operating expenses of the Florida Fund were
waived or absorbed for the period from the commencement of operations on
April 25, 1991 through December 31, 1991. Thereafter, the Fund gradually
began paying the management fee and other operating expenses and such fee
and expenses were paid in full by the Fund commencing on October 1, 1992.
"Other Ratios to Average Net Assets" are computed without the undertaking
to waive or absorb the fees and expenses mentioned above.
(b) The management fee and certain operating expenses of the New York Fund were
waived or absorbed during various periods shown. Beginning July 1, 1990,
the New York Fund began paying all operating expenses except the investment
management fee, which was reinstated gradually during the period from
January 1, 1991 through June 30, 1991. "Other Ratios to Average Net Assets"
are computed without the undertaking to waive or absorb the fees and
expenses mentioned above.
(c) The management fee and certain operating expenses of the Ohio Fund were
waived or absorbed for the period from the commencement of operations on
March 22, 1993 through June 30, 1994. Thereafter, the full management fee
and all other operating expenses are being gradually instituted under a
schedule determined by KFS. "Other Ratios to Average Net Assets" are
computed without the undertaking to waive or absorb the fees and expenses
mentioned above.
(d) The management fee and certain operating expenses of the Texas Fund were
waived or absorbed for the period from the commencement of operations on
November 1, 1991 through December 31, 1992. Thereafter, the Fund gradually
began paying operating expenses and such expenses (excluding the management
fee) were paid in full by the Fund commencing on October 1, 1993. The
management fee is being gradually instituted commencing July 1, 1994 under
a schedule determined by KFS. "Other Ratios to Average Net Assets" are
computed without the undertaking to waive or absorb the fees and expenses
mentioned above.
The Intermediate Municipal Fund commenced public offering on November 1, 1994
and the Michigan, New Jersey and Pennsylvania Funds (not shown in the tables
above) commenced public offering on March 15,1995.
Ratios have been determined on an annualized basis. Total return is not
annualized and does not reflect the effect of any sales charges. 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 Municipal Fund and a decreased fee for the California, Florida, New
York, Ohio and Texas Funds.
INVESTMENT OBJECTIVES AND POLICIES
Kemper Tax-Free Income Funds consist of two open-end management investment
companies ("Trusts"), Kemper National Tax-Free Income Series (the "National
Trust") and Kemper State Tax-Free Income Series (the "State Trust") that offer a
choice of investment portfolios ("Funds") designed for investors seeking a high
level of current income exempt from federal income tax and, in the case of
certain Funds, from the income taxes of a particular state. The National Trust
consists of two "National Funds": Kemper Municipal Bond Fund ("Municipal Fund")
and Kemper Intermediate Municipal Bond Fund ("Intermediate Municipal Fund") and
the State Trust consists of eight separate "State Funds". Each Trust may offer
additional Funds in the future.
Under normal conditions, as a fundamental investment policy, each Fund will
maintain at least 80% of its investments in obligations issued by or on behalf
of states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
income from which is exempt from federal income taxes ("Municipal Securities").
As indicated under "Dividends and Taxes," the Funds may invest in "private
activity bonds." The Funds currently do not consider private activity bonds to
be Municipal Securities for purposes of the 80% limitation.
The assets of each Fund consist of (a) Municipal Securities; (b) temporary
investments in high grade taxable fixed income instruments including repurchase
agreements (See "Temporary Investments" below for more information); (c)
financial futures contracts and options (which may produce taxable gains) as
described under "Additional Investment Information" below; and (d) cash. From
time to time, a Fund may purchase insurance on the securities in the Fund's
portfolio. While such insurance provides protection against default of the
issuer, it does not protect against a decline in the value of a security as a
result of market conditions. For the Municipal Fund, all Municipal Securities
will be rated at the time of purchase within the four highest grades assigned by
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps
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Credit Rating Co. ("Duff") or any other Nationally Recognized Statistical Rating
Organization ("NRSRO") as designated by the Securities and Exchange Commission
("SEC"), provided that up to 10% of the net assets of the Municipal Fund may be
invested in Municipal Securities that are lower rated ("junk bonds") or unrated.
For the Intermediate Municipal Fund and the State Funds, all Municipal
Securities will be rated at the time of purchase within the four highest grades
assigned by Moody's, S&P, Fitch or Duff or any other NRSRO as designated by the
SEC, or will be of comparable quality as determined by the Funds' investment
manager, provided that up to 10% of a Fund's net assets may be invested without
regard to this limitation. The top four ratings currently assigned by these
organizations are as follows: Moody's (Aaa, Aa, A or Baa), S&P (AAA, AA, A or
BBB), Fitch (AAA, AA, A or BBB) and Duff (AAA, AA, A or BBB).
Municipal Securities are 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,
schools, streets and water and sewer works. Other public purposes for which
Municipal Securities may be issued include the refunding of outstanding
obligations, obtaining funds for general operating expenses and the obtaining of
funds to loan to other public institutions and facilities. In addition, certain
types of industrial development bonds are issued by or on behalf of public
authorities to obtain funds to provide privately-operated housing facilities,
sports facilities, convention or trade show facilities, airport, mass transit,
port or parking facilities, air or water pollution control facilities and
certain local facilities for water supply, gas, electricity or sewage or 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 the current federal
tax laws place substantial limitations on the size of such issues.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds 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 that are Municipal Securities are in most cases revenue bonds
and do not generally constitute the pledge of the credit of the issuer of such
bonds. There are, of course, variations in the degree of risk of Municipal
Securities, both within a particular classification and between classifications,
depending on numerous factors.
There are market and investment risks with any security and the value of an
investment in a Fund will fluctuate over time. Normally, the value of a Fund's
investments varies inversely with changes in interest rates and longer-term
securities are more susceptible to changes in value as a result of interest-rate
changes than are shorter-term securities. There can be no assurance that the
objective of any Fund will be achieved. Municipal Securities rated within the
four highest grades by Moody's, S&P, Fitch or Duff are generally considered to
be "investment grade." Like higher rated securities, securities rated in the
Baa/BBB 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. For a discussion of
lower rated or non-rated securities and related risks, see "Special Risk
Factors--High Yield (High Risk) Bonds" below.
Each State Fund is "non-diversified" and, as such, may invest more than 5% of
its assets in the obligations of an issuer, subject to the diversification
requirements of Subchapter M of the Internal Revenue Code applicable to the
Fund. This allows a State Fund, as to 50% of its assets, to invest more than 5%
of its assets, but not more than 25%, in the fixed income securities of any
municipality or other tax-exempt issuer. Since a State Fund may invest a
relatively high percentage of its assets in the obligations of a limited number
of issuers, it will be more susceptible to economic, political or regulatory
occurrences than a diversified fund. See "Investment Restrictions" in the
Statement of Additional Information. Also, see "Investments--Special Risk
Factors" in the Statement of Additional Information for more information
concerning the risks associated with investment in Municipal Securities of the
particular states.
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MUNICIPAL FUND. The objective of the Municipal Fund is to provide as high a
level of current interest income exempt from federal income taxes as is
consistent with preservation of capital. The Municipal Fund seeks to achieve its
objective by investing primarily in a diversified portfolio of Municipal
Securities. Although the Municipal Fund is not limited as to portfolio maturity,
the dollar-weighted average portfolio maturity of this Fund, under normal market
conditions, is expected to be longer than 10 years.
INTERMEDIATE MUNICIPAL FUND. The objective of the Intermediate Municipal Fund is
to provide as high a level of current income that is exempt from federal income
taxes as is consistent with preservation of capital. The Intermediate Municipal
Fund seeks to achieve its objective by investing in a diversified portfolio of
Municipal Securities.
As a non-fundamental policy, the dollar-weighted average portfolio maturity of
this Fund, under normal market conditions, will be between 3 and 10 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 a security will be treated as having a maturity earlier than its stated
maturity date if it has technical features (such as puts or demand features) or
a variable rate of interest which, in the judgment of the Fund's investment
manager, will result in the security being valued in the market as though it has
the earlier maturity. Intermediate-term securities generally are more stable and
less susceptible to changes in market value than longer term securities although
they in most cases offer lower yields than securities with longer maturities.
The investment manager believes that investment in 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.
CALIFORNIA FUND. The objective of the California Fund is to provide a high level
of current income that is exempt from federal and California income taxes. The
California Fund seeks to achieve its objective by investing in a non-diversified
portfolio of Municipal Securities. The California Fund intends to generate
dividends that are exempt from California personal income taxes. Such dividend
income may be subject to local taxes. Under California law a mutual fund must
have at least 50% of its total assets invested in California state and local
issues the income from which is exempt from California income tax ("California
Municipal Securities") at the end of each quarter of its taxable year in order
to be eligible to pay to California residents dividends that are wholly or
partially exempt from California personal income taxes. Accordingly, the
California Fund intends to invest a minimum of 50% of its assets in California
Municipal Securities and may invest up to 100% of its assets in such securities.
The California Fund normally maintains at least 80% of its investments in
California Municipal Securities.
Investors should be aware that certain California constitutional amendments,
legislative measures, executive orders, civil actions and voter initiatives, as
well as the general financial condition of the State, could result in certain
adverse consequences for owners of California Municipal Securities. The natural
disasters that California has experienced in recent years may impair local
issuer financial performance. In addition, amendments in recent years to the
California Constitution and statutes that limit the taxing and spending
authority of California governmental entities may impair the ability of the
issuers of some California Municipal Securities to maintain debt service on
their obligations. Other measures affecting the taxing or spending authority of
California or its political subdivisions may be approved or enacted in the
future.
FLORIDA FUND. The objective of the Florida Fund is to provide a high level of
current income that is exempt from federal income taxes. The Florida Fund seeks
to achieve its objective by investing primarily in a non-diversified portfolio
of obligations issued by the State of Florida, its political subdivisions,
agencies or instrumentalities and other securities that are exempt from the
Florida intangibles tax and the interest from which is exempt from federal
income taxes ("Florida Municipal Securities"). Dividends representing interest
income received by the Florida Fund on Florida Municipal Securities will be
exempt from federal income taxes. Dividend income may be subject to state and
local taxes. Florida currently has no income tax for individuals. Since the
investment manager believes that exemption from the Florida intangibles tax is
likely to be available, the Florida Fund generally will seek investments
enabling shares of the Florida Fund to be exempt from the intangibles tax.
However, there is no assurance that an
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exemption from the Florida intangibles tax will be available. See "Dividends and
Taxes." Florida Municipal Securities may at times have lower yields than other
tax-exempt securities. Taking advantage of the exemption from the Florida
intangibles tax could result in higher portfolio turnover and related
transaction costs. As a temporary defensive position, to the extent Florida
Municipal Securities are at any time unavailable or unattractive for investment
by the Florida Fund, it will invest in other debt securities the interest from
which is exempt from federal income tax. Under normal market conditions, as a
non-fundamental policy, the Florida Fund will maintain at least 65% of its total
assets in Florida Municipal Securities. See also "Dividends and Taxes."
Florida is characterized by rapid growth, substantial capital needs, a
manageable debt burden, a diversifying but still somewhat narrow economic base
and good financial operations. The State continues to experience rapid
population growth although not as great as in previous years. The slower
population growth rate should allow the State to catch up on its capital needs.
Technology-based manufacturing, healthcare and financial services have joined
tourism and agriculture as leading elements of Florida's continued economic
growth. Florida's overall financial position remains healthy, despite swings in
financial operations over the past several years. The swings are reflective of
the State's reliance on the sales tax as the major revenue source. Florida has
increased its funding of capital projects through more frequent debt issuance
rather than the historical pay-as-you-go method.
MICHIGAN FUND. The objective of the Michigan Fund is to provide a high level of
current income that is exempt from federal and Michigan income taxes. The
Michigan Fund seeks to achieve its objective by investing primarily in a
non-diversified portfolio of obligations issued by or on behalf of Michigan, its
political subdivisions, agencies or instrumentalities the interest from which is
exempt from federal and Michigan income taxes ("Michigan Municipal Securities").
Dividends representing interest income received by the Michigan Fund on Michigan
Municipal Securities will be exempt from federal and Michigan income taxes. Such
dividend income may be subject to other state and local taxes. To the extent
that Michigan Municipal Securities are at any time unavailable or unattractive
for investment by the Michigan Fund, it will invest temporarily in other debt
securities the interest from which is exempt from federal income tax. Under
normal market conditions, as a non-fundamental policy, the Michigan Fund will
maintain at least 65% of its total assets in Michigan Municipal Securities.
Michigan's economic performance relies heavily on national economic trends. Its
economy is highly industrialized with an economic base concentrated in the
manufacturing sector. This concentration has generally caused the State's
economy to be more volatile than that of more diversified states, although its
long term growth has kept pace with the nation due to gains in other sectors.
The most recent economic recession had a milder affect on the State compared to
the recession of the 1980's. The restructuring of the State's manufacturing
industry following the recession of the 1980's improved the industry's overall
competitive position. In addition, the rebound in the automotive industry of the
past several years has improved the State's current economic and financial
position. Michigan's future economic growth will likely come from growth in its
service sector.
NEW JERSEY FUND. The objective of the New Jersey Fund is to provide a high level
of current income that is exempt from federal and New Jersey personal income
taxes. The New Jersey Fund seeks to achieve its objective by investing primarily
in a non-diversified portfolio of obligations issued by or on behalf of New
Jersey, its political subdivisions, agencies or instrumentalities the interest
from which is exempt from federal and New Jersey income taxes ("New Jersey
Municipal Securities"). Dividends representing interest income received by the
New Jersey Fund on New Jersey Municipal Securities will be exempt from federal
and New Jersey personal income taxes. Such dividend income may be subject to
other state and local taxes. To the extent that New Jersey Municipal Securities
are at any time unavailable or unattractive for investment by the New Jersey
Fund, it will invest temporarily in other debt securities the interest from
which is exempt from federal income tax. Under normal market conditions, as a
non-fundamental policy, the New Jersey Fund will maintain at least 65% of its
total assets in New Jersey Municipal Securities.
New Jersey's economy performed strongly for much of the 1980s. Like much of the
Northeast in the 1980s, the State's economy outpaced national trends. However,
since 1989 the State's economic performance has been weak and it has
underperformed the rest of the nation. Unemployment currently exceeds the
national average and
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weakness in the economy appears in many employment sectors. Economic recovery is
slower due to the weakness in the real estate and construction sectors and the
loss of manufacturing and high level corporate service jobs. Nevertheless, New
Jersey's economic base continues to be strong. The leading employment sectors
are services, wholesale and retail trade, government and manufacturing. Over the
longer term, technology, pharmaceuticals, trade, and business service sectors
should provide the basis for economic growth.
NEW YORK FUND. The objective of the New York Fund is to provide a high level of
current income that is exempt from federal, New York State and New York City
personal income taxes. The New York Fund seeks to achieve its objective by
investing in a non-diversified portfolio of obligations issued by or on behalf
of New York State, its political subdivisions, authorities and corporations, and
territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities the interest from which is exempt
from federal, New York State and New York City personal income taxes ("New York
Municipal Securities"). Dividends representing interest income received by the
New York Fund on New York Municipal Securities will be exempt from federal, New
York State and New York City personal income taxes. Such dividend income may be
subject to other state and local taxes. To the extent New York Municipal
Securities are at any time unavailable or unattractive for investment by the New
York Fund, it will invest temporarily in other debt securities the interest from
which is exempt from federal income tax. Under normal market conditions, as a
non-fundamental policy, the New York Fund will maintain at least 65% of its
total assets in New York Municipal Securities.
Certain risks result from the financial condition of New York State, certain of
its public bodies and municipalities and New York City. Beginning in early 1975,
New York State, New York City and other related entities faced serious financial
difficulties that jeopardized the credit standing and impaired the borrowing
abilities of these entities and contributed to high interest rates on, and lower
market prices for, debt obligations issued by them. A recurrence of such
financial difficulties or a failure of certain financial recovery programs could
result in defaults or declines in the market values of various New York
Municipal Securities in which the New York Fund may invest. If there were a
default or other financial crisis relating to New York State, New York City, a
State or City agency, or other municipality, the market value and marketability
of Municipal Securities in the portfolio of the New York Fund and the interest
income to the New York Fund could be adversely affected.
OHIO FUND. The objective of the Ohio Fund is to provide a high level of current
income that is exempt from federal and Ohio income taxes. The Ohio Fund seeks to
achieve its objective by investing primarily in a non-diversified portfolio of
obligations issued by or on behalf of the State of Ohio, its political
subdivisions, agencies or instrumentalities the interest from which is exempt
from federal and Ohio income taxes ("Ohio Municipal Securities"). Dividends
representing interest income received by the Ohio Fund on Ohio Municipal
Securities will be exempt from federal and Ohio income taxes. Such dividend
income may be subject to other state and local taxes. To the extent Ohio
Municipal Securities are at any time unavailable or unattractive for investment
by the Ohio Fund, it will invest temporarily in other debt securities the
interest from which is exempt from federal income tax. Under normal market
conditions, as a non-fundamental policy, the Ohio Fund will maintain at least
65% of its total assets in Ohio Municipal Securities.
Ohio dealt successfully with financial difficulties in prior years and may face
long-term problems in certain regions and the economy. The economy depends in
part upon durable goods manufacturing, primarily motor vehicles and equipment,
steel, rubber products and household appliances. As a result, economic activity
in Ohio tends to be more cyclical than some other states and the nation as a
whole. However, since 1982, the State's economy has been growing and
diversifying as employment shifts into services, trade, finance and insurance.
PENNSYLVANIA FUND. The objective of the Pennsylvania Fund is to provide a high
level of current income that is exempt from federal and Pennsylvania income
taxes. The Pennsylvania Fund seeks to achieve its objective by investing
primarily in a non-diversified portfolio of obligations issued by or on behalf
of the Commonwealth of Pennsylvania, its political subdivisions, agencies or
instrumentalities the interest from which is exempt from federal and
Pennsylvania income taxes ("Pennsylvania Municipal Securities"). Dividends
representing interest income received by the Pennsylvania Fund on Pennsylvania
Municipal Securities will be exempt from federal and
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Pennsylvania income taxes and (for residents of Philadelphia) from Philadelphia
School District Income Tax and (for residents of Pittsburgh) the intangibles tax
from the City and School District of Pittsburgh. Such dividend income may be
subject to other state and local taxes. To the extent that Pennsylvania
Municipal Securities are at any time unavailable or unattractive for investment
by the Pennsylvania Fund, it will invest temporarily in other debt securities
the interest from which is exempt from federal income tax. Under normal market
conditions, as a non-fundamental policy, the Pennsylvania Fund will maintain at
least 65% of its total assets in Pennsylvania Municipal Securities.
While Pennsylvania is among the leading states in manufacturing and mining, it
is transforming into a services and high-tech economy as evidenced by its
growing reputation as a health and education center. The recent recession
adversely affected the Commonwealth starting in 1991, but has been more moderate
than in other Mid-Atlantic and Northeastern states because its economy is less
dependent upon financial services and the defense/aerospace industries.
Competition from foreign markets, particularly in the steel industry,
contributed to the job losses in the Commonwealth's manufacturing sector;
however, the result was a restructuring in the industry which helped the
Commonwealth weather the recent recession much more successfully than in past
recessions. Projections made in early 1994 are for an economy that should be
stronger than its neighboring states for the next several years, due to the
restructuring and modernization of many of its manufacturing factories, but that
will still lag the expected growth in the South and Midwest. The replacement of
highly paid manufacturing jobs for those in the services and trade sectors will
impede income growth. Relative cost advantages which are available to businesses
in the Commonwealth compared to its neighboring states, as well as the
restructuring and modernization of manufacturing plans, should aid in boosting
the economy.
TEXAS FUND. The objective of the Texas Fund is to provide a high level of
current income that is exempt from federal income taxes. The Texas Fund seeks to
achieve its objective by investing primarily in a non-diversified portfolio of
obligations issued by or on behalf of Texas, its political subdivisions,
agencies or instrumentalities the interest from which is exempt from federal
income taxes ("Texas Municipal Securities"). Dividends representing interest
income received by the Texas Fund on Texas Municipal Securities will be exempt
from federal income taxes. Such dividend income may be subject to state and
local taxes. However, Texas currently has no income tax for individuals. To the
extent Texas Municipal Securities are at any time unavailable or unattractive
for investment by the Texas Fund, it will invest temporarily in other debt
securities the interest from which is exempt from federal income tax. Under
normal market conditions, as a non-fundamental policy, the Texas Fund will
maintain at least 65% of its total assets in Texas Municipal Securities.
The State economy has become more diversified, with the oil and gas industry
diminishing in relative importance, while service-producing sectors have
provided the major sources of job growth. The State gross domestic product has
outpaced the nation for the past three years according to the State comptroller.
This shift has resulted in greater stability in the general credit quality of
Texas issues.
Although the investment manager anticipates that most of the bonds in the Texas
Fund will be revenue obligations or general obligations of local governments or
authorities, rather than general obligations of the State of Texas itself, any
circumstances that adversely affect the State's credit standing may also affect
the market value of these other bonds held by the Texas Fund, either directly or
indirectly, as a result of a dependency of local governments and other
authorities upon State aid and reimbursement programs.
SPECIAL RISK FACTORS--HIGH YIELD (HIGH RISK) BONDS. As stated above, the
Municipal Fund may invest up to 10% of its net assets in Municipal Securities
that are in the lower rating categories (securities rated below the fourth
category) or are unrated, and the Intermediate Municipal Fund and each State
Fund may invest up to 10% of its net assets without regard to the limitation
that Municipal Securities in which it invests be rated at the time of purchase
within the four highest grades by an NRSRO or of comparable quality as
determined by the Fund's investment manager. After a Fund has bought a security,
its quality level may fall below the minimum required for purchase by the Fund.
That would not require the Fund to sell the security, but the Investment Manager
will consider such an event in determining whether a Fund should continue to
hold the security in its portfolio.
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These lower rated and non-rated fixed income securities are commonly referred to
as "junk bonds" and are considered, on balance, to be predominantly speculative
as to the issuer's capacity to pay interest and repay principal in accordance
with the terms of the obligation, and they generally involve more credit risk
than securities in the higher rating categories. The market values of such
securities tend to reflect individual issuer developments to a greater extent
than do those of higher rated securities, which react primarily to fluctuations
in the general level of interest rates. 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. A
Fund may have difficulty disposing of certain high yield securities because
there may be a thin trading market for such securities. The lack of a liquid
secondary market may have an adverse effect on market price and the Fund's
ability to dispose of particular issues and may also make it more difficult for
the Fund to obtain accurate market quotations for purposes of valuing these
assets. The characteristics of the rating categories are described in the
Statement of Additional Information under "Appendix--Ratings of Investments."
ADDITIONAL INVESTMENT INFORMATION. A Fund, other than the Intermediate Municipal
Fund, may take full advantage of the entire range of maturities of Municipal
Securities and may adjust the average maturity of its investments from time to
time, depending on the investment manager's assessment of the relative yields
available on securities of different maturities and its expectations of future
changes in interest rates. However, it is anticipated that, under normal market
conditions, each such Fund will invest primarily in long-term Municipal
Securities (generally, maturities of ten years or more), except that the
Intermediate Municipal Fund, under normal market conditions, will maintain a
dollar weighted average portfolio maturity between 3 and 10 years.
A Fund will not normally engage in the trading of securities for the purpose of
realizing short-term profits, but it will adjust its portfolio as considered
advisable in view of prevailing or anticipated market conditions and the Fund's
investment objective. Accordingly, a Fund may sell portfolio securities in
anticipation of a rise in interest rates and purchase securities in anticipation
of a decline in interest rates. In addition, a security may be sold and another
of comparable quality purchased at approximately the same time to take advantage
of what the Fund believes to be a temporary disparity in the normal yield
relationship between the two securities. Yield disparities may occur for reasons
not directly related to the investment quality of particular issues or the
general movement of interest rates, such as changes in the overall demand for or
supply of various types of Municipal Securities or changes in the investment
objectives of some investors. Frequency of portfolio turnover will not be a
limiting factor should a Fund deem it desirable to purchase or sell securities.
The portfolio turnover rates for the Funds (other than the Intermediate
Municipal, Michigan, New Jersey and Pennsylvania Funds) are listed under
"Financial Highlights." The difference in portfolio turnover rates for the Ohio
Fund between fiscal 1993 and fiscal 1994 was due to a very low turnover rate in
1993 because of the Fund's start-up with a higher rate in 1994 due to
adjustments made to the Fund's portfolio to reduce volatility and duration in
the rising interest rate environment. It is anticipated that, under normal
circumstances, the portfolio turnover rate for the Intermediate Municipal,
Michigan, New Jersey and Pennsylvania Funds will not exceed 100%.
The National Funds and the California Fund will not borrow money except for
temporary or emergency purposes (but not to purchase investments) and then only
in an amount not to exceed 5% for the National Funds or 10% for the California
Fund of net assets; or pledge its securities or receivables or transfer, assign
or otherwise encumber them in an amount exceeding the amount of the borrowing
secured thereby. Except for the California Fund, each State Fund will not borrow
money except for temporary purposes (but not to purchase investments) and then
only in an amount not to exceed one-third of the value of its total assets
(including the amount borrowed) in order to meet redemption requests that
otherwise might result in the untimely disposition of securities; or pledge its
securities or receivables or transfer or assign or otherwise encumber them in an
amount to exceed 10% of its net assets to secure borrowings.
Certain fundamental investment restrictions have been adopted for each Fund
which are presented in the Statement of Additional Information and which,
together with the investment objective and policies of each Fund, cannot be
changed without approval by holders of a majority of its outstanding voting
shares. As defined in the Investment
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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.
OPTIONS AND FINANCIAL FUTURES TRANSACTIONS. A 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. A Fund may write (sell)
covered call options and secured put options on up to 25% of its net assets and
may purchase put and call options provided that no more than 5% of its net
assets may be invested in premiums on such options. The ability to engage in
options transactions enables a Fund to pursue its investment objective and also
to hedge against market risks but is not intended for speculation. 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.
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 the 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 or other assets, and a wider range of expiration dates and
exercise prices, than are exchange traded options.
A 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.
A Fund may engage in financial futures transactions and may use index options in
an attempt to hedge against the effects of fluctuations in interest rates and
other market conditions. For example, if a Fund owned long-term Municipal
Securities and interest rates were expected to rise, it could sell futures
contracts on a Municipal Securities Index. If interest rates did increase, the
value of the Municipal Securities in a 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, a Fund could hold short-term Municipal Securities and benefit from
the income earned by holding such securities, while at the same time the Fund
could purchase futures contracts on a Municipal Securities Index. Thus, a Fund
could take advantage of the anticipated rise in the value of long-term Municipal
Securities without actually buying them. The futures contracts and short-term
Municipal Securities could then be liquidated and the cash proceeds used to buy
long-term Municipal Securities.
Futures contracts entail risks. If the investment manager's judgment about the
general direction of interest rates or markets 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 securities being
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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 debt securities and futures
market could result. Price distortions could also result if investors in futures
contracts decide to make or take delivery of underlying securities 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 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 this should occur, a Fund could lose money on the financial
futures contracts and also on the value of its portfolio securities. The costs
incurred in connection with futures transactions could reduce a Fund's yield.
Options on futures contracts and 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 the 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.
CERTIFICATES OF PARTICIPATION. A Fund may purchase Certificates of Participation
in trusts that hold Municipal Securities. A Certificate of Participation gives a
Fund an undivided interest in the Municipal Security in the proportion that the
Fund's interest bears to the total principal amount of the Municipal Security.
Certificates of Participation may be variable rate or fixed rate. Because
Certificates of Participation are interests in Municipal Securities that are
generally funded through government appropriations, they are subject to the risk
that sufficient appropriations as to the timely payment of principal and
interest on the underlying Municipal Securities may not be made. A Certificate
of Participation may be backed by a guarantee of a financial institution that
satisfies rating agencies as to the credit quality of the Municipal Security
supporting the payment of principal and interest on the Certificate of
Participation. Payments of principal and interest would be dependent upon the
underlying Municipal Security and may be guaranteed under a letter of credit to
the extent of such credit. The quality rating by a rating service of an issue of
Certificates of Participation is based primarily upon the rating of the
Municipal Security held by the trust and the credit rating of the issuer of any
letter of credit and of any other guarantor providing credit support to the
issue. The Funds' investment manager considers these factors as well as others,
such as any quality ratings issued by the rating services identified above, in
reviewing the credit risk presented by a Certificate of Participation and in
determining whether the Certificate of Participation is appropriate for
investment by a Fund. It is anticipated by the Funds' investment manager that,
for most publicly offered Certificates of Participation, there will be a liquid
secondary market or there may be demand features enabling a Fund to readily sell
its Certificates of Participation prior to maturity to the issuer or a third
party.
ADVANCE REFUNDED BONDS. A Fund may purchase Municipal Securities that are
subsequently refunded by the issuance and delivery of a new issue of bonds prior
to the date on which the outstanding issue of bonds can be redeemed or paid. The
proceeds from the new issue of bonds are typically placed in an escrow fund
consisting of U.S. Government obligations that are used to pay the interest,
principal and call premium on the issue being refunded. A Fund may also purchase
Municipal Securities that have been refunded prior to purchase by a Fund.
DELAYED DELIVERY TRANSACTIONS. A 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
21
<PAGE> 28
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. The value of fixed income 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 debt 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 purchases, it
will do so for the purpose of acquiring portfolio securities consistent with the
Fund's investment objective and policies and not for the purpose of investment
leverage or to speculate in interest rate changes. A Fund will only make
commitments to purchase securities on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities, but the Fund reserves
the right to sell these securities before the settlement date if deemed
advisable.
RISK FACTORS. The Statement of Additional Information contains further
information about the characteristics, risks and possible benefits of options
and futures transactions and other derivatives such as delayed delivery
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 or futures contracts and
movements in the prices of the securities hedged or used for cover; (b) lack of
assurance that a liquid secondary market will exist for any particular option or
futures 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; and (e) the possible need to defer closing out certain
options or futures contracts in order to continue to qualify for beneficial tax
treatment afforded "regulated investment companies" under the Internal Revenue
Code.
TEMPORARY INVESTMENTS. On a temporary basis because of market conditions, a Fund
may invest up to 100% of its assets in any of the following fixed income
obligations, the interest on which is subject to federal income taxes:
obligations of the U.S. Government, its agencies or instrumentalities; debt
securities rated within the three highest grades by Moody's or S&P; commercial
paper rated in the highest two grades by either of those rating services (P-1,
P-2 or A-1, A-2, respectively); certificates of deposit of domestic banks with
assets of $1 billion or more; and Municipal Securities or any of the foregoing
temporary investments subject to short-term repurchase agreements. A repurchase
agreement is an instrument under which the purchaser acquires ownership of a
security from a broker-dealer or bank that agrees to repurchase the security at
a mutually agreed upon time and price (which price is higher than the purchase
price), thereby determining the yield during the holding period. Maturity of the
securities subject to repurchase may exceed one year. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, a Fund might
incur expenses in enforcing its rights, and could experience losses, including a
decline in the value of the underlying securities and loss of income. No Fund
presently intends to invest more than 5% of its net assets in repurchase
agreements during the current year. Dividends from interest income from
temporary investments may be taxable to shareholders as ordinary income. See
"Dividends and Taxes." For a description of the ratings of commercial paper and
other debt securities permitted as temporary investments, see "Appendix--Ratings
of Investments" in the Statement of Additional Information.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Kemper Financial Services, Inc. ("KFS"), 120 South LaSalle
Street, Chicago, Illinois 60603, is the investment manager of the Trusts and
provides the Trusts 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, the Kemper insurance companies, Kemper Corporation and other
corporate, pension, profit-sharing and individual accounts representing
approximately $60 billion under management. KFS acts as investment manager for
24 open-end and seven closed-end investment companies, with
22
<PAGE> 29
59 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 95% owned by
Kemper Corporation, a diversified insurance and financial services holding
company.
Responsibility for overall management of each Trust rests with its Board of
Trustees and officers. Professional investment supervision is provided by KFS.
The investment management agreement for a Fund provides that KFS shall act as
the Fund's investment adviser, manage its investments and provide it with
various services and facilities.
Christopher J. Mier is the portfolio manager of the Funds. Mr. Mier has served
in this capacity since 1989 or the commencement of a Fund's operations,
whichever is later. Mr. Mier is a First Vice President of KFS and a Vice
President of each Trust. He received a B.A. in Economics from the University of
Michigan, Ann Arbor, Michigan, and an M.M. in Finance from the Kellogg Graduate
School of Management at Northwestern University, Chicago, Illinois. Mr. Mier is
a Chartered Financial Analyst.
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., Frank
E. Collecchia, George Klein, Michael A. McNamara, Christopher J. Mier, Frank J.
Rachwalski, Jr., Harry E. Resis, Jr., Robert H. Schumacher, John E. Silvia,
Kenneth T. Urbaszewski and Christopher T. Vincent. The portfolio manager works
together as a team with the Fixed Income Committee and various fixed income
analysts and traders to manage the Funds' investments. Analysts provide market,
economic and financial research and analysis that is used by the Fixed Income
Committee to establish broad parameters for fixed income portfolios, including
duration and cash levels. In addition, credit research by analysts is used by
portfolio managers in selecting investments appropriate for each Fund's
policies. After investment decisions are made, fixed income traders execute the
portfolio manager's instructions through various broker-dealer firms.
The Municipal Fund pays KFS an investment management fee, payable monthly, at
the annual rate of .45 of 1% of the first $250 million of average daily net
assets, .43 of 1% of average daily net assets between $250 million and $1
billion, .41 of 1% of average daily net assets between $1 billion and $2.5
billion, .40 of 1% of average daily net assets between $2.5 billion and $5
billion, .38 of 1% of average daily net assets between $5 billion and $7.5
billion, .36 of 1% of average daily net assets between $7.5 billion and $10
billion, .34 of 1% of average daily net assets between $10 billion and $12.5
billion and .32 of 1% of average daily net assets over $12.5 billion. Before May
31, 1994, the Municipal Fund paid KFS an investment management fee under a
different schedule.
Each State Fund and the Intermediate Municipal Fund pay KFS an investment
management fee, payable monthly, at the annual rate (computed separately for
each State Fund and for the Intermediate Municipal Fund) of .55 of 1% of the
first $250 million of average daily net assets, .52 of 1% of average daily net
assets between $250 million and $1 billion, .50 of 1% of average daily net
assets between $1 billion and $2.5 billion, .48 of 1% of average daily net
assets between $2.5 billion and $5 billion, .45 of 1% of average daily net
assets between $5 billion and $7.5 billion, .43 of 1% of average daily net
assets between $7.5 billion and $10 billion, .41 of 1% of average daily net
assets between $10 billion and $12.5 billion and .40 of 1% of average daily net
assets over $12.5 billion. Before May 31, 1994, each State Fund paid KFS an
investment management fee under a different schedule.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with each Trust, Kemper Distributors, Inc.
("KDI"), an affiliate of KFS, is the principal underwriter and distributor of
each Trust's shares and acts as agent of each Trust 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 Trust shares for sale under
the securities laws of the various states and each Trust 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.
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<PAGE> 30
CLASS A SHARES. KDI receives no compensation from the Trusts as principal
underwriter for Class A shares and pays all expenses of distribution of each
Fund's Class A shares under the distribution agreement 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 Trust, payable monthly, at the annual rate of .75 of 1% 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 Trust, payable monthly, at the annual rate of .75 of 1% 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, payable quarterly, at an annual rate
of .75 of 1% 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 Trust.
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 then existing Rule 12b-1 Plan during its 1994 fiscal
year.
<TABLE>
<CAPTION>
DISTRIBUTION FEES
DISTRIBUTION EXPENSES PAID CONTINGENT DEFERRED
INCURRED BY BY FUND TO SALES CHARGES PAID
UNDERWRITER UNDERWRITER TO UNDERWRITER
---------------------- --------------------- --------------------
FUND CLASS B CLASS C CLASS B CLASS C CLASS B
- ----------------------------------- -------- ------- ------- ------- --------------------
<S> <C> <C> <C> <C> <C>
Municipal+......................... $431,000 18,000 30,000 1,000 5,000
California+........................ $ 89,000 1,000 3,000 0 0
Florida+........................... $ 19,000 0 1,000 0 0
Ohio+.............................. $ 44,000 1,000 0 0 0
New York+.......................... $ 53,000 1,000 2,000 0 0
Texas+............................. $ 0 6,000 0 0 0
</TABLE>
- ---------------
+ Class B and Class C shares were first offered on May 31, 1994.
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 a Plan may or may not be sufficient
to reimburse KDI (or KFS as predecessor to KDI) for its expenses incurred.
ADMINISTRATIVE SERVICES. KDI provides information and administrative services
for shareholders of each Trust pursuant to the 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 Trusts. 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 Trust 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 Trust pays KDI a fee,
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<PAGE> 31
payable monthly, at an annual rate of up to .25 of 1% of average daily net
assets of each class of such Trust. With respect to Class A shares, KDI then
pays each firm a service fee at an annual rate of (a) up to .10 of 1% of net
assets of those accounts in the Trust that it maintains and services
attributable to Class A shares acquired prior to October 1, 1993, and (b) up to
.25 of 1% of net assets of those accounts in the Trust that it maintains and
services 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 1% of net assets of
those accounts in the Trust 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 terminated by KDI or a Trust. 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 1% of
the purchase price of such shares. As compensation therefor, KDI may retain the
administrative services fee paid by a Trust 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 Trust. Currently, the
administrative services fee payable to KDI is based only upon Trust assets in
accounts for which there is a firm listed on a Trust's records and it is
intended that KDI will pay all the administrative services fee that it receives
from each Trust to firms in the form of service fees. The effective
administrative services fee rate to be charged against all assets of each Trust
while this procedure is in effect will depend upon the proportion of Trust
assets that is in accounts for which there is a firm of record, as well as, with
respect to Class A shares, the date when the shares representing such assets
were purchased.
CUSTODIAN AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary Trust Company
("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as custodian, and
United Missouri Bank, n.a., Tenth and Grand Streets, Kansas City, Missouri 64106
and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodians, have custody of all securities and cash
of the Trusts. IFTC also is the Trusts' 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 Trusts and, as
such, performs all of IFTC's duties as transfer agent and dividend-paying agent.
For a description of shareholder service agent fees payable to 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 each
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 as a factor in
selecting broker-dealers. See "Portfolio Transactions" in the Statement of
Additional Information.
DIVIDENDS AND TAXES
DIVIDENDS. All the net investment income of a Fund is declared daily as a
dividend on shares for which the Fund has received payment. Net investment
income of a Fund consists of all interest income earned on portfolio assets less
all expenses of the Fund. Income dividends will be distributed monthly and
dividends of net realized capital gains will be distributed 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.
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<PAGE> 32
Income and capital gain dividends, if any, for a Fund will be credited to
shareholder accounts in full and fractional shares of the same class of the 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 both income and capital gain dividends in cash.
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 Fund dividends
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 a Fund's dividends in shares of another Kemper Fund,
shareholders must maintain either 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 will 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 (or, for each of the
Intermediate Municipal, Michigan, New Jersey and Pennsylvania Funds, intends 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. Each Fund intends to
meet the requirements of the Code applicable to regulated investment companies
distributing tax-exempt interest dividends and, therefore, dividends
representing net interest received on Municipal Securities will not be
includable by shareholders in their gross income for federal income tax
purposes, except to the extent such interest is subject to the alternative
minimum tax as discussed below. Dividends representing taxable net investment
income (such as net interest income from temporary investments in obligations of
the U.S. Government) and net short-term capital gains, if any, are taxable to
shareholders as ordinary income and long-term capital gain dividends are taxable
to shareholders as long-term capital gains, regardless of how long the shares
have been held and whether received in cash or shares. Gains attributable to
market discount on Municipal Securities acquired after April 30, 1993 are
treated as ordinary income. Long-term capital gain dividends received by
individual shareholders are taxed at a maximum rate of 28%. Dividends declared
by a Fund 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 for federal income tax
purposes.
A taxable 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.
Net interest on certain "private activity bonds" issued on or after August 8,
1986 is treated as an item of tax preference and may, therefore, be subject to
both the individual and corporate alternative minimum tax. To the extent
provided by regulations to be issued by the Secretary of the Treasury,
exempt-interest dividends from a Fund are to be treated as interest on "private
activity bonds" in proportion to the interest the Fund receives from private
activity bonds, reduced by allowable deductions. For the 1994 calendar year, 9%,
6%, 5%, 12%, 7%, 5% and 5% of the net interest income of the Municipal,
Intermediate Municipal, California, Florida, New York, Ohio and Texas Funds,
respectively, was derived from "private activity bonds."
Exempt-interest dividends, except to the extent of interest from "private
activity bonds", are not treated as a tax preference item. For a corporate
shareholder, however, such dividends will be included in determining such
corporate shareholder's "adjusted current earnings." Seventy-five percent of the
excess, if any, of "adjusted current earnings" over the corporate shareholder's
alternative minimum taxable income with certain adjustments will be a tax
preference item. Corporate shareholders are advised to consult their tax
advisers with respect to alternative minimum tax consequences.
26
<PAGE> 33
Shareholders will be required to disclose on their federal income tax returns
the amount of tax-exempt interest earned during the year, including
exempt-interest dividends received from a Fund.
Individuals whose modified income exceeds a base amount will be subject to
federal income tax on up to 85% of their Social Security benefits. Modified
income includes adjusted gross income, 50% of Social Security benefits, and
tax-exempt interest, including exempt-interest dividends from a Fund.
MUNICIPAL FUND. During the fiscal year ended September 30, 1994, 100% of the
income dividends paid by the Municipal Fund constituted tax-exempt dividends for
federal income tax purposes.
CALIFORNIA FUND. Dividends paid by the California Fund, to the extent of
interest received on California state and local government issues, will be
exempt from California personal income taxes provided at least 50% of the total
assets of the California Fund are invested in such issues at the close of each
quarter in the taxable year. Any short-term and long-term capital gain dividends
will be includable in California personal taxable income as dividend income and
long-term capital gain, respectively, and are taxed at ordinary income tax
rates. During the fiscal year ended August 31, 1994, 100% of the income
dividends paid by the California Fund constituted tax-exempt dividends for
federal and California income tax purposes. Dividends paid by the California
Fund, including capital gain distributions, will be taxable to corporate
shareholders subject to the California corporate franchise tax.
FLORIDA FUND. Dividends paid by the Florida Fund, including capital gain
distributions, to individual shareholders will not be subject to the Florida
income tax since Florida does not impose a personal income tax. Dividends paid
by the Florida Fund, including capital gain distributions, will be taxable to
corporate shareholders that are subject to the Florida corporate income tax.
During the fiscal year ended August 31, 1994, 100% of the income dividends paid
by the Florida Fund constituted tax-exempt dividends for federal income tax
purposes. Additionally, Florida imposes an "intangibles tax" at the rate of
$2.00 per $1,000 of taxable value of certain securities and other intangible
assets owned by Florida residents. U.S. Government securities and Florida
Municipal Securities are exempt from this intangibles tax. The Florida Fund has
received a technical assistance advisement from the State of Florida Department
of Revenue that if, on December 31 of any year, the Florida Fund's portfolio
consists of both exempt and non-exempt assets, then only the portion of the
value of the Florida Fund's shares attributable to U.S. Government securities
will be exempt from the Florida intangibles tax payable in the following year.
Thus, in order to take full advantage of the exemption from the intangibles tax
in any year, the Florida Fund would be required to sell all non-exempt assets
held in its portfolio and reinvest the proceeds in exempt assets prior to
December 31. Transaction costs involved in restructuring the portfolio in this
fashion would likely reduce the Florida Fund's investment return and might
exceed any increased investment return the Florida Fund achieved by investing in
non-exempt assets during the year. On December 31, 1994, the Florida Fund's
portfolio consisted solely of assets exempt from the intangibles tax. During the
fiscal year ended August 31, 1994, 100% of the income dividends paid by the
Florida Fund constituted tax-exempt dividends for federal income tax purposes.
MICHIGAN FUND. Dividends paid by the Michigan Fund derived from interest income
from obligations of Michigan, its political or governmental subdivisions or
obligations of the U.S., its agencies, instrumentalities or possessions will be
exempt from the Michigan personal income tax and Michigan Single Business Tax
provided that at least 50% of the total assets of the Michigan Fund are invested
in such issues at the end of each quarter. Any short-term and long-term capital
gain dividends will be includable in Michigan personal taxable income as
dividend income and long-term capital gain, respectively, and are taxed at
ordinary income tax rates. Long-term capital gain dividends paid by the Fund
will be taxable to entities subject to the Michigan Single Business Tax.
Michigan also exempts from its intangible personal property tax obligations of
Michigan, its political and governmental subdivisions and obligations of the
U.S. and its possessions, agencies and instrumentalities. To the extent that the
Fund's portfolio includes such exempt assets, the value of the Fund shares will
also be exempt. Capital gains from the Fund that are reinvested in additional
shares are exempt from the intangibles taxes, whereas capital gains paid in cash
are taxable.
NEW JERSEY FUND. Dividends paid by the New Jersey Fund will be exempt from New
Jersey Gross Income Tax to the extent that the dividends are derived from
interest on obligations of the State or its political subdivisions or
authorities or on obligations issued by certain other government authorities or
from capital gains from the
27
<PAGE> 34
disposition of such obligations, as long as the Fund meets certain investment
and filing requirements necessary to establish and maintain its status as a
"Qualified Investment Fund" in New Jersey. It is the Fund's intention to satisfy
these requirements and maintain Qualified Investment Fund status. Given this
status, capital gain distributions related to exempt assets and net gains
derived from the sale of shares of the Fund will not be subject to the New
Jersey Gross Income Tax. Dividends paid by the Fund derived from interest on
non-exempt assets, and capital gain distributions related to such non-exempt
assets will be subject to New Jersey Gross Income Tax. Dividends paid by the
Fund, including capital gain distributions, will be taxable to corporate
shareholders subject to the New Jersey corporation business (franchise) tax.
NEW YORK FUND. Dividends paid by the New York Fund representing net interest
received on New York Municipal Securities will be exempt from New York State and
New York City personal income taxes. Any short-term and long-term capital gain
dividends will be includable in New York State and New York City taxable income
as dividend income and long-term capital gain, respectively, and are taxed at
ordinary personal income tax rates. During the fiscal year ended August 31,
1994, 100% of the income dividends paid by the New York Fund constituted tax-
exempt dividends for federal, New York State and New York City personal income
tax purposes. Dividends paid by the New York Fund, including capital gain
distributions, will be taxable to corporate shareholders that are subject to New
York State and New York City corporate franchise tax.
OHIO FUND. Dividends paid by the Ohio Fund that are attributable to interest on,
or gain from the sale, exchange or disposition of, Ohio Municipal Securities are
not subject to the Ohio personal income tax, Ohio school district income taxes
or Ohio municipal income taxes, and are not includable in the net income base of
the Ohio corporate franchise tax. For the fiscal period ended August 31, 1994,
100% of the income dividends paid by the Ohio Fund constituted tax-exempt
dividends for federal income tax purposes.
PENNSYLVANIA FUND. Dividends paid by the Pennsylvania Fund will be exempt from
Pennsylvania income tax to the extent that the dividends are derived from
interest on obligations of Pennsylvania, any public authority, commissions,
board or other state agency, any political subdivision of the state or its
public authority, and certain obligations of the U.S. or its territories
(including Puerto Rico, Guam and the Virgin Islands). Any dividends of net
short-term and long-term capital gain earned by the Fund are generally included
in the Pennsylvania taxable income as dividend income and long-term capital gain
respectively, and are taxed at ordinary income tax rates. Dividends paid by the
Fund representing interest income on Pennsylvania Municipal Securities are also
generally exempt from the Philadelphia School District Income Tax for residents
of Philadelphia and from the intangibles tax for the City and School District of
Pittsburgh for residents of Pittsburgh. Shareholders of the Fund who are subject
to the Pennsylvania property tax in their county of residence will be exempt
from county personal property tax to the extent that the portfolio of the Fund
consists of such exempt obligations on the annual assessment date of January 1.
TEXAS FUND. Currently, Texas does not impose any income tax on individuals,
trusts or estates. During the fiscal year ended August 31, 1994, 100% of the
income dividends paid by the Texas Fund constituted tax-exempt dividends for
federal income tax purposes. Dividends paid by the Texas Fund to corporate
shareholders subject to the Texas corporate franchise tax, will be exempt to the
extent of interest received from federal, state and local government issues.
GENERAL. The tax exemption of Fund dividends for federal income tax and, if
applicable, particular state or local tax purposes does not necessarily result
in exemption under the income or other tax laws of any other state or local
taxing authority. The laws of the several states and local taxing authorities
vary with respect to the taxation of interest income and investments, and
shareholders are advised to consult their own tax advisers as to the status of
their accounts under state and local tax laws. The Funds may not be appropriate
investments for qualified retirement plans and Individual Retirement Accounts.
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<PAGE> 35
The Trusts are 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.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for dividend reinvestment, periodic investment and redemption programs
and reinvestment programs for unit investment trusts underwritten by an
affiliate of KFS. Information for federal income tax purposes 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
The net asset value per share of a Fund 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 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. The declaration of daily dividends of net investment income
by the Funds, however, will tend to minimize any such differences. 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. Exchange traded 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. 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.
PURCHASE OF SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS. Class A shares of each Fund 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. 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
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<PAGE> 36
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 None Initial sales charge waived
of 4.5% (2.75% Intermediate or reduced for certain
Municipal Fund only) of the purchases
public offering price
Class B Maximum contingent deferred 0.75% Shares convert to Class A
sales charge of 4% of shares six years after
redemption proceeds; issuance
declines to zero after six
years
Class C None 0.75% No conversion feature
</TABLE>
The minimum initial investment for each Fund is $1,000 and the minimum
subsequent investment is $100. 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. The Trusts allocate net investment
income for each Fund to those shares for which the Trust has received payment.
To begin accruing dividends as soon as possible, purchasers may wire payment to
the Trust's sub-custodian, United Missouri Bank, n.a., Tenth and Grand Streets,
Kansas City, Missouri 64106.
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 choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
SALES CHARGE
--------------------------------------
ALLOWED
TO
DEALERS
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF NET OF
OFFERING ASSET OFFERING
AMOUNT OF PURCHASE PRICE VALUE* PRICE
------ ------ ------
<S> <C> <C> <C>
ALL FUNDS EXCEPT INTERMEDIATE MUNICIPAL FUND
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................................... 0.00 ** 0.00 ** ***
INTERMEDIATE MUNICIPAL FUND ONLY
Less than $100,000.................................... 2.75 2.83 2.25
$100,000 but less than $250,000....................... 2.50 2.56 2.00
$250,000 but less than $500,000....................... 2.00 2.04 1.75
$500,000 but less than $1 million..................... 1.50 1.52 1.25
$1 million and over................................... 0.00 ** 0.00 ** ***
- ---------------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as discussed below.
*** Commissions payable by KDI as discussed below.
</TABLE>
The Trusts receive the entire net asset value of all Class A shares sold. KDI,
the Trusts' 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
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<PAGE> 37
for transactions specified in such notice and such reallowances may be based
upon attainment of minimum sales 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 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 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" (the "Large Order NAV Purchase Privilege"). The Large
Order NAV Purchase Privilege for certain Kemper Mutual Funds other than the
Funds also applies to purchases by certain participant-directed retirement plans
as described in the prospectuses for those Kemper Mutual Funds. 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 each Fund 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 schedule, 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 to officers, trustees, directors, employees
(including retirees) and sales representatives of each Trust, its investment
manager, its principal underwriter or certain affiliated companies, for
themselves or members of their families, or to any trust, pension,
profit-sharing or other benefit plan for only such persons, at net asset value
and in any amount. Class A shares may be sold at net asset value in any amount
to registered representatives and employees of broker-dealers having selling
group agreements with KDI and officers, directors and employees of service
agents of the Trusts for themselves or their spouses or dependent children, or
to 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 each Fund 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 transactions in Fund shares may purchase Fund Class
A shares at net asset value hereunder. Class A shares may be sold at net asset
value in any amount to unit investment trusts underwritten by an affiliate of
KFS. In addition, unitholders of unit investment trusts underwritten by an
affiliate of KFS may purchase Fund Class A shares at net asset value through
reinvestment programs described in the prospectuses of such trusts which 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
31
<PAGE> 38
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 Trusts. The Trusts 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 gains
dividends.
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 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."
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. 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 1% of
net assets attributable to Class C shares maintained and serviced by the firm.
KDI is compensated by each Fund for services 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. 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. For more
information about the three sales arrangements, consult your financial
representative or the Funds' 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
32
<PAGE> 39
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.
Management 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 a Fund. 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 who sell or are expected to sell during
specified time periods certain minimum amounts of shares of a Fund, 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 such Fund next determined after receipt by KFS 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 of such Fund effective on that
day. The Trusts 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 Fund 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
Fund shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Trusts' transfer agent will have no
information with respect to or control over 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 Trusts 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 Trusts 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 Trusts 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, the
Trusts may temporarily suspend the offering of any class of the shares of a Fund
to new investors. During the period of such suspension, persons who are already
shareholders of such class of such 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.
33
<PAGE> 40
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require a Trust to redeem his or her shares. When
shares are held for the account of a shareholder by the Trusts' 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.
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 requested
accompanied by any outstanding share certificates in proper form for transfer.
When a Trust 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 Trust 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 Trusts reserve the
right to redeem an account (and, in the case of Class B shares, impose any
applicable contingent deferred sales charge) in any Fund that falls below the
minimum investment level, currently $1,000, as a result of redemptions. 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 Trust redeems the shareholder 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. Neither a Trust nor its agent will be
liable for any loss, expense or cost arising out of any telephone request
pursuant to these privileges, including any fraudulent or unauthorized request,
and THE SHAREHOLDER WILL BEAR THE RISK OF LOSS, so long as the Trust 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.
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 custodial
34
<PAGE> 41
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 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
expedited redemption of 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 Trusts reserve the right to terminate or modify this
privilege at any time.
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 a Trust 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 KFS 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 Trusts are not responsible for
the efficiency of the federal wire system or the account holder's financial
services firm or bank. The Trusts 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 Trusts 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)
redemption of shares of a shareholder (including a registered joint owner) who
has died; (b) 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);
35
<PAGE> 42
and (c) redemptions under a Fund's Systematic Withdrawal Plan at a maximum of
10% per year of the net asset value of the account.
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>
CONTINGENT
DEFERRED
SALES
YEAR OF REDEMPTION AFTER PURCHASE CHARGE
------------------------------------------------------------------------ ----------
<S> <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 ("KIP"), hold
them subject to the same CDSC schedule that applied when those shares were
purchased, as follows:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
-------------------------------------------------------------------------------------
SHARES PURCHASED ON OR AFTER
SHARES PURCHASED ON OR AFTER FEBRUARY 1, 1991 AND BEFORE SHARES PURCHASED BEFORE
YEAR OF REDEMPTION AFTER 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
36
<PAGE> 43
(including a registered joint owner) and (c) for redemptions made pursuant to a
systematic withdrawal plan (see "Special Features--Systematic Withdrawal Plan"
below).
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares of the
Trusts 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 the Trusts or
of the other listed Kemper Mutual Funds. A shareholder of a Fund or any 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 the Trusts 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 Trust's shares, the reinvestment 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. Class A shares of any Fund 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 (available only upon exchange or conversion from Class A
shares of another Kemper Mutual Fund), Kemper U.S. Mortgage Fund and Kemper
Short-Intermediate Government 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 KFS 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 sub-account 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
37
<PAGE> 44
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 KDI may have special provisions regarding payment of any increased sales
charge resulting from a failure to satisfy 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 any Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of a Fund's shares being purchased the value of all Class A shares of
the 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 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.
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 value. Class B
shares may be exchanged without a 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 value.
38
<PAGE> 45
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 will 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 or in writing, 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 cannot
be used with passbook savings accounts.
BANK DIRECT DEPOSIT. A shareholder may purchase additional Fund shares 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 Trust 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
39
<PAGE> 46
shareholder will become effective within thirty days after the Shareholder
Service Agent has received the request. A Trust may immediately terminate a
shareholder's Plan in the event that any item is unpaid by the shareholder's
financial institution. A Trust 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 Trust is not responsible for the efficiency of the
employer or government agency making the payment or any financial institution
transmitting payment.
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 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, the Trusts 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 Trusts.
PERFORMANCE
A Fund may advertise several types of performance information for a class of
shares, including "yield," "tax equivalent yield," "average annual total return"
and "total return." 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 necessarily 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. Any advertisement or information
that contains performance data of a Fund will include performance data for all
classes of the Fund offered by this prospectus.
A Fund's yield is a measure of the net investment income per share earned by the
Fund over a specific one month or 30-day period 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 the Fund generates the
same level of net investment income over a one year period. Net investment
income is assumed to be compounded semiannually when it is annualized.
Tax equivalent yield is that which a taxable investment must generate in order
to equal a Fund's yield for an investor at a stated combined federal and, if
applicable, state and local tax rate (normally assumed to be the maximum tax
rate). Tax equivalent yield is based upon, and will be higher than, the portion
of a Fund's yield that is tax-exempt.
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 for the
40
<PAGE> 47
period in question, 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 a Fund). 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 such as the Lehman Brothers Municipal Bond Index
and the Salomon Brothers High Grade Bond Index, and may also be compared to the
performance of other fixed income, state municipal bond funds (as applicable) or
general municipal bond mutual funds or mutual fund indexes 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.
A Fund may quote information 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, 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, 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.
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 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.
A Fund may include in its sales literature and shareholder reports a quotation
of the current "distribution rate" for a class of a 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.
A Fund's Class A shares are sold at net asset value per share of such Fund plus
a maximum sales charge of 4.5% (2.75% for the Intermediate Municipal Fund) of
the offering price. 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. Yield figures for Class B shares do not include the effect of
any contingent deferred sales charge. 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.
41
<PAGE> 48
A Fund's returns and net asset value will fluctuate. Shares of a Fund are
redeemable by an investor at the then current net asset value per share for such
Fund, which may be more or less than original cost. 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 the Fund's
performance also appears in the Trusts' 1994 Annual Report to Shareholders,
which is available without charge from the applicable Trust.
CAPITAL STRUCTURE
The National Trust was organized under the name "Kemper Municipal Bond Fund" as
a business trust under the laws of Massachusetts on October 24, 1985 with a
single investment portfolio. Effective January 31, 1986 the Municipal Trust,
pursuant to a reorganization, succeeded to the assets and liabilities of Kemper
Municipal Bond Fund, Inc., a Maryland corporation organized in 1977 as a
successor to Kemper Municipal Bond Fund, Ltd., a Nebraska limited partnership
organized in April 1976. Effective November 1, 1994, the Trust changed its name
to "Kemper National Tax-Free Income Series."
The State Trust was organized under the name "Kemper California Tax-Free Income
Fund" as a business trust under the laws of Massachusetts on October 24, 1985
with a single investment portfolio. Effective January 31, 1986, the Trust
pursuant to a reorganization succeeded to the assets and liabilities of Kemper
California Tax-Free Income Fund, Inc., a Maryland corporation organized in 1983.
On July 27, 1990, the Trust changed its name to "Kemper State Tax-Free Income
Series" and changed the name of its initial portfolio to "Kemper California
Tax-Free Income Fund." The predecessor to the New York Fund, also named "Kemper
New York Tax-Free Income Fund," was organized as a business trust under the laws
of Massachusetts on August 9, 1985. Prior to May 28, 1988, that investment
company was known as "Tax-Free Income Portfolios" and it offered two series of
shares, the National Portfolio and the New York Portfolio. Pursuant to a
reorganization on May 27, 1988, the National Portfolio was terminated and the
New York Portfolio continued as the sole remaining series of Kemper New York
Tax-Free Income Fund, which was reorganized into the New York Fund as a series
of the State Trust on July 27, 1990.
Each Trust may issue an unlimited number of shares of beneficial interest in one
or more series or "Funds," all having no par value, which may be divided by the
Board of Trustees into classes of shares. Currently, the National Trust has two
Funds that offer four classes of shares and the State Trust has eight Funds that
offer three classes of shares. These are Class A, Class B and Class C shares, as
well as (for the National Trust only) 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
the National Funds: (1) unaffiliated benefit 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. The Board of Trustees of either
Trust may authorize the issuance of additional classes and additional Funds if
deemed desirable, each with its own investment objective, policies and
restrictions. Since the Trusts may offer multiple Funds, each is known as a
"series company." Shares of each Fund of a Trust 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 Trust are fully paid and nonassessable when issued, are
transferable without restriction and have no preemptive or conversion rights.
The Trusts 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 Trust, shareholders may remove trustees.
Shareholders will vote by Fund and not in the aggregate or by class except when
voting in the aggregate is required under the Investment Company Act of 1940,
such as for the election of trustees, or when voting by class is appropriate.
42
<PAGE> 49
INDIVIDUAL ACCOUNT APPLICATION GUIDE
KEMPER TAX-FREE INCOME FUNDS
INSTRUCTIONS
Please make sure you are using the correct application. Use the Individual
Account Application for Individual, Joint Owners and Transfer to Minor accounts.
Use the Institutional Account Application for Corporate, Trust or other
Fiduciary accounts. This application cannot be used for any modification of an
existing account. To obtain an Institutional Account Application or forms to
modify your account, call 1-800-621-1048.
- - Please print information exactly as you wish it to appear on the account.
- - Please check the box that is applicable to the type of account you are
opening.
- - Please insure that the social security number for a joint account is for the
FIRST named registrant and for a transfer to minor account is for the MINOR.
- - PLEASE BE SURE TO COMPLETE BOTH SECTIONS I AND II.
- - PLEASE BE SURE TO SIGN THIS APPLICATION. If the account is registered in the
name of:
- an individual, the individual must sign.
- joint owners, all must sign.
- a custodian for a minor, the custodian must sign.
READ THIS IMPORTANT INFORMATION
FUND FEATURES
Exchanges. If you elect this option:
- You are authorizing exchanges between Kemper Mutual Funds by ANY
PERSON by telephone.
- Shares held in certificated form may not be exchanged until they
have been received by a Fund's Shareholder Service Agent and
deposited to the account.
- If exchanging to a new account, the minimum requirement is $1,000.
- Subsequent exchanges may be made for $100 or more.
Systematic Exchanges. If you elect this option:
- You are authorizing monthly exchanges from your Fund account to
another Kemper Fund account with the same registration.
- Shares may not be held in certificated form.
- The minimum initial account balance for Fund shares being exchanged
is $1,000.
- The minimum monthly exchange is $100 per Fund exchanged into.
Systematic Withdrawal Plans. If you elect this option:
- Shares may not be held in certificated form.
- The Plan may not be selected in conjunction with a Letter of Intent.
- Your account value must be at least $5,000.
- All dividends will be reinvested.
Wire Redemptions. If you elect this option:
- You are authorizing a Trust or its agents to honor telephone or
other instructions from ANY PERSON for the redemption of Fund
shares. Proceeds will be wire transferred to the bank account
referenced on the application.
- Shares held in certificated form may not be redeemed under this
privilege.
- The amount redeemed must be at least $1,000.
CERTIFICATION
The account holders certify that they have the power and authority to establish
this account and select the privileges requested. Account holders can request
the following telephone privileges on this application: expedited wire transfer
redemption and telephone exchange transactions. Please note that the telephone
exchange privilege is automatic unless the account holder refuses it. Neither
the chosen Fund nor its agents will be liable for any loss, expense or cost
arising out of any telephone request pursuant to these privileges, 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. The account holders certify that the current prospectus
for a Fund (including any fund selected under the Systematic Exchange Privilege)
has been received and read and that the authorizations hereon shall continue
until the Fund receives written notice of a modification signed by all
appropriate parties or a termination signed by any party. This account is
subject to the terms of the Fund's prospectus, as amended from time to time, and
the terms herein set forth, and is subject to acceptance by the Fund and to the
laws of Illinois. All terms shall be binding upon the heirs, representatives and
assigns of the account holders.
QUESTIONS
Shareholders may call 1-800-621-1048 to speak with a Kemper Shareholder Services
Representative.
Financial Representatives may call 1-800-621-5027 to speak with a Kemper Sales
Support Representative.
<PAGE> 50
INDIVIDUAL ACCOUNT APPLICATION--SECTION I OF II [LOGO]
KEMPER TAX-FREE INCOME FUNDS
MAIL TO: KEMPER MUTUAL FUNDS, ATTENTION: NEW APPLICATIONS, P.O. BOX 419356,
KANSAS CITY, MO 64141-6356
- --------------------------------------------------------------------------------
1. YOUR ACCOUNT REGISTRATION.
<TABLE>
<S> <C>
/ / INDIVIDUAL FIRST NAME ------------------------------- M.I. ---------- LAST NAME ---------------------------------
OR
/ / JOINT TENANT* FIRST NAME ------------------------------- M.I. ---------- LAST NAME ---------------------------------
FIRST NAME ------------------------------- M.I. ---------- LAST NAME ---------------------------------
/ / TRANSFER TO A Custodian's Name ---------------------------------------- Minor's Name -------------------------------
MINOR (only one permitted) (only one permitted)
</TABLE>
* Joint accounts will be registered as joint tenants with rights of survivorship
unless otherwise indicated.
- --------------------------------------------------------------------------------
2. YOUR MAILING ADDRESS.
<TABLE>
<S> <C>
Street Address ------------------------------------------------------- Apt. # ------------------------------------------
City ---------------------------------------------------- State ------- Zip ---------------------------------------------
I am a citizen of / / U.S. / / Other (Please specify) --------------- Social Security No. -----------------------------
(for first registrant or minor)
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
3. AMOUNT INVESTED AND FUND/CLASS SELECTION. -----------------------------------
Make checks payable to Kemper Mutual Funds.
The minimum initial investment is $1,000 for each Fund.* Please Do Not Write In This Space
($50 if Item 12 selected).
Fund AMOUNT CLASS -----------------------------------
/ / Kemper Municipal Bond Fund $ --------- -------
/ / Kemper Intermediate Municipal Bond Fund $ --------- -------
/ / Kemper California Tax-Free Income Fund $ --------- -------
/ / Kemper Florida Tax-Free Income Fund $ --------- -------
/ / Kemper Michigan Tax-Free Income Fund $ --------- -------
/ / Kemper New Jersey Tax-Free Income Fund $ --------- -------
/ / Kemper New York Tax-Free Income Fund $ --------- -------
/ / Kemper Ohio Tax-Free Income Fund $ --------- -------
/ / Kemper Pennsylvania Tax-Free Income Fund $ --------- -------
/ / Kemper Texas Tax-Free Income Fund $ --------- -------
Total Amount Invested $ --------- -------
* See Letter of Intent Conditions if Item 6 is selected.
</TABLE>
- --------------------------------------------------------------------------------
4. DIVIDENDS.
Choose how you wish to receive dividends. IF NO BOXES ARE CHECKED, OPTION A WILL
BE ASSIGNED.
<TABLE>
<S> <C>
A. / / All income and capital gains dividends REINVESTED in my account.
B. / / All income and short-term capital gains dividends IN CASH and long-term capital gains REINVESTED in my account.
(COMPLETE CASH DIVIDENDS SECTION BELOW.)
C. / / All income and capital gains dividends paid to me IN CASH. (COMPLETE CASH DIVIDENDS SECTION BELOW.)
D. / / All dividends REINVESTED in another Kemper Fund account: (See prospectus regarding limitations on this privilege.)
</TABLE>
Fund Name ------------------------ Account Number ------------------------
PLEASE SEND CASH DIVIDENDS TO (if no special payee, cash dividends will be sent
to the account registration address):
/ / Account registration address. / / Special Payee as follows:
<TABLE>
<S> <C>
Name of Payee ----------------------------------------------------------- Account No. (if applicable) ---------------------
Street Address ----------------------------------------------------------------------------------------------------------------
City ----------------------------------------------------------------------------- State ------------ Zip ------------------
</TABLE>
- --------------------------------------------------------------------------------
5. RIGHTS OF ACCUMULATION--CLASS A.
Cum. Discount Number --------------------------- (if known).
I own shares in other Kemper Mutual Funds which may entitle this purchase
to a reduced sales charge as described in the Fund prospectus.
Existing Fund Name(s) Account Number(s)
- ------------------------------- -----------------------------------
- ------------------------------- -----------------------------------
- ------------------------------- -----------------------------------
- ------------------------------- -----------------------------------
- --------------------------------------------------------------------------------
6. LETTER OF INTENT--CLASS A (OPTIONAL). I agree to the Letter of Intent
Conditions on the reverse side of this application.
I intend to invest, within a 24-month period beginning on the date hereof
(initial purchase date) in shares of a Fund purchased hereunder and one or more
of the other funds listed in Item 5 above (the "Funds"), an aggregate amount
which, together with the value of shares of any of the Funds then owned by me,
will equal or exceed the amount indicated below:
/ /$100,000 / /$250,000 / /$500,000 / /$1,000,000
- --------------------------------------------------------------------------------
7. YOUR BROKER/DEALER. Representative's Phone Number -----------------------
<TABLE>
<S> <C> <C>
Dealer Number ------------------------ Branch Number --------------------- Representative's Number ----------------------------
Firm Name ----------------------------------------------------------------- Representative's Last Name -------------------------
Branch Address ------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
8. EXCHANGES.
I authorize exchanges between Kemper Mutual Funds upon instruction from ANY
PERSON by telephone. / / Yes / /No
IF NEITHER BOX IS CHECKED, THE TELEPHONE EXCHANGE PRIVILEGE WILL BE PROVIDED.
<PAGE> 51
INDIVIDUAL ACCOUNT APPLICATION--SECTION II OF II
-------------------------------------------------------------------
9. SYSTEMATIC EXCHANGE PRIVILEGE (OPTIONAL). PLEASE CROSS OUT THIS
SECTION IF THIS PRIVILEGE IS NOT WANTED.
I authorize the monthly exchange of shares FROM my account
established by this Application as follows. The account
registration on the account being exchanged INTO is/will be
identical to that listed in Item 1 of this Application.
Kemper Fund (to exchange FROM): -----------------------------------
Kemper Fund (to exchange INTO): -----------------------------------
Account No. (if existing) -----------------------------------------
Choose one of the following options. Monthly exchange amount must
be at least $100.
/ / Exchange shares at net asset value in the amount of $ --------.
/ / Exchange ----------% annual rate of the net asset value of my account.
/ / Exchange sufficient amounts to exchange my entire account
within (choose one): / /
--------------------- years or / / -------------------------- months.
If you want to establish the Systematic Exchange Privilege with
options other than listed above, call the Shareholder Service Agent
at 1-800-621-1048.
-------------------------------------------------------------------
10. SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL). PLEASE CROSS OUT THIS
SECTION IF THIS PRIVILEGE IS NOT WANTED.
Please establish a Systematic Withdrawal Plan to begin: ----------
---------------------------------- (Month, Year) for my account(s)
established by this Application. The payment ($100 minimum) may be
either a specified dollar amount or an annualized percentage (10%
maximum for Class B shares) of the net asset value of the account
as determined by a monthly valuation.
<TABLE>
<CAPTION>
Withdrawal Amount
or Annualized
Fund Percentage Payment Frequency Send Check to
<S> <C> <C> <C>
- ------ --------------- / / Monthly / / Quarterly / / Semi-Annually / / Annually / / Acc't registration / / Special
- ------ ------------- / / Monthly / / Quarterly / / Semi-Annually / / Annually / / Acc't registration / / Special
</TABLE>
Please send the Systematic Withdrawal Plan check to (check above;
IF NO SPECIAL PAYEE, PAYMENT WILL BE SENT TO ACCOUNT REGISTRATION
ADDRESS).
Special Payee Address:
Name -------------------------------------------------------------------
Account No. (if applicable) --------------------------------------------
Address ----------------------------------------------------------------
City ------------------------- State ------------------- Zip -----------
-------------------------------------------------------------------
11. WIRE REDEMPTIONS (OPTIONAL). PLEASE CROSS OUT THIS SECTION IF
THIS PRIVILEGE IS NOT WANTED.
I authorize the Fund or its agents to honor telephone or other
instructions from ANY PERSON for the redemption of Fund shares.
Proceeds are to be wire transferred to the bank account referenced
below. ($1,000 minimum per redemption.)
Name of Depositor --------------------------------------------------------
(as shown on bank records)
Name of Bank -------------------------------------------------------------
Bank Account No. ---------------------------------------------------------
(a savings and loan or credit union may not be able to receive wire
redemptions)
Address of Bank ----------------------------------------------------------
City --------------------------- State ------------------- Zip -----------
-------------------------------------------------------------------
12. AUTOMATIC INVESTING (OPTIONAL). PLEASE CROSS OUT THIS SECTION
IF THIS PRIVILEGE IS NOT WANTED.
A. BANK DIRECT DEPOSIT
I authorize the Fund's Agent to draw checks or initiate Automated
Clearing House ("ACH") debits in the amount of $ ----------------
--------------------- against the bank account described on the
attached voided check beginning on the --------------------------
----------------- day of each month for my account(s) established
by this Application. WRITE "VOID" ACROSS THE FACE OF A CHECK FOR
THE BANK ACCOUNT YOU WISH TO USE, THEN ATTACH THE CHECK TO THIS
FORM. A $50 minimum applies.
<TABLE>
<S> <C> <C>
If you do not have check writing
privileges and therefore, cannot
attach a voided check,
please complete the following
information:
Fund Amount Name of Bank ----------------------
Branch (if applicable) -------------
----------------------------- ----------------------------- Address of Bank --------------------
----------------------------- ----------------------------- City --------- State ---- Zip ------
----------------------------- ----------------------------- Bank Account No. -------------------
<CAPTION>
Fund
----------------------------- ----------------------------- Address of Bank --------------------
----------------------------- ----------------------------- City ----------- State ---- Zip ----
----------------------------- ----------------------------- Bank Account No. -------------------
<CAPTION>
</TABLE>
B. DIRECT DEPOSIT OF PAYROLL/GOVERNMENT CHECK
For information on direct deposit of payroll or government checks
please call the Shareholder Service Agent at 1-800-621-1048.
-------------------------------------------------------------------
13. CERTIFICATION AND SIGNATURE (SUBJECT TO CERTIFICATION SHOWN ON
APPLICATION GUIDE).
Under penalties of perjury, the undersigned hereby certify (1) that
the Social Security Number above is correct and (2) that the
account owner is not subject to backup withholding because (a) the
account owner has not been notified of being subject to backup
withholding as a result of a failure to report all interest or
dividends, or (b) the I.R.S. has provided notification that the
account owner is no longer subject to backup withholding (Cross out
(2) if it is not correct).
<TABLE>
<CAPTION>
X ---------------------------------------------------------- X ----------------------------------------------------------
<S> <C>
Signature Co-Owner (if applicable)
---------------------------- ---------------------------- X ----------------------------------------------------------
Date Daytime Phone # Co-Owner (if applicable)
</TABLE>
<PAGE> 52
LETTER OF INTENT ("LOI") CONDITIONS -- CLASS A
(APPLICABLE IF ITEM 6 LETTER OF INTENT SELECTED)
The first investment hereunder must equal or exceed $1,000 or 5% of the
indicated amount, whichever is greater. The value of shares owned by me on the
initial purchase date is determined by the maximum offering price on that date.
Each investment will be made at the public offering price applicable to a single
transaction of the dollar amount indicated on the application, as described in
the applicable Fund Prospectus in effect at the time of such investment. I
understand that the levels at which reduced sales charges are available may vary
for different Funds. I agree that the sales charge schedules for the Funds are
subject to change.
I am making no commitment to purchase shares, but if my investments within 24
months from the initial purchase date do not aggregate the sum specified, I will
pay the increased amount of sales charge as prescribed below. In determining the
total amount of purchases, any shares purchased under this LOI and then sold
within the 24-month period will be deducted from my total purchases. Exchanges
between Funds will not be deducted.
Five percent (5%) of the dollar amount specified in this LOI will be held in
escrow by Kemper Distributors, Inc. (the principal underwriter) in the form of
shares of one or more of the Funds being purchased (computed to the nearest full
share at public offering price) registered in my name. All income and capital
gain dividends on the escrowed shares will be reinvested in additional shares or
paid in cash per my dividend instructions. If the shares held in escrow in
connection with this LOI are to be exchanged in accordance with the Exchange
Privilege described in the applicable Fund Prospectus, the smallest number of
full shares of the Kemper Mutual Fund to be issued on the exchange having the
same aggregate net asset value as the shares being exchanged shall be
substituted in the escrow account. If I complete the investment specified within
the 24 month period, the escrowed shares will be released.
If my total investments pursuant to this Letter are less than the amount
specified, I will remit to the principal underwriter the difference in the sales
charge actually paid and the sales charge which I would have paid if my total
investments hereunder had been made at a single time. If I do not pay such
difference in sales charge within 7 business days after written request by the
principal underwriter or my dealer, I irrevocably constitute and appoint the
principal underwriter Kemper Distributors, Inc., my attorney, with full power of
substitution, to surrender for redemption the necessary number of the escrowed
shares to realize such difference without further notice or demand. If shares of
more than one Fund are held in escrow, shares of only one Fund, or more than one
Fund, as determined in the sole discretion of the principal underwriter may be
redeemed for this purpose. In the event of a deficiency after such surrender, I
shall remain liable for such deficiency.
I agree that I or my dealer will refer to this LOI in placing any future order
for me for shares of the Fund(s) hereunder. If additional Funds are to be added
to the LOI, I or my dealer will notify the Shareholder Service Agent for the
Kemper Mutual Funds of that fact.
All purchases under this LOI must be by the same purchaser as described in the
applicable Fund Prospectus.
I agree that this LOI is subject to the terms of the applicable Fund Prospectus
that is currently in effect from time to time and that neither Kemper
Distributors, Inc. nor any Fund has any obligation to sell shares of any Fund
hereunder.
<PAGE> 53
(KEMPER MUTUAL FUNDS LOGO)
INVESTMENT MANAGER
Kemper Financial Services, Inc.
PRINCIPAL UNDERWRITER
Kemper Distributors, Inc.
120 South LaSalle Street
Chicago, Illinois 60603
1-800-621-1048
KTFIF-1S 3/95 (LOGO)printed on recycled paper
Kemper
Tax-Free
Income
Funds
PROSPECTUS
AND APPLICATION
March 15, 1995
KEMPER MUNICIPAL
BOND FUND
KEMPER INTERMEDIATE
MUNICIPAL BOND FUND
KEMPER CALIFORNIA
TAX-FREE INCOME FUND
KEMPER FLORIDA
TAX-FREE INCOME FUND
KEMPER MICHIGAN
TAX-FREE INCOME FUND
KEMPER NEW JERSEY
TAX-FREE INCOME FUND
KEMPER NEW YORK
TAX-FREE INCOME FUND
KEMPER OHIO
TAX-FREE INCOME FUND
KEMPER PENNSYLVANIA
TAX-FREE INCOME FUND
KEMPER TEXAS
TAX-FREE INCOME FUND
(KEMPER MUTUAL FUNDS LOGO)
<PAGE> 54
KEMPER NATIONAL TAX-FREE INCOME SERIES
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....... Investments; Investment Policies and
Techniques; Investment Restrictions;
Appendix--Ratings of Investments
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; Report of Independent
Auditors; Statement of Net Assets
</TABLE>
<PAGE> 55
KEMPER TAX-FREE INCOME FUNDS
STATEMENT OF ADDITIONAL INFORMATION
MARCH 15, 1995
KEMPER NATIONAL TAX-FREE INCOME SERIES ("NATIONAL TRUST"):
KEMPER MUNICIPAL BOND FUND ("MUNICIPAL FUND")
KEMPER INTERMEDIATE MUNICIPAL BOND FUND ("INTERMEDIATE MUNICIPAL FUND")
KEMPER STATE TAX-FREE INCOME SERIES ("STATE TRUST"):
KEMPER CALIFORNIA TAX-FREE INCOME FUND ("CALIFORNIA FUND")
KEMPER FLORIDA TAX-FREE INCOME FUND ("FLORIDA FUND")
KEMPER MICHIGAN TAX-FREE INCOME FUND ("MICHIGAN FUND")
KEMPER NEW JERSEY TAX-FREE INCOME FUND ("NEW JERSEY FUND")
KEMPER NEW YORK TAX-FREE INCOME FUND ("NEW YORK FUND")
KEMPER OHIO TAX-FREE INCOME FUND ("OHIO FUND")
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND ("PENNSYLVANIA FUND")
KEMPER TEXAS TAX-FREE INCOME FUND ("TEXAS FUND")
120 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60603
1-800-621-1048
Kemper Tax-Free Income Funds are two open-end management investment companies
("Trusts"); the National Trust and the State Trust that together offer a choice
of ten investment portfolios ("Funds").
This Statement of Additional Information is not a prospectus. It is the combined
Statement of Additional Information for the Trusts. It should be read in
conjunction with the combined prospectus of the Trusts dated March 15, 1995. The
prospectus may be obtained without charge from the Trusts.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investments......................................................... B-1
Investment Policies and Techniques.................................. B-9
Investment Restrictions............................................. B-13
Dividends and Taxes................................................. B-16
Performance......................................................... B-17
Investment Manager and Underwriter.................................. B-36
Portfolio Transactions.............................................. B-41
Purchase and Redemption of Shares................................... B-42
Officers and Trustees............................................... B-43
Shareholder Rights.................................................. B-45
Report of Independent Auditors (October 14, 1994)................... B-46
Statement of Net Assets (October 14, 1994).......................... B-47
Report of Independent Auditors (March 6, 1995)...................... B-48
Statement of Net Assets (March 6, 1995)............................. B-49
Appendix--Ratings of Investments.................................... B-50
</TABLE>
The financial statements appearing in each Trust's 1994 Annual Report to
Shareholders are incorporated herein by reference. The financial statements for
the Intermediate Municipal Fund for the period from November 1, 1994 to January
30, 1995 (unaudited) are incorporated herein by reference; and all adjustments
necessary for a fair statement of the results of operations for the period
covered are included. All such adjustments are of a normal recurring nature. The
financial statements for the Fund for which this Statement of Additional
Information is requested accompanies this document.
KTFIF-13 3/95 (LOGO)printed on recycled paper
<PAGE> 56
INVESTMENTS
MUNICIPAL SECURITIES. The yields on Municipal Securities are dependent on a
variety of factors, including general money market conditions, general
conditions of the Municipal Securities market, size of a particular offering,
the maturity of the obligation and rating of the issue. The ratings of Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"),
Fitch Investors Services, Inc. ("Fitch") and Duff & Phelps Credit Rating Co.
("Duff") represent their opinions as to the quality of the Municipal Securities
which they undertake to rate. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality. Consequently,
Municipal Securities with the same maturity, coupon and rating may have
different yields while Municipal Securities of the same maturity and coupon with
different ratings may have the same yield.
The Funds may invest in tax-exempt leases. A tax-exempt lease is an obligation,
often a lease purchase or installment contract, pursuant to which a governmental
user of a capital asset, such as an item of equipment, agrees to make payments
of the purchase price plus interest over a period of years, normally with the
right to purchase the asset at the termination of the lease for a nominal
amount. Tax-exempt leases normally have a term of only two to seven years, a
relatively short period of time, and often have a higher interest rate than
tax-exempt investments of a comparable term. Currently, it is anticipated that
not more than 5% of the net assets of a Fund will be invested in tax-exempt
leases during the coming year.
Provisions of the federal bankruptcy statutes relating to the adjustment 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 and adverse
modification or alteration of the rights of holders of obligations issued by
such subdivisions or authorities.
The National Funds do not intend to invest more than 25% of their total assets
in any one state.
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 litigation could ultimately
affect the validity of those Municipal Securities or the tax-free nature of the
interest thereon.
SPECIAL RISK FACTORS. The following information as to certain risk factors is
given to investors because each State Fund concentrates its investments in
Municipal Securities (as defined in the prospectus) of a particular state. Such
information constitutes only a summary, does not purport to be a complete
description and is based upon information from official statements relating to
securities offerings of state issuers. Investors should remember that rating
agencies do change ratings periodically so that ratings mentioned here may have
changed.
CALIFORNIA FUND. In recent years, California voters have approved a number of
changes to the State constitution that have limited the ability of State and
local issuers to raise revenues and adjust appropriations.
In 1978, California voters approved Proposition 13 which added Article XIII A to
the California Constitution. Article XIII A changed the definition of assessed
property value and placed restrictions on a taxing entity's ability to increase
real property taxes. In 1979, voters also approved Proposition 4, the so-called
Gann Initiative, which added Article XIII B to the California Constitution. The
purpose of Article XIII B was to limit the annual appropriations of the State
and any local government unit to the level of appropriations for the prior year,
as adjusted for changes in cost of living, population and services required.
Article XIII B also specified that debt service obligations incurred prior to
January 1, 1979 were excluded from the appropriations limits.
In the general elections of 1986, 1988, and 1990, California voters approved
various measures that amended Article XIII A and XIII B. Propositions 58 and 60
clarified the definitions of "purchased property" and "change of ownership"
found in Article XIII A. Proposition 98, in addition to guaranteeing a percent
of State funding for public
B-1
<PAGE> 57
schools, modified Article XIII B to permit excess State revenues to be
transferred to public schools and community colleges rather than returned to
taxpayers. Finally, Proposition 111 amended Article XIII B to ease restrictions
on certain expenditure categories in calculating the annual appropriation
ceiling.
Future voter initiatives, if proposed and adopted, could further modify Articles
XIII A and XIII B and place increased pressures on the State and local entities'
ability to raise revenue and adjust appropriations.
The State of California has underperformed the national economy since 1990.
Defense realignment programs and a severely depressed construction industry
resulted in substantial job loss in most employment sectors. The financial
impact on the State was dramatic. Negative operating results in fiscal years
1990 through 1992 produced an accumulated general fund deficit of $2.8 billion.
Budgetary actions taken in fiscal year 1993 failed to eliminate the deficit
position, but did not worsen it. Current estimates from the State Controller's
Office indicate that fiscal year 1994 performance fails to achieve the planned
deficit reduction of $2.1 billion; instead posting a modest operating surplus of
$836 million. California's General Fund Balance deficit was reduced to $1.21
billion at the close of the 1994 fiscal year. The adopted 1995 budget
contemplates a two year paydown of the accumulated generally accepted accounting
principles deficit. This solution relies on significant transfer payments from
the federal government related to funding costs of foreign immigration. Should
these transfers fail to occur, the State will be required to adopt an
alternative plan or be subject to across the board expense reductions (excluding
constitutionally protected items such as general obligation bond payments).
The California economy is showing signs of an emerging recovery according to the
UCLA Business Forecasting Project. Evidence is based on recent growth in
residential construction activity boosted by enhanced affordability and recent
natural disaster relief programs. Small increases in statewide employment have
also been noted.
California's weak economy and deteriorating financial position prompted a number
of reductions in the State's general obligation bond rating. Between February
1992 and August 1994, Moody's lowered the State's bond rating from Aaa to A1.
During a similar period, S&P reduced the State's general obligation bond rating
from AAA to A. As of March 8, 1995, Fitch Investor Services assigned an "A"
rating to the State's general obligation bonds.
Recent State budgets have included large cuts in local government transfer
payments. These reductions may cause deterioration in local issuer financial
performance and result in a reduced bond rating for certain local government
issuers.
On December 6, 1994, Orange County, California filed for bankruptcy protection
under Chapter IX of the United States Bankruptcy Code. The filing was prompted
by significant losses in the County's investment portfolio. The Orange County
Treasurer manages an investment pool on behalf of the County and over 180
participants. Under the bankruptcy petition, participants may be restricted in
their ability to withdraw funds from the investment pool. The outcome of
bankruptcy proceedings and the financial impact on Orange County and local
government participants is not yet known.
FLORIDA FUND. In 1992, Florida voters approved a constitutional amendment
referred to as "Save Our Homes." This amendment limits ad valorem taxes on
homestead properties and restricts the ability of taxing entities to increase
real property taxes. While property taxes levied for payment of debt service are
not restricted by the limitation, the overall creditworthiness of the
governmental entity may be adversely affected. Taxing entities consisting
primarily of residential areas, particularly school districts, and those
entities close to their tax rate limitations are most likely to be adversely
affected.
Under current law, the State of Florida is required to maintain a balanced
budget such that current expenses are met from current revenues. Although
Florida does not currently impose an individual income tax, it does impose a
corporate income tax that is allocable to the State, in addition to an ad
valorem tax on intangible personal property and sales and use taxes. These taxes
are a major source of funds to meet Florida expenses, including repayment of,
and interest on, obligations backed solely by the full faith and credit of the
State, without recourse to any specific project.
B-2
<PAGE> 58
Florida has experienced substantial population increases as a result of
migration to Florida from other areas of the United States and from foreign
countries which is expected to continue. Florida's growth was close to three
times the national average during the 1980's. This pace fueled concerns about
the need for resource management and conservation. Although growth has slowed
recently to about twice the national 1% annual rate, it is expected to remain
well above average for the indefinite future. According to the 1990 census
report, Florida's population of 12.7 million was the fourth highest in the
nation and 31% above 1980's 9.7 million, and it is expected to approach 15
million by 2000. It is anticipated that corresponding increases in State
revenues will be necessary during this decade to meet increased burdens on the
various public and social services provided by Florida.
Florida's ability to meet the needs of its population will depend in part upon
its ability to foster business and economic growth. Florida's economy picked up
in 1993, partly due to the rebuilding following Hurricane Andrew (discussed
below) and to some resurgence in the nationwide economy. Employment numbers
reflect the improved economic picture in the State. The unemployment rate for
1994 was 6.6%, compared to 7.0% in 1993 and 8.2% in 1992. Commercial
construction remained weak while single family residential construction
improved. International trade continues to grow in southern Florida. Florida
also continues to experience employment gains in the technology-based industry,
the light manufacturing industry and the service sector. This growth continues
to diversify and better position Florida's overall economy, which was previously
dominated by agriculture and tourism. The Department of Commerce's preliminary
estimates for visitors to Florida in 1994 indicate a decline of 2.8% due to
primarily a decrease in domestic travelers. State officials suggest the reasons
for the drop are safety concerns and more competition in the family
entertainment and attraction business. The southeastern corner of Florida showed
some growth due to the number of visitors from Latin America, while the northern
part of the State had less visitors, mainly those traveling by automobile.
Florida's future economic and business growth could be restricted by the natural
limitations of available environmental resources and the ability to finance
adequate public facilities such as roads and schools.
In August 1992, Hurricane Andrew, the costliest natural disaster in Florida's
history, hit Southern Dade County. Hurricane Andrew was very localized and hurt
primarily Southern Dade County including wiping out the City of Homestead. There
have been no adverse credit implications from the Hurricane for local
governmental units or the State. The Hurricane has actually had an economic
stimulating effect on Dade County and some surrounding areas as disaster aid and
insurance refunds are received. Construction of homes and purchases of large
items has boomed. The boom in construction and large ticket purchases has led to
higher employment levels as well as increased sales tax receipts, the largest
revenue source for the State of Florida. In December 1993, the State Legislature
established the Hurricane Andrew Recovery and Rebuilding Trust Fund funded from
transfers from Sales Tax Collections attributed to Hurricane Andrew. These funds
are earmarked for Dade County.
Despite Florida's rapid growth and recent acceleration in debt financing, the
State's debt burden remains lower than that of other large population states.
Net debt payable from state revenues is $435 per capita.
The State ended fiscal year 1994 with a lower than budgeted surplus of $280
million. Fiscal year 1994 revenue collections are now above the revised
budgetary figures. Earlier in the fiscal year the Revenue Estimating Committee
revised downward projected sales tax receipts, while at the same time revising
corporate income tax receipts upward to reflect economic activity in the State.
Sales tax receipts are now above projections by approximately 7%, while
corporate income taxes are below the estimate by .6%. Both tax revenues are
above previous year levels. Sales tax receipts were revised down earlier in the
year because of weak growth rates associated with the smaller number of visitors
to the State combined with decreased spending by the tourists who did visit.
Corporate income taxes are actually about 10% above 1993's level, although
slightly down from projections following an upward revision in the number
because of increased economic activity. Other revenues that are down for the
year include parimutuel taxes, corporation trust fund fees, and interest
earnings, combined these three revenues account for only 2% of revenues. Total
revenues are approximately 7% above last year's collections. Fiscal year 1995
revenue collections are $45 million below December projections as of February,
1995. The shortfall is due to lower sales tax, documentary stamp tax and
intangibles tax receipts. Sales tax receipts although below projections are
above the previous year's sales tax collections.
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The State's economy should continue to benefit from good population growth,
economic diversification and an increase in foreign trade. These positive
economic factors combined with the State's moderate debt burden suggest a
certain level of stability in the State's credit outlook.
As of March 6, 1995, the State's general obligation debt was rated Aa by Moody's
and AA by S&P.
MICHIGAN FUND. The principal sectors of Michigan's diversified economy are
manufacturing of durable goods (including automobiles and components and office
equipment), tourism and agriculture. As reflected in historical employment
figures, the State's economy has lessened its dependence upon durable goods
manufacturing. In 1960, employment in such industry accounted for 33% of the
State's workforce. This figure fell to 17.1% for the first 11 months of 1994.
However, such manufacturing continues to be an important part of the State's
economy. The particular industries are highly cyclical, which adversely affects
the revenue streams of the State and its political subdivisions because it
adversely impacts tax sources, particularly sales taxes, income taxes and single
business taxes.
Michigan is the fifth largest exporter in the nation. It mainly exports to
Canada and Mexico. With the passage of NAFTA, concerns were raised about its
affect upon the State's manufacturing base; but there has been little noticeable
effect. Exports of automobiles declined slightly but this resulted more from the
number of new auto plants located outside of Michigan than from NAFTA. The State
ended 1993 with the highest employment level in fifteen years. The unemployment
rate for 1993 was 7.0% compared to 8.8% and 9.2% for 1992 and 1991,
respectively. The 1994 unemployment rate was 5.9% reflecting the continued
improvement in Michigan's economy, particularly the auto industry.
The State's financial position has improved in the last year because of greater
than anticipated revenues. Michigan's economy has continued to strengthen due to
the automotive industry. It had to do major maneuvering in fiscal years 1991
through 1993 to balance the books. The State used accounting changes,
expenditure reductions (hiring freeze, reduction in public aid) and delayed
payments to local governments to balance the budget. The State eliminated a
structural deficit in fiscal year 1992 and began 1993 with limited reserves. Due
to continued cost cutting efforts and greater than anticipated revenues from the
better than expected economic growth, fiscal year 1993 ended with a $312 million
surplus compared to $1.8 billion deficit from 1991. Fiscal year 1994 was
expected to end with a similar balance.
At the present time the State does not levy any ad valorem taxes on real or
tangible personal property. In addition, the State Constitution limits the
extent to which municipalities or political subdivisions may levy taxes upon
real and personal property through a process that regulates assessments. On May
1, 1992, the Governor signed into law a bill relating to the manner by which
property taxes are assessed in Michigan. The bill required, among other things,
that 1992 real property tax assessments remain at 1991 assessment levels,
subject to certain adjustments. Two proposals relating to property tax reform
and to amend the State Constitution appeared on the ballot for the November 1992
general election and were defeated, and a third proposal was rejected at a
special election held June 2, 1992. In addition to the foregoing, several other
proposals for property tax reform in Michigan have been suggested and may again
be submitted to the electors at future elections. On July 21, 1993, the Michigan
State Legislature passed Senate Bill 1 and the Governor signed the Bill into law
on August 19, 1993. Senate Bill 1, which upon passage became Act 145 of the
Michigan Public Acts of 1993 ("Act 145"), is the latest development in a long-
term effort by the State and its electorate to modify the local ad valorem
property tax system. The law significantly affects financing of K-12 school
operations beginning with July 1, 1994 tax levies. Act 145 exempts all property
in the State of Michigan from millage levied for local school and intermediate
school district operating purposes. Millage levied for community colleges and
millage levied for voter-approved general obligation debt are not encompassed
within the exemption. Act 145 did not contain a method for replacing revenues
lost by these exemptions or provide for other means of financing public
education. In December 1993, the Michigan Legislature proposed a school funding
program that included two funding mechanisms. The initial funding program was to
be voted on by the electorate at an election that was held on March 15, 1994 and
an alternative funding program that would automatically go into effect should
the initial program fail to be approved. On March 15, 1994 the initial funding
program was approved by the voters and became effective July 1, 1994. The new
funding program included an increase in the state sales tax to 6 cents from 4
cents, a 2% real estate transfer tax, a six mill property tax levied
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by the State on all property and an eighteen mill property tax on commercial
property, an interstate phone charge, an increase in the cigarette tax, and
additional revenue generated from the implementation of Keno. In exchange for
the implementation of the property tax and increased taxes, the State's income
tax was decreased to 4.4% from 4.6%. The full effect of the change in the
revenue structure for financing K-12 public education has not been realized at
either the local or state level. Depending upon its effect on the State's
finances, and as the funding for education matures the State's method of
financing public education may be altered.
As of March 6, 1995, the State's general obligation bonds are rated A1 by
Moody's, AA by Standard & Poor's and AA by Fitch.
NEW JERSEY FUND. New Jersey's economy has continued to weaken, and its financial
operations have suffered. To balance the budget for the last three fiscal years,
the State has utilized nonrecurring revenues and expenditure deferrals. It is
anticipated that the fiscal 1994 budget gap will be less than $200 million. The
State actively manages its debt by using contractual obligations and moral
obligation debt to finance various infrastructure improvements, economic
development and housing projects.
New Jersey's credit strength is based on its broad-based economy, high wealth
levels and moderate debt ratios. The State's debt levels are moderate in
relation to the State's wealth and resources. The State has recently increased
debt issuances. During the period from December 1991 to December 1992, the
State's tax supported debt grew 40%, rising from $4.3 billion to $6.0 billion.
The New Jersey Constitution provides, in part, that no money shall be drawn from
the State treasury except for appropriations made by law and that no law
appropriating money for any State purpose shall be enacted if the appropriations
contained therein, together with all prior appropriations made for the same
fiscal period, shall exceed the total amount of the revenue on hand and
anticipated to be available to meet such appropriations during such fiscal
period, as certified by the Governor.
The Local Government Cap Law (the "Cap Law") generally limits the year-to-year
increase of the total appropriations of any municipality and the tax levy of any
county to either five percent or an index rate determined annually by the
Director, whichever is less. However, where the index percentage rate exceeds
five percent, the Cap Law permits the governing body of any municipality or
county to approve the use of a higher percentage rate up to the index rate.
Further, where the index percentage rate is less than five percent, the Cap Law
also permits the governing body of any municipality or county to approve the use
of a higher percentage rate up to five percent. Regardless of the rate utilized,
certain exceptions exist to the Cap Law's limitation on increases in
appropriations. The principal exceptions to this limitation are municipal and
county appropriations to pay debt service requirements; to comply with certain
other State or federal mandates; amounts approved by referendum; and, in the
case of municipalities only, to fund the preceding year's cash deficit or to
reserve for shortfalls in tax collections.
State law also regulates the issuance of debt by local units. The Local Budget
Law limits the amount of tax anticipation notes that may be issued by local
units and requires the repayment of such notes within 120 days of the end of the
fiscal year (six months in the case of the counties) in which issued. With
certain exceptions, no local unit is permitted to issue bonds for the payment of
current expenses. Local units may not issue bonds to pay outstanding bonds,
except for refunding purposes and then only with the approval of the Local
Finance Board. Local units may issue bond anticipation notes for temporary
periods not exceeding in the aggregate approximately ten years from the date of
first issue. The debt that any local unit may authorize is limited to a
percentage of its equalized valuation basis, which is the average of the
equalized value of all taxable real property and improvements within the
geographic boundaries of the local unit, as annually determined by the Director
of the Division of Taxation, for each of the three most recent years.
As of March 13, 1995, the State's general obligation ratings were Aa1 by
Moody's, AA+ by Standard & Poor's and AA+ by Fitch.
NEW YORK FUND. Numerous bonds issued by various State agencies and authorities
are either guaranteed by the State or supported by the State through
lease-purchase arrangements, other contractual obligations or moral
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obligation provisions. Moral obligation commitments by the State impose no
immediate financial obligations on the State and require appropriations by the
Legislature. Failure of the State to appropriate necessary amounts or to take
other action to permit the authorities and agencies to meet their obligations
could result in their default. If a default were to occur, it would likely have
a significant adverse effect on the market value of obligations of the State and
its authorities and agencies. As of March 31, 1994, the principal amount of New
York State general obligation bonds outstanding was $5.4 billion and the
principal amount of state-guaranteed and lease-purchase debt outstanding was $21
billion. In addition, the State has committed itself on other debt, the
outstanding amount of which is $7 billion; much of this debt is self-supporting
from outside revenue sources. The State has had to make large appropriations in
recent years to enable State agencies to meet their financial obligations.
Additional assistance will probably be required in this and later years since
certain localities and authorities, particularly the Metropolitan Transit
Authority, continue to experience financial difficulties.
Certain other State agencies, such as the New York State Urban Development
Corporation ("UDC"), the Battery Park City Authority and the Housing Finance
Agency ("HFA") are also dependent upon State legislative appropriations in order
to meet their bond obligations. In February, 1975, UDC defaulted on $1 billion
of its short-term notes and the State appropriated amounts to cure the default.
HFA has a $390 million mortgage on the Co-op City Project located in New York
City. Co-op City has had difficulties in meeting its mortgage payments to HFA
owing to rent strikes by tenants, disputes with the City of New York and other
factors. Yonkers and Buffalo have also experienced financial difficulties, which
have required State appropriations to meet the financial obligations of both
cities. In the case of Yonkers, a State agency that has been monitoring finances
since 1984 took control of all City spending in view of court fines and
financial problems resulting from Yonkers' refusal and delay in implementing a
Court ordered desegregation plan. In addition, counties and other localities on
Long Island have financial problems, including those relating to the Long Island
Lighting Company's construction of its Shoreham nuclear power facility, that
could lead to requests for additional State assistance.
Since July 1990, New York has experienced a more severe economic downturn than
the nation, leading to collections of State revenues that were significantly
below projections. After implementing a deficit reduction program, the State
experienced a fiscal year 1991 deficit in its General Fund of $1 billion on a
cash basis, which it met by issuing two series of tax and revenue anticipation
notes. On a GAAP basis, the State reduced its accumulated General Fund deficit
from $6.3 billion at the end of its 1991 fiscal year to $1.6 billion at the end
of its 1994 fiscal year.
Constitutional challenges to State laws have limited the amount of taxes that
political subdivisions can impose on real property. In 1979, the State's highest
court declared unconstitutional a State law allowing localities and school
districts to impose a special increase in real estate property taxes in order to
raise funds for pensions and other uses. Additional court actions have been
brought against the State, certain agencies and municipalities relating to
financings, amount of real estate tax, use of tax revenues and other matters
including the validity of treaties by which Indian tribes transferred properties
to the State, which could affect the ability of the State or its political
subdivisions to pay their obligations. Final adverse decisions in such cases
could require extraordinary appropriations or expenditure reductions, or both,
and could have a material adverse effect upon the financial condition of the
State and various of its agencies and subdivisions.
In 1975, New York City (the "City") suffered several financial crises. To help
New York City out of its financial difficulties, the State legislature created
the Municipal Assistance Corporation ("MAC") in 1975. MAC has the authority to
issue bonds and notes and pay or lend the proceeds to the City. MAC also has the
authority to exchange its obligations for City obligations. MAC bonds are
payable out of certain State sales and use taxes imposed within the City, State
stock transfer taxes and per capita State aid to the City. The State is not,
however, obligated to continue these taxes, nor to continue appropriating
revenues from these taxes, nor to continue the appropriation of per capita State
aid to pay MAC obligations. MAC does not have taxing powers, and its bonds are
not obligations enforceable against either the City or the State.
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Since 1975, the City's financial condition has been subject to oversight and
review by the New York State Financial Control Board (the "Control Board") and
since 1978 its financial statements have been audited by independent accounting
firms. To be eligible for guarantees and assistance, the City was required to
submit annually to the Control Board a financial plan for the next four fiscal
years covering the City and certain agencies showing balanced budgets determined
in accordance with generally accepted accounting principles. Although the
Control Board's powers of prior approval were suspended effective June 30, 1986
because the City had satisfied certain statutory conditions, the City continues
to submit four year plans to the Control Board for its review. The City
completed fiscal year 1994 with a balanced budget.
For decades the State economy has grown more slowly than that of the nation as a
whole, although New York remains one of the country's wealthiest states. The
causes of this decline are varied and complex and some causes reflect
international and national trends beyond the control of the State and City. Some
analysts feel that this long-term decline results from State and local tax
levels, which are among the highest in the nation, and which may cause
corporations to locate outside the State. The current high level of taxes limits
the ability of the State and City to impose higher taxes in the event of future
difficulties.
In March 1990, S&P lowered its rating of New York State's general obligation
debt from AA- to A. In addition, S&P and Moody's lowered their ratings of New
York State's short-term notes from SP-1+ to SP-1 and from MIG-1 to MIG-2,
respectively. In its decision to lower New York State's rating, S&P cited the
absence of a credible financial plan to reverse three years of negative
financial results as a sign of New York State's failure to deal responsibly with
its financial troubles. In February 1991, Moody's lowered its rating of New York
City's general obligation debt from A to BAA1 citing uncertainties associated
with many of the major factors that contribute to the City's long-term operating
stability. In January 1992, Moody's lowered its rating of New York State
legislative appropriations bonds from A to Baa1 and S&P lowered its rating of
New York State legislative appropriations bonds from BBB+ to BBB and of New York
State general obligation bonds from A to A-.
OHIO FUND. At one time, manufacturing dominated Ohio's economy. This
concentration left the State vulnerable to cyclical economic fluctuation. Ohio's
economy has been growing and diversifying as employment shifts into services,
trade, finance, insurance, and real estate. Between 1981 and 1988, Ohio lost
more than 129,000 manufacturing jobs while gaining 417,000 services and trade
jobs. Unemployment rates, down sharply from the 1982 recessionary peak of 12.5%,
have gradually declined and are in line with the national average. Ohio is
ranked 22nd among states for per capita personal income.
Assisted by its stronger economy, Ohio's financial position improved through the
1980s although the recent recession, as with the rest of the nation, had a
negative effect upon revenue sources. Following a period of troublesome fiscal
operations in the early 1980s, the State established and began contributing to a
separate Budget Stabilization Fund. The purpose of this fund is to provide a
cushion against the financial impact of an unforeseen economic event. With
continued contributions, the Budget Stabilization Fund is expected to be
maintained at $300 million.
Ohio generally follows conservative debt policies. Although debt has been
increasing and current ratios are slightly above average, bonds have rapid
retirement schedules, with nearly 70% of principal retired in 10 years.
Development is a priority that will lead to increased borrowing by Ohio. The
State's voters, in November 1987, approved a $1.2 billion ten-year general
obligation bond program financing local capital improvements.
As of March 13, 1995, Ohio's general obligation bonds were rated Aa by Moody's
and AA by S&P.
PENNSYLVANIA FUND. Pennsylvania historically has been identified as a heavy
industry state although that reputation has changed recently as the industrial
composition of Pennsylvania diversified when the coal, steel and railroad
industries began to decline. The major new sources of growth in Pennsylvania are
in the service sector, including trade, medical and health services, education
and financial institutions. Pennsylvania's agricultural industries are also an
important component of the Commonwealth's economic structure.
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In fiscal year 1991, the Commonwealth faced a major financial crisis. General
fund revenues were falling short of estimates by $613.7 million and expenditures
were exceeding estimates by $374 million. The proposed budget was no better for
1992. The Governor took quick action implementing a $2.85 billion tax package.
This eliminated the general fund deficit on a budgetary basis and drastically
reduced it on a GAAP basis. During fiscal year 1993, the Governor was able to
reduce the increased personal income tax rate down to 2.8% from 3.1% effective
July 1 as stated in his tax package plan. Fiscal year 1993 ended with a surplus
of $239 million on a budgetary basis. The GAAP unreserved, undesignated general
fund balance deficit was $138.6 million in 1992 down from the $1.1 billion
deficit in 1991. The 1993 fiscal year end unreserved balance totaled $438
million. Fiscal year 1994 preliminary estimates indicate similar ending fund
balances. The Fiscal year 1995 budget relies upon economic growth and
expenditure cuts.
As of March 13, 1995, all outstanding general obligation bonds of the
Commonwealth of Pennsylvania were rated AA- by S&P and A1 by Moody's. Local
municipalities issuing Pennsylvania municipal securities, although impacted in
general by the economic condition of the Commonwealth, have credit ratings that
are determined with reference to the economic condition of such local
municipalities. For example, as of March 13, 1995, the ratings on the long-term
obligations of the City of Philadelphia (the "City") supported by payments from
the City's General Fund were rated Ba by Moody's and BB by S&P.
TEXAS FUND. The Texas economy has experienced a solid economic recovery since
the mid-1980's decline in oil prices. The improved economic performance has
resulted from an increase in employment and industry diversification. The
economy of Texas now more closely resembles that of the nation as the service
and manufacturing sectors have produced State employment growth above the
national rate since 1990. According to the State Auditor, the Texas Gross
Domestic Product has outpaced the nation's since 1990. The pattern of economic
diversification has added stability to State finances.
On a cash basis, Texas' general revenue fund operations in fiscal year 1994
(through May 31, 1994) produced a positive balance of $1.5 billion. This
represents the seventh consecutive year that the State has ended the fiscal year
with a positive balance, and exceeded preliminary forecasts. Factors
contributing to better than expected results in fiscal 1994 included higher
sales tax revenues and lottery receipts.
Sales taxes represent the largest State revenue source, accounting for 31.5% of
State General Fund revenues during fiscal year 1994. Sales tax revenues grew by
7.7% from the prior year and the growth can be attributed to a growing national
economy. Federal grants represented the second largest income source for the
State, accounting for approximately 17% of General Fund revenues during fiscal
year 1994. The remainder of the State's revenues are derived primarily from
motor fuels tax and other franchise taxes.
The State has no personal or corporate income tax currently. In November 1993
legislation was approved by the voters requiring voter approval to implement a
personal income tax. Corporations pay a corporate franchise tax based on the
amount of the corporation's capital and "earned surplus" which includes
corporate net income and officers' and directors' compensation (9.2% fiscal year
1994 General Fund revenues). The State constitution prohibits the State from
levying an ad valorem tax on property for general revenue purposes. The State
constitution also limits the rate of growth of appropriations from tax revenues
not dedicated by the constitution during any biennium, to the estimated rate of
growth for the State's economy. The legislature may avoid the constitutional
limitation if it finds, by majority vote of both houses, that an emergency
exists. The State constitution authorizes the Legislature to provide by law for
the implementation of this restriction; and the legislature, pursuant to such
authorization, has defined the estimated rate of growth in the State's economy
to mean the estimated increase in personal income for the State.
The State's economy should continue to benefit from increased employment and
industry diversification, job growth, expanded trade with Mexico through NAFTA,
and a modest debt burden. As of March 8, 1995, the State's general obligation
debt was rated Aa by Moody's and AA by S&P.
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INVESTMENT POLICIES AND TECHNIQUES
GENERAL. Each Fund may engage in futures and options and other derivatives
transactions such as delayed delivery transactions in accordance with its
investment objective and policies. Each Fund intends to engage in such
transactions if it appears advantageous to the investment manager to do so, in
order to pursue its investment objective, to hedge against the effects of
fluctuating interest rates and to stabilize the value of its assets. The use of
futures and options, and possible benefits and attendant risks, are discussed
below, along with information concerning certain other investment policies and
techniques.
FINANCIAL FUTURES CONTRACTS. A Fund may enter into financial futures contracts
for the future delivery of a financial instrument, such as a security, 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 which otherwise might adversely affect the value of securities which
a 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 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 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 financial futures contracts by their terms call for the actual
delivery or acquisition of securities, in most cases a party will close out the
contractual commitment before delivery without having to make or take delivery
of the security 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 securities. 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 yield. Futures contracts entail risks. If the investment
manager's judgment about the general direction of markets 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 securities being hedged. The degree of difference in
price movements between futures contracts and the securities being hedged
depends upon such things as variations in speculative market demand for futures
contracts and debt securities and differences between the securities being
hedged and the securities underlying the futures contracts, e.g., interest
rates, tax status, maturities and credit-worthiness of issuers. While interest
rates on taxable securities generally move in the same direction as interest
rates on Municipal Securities, there are frequently differences in the rate of
such movements and temporary dislocations. Accordingly, the use of a financial
futures contract on a taxable security or a taxable securities index may involve
a greater risk of an imperfect correlation between the price movements of the
futures contract and of the Municipal Security being hedged than when using a
financial futures contract on a Municipal Security or a Municipal Securities
index. 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 debt securities and futures
markets could result. Price distortions could also result if investors in
futures contracts decide to make or take delivery of underlying securities
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,
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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 and movements in the
prices of futures contracts, a correct forecast of market trends by the
investment adviser may still 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 securities.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. A 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 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 such Fund would lose the premium paid therefor.
OPTIONS ON SECURITIES. A 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 has 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 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. A Fund 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 it does not own, but 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 securities 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 the Fund
to protect capital gains in an appreciated security it owns, without being
required to actually sell that security. At times the Fund would like to
establish a position in a security upon which call options are available. By
purchasing a call option the Fund is able to fix the cost of acquiring the
securities, 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 the 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 and the buyer a loss in the amount of
the premium. If the covered call option writer has to sell the underlying
security because of the exercise of the call
B-10
<PAGE> 66
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 and the
buyer a loss in 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,
minus the premium received.
OVER-THE-COUNTER OPTIONS. As indicated in the prospectus (see "Investment
Objectives and Policies"), each 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 non-performance by the dealer as a result of
the insolvency of such dealer or otherwise, in which event the 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 Trust's 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.
The Trusts 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. Each Trust's 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 Trusts have adopted procedures for
engaging in OTC options for the purpose of reducing any potential adverse effect
of such transactions upon the liquidity of a Fund's portfolio. 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 Board of Trustees of each Trust. The investment manager believes that
such 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 on-going 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. The "liquidity charge"
referred to above is computed as described below.
The Trusts anticipate entering into agreements with dealers to which a Fund
sells OTC options. Under these agreements the 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
B-11
<PAGE> 67
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 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 the 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 at least 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.
Options on futures contracts and 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 such
Fund would lose the premium paid therefor.
DELAYED DELIVERY TRANSACTIONS. A 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 a Fund enters into a delayed delivery
purchase, it becomes obligated to purchase securities and it has all 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. A 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 and not for investment leverage or to
speculate in interest rate changes. A Fund will only make commitments to
purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities, but 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, a Fund will
B-12
<PAGE> 68
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 to attempt to hedge against changes in market
conditions affecting the values of securities which the Fund holds or intends to
purchase.
INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions have been adopted for each Fund
which, together with the investment objective and policies of each Fund, cannot
be changed for a Fund 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 MUNICIPAL FUND AND THE INTERMEDIATE MUNICIPAL FUND EACH MAY NOT, AS A
FUNDAMENTAL POLICY:
(1) Make investments other than in accordance with its investment objective and
policies.
(2) With respect to temporary investments, purchase securities (other than
securities of the United States Government, its agencies or instrumentalities)
if as a result of such purchase more than 25% of the Fund's total assets would
be invested in any industry.
(3) 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.
(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.
(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 credit 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, purchase or sell puts, calls or combinations thereof, except in
accordance with its investment objective and policies.
(8) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts.
(9) Invest 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.
THE CALIFORNIA FUND MAY NOT, AS A FUNDAMENTAL POLICY:
(1) Purchase securities or make investments other than in accordance with its
investment objective and policies.
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<PAGE> 69
(2) Purchase securities (other than securities of the United States Government,
its agencies or instrumentalities, or the State of California or its political
subdivisions) if as a result of such purchase more than 25% of the Fund's total
assets would be invested in any industry.
(3) 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 total value of the Fund's assets would be invested
in securities of that issuer, except that, with respect to 50% of the Fund's
total assets, the Fund may invest up to 25% of its total assets in securities of
any one issuer.
(4) Make loans, except in accordance with its investment objective and policies.
(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 10%
of the Fund's net assets; or pledge its 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, purchase or sell puts, calls or combinations thereof, except in
accordance with its investment objective and policies.
(8) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts.
(9) Invest in real estate, although it may invest in Municipal 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.
THE FLORIDA FUND, THE MICHIGAN FUND, THE NEW JERSEY FUND, THE NEW YORK FUND, THE
OHIO FUND, THE PENNSYLVANIA FUND AND THE TEXAS FUND EACH MAY NOT, AS A
FUNDAMENTAL POLICY:
(1) Make investments other than in accordance with its investment objective and
policies.
(2) Purchase securities (other than securities of the United States Government,
its agencies or instrumentalities, or of a state or its political subdivisions)
if as a result of such purchase 25% or more of its total assets would be
invested in any industry.
(3) 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.
(4) Borrow money except for temporary purposes (but not for the purpose of
purchase of investments) and then only in an amount not to exceed one-third of
the value of its total assets (including the amount borrowed) in order to meet
redemption requests which otherwise might result in the untimely disposition of
securities; or pledge its securities or receivables or transfer or assign or
otherwise encumber them in an amount to exceed 10% of its net assets to secure
borrowings. Reverse repurchase agreements are permitted within the limitations
of this paragraph. The Fund will not purchase securities or make investments
while reverse repurchase agreements or borrowings are outstanding.
(5) Make short sales of securities, or purchase any securities on margin, except
to obtain such short-term credit as may be necessary for the clearance of
transactions; however, it may make margin deposits in connection with financial
futures and options transactions.
B-14
<PAGE> 70
(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) 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) Invest in commodities or commodity futures contracts, although it may buy or
sell financial futures contracts and options on such contracts.
(9) Invest 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) Issue senior securities except as permitted under the Investment Company
Act of 1940.
(11) 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 total value of the Fund's assets would be invested
in securities of that issuer except that, with respect to 50% of the Fund's
total assets, the Fund may invest up to 25% of its total assets in securities of
any one issuer.
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. In the event
a Fund acquires illiquid assets as a result of the exercise of a security
interest relating to Municipal Securities, the Fund will dispose of such assets
as promptly as possible. A Fund may invest more than 25% of its net assets in
industrial development bonds. For purposes of diversification, identification of
the issuer of a Municipal Security depends on the terms and conditions of the
obligation. Each Fund considers the issuer to be the party with the primary
financial obligation for the issue. The Funds did not borrow money as permitted
by investment restriction number 5 for the Municipal, Intermediate Municipal and
California Funds and number 4 for the Florida, New York, Ohio and Texas Funds in
the latest fiscal year. None of the Funds has any present intention of borrowing
during the current year. Each Fund has adopted the following non-fundamental
restrictions, which may be changed by the Board of Trustees without shareholder
approval. Each Fund may not:
(1) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Trust 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.
(2) Invest for the purpose of exercising control or management of another
issuer.
(3) Purchase securities of other investment companies, except in connection with
a merger, consolidation, reorganization or acquisition of assets.
(4) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities ("Municipal Securities" for
the California Fund) of issuers which invest in or sponsor such programs.
(5) Invest more than 5% of the Fund's total assets in industrial revenue bonds
if sponsored by companies which with their predecessors have less than three
years continuous operation.
(6) Invest more than 15% of its net assets in illiquid securities.
(7) 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.
(8) Invest in oil, gas, and other mineral leases.
(9) Purchase or sell real property (including limited partnership interests in
real estate investment trusts or readily marketable securities of companies
which invest in real estate).
B-15
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(10) 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 will not exceed 15% of total
assets.
(11) Invest more than 10% of its total assets in securities of real estate
investment trusts.
DIVIDENDS AND TAXES
DIVIDENDS. All the net investment income of a Fund is declared daily as a
dividend on shares for which the Fund has received payment. Net investment
income of a Fund consists of all interest income earned on portfolio assets less
all expenses of the Fund. Income dividends will be distributed monthly and
dividends of net realized capital gains, will be distributed annually.
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.
A Fund may at any time vary the 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 Trust 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 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 provided in the prospectus.
TAXES. Each Fund intends to continue to qualify (or, for each of the
Intermediate Municipal, Michigan, New Jersey and Pennsylvania Funds, intends 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 requirements of Subchapter M is that a Fund
must derive less than 30% of its gross income from gains (not reduced by losses)
on stocks and securities and certain other investments held for less than three
months. A Fund may be limited in its options and futures transactions in order
to prevent recognition of such gains. Dividends from a Fund will not be eligible
for the dividends received deduction available to corporate shareholders.
A Fund's options and futures 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
a Fund's securities. For federal income tax purposes, a Fund is generally
required to recognize its unrealized gains and losses at year end on financial
futures contracts, options thereon, index options and listed options on debt
securities. Any gain or loss recognized on such financial instruments is
generally considered to be 60% long-term and 40% short-term without regard to
the holding period of the contract or option.
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. The gain or loss
will be a capital gain or loss and will be long-term if the shares are held for
a period of more than one year. Any loss on shares held six months or less will
be a long-term capital loss to the extent any long-term capital gain
distribution is made with respect to such shares during the period the investor
owns the shares. In the case of shareholders holding shares of a Fund for six
months or less and subsequently selling those shares at a loss after receiving
an exempt-interest dividend, the loss will be disallowed to the extent of the
exempt-interest dividends received. However, the Secretary of the Treasury may
issue regulations to shorten the required holding period from six months to 31
days.
A shareholder who has redeemed shares of a Fund or any 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 the other Kemper Mutual Funds
within six months
B-16
<PAGE> 72
of the redemption as described in the prospectus under "Redemption or Repurchase
of Shares--Reinvestment Privilege." If a shareholder realizes a loss on the
redemption or exchange of a Fund's shares and reinvests in that Fund's shares
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.
Interest on indebtedness which is incurred to purchase or carry shares of a
mutual fund which distributes exempt-interest dividends during the year is not
deductible for federal income tax purposes. Further, the Funds may not be
appropriate investments for persons who are "substantial users" of facilities
financed by industrial development bonds held by the Funds or are "related
persons" to such users; such persons should consult their tax advisers before
investing in the Funds.
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 a Fund, 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 described in the prospectus, a Fund's historical performance or return for a
class of shares may be shown in the form of "yield," "tax equivalent yield,"
"average annual total return" and "total return" figures. These various measures
of performance are described below. Performance information will be computed
separately for each class. KFS has waived or reduced its management fee and, in
certain cases, absorbed certain operating expenses for some of the Funds for the
periods and to the extent specified in the prospectus and this Statement of
Additional Information. See "Investment Manager and Underwriter." Because of
these waivers and expense absorptions, the performance results for such Funds
may be shown with and without the effect of these waivers and expense
absorptions. Performance results not giving effect to waivers and expense
absorptions will be lower. The yields and other performance information set
forth in this section for the New York Fund are for the predecessor of the New
York Fund, also named "Kemper New York Tax-Free Income Fund." Additional
information appears under "Capital Structure" in the prospectus.
Yield is a measure of the net investment income per share earned by a Fund over
a specific one month or 30-day period expressed as a percentage of the maximum
offering price of the Fund's shares (which is net asset value for Class B and
Class C shares) at the end of the period. Tax equivalent yield is the yield that
a taxable investment must generate in order to equal a Fund's yield for an
investor in a stated federal income tax bracket for the Municipal Fund, the
Intermediate Municipal Fund, the Florida Fund or the Texas Fund, in a stated
combined federal and state income tax bracket for the California Fund, the Ohio
Fund, the Michigan Fund, the New Jersey Fund and the Pennsylvania Fund, and in a
stated combined federal, New York State and New York City income tax bracket for
the New York Fund. The tax equivalent yield for the Florida Fund does not
include the potential effect of an exemption from the Florida intangibles tax.
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 a Fund.
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<PAGE> 73
A Fund's yield is computed in accordance with a standardized method prescribed
by rules of the Securities and Exchange Commission. The yields are shown below
based upon the one month period ended September 30, 1994 for the Municipal Fund,
January 31, 1995 for the Intermediate Municipal Fund, and August 31, 1994 for
the State Funds.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Municipal Fund....................................................... 5.08% 4.14% 4.17%
Intermediate Municipal Fund*......................................... 5.32% 4.33% 4.35%
California Fund...................................................... 4.98% 4.04% 4.07%
Florida Fund......................................................... 4.88% 3.94% 3.97%
New York Fund........................................................ 4.81% 3.87% 3.90%
Ohio Fund*........................................................... 5.63% 5.47% 5.50%
Texas Fund*.......................................................... 5.32% 4.39% 4.42%
</TABLE>
- ---------------
* After fee waiver and expense absorption.
A 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
YIELD = 2[( ------- +1)(6) - 1
cd
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 Trust follows certain standardized
accounting practices specified by Securities and Exchange Commission rules.
These practices are not necessarily consistent with those that each Trust uses
to prepare its annual and interim financial statements in conformity with
generally accepted accounting principles.
The Municipal Fund's tax equivalent yield is computed by dividing that portion
of the Municipal Fund's yield (computed as described above) that 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 Municipal Fund that is not tax-exempt. The
California Fund's, New York Fund's and Ohio Fund's Class A shares' tax
equivalent yield is computed by dividing that portion of the Fund's Class A
shares' yield (computed as described above) that is tax-exempt by (one minus the
stated combined federal and state and, if applicable, city income tax rate) and
adding the result to that portion, if any, of the yield of the Class A shares of
the Fund that is not tax-exempt. The Florida Fund's and Texas Fund's Class A
shares' tax equivalent yield is computed in the same manner as the other Funds
although, since there is no state income tax for individuals, the tax equivalent
yield will only reflect the stated federal income tax rate. For additional
information concerning tax-exempt yields, see "Tax-Exempt versus Taxable Yield"
below. The tax equivalent yields for the
B-18
<PAGE> 74
Municipal Fund for the one month period ended September 30, 1994, the
Intermediate Municipal Fund for the one month period ended January 31, 1995 and
for the State Funds for the one month period ended August 31, 1994 are set forth
below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
FUND--TAX TYPE (RATE) SHARES SHARES SHARES
- ------------------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Municipal--Federal (36%)................................................. 7.94% 6.47% 6.52%
Intermediate Municipal Fund--Federal (36%)............................... 8.31% 6.77% 6.80%
California--Combined (42.4%)............................................. 8.65% 7.01% 7.07%
California--Federal only (36%)........................................... 7.78% 6.31% 6.36%
Florida--Federal only (36%).............................................. 7.63% 6.16% 6.20%
New York--Combined (43%)................................................. 8.44% 6.79% 6.84%
New York--Federal only (36%)............................................. 7.52% 6.05% 6.09%
Ohio--Combined (40.4%)................................................... 9.45% 9.18% 9.22%
Ohio--Federal only (36%)................................................. 8.80% 8.55% 8.59%
Texas--Federal only (36%)................................................ 8.31% 6.86% 6.91%
</TABLE>
A 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 figures for various periods
are set forth in the table below.
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 the 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 for Class
A shares or the contingent deferred sales charge for Class B shares would be
reduced if such charge were included. Total return figures for various periods
are set forth in the table below.
A Fund's performance figures are based upon historical results and are not
necessarily representative of future performance. A Fund's Class A shares are
sold at net asset value plus a maximum sales charge of 4.5% (2.75% for the
Intermediate Municipal Fund) of the offering price. Class B shares 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 a Fund's performance include general market conditions, operating
expenses and investment management. Any additional fees charged by a dealer or
other financial services
B-19
<PAGE> 75
firm would reduce the returns described in this section. Shares of a Fund are
redeemable at the then current net asset value of the Fund, which may be more or
less than original cost.
The figures below show performance information for various periods. Comparative
information with respect to certain indices is also included. There are
differences and similarities between the investments which a Fund may purchase
and the investments measured by the indexes which are described herein. The
Consumer Price Index is generally considered to be a measure of inflation. The
CDA Mutual Fund-Municipal Bond Index is a weighted performance average of other
mutual funds with a federally tax-exempt income objective. The Salomon Brothers
High Grade Corporate Bond Index is an unmanaged index that generally represents
the performance of high grade long-term taxable bonds during various market
conditions. The Lehman Brothers Municipal Bond Index is an unmanaged index that
generally represents the performance of high grade intermediate and long-term
municipal bonds during various market conditions. IBC/Donoghue's All-Taxable
Money Fund Averages(R) is currently based upon the total return, assuming
reinvestment of dividends, of 556 taxable money market funds. The Towers Data
Systems U.S. Treasury Bill Index is an unmanaged index based on the average
monthly yield of U.S. Treasury Bills maturing in six months. The market prices
and yields of taxable and tax-exempt bonds will fluctuate. There are important
differences among the various investments included in the indexes that should be
considered in reviewing this information. For more information, see the
disclosure after the charts below. The net asset value and returns of each class
of shares of a Fund will fluctuate. No adjustment has been made for taxes, if
any, payable on dividends. Each period indicated was one of fluctuating
securities prices and interest rates.
Total return (adjusted for the maximum applicable sales charge) for the period
from commencement of operations on November 1, 1994 through January 31, 1995 for
the Intermediate Municipal Fund for Class A shares was 0.67%, for Class B shares
was (0.73%) and for Class C shares was 3.44%.
B-20
<PAGE> 76
MUNICIPAL FUND--SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Initial Income Ending Percentage Ending Percentage
TOTAL $10,000 Capital Gain Dividends Value Increase Value Increase
RETURN Investment Dividends Reinvested (adjusted) (adjusted) (unadjusted) (unadjusted)
TABLE (1) Reinvested (2) (1) (1) (1) (1)
- ------------------ ---------- ------------ ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $ 9,298 $1,569 $ 27,704 $ 38,571 285.7% $ 40,384 303.8%
Fifteen Years 9,298 1,235 21,569 32,102 221.0 33,611 236.1
Ten Years 11,990 984 12,616 25,590 155.9 26,812 168.1
Five Years 9,697 538 3,760 13,995 40.0 14,652 46.5
One Year 8,489 186 522 9,197 (8.0) 9,633 (3.7)
Year to Date 8,755 0 361 9,116 (8.8) 9,545 (4.6)
CLASS B SHARES
Life of Fund(++) 9,757 0 119 -- -- 9,876 (1.2)
CLASS C SHARES
Life of Fund(++) 9,777 0 120 -- -- 9,897 (1.0)
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
--------------------------------------------------------------------------------------------------
Salomon
TOTAL Consumer CDA Bros. IBC's U.S. Towers Data
RETURN Price Municipal High Grade Lehman Bros. Money Fund T-Bill Systems
TABLE Index(3) Fund(4) Corp.(5) Muni(6) Index(7) Index(8) CD Index(9)
- ----------------- -------- --------- ---------- ------------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 165.6% * 450.4% * 299.5% 285.2% 327.6%
Fifteen Years 99.7 189.9% 356.8 * 219.1 205.0 231.0
Ten Years 41.9 142.9 218.9 162.6% 79.8 79.7 83.5
Five Years 19.2 43.2 51.0 46.9 26.6 27.7 27.6
One Year 2.7 (2.7) (8.7) (2.4) 3.2 3.9 3.7
Year to Date 2.2 (3.8) (8.1) (3.8) 2.5 2.3 2.3
</TABLE>
<TABLE>
<CAPTION>
Salomon Towers
Bros. IBC's Data
AVERAGE ANNUAL Fund Fund Fund Consumer CDA High Lehman Money U.S. Systems
TOTAL RETURN Class A Class B Class C Price Municipal Grade Bros. Fund T-Bill CD
TABLE Shares Shares Shares Index(3) Fund(4) Corp.(5) Muni(6) Index(7) Index(8) Index(9)
- ---------------- -------- ----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund(+)(++) 7.6% (14.3)%(10) (3.0)% 5.5% * 9.7% * 7.8% 7.6% 8.2%
Fifteen Years 8.1 -- -- 4.7 7.4 % 10.7 * 8.0 7.7 8.3
Ten Years 9.9 -- -- 3.6 9.3 12.3 10.1% 6.0 6.0 6.3
Five Years 7.0 -- -- 3.6 7.4 8.6 8.0 4.8 5.0 5.0
One Year (8.0) -- -- 2.7 (3.8) (8.7) (2.4) 2.5 3.9 3.7
</TABLE>
- ---------------
+ Since April 20, 1976 for Class A shares.
++ Since May 31, 1994 for Class B & C shares.
B-21
<PAGE> 77
CALIFORNIA FUND--AUGUST 31, 1994
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
TOTAL Initial Capital Gain Income Ending Percentage Ending Percentage
RETURN $10,000 Dividends Dividends Value Increase Value Increase
TABLE Investment(1) Reinvested Reinvested(2) (adjusted)(1) (adjusted)(1) (unadjusted)(1) (unadjusted)(1)
- ----------------- ------------ ------------ ------------ ------------ ------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $ 11,057 $ 1,716 $ 14,441 $ 27,214 172.1% $ 28,479 184.8%
Ten Years 11,683 1,579 12,036 25,316 153.2 26,495 165.0
Five Years 9,551 768 3,581 13,900 39.0 14,554 45.5
One Year 8,606 327 544 9,477 (5.3) 9,927 (0.7)
Year to Date 8,991 0 329 9,320 (6.8) 9,757 (2.4)
CLASS B SHARES
Life of Fund(++) 9,986 0 119 -- -- 10,105 1.1
CLASS C SHARES
Life of Fund(++) 9,986 0 110 -- -- 10,096 1.0
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
------------------------------------------------------------------------------------
TOTAL Consumer CDA IBC's U.S. Towers Data
RETURN Price Municipal Lehman Bros. Money Fund T-Bill Systems
TABLE Index(3) Fund(4) Muni(6) Index(7) Index(8) CD Index(9)
- ------------------ -------- --------- ------------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 52.2% 169.7% 188.4% 106.4% 106.6% 113.4%
Ten Years 42.6 145.0 164.8 80.8 79.7 83.5
Five Years 19.6 44.7 48.6 27.0 27.7 27.6
One Year 2.9 (0.2) 0.1 3.1 3.9 3.7
Year to Date 2.2 (2.4) (2.4) 2.2 2.3 2.3
</TABLE>
<TABLE>
<CAPTION>
Towers
IBC's Data
AVERAGE ANNUAL Fund Fund Fund Consumer CDA Lehman Money U.S. Systems
TOTAL RETURN Class A Class B Class C Price Municipal Brothers Fund T-Bill CD
TABLE Shares Shares Shares Index(3) Fund(4) Muni(6) Index(7) Index(8) Index(9)
- ------------------ ------- ------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund(+)(++) 9.1% (11.3)%(10) 3.9% 3.7% 9.0% 9.7% 6.5% 6.5% 6.8%
Ten Years 9.7 -- -- 3.6 9.3 10.2 6.4 6.0 6.3
Five Years 6.8 -- -- 3.6 7.7 8.2 4.9 5.0 5.0
One Year (5.2) -- -- 2.9 (0.2) 0.1 3.1 3.9 3.7
</TABLE>
- ---------------
+ Since February 17, 1983 for Class A shares.
++ Since May 31, 1994 for Class B & C shares.
B-22
<PAGE> 78
FLORIDA FUND--AUGUST 31, 1994
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
TOTAL Initial Capital Gain Income Ending Percentage Ending Percentage
RETURN $10,000 Dividends Dividends Value Increase Value Increase
TABLE Investment(1) Reinvested Reinvested(2) (adjusted)(1) (adjusted)(1) (unadjusted)(1) (unadjusted)(1)
- ------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $ 10,160 $ 242 $ 2,349 $ 12,751 27.5% $ 13,355 33.6%
One Year 8,791 152 594 9,537 (4.6) 9,989 (0.1)
Year to Date 9,051 0 311 9,362 (6.4) 9,801 (2.0)
CLASS B SHARES
Life of Fund(++) 9,970 0 104 -- -- 10,074 0.7
CLASS C SHARES
Life of Fund(++) 9,971 0 104 -- -- 10,075 0.8
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
-----------------------------------------------------------------------------------
TOTAL Consumer CDA IBC's U.S. Towers Data
RETURN Price Municipal Lehman Bros. Money Fund T-Bill Systems
TABLE Index(3) Fund(4) Muni(6) Index(7) Index(8) CD Index(9)
- ------------------- -------- --------- ------------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 10.2% 28.0% 29.1% 12.3% 14.7% 14.0%
One Year 2.9 (0.2) 0.1 3.1 3.9 3.7
Year to Date 2.2 (2.4) (2.4) 2.2 2.3 2.3
</TABLE>
<TABLE>
<CAPTION>
AVERAGE
ANNUAL
TOTAL Fund Fund Fund Consumer CDA Lehman IBC's U.S. Towers Data
RETURN Class A Class B Class C Price Municipal Brothers Money Fund T-Bill Systems
TABLE Shares Shares Shares Index(3) Fund(4) Muni(6) Index(7) Index(8) CD Index(9)
- ---------- ------- ------- ------- -------- --------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund(+)(++) 7.5% (12.4)%(10) 3.0% 3.0% 7.7% 8.0% 3.5% 4.2% 4.0%
One Year (4.6) -- -- 2.9 (0.2) 0.1 3.1 3.9 3.7
</TABLE>
- ---------------
+ Since April 25, 1991 for Class A shares.
++ Since May 31, 1994 for Class B & C shares.
B-23
<PAGE> 79
NEW YORK FUND--AUGUST 31, 1994
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
TOTAL Initial Capital Gain Income Ending Percentage Ending Percentage
RETURN $10,000 Dividends Dividends Value Increase Value Increase
TABLE Investment(1) Reinvested Reinvested(2) (adjusted)(1) (adjusted)(1) (unadjusted)(1) (unadjusted)(1)
- ------------ ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of
Fund(+) $ 10,783 $ 418 $ 7,424 $ 18,625 86.3% $ 19,507 95.1%
Five Years 10,123 320 3,836 14,279 42.8 14,956 49.6
One Year 8,838 158 533 9,529 (4.7) 9,981 (0.2)
Year to Date 9,002 0 327 9,329 (6.7) 9,772 (2.3)
CLASS B SHARES
Life of
Fund(++) 9,963 0 112 -- -- 10,075 0.8
CLASS C SHARES
Life of
Fund(++) 9,963 0 107 -- -- 10,070 0.7
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
----------------------------------------------------------------------------------
TOTAL Consumer CDA IBC's U.S. Towers Data
RETURN Price Municipal Lehman Bros. Money Fund T-Bill Systems
TABLE Index(3) Fund(4) Muni(6) Index(7) Index(8) CD Index(9)
- ------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 36.3% 98.8% 112.2% 62.5% 60.9% 63.1%
Five Years 19.6 44.7 48.6 27.0 27.7 27.6
One Year 2.9 (0.2) 0.1 3.1 3.9 3.7
Year to Date 2.2 (2.4) (2.4) 2.2 2.3 2.3
</TABLE>
<TABLE>
<CAPTION>
Towers
Data
AVERAGE ANNUAL Fund Fund Fund Consumer CDA Lehman IBC's U.S. Systems
TOTAL RETURN Class A Class B Class C Price Municipal Brothers Money Fund T-Bill CD
TABLE Shares Shares Shares Index(3) Fund(4) Muni(6) Index(7) Index(8) Index(9)
- --------------------- -------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+)(++) 7.4% (12.3)%(10) 2.8% 3.6% 8.3% 9.1% 5.8% 5.6% 5.8%
Five Year 7.4 -- -- 3.6 7.7 8.2 4.9 5.0 5.0
One Year (4.7) -- -- 2.9 (0.2) 0.1 3.1 3.9 3.7
</TABLE>
- ---------------
+ Since December 31, 1985 for Class A shares.
++ Since May 31, 1994 for Class B & C shares.
B-24
<PAGE> 80
OHIO FUND--AUGUST 31, 1994
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
TOTAL Initial Capital Gain Income Ending Percentage Ending Percentage
RETURN $10,000 Dividends Dividends Value Increase Value Increase
TABLE Investment(1) Reinvested Reinvested(2) (adjusted)(1) (adjusted)(1) (unadjusted)(1) (unadjusted)(1)
- ------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $ 10,030 $ 0 $ 232 $ 10,262 2.6% $ 10,665 6.7%
One Year 8,929 0 548 9,477 (5.2) 9,923 (0.8)
Year to Date 8,886 0 375 9,261 (7.4) 9,695 (3.1)
CLASS B SHARES
Life of Fund(++) 10,021 0 134 -- -- 10,155 1.6
CLASS C SHARES
Life of Fund(++) 10,021 0 134 -- -- 10,155 1.6
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
---------------------------------------------------------------------------------
TOTAL Consumer CDA Lehman IBC's U.S. Towers Data
RETURN Price Municipal Bros. Money Fund T-Bill Systems
TABLE Index(3) Fund(4) Muni(6) Index(7) Index(8) CD Index(9)
- ------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 3.8% 5.2% 5.7% 4.3% 5.6% 5.2%
One Year 2.9 (0.2) 0.1 3.1 3.9 3.7
Year to Date 2.2 (2.4) (2.4) 2.2 2.3 2.3
</TABLE>
<TABLE>
<CAPTION>
Towers
Fund IBC's Data
AVERAGE ANNUAL Fund Class Fund Consumer CDA Lehman Money U.S. Systems
TOTAL RETURN Class A B Class C Price Municipal Brothers Fund T-Bill CD
TABLE Shares Shares Shares Index(3) Fund(4) Muni(6) Index(7) Index(8) Index(9)
--------------- -------- ----- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund(+)(++) 2.7% (9.4)%(10) 6.3% 2.6% 3.6% 4.0% 3.0% 3.9% 3.6%
One Year (3.3) -- -- 2.9 (0.2) 0.1 3.1 3.9 3.7
</TABLE>
- ---------------
+ Since March 22, 1993 for Class A shares.
++ Since May 31, 1994 for Class B & C shares.
B-25
<PAGE> 81
TEXAS FUND--AUGUST 31, 1994
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Capital
TOTAL Initial Gain Income Ending Percentage Ending Percentage
RETURN $10,000 Dividends Dividends Value Increase Value Increase
TABLE Investment(1) Reinvested Reinvested(2) (adjusted)(1) (adjusted)(1) (unadjusted)(1) (unadjusted)(1)
- ------------------- ----------- ----------- ----------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Life of Fund(+) $ 10,191 $ 89 $ 1,850 $ 12,130 21.3% $ 12,705 27.1%
One Year 9,061 71 543 9,675 (3.3) 10,128 1.3
Year to Date 9,102 0 339 9,441 (5.6) 9,885 (1.2)
CLASS B SHARES
Life of Fund(++) 9,981 0 111 -- -- 10,092 0.9
CLASS C SHARES
Life of Fund(++) 9,980 0 108 -- -- 10,088 0.9
</TABLE>
<TABLE>
<CAPTION>
COMPARED TO
---------------------------------------------------------------------------------
TOTAL Consumer CDA Lehman IBC's U.S. Towers Data
RETURN Price Municipal Bros. Money Fund T-Bill Systems
TABLE Index(3) Fund(4) Muni(6) Index(7) Index(8) CD Index(9)
- ------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Life of Fund(+) 8.4% 21.2% 22.2% 9.3% 11.5% 10.7%
One Year 2.9 (0.2) 0.1 3.1 3.9 3.7
Year to Date 2.2 (2.4) (2.4) 2.2 2.3 2.3
</TABLE>
<TABLE>
<CAPTION>
Towers
Data
AVERAGE ANNUAL Fund Fund Fund Consumer CDA Lehman IBC's U.S. Systems
TOTAL RETURN Class A Class B Class C Price Municipal Brothers Money Fund T-Bill CD
TABLE Shares Shares Shares Index(3) Fund(4) Muni(6) Index(7) Index(8) Index(9)
- --------------- ---------- ------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund(+)(++) 7.1% (11.8)%(10) 3.6% 2.9% 7.0% 7.4% 3.2% 3.9% 3.7%
One Year (3.2) -- -- 2.9 (0.2) 0.1 3.1 3.9 3.7
</TABLE>
- ---------------
* Data not available.
+ Since November 1, 1991 for Class A shares.
++ Since May 31, 1994 for Class B & C shares.
FOOTNOTES FOR ALL FUNDS
(1) 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%. 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.
(2) Includes short-term capital gain dividends, if any.
(3) 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.
(4) CDA Mutual Fund--Municipal Bond Index is a net asset weighted index of the
performance of certain mutual funds tracked by CDA Investment Technologies,
Inc., Silver Spring, Maryland. This includes mutual funds that invest primarily
in medium- and long-term issues of municipalities. Performance is based on
changes in net asset value with all dividends reinvested and with no adjustment
for sales charges.
(5) 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 (taxable)
industrial and utility bonds rated in the top two rating categories. This index
is unmanaged. Source is Towers Data Systems.
(6) Lehman Brothers Municipal Bond Index is on a total return basis with all
dividends reinvested and is comprised of high grade long-term municipal bonds.
This index is unmanaged. Source is Towers Data Systems.
(7) IBC/Donoghue's All-Taxable Money Fund Averages(R) is currently based upon
the total return, assuming reinvestment of dividends, of 556 taxable money
market funds. Source is CDA Investment Technologies, Inc., Silver Spring,
Maryland.
B-26
<PAGE> 82
(8) U.S. Treasury Bill Index is an unmanaged index based on the average monthly
yield of U.S. Treasury Bills maturing in 6 months. Source is Towers Data
Systems.
(9) Certificate of Deposit Index is an unmanaged index based on the average
monthly yield of 6 month certificates of deposit. Source is Towers Data Systems.
(10) The effect of the adjustment for the applicable contingent deferred sales
charge reduces performance to a greater extent when performance is calculated
for a period of less than one year under the Securities and Exchange Commission
standardized formula.
Investors may want to compare a Fund's performance to that of certificates of
deposit offered by banks and other depository institutions. Certificates of
deposit represent an alternative (taxable) income producing product.
Certificates of deposit may offer fixed or variable interest rates and principal
is guaranteed and may be insured. Withdrawal of the deposits prior to maturity
normally will 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. Shares of a Fund are redeemable at net asset value
which may be more or less than original cost. Redemption of Class B shares may
be subject to a contingent deferred sales charge. The bonds held by a Fund 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. 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. The net asset value of a Fund will fluctuate. Shares of a Fund are
redeemable at net asset value which may be more or less than original cost.
Redemption of Class B shares may be subject to a contingent deferred sales
charge. Each Fund's yield will also fluctuate.
Investors may also want to compare performance of a Fund to that of money market
funds. Money market fund yields will fluctuate and shares are not insured, but
share values usually remain stable.
From time to time, a Fund may compare its after-tax total return to that of
taxable investments, including but not limited to certificates of deposit,
taxable money market funds or U.S. Treasury bills. Tax equivalent total return
represents the total return that would be generated by a taxable investment that
produced the same amount of after-tax income and change in net asset value as
the Fund in each period.
B-27
<PAGE> 83
The following tables illustrate an assumed $10,000 investment in Class A shares
of each Fund (except the Funds that commenced operations in 1995), which
includes the maximum sales charge of 4.5% (2.75% for the Intermediate Municipal
Fund), with income and capital gain dividends reinvested in additional shares.
Each table covers the period from commencement of operations of the Fund to
December 31, 1994.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL FUND
---------- DIVIDENDS ----------
ANNUAL ANNUAL ------ CUMULATIVE VALUE OF SHARES ACQUIRED ------
YEAR INCOME CAPITAL GAIN REINVESTED REINVESTED
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1976 $ 267 $ 0 $ 10,133 $ 282 $ 0 $10,415
1977 561 0 10,343 854 0 11,197
1978 596 93 9,550 1,360 88 10,998
1979 669 0 8,882 1,887 80 10,849
1980 810 0 7,067 2,217 65 9,349
1981 947 0 5,740 2,622 52 8,414
1982 1,123 0 7,334 4,639 67 12,040
1983 1,308 0 7,583 6,105 69 13,757
1984 1,301 0 7,630 7,477 70 15,177
1985 1,423 0 8,490 9,821 78 18,389
1986 1,543 0 9,369 12,444 85 21,898
1987 1,664 0 8,948 13,543 82 22,573
1988 1,797 0 9,006 15,437 82 24,525
1989 1,855 0 9,330 17,881 86 27,297
1990 1,956 0 9,273 19,756 85 29,114
1991 1,930 351 9,712 22,679 444 32,834
1992 2,240 378 9,779 25,090 827 35,694
1993 2,528 868 10,144 28,554 1,711 40,409
1994 2,307 141 8,996 27,528 1,659 38,183
</TABLE>
* Includes short-term capital gain dividends, if any.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE MUNICIPAL FUND
---------- DIVIDENDS ----------
ANNUAL ANNUAL ------ CUMULATIVE VALUE OF SHARES ACQUIRED ------
YEAR INCOME CAPITAL GAIN REINVESTED REINVESTED
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 $67 $ 0 $9,785 $68 $ 0 $9,853
</TABLE>
* Includes short-term capital gain dividends, if any.
- --------------------------------------------------------------------------------
B-28
<PAGE> 84
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------- DIVIDENDS ---------- CALIFORNIA FUND
ANNUAL ANNUAL ------ CUMULATIVE VALUE OF SHARES ACQUIRED ------
YEAR INCOME CAPITAL GAIN REINVESTED REINVESTED
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1983 $ 652 $ 0 $ 9,242 $ 645 $ 0 $ 9,888
1984 924 0 9,111 1,565 0 10,680
1985 1,036 0 10,184 2,845 0 13,029
1986 1,086 0 11,171 4,243 0 15,419
1987 1,189 0 10,781 5,284 0 16,065
1988 1,170 204 10,673 6,393 206 17,272
1989 1,273 236 10,964 7,840 449 19,252
1990 1,292 0 10,950 9,145 448 20,542
1991 1,371 76 11,408 10,936 543 22,887
1992 1,435 260 11,501 12,465 807 24,773
1993 1,614 1,016 11,746 14,322 1,823 27,891
1994 1,460 134 10,460 14,144 1,758 26,362
</TABLE>
* Includes short-term capital gain dividends, if any.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------- DIVIDENDS ---------- FLORIDA FUND
ANNUAL ANNUAL ------ CUMULATIVE VALUE OF SHARES ACQUIRED ------
YEAR INCOME CAPITAL GAIN REINVESTED REINVESTED
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1991 $ 452 $ 0 $10,043 $ 466 $ 0 $10,509
1992 666 39 10,274 1,153 39 11,466
1993 829 217 10,724 2,032 255 13,011
1994 649 173 9,648 2,451 403 12,502
</TABLE>
* Includes short-term capital gain dividends, if any.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------- DIVIDENDS ---------- NEW YORK FUND
ANNUAL ANNUAL ------ CUMULATIVE VALUE OF SHARES ACQUIRED ------
YEAR INCOME CAPITAL GAIN REINVESTED REINVESTED
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1985 $ 0 $ 0 $ 9,550 $ 0 $ 0 $ 9,550
1986 434 0 10,304 449 0 10,753
1987 583 0 9,640 1,000 0 10,640
1988 606 0 9,831 1,632 0 11,463
1989 884 25 10,224 2,591 25 12,840
1990 930 0 10,083 3,494 25 13,602
1991 949 0 10,706 4,690 26 15,423
1992 1,025 84 10,937 5,826 111 16,876
1993 1,080 329 11,437 7,180 443 19,060
1994 996 220 10,171 7,331 615 18,117
</TABLE>
* Includes short-term capital gain dividends, if any.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------- DIVIDENDS ---------- OHIO FUND
ANNUAL ANNUAL ------ CUMULATIVE VALUE OF SHARES ACQUIRED ------
YEAR INCOME CAPITAL GAIN REINVESTED REINVESTED
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1993 $ 421 $ 0 $10,080 $ 429 $ 0 $10,509
1994 565 0 9,186 938 0 10,124
</TABLE>
* Includes short-term capital gain dividends, if any.
- --------------------------------------------------------------------------------
B-29
<PAGE> 85
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------- DIVIDENDS ---------- TEXAS FUND
ANNUAL ANNUAL ------ CUMULATIVE VALUE OF SHARES ACQUIRED ------
YEAR INCOME CAPITAL GAIN REINVESTED REINVESTED
ENDED DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
12/31 REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1991 $ 86 $ 0 $ 9,698 $ 87 $ 0 $ 9,785
1992 622 0 10,030 722 0 10,752
1993 703 94 10,693 1,485 93 12,271
1994 660 91 9,779 1,996 177 11,952
</TABLE>
* Includes short-term capital gain dividends, if any.
- --------------------------------------------------------------------------------
The following tables compares the performance of the Class A shares of the
Municipal Fund, the California Fund, the Florida Fund, the New York Fund, the
Ohio Fund and the Texas Fund 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. The funds
in each Lipper category have a variety of objectives, policies and market and
credit risks that should be considered in reviewing the rankings.
MUNICIPAL FUND
<TABLE>
<CAPTION>
Lipper-Fixed
Income Fund
Performance Analysis
----------------------
General
Municipal
Bond Funds
----------------------
<S> <C>
Fifteen Years (Period ended 12/31/94).......................................... 7 of 28
Ten Years (Period ended 12/31/94).............................................. 8 of 52
Five Years (Period ended 12/31/94)............................................. 15 of 89
One Year (Period ended 12/31/94)............................................... 51 of 186
</TABLE>
The Lipper General Municipal Bond Fund category includes funds which invest 60%
or more of their assets in the top four tax-exempt credit ratings.
CALIFORNIA FUND
<TABLE>
<CAPTION>
Lipper-Fixed
Income Fund
Performance Analysis
----------------------
California
Municipal
Bond Funds
----------------------
<S> <C>
Ten Years (Period ended 12/31/94).............................................. 1 of 16
Five Years (Period ended 12/31/94)............................................. 11 of 42
One Year (Period ended 12/31/94)............................................... 12 of 79
</TABLE>
The Lipper California Municipal Bond Funds category includes funds that limit at
least 65% of their investments to those securities that are exempt from federal
and State of California income tax (double tax exempt).
B-30
<PAGE> 86
FLORIDA FUND
<TABLE>
<CAPTION>
Lipper-Fixed
Income Fund
Performance Analysis
----------------------
Florida
Municipal
Bond Funds
----------------------
<S> <C>
One Year (Period ended 12/31/94)............................................... 2 of 50
</TABLE>
The Lipper Florida Municipal Bond Funds category includes funds that limit at
least 65% of their investments to those securities that are exempt from federal
income tax.
NEW YORK FUND
<TABLE>
<CAPTION>
Lipper-Fixed
Income Fund
Performance Analysis
----------------------
New York
Municipal
Bond Funds
----------------------
<S> <C>
Five Years (Period ended 12/31/94)............................................. 6 of 35
One Year (Period ended 12/31/94)............................................... 7 of 69
</TABLE>
The Lipper New York Municipal Bond Funds category includes funds that limit at
least 65% of their investments to those securities that are exempt from federal,
State of New York and New York City income tax (triple tax exempt).
OHIO FUND
<TABLE>
<CAPTION>
Lipper-Fixed
Income Fund
Performance Analysis
----------------------
Ohio
Municipal
Bond Funds
----------------------
<S> <C>
One Year (Period ended 12/31/94)............................................... 2 of 37
</TABLE>
The Lipper Ohio Municipal Bond Funds category includes funds that limit at least
65% of their investments to those securities that are exempt from federal and
State of Ohio income tax (double tax exempt).
TEXAS FUND
<TABLE>
<CAPTION>
Lipper-Fixed
Income Fund
Performance Analysis
----------------------
Texas
Municipal
Bond Funds
----------------------
<S> <C>
One Year (Period ended 12/31/94)............................................... 1 of 19
</TABLE>
The Lipper Texas Municipal Bond Funds category includes funds that limit at
least 65% of their investments to those securities that are exempt from federal
income tax.
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
any class of shares of a Fund may generate. The tables are based upon the 1995
federal, New York State and City and New Jersey tax rates and brackets and the
1994 Ohio, Pennsylvania, Michigan and California rates and brackets. Ohio rates
are based on the maximum marginal rate at each bracket.
B-31
<PAGE> 87
TAXABLE EQUIVALENT YIELD TABLE FOR PERSONS WHOSE ADJUSTED GROSS INCOME IS UNDER
$114,700
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YOUR
MARGINAL A TAX-EXEMPT YIELD OF:
TAXABLE INCOME FEDERAL TAX 4% 5% 6% 7% 8% 9%
SINGLE JOINT RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$22,750 - $56,550 $38,000 - $94,250 28.0% 5.56 6.94 8.33 9.72 11.11 12.50
- ----------------------------------------------------------------------------------------------------------------------
Over $56,550 Over $94,250 31.0 5.80 7.25 8.70 10.14 11.59 13.04
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
COMBINED
CALIFORNIA A TAX-EXEMPT YIELD OF:
TAXABLE INCOME AND FEDERAL 4% 5% 6% 7% 8% 9%
SINGLE JOINT TAX RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ----------------------------------------------------------------------------------------------------------------------
$23,350 - $24,519 $39,000 - $49,038 32.3% 5.91 7.39 8.86 10.34 11.82 13.30
- ----------------------------------------------------------------------------------------------------------------------
$24,519 - $30,987 $49,038 - $61,974 33.8 6.04 7.55 9.06 10.57 12.08 13.60
- ----------------------------------------------------------------------------------------------------------------------
$30,987 - $56,550 $61,795 - $94,250 34.7 6.13 7.66 9.19 10.72 12.25 13.78
- ----------------------------------------------------------------------------------------------------------------------
Over $56,550 Over $94,250 37.4 6.39 7.99 9.58 11.18 12.78 14.38
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
COMBINED
MICHIGAN A TAX-EXEMPT YIELD OF:
TAXABLE INCOME AND FEDERAL 4% 5% 6% 7% 8% 9%
SINGLE JOINT TAX RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ----------------------------------------------------------------------------------------------------------------------
$23,350 - $56,550 $39,000 - $94,250 31.2% 5.81 7.26 8.72 10.17 11.62 13.08
- ----------------------------------------------------------------------------------------------------------------------
Over $56,550 Over $94,250 34.0 6.06 7.58 9.10 10.61 12.13 13.64
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
COMBINED
NEW JERSEY A TAX-EXEMPT YIELD OF:
TAXABLE INCOME AND FEDERAL 4% 5% 6% 7% 8% 9%
SINGLE JOINT TAX RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ----------------------------------------------------------------------------------------------------------------------
$23,350 - $35,000 $39,000 - $50,000 29.5% 5.68 7.10 8.51 9.93 11.35 12.77
- ----------------------------------------------------------------------------------------------------------------------
$50,000 - $70,000 30.1 5.73 7.16 8.59 10.02 11.45 12.88
- ----------------------------------------------------------------------------------------------------------------------
$35,000 - $40,000 $70,000 - $80,000 31.1 5.80 7.25 8.70 10.15 11.60 13.05
- ----------------------------------------------------------------------------------------------------------------------
$40,000 - $56,550 $80,000 - $94,250 32.3 5.91 7.39 8.87 10.34 11.82 13.30
- ----------------------------------------------------------------------------------------------------------------------
Over $56,550 Over $94,250 35.1 6.17 7.71 9.25 10.79 12.34 13.88
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
B-32
<PAGE> 88
TAXABLE EQUIVALENT YIELD TABLE FOR PERSONS WHOSE ADJUSTED GROSS INCOME IS UNDER
$114,700
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMBINED
N.Y. CITY,
N.Y. STATE A TAX-EXEMPT YIELD OF:
TAXABLE INCOME AND FEDERAL 4% 5% 6% 7% 8% 9%
SINGLE JOINT TAX RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$23,350 - $56,550 $39,000 - $94,250 36.2% 6.27 7.84 9.41 10.98 12.55 14.12
- ----------------------------------------------------------------------------------------------------------------------
Over $56,550 Over $94,250 38.9 6.55 8.18 9.82 11.46 13.09 14.73
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
COMBINED
OHIO A TAX-EXEMPT YIELD OF:
TAXABLE INCOME AND FEDERAL 4% 5% 6% 7% 8% 9%
SINGLE JOINT TAX RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ----------------------------------------------------------------------------------------------------------------------
$23,350 - $40,000 $39,000 - $40,000 31.2% 5.81 7.27 8.72 10.17 11.63 13.08
- ----------------------------------------------------------------------------------------------------------------------
$40,000 - $56,550 $40,000 - $80,000 31.7 5.86 7.32 8.78 10.25 11.71 13.18
- ----------------------------------------------------------------------------------------------------------------------
$56,550 - $80,000 34.6 6.12 7.64 9.17 10.70 12.23 13.76
- ----------------------------------------------------------------------------------------------------------------------
$80,000 - $94,250 32.3 5.91 7.38 8.86 10.34 11.81 13.29
- ----------------------------------------------------------------------------------------------------------------------
$80,000 - $100,000 $94,250 - $100,000 35.1 6.16 7.70 9.25 10.79 12.33 13.87
- ----------------------------------------------------------------------------------------------------------------------
Over $100,000 Over $100,000 35.8 6.23 7.79 9.35 10.90 12.46 14.01
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
COMBINED
PENNSYLVANIA A TAX-EXEMPT YIELD OF:
TAXABLE INCOME AND FEDERAL 4% 5% 6% 7% 8% 9%
SINGLE JOINT TAX RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ----------------------------------------------------------------------------------------------------------------------
$23,350 - $56,550 $39,000 - $94,250 30.0% 5.72 7.14 8.57 10.00 11.43 12.86
- ----------------------------------------------------------------------------------------------------------------------
Over $56,550 Over $94,250 32.9 5.96 7.46 8.95 10.44 11.93 13.42
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
B-33
<PAGE> 89
TAXABLE EQUIVALENT YIELD TABLE FOR PERSONS WHOSE ADJUSTED GROSS INCOME IS OVER
$114,700*
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
YOUR
TAXABLE INCOME MARGINAL A TAX-EXEMPT YIELD OF:
FEDERAL TAX 4% 5% 6% 7% 8% 9%
SINGLE JOINT RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$56,550- $117,950 $94,250 - $143,600 31.9% 5.87 7.34 8.81 10.28 11.75 13.22
- ----------------------------------------------------------------------------------------------------------------------
$117,950 - $256,500 $143,600 - $256,500 37.1 6.36 7.95 9.54 11.13 12.72 14.31
- ----------------------------------------------------------------------------------------------------------------------
Over $256,500 Over $256,500 40.8 6.76 8.45 10.14 11.82 13.51 15.20
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
COMBINED
CALIFORNIA
TAXABLE INCOME AND FEDERAL A TAX-EXEMPT YIELD OF:
SINGLE JOINT TAX RATE 4% 5% 6% 7% 8% 9%
IS EQUIVALENT TO A TAXABLE YIELD OF:
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$107,464 - $117,950 38.7% 6.53 8.16 9.79 11.42 13.05 14.68
- -----------------------------------------------------------------------------------------------------------------------
$143,600 - $214,928 42.9 7.01 8.76 10.51 12.26 14.01 15.76
- -----------------------------------------------------------------------------------------------------------------------
$117,950 - $214,929 $214,928 - $256,500 43.4 7.07 8.83 10.60 12.37 14.13 15.90
- -----------------------------------------------------------------------------------------------------------------------
$214,929 - $256,500 44.0 7.14 8.93 10.71 12.50 14.29 16.07
- -----------------------------------------------------------------------------------------------------------------------
$256,500 - $429,858 46.7 7.50 9.38 11.26 13.13 15.01 16.89
- -----------------------------------------------------------------------------------------------------------------------
Over $256,500 Over $429,858 47.3 7.59 9.49 11.39 13.28 15.18 17.08
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
COMBINED
MICHIGAN A TAX-EXEMPT YIELD OF:
TAXABLE INCOME AND FEDERAL 4% 5% 6% 7% 8% 9%
SINGLE JOINT TAX RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- -----------------------------------------------------------------------------------------------------------------------
$56,550 - $117,950 $94,250 - $143,600 34.9 % 6.14 7.68 9.22 10.75 12.29 13.82
- -----------------------------------------------------------------------------------------------------------------------
$117,950 - $256,500 $143,600 - $256,500 39.9 6.66 8.32 9.98 11.65 13.31 14.98
- -----------------------------------------------------------------------------------------------------------------------
Over $256,500 Over $256,500 43.4 7.07 8.83 10.60 12.37 14.13 15.90
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
COMBINED
NEW JERSEY AND A TAX-EXEMPT YIELD OF:
TAXABLE INCOME FEDERAL
SINGLE JOINT TAX RATE 4% 5% 6% 7% 8% 9%
IS EQUIVALENT TO A TAXABLE YIELD OF:
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$56,550 - $75,000 $94,250 - $143,600 36.0% 6.25 7.81 9.38 10.94 12.50 14.06
- ---------------------------------------------------------------------------------------------------------------------
$75,000 - $117,950 36.4 6.29 7.86 9.43 11.01 12.58 14.15
- ---------------------------------------------------------------------------------------------------------------------
$143,600 - $150,000 40.9 6.77 8.46 10.15 11.84 13.54 15.23
- ---------------------------------------------------------------------------------------------------------------------
$117,950 - $256,500 $150,000 - $256,500 41.2 6.80 8.50 10.20 11.90 13.61 15.31
- ---------------------------------------------------------------------------------------------------------------------
Over $256,500 Over $256,500 44.7 7.23 9.04 10.85 12.66 14.47 16.27
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
B-34
<PAGE> 90
TAXABLE EQUIVALENT YIELD TABLE FOR PERSONS WHOSE ADJUSTED GROSS INCOME IS OVER
$114,700*
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
COMBINED
N.Y. CITY, N.Y.
STATE A TAX-EXEMPT YIELD OF:
TAXABLE INCOME AND FEDERAL 4% 5% 6% 7% 8% 9%
SINGLE JOINT TAX RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$117,950 - $256,500 $143,600 - $256,500 44.3% 7.18 8.98 10.77 12.57 14.36 16.16
- -------------------------------------------------------------------------------------------------------------------
Over $256,500 Over $256,500 47.6 7.63 9.54 11.45 13.36 15.27 17.18
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
COMBINED A TAX-EXEMPT YIELD OF:
TAXABLE INCOME OHIO AND FEDERAL 4% 5% 6% 7% 8% 9%
SINGLE JOINT TAX RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$117,950 - $200,000 $143,600 - $200,000 41.4% 6.83 8.53 10.24 11.95 13.65 15.36
- ---------------------------------------------------------------------------------------------------------------------
$200,000 - $256,500 $200,000 - $256,500 41.8 6.87 8.59 10.31 12.03 13.75 15.46
- ---------------------------------------------------------------------------------------------------------------------
Over $256,500 Over $256,500 45.2 7.30 9.12 10.95 12.77 14.60 16.42
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
COMBINED
PENNSYLVANIA AND A TAX-EXEMPT YIELD OF:
TAXABLE INCOME FEDERAL 4% 5% 6% 7% 8% 9%
SINGLE JOINT TAX RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$56,550 - $117,950 $94,250 - $143,600 33.8% 6.04 7.55 9.06 10.57 12.08 13.60
- ---------------------------------------------------------------------------------------------------------------------
$117,950 - $256,500 $143,600 - $256,500 38.9 6.55 8.18 9.82 11.46 13.09 14.73
- ---------------------------------------------------------------------------------------------------------------------
Over $256,500 Over $256,500 42.5 6.96 8.70 10.43 12.17 13.91 15.65
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</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 47.4% and you are
married with no dependents, the adjusted tax rate is 48.8% (47.4% + 0.7% +
0.7%). For a tax-exempt yield of 6%, the taxable equivalent yield is about
11.7% (6% / (100% - 48.8%)).
B-35
<PAGE> 91
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Kemper Financial Services, Inc. ("KFS"), 120 South LaSalle
Street, Chicago, Illinois 60603, is the Trusts' investment manager. There is one
investment management agreement for the Municipal Fund, one for the Intermediate
Municipal Fund and a separate investment management agreement for the State
Funds. The agreements are substantially the same. Pursuant to the 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 to serve without compensation as
trustees or officers of the Trust if elected to such positions. The agreements
provide that the Trust 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 Trust bears the expenses of registration
of its shares with the Securities and Exchange Commission, while KDI, as
principal underwriter, pays the cost of qualifying and maintaining the
qualification of the Trust's shares for sale under the securities laws of the
various states. KFS has agreed to reimburse the Municipal Fund should all
operating expenses of that Fund, including the compensation of KFS, but
excluding interest, taxes, distribution fees, extraordinary expenses and
brokerage commissions or transaction costs, exceed 1% of average net assets of
the Municipal Fund on an annual basis. KFS has agreed to reimburse the
California Fund should all operating expenses of the California Fund, including
the compensation of KFS, but excluding taxes, interest, distribution services
fees, extraordinary expenses, and brokerage commissions or transaction costs,
exceed 1 1/2% of the first $30 million of average daily net assets and 1% of
average daily net assets over $30 million on an annual basis. KFS has agreed to
reimburse the Intermediate Municipal, Florida, New York, Ohio, Texas, Michigan,
New Jersey and Pennsylvania Funds to the extent required by applicable state
expense limitations should all operating expenses of each of these Funds,
including the investment management fees of KFS but excluding taxes,
distribution fees, interest, extraordinary expenses, brokerage commissions or
transaction costs and any other properly excludable expenses, exceed the
applicable state expense limitations. The Fund believes 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.
The agreements provide that KFS shall not be liable for any error of judgment or
of law, or for any loss suffered by the Trusts 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 the agreements.
Each of the investment management agreements continues in effect from year to
year so long as its continuation is approved at least annually by a majority of
the trustees of the applicable Trust who are not parties to such agreement or
interested persons of any such party except in their capacity as trustees of the
Trust and by the shareholders of the Fund subject thereto or the Board of
Trustees. Each 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
subject thereto, and will terminate automatically upon assignment. If additional
Funds become subject to the investment management agreements, the provisions
concerning continuation, amendment and termination shall be on a Fund by Fund
basis. Additional Funds may be subject to a different agreement.
B-36
<PAGE> 92
The current investment management fee rates paid by the Funds are located 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 FISCAL 1994 FISCAL 1993 FISCAL 1992
- ----------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Municipal.................................................. $15,291,000 13,328,000 10,357,000
California................................................. $ 6,827,000 6,864,000 6,000,000
Florida.................................................... $ 712,000 642,000* 123,000*
New York................................................... $ 1,959,000 1,728,000 1,413,000
Ohio....................................................... $ 0* 0* N/A
Texas...................................................... $ 2,000* 0* 0*
</TABLE>
- ---------------
* Fee waivers and/or expense absorptions in effect during the period, see below.
Prior to May 31, 1994, the Municipal Fund paid an investment management fee,
payable monthly, at the annual rate of .55 of 1% of the first $200 million of
average daily net assets, .45 of 1% of the next $300 million of average daily
net assets, and .35 of 1% of average daily net assets over $500 million.
KFS has agreed to waive its full investment management fee for the Intermediate
Municipal Fund from November 1, 1994 (commencement of operations) through April
30, 1995 and to gradually institute it thereafter.
Prior to May 31, 1994, the investment management fee applicable to each then
existing State Fund, payable monthly, was at the annual rate of .55 of 1% of
average daily net assets.
KFS agreed to waive its full investment management fee and absorb all other
operating expenses of the Florida Fund for the period from April 25, 1991
through December 31, 1991. For this purpose, "operating expenses" did not
include taxes, interest, extraordinary expenses, brokerage commissions or
transaction costs. KFS gradually reinstated the investment management fee (as a
percentage of average daily net assets) and other operating expenses for the
Florida Fund as follows: January 1, 1992 to March 31, 1992 (.20%); April 1, 1992
to June 30, 1992 (.40%); July 1, 1992 to September 30, 1992 (.60%); and fees and
other operating expenses were paid in full by the Fund commencing October 1,
1992. If the fee waiver had not been in effect for the fiscal year ended August
31, 1993 and 1992, KFS would have received investment management fees from the
Florida Fund of $656,000 and $465,000, respectively.
KFS agreed to waive its full investment management fee and to absorb all other
operating expenses of the Ohio Fund from March 22, 1993 (commencement of
operations) through June 30, 1994. Thereafter, the full management fee and all
other operating expenses are being gradually instituted under a schedule
determined by KFS. For this purpose, "operating expenses" does not include
taxes, interest, extraordinary expenses, brokerage commissions or transaction
costs. If the fee waiver had not been in effect for the fiscal year ended August
31, 1994 and the fiscal period from March 22, 1993 to August 31, 1993, KFS would
have received investment management fees from the Ohio Fund of $107,000 and
$25,000, respectively.
KFS agreed to waive its full investment management fee and absorb other
operating expenses of the Texas Fund for the period from November 1, 1991
(commencement of operations) through December 31, 1992. Thereafter, the Texas
Fund gradually started paying operating expenses until they were paid in full
(excluding the management fee) effective October 1, 1993. The management fee is
being instituted gradually commencing June 1, 1994. This schedule is subject to
adjustment by KFS. For this purpose, "operating expenses" do not include taxes,
interest, extraordinary expenses, brokerage commissions or transaction costs. If
the fee waiver had not been in effect for the fiscal year ended August 31, 1994
and 1993 and the fiscal period from November 1, 1991 through August 31, 1992,
KFS would have received investment management fees from the Texas Fund of
$79,000, $55,000 and $20,000, respectively.
B-37
<PAGE> 93
KFS has agreed to waive its full investment management fee for the Michigan, New
Jersey and Pennsylvania Funds from March 15, 1995 (commencement of operations)
through September 15, 1995 and to gradually institute it thereafter.
PRINCIPAL UNDERWRITER. Pursuant to separate underwriting and distribution
services agreements ("distribution agreements"), Kemper Distributors, Inc.
("KDI"), an affiliate of KFS, is the principal underwriter and distributor for
the shares of each Trust and acts as agent of each Trust 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 Trust 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. Before February 1, 1995, KFS was the Funds'
principal underwriter and administrator.
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 Trust, including the Trustees who are not interested
persons of the Trust 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
Trust 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 Trust 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 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
PAID TO KEMPER
FISCAL YEAR COMMISSIONS RETAINED COMMISSIONS UNDERWRITER AFFILIATED
CLASS A SHARES ENDED BY UNDERWRITER PAID TO ALL FIRMS FIRMS
--------------- -------------------- ----------------------- --------------
<S> <C> <C> <C> <C>
Municipal Fund...................... 9/30/94 $ 638,000 $10,113,000 $2,519,000
9/30/93 $3,440,000 $20,649,000 $4,585,000
9/30/92 $2,822,000 $18,967,000 $4,713,000
California Fund..................... 8/31/94 $ 166,000 $ 2,510,000 $ 534,000
8/31/93 $ 644,000 $ 4,566,000 $ 724,000
8/31/92 $1,087,000 $ 7,132,000 $1,231,000
Florida Fund........................ 8/31/94 $ 32,000 $ 353,000 $ 22,000
8/31/93 $ 95,000 $ 623,000 $ 109,000
8/31/92 $ 295,000 $ 2,112,000 $ 353,000
Ohio Fund........................... 8/31/94 $ 14,000 $ 183,000 $ 98,000
3/22/93-8/31/93 $ 4,600 $ 266,000 $ 135,000
New York Fund....................... 8/31/94 $ 74,000 $ 1,203,000 $ 52,000
8/31/93 $ 220,000 $ 1,567,000 $ 83,000
8/31/92 $ 252,000 $ 2,176,000 $ 429,000
Texas Fund.......................... 8/31/94 $ 11,000 $ 135,000 $ 12,000
8/31/93 $ 18,000 $ 121,000 $ 7,800
11/1/91-8/31/92 $ 20,000 $ 272,000 $ 56,000
</TABLE>
CLASS B AND C SHARES. 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
B-38
<PAGE> 94
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 KFS, the underwriter
before February 1, 1995, 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>
OTHER DISTRIBUTION EXPENSES PAID BY
CONTINGENT COMMISSIONS KFS
DISTRIBUTION DEFERRED TOTAL PAID BY KFS ------------------------------------
FEES PAID SALES COMMISSIONS TO KFS ADVERTISING MARKETING
BY FUND CHARGES PAID BY KFS AFFILIATED AND PROSPECTUS AND SALES
CLASS B SHARES FISCAL YEAR* TO KFS TO KFS TO FIRMS FIRMS LITERATURE PRINTING EXPENSES
------------ ------------ ------------ ----------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Fund...... 1994 $ 30,000 $5,000 $ 254,000 $95,000 $16,000 $9,000 $121,000
California Fund..... 1994 $ 3,000 $ 0 $ 53,000 $19,000 $ 4,000 $3,000 $ 25,000
Florida Fund........ 1994 $ 1,000 $ 0 $ 11,000 $ 2,000 $ 1,000 $1,000 $ 5,000
New York Fund....... 1994 $ 2,000 $ 0 $ 34,000 $ 6,000 $ 2,000 $2,000 $ 13,000
Ohio Fund........... 1994 $ 0 $ 0 $ 31,000 $13,000 $ 2,000 $1,000 $ 9,000
Texas Fund.......... 1994 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
<CAPTION>
MISC.
OPERATING INTEREST
CLASS B SHARES EXPENSES EXPENSES
--------- --------
<S> <C> <C>
Municipal Fund...... $23,000 $9,000
California Fund..... $ 3,000 $1,000
Florida Fund........ $ 1,000 $ 0
New York Fund....... $ 1,000 $1,000
Ohio Fund........... $ 1,000 $ 0
Texas Fund.......... $ 0 $ 0
</TABLE>
- ---------------
* Class B shares were first offered on May 31, 1994.
<TABLE>
<CAPTION>
DISTRIBUTION OTHER DISTRIBUTION
TOTAL FEES PAID EXPENSES PAID BY KFS
DISTRIBUTION DISTRIBUTION BY KFS ------------------------
FEES PAID FEES PAID TO KFS ADVERTISING
BY FUND BY KFS AFFILIATED AND PROSPECTUS
CLASS C SHARES FISCAL YEAR** TO KFS TO FIRMS FIRMS LITERATURE PRINTING
------------- ------------ ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Municipal Fund..................... 1994 $1,000 $1,000 $0 $ 1,000 $1,000
California Fund.................... 1994 $ 0 $ 0 $0 $ 0 $ 0
Florida Fund....................... 1994 $ 0 $ 0 $0 $ 0 $ 0
New York Fund...................... 1994 $ 0 $ 0 $0 $ 0 $ 0
Ohio Fund.......................... 1994 $ 0 $ 0 $0 $ 0 $ 0
Texas Fund......................... 1994 $ 0 $ 0 $0 $ 1,000 $1,000
<CAPTION>
MARKETING MISC.
AND SALES OPERATING INTEREST
CLASS C SHARES EXPENSES EXPENSES EXPENSES
--------- --------- --------
<S> <C> <C> <C>
Municipal Fund..................... $11,000 $ 3,000 $0
California Fund.................... $ 0 $ 0 $0
Florida Fund....................... $ 0 $ 0 $0
New York Fund...................... $ 0 $ 0 $0
Ohio Fund.......................... $ 1,000 $ 0 $0
Texas Fund......................... $ 3,000 $ 1,000 $0
</TABLE>
- ---------------
** Class C shares were first offered on May 31, 1994.
ADMINISTRATIVE SERVICES. Administrative services are provided to each Trust
under an administrative services agreement ("administrative agreement") with
KDI. KDI bears all its expenses of providing services pursuant to the
administrative agreement between KFS and the Trust, including the payment of
service fees. Effective October 1, 1993, 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 1% of average daily net
assets of each class of the Fund. Before February 1, 1995, KFS was the
administrator.
KDI enters 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 a Trust. 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 Trust,
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 .10 of 1% of the net assets in Trust accounts
that it maintains and services attributable to Class A shares acquired prior to
October 1, 1993, and (b) up to .25 of 1% of the net assets in Trust 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 1% of the net assets
in Trust 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
B-39
<PAGE> 95
Underwriter." Firms to which service fees may be paid include broker-dealers
affiliated with KDI. The administrative services fee may be increased to an
annual rate of .25 of 1% of average daily net assets of any class of the Trust
in the discretion of the Board of Trustees and without shareholder approval.
The following information concerns the administrative services fee paid by each
Fund.
<TABLE>
<CAPTION>
TOTAL SERVICE FEES SERVICE FEES
PAID BY ADMINISTRATOR PAID BY ADMINISTRATOR
TO FIRMS TO KEMPER AFFILIATED FIRMS
--------------------- --------------------------
ADMINISTRATIVE SERVICE FEES
PAID BY FUND
------------------------------
FUND FISCAL YEAR* CLASS A CLASS B CLASS C
- ----------------------------- ------------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Municipal.................... 1994 $4,330,000 $10,000 $ 0 $ 4,371,000 $929,000
California................... 1994 $1,265,000 $ 1,000 $ 0 $ 1,168,000 $207,000
Florida...................... 1994 $ 133,000 $ 0 $ 0 $ 125,000 $ 14,000
New York..................... 1994 $ 364,000 $ 1,000 $ 0 $ 342,000 $ 13,000
Ohio......................... 1994 $ 0 $ 0 $ 0 $ 23,000 $ 13,000
Texas........................ 1994 $ 15,000 $ 0 $ 0 $ 14,000 $ 1,000
</TABLE>
- ---------------
* Class B and 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 Trust. Currently, the
administrative services fee payable to KDI is based only upon Trust assets in
accounts for which there is a firm listed on the Trust's records and it is
intended that KDI will pay all the administrative services fees that it receives
from the Fund to firms in the form of service fees. The effective administrative
services fee rate to be charged against all assets of the Trust while this
procedure is in effect will depend upon the proportion of Trust assets that is
in accounts for which there is a firm of record, as well as, with respect to
Class A shares, the date when shares representing such assets were purchased.
The Board of Trustees of a Trust, in its discretion, may approve basing the fee
to KDI on all Trust assets in the future.
Certain trustees or officers of the Trusts are also directors or officers of KFS
or 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
United Missouri Bank, n.a., Tenth and Grand Streets, Kansas City, Missouri 64106
and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodians, have custody of all securities and cash
of the Trusts. They attend to the collection of principal and income, and
payment for and collection of proceeds of securities bought and sold by the
Trusts. IFTC is also the Trusts' 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 as
transfer agent, and pays to KSvC annual account fees at a maximum rate of $8 per
account plus account set up, transaction, maintenance and disaster recovery
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 each Trust. For the fiscal year ended
September 30, 1994, the National Trust incurred custodian and transfer agent
fees of $1,975,000 (excluding related expenses) to IFTC and IFTC remitted
shareholder service fees in the amount of $1,888,000 to KSvC as Shareholder
Service Agent. For the fiscal year ended August 31, 1994, the State Trust
incurred custodian and transfer agent fees of $709,000 (excluding related
expenses) to IFTC and IFTC remitted shareholder service fees in the amount of
$775,000 to KSvC as Shareholder Service Agent.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. Each Trust's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on such Trust's annual financial statements, review certain
regulatory reports and such Trust's federal income tax returns, and perform
other professional accounting, auditing, tax and advisory services when engaged
to do so by the Trust. Shareholders will receive annual audited financial
statements and semi-annual unaudited financial statements.
B-40
<PAGE> 96
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.
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. When two or more of such clients are simultaneously engaged in
the purchase or sale of the same security, the transactions are allocated as to
amount and price in a manner considered equitable to each and so that each
receives, to the extent practicable, the average price of such transactions.
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 and futures contracts available to a Trust. On the
other hand, the ability of a Trust to participate in volume transactions may
produce better executions for a Trust in some cases. The Board of Trustees of
each Trust 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 Trust, will implement each Trust'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 the Trust and KFS. 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. 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, as well as to those firms that provide market, statistical and
other research information to the Trusts 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 provided 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
Trust, a Fund 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.
B-41
<PAGE> 97
The table below shows total brokerage commissions paid by each Fund then
existing 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 1994 IN FISCAL 1994 FISCAL 1993 FISCAL 1992
- ------------------------------------------- ----------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Municipal.................................. $ 4,657,000 2% $ 9,734,000 $ 4,644,000
California................................. $ 0 0% $ 3,192,000 $ 905,000
Florida.................................... $ 320,000 1% $ 161,000 $ 138,000
New York................................... $ 534,000 1% $ 520,000 $ 201,000
Ohio....................................... $ 68,000 6% $ 6,000+ $ N/A
Texas...................................... $ 27,000 1% $ 20,000 $ 6,000++
</TABLE>
- ---------------
+ Commencement of operations on March 22, 1993 through August 31, 1993.
++ Commencement of operations on November 1, 1991 through August 31, 1992.
PURCHASE AND REDEMPTION OF SHARES
As described in the Trusts' 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, an initial sales charge. 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 Trust 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. The amount received by a shareholder upon redemption or
repurchase may be more or less than the amount paid for such shares depending on
the market value of a Trust's portfolio securities at the time.
Upon receipt by the Shareholder Service Agent of a request for redemption,
shares of a Fund will be redeemed by the Trust at the applicable net asset value
per share of such Fund as described in the Trusts' 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 Trust 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
redemptions 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 Trust 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 Trust'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 Trust's shareholders.
B-42
<PAGE> 98
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.
OFFICERS AND TRUSTEES
The officers and trustees of the Trusts, their principal occupations and their
affiliations, if any, with Kemper Financial Services, Inc., the Trusts'
investment manager and Kemper Distributors, Inc., the Trusts' principal
underwriter, are as follows (The number following each person's title is the
number of investment companies managed by KFS for which he or she holds similar
positions):
DAVID W. BELIN, Trustee (21), 2000 Financial Center, 7th and Walnut, Des Moines,
Iowa; Member, Belin Harris Lamson McCormick, P.C. (attorneys).
LEWIS A. BURNHAM, Trustee (21), 16410 Avila Boulevard, Tampa, Florida; Director,
Management Consulting Services, McNulty & Company; formerly, Executive Vice
President, Anchor Glass Container Corporation.
DONALD L. DUNAWAY, Trustee (21), One Park Place, Milwaukee, Wisconsin; Retired;
formerly, Executive Vice President, A.O. Smith Corporation (diversified
manufacturer).
ROBERT B. HOFFMAN, Trustee (21), 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, Trustee (21), 1303 East Algonquin Road, Schaumburg, Illinois;
Retired; Director, Motorola, Inc. (manufacturer of electronic equipment and
components); formerly, Executive Vice President and Chief Financial Officer,
Motorola, Inc.
DAVID B. MATHIS, Trustee (28), Kemper Center, Long Grove, Illinois; Chairman,
Chief Executive Officer and Director of Kemper Corporation; Director, Kemper
Financial Services, Inc. and Kemper Financial Companies, Inc.; Director, IMC
Global Inc.
WILLIAM P. SOMMERS, Trustee (21), 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, Vice President and Trustee*(31), 120 S. LaSalle St.,
Chicago, Illinois; President, Chief Operating Officer and Director, Kemper
Corporation; Chairman, Chief Executive Officer, Chief Investment Officer and
Director, Kemper Financial Services, Inc., Director, Kemper Financial Companies,
Inc. and Kemper Securities, Inc.; Director, Gillett Holdings, Inc. and LTV
Corporation.
JOHN E. PETERS, Vice President*(31), 120 South LaSalle Street, Chicago,
Illinois; Senior Executive Vice President, Kemper Financial Services, Inc.;
President and Director, Kemper Distributors, Inc.
J. PATRICK BEIMFORD, JR., Vice President*(24), 120 South LaSalle Street,
Chicago, Illinois; Executive Vice President/Director of Fixed Income
Investments, Kemper Financial Services, Inc.
CHRISTOPHER J. MIER, Vice President*(2), 120 South LaSalle Street, Chicago,
Illinois; First Vice President, Kemper Financial Services, Inc.
B-43
<PAGE> 99
CHARLES F. CUSTER, Vice President and Assistant Secretary*(31), 222 North
LaSalle Street, Chicago, Illinois; Partner, Vedder, Price, Kaufman & Kammholz
(attorneys), Legal Counsel to the Fund.
JEROME L. DUFFY, Treasurer*(31), 120 South LaSalle Street, Chicago, Illinois;
Senior Vice President, Kemper Financial Services, Inc.
PHILIP J. COLLORA, Vice President and Secretary*(31), 120 South LaSalle Street,
Chicago, Illinois; Attorney, Senior Vice President and Assistant Secretary,
Kemper Financial Services, Inc.
ELIZABETH C. WERTH, Assistant Secretary*(23), 120 South LaSalle Street, Chicago,
Illinois; Vice President and Director of State Registrations, Kemper Financial
Services, Inc.
* Interested persons 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 Funds, except that Mr. Custer's law firm
receives fees from the Funds as counsel to the Funds. The table below shows
amounts paid or accrued to those trustees who are not designated "interested
persons" during each Trust's 1994 fiscal year except that the information in the
last column is for calendar year 1994.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM PENSION OR
FUNDS RETIREMENT BENEFITS TOTAL COMPENSATION
-------------------------------- ACCRUED AS PART KEMPER FUNDS
NAME OF TRUSTEE MUNICIPAL TRUST STATE TRUST OF FUND EXPENSES PAID TO TRUSTEES**
- --------------------------------- --------------- ----------- ------------------- ------------------
<S> <C> <C> <C> <C>
David W. Belin*.................. $ 7,800 5,200 0 112,200
Lewis A. Burnham................. $ 6,600 4,500 0 90,100
Donald L. Dunaway*............... $ 8,200 5,400 0 115,400
Robert B. Hoffman................ $ 6,300 4,200 0 87,400
Donald R. Jones.................. $ 6,800 4,600 0 94,300
William P. Sommers............... $ 6,300 4,400 0 84,100
</TABLE>
- ---------------
* Includes current fees deferred and interest 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.
** Includes compensation for service on the boards of 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.
As of February 28, 1995, the officers and trustees of each Trust, as a group,
owned less than 1% of the then outstanding shares of each Fund. As of February
28, 1995, no shareholder owned of record more than 5% of the outstanding shares
of the Funds except that Smith Barney Inc., 388 Greenwich Street, New York, NY
owned of record 5.6% of the California Fund; National Financial Services Corp.,
One World Financial Center, 200 Liberty Street, New York, NY and BHC Securities
Inc. House Account, 100 N. 20th Street, Philadelphia, PA owned of record 9.0%
and 5.8%, respectively of the New York Fund; Merrill Lynch Pierce Fenner & Smith
Inc. House Account, 4800 Deer Lake Drive East, Jacksonville, FL owned of record
5.3% of the Florida Fund; and Gokul Singhal and Renu Singhal, 12821 Topping
Meadows, St. Louis, MO and Kemper Financial Services, Inc., 120 S. LaSalle St.,
Chicago, IL owned of record 14.9% and 9.8%, respectively, of the Intermediate
Municipal Fund; and that as of March 6, 1995, KFS owned all the outstanding
shares of the Michigan, New Jersey and Pennsylvania Funds.
B-44
<PAGE> 100
SHAREHOLDER RIGHTS
Each Trust generally is not required to hold meetings of its shareholders. Under
the Agreement and Declaration of Trust of each Trust ("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 Trust, a 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 Trust, supplying any omission, curing any ambiguity or
curing, correcting or supplementing any defective or inconsistent provision
thereof); and (e) such additional matters as may be required by law, the
Declaration of Trust, the By-laws of the Trust, or any registration of the Trust
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) a Trust 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 Trust 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
Trust has undertaken to disseminate appropriate materials at the expense of the
requesting shareholders.
The Declaration of Trust of each 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 Trust 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
independent auditors. Some matters requiring a larger vote under the Declaration
of Trust of a Trust, such as termination or reorganization of the Trust 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 of each Trust specifically authorizes the Board of
Trustees to terminate the Trust or any Fund 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
Trust. The Declaration of Trust of each Trust, however, disclaims shareholder
liability for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by the Trust or the trustees. Moreover, the Declaration of Trust of
each Trust provides for indemnification out of Trust property for all losses and
expenses of any shareholder held personally liable for the obligations of the
Trust and the Trust 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 Trust itself is unable to meet its
obligations.
B-45
<PAGE> 101
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholder
Kemper National Tax-Free Income Series--
Kemper Intermediate Municipal Bond Fund
We have audited the accompanying statement of net assets of Kemper National
Tax-Free Income Series (formerly Kemper Municipal Bond Fund)--Kemper
Intermediate Municipal Bond Fund as of October 14, 1994. This statement of net
assets is the responsibility of the Trust's management. Our responsibility is to
express an opinion on this statement of net assets based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of net assets. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statement of net assets
presentation. We believe that our audit of the statement of net assets provides
a reasonable basis for our opinion.
In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of Kemper National Tax-Free
Income Series--Kemper Intermediate Municipal Bond Fund at October 14, 1994 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
October 14, 1994
B-46
<PAGE> 102
KEMPER NATIONAL TAX-FREE INCOME SERIES--
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF NET ASSETS--OCTOBER 14, 1994
<TABLE>
<S> <C>
ASSETS
Cash.................................................................................. $100,000
========
NET ASSETS
Net assets, applicable to shares of beneficial interest (unlimited number of shares
authorized, no par value) outstanding as follows:
Class A--3,508.772
Class B--3,508.772
Class C--3,508.772.................................................................. $100,000
========
THE PRICING OF SHARES
Net asset value and redemption price per share........................................
Class A............................................................................. $ 9.50
Class B*............................................................................ $ 9.50
Class C............................................................................. $ 9.50
Maximum offering price per share......................................................
Class A (net asset value, plus 2.83% of net asset value or 2.75% of offering
price)........................................................................... $ 9.77
Class B (net asset value)........................................................... $ 9.50
Class C (net asset value)........................................................... $ 9.50
</TABLE>
- ---------------
* Subject to contingent deferred sales charge.
NOTES:
Kemper National Tax-Free Income Series, formerly Kemper Municipal Bond Fund (the
"Trust"), was organized as a business trust under the laws of The Commonwealth
of Massachusetts on October 24, 1985; All Class A, Class B and Class C shares of
beneficial interest of Kemper Intermediate Municipal Bond Fund ("Intermediate
Municipal Fund") of the Trust were issued to Kemper Financial Services, Inc.
("KFS"), the investment manager for such series, on October 14, 1994 for
$100,000 cash. The Trust may establish multiple series; currently two series
have been established.
The costs of organization of the Fund will be paid by KFS.
B-47
<PAGE> 103
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholder
Kemper State Tax-Free Income Series --
Kemper Michigan Tax-Free Income Fund
Kemper New Jersey Tax-Free Income Fund
Kemper Pennsylvania Tax-Free Income Fund
We have audited the accompanying statement of net assets of Kemper State
Tax-Free Income Series--Kemper Michigan Tax-Free Income Fund; Kemper New Jersey
Tax-Free Income Fund; and Kemper Pennsylvania Tax-Free Income Fund as of March
6, 1995. This statement of net assets is the responsibility of the Trust's
management. Our responsibility is to express an opinion on this statement of net
assets based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of net assets. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statement of net assets
presentation. We believe that our audit of the statement of net assets provides
a reasonable basis for our opinion.
In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of Kemper State Tax-Free Income
Series--Kemper Michigan Tax-Free Income Fund; Kemper New Jersey Tax-Free Income
Fund; and Kemper Pennsylvania Tax-Free Income Fund at March 6, 1995 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 6, 1995
B-48
<PAGE> 104
KEMPER STATE TAX-FREE INCOME SERIES--
KEMPER MICHIGAN TAX-FREE INCOME FUND
KEMPER NEW JERSEY TAX-FREE INCOME FUND
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND
STATEMENT OF NET ASSETS--MARCH 6, 1995
<TABLE>
<CAPTION>
MICHIGAN NEW JERSEY PENNSYLVANIA
FUND FUND FUND
----------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Cash............................................................ $333,333.33 $333,333.33 $ 333,333.34
=========== =========== ===========
NET ASSETS
Net assets, applicable to shares of beneficial interest
(unlimited number of shares authorized, no par value)
outstanding for each Fund as follows:
<CAPTION>
MICHIGAN NEW JERSEY PENNSYLVANIA
FUND FUND FUND
---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Class A.............. $11,695.906 $11,695.906 $11,695.906
Class B.............. $11,695.906 $11,695.906 $11,695.906
Class C.............. $11,695.906 $11,695.906 $11,695.907
$333,333.33 $333,333.33 $333,333.34
=========== =========== ===========
THE PRICING OF SHARES
Net asset value and redemption price per share..................
Class A......................................................... $9.50 $9.50 $9.50
Class B*........................................................ $9.50 $9.50 $9.50
Class C......................................................... $9.50 $9.50 $9.50
Maximum offering price per share................................
Class A (net asset value, plus 4.71% of net asset value or 4.50%
of offering price).............................................. $9.95 $9.95 $9.95
Class B (net asset value)....................................... $9.50 $9.50 $9.50
Class C (net asset value)....................................... $9.50 $9.50 $9.50
</TABLE>
- ---------------
* Subject to contingent deferred sales charge.
NOTES:
Kemper State Tax-Free Income Series (the "Trust") was organized as a business
trust under the laws of The Commonwealth of Massachusetts on October 24, 1985;
All Class A, Class B and Class C shares of beneficial interest of Kemper
Michigan Tax-Free Income Fund, Kemper New Jersey Tax-Free Income Fund and Kemper
Pennsylvania Tax-Free Income Fund of the Trust were issued to Kemper Financial
Services, Inc. ("KFS"), the investment manager for each series, on March 6, 1995
for $333,333 cash for a total of $1,000,000. The Trust may establish multiple
series; currently eight series have been established.
The costs of organization of the Funds will be paid by KFS.
B-49
<PAGE> 105
APPENDIX--RATINGS OF INVESTMENTS
The four highest ratings of Moody's Investors Service, Inc. ("Moody's") for
municipal bonds are Aaa, Aa, A and Baa. Municipal bonds rated Aaa are judged to
be of the "best quality." The rating of Aa is assigned to municipal bonds which
are of "high quality by all standards," but as to which margins of protection or
other elements make long-term risks appear somewhat larger than Aaa rated
municipal bonds. The Aaa and Aa rated municipal bonds comprise what are
generally known as "high grade bonds." Municipal bonds which are rated A by
Moody's possess many favorable investment attributes and are considered "upper
medium grade obligations." Factors giving security to principal and interest of
A rated municipal bonds are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Municipal
bonds which are rated Baa are considered as medium grade obligations; i.e., they
are neither highly protected nor poorly secured. Interest coverage 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. Municipal 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. Municipal
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. Municipal
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.
Municipal 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. Municipal 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.
The four highest ratings of Standard & Poor's Corporation ("S&P") for municipal
bonds are AAA, AA, A and BBB. Municipal bonds rated AAA have the highest rating
assigned by S&P to a debt obligation. Capacity to pay interest and repay
principal is extremely strong. Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only in
small degree. Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories. Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit 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
bonds in this capacity than for bonds in higher rated categories. Municipal
bonds rated BB, B, CCC, CC or C are 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. The rating CI is
reserved for income bonds on which no interest is being paid. Bonds rated D are
in default and payment of interest and/or repayment of principal is in arrears.
The four highest ratings of Fitch Investors Service, Inc. ("Fitch") for
municipal bonds are AAA, AA, A and BBB. Municipal bonds rated AAA are considered
to be investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events. Bonds rated AA are
considered to be investment grade and of very high credit quality. The obligor's
ability to pay interest and repay principal is very strong, although not quite
as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories
are not significantly vulnerable to foreseeable future developments, short-term
debt of these issuers is generally rated F-1+. Bonds rated A are considered to
be investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings. Bonds rated BBB are considered to be investment grade
and of satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse impact on
these bonds, and therefore
B-50
<PAGE> 106
impair timely payment. Bonds rated BB are considered speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service requirements.
Bonds rated B are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue. Bonds rated CCC have certain identifiable characteristics
which, if not remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment. Bonds rated CC are
minimally protected. Default in payment of interest and/or principal seems
probable over time. Bonds rated C are in imminent default in payment of interest
or principal. Bonds rated DDD, DD and D are in default on interest and/or
principal payments. Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or reorganization of
the obligor. DDD represents the highest potential for recovery on these bonds,
and D represents the lowest potential for recovery.
The four highest ratings of Duff & Phelps Credit Rating Co. ("Duff") for
municipal bonds are AAA, AA, A and BBB. Bonds rated AAA have the highest rating
assigned by Duff to a debt obligation. They are of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt. Bonds rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions. Bonds rated A have protection factors that are
average but adequate. However, risk factors are more variable and greater in
periods of economic stress. Bonds rated BBB have below average protection
factors but are still considered sufficient for prudent investment. They have
considerable volatility in risk during economic cycles. Bonds rated BB are below
investment grade but deemed likely to meet obligations when due. Present or
prospective financial protection factors fluctuate according to industry
conditions or company fortunes. Overall quality may move up or down frequently
within this category. Bonds rated B are below investment grade and possessing
risk that obligations will not be met when due. Financial protection factors
will fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade. Bonds rated CCC are well
below investment grade securities. Considerable uncertainty exists as to timely
payment of principal or interest. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions, and/or with
unfavorable company developments. Bonds rated D are in default. The issuer
failed to meet scheduled principal and/or interest payments.
The "debt securities" included in the discussions of temporary investments are
corporate (as opposed to municipal) debt obligations rated AAA, AA or A by S&P
or Aaa, Aa or A by Moody's. Corporate debt obligations rated AAA by S&P are
"highest grade obligations." Obligations bearing the rating of AA also qualify
as "high grade obligations" and "in the majority of instances differ from AAA
issues only in small degree." Corporate debt obligations rated A by S&P are
regarded as "upper medium grade" and have "considerable investment strength, but
are not entirely free from adverse effects of changes in economic and trade
conditions." The Moody's corporate debt ratings of Aaa, Aa and A do not differ
materially from those set forth above for municipal bonds.
Taxable or tax-exempt commercial paper ratings of A-1 or A-2 by S&P and P-1 or
P-2 by Moody's are the highest paper ratings of the respective agencies. The
issuer's earnings, quality of long-term debt, management and industry position
are among the factors considered in assigning such ratings.
Subsequent to its purchase by a Fund, an issue of Municipal Securities or a
temporary investment may cease to be rated or its rating may be reduced below
the minimum required for purchase by the Fund. Neither event requires the
elimination of such obligation from the Fund's portfolio, but KFS will consider
such an event in its determination of whether the Fund should continue to hold
such obligation in its portfolio. To the extent that the ratings accorded by
S&P, Moody's, Fitch or Duff for municipal bonds or temporary investments may
change as a result of changes in such organizations, or changes in their rating
systems, the Fund will attempt to use comparable ratings as standards for its
investments in municipal bonds or temporary investments in accordance with the
investment policies contained herein.
B-51
<PAGE> 107
PORTFOLIO OF INVESTMENTS September 30, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
ISSUER
ADVANCE REFUNDED OBLIGATIONS SECURED AS TO PRINCIPAL AND
INTEREST BY UNITED STATES GOVERNMENT SECURITIES Principal
ARIZONA Amount Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Salt River Project, Agricultural Improvement & Power District, Revenue, 7.00%, to be called 1-01-96 @
102 $ 5,000 $ 5,245
- --------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA
- --------------------------------------------------------------------------------------------------------------------------------
Los Angeles County, Transportation Commission, Sales Tax Revenue, 6.90%, to be called 7-01-01 @ 102 10,125 11,249
- --------------------------------------------------------------------------------------------------------------------------------
Riverside County, Riverside Juvenile Facilities Corporation, Certificates of Participation, Revenue,
8.00%, to be called 10-01-98 @ 102 4,000 4,509
- --------------------------------------------------------------------------------------------------------------------------------
San Mateo County, Certificates of Participation, Revenue, 6.00%, to be called 7-01-01 @ 100 3,500 3,659
- --------------------------------------------------------------------------------------------------------------------------------
19,417
COLORADO
- --------------------------------------------------------------------------------------------------------------------------------
Colorado Springs, County Utility Revenue, 6.75%, to be called 11-15-01 @ 102 2,890 3,176
- --------------------------------------------------------------------------------------------------------------------------------
Metropolitan Denver Sewage Disposal, District No. 1, Revenue, 6.75%, to be called 10-01-96 @ 101 1,960 2,053
- --------------------------------------------------------------------------------------------------------------------------------
5,229
CONNECTICUT
- --------------------------------------------------------------------------------------------------------------------------------
Connecticut State Health and Educational Facilities, Lawrence and Memorial Hospital, Revenue, 6.25%,
to be called 7-01-02 @ 102 4,720 5,018
- --------------------------------------------------------------------------------------------------------------------------------
State of Connecticut, General Obligation, 6.50%, to be called 3-15-02 @ 102 10,440 11,274
- --------------------------------------------------------------------------------------------------------------------------------
16,292
FLORIDA
- --------------------------------------------------------------------------------------------------------------------------------
Jacksonville Health Facilities Authority, Baptist Medical Center, Revenue
11.50%, to be called 10-01-03 @ 100 10 14
11.50%, to be called 10-01-04 @ 100 35 50
11.50%, to be called 10-01-05 @ 100 55 81
- --------------------------------------------------------------------------------------------------------------------------------
145
GEORGIA
- --------------------------------------------------------------------------------------------------------------------------------
Hospital Authority of Fulton County, Northside Hospital, Revenue, 6.60%, to be called 10-01-02 @ 102 8,250 9,000
- --------------------------------------------------------------------------------------------------------------------------------
INDIANA
- --------------------------------------------------------------------------------------------------------------------------------
Trustees of Purdue University, Purdue University Student Fees, Revenue, 6.75%, to be called 7-01-01 @
102 6,300 6,901
- --------------------------------------------------------------------------------------------------------------------------------
KENTUCKY
- --------------------------------------------------------------------------------------------------------------------------------
Kenton County Airport Board, Greater Cincinnati International Airport, Revenue, 8.25%, to be called
3-1-98 @ 102 1,620 1,808
- --------------------------------------------------------------------------------------------------------------------------------
Kentucky Development Finance Authority, Baptist Hospitals, Inc., Revenue, 7.00%, to be called 9-01-99
@ 102 3,000 3,295
- --------------------------------------------------------------------------------------------------------------------------------
5,103
MARYLAND
- --------------------------------------------------------------------------------------------------------------------------------
Gaithersburg, First Mortgage Economic Development, Asbury Methodist Home Incorporated, Revenue,
7.85%, to be called 1-01-00 @ 102 4,000 4,545
- --------------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS
- --------------------------------------------------------------------------------------------------------------------------------
Commonwealth of Massachusetts, General Obligation
6.875%, to be called 7-01-01 @ 102 20,000 22,047
6.75%, to be called 8-01-01 @ 102 10,500 11,497
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Municipal Wholesale Electric Company, Power Supply System, Revenue, 6.75%,
to be called 7-01-02 @ 102 9,150 10,044
- --------------------------------------------------------------------------------------------------------------------------------
43,588
MICHIGAN
- --------------------------------------------------------------------------------------------------------------------------------
Detroit Distributable State Aid, General Obligation, 7.20%, to be called 5-01-99 @ 102 14,285 15,708
- --------------------------------------------------------------------------------------------------------------------------------
Michigan State Building Authority, University of Michigan Adult General Hospital Facility, Revenue,
7.875%, to be called 12-01-96 @ 102 265 287
- --------------------------------------------------------------------------------------------------------------------------------
15,995
MISSOURI
- --------------------------------------------------------------------------------------------------------------------------------
Missouri Health and Educational Facilities, Christian Health Services Development Corporation,
Christian Hospital Northeast-Northwest, Revenue, 6.875%, to be called 2-15-01 @ 102 21,500 23,605
- --------------------------------------------------------------------------------------------------------------------------------
St. Louis County, Regional Convention & Sports Complex Authority, Convention & Sports Facility
Project, Revenue, 7.00%, to be called 8-15-03 @ 100 4,380 4,826
- --------------------------------------------------------------------------------------------------------------------------------
28,431
NEW MEXICO
- --------------------------------------------------------------------------------------------------------------------------------
Albuquerque Southwest Community Health Services, Revenue, 10.125%, to be called 8-1-08 @ 100 4,000 5,310
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 108
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
NEW YORK Amount Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
New York City, General Obligation, 8.125%, to be called 11-01-97 @ 101 1/2 $ 4,000 $ 4,450
- --------------------------------------------------------------------------------------------------------------------------------
New York City, Municipal Water Finance Authority, Revenue, 7.375%, to be called 6-15-99 @ 101 1/2 4,500 4,980
- --------------------------------------------------------------------------------------------------------------------------------
New York Local Government Assistance Corporation, General Obligation, 7.375% and 7.50%,
to be called 4-01-01 @ 102 21,175 24,130
- --------------------------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority, State University Educational Facilities, Revenue, 7.25%,
to be called 5-15-02 @ 102 3,810 4,307
- --------------------------------------------------------------------------------------------------------------------------------
New York State Medical Facilities Finance Agency, Mental Health Services Facilities Improvement,
Revenue, 7.75%, to be called 2-15-00 @ 102 2,500 2,837
- --------------------------------------------------------------------------------------------------------------------------------
40,704
OHIO
- --------------------------------------------------------------------------------------------------------------------------------
Franklin County, Mount Carmel Health Hospital, Revenue, 7.25%, to be called 6-01-00 @ 102 5,495 6,124
- --------------------------------------------------------------------------------------------------------------------------------
Lucas County, Toledo Hospital, Hospital Improvement and Refunding Revenue, 9.625%, to be called
10-01-94 @ 102 5,225 5,329
- --------------------------------------------------------------------------------------------------------------------------------
11,453
PENNSYLVANIA
- --------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Industrial Development Authority, Economic Development Revenue, 7.00%, to be called
7-1-01 @ 102 5,000 5,532
- --------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Intergovernmental Cooperation Authority, City of Philadelphia Funding Program,
Revenue, 6.80%, to be called 6-15-02 @ 100 12,000 13,032
- --------------------------------------------------------------------------------------------------------------------------------
Philadelphia, Gas Works Revenue, 7.70%, to be called 6-15-01 @ 102 14,850 17,014
- --------------------------------------------------------------------------------------------------------------------------------
Philadelphia Municipal Authority, Criminal Justice Center, Revenue, 7.80%, to be called 4-01-98 @ 102 4,000 4,424
- --------------------------------------------------------------------------------------------------------------------------------
Somerset County, General Authority Commonwealth Lease, Revenue, 6.25%, to be called 10-15-01 @ 100 8,070 8,496
- --------------------------------------------------------------------------------------------------------------------------------
48,498
RHODE ISLAND
- --------------------------------------------------------------------------------------------------------------------------------
Rhode Island Convention Center Authority, Revenue, 6.65%, to be called 5-15-01 @ 102 25,300 27,573
- --------------------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA
- --------------------------------------------------------------------------------------------------------------------------------
Lancaster County Water and Sewer District, Waterworks and Sewer System Improvement Revenue, 6.75%,
to be called 5-1-01 @ 102 3,000 3,283
- --------------------------------------------------------------------------------------------------------------------------------
TEXAS
- --------------------------------------------------------------------------------------------------------------------------------
Tarrant County Water Control and Improvement District Number One, Revenue, 6.00%, to be called
3-01-01 @ 100 7,400 7,682
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL ADVANCE REFUNDED OBLIGATIONS--8.2% 304,394
- --------------------------------------------------------------------------------------------------------------------------------
OTHER OBLIGATIONS
ALABAMA
- --------------------------------------------------------------------------------------------------------------------------------
Alabama Water Pollution Control Authority, Revolving Fund Loan, Revenue, 5.00%, 2015 11,050 9,159
- --------------------------------------------------------------------------------------------------------------------------------
Birmingham-Jefferson Civic Center Authority, Capital Outlay Special Tax Revenue, 7.40%, 2008 12,000 12,845
- --------------------------------------------------------------------------------------------------------------------------------
Board of Trustees, University of Alabama at Birmingham Hospital, Refunding Revenue, 5.00%, 2014 4,200 3,476
- --------------------------------------------------------------------------------------------------------------------------------
Hoover, General Obligation, 4.50%, 2013 8,545 6,702
- --------------------------------------------------------------------------------------------------------------------------------
Jasper Water Works and Sewer Board Inc., Water and Sewer Revenue, 6.15%, 2014 3,400 3,324
- --------------------------------------------------------------------------------------------------------------------------------
35,506
ALASKA
- --------------------------------------------------------------------------------------------------------------------------------
Alaska Energy Authority, Bradley Lake Hydroelectric Power, Revenue, 7.25%, 2016 4,675 5,050
- --------------------------------------------------------------------------------------------------------------------------------
North Slope Borough, General Obligation, 13.00%, 1998 635 789
- --------------------------------------------------------------------------------------------------------------------------------
5,839
ARIZONA
- --------------------------------------------------------------------------------------------------------------------------------
Arizona Health Facilities Authority Hospital System, Phoenix Baptist Hospital and Medical Center,
Inc. and Medical Environments, Inc., Revenue, 6.25%, 2011 1,400 1,401
- --------------------------------------------------------------------------------------------------------------------------------
Arizona Transportation Board, Subordinated Highway Refunding Revenue, 4.75%, 2011 11,970 9,850
- --------------------------------------------------------------------------------------------------------------------------------
Central Arizona Water Conservation District, Central Arizona Water Project, Revenue, 5.50%, 2008
through 2010 5,500 5,139
- --------------------------------------------------------------------------------------------------------------------------------
City of Chandler, General Obligation, 4.375%, 2013 1,500 1,158
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 109
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
City of Phoenix, General Obligation, 6.375%, 2013 $ 7,400 $ 7,596
- --------------------------------------------------------------------------------------------------------------------------------
Cocinino County, Industrial Development Authority, Health Care Institution, The Guidance Center, Inc.
Project, Revenue, 9.25%, 2011 955 1,007
- --------------------------------------------------------------------------------------------------------------------------------
Pima County, Tucson Unified School District No. 1, School Improvement, Revenue, 5.40%, 2013 2,400 2,140
- --------------------------------------------------------------------------------------------------------------------------------
Salt River Project, Agricultural Improvement and Power District, Revenue, 4.75% to 5.75%, 2013
through 2017 34,950 29,173
- --------------------------------------------------------------------------------------------------------------------------------
57,464
ARKANSAS
- --------------------------------------------------------------------------------------------------------------------------------
Jefferson County, Arkansas Power & Light Company Project, Pollution Control Refunding Revenue, 6.30%,
2018 1,600 1,524
- --------------------------------------------------------------------------------------------------------------------------------
North Little Rock, Electric System, Refunding Revenue, 6.50%, 2010 and 2015 30,730 32,008
- --------------------------------------------------------------------------------------------------------------------------------
Pope County, Arkansas Power & Light Company Project, Pollution Control Refunding Revenue, 6.30%, 2016 2,600 2,475
- --------------------------------------------------------------------------------------------------------------------------------
Russellville, Water System, Refunding Revenue, 6.25%, 2012 2,000 2,016
- --------------------------------------------------------------------------------------------------------------------------------
38,023
CALIFORNIA
- --------------------------------------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority, Childrens Hospital of Los Angeles,
Certificate of Participation, Refunding Revenue, 4.75%, 2021 10,000 7,662
- --------------------------------------------------------------------------------------------------------------------------------
Central Coast Water Authority, Regional Facilities, Revenue, 6.15%, 2005 2,405 2,485
- --------------------------------------------------------------------------------------------------------------------------------
Central Valley Financing Authority, Cogeneration Project, Carson Ice, Revenue, 6.00%, 2009 6,000 5,677
- --------------------------------------------------------------------------------------------------------------------------------
City of Los Angeles, Convention & Exhibit Center Authority, Lease Revenue, 5.125%, 2013 5,040 4,287
- --------------------------------------------------------------------------------------------------------------------------------
City of Los Angeles, Department of Water & Power, Electric Plant Refunding Revenue, 4.75% and 5.75%,
2009 through 2019 35,430 30,023
- --------------------------------------------------------------------------------------------------------------------------------
City of San Jose, Convention Center, Revenue, 6.30% and 6.40%, 2010 and 2017 14,000 13,810
- --------------------------------------------------------------------------------------------------------------------------------
Duarte, City of Hope National Medical Center, Certificates of Participation, Revenue, 6.00% and
6.25%, 2008 and 2023 23,255 21,327
- --------------------------------------------------------------------------------------------------------------------------------
Imperial Irrigation District, Electric System Project, Certificates of Participation, Revenue, 5.20%,
2009 3,250 2,917
- --------------------------------------------------------------------------------------------------------------------------------
Loma Linda, University Medical Center, Revenue, 9.00%, 2012 2,500 2,650
- --------------------------------------------------------------------------------------------------------------------------------
Los Angeles County, Metropolitan Transportation Authority, Sales Tax Revenue, 4.75% to 5.50%, 2011
through 2018 45,135 37,920
- --------------------------------------------------------------------------------------------------------------------------------
Los Angeles County, Public Works Financing Authority, Flood Control District Revenue, 5.00%, 2017 8,400 6,855
- --------------------------------------------------------------------------------------------------------------------------------
Los Angeles County, Public Works Financing Authority, Multi Purpose Lease Revenue, 4.75%, 2013 21,000 16,807
- --------------------------------------------------------------------------------------------------------------------------------
Los Angeles County, Public Works Financing Authority, Los Angeles County Regional Park and Open Space
District, Revenue, 6.00%, 2015 22,545 21,687
- --------------------------------------------------------------------------------------------------------------------------------
Regents of University of California, Multiple Purpose Projects, Revenue, 4.75% and 5.00%, 2012 and
2015 11,250 9,293
- --------------------------------------------------------------------------------------------------------------------------------
Sacramento Municipal Utility District, Revenue, 5.25% and 5.75%, 2008 and 2012 10,000 9,363
- --------------------------------------------------------------------------------------------------------------------------------
San Bernardino County, County Center/Justice Center Refunding and Capital Improvements, Revenue,
7.60%, 2015 6,955 7,436
- --------------------------------------------------------------------------------------------------------------------------------
Santa Monica Wastewater Enterprise, Hyperion Project, Refunding Revenue, 4.25% and 4.50%, 2022 and
2020 9,670 6,964
- --------------------------------------------------------------------------------------------------------------------------------
Southern California Public Power Authority, Palo Verde Project, Revenue, 4.75%, 2016 10,615 8,384
- --------------------------------------------------------------------------------------------------------------------------------
215,547
COLORADO
- --------------------------------------------------------------------------------------------------------------------------------
Adams County Public Service Company of Colorado Project, Pollution Control Refunding Revenue, 5.875%,
2014 3,500 3,361
- --------------------------------------------------------------------------------------------------------------------------------
Adams County, School District Number 12, General Obligation, 6.125% and 6.20%, 2007 and 2008 6,910 7,068
- --------------------------------------------------------------------------------------------------------------------------------
City and County of Denver, Airport System Revenue, 6.55% to 8.75%, 2002 through 2025 70,255 68,233
- --------------------------------------------------------------------------------------------------------------------------------
City and County of Denver, School District Number One, General Obligation, 5.125% and 6.50%, 2012 and
2010 12,225 11,584
- --------------------------------------------------------------------------------------------------------------------------------
Colorado Health Facilities Authority, Kaiser Permanente Medical Care Program, Revenue, 9.125%, 2015 8,575 9,053
- --------------------------------------------------------------------------------------------------------------------------------
Colorado Health Facilities Authority, Swedish Medical Center Project, Revenue, 7.50% and 6.80%, 2020
and 2023 5,500 5,368
- --------------------------------------------------------------------------------------------------------------------------------
Colorado Health Facilities Authority, Vail Valley Medical Center, Revenue, 8.125%, 2019 7,000 7,287
- --------------------------------------------------------------------------------------------------------------------------------
Colorado Housing Finance Authority, Single Family Mortgage Revenue, 7.65%, 2022 855 866
- --------------------------------------------------------------------------------------------------------------------------------
Colorado Springs, County Utility Revenue, 6.75%, 2021 3,610 3,766
- --------------------------------------------------------------------------------------------------------------------------------
Metropolitan Denver Sewage Disposal, District No. 1, Revenue, 6.75%, 2012 5,540 5,727
- --------------------------------------------------------------------------------------------------------------------------------
Metropolitan Wastewater Reclamation District, General Obligation, 6.00%, 2010 11,505 11,357
- --------------------------------------------------------------------------------------------------------------------------------
133,670
CONNECTICUT
- --------------------------------------------------------------------------------------------------------------------------------
Connecticut Clean Water Fund, Revenue, 5.80%, 2016 1,750 1,637
- --------------------------------------------------------------------------------------------------------------------------------
Connecticut Municipal Electric Energy Cooperative, Power Supply System, Refunding Revenue, 5.00%,
2018 7,400 6,047
- --------------------------------------------------------------------------------------------------------------------------------
Connecticut Resource Recovery Authority, Mid-Connecticut Systems, 7.30%, 2012 4,790 5,162
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 110
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Connecticut State Development Authority, Pierce Memorial Baptist Home Project, Revenue, 9.25%, 2018 $ 1,140 $ 1,275
- --------------------------------------------------------------------------------------------------------------------------------
State of Connecticut, General Obligation, 4.75% and 5.50%, 2011 and 2012 7,800 6,998
- --------------------------------------------------------------------------------------------------------------------------------
State of Connecticut, Transportation Infrastructure Purposes, Special Tax Obligation, 4.875% to
6.25%, 2008 through 2014 44,940 42,497
- --------------------------------------------------------------------------------------------------------------------------------
63,616
DELAWARE
- --------------------------------------------------------------------------------------------------------------------------------
Delaware Transportation Authority, Transportation System, Refunding Revenue, 5.75%, 2008 and 2012 16,770 16,167
- --------------------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA
- --------------------------------------------------------------------------------------------------------------------------------
District of Columbia, Certificates of Participation, Revenue, 7.30%, 2013 6,150 6,225
- --------------------------------------------------------------------------------------------------------------------------------
District of Columbia, General Obligation, 6.00% and 6.30%, 2013 and 2010 8,500 8,257
- --------------------------------------------------------------------------------------------------------------------------------
Georgetown University, Revenue, 8.25%, 2018 11,410 12,609
- --------------------------------------------------------------------------------------------------------------------------------
Metropolitan Washington Airports Authority, Airport System Revenue, 7.60%, 2014 3,000 3,237
- --------------------------------------------------------------------------------------------------------------------------------
Washington Metropolitan Area Transit Authority, Gross Transit Refunding Revenue, 5.25%, 2014 9,000 7,821
- --------------------------------------------------------------------------------------------------------------------------------
38,149
FLORIDA
- --------------------------------------------------------------------------------------------------------------------------------
Broward County, Airport System Revenue, 7.625%, 2013 2,620 2,876
- --------------------------------------------------------------------------------------------------------------------------------
Broward County, Broward Waste Energy Company, Revenue, 7.95%, 2008 14,145 15,408
- --------------------------------------------------------------------------------------------------------------------------------
Dade County School District, General Obligation, 5.00% and 6.125%, 2010 and 2008 17,500 17,033
- --------------------------------------------------------------------------------------------------------------------------------
Dade County Water and Sewer System, Refunding Revenue, 5.00%, 2013 11,250 9,456
- --------------------------------------------------------------------------------------------------------------------------------
Escambia County Housing Finance Authority, Single Family Mortgage Revenue, 7.40%, 2023 1,460 1,500
- --------------------------------------------------------------------------------------------------------------------------------
Florida Housing Finance Authority, GNMA Collateralized Home Ownership, Revenue, 7.90%, 2022 2,170 2,226
- --------------------------------------------------------------------------------------------------------------------------------
Florida Municipal Power Agency, All-Requirements Power Supply Project, Revenue, 5.10%, 2014 7,565 6,374
- --------------------------------------------------------------------------------------------------------------------------------
Florida State Board of Education, Capital Outlay, Revenue, 5.70% to 6.50%, 2010 through 2015 17,250 16,627
- --------------------------------------------------------------------------------------------------------------------------------
Florida State Department of Management Services, Facilities Pool Revenue, 5.40%, 2010 and 2011 14,575 13,380
- --------------------------------------------------------------------------------------------------------------------------------
Greater Orlando Aviation Authority, Revenue, 8.375%, 2016 3,065 3,439
- --------------------------------------------------------------------------------------------------------------------------------
Hillsborough County Industrial Development Authority, Tampa Electric, Revenue, 8.00%, 2022 10,000 11,186
- --------------------------------------------------------------------------------------------------------------------------------
Hillsborough County Industrial Development Authority, University Community Hospital, Inc., Industrial
Development Revenue, 5.50% and 5.70%, 2013 and 2009 6,000 5,468
- --------------------------------------------------------------------------------------------------------------------------------
Jacksonville, Gator Bowl Project, Capital Improvement Revenue, 5.50%, 2014 3,000 2,706
- --------------------------------------------------------------------------------------------------------------------------------
Jacksonville Health Facilities Authority, Baptist Medical Center, Revenue, 11.50%, 2012 85 133
- --------------------------------------------------------------------------------------------------------------------------------
Lake County, Village Center Community Development District, Utility Revenue, 5.00%, 2013 4,605 3,869
- --------------------------------------------------------------------------------------------------------------------------------
Lakeland, Electric and Water Revenue, zero coupon, 2011 9,000 3,083
- --------------------------------------------------------------------------------------------------------------------------------
Nassua County Florida, Amelia Island Project, Revenue, 9.75%, 2023 1,000 1,112
- --------------------------------------------------------------------------------------------------------------------------------
Orange County, Tourist Development Tax Revenue, 6.00%, 2008 5,000 4,981
- --------------------------------------------------------------------------------------------------------------------------------
Orlando-Orange County Expressway Authority, Senior Lien, Refunding Revenue, 5.25%, 2012 4,000 3,531
- --------------------------------------------------------------------------------------------------------------------------------
Palm Beach County, Criminal Justice Facilities Revenue, 7.20%, 2015 4,890 5,479
- --------------------------------------------------------------------------------------------------------------------------------
Palm Beach County, Solid Waste Authority, Revenue, 8.75%, 2010 13,755 15,199
- --------------------------------------------------------------------------------------------------------------------------------
Pasco County, Solid Waste Disposal and Resource Recovery Revenue, 7.80%, 2011 13,730 15,156
- --------------------------------------------------------------------------------------------------------------------------------
St. Petersburg, Excise Tax Refunding, Revenue, 5.00%, 2016 2,245 1,851
- --------------------------------------------------------------------------------------------------------------------------------
State of Florida, Department of Natural Resources, Preservation 2000, Revenue, 6.25%, 2007 4,390 4,496
- --------------------------------------------------------------------------------------------------------------------------------
166,569
GEORGIA
- --------------------------------------------------------------------------------------------------------------------------------
Atlanta, Water and Sewerage, Refunding Revenue, 4.50%, 2018 16,000 12,017
- --------------------------------------------------------------------------------------------------------------------------------
Chatham County School District, General Obligation, 6.15%, 2010 7,300 7,305
- --------------------------------------------------------------------------------------------------------------------------------
DeKalb County Hospital Authority, DeKalb Medical Center Project, Revenue, 5.00%, 2014 3,500 2,891
- --------------------------------------------------------------------------------------------------------------------------------
Fulton - DeKalb Hospital Authority, Grady Memorial Hospital, Revenue, 5.50%, 2012 8,100 7,336
- --------------------------------------------------------------------------------------------------------------------------------
Georgia State Municipal Electric Authority, Power Refunding Revenue, 5.50%, 2012 21,500 19,746
- --------------------------------------------------------------------------------------------------------------------------------
Hospital Authority of Albany-Dougherty County, Phoebe Putney Memorial Hospital, Revenue, 5.00%, 2020 6,000 4,847
- --------------------------------------------------------------------------------------------------------------------------------
Metropolitan Atlanta Rapid Transit Authority, Refunding Revenue, 6.20%, 2010 9,890 9,859
- --------------------------------------------------------------------------------------------------------------------------------
Metropolitan Atlanta Rapid Transit Authority, Sales Tax Refunding Revenue, 6.25%, 2008 and 2011 26,585 26,922
- --------------------------------------------------------------------------------------------------------------------------------
Municipal Electric Authority, Special Obligation, 8.125%, 2017 6,000 6,650
- --------------------------------------------------------------------------------------------------------------------------------
97,573
</TABLE>
8
<PAGE> 111
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
HAWAII Amount Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
City and County of Honolulu, General Obligation, 5.75%, 2011 $ 8,820 $ 8,502
- --------------------------------------------------------------------------------------------------------------------------------
Hawaii, Harbor Revenue, 6.25%, 2015 3,000 2,930
- --------------------------------------------------------------------------------------------------------------------------------
11,432
ILLINOIS
- --------------------------------------------------------------------------------------------------------------------------------
Chicago Board of Education, General Obligation Lease Certificates, 6.25%, 2008 through 2011 21,060 21,181
- --------------------------------------------------------------------------------------------------------------------------------
Chicago Gas Supply, Peoples Gas, Light and Coke Company, Revenue, 8.10%, 2020 8,250 9,184
- --------------------------------------------------------------------------------------------------------------------------------
Chicago-O'Hare International Airport, General Airport Revenue, 5.00% and 6.00%, 2012 through 2016 31,000 25,876
- --------------------------------------------------------------------------------------------------------------------------------
Chicago School Finance Authority, General Obligation, 6.25%, 2009 9,730 9,745
- --------------------------------------------------------------------------------------------------------------------------------
Chicago, Skyway Toll Bridge Refunding Revenue, 6.75%, 2014 10,000 9,866
- --------------------------------------------------------------------------------------------------------------------------------
Chicago, Tax Increment Allocation Bonds, Central Station Revenue, 8.90%, 2011 1,910 2,074
- --------------------------------------------------------------------------------------------------------------------------------
County of Cook, General Obligation, 6.50% and 9.50%, 2012 and 1996 16,315 16,648
- --------------------------------------------------------------------------------------------------------------------------------
Freeport, Single Family Mortgage Revenue, 7.40%, 2010 1,965 1,990
- --------------------------------------------------------------------------------------------------------------------------------
Harvard, Multifamily Housing Project, Northfield Court, Revenue, 8.80%, 2008 3,900 4,084
- --------------------------------------------------------------------------------------------------------------------------------
Illinois Health Facilities Authority, South Suburban Hospital, Revenue, 7.00%, 2009 7,750 7,846
- --------------------------------------------------------------------------------------------------------------------------------
Illinois Sports Facilities Authority, Revenue, 7.875%, 2010 2,990 3,319
- --------------------------------------------------------------------------------------------------------------------------------
Illinois Student Assistance, Student Loan Revenue, 5.80%, 2001 2,000 2,015
- --------------------------------------------------------------------------------------------------------------------------------
Metropolitan Fair and Exposition Authority, Dedicated State Tax Revenue, 6.00%, 2014 9,000 8,570
- --------------------------------------------------------------------------------------------------------------------------------
St. Charles, Wessel Court Project, Multifamily Housing Revenue, 7.60%, 2018 4,000 4,000
- --------------------------------------------------------------------------------------------------------------------------------
University Park, Governors Gateway Industrial Park, Tax Increment Revenue, 8.50%, 2011 3,000 3,000
- --------------------------------------------------------------------------------------------------------------------------------
129,398
INDIANA
- --------------------------------------------------------------------------------------------------------------------------------
City of East Chicago, Inland Steel Company Project No. 10, Pollution Control Revenue, 6.80%, 2013 15,000 14,023
- --------------------------------------------------------------------------------------------------------------------------------
Hospital Authority of Marion County, University Heights Hospital, Revenue, 8.625%, 2012 7,195 8,263
- --------------------------------------------------------------------------------------------------------------------------------
Indianapolis, Local Public Improvement Bond, Transportation Revenue, 6.00% to 6.75%, 2007 through
2014 22,000 22,419
- --------------------------------------------------------------------------------------------------------------------------------
Indiana Transportation Finance Authority, Highway Revenue, 5.25% and 7.25%, 2008 and 2015 9,000 8,960
- --------------------------------------------------------------------------------------------------------------------------------
Trustees of Purdue University, Purdue University Student Fees, Revenue, 6.70% and 6.75%, 2015 and
2009 14,500 14,677
- --------------------------------------------------------------------------------------------------------------------------------
68,342
IOWA
- --------------------------------------------------------------------------------------------------------------------------------
Iowa Finance Authority, GNMA Mortgage-Back Securities Program, Single Family Mortgage Revenue, 7.90%,
2022 3,600 3,705
- --------------------------------------------------------------------------------------------------------------------------------
Iowa Financing Authority, Trinity Regional Hospital Project, Refunding Revenue, 7.00%, 2022 9,000 8,577
- --------------------------------------------------------------------------------------------------------------------------------
12,282
KANSAS
- --------------------------------------------------------------------------------------------------------------------------------
City of Kansas City, Utility System Refunding Revenue, zero coupon, 2009 8,000 3,225
- --------------------------------------------------------------------------------------------------------------------------------
City of Kansas City, Utility System Refunding and Improvement Revenue, 6.25%, 2014 5,000 4,960
- --------------------------------------------------------------------------------------------------------------------------------
Kansas Turnpike Authority, Turnpike Refunding Revenue, 5.25%, 2017 15,000 12,924
- --------------------------------------------------------------------------------------------------------------------------------
Sedgwick County, Mortgage Loan Revenue, 7.875%, 2021 2,825 2,922
- --------------------------------------------------------------------------------------------------------------------------------
24,031
KENTUCKY
- --------------------------------------------------------------------------------------------------------------------------------
Commonwealth of Kentucky, Project No. 56, State Property and Building Commission Revenue, 6.00%, 2014 1,250 1,185
- --------------------------------------------------------------------------------------------------------------------------------
Hopkins County, The Trover Clinic Foundation, Revenue, 6.625%, 2011 4,000 4,106
- --------------------------------------------------------------------------------------------------------------------------------
Kenton County Airport Board, Greater Cincinnati International Airport, Revenue, 8.25%, 2015 7,380 8,242
- --------------------------------------------------------------------------------------------------------------------------------
Kentucky Development Finance Authority, Baptist Hospital Inc., Hospital Refunding Revenue, 7.625%,
2011 2,000 2,194
- --------------------------------------------------------------------------------------------------------------------------------
Kentucky Development Finance Authority, St. Luke Hospital, Inc., Hospital Facilities Revenue, 7.00%,
2021 11,150 11,641
- --------------------------------------------------------------------------------------------------------------------------------
Kentucky Economic Development Finance Authority, Baptist Healthcare System Issue, Hospital Revenue,
5.00%, 2015 10,000 8,200
- --------------------------------------------------------------------------------------------------------------------------------
Owensboro, Electric Light and Power System, Revenue, zero coupon, 2013 2,750 848
- --------------------------------------------------------------------------------------------------------------------------------
Trimble County, Louisville Gas & Electric Company, Revenue, 7.75%, 2019 1,840 1,997
- --------------------------------------------------------------------------------------------------------------------------------
Turnpike Authority of Kentucky, Revitalization Projects, Economic Development Road Revenue, zero
coupon and 5.50%, 2006 through 2011 15,900 13,905
- --------------------------------------------------------------------------------------------------------------------------------
Turnpike Authority of Kentucky, Toll Road, Revenue, 8.50%, 2004 2,025 2,191
- --------------------------------------------------------------------------------------------------------------------------------
54,509
</TABLE>
9
<PAGE> 112
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
LOUISIANA Amount Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Industrial Development Board of the Parish of Calcasieu, Gulf States Utilities Company Project,
Revenue, 6.75%, 2012 $ 15,700 $ 15,412
- --------------------------------------------------------------------------------------------------------------------------------
Lafayette Parish School Board, Sales Tax Revenue, 4.875%, 2012 and 2013 3,370 2,785
- --------------------------------------------------------------------------------------------------------------------------------
Louisiana Public Facilities Authority, Alton Oshsner Medical Center, Revenue, 5.75%, 2011 17,790 16,754
- --------------------------------------------------------------------------------------------------------------------------------
Louisiana Public Facilities Authority, General Health, Inc. Project, Revenue, 6.25%, 2014 2,500 2,452
- --------------------------------------------------------------------------------------------------------------------------------
Monroe, Special School District, General Obligation, 5.75%, 2013 and 2014 5,500 5,130
- --------------------------------------------------------------------------------------------------------------------------------
Parish School Board of the Parish of Jefferson, Sales Tax School Refunding Revenue, 6.25%, 2008 11,000 11,138
- --------------------------------------------------------------------------------------------------------------------------------
State of Louisiana, General Obligation, 6.50% and 5.625%, 2010 and 2013 9,250 9,178
- --------------------------------------------------------------------------------------------------------------------------------
62,849
MARYLAND
- --------------------------------------------------------------------------------------------------------------------------------
City of Gaithersburg, First Mortgage Economic Development, Asbury Methodist Home Incorporated,
Refunding Single Family Revenue, 5.50%, 2015 and 2020 15,500 13,296
- --------------------------------------------------------------------------------------------------------------------------------
Community Development Administration, Department of Housing and Community Development, Revenue,
7.85%, 2029 5,985 6,107
- --------------------------------------------------------------------------------------------------------------------------------
Maryland Health & Higher Educational Facilities Authority, Doctors' Community Hospital Project,
Revenue, 5.75%, 2013 5,085 4,304
- --------------------------------------------------------------------------------------------------------------------------------
Maryland Health & Higher Educational Facilities Authority, Frederick Memorial Hospital Project,
Revenue, 5.00%, 2018 4,000 3,227
- --------------------------------------------------------------------------------------------------------------------------------
Maryland Stadium Authority, Sports Facilities Lease Revenue, 7.60%, 2019 17,200 18,836
- --------------------------------------------------------------------------------------------------------------------------------
Northeast Maryland Waste Disposal Authority, Southwest Resource Recovery Facility, Refunding Revenue,
7.20%, 2005 and 2006 12,675 13,996
- --------------------------------------------------------------------------------------------------------------------------------
59,766
MASSACHUSETTS
- --------------------------------------------------------------------------------------------------------------------------------
City of Lawrence, General Obligation, 4.75%, 2014 2,500 2,012
- --------------------------------------------------------------------------------------------------------------------------------
Commonwealth of Massachusetts, General Obligation, 5.50% to 6.50%, 2008 through 2014 43,835 42,541
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Bay Transit Authority, General Transportation System, Refunding Revenue,
5.50% to 6.20%, 2012 through 2016 25,700 24,485
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Housing Finance Authority, Housing Projects, Revenue, 6.15%, 2015 6,400 6,224
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Municipal Wholesale Electric Company, Power Supply System, Revenue,
5.00% to 6.75%, 2011 through 2018 52,355 50,865
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Port Authority, Revenue, 5.00% and 13.00%, 2013 and 2015 8,190 8,135
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Turnpike Authority, Revenue, 5.00%, 2013 12,400 10,451
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Water Pollution Abatement Trust, MWRA Loan Program, Revenue, 5.45%, 2013 5,000 4,476
- --------------------------------------------------------------------------------------------------------------------------------
Massachusetts Water Restoration Authority, Revenue, 5.25% and 5.50%, 2013 through 2017 52,200 45,452
- --------------------------------------------------------------------------------------------------------------------------------
New England, Education Loan Marketing Corporation, Student Loan, Revenue, 6.60%, 2002 5,000 5,199
- --------------------------------------------------------------------------------------------------------------------------------
199,840
MICHIGAN
- ---------------------------------------------------------------------------------------------------------------------------------
City of Kalamazoo Hospital Finance Authority, Borgess Medical Center, Hospital Refunding Revenue,
5.00%, 2013 14,650 12,278
- --------------------------------------------------------------------------------------------------------------------------------
City of Wyandotte, Electric, Refunding Revenue, 6.25%, 2008 7,045 7,257
- --------------------------------------------------------------------------------------------------------------------------------
Detroit Convention Facility, Cobo Hall Expansion Project, Refunding Revenue, 5.25%, 2012 22,250 19,353
- --------------------------------------------------------------------------------------------------------------------------------
Detroit School Building Site Improvement, General Obligation, 5.00%, 2011 12,000 10,309
- --------------------------------------------------------------------------------------------------------------------------------
Detroit, Sewer Disposal System, Refunding Revenue, 5.70%, 2013 5,500 5,111
- --------------------------------------------------------------------------------------------------------------------------------
Detroit, Water Supply System, Refunding Revenue, 4.75%, 2019 23,000 17,785
- --------------------------------------------------------------------------------------------------------------------------------
Jackson County Hospital Finance Authority, W.A. Foote Memorial Hospital, Refunding Revenue, 4.75%,
2015 4,260 3,365
- --------------------------------------------------------------------------------------------------------------------------------
Michigan Municipal Bond Authority, Local Government Loan Program, Revenue, 4.75%, 2009 7,225 6,053
- --------------------------------------------------------------------------------------------------------------------------------
Michigan State Building Authority, Refunding Revenue, 5.625% and 6.75%, 2010 and 2011 19,250 18,989
- --------------------------------------------------------------------------------------------------------------------------------
Michigan State Hospital Finance Authority, Henry Ford Health System, Revenue, 7.00%, 2010 11,000 11,302
- --------------------------------------------------------------------------------------------------------------------------------
Michigan State Hospital Finance Authority, McLaren Obligation Group, Refunding Revenue, 4.50%, 2021 28,215 19,967
- --------------------------------------------------------------------------------------------------------------------------------
Michigan State Hospital Finance Authority, Oakwood Hospital Obligated Group, Refunding Revenue,
5.50%, 2013 8,000 7,132
- --------------------------------------------------------------------------------------------------------------------------------
Michigan State Hospital Finance Authority, Sisters of Mercy Health Corporation, Refunding Revenue,
7.50%, 2007 and 2013 9,000 9,794
- --------------------------------------------------------------------------------------------------------------------------------
Michigan State Trunk Line Fund, Revenue, 5.625% to 5.75%, 2012 through 2016 15,795 14,493
- --------------------------------------------------------------------------------------------------------------------------------
163,188
</TABLE>
10
<PAGE> 113
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
MINNESOTA Amount Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
City of Minneapolis, Sales Tax Refunding, General Obligation, 6.30%, 2008 $ 5,000 $ 5,158
- --------------------------------------------------------------------------------------------------------------------------------
City of St. Louis Park, Methodist Hospital Project, Hospital Facilities Revenue, 7.25%, 2015 6,650 7,390
- --------------------------------------------------------------------------------------------------------------------------------
Minnesota Housing Finance Agency, Multi-Family Mortgage Bonds, Revenue, 9.375%, 2018 550 577
- --------------------------------------------------------------------------------------------------------------------------------
Minnesota Housing Finance Authority, Single Family Mortgage Bonds, Revenue, 7.90%, 2019 6,370 6,548
- --------------------------------------------------------------------------------------------------------------------------------
19,673
MISSISSIPPI
- --------------------------------------------------------------------------------------------------------------------------------
Gulfport Hospital Facilities Authority, Gulfport Memorial Hospital, Improvement and Refunding
Revenue, 6.125%, 2015 6,750 6,523
- --------------------------------------------------------------------------------------------------------------------------------
MISSOURI
- --------------------------------------------------------------------------------------------------------------------------------
Clarence Cannon Wholesale Water Commission, Water Refunding Revenue, 6.00%, 2020 10,000 8,753
- --------------------------------------------------------------------------------------------------------------------------------
Kansas City Schools, Missouri School District Building Corp., Leasehold Revenue, 5.00%, 2014 6,000 5,052
- --------------------------------------------------------------------------------------------------------------------------------
Missouri Housing Development Commission, Single Family Mortgage Revenue, 7.90%, 2021 5,025 5,118
- --------------------------------------------------------------------------------------------------------------------------------
Missouri State Health and Education Facilities Authority, St. Louis University, Refunding Revenue,
4.75%, 2016 4,500 3,563
- --------------------------------------------------------------------------------------------------------------------------------
Regional Convention and Sports Complex Authority, Convention and Sports Facility Project, St. Louis
County, Revenue, 5.50% and 7.90%, 2016 and 2021 10,000 9,427
- --------------------------------------------------------------------------------------------------------------------------------
Sikeston, Electric System, Revenue, 6.20% and 6.25%, 2010 and 2022 24,470 24,431
- --------------------------------------------------------------------------------------------------------------------------------
Springfield School District, General Obligation, 5.375%, 2013 4,300 3,870
- --------------------------------------------------------------------------------------------------------------------------------
St. Louis County Improvement and Refunding Revenue, 5.50%, 2013 4,485 4,111
- --------------------------------------------------------------------------------------------------------------------------------
St. Louis Municipal Finance Corporation II, Civil Courts Building Project, Revenue, 5.75%, 2013 2,000 1,884
- --------------------------------------------------------------------------------------------------------------------------------
St. Louis, Scullin Redevelopment Project, Tax Increment Revenue, 10.00%, 2010 9,265 10,192
- --------------------------------------------------------------------------------------------------------------------------------
St. Louis, Water Refunding and Improvement Revenue, 6.10%, 2009 2,150 2,153
- --------------------------------------------------------------------------------------------------------------------------------
78,554
NEBRASKA
- --------------------------------------------------------------------------------------------------------------------------------
Nebraska Public Power District, Electric System, Revenue, 6.125%, 2015 30,850 29,587
- --------------------------------------------------------------------------------------------------------------------------------
Omaha Public Power District Electric System, Refunding Revenue, 5.25% and 5.50%, 2013 and 2014 14,695 13,150
- --------------------------------------------------------------------------------------------------------------------------------
Scotts Bluff County, Hospital Authority, Regional West Medical Project Center, Revenue, 6.45%, 2004 4,535 4,511
- --------------------------------------------------------------------------------------------------------------------------------
47,248
NEVADA
- --------------------------------------------------------------------------------------------------------------------------------
Humboldt County, Pollution Control, Idaho Power Company, Revenue, 8.30%, 2014 9,650 11,017
- --------------------------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE
- --------------------------------------------------------------------------------------------------------------------------------
New Hampshire Industrial Development Authority, Public Service Company of New Hampshire Project,
Revenue, 7.50% and 7.65%, 2021 31,250 32,264
- --------------------------------------------------------------------------------------------------------------------------------
NEW JERSEY
- --------------------------------------------------------------------------------------------------------------------------------
Bergen County Utilities Authority, Solid Waste System, Refunding Revenue, 5.50%, 2013 9,000 8,223
- --------------------------------------------------------------------------------------------------------------------------------
Camden County Municipal Utilities Authority, Revenue, 8.25%, 2017 15,600 17,295
- --------------------------------------------------------------------------------------------------------------------------------
Essex County, Property and Equipment Improvement Leasing Program, Revenue, 6.50%, 2012 4,050 4,152
- --------------------------------------------------------------------------------------------------------------------------------
Monmouth County Improvement Authority, Water Treatment Facilities, Refunding Revenue. 5.25%, 2012 2,500 2,231
- --------------------------------------------------------------------------------------------------------------------------------
New Jersey Building Authority, State Building Refunding Revenue, 5.00%, 2016 10,000 8,338
- --------------------------------------------------------------------------------------------------------------------------------
New Jersey Economic Development Authority, Market Transition Facility, Senior Lien Revenue, 5.80% and
5.875%, 2007 and 2011 38,310 37,400
- --------------------------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Authority, Atlantic City Medical Center, Revenue, 6.80%,
2011 3,165 3,221
- --------------------------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Authority, Monmouth Medical Center Issue, Refunding
Revenue, 6.25%, 2016 2,000 1,981
- --------------------------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Authority, Southern Ocean County Hospital, Revenue,
6.125% and 6.25%, 2013 and 2023 5,300 4,834
- --------------------------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Authority, St. Clares Riverside Medical Center Obligated
Group Issue, Refunding Revenue, 5.75%, 2010 2,000 1,928
- --------------------------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Authority, West Jersey Health System, Revenue, 6.125%,
2012 12,720 12,549
- --------------------------------------------------------------------------------------------------------------------------------
New Jersey Turnpike Authority, Revenue, 5.75% to 10.375%, 2003 through 2016 44,145 45,038
- --------------------------------------------------------------------------------------------------------------------------------
Passaic Valley Sewerage Commission, Sewer System, Refunding Revenue, 5.75%, 2015 8,440 7,919
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 114
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
South Jersey Port Corporation, Marine Terminal, Revenue, 9.00%, 2020 $ 2,000 $ 2,087
- --------------------------------------------------------------------------------------------------------------------------------
Union City, General Obligation, 6.70%, 2012 4,000 4,195
- --------------------------------------------------------------------------------------------------------------------------------
161,391
NEW MEXICO
- --------------------------------------------------------------------------------------------------------------------------------
Albuquerque, Health Care, Ltd. Project, Revenue, 9.75%, 2014 1,455 1,619
- --------------------------------------------------------------------------------------------------------------------------------
Albuquerque, Southwest Community Health Services, Revenue, 10.00%, 2003 990 1,304
- --------------------------------------------------------------------------------------------------------------------------------
City of Farmington, Utility System, Refunding Revenue, 5.75%, 2013 10,250 9,615
- --------------------------------------------------------------------------------------------------------------------------------
City of Santa Fe, Water System Project, Revenue, 6.25%, 2015 1,000 992
- --------------------------------------------------------------------------------------------------------------------------------
Socorro Hospital System, Southwest Community Health Services, Revenue, 10.00%, 2003 1,500 1,997
- --------------------------------------------------------------------------------------------------------------------------------
Truth or Consequences, Nursing Home Improvement, Sierra Health Care, Inc., Revenue, 9.75%, 2014 973 1,081
- --------------------------------------------------------------------------------------------------------------------------------
16,608
NEW YORK
- --------------------------------------------------------------------------------------------------------------------------------
New York City Educational Construction Fund, Revenue, 5.50%, 2011 8,300 7,589
- --------------------------------------------------------------------------------------------------------------------------------
New York City, General Obligation, 5.625% to 8.40%, 2000 through 2015 94,470 97,892
- --------------------------------------------------------------------------------------------------------------------------------
New York City, Municipal Water Finance Authority, Revenue, 7.00%, 2015 1,500 1,590
- --------------------------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority, City University System, Consolidated Revenue, 5.375%, 2007 13,035 11,987
- --------------------------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority, City University System, Refunding Revenue, 5.75%, 2007 through
2009 27,195 25,463
- --------------------------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority, State University Educational Facilities, Revenue, 5.25% to
5.875%, 2008 through 2011 19,440 18,096
- --------------------------------------------------------------------------------------------------------------------------------
New York State Energy Research and Development Authority, Electric Facilities Revenue, 7.15% and
7.375%, 2019 and 2024 26,520 27,668
- --------------------------------------------------------------------------------------------------------------------------------
New York State Energy Research and Development Authority, Niagara Mohawk Power Corporation Project,
Revenue, 7.20%, 2029 62,590 67,101
- --------------------------------------------------------------------------------------------------------------------------------
New York State Environmental Facilities Corporation, State Water Pollution Control, Revenue, 7.20%
and 7.25%, 2011 and 2010 7,500 8,065
- --------------------------------------------------------------------------------------------------------------------------------
New York State Medical Care Facilities Finance Agency, Hospital and Nursing Home, Revenue, 6.45%,
2009 9,455 9,467
- --------------------------------------------------------------------------------------------------------------------------------
New York State Medical Care Facilities Finance Agency, Mental Health Services Facilities Improvement,
Revenue, 5.25% to 7.75%, 2010 through 2015 15,340 14,943
- --------------------------------------------------------------------------------------------------------------------------------
New York State Power Authority, Electrical Revenue, 8.00%, 2017 10,000 10,999
- --------------------------------------------------------------------------------------------------------------------------------
New York State Urban Development Corporation, Correctional Facilities, Revenue, 5.25% and 5.50%, 2009
through 2015 37,010 32,086
- --------------------------------------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey, LaGuardia Airport Passenger Terminal, Special Obligation,
Revenue, 9.125%, 2015 3,225 3,563
- --------------------------------------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey, Revenue, 5.20% to 7.125%, 2008 through 2025 21,290 22,287
- --------------------------------------------------------------------------------------------------------------------------------
Triborough Bridge and Tunnel Authority, Revenue, 6.875% and 8.125%, 2015 and 2012 19,000 20,709
- --------------------------------------------------------------------------------------------------------------------------------
379,505
NORTH CAROLINA
- --------------------------------------------------------------------------------------------------------------------------------
Durham, County, 1991 Jail Facilities and Computer Equipment Financing Project, Revenue, 6.625%, 2014 5,500 5,479
- --------------------------------------------------------------------------------------------------------------------------------
North Carolina Municipal Power Agency Number 1, Catawba Electric, Refunding Revenue, 5.00%, 2015 6,850 5,681
- --------------------------------------------------------------------------------------------------------------------------------
Raleigh-Durham Airport Authority, American Airlines, Inc., Revenue, 9.625%, 2015 5,000 5,287
- --------------------------------------------------------------------------------------------------------------------------------
16,447
NORTH DAKOTA
- --------------------------------------------------------------------------------------------------------------------------------
North Dakota Housing Finance Agency, Single Family Mortgage Program, Revenue, 8.05%, 2024 1,320 1,340
- --------------------------------------------------------------------------------------------------------------------------------
Ward County Health Care Facility, St. Joseph Hospital Corporation, Revenue, 7.50%, 2015 4,000 4,050
- --------------------------------------------------------------------------------------------------------------------------------
5,390
OHIO
- --------------------------------------------------------------------------------------------------------------------------------
Board of Education, Cleveland City School District, Library Improvement, General Obligation, 5.875%,
2011 1,485 1,445
- --------------------------------------------------------------------------------------------------------------------------------
City of Hamilton, Gas System, Refunding Revenue, 5.00%, 2018 2,000 1,646
- --------------------------------------------------------------------------------------------------------------------------------
City of Springdale, Hospital Facilities First Mortgage, Southwestern Ohio Seniors Services, Revenue,
6.00%, 2018 1,250 1,060
- --------------------------------------------------------------------------------------------------------------------------------
Clermont County Hospital Facilities, Mercy Health Systems, Revenue, 5.875% and 7.50%, 2015 and 2019 10,240 11,319
- --------------------------------------------------------------------------------------------------------------------------------
Cleveland, General Obligation, 5.375%, 2009 and 2011 3,500 3,245
- --------------------------------------------------------------------------------------------------------------------------------
Cleveland, Public Power System Improvement, First Mortgage Revenue, 7.00%, 2017 850 862
- --------------------------------------------------------------------------------------------------------------------------------
Cleveland Water Works System, Refunding Revenue, 5.50% and 6.50%, 2013 and 2011 7,380 7,261
- --------------------------------------------------------------------------------------------------------------------------------
Columbus, General Obligation, 5.25%, 2011 2,700 2,425
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 115
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dublin City School District, General Obligation, 6.20%, 2019 $ 200 $ 197
- --------------------------------------------------------------------------------------------------------------------------------
Franklin County Convention Facility Authority, Tax and Lease Refunding Revenue, 5.85%, 2019 240 225
- --------------------------------------------------------------------------------------------------------------------------------
Franklin County, General Obligation, 5.45% and 5.55%, 2009 and 2010 8,440 7,923
- --------------------------------------------------------------------------------------------------------------------------------
Franklin County, Riverside United Methodist Hospital Project, Revenue, 5.75%, 2020 250 224
- --------------------------------------------------------------------------------------------------------------------------------
Hamilton County, Metropolitan Sewer District of Greater Cincinnati, Revenue, 5.25%, 2016 300 259
- --------------------------------------------------------------------------------------------------------------------------------
Lake County, Hospital Improvement, Hospital System Refunding Revenue, 5.375%, 2010 7,400 6,781
- --------------------------------------------------------------------------------------------------------------------------------
Marion County Health Care Facilities Refunding and Improvement, United Church Homes Project, Revenue,
6.30% and 6.375%, 2015 and 2010 5,350 4,849
- --------------------------------------------------------------------------------------------------------------------------------
Maumee, St. Luke's Hospital Project, Hospital Facilities Revenue, 5.80%, 2014 1,250 1,176
- --------------------------------------------------------------------------------------------------------------------------------
Montgomery County, Miami Valley Hospital, Revenue, 9.375%, 2005 3,000 3,235
- --------------------------------------------------------------------------------------------------------------------------------
Muskingum County, Franciscan Health Advisory Services, Inc., Revenue, 7.50%, 2012 7,470 7,891
- --------------------------------------------------------------------------------------------------------------------------------
North Canton School District, General Obligation, 5.90%, 2014 2,000 1,911
- --------------------------------------------------------------------------------------------------------------------------------
Northwestern Local School District, School Improvement, General Obligation, 6.00%, 2016 1,000 977
- --------------------------------------------------------------------------------------------------------------------------------
Ohio Building Authority, State Correctional Facilities, Revenue, 5.00%, 2012 7,000 5,944
- --------------------------------------------------------------------------------------------------------------------------------
Ohio Building Authority, Workers Compensation Facility, William Green Building, Revenue, 4.75%, 2014 8,230 6,520
- --------------------------------------------------------------------------------------------------------------------------------
Ohio State Higher Education Facility Commission, Oberlin College Project, Revenue, 5.375%, 2015 1,750 1,532
- --------------------------------------------------------------------------------------------------------------------------------
Ohio State Higher Education Facility Commission, Revenue, 6.70%, 2003 6,725 7,187
- --------------------------------------------------------------------------------------------------------------------------------
Ohio State Higher Education Facility Commission, University of Dayton 1994 Project, Revenue, 5.80%,
2014 and 2019 2,300 2,163
- --------------------------------------------------------------------------------------------------------------------------------
Ohio University, General Receipts Revenue, 5.00%, 2013 2,000 1,698
- --------------------------------------------------------------------------------------------------------------------------------
Scioto County, Sewer System, General Obligation, 6.30%, 2011 500 506
- --------------------------------------------------------------------------------------------------------------------------------
Scioto County USHCSO-Portsmouth Project, Hospital Facilities, Revenue, 7.625%, 2015 2,000 2,196
- --------------------------------------------------------------------------------------------------------------------------------
State of Ohio, Adult Correctional Building Funds Projects, Series A State Facilities Bond, 6.30%,
2011 3,735 3,740
- --------------------------------------------------------------------------------------------------------------------------------
State of Ohio, Building Authority, Facilities Administration Building Fund Project, Revenue, 5.50%,
2012 250 227
- --------------------------------------------------------------------------------------------------------------------------------
State of Ohio, Phillip Morris, Inc., Pollution Control, Revenue, 7.25%, 2008 10,000 10,680
- --------------------------------------------------------------------------------------------------------------------------------
State of Ohio, Water Development Authority, Safe Water, Refunding Revenue, 5.00%, 2012 8,340 7,112
- --------------------------------------------------------------------------------------------------------------------------------
Village of Green Springs, St. Francis Health Care Centre Project, Health Care Facilities Revenue,
7.00% and 7.125%, 2014 and 2025 8,640 8,250
- --------------------------------------------------------------------------------------------------------------------------------
West Geauga Local School District, School Improvement, General Obligation, 5.95%, 2012 2,500 2,427
- --------------------------------------------------------------------------------------------------------------------------------
Worthington City School District, General Obligation, 6.375%, 2012 11,210 11,366
- --------------------------------------------------------------------------------------------------------------------------------
Youngstown State University, General Receipts, Revenue, 6.00%, 2016 700 683
- --------------------------------------------------------------------------------------------------------------------------------
137,142
OKLAHOMA
- --------------------------------------------------------------------------------------------------------------------------------
Grand River Dam Authority, Revenue, 5.50% and 5.875%, 2009 and 2007 29,000 27,924
- --------------------------------------------------------------------------------------------------------------------------------
Oklahoma Turnpike Authority, Sub Lien, Revenue, 7.70%, 2022 270 299
- --------------------------------------------------------------------------------------------------------------------------------
28,223
PENNSYLVANIA
- --------------------------------------------------------------------------------------------------------------------------------
Allegheny County Hospital Development Authority, Magee Womens Hospital, Revenue, 6.00%, 2005 2,750 2,804
- --------------------------------------------------------------------------------------------------------------------------------
Armstrong County Hospital Authority, St. Francis Medical Center Project, Hospital Refunding Revenue,
6.25%, 2013 11,350 11,213
- --------------------------------------------------------------------------------------------------------------------------------
Columbia County, First Association Project, First Mortgage Revenue, 9.00%, 2014 1,970 2,042
- --------------------------------------------------------------------------------------------------------------------------------
Commonwealth of Pennsylvania, General Obligation, 6.375%, 2008 10,030 10,288
- --------------------------------------------------------------------------------------------------------------------------------
Dauphin County Industrial Development Authority, Susquehanna Center Nursing Facility, First Mortgage
Revenue, 10.45%, 2011 1,115 1,069
- --------------------------------------------------------------------------------------------------------------------------------
Lehigh County, General Purpose Authority, Lehigh Valley Hospital Inc., Revenue, 6.50%, 2010 6,000 6,187
- --------------------------------------------------------------------------------------------------------------------------------
McKean County Hospital Authority, Bradford Hospital Project, Hospital Refunding Revenue, 6.00% and
6.10%, 2013 and 2020 5,500 4,795
- --------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Convention Center Authority, Refunding Revenue, 6.75%, 2019 8,775 8,349
- --------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Convention Center Authority, Revenue, 6.70%, 2016 25,210 26,583
- --------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Industrial Development Authority, Economic Development, Revenue, 5.50%, 2014 5,240 4,658
- --------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Intergovernmental Cooperation Authority, City of Philadelphia Funding Program, Revenue,
5.875%, 2023 20,000 17,699
- --------------------------------------------------------------------------------------------------------------------------------
Philadelphia, Gas Works Revenue, 5.250% to 6.375%, 2008 through 2026 67,700 65,289
- --------------------------------------------------------------------------------------------------------------------------------
Philadelphia Municipal Authority, Lease Revenue, 5.625% to 6.30%, 2008 through 2018 14,790 13,537
- --------------------------------------------------------------------------------------------------------------------------------
Philadelphia School District, General Obligation, 5.65% to 5.80%, 2006 through 2008 5,000 4,916
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 116
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Philadelphia Water & Wastewater Revenue, 5.00% to 5.75%, 2013 through 2015 $ 46,770 $ 41,504
- --------------------------------------------------------------------------------------------------------------------------------
Pittsburgh Water and Sewer Authority, Water and Sewer System, Refunding Revenue, 6.50%, 2013 5,000 5,171
- --------------------------------------------------------------------------------------------------------------------------------
Schuylkill County Industrial Development Authority, Schuylkill Energy Resources Inc. Project,
Resource Recovery Refunding Revenue, 6.50%, 2010 10,000 9,309
- --------------------------------------------------------------------------------------------------------------------------------
Westmoreland County Industrial Development Authority, Westmoreland Health System Project,
Hospital Revenue, 5.00%, 2010 4,400 3,811
- --------------------------------------------------------------------------------------------------------------------------------
239,224
PUERTO RICO
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico, Public Building, Guaranteed Public Education & Health Revenue, 5.50%, 2007 12,750 12,138
- --------------------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA
- --------------------------------------------------------------------------------------------------------------------------------
Charleston Waterworks and Sewer Refunding and Improvement, Revenue, 5.50% and 6.00%, 2008 and 2012 12,000 11,640
- --------------------------------------------------------------------------------------------------------------------------------
Darlington County, Carolina Power & Light Company Project, Pollution Control Revenue, 6.60%, 2010 7,500 7,771
- --------------------------------------------------------------------------------------------------------------------------------
Florence County, McLeod Regional Medical Center Project, Revenue, 5.25%, 2009 2,000 1,788
- --------------------------------------------------------------------------------------------------------------------------------
Grand Strand Water and Sewer Refunding, Revenue, 6.375%, 2012 5,000 5,071
- --------------------------------------------------------------------------------------------------------------------------------
26,270
TEXAS
- --------------------------------------------------------------------------------------------------------------------------------
Austin, Combined Utility Systems Refunding Revenue, 5.75% and 6.20%, 2014 10,630 10,133
- --------------------------------------------------------------------------------------------------------------------------------
Austin, Combined Utility Systems, Capital Appreciation, Revenue, zero coupon, 2009 6,875 2,598
- --------------------------------------------------------------------------------------------------------------------------------
Austin, Water, Sewer and Electric Revenue, 11.00% and 14.00%, 1996 and 2001 5,000 6,481
- --------------------------------------------------------------------------------------------------------------------------------
Brazoria County, Health Facilities Development Corporation, Hospital Refunding Revenue, 5.50%, 2013 4,350 3,873
- --------------------------------------------------------------------------------------------------------------------------------
Brazos River Authority, Texas Utilities Electric Company Project, Revenue, 8.125%, 2020 1,370 1,483
- --------------------------------------------------------------------------------------------------------------------------------
Colorado River Municipal Water District, Water System Refunding Revenue, 5.30%, 2008 2,700 2,491
- --------------------------------------------------------------------------------------------------------------------------------
Dallas-Fort Worth International Airport Facility Improvement Corporation, American Airlines, Revenue,
7.50%, 2025 19,000 18,486
- --------------------------------------------------------------------------------------------------------------------------------
Dallas, Water and Sewer Works, Refunding Revenue, 5.00%, 2009 1,750 1,527
- --------------------------------------------------------------------------------------------------------------------------------
Denton County, Improvement and Refunding Bond, General Obligation, 5.00%, 2012 5,200 4,403
- --------------------------------------------------------------------------------------------------------------------------------
East Texas Criminal Justice Facilities Financing Corporation, Angelina County Project, Revenue,
5.25%, 2014 1,000 859
- --------------------------------------------------------------------------------------------------------------------------------
Ector County, Hospital District, Revenue, 7.30%, 2012 550 557
- --------------------------------------------------------------------------------------------------------------------------------
El Paso, General Obligation, 4.50%, 2013 2,605 2,019
- --------------------------------------------------------------------------------------------------------------------------------
Georgetown Higher Education Finance Corporation, Southwestern University Project, Higher Education
Revenue, 6.20% and 6.25%, 2011 and 2009 1,840 1,825
- --------------------------------------------------------------------------------------------------------------------------------
Harris County, Health Facilities Development Corporation, St. Luke's Episcopal Hospital Project,
Revenue, 6.75%, 2021 880 888
- --------------------------------------------------------------------------------------------------------------------------------
Harris County, Hospital District, Mortgage Revenue, 7.40%, 2010 6,940 7,764
- --------------------------------------------------------------------------------------------------------------------------------
Harris County, Toll Road Senior Lien, Refunding Revenue, 5.00% and 5.30%, 2016 and 2013 11,580 9,831
- --------------------------------------------------------------------------------------------------------------------------------
Harris County, Toll Road Unlimited Tax and Subordinate Lien, Refunding Revenue, 6.50%, 2015 9,000 9,077
- --------------------------------------------------------------------------------------------------------------------------------
Harris County, Toll Road Unlimited Tax and Subordinate Lien, Revenue, 6.10%, 2016 4,000 3,878
- --------------------------------------------------------------------------------------------------------------------------------
Houston Higher Education Finance Corporation, University of St. Thomas, Higher Education Revenue,
7.25%, 2007 1,545 1,572
- --------------------------------------------------------------------------------------------------------------------------------
Lower Colorado River Authority, Junior Lien, Refunding Revenue, 6.00%, 2015 145 140
- --------------------------------------------------------------------------------------------------------------------------------
Lubbock Health Facilities Development Corporation, Methodist Hospital Project, Revenue, 5.50%, 2014 4,000 3,525
- --------------------------------------------------------------------------------------------------------------------------------
Matagorda County, Navigation District Number 1, Central Power and Light Company, Pollution Control
Revenue, 7.875%, 2016 10,890 11,581
- --------------------------------------------------------------------------------------------------------------------------------
Matagorda County, Navigation District Number 1, Houston Lighting and Power Company, Pollution Control
Revenue, 7.875%, 2016 13,735 14,572
- --------------------------------------------------------------------------------------------------------------------------------
North Central Texas Health Facilities Development Corporation, Presbyterian Healthcare System
Project, Revenue, 5.90%, 2021 2,200 1,928
- --------------------------------------------------------------------------------------------------------------------------------
Northwest Independent School District, Unlimited Tax, School Building and Refunding Revenue, zero
coupon, 2010 4,890 1,757
- --------------------------------------------------------------------------------------------------------------------------------
Sabine River Authority, Texas Utilities Electric Company, Revenue, 8.125%, 2020 1,470 1,569
- --------------------------------------------------------------------------------------------------------------------------------
San Antonio. Electric and Gas Systems, Refunding Revenue, zero coupon and 5.00%, 2010 and 2016 19,250 13,437
- --------------------------------------------------------------------------------------------------------------------------------
San Antonio, General Improvement Refunding Revenue, 5.75%, 2013 15,000 14,065
- --------------------------------------------------------------------------------------------------------------------------------
Socorro Independent School District, Refunding Revenue, 6.625%, 2013 910 927
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 117
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Tarrant County Health Facilities Development Corporation, Harris Methodist Health System, Revenue,
6.00%, 2014 $ 4,500 $ 4,274
- --------------------------------------------------------------------------------------------------------------------------------
Tarrant County Water Control and Improvement District Number One, Water Refunding Revenue, 4.50%,
2011 5,000 3,982
- --------------------------------------------------------------------------------------------------------------------------------
Texas Housing Agency, Single Family Mortgage Revenue, 7.15%, 2012 1,725 1,760
- --------------------------------------------------------------------------------------------------------------------------------
Texas Municipal Power Agency, Revenue, zero coupon, 2010 through 2012 21,500 7,234
- --------------------------------------------------------------------------------------------------------------------------------
Texas Public Finance Authority, General Obligation, 5.50% and 7.00%, 2013 and 2012 23,711 22,324
- --------------------------------------------------------------------------------------------------------------------------------
Texas Turnpike Authority, Dallas North Tollway, Refunding Revenue, 4.75%, 2011 through 2014 13,400 10,975
- --------------------------------------------------------------------------------------------------------------------------------
Titus County Hospital District, Refunding and Improvement, Refunding Revenue, 6.125%, 2013 6,700 6,090
- --------------------------------------------------------------------------------------------------------------------------------
Tom Green County, Texas Health Facilities Development Corporation, Angelo Community Hospital Project,
Revenue, 5.90% and 6.05%, 2007 and 2018 4,385 3,935
- --------------------------------------------------------------------------------------------------------------------------------
Travis County Housing Finance Corporation, Residential Mortgage, Senior Refunding Revenue, 7.00%,
2011 510 515
- --------------------------------------------------------------------------------------------------------------------------------
University of Texas, Permanent University Fund, Refunding Revenue, 6.25%, 2013 2,500 2,483
- --------------------------------------------------------------------------------------------------------------------------------
216,818
UTAH
- --------------------------------------------------------------------------------------------------------------------------------
Davis County Solid Waste Management & Energy Recovery, Special Service District, Revenue, 6.125%,
2009 2,200 2,000
- --------------------------------------------------------------------------------------------------------------------------------
Intermountain Power Agency, Power Supply System, Refunding Revenue, zero coupon to 9.00%, 2017
through 2021 31,045 16,807
- --------------------------------------------------------------------------------------------------------------------------------
Utah State Housing Finance Agency, Single Family Mortgage Revenue, 8.625%, 2019 1,280 1,320
- --------------------------------------------------------------------------------------------------------------------------------
West Valley City, Salt Lake County Excise Tax, Revenue, 10.625%, 2004 1,000 1,320
- --------------------------------------------------------------------------------------------------------------------------------
21,447
VIRGINIA
- --------------------------------------------------------------------------------------------------------------------------------
Metropolitan Washington Airports Authority, Airport System Revenue, 5.75%, 2011 15,635 14,652
- --------------------------------------------------------------------------------------------------------------------------------
Richmond, Public Improvement, General Obligation, 5.50%, 2013 35,145 31,958
- --------------------------------------------------------------------------------------------------------------------------------
Stafford County, Water and Sewer System Refunding Revenue, 5.25%, 2012 2,000 1,749
- --------------------------------------------------------------------------------------------------------------------------------
Virginia State Transit Board, Revenue, 5.625%, 2013 6,000 5,492
- --------------------------------------------------------------------------------------------------------------------------------
53,851
VIRGIN ISLANDS
- --------------------------------------------------------------------------------------------------------------------------------
Virgin Islands Public Finance Authority, Refunding Revenue, 7.25%, 2018 1,500 1,525
- --------------------------------------------------------------------------------------------------------------------------------
WASHINGTON
- --------------------------------------------------------------------------------------------------------------------------------
Washington Public Power Supply System, Nuclear Project, Revenue, 7.00%, 2012 51,000 52,495
- --------------------------------------------------------------------------------------------------------------------------------
WISCONSIN
- --------------------------------------------------------------------------------------------------------------------------------
Wisconsin Health and Education Facilities Authority, Aurora Health Care Group, Revenue, 5.25%, 2012 11,500 9,873
- --------------------------------------------------------------------------------------------------------------------------------
Wisconsin Health and Education Facilities Authority, Wausau Hospitals, Inc., Project, Revenue,
6.625%, 2011 3,000 3,039
- --------------------------------------------------------------------------------------------------------------------------------
Wisconsin Housing and Economic Development Authority, Home Ownership Revenue, 8.00%, 2021 9,495 9,689
- --------------------------------------------------------------------------------------------------------------------------------
22,601
WYOMING
- --------------------------------------------------------------------------------------------------------------------------------
Wyoming Community Development Authority, Single Family Mortgage Revenue, 7.875% and 8.125%, 2017 and
2021 3,145 3,226
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER OBLIGATIONS--87.3% 3,243,340
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL OBLIGATIONS--95.5%
(Cost: $3,563,533) 3,547,734
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 118
(Dollars in thousands)
<TABLE>
<CAPTION>
Principal
MONEY MARKET INSTRUMENTS Amount Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.55% to 4.50%,
Due--October 1994
- --------------------------------------------------------------------------------------------------------------------------------
New York--New York City General Obligation $ 16,800 $ 16,800
- --------------------------------------------------------------------------------------------------------------------------------
South Carolina--Florence County 16,500 16,500
- --------------------------------------------------------------------------------------------------------------------------------
Other 76,025 76,025
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL MONEY MARKET INSTRUMENTS--2.9%
(Cost: $109,325) 109,325
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--98.4%
(Cost: $3,672,858) 3,657,059
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND OTHER ASSETS, LESS LIABILITIES--1.6% 59,938
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS--100% $3,716,997
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE TO PORTFOLIO OF INVESTMENTS
Based on the cost of investments of $3,672,858,000 for federal income tax
purposes at September 30, 1994, the gross unrealized appreciation was
$106,903,000 the aggregate gross unrealized depreciation was $122,702,000 and
the net unrealized depreciation of investments was $15,799,000.
See accompanying Notes to Financial statements.
16
<PAGE> 119
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
KEMPER MUNICIPAL BOND FUND
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Kemper Municipal Bond Fund as of September
30, 1994, and the related statements of operations for the year then ended and
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the fiscal periods since 1990. 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 audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
September 30, 1994, 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
Municipal Bond Fund at September 30, 1994, 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 1990, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
October 26, 1994
17
<PAGE> 120
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1994
(in thousands)
<TABLE>
<S> <C>
ASSETS
- ------------------------------------------------------
Investments, at value
(Cost: $3,672,858) $3,657,059
- ------------------------------------------------------
Cash 21,132
- ------------------------------------------------------
Receivable for:
Fund shares sold 3,387
- ------------------------------------------------------
Investments sold 43,698
- ------------------------------------------------------
Interest 64,034
- ------------------------------------------------------
Total assets 3,789,310
- ------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------
Payable for:
Dividends 6,338
- ------------------------------------------------------
Fund shares redeemed 14,449
- ------------------------------------------------------
Investments purchased 49,234
- ------------------------------------------------------
Management fee 1,296
- ------------------------------------------------------
Administrative services fee 386
- ------------------------------------------------------
Custodian and transfer agent
fees and related expenses 509
- ------------------------------------------------------
Other 101
- ------------------------------------------------------
Total liabilities 72,313
- ------------------------------------------------------
Net assets 3,716,997
======================================================
ANALYSIS OF NET ASSETS
- ------------------------------------------------------
Excess of amounts received from
issuance of shares over amounts
paid on redemptions of shares
on account of capital 3,701,977
- ------------------------------------------------------
Undistributed net realized gain on
sales of investments 1,808
- ------------------------------------------------------
Unrealized depreciation of investments (15,799)
- ------------------------------------------------------
Undistributed net investment income 29,011
- ------------------------------------------------------
Net assets applicable to shares
outstanding 3,716,997
======================================================
THE PRICING OF SHARES
- ------------------------------------------------------
CLASS A SHARES
Net asset value and redemption price
per share ($3,705,277,099 / 382,539,391
shares outstanding) 9.69
- ------------------------------------------------------
Maximum offering price per share
(net asset value, plus 4.71% of net
asset value or 4.50% of offering price) 10.15
======================================================
CLASS B SHARES
Net asset value, offering price and
redemption price per share
($10,869,761 / 1,124,633
shares outstanding) 9.67
======================================================
CLASS C SHARES
Net asset value, offering price and
redemption price per share
($850,377 / 87,776
shares outstanding) 9.69
======================================================
See accompanying Notes to Financial Statements.
</TABLE>
STATEMENT OF OPERATIONS
Year ended September 30, 1994
(in thousands)
<TABLE>
<S> <C>
INTEREST INCOME $ 239,158
- ------------------------------------------------------
EXPENSES
- ------------------------------------------------------
Management fee 15,291
- ------------------------------------------------------
Administrative services fees 4,340
- ------------------------------------------------------
Custodian and transfer agent
fees and related expenses 3,125
- ------------------------------------------------------
Professional fees 100
- ------------------------------------------------------
Reports to shareholders 494
- ------------------------------------------------------
Registration fees 211
- ------------------------------------------------------
Trustees' fees and other 221
- ------------------------------------------------------
Total expenses 23,782
- ------------------------------------------------------
Net investment income 215,376
- ------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------
Net realized loss on sales of investments (847)
- ------------------------------------------------------
Net realized gain from futures
transactions 29,814
- ------------------------------------------------------
Net realized gain 28,967
- ------------------------------------------------------
Change in balance of unrealized
appreciation of investments (396,629)
- ------------------------------------------------------
Net loss on investments (367,662)
- ------------------------------------------------------
Net decrease in net assets resulting
from operations $(152,286)
======================================================
</TABLE>
18
<PAGE> 121
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
Year ended September 30,
OPERATIONS 1994 1993
- -------------------------------------------------------
<S> <C> <C>
Net investment income $ 215,376 208,595
- -------------------------------------------------------
Net realized gain on
investments 28,967 121,445
- -------------------------------------------------------
Net change in unrealized
appreciation (396,629) 165,819
- -------------------------------------------------------
Net (decrease) increase in net
assets resulting from operations (152,286) 495,859
- -------------------------------------------------------
Net equalization credits 1,505 7,308
- -------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS
- -------------------------------------------------------
Distribution from net
investment income (218,505) (215,336)
- -------------------------------------------------------
Distribution from net realized
gain on investments (121,549) (45,574)
- -------------------------------------------------------
Total dividends to shareholders (340,054) (260,910)
- -------------------------------------------------------
Net increase from capital
share transactions 135,206 675,397
- -------------------------------------------------------
Total (decrease) increase in net
assets (355,629) 917,654
- -------------------------------------------------------
NET ASSETS
- -------------------------------------------------------
Beginning of year 4,072,626 3,154,972
- -------------------------------------------------------
End of year (including
undistributed net investment
income of $29,011 in 1994 and
$30,628 in 1993) $3,716,997 4,072,626
=======================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE FUND
Effective May 31, 1994, the Fund began offering three 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. The Fund may offer Class I shares
to a limited group of investors which are not subject to initial or contingent
deferred sales charges and have lower ongoing expenses than other classes. As of
September 30, 1994, no Class I shares were outstanding. Each share represents an
identical interest in the investments of the Fund and has the same rights.
Shares of the Fund held prior to May 31 became Class A shares on that date.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION.
Investments are stated at 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. 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 INTEREST 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
premiums and original issue discount on securities are amortized. Realized gains
and losses from investment transactions are reported on an identified cost
basis. Gains and losses on premiums from expired options are recognized on date
of expiration.
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 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
19
<PAGE> 122
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.
Differences in dividends per share are due to different class expenses.
Beginning October 1, 1994 the Fund declares and records a daily dividend equal
to its net investment income for that day to holders of shares for which payment
has been received. Income dividends are then distributed monthly. Prior to this,
dividends were payable to its shareholders and recorded by the Fund monthly on
the ex-dividend date.
Effective October 1, 1993, the Fund adopted Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. As a
result of this statement, the Fund changed the classification of distributions
to shareholders to better disclose the differences between financial statement
amounts and distributions determined in accordance with income tax regulations.
3. TRANSACTIONS WITH AFFILIATES
MANAGEMENT AGREEMENT
The Fund has a management agreement with Kemper Financial Services, Inc. (KFS).
For the period ended May 31, 1994 the Fund paid an effective investment
management fee of .37% of average daily net assets. Effective May 31, 1994, the
Fund pays a fee at an annual rate of .45% of the first $250 million of average
daily net assets declining gradually to .32% of average daily net assets in
excess of $12.5 billion. The Fund incurred a management fee of $15,291,000 for
the year ended September 30, 1994.
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
The Fund has an underwriting and distribution services agreement with KFS. As
principal underwriter for the Fund, KFS retained commissions of $638,000 for the
year ended September 30, 1994 for sales of Class A shares after allowing
$10,113,000 as commissions to firms of which $2,519,000 was paid to firms
affiliated with KFS. For services under the distribution services agreement, the
Fund pays KFS a fee of .75% of average daily net assets of the Class B and Class
C shares. Pursuant to the agreement, KFS enters into related selling group
agreements with various firms that provide distribution services to investors.
KFS compensates these firms at various rates for sales of Class B and Class C
shares. During the year ended September 30, 1994, the Fund incurred a
distribution services fee for Class B and Class C shares of $31,000, and KFS
paid $254,000 for commissions and distribution fees to firms, including $95,000
to firms affiliated with KFS. In addition, KFS received $5,000 of contingent
deferred sales charges.
ADMINISTRATIVE SERVICES AGREEMENT
The Fund has an administrative services agreement with KFS. For providing
information and administrative services to shareholders, the Fund pays KFS a fee
at an annual rate of up to .25% of average daily net assets. KFS 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. For the
year ended September 30, 1994, the Fund incurred an administrative services fee
of $4,340,000 and KFS paid $4,371,000 to firms, including $929,000 that was paid
to firms affiliated with KFS.
CUSTODIAN AND TRANSFER AGENT AGREEMENT
The Fund has a custodian agreement and a transfer agent agreement with Investors
Fiduciary Trust Company (IFTC), which is 50% owned by KFS. For the year ended
September 30, 1994, the Fund incurred custodian and transfer agent fees of
$1,975,000 (excluding related expenses). Pursuant to a services agreement with
IFTC, Kemper Service Company (KSvC), an affiliate of KFS, is the shareholder
service agent of the Fund. For the year ended September 30, 1994, IFTC remitted
shareholder service fees of $1,888,000 to KSvC.
OFFICERS AND TRUSTEES
Certain officers or trustees of the Fund are also officers or directors of KFS.
During the year ended September 30, 1994, the Fund made no direct payments to
its officers and incurred trustees' fees of $45,000 to independent trustees.
4. INVESTMENT TRANSACTIONS
For the year ended September 30, 1994 investment transactions (excluding money
market instruments) are as follows (in thousands):
Purchases $1,923,173
- --------------------------------------------------------------------------------
Proceeds from sales 1,978,861
- --------------------------------------------------------------------------------
20
<PAGE> 123
5. CAPITAL SHARE TRANSACTIONS
The following table summarizes the activity in capital shares of the Fund (in
thousands):
<TABLE>
<CAPTION>
Year ended September 30,
1994 1993
-------------------- --------------------
Shares Amount Shares Amount
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Shares sold:
Class A 50,713 $ 517,534 84,272 $ 872,825
- --------------------------------------------------------------------
Class B 1,748 17,481 -- --
- --------------------------------------------------------------------
Class C 87 861 -- --
- --------------------------------------------------------------------
Shares issued in
reinvestment of
dividends:
Class A 22,146 229,840 16,545 173,117
- --------------------------------------------------------------------
Class B 16 155 -- --
- --------------------------------------------------------------------
Class C 1 4 -- --
- --------------------------------------------------------------------
Shares redeemed:
Class A (62,190) (624,503) (35,623) (370,545)
- --------------------------------------------------------------------
Class B (628) (6,166) -- --
- --------------------------------------------------------------------
Conversion of shares:
Class A 11 109 -- --
- --------------------------------------------------------------------
Class B (11) (109) -- --
- --------------------------------------------------------------------
Net increase from
capital share
transactions $ 135,206 $ 675,397
====================================================================
</TABLE>
6. FINANCIAL FUTURES CONTRACTS
At September 30, 1994, the Fund had entered into exchange traded financial
futures contracts as described below. The Fund bears the market risk that arises
from changes in the value of these financial instruments
(in thousands):
<TABLE>
<CAPTION>
Notional Expiration Gain at
Type Amount Position Month 9/30/94
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $457,200 Short December $4,142
- -------------------------------------------------------------------
</TABLE>
At the time the Fund enters into a futures contract, it is required to make a
margin deposit with its custodian of a specified amount of cash or eligible
securities. Subsequently, gain or loss is recognized and payments are made on a
daily basis between the Fund and the broker as the market price of the futures
contract fluctuates. The aggregate market value of investments pledged to cover
margin requirements for open positions at September 30, 1994 was $31,997,000.
21
<PAGE> 124
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A Class B Class C
-------------------------------------------------------------- ------------- -------------
May 31, May 31,
1994 to 1994 to
Year ended September 30, September 30, September 30,
1994 1993 1992 1991 1990 1994 1994
---------- ---------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $10.95 10.29 10.05 9.40 9.59 $9.95 $9.95
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .55 .61 .65 .69 .69 .14 .16
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain
(loss) on investments (.92) .82 .35 .62 (.19) (.26) (.26)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations (.37) 1.43 1.00 1.31 .50 (.12) (.10)
- ------------------------------------------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .56 .62 .63 .66 .69 .16 .16
- ------------------------------------------------------------------------------------------------------------------------------
Distribution from net
realized gain on
investments .33 .15 .13 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total dividends .89 .77 .76 .66 .69 .16 .16
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 9.69 10.95 10.29 10.05 9.40 $9.67 $9.69
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%): (3.67) 14.50 10.36 14.36 5.25 (1.24) (1.03)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE
NET ASSETS(%):
Expenses .60 .47 .48 .48 .49 1.56 1.53
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 5.42 5.78 6.44 6.97 7.14 4.55 4.56
- ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
FOR ALL CLASSES:
Net assets at end
of period
(in thousands) $3,716,997 4,072,626 3,154,972 2,465,928 2,070,200
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover
rate (%) 50 52 32 29 30
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Ratios have been determined on an annualized basis. Total return is not
annualized and does not reflect the effect of any sales charges.
FEDERAL TAX STATUS OF 1994 DIVIDENDS
All of the dividends paid from net investment income by the Fund constitute
tax-exempt interest that is not taxable for federal income tax purposes;
however, a portion of the dividends paid may be includable in the alternative
minimum tax calculation. A short-term capital gain dividend is taxable as
ordinary income, and a long-term capital gain dividend is taxable as a long-term
capital gain regardless of how long you have owned your shares.
22
<PAGE> 125
[LOGO]
KEMPER FINANCIAL SERVICES, INC.
120 South LaSalle Street
Chicago, IL 60603
KEMPER MUNICIPAL BOND FUND
Trustees Officers
CHARLES M. KIERSCHT SEAMON A. LINCOLN
President and Trustee Vice President
DAVID W. BELIN J. PATRICK BEIMFORD, JR.
Trustee Vice President
LEWIS A. BURNHAM CHRISTOPHER J. MIER
Trustee Vice President
DONALD L. DUNAWAY JOHN E. PETERS
Trustee Vice President
ROBERT B. HOFFMAN PHILIP J. COLLORA
Trustee Vice President and
Assistant Secretary
DONALD R. JONES
Trustee CHARLES F. CUSTER
Vice President and
WILLIAM P. SOMMERS Assistant Secretary
Trustee
JEROME L. DUFFY
STEPHEN B. TIMBERS Treasurer
Trustee and
Vice President ELIZABETH C. WERTH
Assistant Secretary
- -----------------------------------------------------------
Legal Counsel Custodian and Transfer Agent
VEDDER, PRICE, KAUFMAN INVESTORS FIDUCIARY
& KAMMHOLZ TRUST COMPANY
222 North LaSalle Street 127 West 10th Street
Chicago, IL 60601 Kansas City, MO 64105
Shareholder Service Agent Independent Auditors
KEMPER SERVICE COMPANY ERNST & YOUNG LLP
P.O. Box 419557 233 S. Wacker Drive
Kansas City, MO 64141 Chicago, IL 60606
800-621-1048
Investment Manager and Principal Underwriter
KEMPER FINANCIAL SERVICES, INC.
120 South LaSalle Street
Chicago, IL 60603
(LOGO)
Printed on recycled paper.
This report is not to be distributed 233670
KMBF-2 (11/94) unless preceded or accompanied by a Printed in the U.S.A.
Kemper Tax-Free Funds prospectus.
<PAGE> 126
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED)
JANUARY 31, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments $10,346,132.95
Money market instruments 200,000.00
Cash 108,050.92
Prepaid expenses (357.67)
Receivable for:
Shares of the Portfolio sold 90,825.32
Securities sold 122,678.36
Interest 133,255.97 346,759.65
---------- -------------
11,000,585.85
LIABILITIES AND NET ASSETS
Payable for:
Dividends payable 8,517.21
Shares of the Portfolio redeemed 0.00
Securities purchased 313,282.00
Other accounts payable 7,124.29 328,923.50
----------
Outstanding options 0.00
--------------
328,923.50
--------------
Net assets applicable to 1,097,372 shares outstanding $10,671,662.35
==============
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Shares 800,958 233,397 63,017
Net Asset Value $9.72 $9.72 $9.73
======= ======= =====
</TABLE>
<TABLE>
<S> <C>
ANALYSIS OF NET ASSETS
Excess of amounts received from sales of shares
over amounts paid on redemptions of shares
on account of capital $10,408,121.28
Net realized gain (loss) on sales of investments (6,783.36)
Unrealized appreciation (depreciation) of investments 270,324.43
Undistributed net investment income 0.00
--------------
Net assets applicable to outstanding shares $10,671,662.35
==============
</TABLE>
<PAGE> 127
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
MONTH OF THREE MONTHS ENDED
JANUARY, 1995 JANUARY 31, 1995
------------- ------------------
<S> <C> <C>
INVESTMENT INCOME
Interest $49,241.81 $89,024.03
------------- ------------------
Total investment income 49,241.81 89,024.03
EXPENSES
Management fees 0.00 0.00
12-b1 fees 1,707.67 3,805.00
Administrative services fee 1,389.97 2,799.97
Transfer agent and custodian fees 1,047.17 1,998.97
Auditing fees 0.00 0.00
Legal costs and fees 0.00 0.00
Membership dues and assessments 0.00 0.00
Shareowner reports 0.00 0.00
Proxy statements 0.00 0.00
Registration and filing fees 124.62 135.51
Trustees' fees and expenses 0.00 0.00
Insurance and other 1,143.08 2,257.90
------------- ------------------
Total expenses 5,412.51 10,997.35
------------- ------------------
NET INVESTMENT INCOME $43,829.30 $78,026.68
------------- ------------------
</TABLE>
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF OPERATIONS
(CONTINUED)
<TABLE>
<CAPTION>
MONTH OF THREE MONTHS ENDED
JANUARY, 1995 JANUARY 31, 1995
------------- ------------------
<S> <C> <C>
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sales of investments -
Realized gain (loss) from transactions in securities
(including options purchased) -
Proceeds from sales $214,390.30 $547,878.00
Cost of securities sold 214,549.50 554,661.36
------------- ------------------
(159.20) (6,783.36)
Realized gain (loss) from options written -
Premiums from options closed 0.00 0.00
Cost of closing options 0.00 0.00
------------- ------------------
0.00 0.00
Premiums from expired options 0.00 0.00
Realized gain (loss) from futures transactions -
Futures open at the end of the period 0.00 0.00
Futures closed during the period 0.00 0.00
------------- ------------------
0.00 0.00
------------- ------------------
Net realized gain (loss) (159.20) (6,783.36)
------------- ------------------
Change in balance of unrealized appreciation (depreciation) of investments -
Securities:
Beginning of period 98,321.73 0.00
End of period 270,324.43 270,324.43
------------- ------------------
172,002.70 270,324.43
------------- ------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 171,843.50 263,541.07
------------- ------------------
NET GAIN (LOSS) FROM INVESTMENT OPERATIONS $215,672.80 $341,567.75
============= ==================
</TABLE>
<PAGE> 128
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
MONTH OF THREE MONTHS ENDED
JANUARY, 1995 JANUARY 31, 1995
------------- ------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net investment income 43,829.30 78,026.68
Ordinary dividends declared (See accompanying schedules) (43,829.30) (78,026.68)
Equalization 0.00 0.00
------------- ------------------
Increase (decrease) in undistributed net investment income 0.00 0.00
Distribution from net realized gain ($.0 short-term, $.0 long-term) 0.00 0.00
Net realized gain (loss) on sales of investments (159.20) (6,783.36)
Net change in unrealized appreciation (depreciation) 172,002.70 270,324.43
------------- ------------------
Increase (decrease) in net assets from investment activities 171,843.50 263,541.07
Increase (decrease) in net assets from Fund
share transactions (See accompanying schedule) 968,258.13 10,308,121.28
------------- ------------------
Increase (decrease) in net assets 1,140,101.63 10,571,662.35
------------- ------------------
NET ASSETS
Beginning of period -
Undistributed net income 0.00 0.00
Capital 9,531,560.72 100,000.00
------------- ------------------
9,531,560.72 100,000.00
End of period -
Undistributed net income 0.00 0.00
Capital 10,671,662.35 10,671,662.35
------------- ------------------
10,671,662.35 10,671,662.35
============= ==================
</TABLE>
<PAGE> 129
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
SCHEDULE OF INVESTMENTS
UNAUDITED
JANUARY 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL VALUE
ISSUE DESCRIPTION RATE MATURITY (IN 000's) (IN 000's)
----------------- ------------- ---------- ----------
<S> <C> <C> <C>
ARKANSAS
NORTH LITTLE ROCK AR ELEC REV 6.00% 07/01/01 $20 $21
NORTH LITTLE ROCK AR ELEC REV 6.15% 07/01/03 275 287
ARIZONA
ARIZONA STATE TRANSIT BOARD 6.10% 07/01/02 70 73
ARIZONA STATE UNIVERSITY REV 6.50% 07/01/02 85 89
MARICOPA CNTY AZ GO 6.25% 07/01/00 440 457
PHOENIX AZ STREETS 5.95% 07/01/00 400 411
CONNECTICUT
CONNECTICUT STATE GO 6.00% 03/15/01 300 310
CONNECTICUT STATE GO 5.95% 11/15/00 5 5
CT ST HLTH & ED FACS AUTH REV 6.50% 07/01/14 70 71
DELAWARE
DELAWARE STATE GO 6.95% 05/01/02 135 147
FLORIDA
BROWARD CNTY FL 6.00% 02/15/04 70 72
ESCAMBIA COUNTY 5.60% 07/01/99 5 5
FLORIDA STATE DIV FIN 6.20% 07/01/99 80 83
NORTH BROWARD CNTY FL HOS 6.13% 01/01/03 285 298
HILLSBOROUGH COUNTY 6.90% 10/01/11 5 5
GEORGIA
ATLANTA GA RPT 6.50% 01/01/13 70 71
GA MUN ELEC AUTH PWR REV 6.00% 01/01/00 70 72
HAWAII
HAWAII STATE GO 7.25% 11/01/00 145 158
ILLINOIS
CHICAGO ILLINOIS GO 6.70% 01/01/11 275 283
IL HLTH FAC AUTH 6.25% 09/01/02 350 362
IL ST SALES TAX 5.63% 06/15/01 70 70
MCHENRY & LAKE COUNTIES 6.13% 12/01/03 85 89
SANGAMON COUNTY 6.00% 03/01/01 70 71
INDIANA
JOHNSON COUNTY IND 6.50% 07/01/02 300 316
KENTUCKY
LEXINGTON FAYETTEVILLE 6.50% 11/01/09 300 312
UNIVERSITY OF KENTUCKYREV 6.00% 05/01/99 70 72
</TABLE>
<PAGE> 130
<TABLE>
<S> <C> <C> <C>
LOUISIANA
LOUISIANA STATE GO 7.00% 05/01/01 300 323
MAINE
MAINE HEALTH AND HIGHWAY 6.30% 07/01/04 160 166
MAINE HEALTH AND HIGHWAY 6.50% 07/01/06 100 104
MARYLAND
HOWARD COUNTY MARYLAND 6.90% 05/15/99 70 75
MASSACHUSETTS
MASSACHUSETTS BAY TRANS AUTH 7.63% 03/01/15 115 128
MASSACHUSETTS BAY TRANS AUTH 6.20% 03/01/16 150 149
MASSACHUSETTS BAY TRANS AUTH 6.50% 03/01/04 5 5
MASSACHUSETTS STATE GO 7.00% 07/01/07 275 293
MASSACHUSETTS STATE WATER RES 7.00% 04/01/18 145 157
MASSACHUSETTS STATE WATER POLL 6.20% 02/01/10 45 45
MICHIGAN
GRAND RAPIDS 6.20% 06/01/04 175 183
CHIPPEWA VALLEY 7.00% 05/01/01 350 379
MICHIGAN STATE BLDG AUTH REV 6.25% 10/01/00 5 6
MICHIGAN STATE BLDG AUTH REV 6.50% 10/01/04 160 170
OAKLAND COUNTY MICHIGAN 5.50% 10/01/02 25 25
MISSOURI
MISSOURI STATE ECONOMIC DEV 6.30% 12/01/08 300 308
NEBRASKA
NEBRASKA PUBLIC POWER DISTRICT 5.70% 01/01/04 50 49
NEVADA
CLARKE COUNTY NEVADA HW 5.63% 07/01/02 70 70
NEVADA STATE GO 5.90% 05/01/01 250 256
NEW JERSEY
MIDDLSEX COUNTY 5.90% 12/01/99 175 180
MIDDLSEX COUNTY 6.10% 12/01/21 300 313
NEW YORK
NEW YORK CITY GO 6.50% 08/15/02 90 92
NEW YORK CITY GO 5.75% 08/01/03 110 105
NYC IDA CIVAL FACILITY 6.10% 11/15/04 200 207
NYS DORM ST UNIV ED FACS REV 7.25% 05/15/15 145 149
NYS LOC GOVT ASSIST CORP 7.00% 04/01/16 100 110
NIAGRA FALLS 6.40% 11/01/04 100 105
</TABLE>
<PAGE> 131
<TABLE>
<S> <C> <C> <C>
OHIO
OHIO STATE GO 5.50% 12/01/03 125 126
OHIO STATE WATER DEV AUTH 5.75% 12/01/03 5 5
CLEVELAND OHIO WATER 6.13% 01/01/03 450 469
OKLAHOMA
MUSKOGEE COUNTY 6.00% 05/01/01 10 10
PENNSYLVANIA
PA INTERGOVT COOP AUTH SPCL TAX REV 6.00% 06/15/02 285 292
PHILA PA GAS WKS REV 7.70% 06/15/21 120 135
ALLEGHENY COUNTY 6.25% 10/01/08 300 305
TEXAS
FORT WORTH WATER 5.90% 02/15/01 80 83
TRINITY RIVER AUTH 5.50% 08/01/02 70 71
HOUSTON TEXAS HW 7.25% 12/01/07 100 103
VIRGINIA
RICHMOND VA GO 6.88% 01/15/10 100 108
ARLINTON COUNTY 7.13% 09/01/21 90 99
WASHINGTON
KING COUNTY GO 7.00% 12/01/05 100 107
TACOMA WASH ELECTRIC 5.80% 01/01/04 70 71
-----------
TOTAL OBLIGATIONS 10,346
TOTAL MONEY MARKET INSTRUMENTS 200 200
-----------
TOTAL INVESTMENTS 10,546
CASH AND OTHER ASSETS, LESS LIABILITIES 126
-----------
TOTAL NET ASSETS $10,672
===========
</TABLE>
<PAGE> 132
KEMPER NATIONAL TAX-FREE INCOME SERIES
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:
Kemper Municipal Bond Fund.
Statement of assets and liabilities--September 30, 1994.
Statement of operations for the year ended September 30, 1994.
Statement of changes in net assets for each of the two years in
the period ended September 30, 1994.
Portfolio of investments--September 30, 1994.
Notes to financial statements.
Kemper Intermediate Municipal Bond Fund.
Statement of Net Assets--October 14, 1994.
Statement of assets and liabilities (unaudited)--January 31,
1995.
Statement of operations (unaudited) for the period ended January
31, 1995.
Statement of changes in net assets (unaudited) for the period
ended January 31, 1995.
Portfolio of investments (unaudited)--January 31, 1995.
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.
(b) Exhibits
<TABLE>
<S> <C>
99.B1(a) Amended and Restated Agreement and Declaration of Trust.
99.B1(b) Written Instrument Amending the 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.B4(c) Written Instrument Establishing and Designating Kemper
Intermediate Municipal Bond Fund.
99.B4(d) Written Instrument Changing the Name of a Series.
99.B5(a) Investment Management Agreement (Kemper Municipal Bond Fund).
99.B5(b) Investment Management Agreement (Kemper Intermediate Municipal
Bond Fund).
99.B6(a) Underwriting and Distribution Services Agreement.
99.B6(b) Assignment and Assumption Agreement
99.B6(c) Form of Selling Group Agreement.
99.B7 Inapplicable.
99.B8 Custody Agreement.
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 Agreement
99.B10 Inapplicable.
99.B11 Report and Consent of Independent Auditors.
</TABLE>
C-1
<PAGE> 133
<TABLE>
<S> <C>
99.B12 Inapplicable.
99.B13 Inapplicable.
99.B14 Inapplicable.
99.B15 See 6(a) above (Class B and Class C shares).
99.B16 Performance Calculations.*
99.B24 Powers of Attorney.
99.485(b) Letter Representation of Counsel (Rule 485(b)).
27.All Muni Financial Data Schedule
27.A Muni Financial Data Schedule
27.B Muni Financial Data Schedule
27.C Muni Financial Data Schedule
27.All Int - Muni Financial Data Schedule
27.A Int - Muni. Financial Data Schedule
27.B Int - Muni. Financial Data Schedule
27.C Int - Muni. Financial Data Schedule
</TABLE>
- ---------------
* Incorporated herein by reference to the Amendment to Registrant's
Registration Statement on Form N-1A identified below:
<TABLE>
<CAPTION>
POST-EFFECTIVE
EXHIBIT NO. AMENDMENT NO. DATE OF FILING
----------------------------------- ----------------------- -----------------------
<S> <C> <C>
2 23 12/2/85
16 26 1/20/89
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Inapplicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of February 28, 1995, there were 93,105 Class A, 960 Class B and 81
Class C holders of record of Kemper Municipal Bond Fund and 160 Class A, 35
Class B and 11 Class C holders of record of Kemper Intermediate Municipal Bond
Fund.
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.
C-2
<PAGE> 134
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 the following:
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 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,
Sterling Funds and Kemper International Bond Fund.
C-3
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Item 28(b) Business and Other Connections of Officers
and Directors of Kemper Financial Services Inc.,
the Investment Advisor
BORIS, JAMES R.
Director, Kemper Financial Services, Inc.
Director, INVEST Financial Corporation Holding Company
Director, INVEST Financial Corporation
Executive Vice President, Kemper Corporation
Director, Executive Vice President, Kemper Financial Companies,
Inc.
Director, Kemper Investors Life Insurance Company
Director, Kemper Sales Company
Director, Chairman and CEO, Kemper Securities, Inc.
MATHIS, DAVID B.
Director, Kemper Financial Services, Inc.
Director, Centre Reinsurance (Bermuda) Limited
Director, Centre Reinsurance Company Limited
Chairman of the Board, Centre Reinsurance Holdings Limited
Director, Federal Kemper Insurance Company
Director, Federal Kemper Life Assurance Company
Finance Committee, Fidelity Life Association
Chairman and Chief Executive Officer, Kemper Corporation
Director, Kemper Europe Reassurances, S.A. (KERSA)
Director, Kemper Financial Companies, Inc.
Director, Kemper International Insurance Company (PTE.) Limited
Director, Kemper Investors Life Insurance Company
Director, Kemper Securities Group Holdings, Inc.
Director, Kemper Securities, Inc.
Director, KERSA Holding Company Luxembourg
Director, Mound Agency of West Virginia, Inc.
Director, Mound Agency, Inc.
Director, Seven Continents Insurance Company, LTD.
Trustee, Kemper Mutual Funds
Trustee, Kemper Closed-End Funds
TIMBERS, STEPHEN B.
Director, Chairman, Chief Executive Officer and Chief Investment Officer
Kemper
Financial Services, Inc.
Director, Vice President, Kemper Asset Holdings, Inc.
Director, Federal Kemper Insurance Company
Director, Federal Kemper Life Assurance Company
Director, Vice President, FKLA Loire Court, Inc.
Director, FKLA Realty Corporation
Director, President, Galaxy Offshore, Inc.
Director, Vice President, FLA First Nationwide, Inc.
Director, Vice President, FLA Plate Building, Inc.
Director, FLA Realty Corp.
Trustee and President, Kemper Closed-End Funds
Director, President and Chief Operating Officer, Kemper
Corporation
Director, Kemper Financial Companies, Inc.
Director, President, Kemper International Management, Inc.
Trustee and Vice President, Kemper Investors Fund
Director, Kemper Investors Life Insurance Company
Trustee and President, Kemper Mutual Funds
Director, Vice President, Kemper Portfolio Corp.
C-4
<PAGE> 136
Director, Vice President, Kemper Real Estate, Inc.
Director, Kemper Securities, Inc.
Director, Kemper Securities Holdings, Inc.
Director, Vice President, Kemper/Cymrot Management, Inc.
Director, Vice President, Kemper/Cymrot, Inc.
Director, Vice President, KFC Portfolio Corp.
Director, Vice President, KI Aaron Rents, Inc.
Director, Vice President, KI Arnold Industrial, Inc.
Director, Vice President, KI Canyon Park, Inc.
Director, Vice President, KI Dublin Boulevard, Inc.
Director, Vice President, KI LaFiesta Square, Inc.
Director, Vice President, KI Monterey Research, Inc.
Director, Vice President, KI Olive 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.
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.
Trustee, Vice President, Sterling Funds
Director, The LTV Corporation
Director, Gillett Holdings, Inc.
Director, Investment Analysts Society of Chicago
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<PAGE> 137
NEAL, JOHN E.
President and Chief Operating Officer, Kemper Financial Services, Inc.
Director, Ardenwood Financial Corporation
Director, Avondale Redmond Inc.
Director, Bedford Holding Company
Director, Black Mountain, Inc.
Director, Brannan Resources, Inc.
Director, Butterfield Financial Corporation
Director, Camelot Financial Corporation
Director, Clay Capital, Inc.
Director, Concord Aviation, Inc.
Director, Coast Broadcasting Company
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, FKLA Loire Court, Inc.
Director, President, FKLA Realty Corporation
Director, President, FLA First Nationwide, Inc.
Director, President, FLA Plate Building, Inc.
Director, President, FLA Realty Corporation
Director, Kemper/Lumbermens Properties, Inc.
Director, Senior Vice President, Kemper Real Estate Management Company
Director, KRDC, Inc.
Director, Lafayette Apartments
Director, Lafayette Hills, Inc.
Director, Margarita Village Retirement Community
Director, Mesa Homes
Director, Mesa Homes Brokerage Company
Director, Mount Doloroes Corporation
Director, Montgomery Gallery, Inc.
Director, Monterey Research Park, Inc.
Director, One Business Centre
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, Inc.
Director, Two Corporate Center
Director, Venture Way, Inc.
Director, President, Kemper Portfolio Corporation
Director, President, KFC Portfolio Corporation
Director, President, KILICO Realty Corporation
Director, President, KI Arnold Industrial, Inc.
Director, President, KI Canyon Park, Inc.
Director, President, KI Dublin Boulevard, Inc.
Director, President, KI La Fiesta Square, Inc.
Director, President, KI Lafayette BART, 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 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 Enterprise Centers, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
Director, KRDC, Inc.
Director, President, SMS Realty Corp.
C-6
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PETERS, JOHN E.
Director, Senior Executive Vice President, Kemper Financial
Services, Inc.
Director, President, Kemper Distributors, Inc.
Vice President, Kemper Asset Management Company
Vice President, Kemper Closed-End Funds
Vice President, Kemper Investors Fund
Vice President, Kemper Mutual Funds
Director, Kemper Service Company
Vice President, Sterling Funds
FITZPATRICK, JOHN H.
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, 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, Senior Vice President, Kemper Real Estate Management
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 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, Sutter Street, Inc.
Director, Time DC, Inc.
Director, Two Corporate Center
Director, Vice President, KFC Portfolio Corp.
Director, Vice President, KI Aaron Rents, Inc.
Director, Vice President, KI Arnold Industrial, Inc.
Director, Vice President, KI Canyon Park, Inc.
Director, Vice President, KI Dublin Boulevard, Inc.
Director, Vice President, KI Lafayette BART, Inc.
Director, Vice President, KI LaFiesta Square, Inc.
Director, Vice President, KI Monterey Research, Inc.
Director, Vice President, KI Olive 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.
Director, Vice President, KR Hotels, Inc.
Director, Vice President, KR Lafayette Apartments, 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.
C-7
<PAGE> 139
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 National Tax-Free Income Series
Vice President, Kemper Municipal Income Trust
Vice President, Kemper Portfolios
Vice President, Kemper Short-Term Global Income Fund
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.
COTNER, C. BETH
Executive Vice President, Kemper Financial Services, Inc.
Trustee, Kemper Financial Services, Inc., Profit Sharing Plan
Vice President, Kemper Growth Fund
Vice President, Kemper Investors Fund
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
C-8
<PAGE> 140
Director, Kemper Investment Management Company Limited
Vice President, Kemper Investors Fund
Vice President, Kemper Target Equity Fund
Vice President, The Growth Fund of Spain, Inc.
JOHNS, GORDON K.
Executive Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Global 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 Portfolios
Director, Thames Heritage Parade Limited
LANGBAUM, GARY A.
Executive Vice President, Kemper Financial Services, Inc.
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 Aaron Rents, Inc.
Vice President, KI Arnold Industrial, Inc.
Vice President, KI Canyon Park, Inc.
Vice President, KI Dublin Boulevard, Inc.
Vice President, KI Lafayette BART, Inc.
Vice President, KI LaFiesta Square, Inc.
Vice President, KI Monterey Research, Inc.
Vice President, KI Olive Street, Inc.
Vice President, KI Thornton Boulevard, Inc.
Vice President, KR 300 North LaSalle Street, 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.
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<PAGE> 141
Vice President, KR Delta Wetlands, Inc.
Vice President, KR Gainesville, Inc.
Vice President, KR Gulf Coast Factory Shops, Inc.
Vice President, KR Halawa Associates, Inc.
Vice President, KR Hotels, Inc.
Vice President, KR Huntley I, Inc.
Vice President, KR Huntley II, Inc.
Vice President, KR Lafayette Apartments, 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.
DUDASIK, PATRICK H.
Senior Vice President, Kemper Financial Services, Inc.
Director, Treasurer and Chief Financial Officer, Kemper Advisors, Inc.
Vice President and Treasurer, Kemper Asset Management Company
Treasurer and Chief Financial Officer, Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Kemper Sales Company
Treasurer and Chief Financial Officer, Kemper Service Company
DUFFY, JEROME L.
Senior Vice President, Kemper Financial Services, Inc.
Treasurer, Kemper Closed-End Funds
Treasurer, Kemper Investors Fund
Treasurer, Kemper Mutual Funds
Treasurer, Kemper Target Equity Fund
Treasurer, Sterling Funds
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.
INNES, BRUCE D.
Vice President, Kemper Financial Services, Inc.
Co-President, International Association of Corporate and
Professional Recruiters
KLEIN, GEORGE
Senior Vice President, Kemper Financial Services, Inc.
Director, Senior Vice President, Kemper Asset Management
Company
KORTH, FRANK D.
Senior Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Technology Fund
C-10
<PAGE> 142
Vice President, Kemper Target Equity Fund
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
NATHANSON, IRA
Senior Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Corporation
NEEL, JAMES R.
Senior Vice President, Kemper Financial Services, Inc.
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
Vice President, Sterling Funds
Vice President, Tax-Exempt California Money Market Fund
Vice President, Tax-Exempt New York Money Market Fund
SCHUMACHER, ROBERT H.
Senior Vice President, Kemper Financial Services, Inc.
URBASZEWSKI, KENNETH T.
Senior Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
DIERENFELDT, DAVID F.
Senior Vice President, Associate General Counsel,
Assistant Secretary and Compliance Officer, Kemper Financial
Services, Inc.
Director, Chief Legal Officer and Chief Compliance Officer, Kemper Advisors,
Inc.
Vice President and Secretary, Kemper Distributors, Inc.
Assistant Secretary, Galaxy Offshore, Inc.
C-11
<PAGE> 143
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.
Assistant 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
Assistant Secretary, Kemper Sales Company
Assistant Secretary, Kemper Service Company
Assistant Secretary, Supervised Service Company, Inc.
COLLORA, PHILIP J.
Senior Vice President and Assistant Secretary, Kemper Financial
Services, Inc.
Vice President and Secretary, Kemper Closed-End Funds
Assistant Secretary, Kemper International Management, Inc.
Vice President and Secretary, Kemper Investors Fund
Vice President and Secretary, Kemper Mutual Funds
Vice President and Secretary, Sterling Funds
BUKOWSKI, DANIEL J.
First Vice President, Kemper Financial Services, Inc.
BUTLER, DAVID H.
First Vice President, Kemper Financial Services, Inc.
CESSINE, ROBERT S.
First Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Income and Capital Preservation Fund
CHIEN, CHRISTINE
First Vice President, Kemper Financial Services, Inc.
FISHER, REMY M.
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.
JACOBS, PETER M.
First Vice President, Kemper Financial Services, Inc.
LAUER, BRUCE H.
First Vice President, Kemper Financial Services, Inc.
McCRINDLE-PETRARCA, SUSAN
First Vice President, Kemper Financial Services, Inc.
C-12
<PAGE> 144
MIER, CHRISTOPHER J.
First 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
PANOZZO, ROBERTA L.
First Vice President, Kemper Financial Services, Inc.
RESIS, JR., HARRY E.
First 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
SILVIA, JOHN E.
First Vice President, Kemper Financial Services, Inc.
VINCENT, CHRISTOPHER T.
First Vice President, Kemper Financial Services, Inc.
First Vice President, Kemper Asset Management Company
BURROW, DALE R.
Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Strategic Municipal Income Trust
COHEN, JERRI I.
Vice President, Kemper Financial Services, Inc.
DeMAIO, CHRIS C.
Vice President, Kemper Financial Services, Inc.
Vice President and Chief Accounting Officer, Kemper Service
Company
DEXTER, STEPHEN P.
Vice President, Kemper Financial Services, Inc.
DOYLE, DANIEL J.
Vice President, Kemper Financial Services, Inc.
FENGER, JAMES
Vice President, Kemper Financial Services, Inc.
GERACI, AUGUST L.
Vice President, Kemper Financial Services, Inc.
C-13
<PAGE> 145
HORTON, ROBERT J.
Vice President, Kemper Financial Services, Inc.
KIEL, CAROL L.
Vice President, Kemper Financial Services, Inc.
KNAPP, WILLIAM M.
Vice President, Kemper Financial Services, Inc.
KOCH, DEBORAH L.
Vice President, Kemper Financial Services, Inc.
KRANZ, KATHY J.
Vice President, Kemper Financial Services, Inc.
KRUEGER, PAMELA D.
Vice President, Kemper Financial Services, Inc.
LeFEBVRE, THOMAS J.
Vice President, Kemper Financial Services, Inc.
CARNEY, ANN T.
Vice President, Kemper Financial Services, Inc.
McGOVERN, KAREN B.
Vice President, Kemper Financial Services, Inc.
MINER, EDWARD
Vice President, Kemper Financial Services, Inc.
MITCHELL, KATHERINE H.
Vice President, Kemper Financial Services, Inc.
PAYNE, ROBERT D.
Vice President, Kemper Financial Services, Inc.
PHILLIS, DAVID A.
Vice President, Kemper Financial Services, Inc.
PONTECORE, SUSAN E.
Vice President, Kemper Financial Services, Inc.
RADIS, STEVE A.
Vice President, Kemper Financial Services, Inc.
STUEBE, JOHN W.
Vice President, Kemper Financial Services, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
THOUIN-LEERKAMP, EDITH A.
Vice President, Kemper Financial Services, Inc.
C-14
<PAGE> 146
TRUTTER, JONATHAN W.
Vice President, Kemper Financial Services, Inc.
WERTH, ELIZABETH W.
Vice President, Kemper Financial Services, Inc.
Assistant Secretary, Kemper Mutual Funds
Assistant Secretary, Sterling Funds
WILLSON, STEPHEN R.
Vice President, Kemper Financial Services, Inc.
Vice President, Kemper Strategic Municipal Income Trust
WITTNEBEL, MARK E.
Vice President, Kemper Financial Services, Inc.
KOVACS, WILLIAM P.
Vice President and Assistant Secretary, Kemper Financial
Services, Inc.
Director, Secretary, Kemper Advisors, Inc.
RATEKIN, DIANE E.
Assistant General Counsel and Assistant Secretary, Kemper
Financial Services, Inc.
Assistant Secretary, Kemper Distributors, Inc.
C-15
<PAGE> 147
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Kemper Distributors, Inc. acts as principal underwriter and distributor
of Registrant's shares, the Kemper Mutual Funds, Kemper Investors Fund, Sterling
Funds and Kemper International Bond Fund.
(b) Information on the officers and directors of Kemper Distributors, Inc.
is set forth below. The principal business address is 120 South LaSalle Street,
Chicago, Illinois 60603.
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES WITH
NAME POSITIONS AND OFFICES REGISTRANT
- ------------------------- ----------------------------------------------------------- --------------
<S> <C> <C>
John E. Peters Principal, Director and President Vice President
James L. Greenawalt Director, Executive Vice President None
Patrick H. Dudasik Financial Principal, Treasurer and Chief Financial Officer None
Linda A. Bercher Senior Vice President None
Daniel T. O'Lear Senior Vice President None
David F. Dierenfeldt Vice President, Secretary None
Thomas V. Bruns Vice President None
Carlene D. Merold Vice President None
Diane E. Ratekin Assistant Secretary None
</TABLE>
(c) Not applicable.
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 manager, Kemper
Financial Services, Inc. and Kemper Distributors, Inc., the Registrant's
principal underwriter, 120 South LaSalle Street, Chicago, Illinois 60603 or at
the offices of the custodian and transfer agent, Investors Fiduciary Trust
Company, 127 West 10th Street, Kansas City, Missouri 64141 or at the offices of
the shareholder services agent, Kemper Service Company, 811 Main Street, Kansas
City, Missouri 64105.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the Registrant's latest annual report to shareholders, upon
request and without charge.
C-16
<PAGE> 148
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 13th day
of March, 1995.
KEMPER NATIONAL TAX-FREE INCOME SERIES
By /s/ Stephen Timbers
---------------------------------
Stephen B. Timbers, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on March 13, 1995 on behalf of the
following persons in the capacities indicated.
Signature Title
--------- -----
/s/ Stephen 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/William P. Sommers* Trustee
----------------------------------
/s/ Jerome Duffy Treasurer (Principal
--------------------------------- Financial and
Jerome L. Duffy Accounting Officer)
<PAGE> 149
*Philip J. Collora signs this document pursuant to powers of
attorney filed herewith.
/s/ Philip Collora
-----------------------
Philip J. Collora
<PAGE> 150
INDEX TO EXHIBITS
<TABLE>
<S> <C> <C>
Exhibits
99.B1(a) Amended and Restated Agreement and Declaration of
Trust.
99.B1(b) Written Instrument Amending the 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.B4(c) Written Instrument Establishing and Designating Kemper
Intermediate Municipal Bond Fund.
99.B4(d) Written Instrument Changing the Name of a Series.
99.B5(a) Investment Management Agreement (Kemper Municipal Bond
Fund).
99.B5(b) Investment Management Agreement (Kemper Intermediate
Municipal Bond Fund).
99.B6(a) Underwriting and Distribution Services Agreement.
99.B6(b) Assignment and Assumption Agreement
99.B6(c) Form of Selling Group Agreement.
99.B7 Inapplicable.
99.B8 Custody Agreement.
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 Agreement
99.B10 Inapplicable.
99.B11 Report and Consent of Independent Auditors.
99.B12 Inapplicable.
99.B13 Inapplicable.
99.B14 Inapplicable.
99.B15 See 6(a) above (Class B and Class C shares).
99.B16 Performance Calculations.*
99.B24 Powers of Attorney.
99.485(b) Letter Representation of Counsel (Rule 485(b).
27.All Muni Financial Data Schedule
27.A Muni Financial Data Schedule
27.B Muni Financial Data Schedule
27.C Muni Financial Data Schedule
27.All Int - Muni Financial Data Schedule
27.A Int - Muni Financial Data Schedule
27.B Int - Muni Financial Data Schedule
27.C Int - Muni Financial Data Schedule
</TABLE>
- ---------------
* Incorporated herein by reference to the Amendment to Registrant's
Registration Statement on Form N-1A identified below:
<TABLE>
<CAPTION>
POST-EFFECTIVE AMENDMENT
EXHIBIT NO. NO. DATE OF FILING
------------------------------------- ------------------------- -------------------------
<S> <C> <C>
2 23 12/2/85
16 26 1/20/89
</TABLE>
<PAGE> 1
EXHIBIT 99.B1(a)
KEMPER MUNICIPAL BOND FUND
AMENDED AND RESTATED
AGREEMENT AND DECLARATION OF TRUST
WHEREAS, Article IX, Section 4 of the Agreement and Declaration of
Trust of Kemper Municipal Bond 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.
ARTICLE I
NAME AND DEFINITIONS
<PAGE> 2
NAME AND REGISTERED AGENT
SECTION 1. This Trust shall be known as Kemper Municipal Bond 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;
(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;
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(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.
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,
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<PAGE> 4
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.
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
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<PAGE> 5
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 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.
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<PAGE> 6
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
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.
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<PAGE> 7
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.
(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
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<PAGE> 8
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.
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
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<PAGE> 9
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 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.
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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, 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
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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 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;
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(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 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;
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(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 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
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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 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.
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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, 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
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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 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.
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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 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
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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 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,
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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 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 Share-
holders 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
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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 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
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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.
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
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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 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
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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.
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
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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.
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
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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 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
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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,
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
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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 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.
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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.
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
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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 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.
/s/ Charles M. Kierscht
----------------------------
(SEAL) Charles M. Kierscht, Trustee
321 Princeton Road
Hinsdale, Illinois 60521
(signatures continue)
29
<PAGE> 30
/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> 31
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.B1(b)
KEMPER MUNICIPAL BOND FUND
WRITTEN INSTRUMENT AMENDING THE
AGREEMENT AND DECLARATION OF TRUST
NOVEMBER 1, 1994
The undersigned, being a majority of the trustees of Kemper Municipal
Bond Fund (the "Trust"), a business trust organized pursuant to an Agreement
and Declaration of Trust dated October 24, 1985, as amended and restated (the
"Declaration of Trust"), pursuant to Section 1 of Article I and Section 4 of
Article IX of the Declaration of Trust, do hereby change the name of the Trust
to "Kemper National Tax-Free Income Series".
IN WITNESS WHEREOF, the undersigned have this 1st day of November,
1994, signed these presents.
(signatures attached)
The address of the Trust is:
c/o Kemper Financial Services, Inc.
120 S. LaSalle Street
Chicago, Illinois 60603
<PAGE> 2
/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
/s/ Charles M. Kierscht
-------------------------
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.B4(a)
[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 MUNICIPAL BOND FUND
WRITTEN INSTRUMENT ESTABLISHING
AND DESIGNATING SEPARATE CLASSES OF SHARES
The undersigned constitute all the Trustees of Kemper Municipal Bond
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.B4(c)
KEMPER MUNICIPAL BOND FUND
WRITTEN INSTRUMENT
ESTABLISHING AND DESIGNATING
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
OCTOBER 13, 1994
The undersigned, being a majority of the trustees of Kemper Municipal
Bond Fund (the "Trust"), a business trust organized pursuant to an Agreement
and Declaration of Trust dated October 24, 1985, as amended and restated (the
"Declaration of Trust"), pursuant to Section 1 of Article III of the
Declaration of Trust, do hereby establish and designate a second series of
Shares of the Trust to be known as "Kemper Intermediate Municipal Bond Fund".
The relative rights and preferences of such series shall be as set forth in the
Declaration of Trust and the series shall be subject to the Written Instrument
Establishing and Designating Separate Classes of Shares of the Trust dated May
27, 1994.
IN WITNESS WHEREOF, the undersigned have this 13th day of October,
1994, signed these presents.
(signatures attached)
The address of the Trust is:
c/o Kemper Financial Services, Inc.
120 S. LaSalle Street
Chicago, Illinois 60603
<PAGE> 2
/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
/s/ Charles M. Kierscht
------------------------------
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.B4(d)
KEMPER MUNICIPAL BOND FUND
WRITTEN INSTRUMENT
CHANGING THE NAME OF A SERIES
NOVEMBER 1, 1994
The undersigned, being a majority of the trustees of Kemper National
Tax-Free Income Series (the "Trust"), a business trust organized pursuant to an
Agreement and Declaration of Trust dated October 24, 1985, as amended and
restated (the "Declaration of Trust"), pursuant to Section 1 of Article III of
the Declaration of Trust, do hereby change the name of the "Initial Portfolio"
of the Trust to "Kemper Municipal Bond Fund".
IN WITNESS WHEREOF, the undersigned have this 1st day of November,
1994, signed these presents.
(signatures attached)
The address of the Trust is:
c/o Kemper Financial Services, Inc.
120 S. LaSalle Street
Chicago, Illinois 60603
<PAGE> 2
/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
/s/ Charles M. Kierscht
----------------------------
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
210 South Green Bay Road
Lake Forest, Illinois 60045
<PAGE> 1
EXHIBIT 99.B5(a)
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 28th day of May, 1994, by and between KEMPER
MUNICIPAL BOND 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 of cash for the account of the Fund. In
connection with the
<PAGE> 2
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.
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
2
<PAGE> 3
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 .45 of 1%
$ 250,000 - $ 1,000,000 .43 of 1%
$ 1,000,000 - $ 2,500,000 .41 of 1%
$ 2,500,000 - $ 5,000,000 .40 of 1%
$ 5,000,000 - $ 7,500,000 .38 of 1%
$ 7,500,000 - $10,000,000 .36 of 1%
$10,000,000 - $12,500,000 .34 of 1%
Over $12,500,000 .32 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, 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
3
<PAGE> 4
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 Portfolios 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 and, to the
extent permitted, extraordinary expenses) exceed 1% of average daily net
assets, the Adviser will reduce its fee or reimburse the Fund for any excess.
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 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,
4
<PAGE> 5
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 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.
5
<PAGE> 6
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.
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.
6
<PAGE> 7
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 MUNICIPAL BOND 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.B5(b)
INVESTMENT MANAGEMENT AGREEMENT
(Kemper Intermediate Municipal Bond Fund)
AGREEMENT made this 1st day of November, 1994, by and between KEMPER
NATIONAL TAX-FREE INCOME SERIES, 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 wants to retain the Adviser under this Agreement to
render investment advisory and management services to the portfolio of the Fund
known as Kemper Intermediate Municipal Bond Fund (the "Initial Portfolio"),
together with any other Fund portfolios that hereafter become subject to this
Agreement pursuant to Section 2 hereof, being herein referred to collectively
as the "Portfolios" and individually referred to as a "Portfolio"; and
WHEREAS, the Adviser is willing to render such investment advisory and
management services for the Initial Portfolio;
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
<PAGE> 2
the agent of the Fund to give instructions to the Custodian of the Fund
as to the deliveries of securities and payments 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:
<TABLE>
<CAPTION>
Applicable Average
Daily Net Assets
(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,
1996, 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 jurisdiction that
the Adviser or any officer or director of
5
<PAGE> 6
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.
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.
6
<PAGE> 7
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 NATIONAL TAX-FREE
INCOME SERIES
By: /s/ John E. Peters
----------------------------
Title: Vice President
ATTEST:
/s/ Philip J. Collora
- -------------------------------
Title: Assistant Secretary
KEMPER FINANCIAL SERVICES, INC.
By: /s/ Patrick H. Dudasik
-------------------------------
Title: Senior Vice President
ATTEST:
/s/ David F. Dierenfeldt
- -------------------------------
Title: Assistant Secretary
7
<PAGE> 1
EXHIBIT 99.B6(a)
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 28th day of May, 1994, between KEMPER MUNICIPAL
BOND 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 MUNICIPAL BOND 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 National
Tax-Free Income Series, 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 NATIONAL TAX-FREE INCOME SERIES
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 sloe 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
CUSTODY AGREEMENT
AGREEMENT, made the 1st day of October, 1990 by and between Kemper
Municipal Bond 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 the Fund's portfolio securities and monies
pursuant to this 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
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,
property 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
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.
<PAGE> 2
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. Delivery of Assets
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, all portfolio securities acquired by
it and monies then owned by it except as permitted by the Investment
Company Act of 1940 ("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. 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 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,
2
<PAGE> 3
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;
(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.
3
<PAGE> 4
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.
(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,
4
<PAGE> 5
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 pledge or hypothecation to
secure 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
5
<PAGE> 6
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:
(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;
6
<PAGE> 7
(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 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
7
<PAGE> 8
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 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
8
<PAGE> 9
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 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 such sub-custodian must
have the qualifications required for custodians under the 1940 Act
unless exempted therefrom. The 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 Custodian
hereunder. Neither Custodian nor sub-custodian shall be entitled to
reimbursement by Fund for any fees or expenses of any sub-custodian.
The appointment of a sub-custodian shall not relieve Custodian of any
of its obligations hereunder.
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
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<PAGE> 10
and all books and records, account values or actions shall be
maintained, held, made or taken, as the case may be, maintained
separately for each Portfolio.
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
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
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<PAGE> 11
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.
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
11
<PAGE> 12
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 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.
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.
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 the 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
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<PAGE> 13
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
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.
Notwithstanding 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
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<PAGE> 14
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.
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 of 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
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<PAGE> 15
for such purpose.
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
between the parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective authorized officers, and their respective seals to
be affixed.
KEMPER MUNICIPAL BOND FUND
By: /s/ John E. Peters
------------------------
Title: Vice President
Attest: /s/ Robert J. Engling
--------------------------------
Title: Vice President & Secretary
INVESTORS FIDUCIARY TRUST COMPANY
By: /s/ R.A. Winegar
------------------------
Title: EVP
Attest: /s/ Cheryl Naegler
---------------------------
Title: Asst. Secretary
15
<PAGE> 1
EXHIBIT 99.B9(a)
AGENCY AGREEMENT
AGREEMENT dated the 1st day of January, 1989, by and between KEMPER
MUNICIPAL BOND 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.
F. Specimens of the signatures of the officers of the
Fund authorized to sign share certificates and
individuals authorized to sign written instructions
<PAGE> 2
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.
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.
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<PAGE> 3
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
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,
3
<PAGE> 4
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
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
4
<PAGE> 5
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.
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
5
<PAGE> 6
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
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.
6
<PAGE> 7
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.
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,
7
<PAGE> 8
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.
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:
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<PAGE> 9
(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
contrary by Fund in writing. In the absence of such
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
9
<PAGE> 10
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
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.
10
<PAGE> 11
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,
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.
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
11
<PAGE> 12
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 mall deliveries to be covered
while in transit to the addressee by insurance
arranged for by IFTC.
E. IFTC will issue and mall 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.
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
12
<PAGE> 13
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.
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.
13
<PAGE> 14
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.
(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
14
<PAGE> 15
("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.
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.
15
<PAGE> 16
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
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
16
<PAGE> 17
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.
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 MUNICIPAL BOND 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
17
<PAGE> 18
EXHIBIT A
FEE SCHEDULE
<TABLE>
<CAPTION>
Transfer Agency Function Fee Payable by Fund
------------------------ -------------------
<S> <C> <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 earnings allowances under the Custody Agreement
between Fund and IFTC.
<PAGE> 19
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 MUNICIPAL BOND 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> <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 Not
open 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>
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 October, 1993, by and between KEMPER
MUNICIPAL BOND 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.
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
<PAGE> 2
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 executed by and on behalf of the Fund by its representatives
as such representatives and not individually, and the obligations of the
2
<PAGE> 3
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 MUNICIPAL BOND FUND KEMPER FINANCIAL SERVICES,
INC.
By: /s/ John E. Peters By: /s/ Robert Jackson
--------------------- -------------------------
Title: Vice President Title: CFO & Sen. Exec. V.P.
3
<PAGE> 4
APPENDIX I
KEMPER MUNICIPAL BOND 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 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 Agreement. KFS will pay Firms a service fee at an annual rate
of (a) up to .10 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 Agreement.
Dated: October 1, 1993
KEMPER MUNICIPAL BOND FUND KEMPER FINANCIAL SERVICES,
INC.
By: /s/ John E. Peters By: /s/ Robert Jackson
--------------------- ---------------------------
Title: Vice President Title: CFO & Sen. Exec. V.P.
<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 MUNICIPAL BOND 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 National Tax-Free
Income Series, a Massachusetts business trust (the "Fund"), pursuant to that
certain Administrative Services Agreement dated October 1, 1993 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.
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 NATIONAL TAX-FREE INCOME SERIES
By: /s/ John E. Peters
----------------------------
Its: Vice President
2
<PAGE> 1
EXHIBIT 99.B11
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Kemper Municipal Bond Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Kemper Municipal Bond Fund as of September 30,
1994, the related statement 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 1985. 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 September 30, 1994, 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 Municipal Bond Fund at September 30, 1994, 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 1985, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
October 26, 1994
<PAGE> 2
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholder
Kemper National Tax-Free Income Series--
Kemper Intermediate Municipal Bond Fund
We have audited the accompanying statement of net assets of Kemper National
Tax-Free Income Series (formerly Kemper Municipal Bond Fund)--Kemper
Intermediate Municipal Bond Fund as of October 14, 1994. This statement of net
assets is the responsibility of the Trust's management. Our responsibility is to
express an opinion on this statement of net assets based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of net assets. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statement of net assets
presentation. We believe that our audit of the statement of net assets provides
a reasonable basis for our opinion.
In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of Kemper National Tax-Free
Income Series--Kemper Intermediate Municipal Bond Fund at October 14, 1994 in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Chicago, Illinois
October 14, 1994
<PAGE> 3
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 on the Statement of Net Assets of Kemper National Tax-Free
Income Series - Kemper Intermediate Municipal Bond Fund dated October 14, 1994
and our report on the financial statements of Kemper Municipal Bond Fund dated
October 26, 1994 in the Registration Statement (Form N-1A) and their
incorporation by reference in the related Prospectus and Statement of
Additional Information of Kemper Tax-Free Income Funds, filed with the
Securities and Exchange Commission in this Post-Effective Amendment No. 39 to
the Registration Statement under the Securities Act of 1933 (Registration No.
2-47008) and in this Amendment No. 39 to the Registration Statement under the
Investment Company Act of 1940 (Registration No. 811-2353).
/s/ ERNST & YOUNG LLP
Chicago, Illinois
March 10, 1995
<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 National Tax-Free Income Series.
Signature Title Date
--------- ----- ----
/s/ Stephen B. Timbers Trustee March 11, 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 National Tax-Free Income Series.
Signature Title Date
--------- ----- ----
/s/ David W. Belin Trustee March 11, 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 National Tax-Free Income Series.
Signature Title Date
--------- ----- ----
/s/ Lewis A. Burnham Trustee March 11, 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 National Tax-Free Income Series.
Signature Title Date
--------- ----- ----
/s/ Donald L. Dunaway Trustee March 11, 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 National Tax-Free Income Series.
Signature Title Date
--------- ----- ----
/s/ Robert B. Hoffman Trustee March 11, 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 National Tax-Free Income Series.
Signature Title Date
--------- ----- ----
/s/ Donald R. Jones Trustees March 11, 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 National Tax-Free Income Series.
Signature Title Date
--------- ----- ----
/s/ David B. Mathis Trustee March 11, 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 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 National Tax-Free Income Series.
Signature Title Date
--------- ----- ----
/s/ William P. Sommers Trustee March 11, 1995
-------------------
<PAGE> 1
EXHIBIT 99.485(b) Letter
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
March 13, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Kemper National Tax-Free Income Series
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. 39 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 INFORMATION IS
COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE 1994 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055190
<NAME> KEMPER MUNICIPAL BOND FUND
<SERIES>
<NUMBER> 0
<NAME> COMBINED FOR ALL CLASSES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 3,672,858
<INVESTMENTS-AT-VALUE> 3,657,059
<RECEIVABLES> 111,119
<ASSETS-OTHER> 21,132
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,789,310
<PAYABLE-FOR-SECURITIES> 49,234
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,079
<TOTAL-LIABILITIES> 72,313
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,701,977
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 29,011
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,808
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (15,799)
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 239,158
<OTHER-INCOME> 0
<EXPENSES-NET> (23,782)
<NET-INVESTMENT-INCOME> 215,376
<REALIZED-GAINS-CURRENT> 28,967
<APPREC-INCREASE-CURRENT> (396,629)
<NET-CHANGE-FROM-OPS> (152,286)
<EQUALIZATION> 1,505
<DISTRIBUTIONS-OF-INCOME> (218,505)
<DISTRIBUTIONS-OF-GAINS> (121,549)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (355,629)
<ACCUMULATED-NII-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (15,291)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (23,782)
<AVERAGE-NET-ASSETS> 3,965,869
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
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<PER-SHARE-NAV-END> 0
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<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 1994 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055190
<NAME> KEMPER MUNICIPAL BOND FUND
<SERIES>
<NUMBER> 01
<NAME> CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
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<DISTRIBUTIONS-OF-INCOME> 0
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<NUMBER-OF-SHARES-SOLD> 50,713
<NUMBER-OF-SHARES-REDEEMED> (62,190)
<SHARES-REINVESTED> 22,146
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<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 10.95
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<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
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FINANCIAL INFORMATION EXTRACTED FROM THE 1994 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055190
<NAME> KEMPER MUNICIPAL BOND FUND
<SERIES>
<NUMBER> 02
<NAME> CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
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FINANCIAL INFORMATION EXTRACTED FROM THE 1994 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055190
<NAME> KEMPER MUNICIPAL BOND FUND
<SERIES>
<NUMBER> 03
<NAME> CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT CLASS LEVEL. ALL OTHER INFORMATION
IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE JANUARY 31, 1995 INTERIM FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055190
<NAME> KEMPER INTERMEDIATE MUNICIPAL BOND FUND
<SERIES>
<NUMBER> 0
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1994
<PERIOD-END> JAN-31-1994
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<ACCUMULATED-NET-GAINS> (6)
<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 0
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<OTHER-INCOME> 0
<EXPENSES-NET> (11)
<NET-INVESTMENT-INCOME> 78
<REALIZED-GAINS-CURRENT> (6)
<APPREC-INCREASE-CURRENT> 270
<NET-CHANGE-FROM-OPS> 342
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (78)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10,572
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (11)
<AVERAGE-NET-ASSETS> 7,930
<PER-SHARE-NAV-BEGIN> 0
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<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
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FINANCIAL INFORMATION EXTRACTED FROM THE JANUARY 31, 1995 INTERIM FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000055190
<NAME> KEMPER INTERMEDIATE MUNICIPAL BOND FUND
<SERIES>
<NUMBER> 01
<NAME> CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-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> 801
<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> 7,789
<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> 828
<NUMBER-OF-SHARES-REDEEMED> (32)
<SHARES-REINVESTED> 6
<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> 9.50
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> .22
<PER-SHARE-DIVIDEND> (.12)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.72
<EXPENSE-RATIO> .004
<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 JANUARY 31, 1995 INTERIM FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000055190
<NAME> KEMPER INTERMEDIATE MUNICIPAL BOND FUND
<SERIES>
<NUMBER> 02
<NAME> CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-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> 233
<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> 2,269
<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> 232
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 1
<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> 9.50
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> .22
<PER-SHARE-DIVIDEND> (.10)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.72
<EXPENSE-RATIO> .013
<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 JANUARY 31, 1995 INTERIM FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000055190
<NAME> KEMPER INTERMEDIATE MUNICIPAL BOND FUND
<SERIES>
<NUMBER> 03
<NAME> CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-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> 63
<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> 613
<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> 63
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<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> 9.50
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> .23
<PER-SHARE-DIVIDEND> (.10)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.73
<EXPENSE-RATIO> .012
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
