Filed electronically with the Securities and Exchange Commission on
December 31, 1998.
File No. 2-47008
File No. 811-2353
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 |_|
Pre-Effective Amendment No |_|
Post-Effective Amendment No. 45 |X|
----
And/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 45 |X|
----
Kemper National Tax-Free Income Series
--------------------------------------
(Exact Name of Registrant as Specified in Charter)
222 South Riverside Plaza
-------------------------
Chicago, Illinois 60606
-----------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 537-7000
Philip J. Collora
-----------------
Vice President and Secretary
----------------------------
Kemper National Tax-Free Income Series
--------------------------------------
222 South Riverside Plaza
-------------------------
Chicago, Illinois 60606
-----------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
|_| Immediately upon filing pursuant to paragraph (b)
|_| days after filing pursuant to paragraph (a)(2)
|_| On ( date ) pursuant to paragraph (a)(1)
|_| days after filing pursuant to paragraph (a)(1)
|_| On ( date ) pursuant to paragraph (b)
|X| On January 1, 1999 pursuant to paragraph (a)(3) of Rule 485.
If Appropriate, check the following box:
|X| This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
[LOGO] KEMPER FUNDS
Kemper Tax-Free
Income Funds
PROSPECTUS January 1, 1999
KEMPER TAX-FREE INCOME FUNDS
222 South Riverside Plaza, Chicago, Illinois 60606 (800) 621-1048
This prospectus describes a choice of six funds managed by Scudder Kemper
Investments, Inc.
Kemper Municipal Bond Fund
Kemper Intermediate Municipal Bond Fund
Kemper California Tax-Free Income Fund
Kemper Florida Tax-Free Income Fund
Kemper New York Tax-Free Income Fund
Kemper Ohio Tax-Free Income Fund
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
Contents
2 About the Funds
- --------------------------------------------------------------------------------
2 Investment objective and principal
strategies common to the funds
2 Principal risk factors common to
the funds
4 Kemper Municipal Bond Fund
8 Kemper Intermediate Municipal Bond Fund
12 Kemper California Tax-Free Income Fund
16 Kemper Florida Tax-Free Income Fund
21 Kemper New York Tax-Free Income Fund
26 Kemper Ohio Tax-Free Income Fund
30 Investment manager
33 About Your Investment
- --------------------------------------------------------------------------------
33 Choosing a share class
35 Buying shares
39 Selling and exchanging shares
40 Distributions and taxes
42 Transaction information
44 Financial Highlights
- --------------------------------------------------------------------------------
<PAGE>
ABOUT THE FUNDS
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES COMMON TO THE FUNDS
Each fund seeks to provide a high level of income exempt from federal income
taxes and, in the case of certain state funds, from taxes of a particular state.
The funds are generally not appropriate investments for qualified retirement
plans and Individual Retirement Accounts.
Each of the funds invests principally in "Municipal Securities," which 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:
o to refund outstanding obligations
o to obtain funds for general operating expenses
o to obtain funds to loan to other public institutions and facilities.
The two general 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.
Investors receive the benefits of professional management and liquidity through
a single investment in shares of a fund.
PRINCIPAL RISK FACTORS COMMON TO THE FUNDS
There are market and investment risks with any security. The value of an
investment in the funds will fluctuate over time and it is possible to lose
money invested in the funds.
Each of the funds may invest in private activity bonds subject to the federal
alternative minimum tax.
Interest rates. Interest rate risk is the risk that the value of a fund's
investments will go down when interest rates rise. Normally the value of a
fund's investments varies inversely with changes in interest rates so that in
periods of rising interest rates, the value of a fund's portfolio declines.
Maturity. Generally, longer-term securities are more susceptible to changes in
value as a result of interest-rate changes than are shorter-term securities.
Credit risk. Credit risk refers to the risk that an issuer of a bond may default
with respect to the payment of principal and interest. The lower a bond is
rated, the more it is considered to be a speculative or risky investment.
2 About The Funds
<PAGE>
Prepayment risk. Prepayment risk is commonly associated with pooled debt
securities, such as mortgage-backed securities and asset-backed securities, but
may affect other debt securities as well. When the underlying debt obligations
are prepaid ahead of schedule, the return on the security will be lower than
expected. Prepayment rates usually increase when interest rates are falling.
Portfolio strategy. The portfolio management team's skill in choosing
appropriate investments for the funds will determine in part the funds' ability
to achieve their respective investment objectives.
Inflation risk. There is a possibility that the rising prices of goods and
services may have the effect of offsetting a fund's real return. This is likely
to have a greater impact on the returns of bond funds and money market funds,
which historically have had more modest returns in comparison to equity funds.
About The Funds 3
<PAGE>
KEMPER MUNICIPAL BOND FUND
Investment objective and principal strategies
Kemper Municipal Bond 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. The fund seeks to achieve its objective by investing
primarily in a diversified portfolio of municipal securities. The fund's
investment objective may be changed without a vote of shareholders.
The fund seeks to achieve high current income by investing primarily in a
diversified portfolio of investment grade municipal securities. The fund may
invest in securities of any maturity; its average maturity varies, but normally
will be in excess of 15 years.
The investment manager actively manages the fund's portfolio:
o by assessing the interest rate outlook
o by assessing changes in the relative risk/reward between long and
short-term bonds (yield curve)
o by selecting securities for superior price or income performance
o by looking nationwide for top performing regions and industries
Principal risks
The fund's principal risks are associated with investing in tax free fixed
income securities: interest rate movements, credit quality, maturity, the
investment manager's skill in managing the fund's portfolio and inflation risk.
You will find a discussion of these risks under "About The Funds" at the front
of this prospectus.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year, and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance. The
information provided in the chart is for Class A shares, and does not reflect
sales charges, which reduce return.
4 Kemper Municipal Bond Fund
<PAGE>
Total returns for years ended December 31
[The following table was represented as a bar graph in the printed material.]
1988 8.65%
1989 11.30%
1990 6.66%
1991 12.78%
1992 8.71%
1993 13.20%
1994 -5.51%
1995 18.33%
1996 3.33%
1997 9.36%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 7.17% (the second quarter of 1989), and the fund's lowest
return for a calendar quarter was -5.35% (the first quarter of 1994).
The fund's year-to-date total return as of September 30, 1998 was 5.77%.
Average Annual Total Returns
<TABLE>
<CAPTION>
For periods ended Lehman Brothers
December 31, 1997 Class A Class B Class C Municipal Bond Index+
- ----------------- ------- ------- ------- ---------------------
<S> <C> <C> <C> <C>
One Year 4.46% 5.43% 8.44% 9.19%
Five Years 6.44% -- -- 7.36%
Ten Years 8.01% -- -- 8.58%
Since Class Inception** 7.80% 6.40% 7.01% *
</TABLE>
- -----------
* Index returns for the life of each class: 6.27% (5/31/94) for Classes B
and C. The Index was not in existence on the date of Class A shares
inception.
** Inception date for Class A, B and C shares is 4/20/76, 5/31/94 and
5/31/94, respectively.
+ The Lehman Brothers Municipal Bond Index is a widely recognized unmanaged
measure of approximately 15,000 bonds. Index returns assume reinvestment
of dividends and, unlike fund returns, do not reflect any fees, expenses
or sales charges.
Fee and expense information
This information is designed to help you understand the fees and expenses that
you may pay if you buy and hold shares of the fund. Each class of shares has a
different set of transaction fees, which will vary based on the length of time
you hold shares in the fund and the amount of your investment. You will find
details about fee discounts and waivers in the Buying shares and Choosing a
share class -- Special features sections of this prospectus.
Kemper Municipal Bond Fund 5
<PAGE>
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load) Imposed on
Purchases (as % of offering price) 4.5% None None
Maximum Deferred Sales Charge (Load)
(as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends/Distributions None None None
Redemption Fee (as % of amount redeemed,
if applicable) None None None
Exchange Fee None None None
- -----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.41% 0.41% 0.41%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses 0.27% 0.36% 0.36%
----- ----- -----
Total Annual Fund Operating Expenses 0.68% 1.52% 1.52%
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $516 $555 $255
3 Years $658 $780 $480
5 Years $812 $1,029 $829
10 Years $1,258 $1,376 $1,813
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $516 $155 $155
3 Years $658 $480 $480
5 Years $812 $829 $829
10 Years $1,258 $1,376 $1,813
6 Kemper Municipal Bond Fund
<PAGE>
Principal strategies and investments
Under normal conditions the fund maintains 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. These are generally referred to as municipal securities.
At least 90% of the municipal securities in which the fund invests are rated, at
the time of purchase, within the four highest ratings by a nationally recognized
statistical rating service such as Standard and Poor's Corporation or Moody's
Investors Service, Inc. or are of comparable quality as determined by the fund's
investment manager.
The fund's portfolio is actively managed. Individual securities are purchased
and sold based on the investment manager's determinations of geographic
strength, sector strength, value relative to other issues, and the outlook for
interest rates and yield curve changes.
For temporary defensive purposes, the fund may invest up to 100% of its assets
in short-term high-grade debt securities, cash and cash equivalents. Because
this defensive policy differs from the fund's investment objective, the fund may
not achieve its goals during a defensive period. Temporary defensive investments
may also be taxable.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques which may impact fund performance,
including options, futures and other strategic transactions. The fund is limited
to 5% of net assets for initial margin and premium amounts on futures positions
considered speculative by the Commodities Futures Trading Commission. More
information about investments and strategies is provided in the Statement of
Additional Information. Of course, there can be no guarantee that by following
these strategies, the fund will achieve its objective.
Kemper Municipal Bond Fund 7
<PAGE>
KEMPER INTERMEDIATE MUNICIPAL BOND FUND
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Kemper Intermediate Municipal Bond 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. The fund seeks to achieve its objective
by investing in a diversified portfolio of municipal securities. The fund's
investment objective may be changed without a vote of shareholders.
The fund invests principally in municipal securities rated investment grade with
an average maturity range of 3 to 10 years. Intermediate-term securities
generally are more stable and less susceptible to changes in market value than
longer term securities although in most cases they offer lower yields than
securities with longer maturities.
The investment manager actively manages the fund's portfolio:
o by assessing the interest rate outlook
o by assessing changes in the relative risk-reward between medium and
short-term bonds (yield curve)
o by selecting securities for superior price or income performance
o by looking nationwide for top performing regions and industries
Principal risks
The fund's principal risks are associated with investing in tax free fixed
income securities: interest rate movements, credit quality, maturity, the
investment manager's skill in managing the fund's portfolio and inflation risk.
You will find a discussion of these risks under "About The Funds" at the front
of this prospectus.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year, and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance. The
information provided in the chart is for Class A shares, and does not reflect
sales charges, which reduce return.
8 Kemper Intermediate Municipal Bond Fund
<PAGE>
Total returns for years ended December 31
[The following table was represented as a bar graph in the printed material.]
1995 14.08%
1996 3.41%
1997 7.52%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 5.19% (the first quarter of 1995), and the fund's lowest
return for a calendar quarter was -0.95% (the first quarter of 1996).
The fund's year-to-date total return as of September 30, 1998 was 4.92%.
Average Annual Total Returns
Lehman Brothers
For periods ended Municipal
December 31, 1997 Class A Class B Class C Bond Index+
- ----------------- ------- ------- ------- -----------
One Year 4.54% 3.59% 6.74% 9.19%
Since Class Inception** 7.29% 6.78% 7.43% 9.79%
- -----------
** Inception date for Class A, B and C shares is 11/1/94, 11/1/94 and
11/1/94, respectively.
+ The Lehman Brothers Municipal Bond Index is a widely recognized unmanaged
measure of approximately 15,000 bonds. Index returns assume reinvestment
of dividends and, unlike fund returns, do not reflect any fees, expenses
or sales charges.
Fee and expense information
This information is designed to help you understand the fees and expenses that
you may pay if you buy and hold shares of the fund. Each class of shares has a
different set of transaction fees, which will vary based on the length of time
you hold shares in the fund and the amount of your investment. You will find
details about fee discounts and waivers in the Buying shares and Choosing a
share class -- Special features sections of this prospectus.
Kemper Intermediate Municipal Bond Fund 9
<PAGE>
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load) Imposed on
Purchases (as % of offering price) 2.75% None None
Maximum Deferred Sales Charge (Load)
(as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends/Distributions None None None
Redemption Fee (as % of amount redeemed,
if applicable) None None None
Exchange Fee None None None
- -----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.55% 0.55% 0.55%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses 0.41% 0.46% 0.61%
----- ----- -----
Total Annual Fund Operating Expenses* 0.96% 1.76% 1.91%
Scudder Kemper has agreed to temporarily reduce its management fee and reimburse
or pay certain operating expenses to the extent necessary to limit the "Total
Annual Fund Operating Expenses" of the Class C shares of Intermediate Municipal
Fund to 1.73%. This arrangement may be discontinued at any time. As a result,
for the fiscal year ended September 30, 1998, "Other Expenses" of Class C shares
were reduced by 0.18%, and actual Total Annual Fund Operating Expenses were
1.73%.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $370 $579 $294
3 Years $572 $854 $600
5 Years $791 $1,154 $1,032
10 Years $1,421 $1,668 $2,233
10 Kemper Intermediate Municipal Bond Fund
<PAGE>
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $370 $179 $194
3 Years $572 $554 $600
5 Years $791 $954 $1,032
10 Years $1,421 $1,668 $2,233
Principal strategies and investments
Under normal conditions the fund maintains 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. These are generally referred to as municipal securities.
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. 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.
At least 90% of the municipal securities in which the fund invests are rated, at
the time of purchase, within the four highest ratings by a nationally recognized
statistical rating service such as Standard and Poor's Corporation or Moody's
Investor Service, Inc. or are of comparable quality as determined by the fund's
investment manager.
The fund's portfolio is actively managed. Individual securities are purchased
and sold primarily based on the investment manager's determinations of
geographic strength, sector strength, value relative to other issues, and the
outlook for interest rates and yield curve changes.
For temporary defensive purposes, the fund may invest up to 100% of its assets
in short-term high-grade debt securities, cash and cash equivalents. Because
this defensive policy differs from the fund's investment objective, the fund may
not achieve its goals during a defensive period. Temporary defensive investments
may also be taxable.
While not principal investments or strategies of the fund, the fund may use
other investments and investment techniques which may impact fund performance,
including options, futures and other strategic transactions. The fund is limited
to 5% of net assets for initial margin and premium amounts on futures positions
considered speculative by the Commodities Futures Trading Commission. More
information about investments and strategies is provided in the Statement of
Additional Information. Of course, there can be no guarantee that by following
these strategies, the fund will achieve its objective.
Kemper Intermediate Municipal Bond Fund 11
<PAGE>
KEMPER CALIFORNIA TAX-FREE INCOME FUND
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Kemper California Tax-Free Income Fund seeks to provide a high level of current
income that is exempt from federal and California state income taxes. The fund
seeks to achieve its objective by investing in a non-diversified portfolio of
municipal securities. The fund's investment objective may be changed without a
vote of shareholders.
The fund seeks to generate dividends that are exempt from federal and, in most
cases, state income taxes by investing primarily in a portfolio of investment
grade municipal securities. The fund provides investors with sector
diversification by investing in municipal securities for various public
purposes. The fund may invest in securities of any maturity; its average
maturity varies, but normally will be in excess of 15 years.
The investment manager actively manages the fund's portfolio:
o by assessing the interest rate outlook
o by assessing changes in the relative risk/reward between long and
short-term bonds (yield curve)
o by selecting securities for superior price or income performance
o by looking statewide for top performing regions and industries.
Principal risks
The fund's principal risks are associated with investing in tax free fixed
income securities: interest rate movements, credit quality, maturity, the
investment manager's skill in managing the fund's portfolio and inflation risk.
You will find a discussion of these risks under "About The Funds" at the front
of this prospectus. Further, because the fund invests in the municipal
securities of one state, it will be particularly affected by state-specific
economic and political events. Please refer to "Additional information about
principal risks" below.
Non-diversified fund. Because non-diversified funds may invest a relatively high
percentage of their assets in a limited number of issuers, their investment
returns are more likely to be impacted by changes in the market value and
returns of any one issuer.
Single-state fund. Because the fund focuses its investments in the municipal
securities of California, adverse economic, political or regulatory occurrences
in California will have a greater impact on investment returns than would be the
case for a municipal securities fund investing nationally. Specific issues which
may have an impact on the ability of local municipal securities issuers to meet
their obligations include:
o The natural disasters which the state has experienced in recent years
o Amendments to the California Constitution and statutes that limit taxing
and spending authority
o Proposed future limits to local taxing and spending authority.
12 Kemper California Tax-Free Income Fund
<PAGE>
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year, and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance. The
information provided in the chart is for Class A shares, and does not reflect
sales charges, which reduce return.
Total returns for years ended December 31
[The following table was represented as a bar graph in the printed material.]
1988 7.52%
1989 11.48%
1990 6.70%
1991 11.42%
1992 8.25%
1993 12.59%
1994 -5.47%
1995 19.48%
1996 2.98%
1997 8.59%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 7.72% (the second quarter of 1989), and the fund's lowest
return for a calendar quarter was -4.51% (the first quarter of 1994).
The fund's year-to-date total return as of September 30, 1998 was 6.12%.
Average Annual Total Returns
Lehman Brothers
For periods ended Municipal
December 31, 1997 Class A Class B Class C Bond Index+
- ----------------- ------- ------- ------- -----------
One Year 3.71% 4.70% 7.40% 9.19%
Five Years 6.32% -- -- 7.36%
Ten Years 7.67% -- -- 8.58%
Since Class Inception** 8.83% 6.48% 6.77% *
- -----------
* Index returns for the life of each class: 6.27% (5/31/94) for Class B and
C, 9.32% (2/28/83) for Class A.
** Inception date for Class A, B and C shares is 2/17/83, 5/31/94 and
5/31/94, respectively.
+ The Lehman Brothers Municipal Bond Index is a widely recognized unmanaged
measure of approximately 15,000 bonds. Index returns assume reinvestment
of dividends and, unlike fund returns, do not reflect any fees, expenses
or sales charges.
Kemper California Tax-Free Income Fund 13
<PAGE>
Fee and expense information
This information is designed to help you understand the fees and expenses that
you may pay if you buy and hold shares of the fund. Each class of shares has a
different set of transaction fees, which will vary based on the length of time
you hold shares in the fund and the amount of your investment. You will find
details about fee discounts and waivers in the Buying shares and Choosing a
share class -- Special features sections of this prospectus.
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load) Imposed on
Purchases (as % of offering price) 4.5% None None
Maximum Deferred Sales Charge (Load)
(as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends/Distributions None None None
Redemption Fee (as % of amount redeemed,
if applicable) None None None
Exchange Fee None None None
- -----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.53% 0.53% 0.53%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses 0.25% 0.35% 0.34%
----- ----- -----
Total Annual Fund Operating Expenses 0.78% 1.63% 1.62%
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
Class A Class B Class C
1 Year $526 $566 $265
3 Years $688 $814 $511
5 Years $864 $1,087 $881
10 Years $1,373 $1,496 $1,922
14 Kemper California Tax-Free Income Fund
<PAGE>
Fees and expenses if you did not sell your shares:
Class A Class B Class C
1 Year $526 $166 $165
3 Years $688 $514 $511
5 Years $864 $887 $881
10 Years $1,373 $1,496 $1,922
Principal strategies and investments
Under normal conditions, the fund maintains at least 80% of its investments in
California State and local issues the income from which is exempt from federal
and California income taxes.
At least 90% of the municipal securities in which the fund invests are rated, at
the time of purchase, within the four highest ratings by a nationally recognized
statistical rating service such as Standard and Poor's Corporation or Moody's
Investors Service, Inc. or are of comparable quality as determined by the fund's
investment manager.
For temporary defensive purposes, the fund may invest up to 100% of its assets
in short-term high-grade debt securities, cash and cash equivalents. Because
this defensive policy differs from the fund's investment objective, the fund may
not achieve its goals during a defensive period. Temporary defensive investments
may also be taxable.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques which may impact fund performance,
including options, futures and other strategic transactions. The fund is limited
to 5% of net assets for initial margin and premium amounts on futures positions
considered speculative by the Commodities Futures Trading Commission. More
information about investments and strategies is provided in the Statement of
Additional Information. Of course, there can be no guarantee that by following
these strategies, the fund will achieve its objective.
Additional information about principal risks
About California. 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.
Kemper California Tax-Free Income Fund 15
<PAGE>
KEMPER FLORIDA TAX-FREE INCOME FUND
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Kemper Florida Tax-Free Income Fund seeks to provide a high level of current
income that is exempt from federal income taxes. The fund seeks to achieve its
objective by investing primarily in a non-diversified portfolio of municipal
securities. The fund's investment objective may be changed without a vote of
shareholders.
The fund seeks to achieve high current income by investing primarily in a
portfolio of investment grade municipal securities. The fund may invest in
securities of any maturity; its average maturity varies, but normally will be in
excess of 15 years. The fund's portfolio generally consists of holdings exempt
from the Florida intangibles tax.
The investment manager actively manages the fund's portfolio:
o with respect to the interest rate outlook
o by assessing changes in the relative risk/reward between long and
short-term bonds (yield curve)
o by selecting securities for superior price or income performance
o by looking statewide for top performing regions and industries
Principal risks
The fund's principal risks are associated with investing in tax free fixed
income securities: interest rate movements, credit quality, maturity, the
investment manager's skill in managing the fund's portfolio and inflation risk.
You will find a discussion of these risks under "About the Funds" at the front
of this prospectus. Further, because the fund invests in the municipal
securities of one state, it will be particularly affected by state-specific
economic and political events. Please refer to "Additional information about
principal risks" below.
Non-diversified fund. Because non-diversified funds may invest a relatively high
percentage of their assets in a limited number of issuers, their investment
returns are more likely to be impacted by changes in the market value and
returns of any one issuer.
Single-state fund. Because the fund focuses its investments in the municipal
securities of Florida, adverse economic, political or regulatory occurrences in
Florida will have a greater impact on investment returns than would be the case
for a municipal securities fund investing nationally. Specific issues which may
have an impact on the ability of local municipal securities issuers to meet
their obligations include:
o The natural disasters which the state has experienced in recent years
o Population increases and corresponding increased capital costs and burdens
on public services provided by the state
o The state's tendency to fund capital projects through debt issuance rather
than current budget
16 Kemper Florida Tax-Free Income Fund
<PAGE>
o The state's geographic and economic relationship with Central and South
America.
In addition, Florida municipal securities may at times have lower yields than
other tax-exempt securities, and taking advantage of the exemption from the
Florida intangibles tax could result in higher portfolio turnover and related
transactions costs.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year, and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance. The
information provided in the chart is for Class A shares, and does not reflect
sales charges, which reduce return.
Total returns for years ended December 31
[The following table was represented as a bar graph in the printed material.]
1992 9.11%
1993 13.50%
1994 -3.91%
1995 18.40%
1996 2.70%
1997 8.67%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 7.08% (the first quarter of 1995), and the fund's lowest
return for a calendar quarter was -4.85% (the first quarter of 1994).
The fund's year-to-date total return as of September 30, 1998 was 5.47%.
Average Annual Total Returns
Lehman Brothers
For periods ended Municipal
December 31, 1997 Class A Class B Class C Bond Index+
- ----------------- ------- ------- ------- -----------
One Year 3.74% 4.78% 7.79% 9.19%
Five Years 6.60% -- -- 7.36%
Since Class Inception** 7.79% 6.39% 6.92% *
- -----------
* Index returns for the life of each class: 6.27% (5/31/94) for Class B and
C, 8.09% (4/30/91) for Class A.
** Inception date for Class A, B and C shares is 4/25/91, 5/31/94 and 5/31/94,
respectively.
Kemper Florida Tax-Free Income Fund 17
<PAGE>
+ The Lehman Brothers Municipal Bond Index is a widely recognized unmanaged
measure of approximately 15,000 bonds. Index returns assume reinvestment of
dividends and, unlike fund returns, do not reflect any fees, expenses or
sales charges.
Fee and expense information
This information is designed to help you understand the fees and expenses that
you may pay if you buy and hold shares of the fund. Each class of shares has a
different set of transaction fees, which will vary based on the length of time
you hold shares in the fund and the amount of your investment. You will find
details about fee discounts and waivers in the Buying shares and Choosing a
share class -- Special features sections of this prospectus.
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load) Imposed on
Purchases (as % of offering price) 4.5% None None
Maximum Deferred Sales Charge (Load)
(as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends/Distributions None None None
Redemption Fee (as % of amount redeemed,
if applicable) None None None
Exchange Fee None None None
- -----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.55% 0.55% 0.55%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses 0.30% 0.38% 0.39%
----- ----- -----
Total Annual Fund Operating Expenses 0.85% 1.68% 1.69%
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
18 Kemper Florida Tax-Free Income Fund
<PAGE>
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $533 $571 $272
3 Years $709 $830 $533
5 Years $900 $1,113 $918
10 Years $1,452 $1,563 $1,998
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $533 $171 $172
3 Years $709 $530 $533
5 Years $900 $913 $918
10 Years $1,452 $1,563 $1,998
Principal strategies and investments
Under normal conditions, the fund maintains at least 80% of its investments in
municipal securities, and 65% of its investments in 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 currently has
no income tax for individuals.
At least 90% of the municipal securities in which the fund invests are rated, at
the time of purchase, within the four highest ratings by a nationally recognized
statistical rating service such as Standard and Poor's Corporation or Moody's
Investors Service, Inc. or are of comparable quality as determined by the fund's
investment manager.
For temporary defensive purposes, the fund may invest up to 100% of its assets
in short-term high-grade debt securities, cash and cash equivalents. Because
this defensive policy differs from the fund's investment objective, the fund may
not achieve its goals during a defensive period. Temporary defensive investments
may also be taxable.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques which may impact fund performance,
including options, futures and other strategic transactions. The fund is limited
to 5% of net assets for initial margin and premium amounts on futures positions
considered speculative by the Commodities Futures Trading Commission. More
information about investments and strategies is provided in the Statement of
Additional Information. Of course, there can be no guarantee that by following
these strategies, the fund will achieve its objective.
Additional information about principal risks
About Florida. 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
Kemper Florida Tax-Free Income Fund 19
<PAGE>
transaction costs. By purchasing only securities issued by Florida and its
political subdivisions, there is a greater level of risk than if purchases were
diversified across numerous states and municipal entities. The obligations held
by the Fund are vulnerable to unfavorable economic developments in Florida. If
such developments occur, the obligations held by the Fund may be downgraded
causing the Fund to be subject to the risk of holding material amounts of
low-rated debt securities.
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. Florida does not
assess an income tax on individuals, but relies primarily on the sales and
intangible taxes and a corporate income tax to raise needed revenue. With the
increasing costs and capital needs related to its growing population, Florida's
ability to meet its expenses will be dependent in part upon the State's
continued business and economic growth. Florida has also increased its funding
of capital projects through more frequent debt issuance rather than its
historical pay-as-you-go method.
The ability of Florida and its local units of government to repay indebtedness
may be affected by numerous factors. South Florida is particularly susceptible
to international trade and currency imbalances and to economic dislocations in
Central and South America, due to its geographical location and its involvement
with foreign trade, tourism, and investment capital. The central and northern
portions of the State are impacted by problems in the agricultural sector,
particularly with regard to the citrus and sugar industries. Short-term adverse
economic conditions may be created in these areas, and in the State as a whole,
due to crop failures, severe weather conditions, or other agriculture-related
problems. The State economy also has historically been somewhat dependent on the
agriculture, tourism and construction industries and is sensitive to trends in
those sectors. However, Florida has experienced a diversifying economic base as
technology-related industry, healthcare and financial services have grown into
leading elements of Florida's economy, complementing the State's previous
reliance primarily on agriculture and tourism.
20 Kemper Florida Tax-Free Income Fund
<PAGE>
KEMPER NEW YORK TAX-FREE INCOME FUND
Investment objective and principal strategies
Kemper New York Tax-Free Income Fund seeks to provide a high level of current
income that is exempt from federal, New York state and New York City income
taxes. The fund seeks to achieve its objective by investing primarily in a
non-diversified portfolio of municipal securities. The fund's investment
objective may be changed without a vote of shareholders.
The fund seeks to achieve high current income by investing primarily in a
portfolio of investment grade municipal securities. The fund may invest in
securities of any maturity; its average maturity varies, but normally will be in
excess of 15 years.
The investment manager actively manages the fund's portfolio:
o by assessing the interest rate outlook
o by assessing changes in the relative risk/reward between long and
short-term bonds (yield curve)
o by selecting securities for superior price or income performance
o by looking statewide for top performing regions and industries
Principal risks
The fund's principal risks are associated with investing in tax free fixed
income securities: interest rate movements, credit quality, maturity, the
investment manager's skill in managing the fund's portfolio and inflation risk.
You will find a discussion of these risks under "About the Funds" at the front
of this prospectus. Further, because the fund invests in the municipal
securities of one state, it will be particularly affected by state-specific
economic and political events. Please refer to "Additional information about
principal risks" below.
Non-diversified fund. Because non-diversified funds may invest a relatively high
percentage of their assets in a limited number of issuers, their investment
returns are more likely to be impacted by changes in the market value and
returns of any one issuer.
Single-state fund. Because the fund focuses its investments in the municipal
securities of New York, adverse economic, political or regulatory occurrences in
New York will have a greater impact on investment returns than would be the case
for a municipal securities fund investing nationally. Specific issues which may
have an impact on the ability of local municipal securities issuers to meet
their obligations include:
o The high dependence on employment in the finance, real estate and
insurance sectors
o A history of cyclical unemployment
Kemper New York Tax-Free Income Fund 21
<PAGE>
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year, and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance. The
information provided in the chart is for Class A shares, and does not reflect
sales charges, which reduce return.
Total returns for years ended December 31
[The following table was represented as a bar graph in the printed material.]
1988 7.74%
1989 12.01%
1990 5.93%
1991 13.39%
1992 9.43%
1993 12.97%
1994 -4.95%
1995 17.98%
1996 2.54%
1997 8.89%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 7.17% (the second quarter of 1989), and the fund's lowest
return for a calendar quarter was -4.47% (the first quarter of 1994).
The fund's year-to-date total return as of September 30, 1998 was 5.61%.
Average Annual Total Returns
Lehman Brothers
For periods ended Municipal
December 31, 1997 Class A Class B Class C Bond Index+
- ----------------- ------- ------- ------- -----------
One Year 3.98% 4.88% 8.00% 9.19%
Five Years 6.21% -- -- 7.36%
Ten Years 7.92% -- -- 8.58%
Since Class Inception** 7.52% 6.04% 6.51% *
- -----------
* Index returns for the life of each class: 6.27% (5/31/94) for Class B and
C, 8.83% (12/31/85) for Class A.
** Inception date for Class A, B and C shares is 12/31/85, 5/31/94 and
5/31/94 respectively.
+ The Lehman Brothers Municipal Bond Index is a widely recognized unmanaged
measure of approximately 15,000 bonds. Index returns assume reinvestment
of dividends and, unlike fund returns, do not reflect any fees, expenses
or sales charges.
22 Kemper New York Tax-Free Income Fund
<PAGE>
Fee and expense information
This information is designed to help you understand the fees and expenses that
you may pay if you buy and hold shares of the fund. Each class of shares has a
different set of transactions fees, which will vary based on the length of time
you hold shares in the fund and the amount of your investment. You will find
details about fee discounts and waivers in the Buying shares and Choosing a
share class -- Special features sections of this prospectus.
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load) Imposed on
Purchases (as % of offering price) 4.5% None None
Maximum Deferred Sales Charge (Load)
(as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends/Distributions None None None
Redemption Fee (as % of amount redeemed,
if applicable) None None None
Exchange Fee None None None
- -----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.54% 0.54% 0.54%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses 0.30% 0.38% 0.38%
----- ----- -----
Total Annual Fund Operating Expenses 0.84% 1.67% 1.67%
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Kemper New York Tax-Free Income Fund 23
<PAGE>
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $532 $570 $270
3 Years $706 $826 $526
5 Years $895 $1,107 $907
10 Years $1,440 $1,552 $1,976
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $532 $170 $170
3 Years $706 $526 $526
5 Years $895 $907 $907
10 Years $1,440 $1,552 $1,976
Principal strategies and investments
Under normal conditions, the fund maintains at least 80% of its investments in
municipal securities, and 65% of its investments in 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 income taxes.
At least 90% of the municipal securities in which the fund invests are rated, at
the time of purchase, within the four highest ratings by a nationally recognized
statistical rating service such as Standard and Poor's Corporation or Moody's
Investors Service, Inc. or are of comparable quality as determined by the fund's
investment manager.
For temporary defensive purposes, the fund may invest up to 100% of its assets
in short-term high-grade debt securities, cash and cash equivalents. Because
this defensive policy differs from the fund's investment objective, the fund may
not achieve its goals during a defensive period. Temporary defensive investments
may also be taxable.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques which may impact fund performance,
including options, futures and other strategic transactions. The fund is limited
to 5% of net assets for initial margin and premium amounts on futures positions
considered speculative by the Commodities Futures Trading Commission. More
information about investments and strategies is provided in the Statement of
Additional Information. Of course, there can be no guarantee that by following
these strategies, the fund will achieve its objective.
24 Kemper New York Tax-Free Income Fund
<PAGE>
Additional information about principal risks
About New York. New York is the third most populous state in the nation; New
York City accounts for about 40% of the State's population. After a boom in the
mid-1980's, New York and the rest of the Northeast fell into a recession a year
before the national recession officially began. Along with the rest of the
Northeast, New York climbed out of the recession more slowly than the rest of
the nation. However, the state's fiscal position has improved. New York ranks
fourth in the nation in personal income. In 1997, per capita personal income was
120% of the national average. Employment distribution is similar to that of the
nation except for a higher concentration in the New York City metropolitan area
in the Finance, Insurance and Real Estate ("FIRE") sector and a lower
concentration in manufacturing. Historically, unemployment is more cyclical than
for the United States as a whole. Since 1991, New York unemployment has exceeded
the U.S. average. In 1997, the State's unemployment rate was 6.4%; the national
average in 1997 was 4.9%.
Kemper New York Tax-Free Income Fund 25
<PAGE>
KEMPER OHIO TAX-FREE INCOME FUND
Investment objective and principal strategies
Kemper Ohio Tax-Free Income Fund seeks to provide a high level of current income
that is exempt from federal and Ohio state income taxes. The fund seeks to
achieve its objective by investing primarily in a non-diversified portfolio of
municipal securities. The fund's investment objective may be changed without a
vote of shareholders.
The fund seeks to achieve high current income by investing primarily in a
portfolio of investment grade municipal securities. The fund may invest in
securities of any maturity; its average maturity varies, but normally will be in
excess of 15 years.
The investment manager actively manages the fund's portfolio:
o by assessing the interest rate outlook
o by assessing changes in the relative risk/reward between long and
short-term bonds (yield curve)
o by selecting securities for superior price or income performance
o by looking statewide for top performing regions and industries
Principal risks
The fund's principal risks are associated with investing in tax free fixed
income securities: interest rate movements, credit quality, maturity, the
investment manager's skill in managing the fund's portfolio and inflation risk.
You will find a discussion of these risks under "About the Funds" at the front
of this prospectus. In addition, because the fund invests in the municipal
securities of one state, it will be particularly affected by state-specific
economic and political events. Please refer to "Additional information about
principal risks" below.
Non-diversified fund. Because non-diversified funds may invest a relatively high
percentage of their assets in a limited number of issuers, their investment
returns are more likely to be impacted by changes in the market value and
returns of any one issuer.
Single-state fund. Because the fund focuses its investments in the municipal
securities of Ohio, adverse economic, political or regulatory occurrences in
Ohio will have a greater impact on investment returns than would be the case for
a municipal securities fund investing nationally. Specific issues which may have
an impact on the ability of local municipal securities issuers to meet their
obligations include:
o A history of financial difficulties in past years.
o The high concentration of employment in the durable goods sector.
o A history of cyclical unemployment.
26 Kemper Ohio Tax-free Income Fund
<PAGE>
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year, and
comparing this information to a broad measure of market performance. Of course,
past performance is not necessarily an indication of future performance. The
information provided in the chart is for Class A shares, and does not reflect
sales charges, which reduce return.
Total returns for years ended December 31
[The following table was represented as a bar graph in the printed material.]
1994 -3.67%
1995 18.37%
1996 3.14%
1997 8.74%
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 7.37% (the first quarter of 1995), and the fund's lowest
return for a calendar quarter was -5.02% (the first quarter of 1994).
The fund's year-to-date total return as of September 30, 1998 was 5.80%.
Average Annual Total Returns
Lehman Brothers
For periods ended Municipal
December 31, 1997 Class A Class B Class C Bond Index+
- ----------------- ------- ------- ------- -----------
One Year 3.80% 4.77% 7.86% 9.19%
Since Class Inception** 6.38% 6.64% 7.14% *
- -----------
* Index returns for the life of each class: 6.27% (5/31/94) for Class B and
C, and 6.93% (3/31/93) for Class A.
** Inception date for Class A, B and C shares is 3/22/93, 5/31/94 and 5/31/94
respectively.
+ The Lehman Brothers Municipal Bond Index is a widely recognized unmanaged
measure of approximately 15,000 bonds. Index returns assume reinvestment
of dividends and, unlike fund returns, do not reflect any fees, expenses
or sales charges.
Kemper Ohio Tax-free Income Fund 27
<PAGE>
Fee and expense information
This information is designed to help you understand the fees and expenses that
you may pay if you buy and hold shares of the fund. Each class of shares has a
different set of transactions fees, which will vary based on the length of time
you hold shares in the fund and the amount of your investment. You will find
details about fee discounts and waivers in the Buying shares and Choosing a
share class -- Special features sections of this prospectus.
Shareholder fees: Fees paid directly from your investment.
Class A Class B Class C
------- ------- -------
Maximum Sales Charge (Load) Imposed on
Purchases (as % of offering price) 4.5% None None
Maximum Deferred Sales Charge (Load)
(as % of redemption proceeds) None(1) 4% 1%
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends/Distributions None None None
Redemption Fee (as % of amount redeemed,
if applicable) None None None
Exchange Fee None None None
- -----------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and 0.50% during the second year.
Annual fund operating expenses: Expenses that are deducted from fund assets.
Class A Class B Class C
------- ------- -------
Management Fee 0.55% 0.55% 0.55%
Distribution (12b-1) Fees None 0.75% 0.75%
Other Expenses 0.32% 0.39% 0.37%
------- ------- -------
Total Annual Fund Operating Expenses 0.87% 1.69% 1.67%
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
Class A Class B Class C
------- ------- -------
1 Year $534 $572 $270
3 Years $715 $833 $526
5 Years $911 $1,118 $907
10 Years $1,474 $1,579 $1,976
28 Kemper Ohio Tax-free Income Fund
<PAGE>
Fees and expenses if you did not sell your shares:
Class A Class B Class C
------- ------- -------
1 Year $534 $172 $170
3 Years $715 $533 $526
5 Years $911 $918 $907
10 Years $1,474 $1,579 $1,976
Principal strategies and investments
Under normal conditions, the fund maintains at least 80% of its investments in
municipal securities, and 65% of its total assets invested in 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.
At least 90% of the municipal securities in which the fund invests are rated, at
the time of purchase, within the four highest ratings by a nationally recognized
statistical rating service such as Standard and Poor's Corporation or Moody's
Investors Service, Inc. or are of comparable quality as determined by the fund's
investment manager.
The fund's portfolio is actively managed. Individual securities are purchased
and sold based on the investment manager's determinations of geographic
strength, sector strength, value relative to other issues and the outlook for
interest rates and yield curve changes.
For temporary defensive purposes, the fund may invest up to 100% of its assets
in short-term high-grade debt securities, cash and cash equivalents. Because
this defensive policy differs from the fund's investment objective, the fund may
not achieve its goals during a defensive period. Temporary defensive investments
may also be taxable.
While not principal investments or strategies of the fund, the fund may utilize
other investments and investment techniques which may impact fund performance,
including options, futures and other strategic transactions. The fund is limited
to 5% of net assets for initial margin and premium amounts on futures positions
considered speculative by the Commodities Futures Trading Commission. More
information about investments and strategies is provided in the Statement of
Additional Information. Of course, there can be no guarantee that by following
these strategies, the fund will achieve its objective.
Additional information about principal risks
About Ohio. Ohio has enjoyed strong economic growth over the last few years. The
State's General Fund has benefitted from a surge in income tax receipts as a
result of the strong economy and its record low unemployment numbers. The
General Revenue Fund finished fiscal year 1998 with its fifth consecutive budget
surplus. 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.
Kemper Ohio Tax-free Income Fund 29
<PAGE>
INVESTMENT MANAGER
The funds retain the investment management firm of Scudder Kemper Investments,
Inc., Two International Place, Boston, MA, to manage their daily investment and
business affairs subject to the policies established by the funds' Boards.
Scudder Kemper Investments, Inc. actively manages the funds' investments.
Professional management can be an important advantage for investors who do not
have the time or expertise to invest directly in individual securities. Scudder
Kemper Investments, Inc. is one of the largest and most experienced investment
management organizations worldwide managing more than $230 billion in assets
globally for mutual fund investors, retirement and pension plans, institutional
and corporate clients, and private family and individual accounts.
Each fund pays Scudder Kemper Investments a (graduated) monthly investment
management fee. Fees paid for each fund's most recently completed fiscal year
are show below:
as a % of average
daily net assets
----------------
Kemper Municipal Bond Fund 0.41%
Kemper Intermediate Municipal Bond Fund 0.55%
Kemper California Tax-Free Income Fund 0.53%
Kemper Florida Tax-Free Income Fund 0.55%
Kemper New York Tax-Free Income Fund 0.54%
Kemper Ohio Tax-Free Income Fund 0.55%
PORTFOLIO MANAGEMENT
The following investment professionals are associated with the funds as
indicated:
Kemper Intermediate Municipal Bond Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Ashton P. Goodfield, 1998 Joined Scudder Kemper Investments
Lead Portfolio Manager in 1986. She began her investment
career in 1986 as a member of the
portfolio management teams of
certain other affiliated mutual
funds.
Christopher J. Mier, 1989 Joined Scudder Kemper Investments
Portfolio Manager in 1986. He began his investment
career in 1978.
- --------------------------------------------------------------------------------
30 Investment Manager
<PAGE>
Kemper Municipal Bond Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Christopher J. Mier, 1989 Joined Scudder Kemper Investments
Lead Portfolio Manager in 1986. He began his investment
career in 1978.
Eleanor R. Brennan 1998 Joined Scudder Kemper Investments
Portfolio Manager in 1995. She began her investment
career in 1990. Prior to joining
Scudder Kemper, Ms. Brennan was an
assistant portfolio manager for an
unaffiliated investment management
firm.
- --------------------------------------------------------------------------------
Kemper Florida Tax-Free Income Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Christopher J. Mier, 1989 Joined Scudder Kemper Investments
Lead Portfolio Manager in 1986. He began his investment
career in 1978.
Eleanor R. Brennan 1998 Joined Scudder Kemper Investments
Portfolio Manager in 1995. She began her investment
career in 1990. Prior to joining
Scudder Kemper, Ms. Brennan was an
assistant portfolio manager for an
unaffiliated investment management
firm.
- --------------------------------------------------------------------------------
Kemper California Tax-Free Income Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Christopher J. Mier, 1989 Joined Scudder Kemper Investments
Lead Portfolio Manager in 1986. He began his investment
career in 1978.
Jeremy L. Ragus, 1998 Joined Scudder Kemper Investments
Portfolio Manager in 1990. He began his investment
career in 1981. Since joining
Scudder Kemper, Mr. Ragus has
served as a portfolio manager for
certain other affiliated mutual
funds.
- --------------------------------------------------------------------------------
Investment Manager 31
<PAGE>
Kemper New York Tax-Free Income Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Christopher J. Mier, 1989 Joined Scudder Kemper Investments
Lead Portfolio Manager in 1986. He began his investment
career in 1978.
Jeremy L. Ragus, 1998 Joined Scudder Kemper Investments
Portfolio Manager in 1990. He began his investment
career in 1981. Since joining
Scudder Kemper, Mr. Ragus has
served as a portfolio manager for
certain other affiliated mutual
funds.
- --------------------------------------------------------------------------------
Kemper Ohio Tax-Free Income Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
Christopher J. Mier, 1989 Joined Scudder Kemper Investments
Lead Portfolio Manager in 1986. He began his investment
career in 1978.
Rebecca L. Wilson, 1998 Joined Scudder Kemper Investments
Portfolio Manager in 1986. She began her investment
career in 1986. Since joining
Scudder Kemper, Ms. Wilson has
served as a portfolio manager for
certain other affiliated mutual
funds.
- --------------------------------------------------------------------------------
Year 2000 readiness
Like other mutual funds and financial and business organizations worldwide, the
funds could be adversely affected if computer systems on which a fund relies,
which primarily includes those used by the investment manager, its affiliates or
other service providers, are unable to correctly process date-related
information on and after January 1, 2000. This risk is commonly called the Year
2000 Issue. Failure to successfully address the Year 2000 Issue could result in
interruptions to and other material adverse effects on the funds' business and
operations, such as problems with calculating net asset value and difficulties
in implementing a fund's purchase and redemption procedures. The investment
manager has commenced a review of the Year 2000 Issue as it may affect the funds
and is taking steps it believes are reasonably designed to address the Year 2000
Issue, although there can be no assurances that these steps will be sufficient.
In addition, there can be no assurances that the Year 2000 Issue will not have
an adverse effect on the issuers whose securities are held by a fund or on
global markets or economies generally.
32 Investment Manager
<PAGE>
ABOUT YOUR INVESTMENT
CHOOSING A SHARE CLASS
Each fund provides investors with the option of purchasing shares in the
following ways:
- --------------------------------------------------------------------------------
Class A Shares Offered at net asset value plus a maximum sales charge of
4.5% (2.75% for Kemper Intermediate Municipal Bond Fund)
of the offering price. Reduced sales charges apply to
purchases of $100,000 or more. 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 if redeemed within one year of purchase and a .50%
contingent deferred sales change if redeemed during the
second year of purchase.
Class B Offered at net asset value without an initial sales
Shares charge, but subject to a 0.75% Rule 12b-1
distribution and service 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 sales
charge, but subject to a 0.75% Rule 12b-1 distribution fee
and a 1% contingent deferred sales charge on redemptions
made within one year of purchase. Class C shares 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. Each class of shares represents interests in
the same portfolio of investments of a fund.
The decision as to which class to choose depends on a number of factors,
including the amount and intended length of the investment. Investors 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. For more information about these
arrangements, consult your financial representative or the Shareholder Service
Agent. Be aware that financial services firms may receive different compensation
depending upon which class of shares they sell.
About Your Investment 33
<PAGE>
Rule 12b-1 plan
Each fund has adopted a plan under Rule 12b-1 that provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by the
transfer agent to pay for distribution and other services provided to
shareholders of those classes. Because 12b-1 fees are paid out of fund assets on
an ongoing basis, they will, over time, increase the cost of investment and may
cost more than other types of sales charges. 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 Kemper Distributors,
Inc. believes that it is unlikely, in the case of Class B shares, because of the
automatic conversion feature of those shares.
Special features
Class A Shares -- Combined Purchases. Each fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of most Kemper
Funds.
Class A Shares -- Letter of Intent. The same reduced sales charges for Class A
shares also apply to the aggregate amount of purchases made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
Kemper Distributors, Inc. 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.
Class A Shares -- Cumulative Discount. Class A shares of a fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a fund being purchased, the value of all Class A shares of
most Kemper 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 -- Large Order NAV Purchase Privilege. 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 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 above (the
"Large Order NAV Purchase Privilege").
Exchange Privilege -- General. Shareholders of Class A, Class B and Class C
shares may exchange their shares for shares of the corresponding class of Kemper
Mutual Funds. Shares of a Kemper Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Fund, or from a Money Market Fund, may not be exchanged thereafter until they
have been owned for 15 days (the "15 Day Hold Policy"). For purposes of
determining whether the 15-Day Hold Policy applies to a particular exchange, the
value of the shares to be exchanged shall be computed by aggregating the value
of shares being exchanged for all accounts under
34 About Your Investment
<PAGE>
common control, direction or advice, including without limitation accounts
administered by a financial services firm offering market timing, asset
allocation or similar services.
For purposes of determining any 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.
BUYING SHARES
You may purchase shares of the funds by contacting the securities dealer or
other financial services firm from whom you received this prospectus.
CLASS A SHARES
Public Offering Price Including Sales Charge
Sales Charge Sales Charge
as a % of as a % of
Amount of Purchase Offering Price Net Asset Value*
- ------------------ -------------- ----------------
All Funds except Intermediate
Municipal Fund
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50 3.63
$250,000 but less than $500,000 2.60 2.67
$500,000 but less than $1 million 2.00 2.04
$1 million and over 0.00** 0.00**
Intermediate Municipal Fund Only
Less than $100,000 2.75 2.83
$100,000 but less than $250,000 2.50 2.56
$250,000 but less than $500,000 2.00 2.04
$500,000 but less than $1 million 1.50 1.52
$1 million and over 0.00** 0.00**
- -----------
* Rounded to nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.
NAV Purchases
Class A shares of a fund may be purchased at net asset value by:
o shareholders in connection with the investment or reinvestment of income
and capital gain dividends
o any purchaser with Kemper Funds investment totals of at least $1,000,000
o unitholders of unit investment trusts sponsored by Ranson & Associates,
Inc. or its predecessors through reinvestment programs described in the
prospectuses of such trusts that have such programs
About Your Investment 35
<PAGE>
o officers, trustees, directors, employees (including retirees) and sales
representatives of a fund, its investment manager, its principal
underwriter or certain affiliated companies, for themselves or members of
their families or any trust, pension, profit-sharing or other benefit plan
for such persons
o persons who purchase shares through bank trust departments that process
such trades through an automated, integrated mutual fund clearing program
provided by a third party clearing firm
o registered representatives and employees of broker-dealers having selling
group agreements with Kemper Distributors or any trust, pension,
profit-sharing or other benefit plan for such persons
o officers, directors, and employees of service agents of the funds
o members of the plaintiff class in the proceeding known as Howard and
Audrey Tabankin, et al. v. Kemper Short-Term Global Income Fund, et. al.,
Case No. 93 C 5231 (N.D.IL)
o selected employees (including their spouses and dependent children) of
banks and other financial services firms that provide administrative
services related to the funds pursuant to an agreement with Kemper
Distributors or one of its affiliates
o certain professionals who assist in the promotion of Kemper Funds pursuant
to personal services contracts with Kemper Distributors, for themselves or
members of their families
o in connection with the acquisition of the assets of or merger or
consolidation with another investment company
o shareholders who owned shares of Kemper Value Series, Inc. ("KVS") on
September 8, 1995, and have continuously owned shares of KVS (or a Kemper
Fund acquired by exchange of KVS shares) since that date, for themselves
or members of their families or any trust, pension, profit-sharing or
other benefit plan for such persons
o persons who purchase shares of the fund through Kemper Distributors as
part of an automated billing and wage deduction program administered by
RewardsPlus of America
o through certain investment advisers registered under the Investment
Advisers Act of 1940 and other financial services firms, acting solely as
agent for their clients, that adhere to certain standards established by
Kemper Distributors, including a requirement that such shares be sold for
the benefit of their clients participating in an investment advisory
program or agency commission program under which such clients pay a fee to
the investment adviser or other firm for portfolio management or agency
brokerage services.
36 About Your Investment
<PAGE>
Contingent Deferred Sales Charge
A contingent deferred sales charge may be imposed upon redemption of Class A
shares purchased under the Large Order NAV Purchase Privilege as follows: 1% if
they are redeemed within one year of purchase and .50% if redeemed during the
second year following 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:
o redemptions under a fund's Systematic Withdrawal Plan at a maximum of 10%
per year of the net asset value of the account
o redemption of shares of a shareholder (including a registered joint owner)
who has died
o 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)
o redemptions of shares whose dealer of record at the time of the investment
notifies Kemper Distributors that the dealer waives the commission
applicable to such Large Order NAV Purchase.
Rule 12b-1 Fee
None
Exchange Privilege
Class A shares may be exchanged for each other at their relative net asset
values. Shares of Money Market Funds and Kemper Cash Reserves Fund acquired by
purchase (not including shares acquired by dividend reinvestment) are subject to
the applicable sales charge on exchange.
Class A shares purchased under the Large Order NAV Purchase Privilege may be
exchanged for Class A shares of any Kemper Fund or a Money Market Fund without
paying any contingent deferred sales charge. If the Class A shares received on
exchange are redeemed thereafter, a contingent deferred sales charge may be
imposed.
CLASS B SHARES
Public Offering Price
Net asset value per share without any sales charge at the time of purchase
Contingent Deferred Sales Charge
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. The charge is computed at the following rates applied to
the value of the shares redeemed excluding amounts not subject to the charge.
About Your Investment 37
<PAGE>
- --------------------------------------------------------------------------------
Year of Redemption
After Purchase: First Second Third Fourth Fifth Sixth
- --------------------------------------------------------------------------------
Contingent Deferred
Sales Charge: 4% 3% 3% 2% 2% 1%
- --------------------------------------------------------------------------------
The contingent deferred sales charge will be waived:
o for redemptions made pursuant to a systematic withdrawal plan (see
"Special Features -- Systematic Withdrawal Plan" below)
o 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
o in the event of the death of the shareholder (including a registered joint
owner).
The contingent deferred sales charge will also be waived in connection with the
following redemptions of shares held by employer sponsored employee benefit
plans maintained on the subaccount record keeping system made available by the
shareholder service agent:
o redemptions to satisfy participant loan advances (note that loan
repayments constitute new purchases for purposes of the contingent
deferred sales charge and the conversion privilege)
o redemptions in connection with retirement distributions (limited at any
one time to 10% of the total value of plan assets invested in a fund
o redemptions in connection with distributions qualifying under the hardship
provisions of the Code
o redemptions representing returns of excess contributions to such plans.
Rule 12b-1 Fee
0.75%
Conversion Feature
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. 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.
Exchange Privilege
Class B shares of a fund and Class B shares of most Kemper Funds may be
exchanged for each other at their relative net asset values without a contingent
deferred sales charge.
38 About Your Investment
<PAGE>
CLASS C SHARES
Public Offering Price
Net asset value per share without any sales charge at the time of purchase
Contingent Deferred Sales Charge
A contingent deferred sales charge of 1% may be imposed upon redemption of Class
C shares redeemed within one year of purchase. The charge is applied to the
value of the shares redeemed excluding amounts not subject to the charge. The
charge will not be imposed upon redemption of reinvested dividends or share
appreciation. The contingent deferred sales charge will be waived in the event
of:
o redemption of shares of a shareholder (including a registered joint owner)
who has died
o 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)
o redemptions under a fund's Systematic Withdrawal Plan at a maximum of 10%
per year of the net asset value of the account
o redemption of shares purchased through a dealer-sponsored asset allocation
program maintained on an omnibus record-keeping system provided the dealer
of record has waived the advance of the first year administrative services
and distribution fees applicable to such shares and has agreed to receive
such fees quarterly.
Rule 12b-1 Fee
0.75%
Conversion Feature
None
Exchange Privilege
Class C shares of a fund and Class C shares of most Kemper Funds may be
exchanged for each other at their relative net asset values. Class C shares may
be exchanged without a contingent deferred sales charge.
SELLING AND EXCHANGING SHARES
General
Contact your securities dealer or other financial services firm to arrange for
share redemptions or exchanges.
Any shareholder may require a fund to redeem his or her shares. When shares are
held for the account of a shareholder by the funds' transfer agent, the
shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557.
An exchange of shares entails the sale of fund shares and subsequent purchase of
shares of another Kemper Mutual Fund.
About Your Investment 39
<PAGE>
Share certificates
When certificates for shares have been issued, they must be mailed to or
deposited with Kemper Service Company, 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.
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.
Reinvestment privilege
Under certain circumstances, a shareholder who has redeemed Class A shares may
reinvest up to the full amount redeemed at net asset value at the time of the
reinvestment. 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. The reinvestment privilege may be terminated or modified at any
time. The reinvestment privilege can be used only once as to any specific shares
and reinvestment must be effected within six months of the redemption.
DISTRIBUTIONS AND TAXES
Dividends and capital gains distributions
The funds declare daily dividends from net investment income. Net investment
income consists of all interest income earned on portfolio assets less all fund
expenses. Income dividends are distributed monthly and dividends of net realized
capital gains are distributed annually.
Dividends are calculated in the same manner, at the same time and on the same
day for each class of shares. The level of income dividends varies from one
class to another based on the class' fees and expenses.
Income and capital gains dividends, if any, of a fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
fund at net asset value on the reinvestment date, 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 gains dividends in cash and
long-term capital gains dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gains dividends in cash.
Any dividends of a fund that are reinvested will normally be reinvested in
shares of the same class of that same fund. However, by writing to the
Shareholder
40 About Your Investment
<PAGE>
Service Agent, you may choose to have dividends of a fund invested in shares of
the same class of another Kemper fund at the net asset value of that class and
fund. To use this privilege, you must maintain a minimum account value of $1,000
in the fund distributing the dividends. The funds will reinvest dividend checks
(and future dividends) in shares of that same fund and class if checks are
returned as undeliverable. Dividends and other distributions in the aggregate
amount of $10 or less are automatically reinvested in shares of the same fund
unless you request that such policy not be applied to your account.
Distributions, whether received in cash or reinvested, may be subject to federal
income tax.
Taxes
Generally, income dividends which represent interest received from municipal
securities is not taxable to shareholders. Dividends representing taxable net
investment income, if any, and net short-term capital gains, if any, are taxable
to shareholders as ordinary income. Long-term capital gains distributions, if
any, are taxable to individual shareholders at a maximum 20% capital gains rate,
regardless of the length of time shareholders have owned shares. Net interest
from portfolio holdings in "private activity bonds" may be subject to taxes. 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.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such month and paid during the following January
are taxable as if paid on December 31 of the calendar year in which they were
declared. Dividends ordinarily will vary from one class of a fund to another.
The exchange of fund shares will be treated as a sale, and any gain on fund
shares when sold may be subject to federal income tax.
To qualify as an investment exempt from the Florida state intangibles tax,
Kemper Florida Tax-Free Income Fund's portfolio must consist entirely of
investments exempt from the Florida state intangibles tax on the last business
day of the calendar year.
A capital gains distribution received shortly after the purchase of shares
reduces the net asset value of the shares by the amount of the distribution and,
although in effect a return of capital, will be taxable to the shareholder. The
funds send you detailed tax information about the amount and type of
distributions by January 31 of the following year.
About Your Investment 41
<PAGE>
TRANSACTION INFORMATION
Share price
Scudder Fund Accounting Corporation determines the net asset value per share of
the funds as of the close of regular trading on the New York Stock Exchange,
normally 4 p.m. eastern time, on each day the New York Stock Exchange is open
for trading. Market prices, 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 are used to
determine the value of the funds' assets. If market prices are not readily
available for a security or if a security's price is not considered to be market
indicative, that security may be valued by another method that the Board or its
delegate believes accurately reflects fair value. In those circumstances where a
security's price is not considered to be market indicative, the security's
valuation may differ from an available market quotation.
The net asset value per share of each fund is the value of one share and is
determined separately for each class by dividing the value of a fund's net
assets attributable to that class, less all liabilities, 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 annual expenses borne by the Class B and Class
C shares.
Processing time
All requests to buy and sell shares that are received in good order by the
funds' transfer agent by the close of regular trading on the New York Stock
Exchange, are executed at the net asset value per share calculated at the close
of trading that day (subject to any applicable sales load or contingent deferred
sales charge). Orders received by dealers or other financial services firms
prior to the determination of net asset value and received by Kemper
Distributors prior to the close of its business day will be confirmed at a price
based on the net asset value effective on that day. If an order is accompanied
by a check drawn on a foreign bank, funds must normally be collected before
shares will be purchased.
Payment for shares you sell will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request.
If you have share certificates, these must accompany your order in proper form
for transfer. When you place an order to sell shares for which the fund may not
yet have received good payment (i.e., purchases by check, EXPRESS-Transfer or
Bank Direct Deposit), the fund may delay transmittal of the proceeds until it
has determined that collected funds have been received for the purchase of such
shares. This may be up to 10 days from receipt by a fund of the purchase amount.
The redemption of shares within certain time periods may be subject to
contingent deferred sales charges, as noted above.
Signature guarantees
A signature guarantee is required unless you sell $50,000 or less worth of
shares (prior to the imposition of any contingent deferred sales charge) and the
42 About Your Investment
<PAGE>
proceeds are payable to the shareholder of record at the address of record. You
can obtain a guarantee from most brokerage houses and financial institutions,
although not from a notary public. The funds will normally send you the proceeds
within one business day following your request, but may take up to seven
business days (or longer in the case of shares recently purchased by check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
funds and their transfer agent each reserves the right to reject purchases of
fund shares (including exchanges) for any reason, including when there is
evidence of a pattern of frequent purchases and sales made in response to
short-term fluctuations in a fund's share price. The funds reserve the right to
withdraw all or any part of the offering made by this prospectus and to reject
purchase orders. Also, from time to time, each fund may temporarily suspend the
offering of its shares or a class of its shares to new investors. During the
period of such suspension, persons who are already shareholders normally are
permitted to continue to purchase additional shares and to have dividends
reinvested.
Minimum balances
The minimum initial investment for each fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an Individual
Retirement Account is $250 and the minimum subsequent investment is $50. Under
an automatic investment plan, such as Bank Direct Deposit, Payroll Direct
Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
Because of the high cost of maintaining small accounts, the funds may assess a
quarterly fee of $9 on an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.
Third party transactions
If you buy and sell shares of a fund through a member of the National
Association of Securities Dealers, Inc. (other than the funds' distributor,
Kemper Distributors), that member may charge a fee for that service. This
prospectus should be read in connection with such firms' material regarding
their fees and services.
Redemption-in-kind
The funds reserve the right to honor any request for redemption or repurchase by
making payment in whole or in part in readily marketable securities
("redemptions in kind"). These securities will be chosen by the fund and valued
as they are for purposes of computing the fund's net asset value. A shareholder
may incur transaction expenses in converting these securities to cash.
About Your Investment 43
<PAGE>
FINANCIAL HIGHLIGHTS
The tables below are intended to help you understand the funds' financial
performance for the period reflected below. Certain information reflects
financial results for a single fund share. The total return figures show what an
investor in a fund would have earned (or lost) assuming reinvestment of all
distributions. This information has been audited by Ernst & Young LLP whose
report, along with the funds' financial statements, are included in the funds'
annual reports, which are available upon request by calling the Kemper Funds at
1-800-621-1048.
Kemper Municipal Bond Fund
<TABLE>
<CAPTION>
Year ended September 30,
CLASS A 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning
of year $10.46 10.18 10.15 9.69 10.95
- ---------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .52 .54 .55 .55 .55
- ---------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) .37 .36 .06 .50 (.92)
- ---------------------------------------------------------------------------------------
Total from investment
operations .89 .90 .61 1.05 (.37)
- ---------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .52 .54 .55 .55 .56
- ---------------------------------------------------------------------------------------
Distribution from net
realized gain .22 .08 .03 .04 .33
- ---------------------------------------------------------------------------------------
Total dividends .74 .62 .58 .59 .89
- ---------------------------------------------------------------------------------------
Net asset value, end of year $10.61 10.46 10.18 10.15 9.69
- ---------------------------------------------------------------------------------------
Total return 8.84% 9.15 6.00 11.15 (3.67)
- ---------------------------------------------------------------------------------------
Ratios to average net assets
Expenses .68% .68 .66 .66 .60
- ---------------------------------------------------------------------------------------
Net investment income 4.97% 5.29 5.35 5.63 5.42
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
May 31 to
September
Year ended September 30, 30,
CLASS B SHARES 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning
of period $10.44 10.15 10.13 9.67 9.95
- ---------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .43 .45 .46 .46 .14
- ---------------------------------------------------------------------------------------
Net realized and .36 .37 .05 .50 (.26)
unrealized gain (loss)
- ---------------------------------------------------------------------------------------
Total from investment
operations .79 .82 .51 .96 (.12)
- ---------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .43 .45 .46 .46 .16
- ---------------------------------------------------------------------------------------
</TABLE>
44 Financial Highlights
<PAGE>
<TABLE>
<CAPTION>
May 31 to
September
Year ended September 30, 30,
CLASS B SHARES 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Distribution from net
realized gain .22 .08 .03 .04 --
- ---------------------------------------------------------------------------------------
Total dividends .65 .53 .49 .50 .16
- ---------------------------------------------------------------------------------------
Net asset value, end of
period $10.58 10.44 10.15 10.13 9.67
- ---------------------------------------------------------------------------------------
Total return (not
annualized) 7.84% 8.32 4.97 10.17 (1.24)
- ---------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.52% 1.55 1.54 1.55 1.56
- ---------------------------------------------------------------------------------------
Net investment income 4.13% 4.42 4.47 4.74 4.55
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
May 31 to
September
Year ended September 30, 30,
CLASS C SHARES 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning
of period $10.47 10.18 10.16 9.69 9.95
- ---------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .43 .46 .46 .47 .16
- ---------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .37 .37 .05 .51 (.26)
- ---------------------------------------------------------------------------------------
Total from investment
operations .80 .83 .51 .98 (.10)
- ---------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .43 .46 .46 .47 .16
- ---------------------------------------------------------------------------------------
Distribution from net
realized gain .22 .08 .03 .04 --
- ---------------------------------------------------------------------------------------
Total dividends .65 .54 .49 .51 .16
- ---------------------------------------------------------------------------------------
Net asset value, end of period $10.62 10.47 10.18 10.16 9.69
- ---------------------------------------------------------------------------------------
Total return (not annualized) 7.93% 8.34 4.99 10.32 (1.03)
- ---------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.52% 1.53 1.51 1.51 1.53
- ---------------------------------------------------------------------------------------
Net investment income 4.13% 4.44 4.50 4.78 4.56
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes
Net assets at end of year
(in thousands) $3,220,643 3,216,221 3,321,546 3,510,648 3,716,997
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate 65% 77 97 86 50
- ---------------------------------------------------------------------------------------------------
</TABLE>
Note for Municipal Fund: Total return does not reflect the effect of any sales
charges.
Financial Highlights 45
<PAGE>
Kemper Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
November 1,
1994 to
September
Year ended September 30, 30,
CLASS A 1998 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $10.31 10.06 10.18 9.50
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .45 .46 .46 .45
- --------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .29 .29 (.04) .68
- --------------------------------------------------------------------------------
Total from investment
operations .74 .75 .42 1.13
- --------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .45 .46 .46 .45
- --------------------------------------------------------------------------------
Distribution from net
realized gain .07 .04 .08 --
- --------------------------------------------------------------------------------
Total dividends .52 .50 .54 .45
- --------------------------------------------------------------------------------
Net asset value, end of period $10.53 10.31 10.06 10.18
- --------------------------------------------------------------------------------
Total return (not annualized) 7.34% 7.62 4.15 12.08
- --------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses absorbed by the Fund .96% .96 .92 .55
- --------------------------------------------------------------------------------
Net investment income 4.35% 4.55 4.45 5.00
- --------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses .96% .96 1.04 1.05
- --------------------------------------------------------------------------------
Net investment income 4.35% 4.55 4.33 4.50
- --------------------------------------------------------------------------------
</TABLE>
46 Financial Highlights
<PAGE>
<TABLE>
<CAPTION>
November 1,
1994 to
September
Year ended September 30, 30,
CLASS B 1998 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $10.31 10.06 10.18 9.50
- -----------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .37 .38 .38 .36
- -----------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .28 .29 (.04) .68
- -----------------------------------------------------------------------------------
Total from investment
operations .65 .67 .34 1.04
- -----------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .37 .38 .38 .36
- -----------------------------------------------------------------------------------
Distribution from net
realized gain .07 .04 .08 --
- -----------------------------------------------------------------------------------
Total dividends .44 .42 .46 .36
- -----------------------------------------------------------------------------------
Net asset value, end of period $10.52 10.31 10.06 10.18
- -----------------------------------------------------------------------------------
Total return (not annualized) 6.38% 6.78 3.34 11.13
- -----------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses absorbed by the Fund 1.76% 1.76 1.71 1.42
- -----------------------------------------------------------------------------------
Net investment income 3.55% 3.75 3.66 4.13
- -----------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 1.76% 1.76 1.83 1.92
- -----------------------------------------------------------------------------------
Net investment income 3.55% 3.75 3.54 3.63
- -----------------------------------------------------------------------------------
</TABLE>
Financial Highlights 47
<PAGE>
<TABLE>
<CAPTION>
November 1,
1994 to
September
Year ended September 30, 30,
CLASS C 1998 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $10.31 10.06 10.19 9.50
- -----------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .37 .39 .38 .38
- -----------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .29 .29 (.05) .69
- -----------------------------------------------------------------------------------
Total from investment
operations .66 .68 .33 1.07
- -----------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .37 .39 .38 .38
- -----------------------------------------------------------------------------------
Distribution from net
realized gain .07 .04 .08 --
- -----------------------------------------------------------------------------------
Total dividends .44 .43 .46 .38
- -----------------------------------------------------------------------------------
Net asset value, end of period $10.53 10.31 10.06 10.19
- -----------------------------------------------------------------------------------
Total return (not annualized) 6.55% 6.77 3.26 11.43
- -----------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses absorbed by the Fund 1.73% 1.73 1.65 1.28
- -----------------------------------------------------------------------------------
Net investment income 3.58% 3.78 3.72 4.27
- -----------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 1.73% 1.73 1.77 1.78
- -----------------------------------------------------------------------------------
Net investment income 3.58% 3.78 3.60 3.77
- -----------------------------------------------------------------------------------
</TABLE>
November 1,
1994 to
Year ended September 30, September 30,
1998 1997 1996 1995
- -------------------------------------------------------------------------------
Supplemental data for all classes
Net assets at end of period $25,173 21,889 21,901 16,169
(in thousands)
- -------------------------------------------------------------------------------
Portfolio turnover rate 14% 80 80 60
(annualized)
- --------------------------------------------------------------------------------
Note for Intermediate Municipal Fund: Total return does not reflect the effect
of sales charges. Scudder Kemper agreed to waive the management fee of the
Intermediate Municipal Fund from its inception, November 1, 1994, through April
30, 1995. Thereafter, the management fee was gradually reinstated through April
30, 1996. "Other ratios to average net assets" are computed without the waiver
of management fee.
48 Financial Highlights
<PAGE>
Kemper California Tax-Free Income Fund
<TABLE>
<CAPTION>
Year ended August 31,
CLASS A 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
year $7.52 7.31 7.35 7.22 8.01
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .36 .38 .39 .39 .39
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .26 .25 .04 .17 (.44)
- -----------------------------------------------------------------------------------------------
Total from investment
operations .62 .63 .43 .56 (.05)
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .36 .38 .39 .39 .39
- -----------------------------------------------------------------------------------------------
Distribution from net
realized gain .13 .04 .08 .04 .35
- -----------------------------------------------------------------------------------------------
Total dividends .49 .42 .47 .43 .74
- -----------------------------------------------------------------------------------------------
Net asset value, end of year $7.65 7.52 7.31 7.35 7.22
- -----------------------------------------------------------------------------------------------
Total return 8.56% 8.78 5.92 8.13 (.74)
- -----------------------------------------------------------------------------------------------
Ratios to average net assets
Expenses .78% .79 .78 .74 .74
- -----------------------------------------------------------------------------------------------
Net investment income 4.82% 5.08 5.18 5.53 5.30
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
May 31
to August
Year ended August 31, 31,
CLASS B 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $7.52 7.32 7.35 7.22 7.23
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .30 .32 .32 .33 .08
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .27 .24 .05 .17 (.01)
- -----------------------------------------------------------------------------------------------
Total from investment
operations .57 .56 .37 .50 .07
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .30 .32 .32 .33 .08
- -----------------------------------------------------------------------------------------------
Distribution from net
realized gain .13 .04 .08 .04 --
- -----------------------------------------------------------------------------------------------
Total dividends .43 .36 .40 .37 .08
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $7.66 7.52 7.32 7.35 7.22
- -----------------------------------------------------------------------------------------------
Total return (not annualized) 7.79% 7.73 5.16 7.17 1.05
- -----------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.63% 1.62 1.63 1.60 1.60
- -----------------------------------------------------------------------------------------------
Net investment income 3.97% 4.25 4.33 4.67 4.48
- -----------------------------------------------------------------------------------------------
</TABLE>
Financial Highlights 49
<PAGE>
<TABLE>
<CAPTION>
May 31
to August
Year ended August 31, 31,
CLASS C 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $7.50 7.31 7.34 7.22 7.23
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .30 .32 .32 .33 .08
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .23 .23 .05 .16 (.01)
- -----------------------------------------------------------------------------------------------
Total from investment
operations .53 .55 .37 .49 .07
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .30 .32 .32 .33 .08
- -----------------------------------------------------------------------------------------------
Distribution from net
realized gain .13 .04 .08 .04 --
- -----------------------------------------------------------------------------------------------
Total dividends .43 .36 .40 .37 .08
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $7.60 7.50 7.31 7.34 7.22
- -----------------------------------------------------------------------------------------------
Total return (not annualized) 7.21% 7.59 5.15 7.08 .96
- -----------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.62% 1.60 1.64 1.56 1.56
- -----------------------------------------------------------------------------------------------
Net investment income 3.98% 4.27 4.32 4.71 4.76
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year ended August 31,
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes
Net assets at end of year (in
thousands) $1,024,272 1,007,907 1,040,538 1,087,232 1,168,449
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate 61% 79 100 69 37
- -----------------------------------------------------------------------------------------------
</TABLE>
Note for California Fund: Total return does not reflect the effect of sales
charges.
50 Financial Highlights
<PAGE>
Kemper Florida Tax-Free Income Fund
<TABLE>
<CAPTION>
Year ended August 31,
CLASS A 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
year $10.42 10.21 10.27 10.11 10.98
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .49 .51 .52 .53 .52
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .35 .33 .08 .30 (.52)
- -----------------------------------------------------------------------------------------------
Total from investment
operations .84 .84 .60 .83 --
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .49 .51 .52 .53 .52
- -----------------------------------------------------------------------------------------------
Distribution from net
realized gain .15 .12 .14 .14 .35
- -----------------------------------------------------------------------------------------------
Total dividends .64 .63 .66 .67 .87
- -----------------------------------------------------------------------------------------------
Net asset value, end of year $10.62 10.42 10.21 10.27 10.11
- -----------------------------------------------------------------------------------------------
Total return 8.27% 8.37 5.83 8.62 (.11)
- -----------------------------------------------------------------------------------------------
Ratios to average net assets
Expenses .85% .83 .84 .80 .79
- -----------------------------------------------------------------------------------------------
Net investment income 4.65% 4.92 5.00 5.30 5.04
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
May 31, to
Year ended August 31, August 31,
CLASS B 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $10.40 10.19 10.26 10.10 10.13
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .40 .42 .43 .44 .11
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .35 .33 .07 .30 (.03)
- -----------------------------------------------------------------------------------------------
Total from investment
operations .75 .75 .50 .74 .08
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .40 .42 .43 .44 .11
- -----------------------------------------------------------------------------------------------
Distribution from net
realized gain .15 .12 .14 .14 --
- -----------------------------------------------------------------------------------------------
Total dividends .55 .54 .57 .58 .11
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $10.60 10.40 10.19 10.26 10.10
- -----------------------------------------------------------------------------------------------
Total return (not annualized) 7.38% 7.48 4.84 7.67 .74
- -----------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.68% 1.65 1.68 1.65 1.70
- -----------------------------------------------------------------------------------------------
Net investment income 3.82% 4.10 4.16 4.45 4.28
- -----------------------------------------------------------------------------------------------
</TABLE>
Financial Highlights 51
<PAGE>
<TABLE>
<CAPTION>
May 31, to
Year ended August 31, August 31,
CLASS C 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $10.41 10.20 10.26 10.10 10.13
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .40 .42 .43 .45 .11
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .34 .33 .08 .30 (.03)
- -----------------------------------------------------------------------------------------------
Total from investment
operations .74 .75 .51 .75 .08
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .40 .42 .43 .45 .11
- -----------------------------------------------------------------------------------------------
Distribution from net
realized gain .15 .12 .14 .14 --
- -----------------------------------------------------------------------------------------------
Total dividends .55 .54 .57 .59 .11
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $10.60 10.41 10.20 10.26 10.10
- -----------------------------------------------------------------------------------------------
Total return (not annualized) 7.26% 7.49 4.97 7.84 .75
- -----------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.69% 1.64 1.64 1.52 1.54
- -----------------------------------------------------------------------------------------------
Net investment income 3.81% 4.11 4.20 4.58 4.52
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year ended August 31,
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes
Net assets at end of year (in
thousands) $107,531 103,845 108,105 117,292 124,721
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate 70% 87 119 96 53
- -----------------------------------------------------------------------------------------------
</TABLE>
Note for Florida Fund: Total return does not reflect the effect of sales
charges.
52 Financial Highlights
<PAGE>
Kemper New York Tax-Free Income Fund
<TABLE>
<CAPTION>
Year ended August 31,
CLASS A 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
year $10.93 10.66 10.80 10.73 11.59
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .53 .56 .56 .58 .58
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .36 .36 -- .20 (.60)
- -----------------------------------------------------------------------------------------------
Total from investment
operations .89 .92 .56 .78 (.02)
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .53 .56 .56 .58 .58
- -----------------------------------------------------------------------------------------------
Distribution from net
realized gain .18 .09 .14 .13 .26
- -----------------------------------------------------------------------------------------------
Total dividends .71 .65 .70 .71 .84
- -----------------------------------------------------------------------------------------------
Net asset value, end of year $11.11 10.93 10.66 10.80 10.73
- -----------------------------------------------------------------------------------------------
Total return 8.44% 8.77 5.26 7.62 (.19)
- -----------------------------------------------------------------------------------------------
Ratios to average net assets
Expenses .84% .83 .83 .81 .76
- -----------------------------------------------------------------------------------------------
Net investment income 4.81% 5.15 5.15 5.47 5.29
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
May 31, to
Year ended August 31, August 31,
CLASS B 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $10.94 10.66 10.80 10.73 10.77
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .44 .47 .47 .48 .12
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .37 .37 -- .20 (.04)
- -----------------------------------------------------------------------------------------------
Total from investment
operations .81 .84 .47 .68 .08
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .44 .47 .47 .48 .12
- -----------------------------------------------------------------------------------------------
Distribution from net
realized gain .18 .09 .14 .13 --
- -----------------------------------------------------------------------------------------------
Total dividends .62 .56 .61 .61 .12
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $11.13 10.94 10.66 10.80 10.73
- -----------------------------------------------------------------------------------------------
Total return (not annualized) 7.65% 7.96 4.36 6.69 .75
- -----------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.67% 1.67 1.69 1.67 1.68
- -----------------------------------------------------------------------------------------------
Net investment income 3.98% 4.31 4.29 4.61 4.36
- -----------------------------------------------------------------------------------------------
</TABLE>
Financial Highlights 53
<PAGE>
<TABLE>
<CAPTION>
May 31, to
Year ended August 31, August 31,
CLASS C 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $10.92 10.65 10.79 10.73 10.77
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .44 .47 .47 .48 .12
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .36 .36 -- .19 (.04)
- -----------------------------------------------------------------------------------------------
Total from investment
operations .80 .83 .47 .67 .08
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .44 .47 .47 .48 .12
- -----------------------------------------------------------------------------------------------
Distribution from net
realized gain .18 .09 .14 .13 --
- -----------------------------------------------------------------------------------------------
Total dividends .62 .56 .61 .61 .12
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $11.10 10.92 10.65 10.79 10.73
- -----------------------------------------------------------------------------------------------
Total return (not annualized) 7.56% 7.87 4.38 6.64 .70
- -----------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses 1.67% 1.65 1.67 1.62 1.63
- -----------------------------------------------------------------------------------------------
Net investment income 3.98% 4.33 4.31 4.66 4.68
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year ended August 31,
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes
Net assets at end of year (in
thousands) $284,320 285,934 302,346 319,477 342,839
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate 77% 92 104 112 43
- -----------------------------------------------------------------------------------------------
</TABLE>
Note for New York Fund: Total return does not reflect the effect of sales
charges.
54 Financial Highlights
<PAGE>
Kemper Ohio Tax-Free Income Fund
<TABLE>
<CAPTION>
Year ended August 31,
CLASS A 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
year $10.22 9.93 9.81 9.56 9.98
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .47 .47 .48 .50 .53
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) .39 .32 .12 .25 (.41)
- -----------------------------------------------------------------------------------------------
Total from investment
operations .86 .79 .60 .75 .12
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .47 .47 .48 .50 .53
- -----------------------------------------------------------------------------------------------
Distribution from net
realized gain .07 .03 -- -- .01
- -----------------------------------------------------------------------------------------------
Total dividends .54 .50 .48 .50 .54
- -----------------------------------------------------------------------------------------------
Net asset value, end of year $10.54 10.22 9.93 9.81 9.56
- -----------------------------------------------------------------------------------------------
Total return 8.57% 8.17 6.16 8.20 1.23
- -----------------------------------------------------------------------------------------------
Ratios to average net assets
Expenses absorbed by the Fund .87% .89 .91 .63 .02
- -----------------------------------------------------------------------------------------------
Net investment income 4.51% 4.69 4.78 5.27 5.44
- -----------------------------------------------------------------------------------------------
Other ratios to average net assets
Expenses .87% .89 .91 .83 .82
- -----------------------------------------------------------------------------------------------
Net investment income 4.51% 4.69 4.78 5.07 4.64
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
May 31
to August
Year ended August 31, 31,
CLASS B 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $10.22 9.93 9.81 9.56 9.54
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .38 .39 .39 .44 .14
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain .39 .32 .12 .25 .02
- -----------------------------------------------------------------------------------------------
Total from investment
operations .77 .71 .51 .69 .16
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .38 .39 .39 .44 .14
- -----------------------------------------------------------------------------------------------
Distribution from net
realized gain .07 .03 -- -- --
- -----------------------------------------------------------------------------------------------
Total dividends .45 .42 .39 .44 .14
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $10.54 10.22 9.93 9.81 9.56
- -----------------------------------------------------------------------------------------------
Total return (not annualized) 7.69% 7.29 5.30 7.57 1.55
- -----------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
</TABLE>
Financial Highlights 55
<PAGE>
<TABLE>
<CAPTION>
May 31
to August
Year ended August 31, 31,
CLASS B 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses absorbed by the Fund 1.69% 1.70 1.73 1.32 .22
- -----------------------------------------------------------------------------------------------
Net investment income 3.69% 3.88 3.96 4.58 4.72
- -----------------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 1.69% 1.70 1.73 1.75 1.72
- -----------------------------------------------------------------------------------------------
Net investment income 3.69% 3.88 3.96 4.15 3.22
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
May 31
to August
Year ended August 31, 31,
CLASS C 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of
period $10.22 9.93 9.81 9.56 9.54
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .38 .39 .39 .44 .14
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain .39 .32 .12 .25 .02
- -----------------------------------------------------------------------------------------------
Total from investment
operations .77 .71 .51 .69 .16
- -----------------------------------------------------------------------------------------------
Less dividends:
Distribution from net
investment income .38 .39 .39 .44 .14
- -----------------------------------------------------------------------------------------------
Distribution from net
realized gain .07 .03 -- -- --
- -----------------------------------------------------------------------------------------------
Total dividends .45 .42 .39 .44 .14
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $10.54 10.22 9.93 9.81 9.56
- -----------------------------------------------------------------------------------------------
Total return (not annualized) 7.70% 7.32 5.28 7.56 1.55
- -----------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized)
Expenses absorbed by the Fund 1.67% 1.68 1.74 1.27 .21
- -----------------------------------------------------------------------------------------------
Net investment income 3.71% 3.90 3.95 4.63 5.04
- -----------------------------------------------------------------------------------------------
Other ratios to average net assets
(annualized)
Expenses 1.67% 1.68 1.74 1.69 1.67
- -----------------------------------------------------------------------------------------------
Net investment income 3.71% 3.90 3.95 4.21 3.58
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year ended August 31,
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental data for all classes
Net assets at end of year (in
thousands) $43,841 39,468 37,100 31,450 23,769
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate 15% 52 86 90 103
- -----------------------------------------------------------------------------------------------
</TABLE>
Note for Ohio Fund: During the fiscal years ended in 1994 and 1995, certain
operating expenses were waived and absorbed by Scudder Kemper. The "Other ratios
to average net assets" are computed without this expense waiver or absorption.
Total return does not reflect the effect of sales charges.
56 Financial Highlights
<PAGE>
Additional information about the funds may be found in the Statement of
Additional Information, the Shareholder Services Guide and in shareholder
reports. Shareholder inquiries may be made by calling the toll-free telephone
number listed below. The Statement of Additional Information contains more
detailed information on fund investments and operations. The Shareholder
Services Guide contains more information about purchases and sales of fund
shares. The semiannual and annual shareholder reports contain a discussion of
the market conditions and the investment strategies that significantly affected
the funds' performance during the last fiscal year, as well as a listing of
portfolio holdings and financial statements. These and other fund documents may
be obtained without charge from the following sources:
- -------------------------------------------------------------------------------
By Phone Call the Kemper Funds at: 1-800-621-1048
- -------------------------------------------------------------------------------
By Mail Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
or
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
(a duplication fee is charged)
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In Person Public Reference Room
Securities and Exchange Commission,
Washington, D.C.
(Call 1-800-SEC-0330
for more information).
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By Internet http://www.sec.gov
http://www.kemper.com
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The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
Investment Company Act file numbers:
Kemper Municipal Bond Fund 811-2353
Kemper Intermediate Municipal Bond Fund 811-2353
Kemper California Tax-Free Income Fund 811-3657
Kemper Florida Tax-Free Income Fund 811-3657
Kemper New York Tax-Free Income Fund 811-3657
Kemper Ohio Tax-Free Income Fund 811-3657
[SOYINK LOGO] PRINTED WITH [RECYCLE LOGO] Printed on recycled paper
SOYINK
<PAGE>
Kemper Tax Free Income Funds
SUPPLEMENT TO PROSPECTUS
DATED JANUARY 1, 1999
CLASS I SHARES
Kemper Municipal Bond Fund
Kemper Intermediate Municipal Bond Fund
The above funds currently offer four classes of shares to provide investors with
different purchasing options. These are Class A, Class B and Class C shares,
which are described in the prospectus, and Class I shares, which are described
in the prospectus as supplemented hereby.
Class I shares are available for purchase exclusively by the following
categories of institutional investors: (1) tax-exempt retirement plans (Profit
Sharing, 401(k), Money Purchase Pension and Defined Benefit Plans) of Scudder
Kemper Investments, Inc. ("Scudder Kemper") and its affiliates and rollover
accounts from those plans; (2) the following investment advisory clients of
Scudder Kemper and its investment advisory affiliates that invest at least $1
million in a Fund: unaffiliated benefit plans, such as qualified retirement
plans (other than individual retirement accounts and self-directed retirement
plans); unaffiliated banks and insurance companies purchasing for their own
accounts; and endowment funds of unaffiliated non-profit organizations; (3)
investment-only accounts for large qualified plans, with at least $50 million in
total plan assets or at least 1000 participants; (4) trust and fiduciary
accounts of trust companies and bank trust departments providing fee based
advisory services that invest at least $1 million in a Fund on behalf of each
trust; and (5) policy holders under Zurich-American Insurance Group's collateral
investment program investing at least $200,000 in a Fund. Class I shares
currently are available for purchase only from Kemper Distributors, Inc.
("KDI"), principal underwriter for the Funds, and, in the case of category 4
above, elected dealers authorized by KDI. Share certificates are not available
for Class I shares.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge schedules and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. Class I shares are offered at net asset value without an
initial sales charge and are not subject to a contingent deferred sales charge
or a Rule 12b-1 distribution fee. Also, there is no administrative services fee
charged to Class I shares. As a result of the relatively lower expenses for
Class I shares, the level of income dividends per share (as a percentage of net
asset value) and, therefore, the overall investment return, will be higher for
Class I shares than for Class A, Class B and Class C shares.
<PAGE>
The following information supplements the indicated sections of the prospectus.
Past Performance
Average Annual Total Returns - Class I shares
<TABLE>
<CAPTION>
For periods ended One Year Five Years Ten Years
December 31, 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fund Kemper Municipal Bond
Fund
------------------------------------------------------------------------------------------------------
Comparative Index
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Fund Kemper Intermediate
Municipal Bond Fund
------------------------------------------------------------------------------------------------------
Comparative Index
------------------------------------------------------------------------------------------------------
Expense information
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Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- ------------------------------------------------------------------------------------------------------------------------
Maximum Maximum Redemption Exchange Maximum
Sales Sales Fee Fee Deferred
Charge on Charge on Sales
Purchases Reinvested Charge (as
(as a % of Dividends a % of
offering redemption
price) proceeds)
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Kemper Municipal Bond Fund
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Kemper Intermediate Municipal Bond Fund
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Annual fund operating expenses: Paid by the fund before it distributes its net
investment income. These are expressed as a percentage of the fund's average
daily net assets for the year ended _______.
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Investment Rule 12b-1 fees Other expenses Total fund
management fee operating
expenses
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Kemper Municipal Bond Fund
- --------------------------------------------------------------------------------------------------------------------------
Kemper Intermediate Municipal Bond Fund
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Fees and expenses if you sold shares after:
- -------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Kemper Municipal Bond
Fund
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Kemper Intermediate
Municipal Bond Fund
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2
<PAGE>
FINANCIAL HIGHLIGHTS - TO BE UPDATED
Kemper Municipal Bond Fund
Kemper Intermediate Municipal Bond Fund
SPECIAL FEATURES
Shareholders of a Fund's Class I shares may exchange their shares for (i) shares
of Zurich Money Funds--Zurich Money Market Fund if the shareholders of Class I
shares have purchased shares because they are participants in tax-exempt
retirement plans of Scudder Kemper and its affiliates and (ii) Class I shares of
any other "Kemper Mutual Fund" listed under "Special Features--Class A
Shares--Combined Purchases" in the prospectus. Conversely, shareholders of
Zurich Money Funds--Zurich Money Market Fund who have purchased shares because
they are participants in tax-exempt retirement plans of Scudder Kemper and its
affiliates may exchange their shares for Class I shares of "Kemper Mutual Funds"
to the extent that they are available through their plan. Exchanges will be made
at the relative net asset values of the shares. Exchanges are subject to the
limitations set forth in the prospectus under "Special Features--Exchange
Privilege--General."
January 1, 1999
3
<PAGE>
KEMPER TAX-FREE INCOME FUNDS
STATEMENT OF ADDITIONAL INFORMATION
January 1, 1999
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 New York Tax-Free Income Fund ("New York Fund")
Kemper Ohio Tax-Free Income Fund ("Ohio Fund")
222 South Riverside Plaza, Chicago, Illinois 60606
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 six 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 January 1, 1999.
The prospectus may be obtained without charge from the Trusts by writing to
Kemper Distributors, Inc., 222 South Riverside Plaza, Chicago, IL 60606-5808 or
calling 1-800-621-1048.
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS ................................................... 2
INVESTMENTS ............................................................... 4
INVESTMENT POLICIES AND TECHNIQUES ........................................ 8
DIVIDENDS AND TAXES ....................................................... 13
PERFORMANCE ............................................................... 17
INVESTMENT MANAGER AND UNDERWRITER ........................................ 29
BROKERAGE COMMISSIONS ..................................................... 38
PURCHASE, REPURCHASE AND REDEMPTION OF SHARES ............................. 40
PURCHASE OF SHARES ........................................................ 40
REDEMPTION OR REPURCHASE OF SHARES ........................................ 44
OFFICERS AND TRUSTEES ..................................................... 52
<PAGE>
CAPITAL STRUCTURE.......................................................... 61
APPENDIX -- RATINGS OF INVESTMENTS......................................... 63
The financial statements appearing in the Trusts' 1998 Annual Reports to
Shareholders are incorporated herein by reference. The financial statements for
the Fund for which this Statement of Additional Information is requested
accompany this document.
2
<PAGE>
INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions have been adopted for each Fund
which 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, as
amended, (the "1940 Act") 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 have elected to be
classified as diversified series of an open-end investment company. The
California Fund, the Florida Fund, the New York Fund and the Ohio Fund have
elected to be classified as non-diversified series of an open-end investment
company.
Each Fund may not, as a fundamental policy:
1. Concentrate its investments in a particular industry, as that term is used
in the 1940 Act, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
2. Make loans except as permitted under the 1940 Act, as amended, and as
interpreted or modified by regulatory authority having jurisdiction from
time to time
3. Borrow money, except as permitted under the 1940 Act, as amended, and as
interpreted or modified by regulatory authority having jurisdiction, from
time to time.
4. Purchase physical commodities or contracts relating to physical
commodities.
5. Purchase or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages or investments secured by
real estate or interests therein, except that the Fund reserves freedom of
action to hold and to sell real estate acquired as a result of the Fund's
ownership of securities.
6. Engage in the business of underwriting securities issued by others, except
to the extent that a Fund may be deemed to be an underwriter in connection
with the disposition of portfolio securities.
7. Issue senior securities, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
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 the investment restrictions for the Municipal, Intermediate Municipal,
California, Funds; Florida, New York, and Ohio 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. Invest for the purpose of exercising control or management of another
issuer.
2. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
3. Invest more than 15% of its net assets in illiquid securities.
3
<PAGE>
The Municipal Fund and the Intermediate Municipal Fund have adopted the
following non-fundamental restrictions, which may be changed by the Board of
Trustees without shareholder approval. These Funds may not:
1. 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.
2. 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.
3. Write, purchase or sell puts, calls or combinations thereof, except in
accordance with its investment objective and policies.
4. Make investments other than in accordance with its investment objective
and policies, except that all or substantially all of the assets of the
Fund may be invested in another registered investment company having the
same investment objective and substantially similar investment policies as
the Fund.
The California Fund has adopted the following non-fundamental restrictions,
which may be changed by the Board of Trustees without shareholder approval. This
Fund may not:
1. 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.
2. Pledge its securities or receivables or transfer or assign or otherwise
encumber them in an amount exceeding the amount of the borrowing secured
thereby.
3. Write, purchase or sell puts, calls or combinations thereof, except in
accordance with its investment objective and policies.
4. Purchase securities or make investments other than in accordance with its
investment objective and policies, except that all or substantially all of
the assets of the Fund may be invested in another registered investment
company having the same investment objective and substantially similar
investment policies as the Fund.
The Florida Fund, New York Fund, and Ohio Fund have adopted the following
non-fundamental restrictions, which may be changed by the Board of Trustees
without shareholder approval. These Funds may not:
1. 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.
2. 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.
3. Write or sell put or call options, combinations thereof or similar options
on more than 25% of the Fund's net assets; nor may it purchase put or call
options if more than 5% of the Fund's net assets would be invested in
premiums on put and call options, combinations thereof or similar options;
however, the Fund may buy or sell options on financial futures contracts.
4. Make investments other than in accordance with its investment objective
and policies, except that all or substantially all of the assets of the
Fund may be invested in another registered investment company having the
same investment objective and substantially similar investment policies as
the Fund.
Master/feeder fund structure. The Board of Trustees has the discretion to retain
the current distribution arrangement for the Funds while investing in a master
fund in a master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder fund"), instead
of investing directly in a portfolio of securities, invests most or all of its
investment assets in a separate registered investment company (the "master
fund") with substantially the same investment objective and policies as the
feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization
4
<PAGE>
of a taxable gain or loss, or by contributing its assets to the master fund and
avoiding transaction costs and, if proper procedures are followed, the
realization of taxable gain or loss.
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, 1990 and 1996, California voters
approved various measures that amended Article XIII A and XIII B and added
Article XIII C and XIII D to the State Constitution. 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 schools, modified Article XIII B to permit excess
State revenues to be transferred to public schools and community colleges rather
than returned to taxpayers. Proposition 111 amended Article XIII B to ease
restrictions on certain expenditure categories in calculating the annual
appropriation ceiling. Article XIII C and XIII D place additional requirements
on revenue raising abilities of local government units. Finally, on November 5,
1996, California voters approved Proposition 218, called the "Right to Vote on
Taxes Act." This constitutional amendment restricts local governments' ability
to raise or extend taxes without voter consent, places restrictions on the
5
<PAGE>
ability to charge certain fees and assessments, and makes it easier for voters
to use the initiative process to reduce or repeal existing taxes.
Future voter initiatives, if proposed and adopted, could further modify Articles
XIII A, XIII B, XIII C, and XIII D and place increased pressures on the State
and local entities' ability to raise revenue and adjust appropriations.
California's economy is the largest among the 50 states and one of the largest
in the world. This diversified economy has major components in agriculture,
manufacturing, high technology, trade entertainment, tourism, construction and
services. Total State gross domestic product of about $1.0 trillion in 1996 was
larger than all but six nations in the world.
After suffering a severe recession in the early 1990s, California's economy has
experienced a steady recovery since 1994. This expansion has helped create a
larger number of jobs that now exceed the number lost during the recession. The
strongest growth has been in export-related industries, business services,
electronics, entertainment and tourism. Current employment and personal income
growth rates exceed the national average. A recent economic forecast by the UCLA
Business Forecasting Project predicts that California's employment growth rate
will continue to outpace the nation through the year 2000.
The strengthening economy has had a generally positive impact on State finances.
The State has achieved five consecutive years of operating surplus. The State's
improved cash position allowed it to repay the $4.0 billion Revenue Anticipation
Warrants on April 25, 1996, and restore the State to a normal cash flow
borrowing cycle. The State's estimated ending General Fund balance for FY97-98
is $__ million (modified accrual basis).
California's economic and financial improvement prompted the three major rating
agencies to raise the State's general obligation bond rating in 1996. In October
1998, Fitch Investors Service raised the State's rating to __. The current
ratings are __.
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 9 of the United States Bankruptcy Code. A Plan of Adjustment was
confirmed and successfully implemented in June 1996.
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.
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. Real gross state
product grew 4.1% in 1995, down from 4.9% in 1994. Employment numbers reflect
the improved economic picture in the State. The unemployment rate for 1996 was
5.1%, after peaking at 8.2% in 1992. The unemployment rate has stabilized at __%
for 1998. Commercial construction remained weak while residential construction
improved. Construction has shifted to lower-valued multi-family units rather
than the higher priced single-family homes. International trade continues to
grow in southern Florida, and almost 10% of the state's workforce are directly
or indirectly involved in foreign trade. Florida also continues to experience
employment gains in the technology-based industry, the light manufacturing
industry and the service sector. Service industry payrolls grew by 109,000
6
<PAGE>
jobs in fiscal year 1994-1995. This growth rate is expected to stabilize over
the next several years. Healthcare jobs are forecasted to be a large contributor
to the increase in service industry jobs. The largest contributor is business
services. This growth continues to diversify and better position Florida's
overall economy, which was previously dominated by agriculture and tourism.
Tourism remains a major industry in the state and accounts for 11% of Florida's
economy. The number of visitors to the state had steadily grown; however, in
1991 the number had dropped for the first time. Visitors have steadily increased
since then and the state is expecting an increase of __% for 1998. The number of
visitors to the state in 1996 reached a record level of 43 million. Latin
Americans have become an increasingly larger portion of the number of visitors
to the state. The tourism industry directly employs about 900,000 people and
generates $33 billion in taxable spending. 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 $__ per capita.
Fiscal year 1998 has benefited from a continued strong economy. The corporate
income tax and the sales tax have consistently outpaced budgeted amounts. An
additional $280 million has been added to the year's total revenues during the
month of October.
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 December __, 1998, the State's general obligation debt was rated __ by
Moody's and __ by S&P.
New York Fund. With a population of 18 million, New York ranks third in
population among the fifty states. According to the census, New York gained 2.5%
in population between 1980 and 1990 after a loss of 3.7% in the prior decade.
New York City accounts for about 40% of the State's population. New York ranks
fourth in the nation in personal income; in 1990, per capita personal income was
120% of the national average. Employment peaked in 1989 at 8.2 million, and
declined 425,000 between 1989 and 1992. This was the most severe job loss since
recordkeeping began in 1939. Since then, the State has gained back about __
private sector jobs, while government employment declined by __. Employment
distribution is similar to that of the nation as a whole, except for a higher
concentration in Finance, Insurance and Real Estate (9.4% versus 6.0%
nationally), and a lower concentration in manufacturing (12.7% versus 16.2%
nationally). Unemployment is historically more cyclical than for the United
States as a whole, with lower unemployment in good times and higher unemployment
in bad. Since 1991, New York unemployment has exceeded the U.S. average.
The State's financial performance has weakened since fiscal year 1994. In 1995
the legislature approved tax reductions that made achieving a balanced budget in
fiscal year 1996 more difficult. The State still has an accumulated deficit in
its General Fund equal to __% of expenditures.
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 obligation provisions. As
of October 6, 199__, the principal amount of New York State general obligation
bonds outstanding was $__ billion and the principal amount of state-guaranteed,
lease-purchase debt and other tax-supported bonds outstanding was $__ billion.
Between fiscal year 1992 and fiscal year 1994, New York materially improved its
finances. At the end of fiscal year 1991, the accumulated General Fund deficit
exceeded $6 billion on a GAAP basis. There followed three consecutive surpluses,
which, combined with LGAC financing, reduced the deficit to $1.6 billion.
The State's fiscal year 1996 budget projected disbursements $344 million lower
than disbursements in fiscal year 1995. This was the first absolute
year-over-year decline in General Fund disbursements in more than fifty years.
Total State spending (exclusive of federal pass-throughs) is projected to
increase 2 1/2%. After deferring planned reductions for six years, the first
phase of a planned three year, 20% income tax cut occurred in 1996.
7
<PAGE>
Certain State agencies, such as the New York State Urban Development Corporation
("UDC"), the Battery Park City Authority and the Housing Finance Agency ("HFA")
are 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 $__
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.
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.
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 1995 with a balanced budget.
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 February 1991, Moody's lowered its rating of New York City's
general obligation debt from A to BAA1. 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-. As of
December, 1998 New York City's general obligation debt are rated __. As of
October, 1998, general obligation bonds of the State of New York are rated __
and __ by Moody's and S&P, respectively.
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 has shifted into
services, trade, finance, insurance, and real estate. Most components of the
economy have closely mirrored that of the nation. Between 1981 and 1988, Ohio
lost more than 129,000 manufacturing jobs while gaining 417,000 services and
trade jobs. Manufacturing, however, still accounts for a disproportionately
large share of employment in the State, comprising 21% of all nonfarm jobs
versus the U.S. average of 16%. Unemployment rates, down sharply from the 1982
recessionary peak of 12.5%, have gradually declined and have been in line or
below the national average. Ohio is ranked 22nd among states for per capita
personal income.
Pursuant to its constitution, Ohio is precluded from ending a fiscal year or
biennium in a deficit position. In fact, the Governor has the power to issue
orders to state agencies to reduce expenditures, if necessary, to avoid
encumbering a deficit.
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 or higher. The 1997 fiscal year-end General Revenue
Fund balance was $__ billion, or __% of operating revenue, up from $__ million
the year before. Of this, approximately $__ million is in the Budget
Stabilization Fund. Fiscal 1998 is expected to end with another operating
surplus in the General Fund. The State balanced the 1996-97 budget without the
use of reserves.
Ohio generally follows conservative debt policies. The majority of outstanding
debt is appropriation-backed. Although debt has been increasing and current
ratios are about average, bonds have rapid retirement schedules. The State's
voters, in
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November 1995, approved a $1.2 billion general obligation debt for public
infrastructure improvements and highway projects. The debt is expected to be
issued over the next 10 to 15 years.
As of October __, 1998, Ohio's general obligation bonds were rated __ by Moody's
and __ by S&P.
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. 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.
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 underlying 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, 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
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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.
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 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.
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.
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 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 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 or liquid securities
("eligible securities") to the extent required by applicable regulation. 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
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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 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. 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.
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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 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 to the extent required by applicable
regulation. 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.
GENERAL. Each Fund may engage in futures, 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 and also to hedge against the effects
of market risks but not for speculative purposes. 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.
DERIVATIVES. In addition to options and financial futures transactions,
consistent with its objective, each Fund may invest in a broad array of
financial instruments and securities in which the value of the instrument or
security is "derived" from the performance of an underlying asset or a
"benchmark" such as a security index or an interest rate ("derivatives").
Derivatives are most often used to manage investment risk, to increase or
decrease exposure to an asset class or benchmark (as a hedge or to enhance
return), or to create an investment position indirectly (often because it is
more efficient or less costly than direct investment). The types of derivatives
used by each Fund and the techniques employed by the investment manager may
change over time as new derivatives and strategies are developed or regulatory
changes occur.
SPECIAL RISK FACTORS-- OPTIONS, FUTURES AND OTHER DERIVATIVES. The principal
risks of options, futures, and other derivative transactions are: (a) possible
imperfect correlation between movements in the prices of options, futures or
other derivatives contracts and movements in the prices of the securities
hedged, used for cover or that the derivatives intended to replicate; (b) lack
of assurance that a liquid secondary market will exist for any particular
option, futures or other
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derivatives contract at any particular time; (c) the need for additional skills
and techniques beyond those required for normal portfolio management; (d) losses
on futures contracts resulting from market movements not anticipated by the
investment manager; and (e) the possible non-performance of the counter-party to
the derivative contract.
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 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 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.
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.
In when-issued or delayed delivery transactions, delivery of the securities
occurs beyond normal settlement periods, but the Fund would not pay for such
securities or start earning interest on them until they are delivered. However,
when the Fund purchases securities on a when-issued or delayed delivery basis,
it immediately assumes the risks of ownership, including the risk of price
fluctuation. Failure to deliver a security purchased on a when-issued or delayed
delivery basis may result in a loss or missed opportunity to make an alternative
investment. Depending on market conditions, the Fund's when-issued and delayed
delivery purchase commitments could cause its net asset value per share to be
more volatile, because such securities may increase the amount by which its
total assets, including the value of when-issued and delayed delivery securities
its holds, exceed its net 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. The Fund reserves the right to sell
these securities before the settlement date if deemed advisable.
SPECIAL RISK FACTORS -- HIGH YIELD (HIGH RISK) BONDS. 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,
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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.
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 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 difference in portfolio turnover rates between fiscal years 1994 and 1995
for the Florida and New York Funds was primarily due to two portfolio
restructurings for each Fund in order to lengthen their durations in response to
the interest rate environment. It is anticipated that, under normal
circumstances, the portfolio turnover rate for the New York Fund 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.
REGULATORY RESTRICTIONS. To the extent required to comply with applicable
regulation, when purchasing a futures contract, writing a put option or entering
into a delayed delivery purchase, a Fund will maintain eligible securities in a
segregated account. 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 that the Fund holds or intends to
purchase.
TRUSTEES' POWER TO CHANGE OBJECTIVES AND POLICIES. Except as specifically stated
to the contrary, the objectives and policies of the Funds may be changed by the
Trustees without a vote of the shareholders.
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15
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16
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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 and Class I 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.
17
<PAGE>
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").
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 "Purchase, Repurchase, and
Redemption of Shares-- 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 a
minimum account value of $1,000 in the Fund distributing the dividends. The
Funds will reinvest dividend checks (and future dividends) in shares of that
same Fund and class if checks are returned as undeliverable. Dividends and other
distributions of a Fund in the aggregate amount of $10 or less are automatically
reinvested in shares of the Fund unless the shareholder requests that such
policy not be applied to the shareholder's account.
TAXES. Each Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Code and, if so qualified, will not be liable
for federal income taxes to the extent its earnings are distributed. 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 20% on gains realized by
a Fund from securities held more than 18 months and at a maximum rate of 28% on
gains realized by a Fund from securities held more than 12 months but not more
than 18 months. 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 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
under "Purchase, Repurchase, and Redemption of Shares--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
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months of the redemption. If the redeemed shares were purchased after October 3,
1989 and were held less than 91 days, then the lesser of (a) the sales charge
waived on the reinvestment shares, or (b) the sales charge incurred on the
redeemed shares, is included in the basis of the reinvestment shares and is not
included in the basis of the redeemed shares. If a shareholder realizes a loss
on the redemption or exchange of a Fund's shares and reinvests in that same
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% 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.
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 1997 calendar year,
__%, __%, __%, __%, __% and __% of the net interest income of the Municipal,
Intermediate Municipal, California, Florida, New York and Ohio 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.
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, tax-exempt interest, including
exempt-interest dividends from a Fund, and 50% of Social Security benefits.
Municipal Fund. During the fiscal year ended September 30, 1998, __% of the
income dividends paid by the Municipal Fund constituted tax-exempt dividends for
federal income tax purposes.
Intermediate Municipal Fund. During the fiscal year ended September 30, 1998,
__% of the income dividends paid by the Intermediate 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 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, 1998, __% 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, 1998, __% of the income dividends paid
by the Florida Fund constituted tax-exempt
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<PAGE>
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, 1997, the Florida Fund's portfolio consisted solely of
assets exempt from the intangibles 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 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 income tax rates. During the fiscal year ended August 31, 1998, __% of
the income dividends paid by the New York Fund constituted tax-exempt dividends
for federal, New York State and New York City 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, 1998,
__% of the income dividends paid by the Ohio Fund constituted tax-exempt
dividends for federal income tax purposes.
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.
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 transactions involving dividend reinvestment and periodic
investment and redemption programs. 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.
When more than one shareholder resides at the same address, certain reports and
communications to be delivered to such shareholders may be combined in the same
mailing package, and certain duplicate reports and communications may be
eliminated. Similarly, account statements to be sent to such shareholders may be
combined in the same mailing package or consolidated into a single statement.
However, a shareholder may request that the foregoing policies not be applied to
the shareholder's account.
NET ASSET VALUE
The net asset value per share of a Fund is the value of one share and is
determined separately for each class by dividing the value of a Fund's net
assets attributable to the class by the number of shares of that class
outstanding. The per share net asset value of each of Class B and Class C shares
of the Fund will generally be lower than that of the Class A and Class I shares
of a Fund because of the higher expenses borne by the Class B and Class C
shares. The net asset value of shares of a Fund is computed as of the close of
regular trading (the "value time") on the New York Stock Exchange (the
"Exchange") on each day the Exchange is open for trading. The Exchange is
scheduled to be closed on the following holidays: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas.
Portfolio securities for which market quotations are readily available are
generally valued at market value as of the value time in the manner described
below. All other securities may be valued at fair value as determined in good
faith by or under the direction of the Board.
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With respect to the Funds with securities listed primarily on foreign exchanges,
such securities may trade on days when the Fund's net asset value is not
computed; and therefore, the net asset value of a Fund may be significantly
affected on days when the investor has no access to the Fund.
An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on The Nasdaq Stock Market Inc.
("Nasdaq") is valued at its most recent sale price. Lacking any sales, the
security is valued at the most recent bid quotation. The value of an equity
security not quoted on Nasdaq, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities are valued at prices supplied by a pricing agent(s) which
reflect broker/dealer supplied valuations and electronic data processing
techniques. Money market instruments purchased with an original maturity of
sixty days or less, maturing at par, shall be valued at amortized cost, which
the Board believes approximates market value. If it is not possible to value a
particular debt security pursuant to these valuation methods, the value of such
security is the most recent bid quotation supplied by a bona fide marketmaker.
If it is not possible to value a particular debt security pursuant to the above
methods, the investment manager of the particular fund may calculate the price
of that debt security, subject to limitations established by the Board.
An exchange-traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any Calculated Mean, the options contract is valued at the most recent
bid quotation in the case of a purchased options contract, or the most recent
asked quotation in the case of a written options contract. An options contract
on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate on the
valuation date.
If a security is traded on more than one exchange, or upon one or more exchanges
and in the over-the-counter market, quotations are taken from the market in
which the security is traded most extensively.
If, in the opinion of the Valuation Committee of the Board of Trustees, the
value of a portfolio asset as determined in accordance with these procedures
does not represent the fair market value of the portfolio asset, the value of
the portfolio asset is taken to be an amount which, in the opinion of the
Valuation Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by a Fund is determined
in a manner which, in the discretion of the Valuation Committee, most fairly
reflects market value of the property on the valuation date.
Following the valuations of securities or other portfolios assets in terms of
the currency in which the market quotation used is expressed ("Local Currency"),
the value of these portfolio assets in terms of U.S. dollars is calculated by
converting the Local Currency into U.S. dollars at the prevailing currency
exchange rate on the valuation date.
PERFORMANCE
The Funds may advertise several types of performance information for a class of
shares, including "average annual total return" and "total return." Performance
information will be computed separately for Class A, Class B, Class C and Class
I shares. Each of these figures is based upon historical results and is not
representative of the future performance of any class of the shares. A Fund with
fees or expenses being waived or absorbed by Scudder Kemper may also advertise
performance information before and after the effect of the fee waiver or expense
absorption.
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.
Scudder Kemper 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. Certain 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." .
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, Class
C,
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and Class I) 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, or the Florida Fund in a stated combined federal
and state income tax bracket for the California Fund, and the Ohio 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.
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, 1998 for the Municipal and
Intermediate Municipal Funds and August 31, 1998 for the State Funds.
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares Class I Shares
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Municipal Fund
Intermediate Municipal Fund
California Fund
Florida Fund
New York Fund
Ohio Fund
</TABLE>
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:
YIELD = 2 [(a-b/cd +1)^6 - 1]
Where:
A = dividends and interest earned during the period.
B = expenses accrued for the period (net of reimbursements).
C = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
D = the maximum offering price per share on the last day of the
period (which is net asset value for Class B and Class C
shares).
In computing the foregoing yield, each 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.
Each Fund's tax equivalent yield is computed by dividing that portion of the
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 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, 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. For
additional information concerning tax-exempt yields, see "Tax-Exempt versus
Taxable Yield" below. The tax equivalent yields for the Municipal and
Intermediate Municipal Funds for the one-month period ended September 30, 1998
and for the State Funds for the one-month period ended August 31, 1998 are set
forth below.
<TABLE>
<CAPTION>
Fund--Tax Type (Marginal Rate) Class A Shares Class B Shares Class C Shares Class I Shares
- ---- ------------------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Municipal -- Federal (37.1%) To be updated
Intermediate Municipal Fund -- Federal (37.1%)
California -- Combined (42.9%)
California -- Federal only (37.1%)
Florida -- Federal only (37.1%)
New York -- Combined (43.5%)
New York -- Federal only (37.1%)
Ohio -- Combined (41.2%)
Ohio -- Federal only (37.1%)
</TABLE>
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<PAGE>
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 and prospectus. Total return performance for
a specific period is calculated by first taking a hypothetical investment
("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.
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
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 for performance purposes). Average annual total return
figures represent the average annual percentage change over the period in
question. Total return figures represent the aggregate percentage or dollar
value change over the period in question.
A Fund's performance 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, Class C, and Class
I 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. Redemption of Class C shares may be subject to
a 1% contingent deferred sales charge in the first year following purchase.
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 and
Class C shares that may be imposed at the end of the period in question.
Performance figures for the Class B shares and Class C shares not including the
effect of the applicable contingent deferred sales charge would be reduced if it
were included. 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 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.
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.
Information may be quoted from publications such as Morningstar Inc., The Wall
Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago Tribune,
USA Today, Institutional Investor and Registered Representative. Also, investors
may want to compare the historical returns of various investments, performance
indexes of those investments or economic indicators, including but not limited
to stocks, bonds, certificates of deposit, money market funds and U.S. Treasury
obligations. Bank product performance may be based upon, among other things, the
BANK RATE MONITOR National IndexO or various certificate of deposit indexes.
Money market fund performance may be based upon, among other things,
IBC/Donoghue's
23
<PAGE>
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 Policies and Techniques --
Additional Investment Information," option writing can limit the potential for
capital appreciation.
The figures below show performance information for various periods. 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.
24
<PAGE>
MUNICIPAL FUND -- SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Capital
Initial Gain Income Ending Percentage Ending
TOTAL RETURN $10,000 Dividends Dividends Value Increase Value Percentage 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(+) To be
updated
Ten Years
Five Years
One Year
Year to Date
CLASS B SHARES
Life of Fund(++) To be
updated
One Year
Year to Date
CLASS C SHARES
Life of Fund(++) To be
updated
One Year
Year to Date
CLASS I SHARES
Life of Fund(++) To be
updated
One Year
Year to Date
</TABLE>
AVERAGE ANNUAL
TOTAL Fund Class Fund Class B Fund Class Fund Class I Shares
RETURN TABLE A Shares Shares C Shares --------
- ------------ -------- ------ --------
Life of Fund
Class A(+)(++)
Class B & C
(5-31-94)
Ten Years
Five Years
One Year
- ----------
+ Since April 20, 1976 for Class A shares.
++ Since May 31, 1994 for Class B & C shares.
* Not applicable.
See footnotes following tables.
25
<PAGE>
INTERMEDIATE MUNICIPAL FUND -- SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Capital
Initial Gain Income Ending Percentage Ending
TOTAL RETURN $10,000 Dividends Dividends Value Increase Value Percentage 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(+) To be
updated
One Year
Year to Date
CLASS B SHARES
Life of Fund(+) To be
updated
One Year
Year to Date
CLASS C SHARES
Life of Fund(+) To be
updated
One Year
Year to Date
CLASS I SHARES
Life of Fund(+) To be
updated
One Year
Year to Date
</TABLE>
AVERAGE
ANNUAL Fund Fund Fund Fund
TOTAL Class A Class B Class C Class I
RETURN TABLE Shares Shares Shares Shares
- ------------ ------ ------ ------ ------
Life of Fund(+) To be
updated
One Year
- ----------
+ Since November 1, 1994 for all classes.
* Not applicable.
See footnotes following tables.
26
<PAGE>
CALIFORNIA FUND -- AUGUST 31, 1998
<TABLE>
<CAPTION>
Capital
Initial Gain Income Ending Percentage Ending
TOTAL RETURN $10,000 Dividends Dividends Value Increase Value Percentage 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(+) To be
updated
Ten Years
Five Years
One Year
Year to Date
CLASS B SHARES
Life of Fund(++) To be
updated
One Year
Year to Date
CLASS C SHARES
Life of Fund(++) To be
updated
One Year
Year to Date
</TABLE>
AVERAGE
ANNUAL Fund Fund Fund
TOTAL Class A Class B Class C
RETURN TABLE Shares Shares Shares
- ------------ ------ ------ ------
Life of Fund To be
Class A(+)(++) updated
Class B & C (5-31-94)
Ten Years
Five Years
One Year
- ----------
+ Since February 17, 1983 for Class A shares.
++ Since May 31, 1994 for Class B & C shares.
* Not applicable.
See footnotes following tables.
27
<PAGE>
FLORIDA FUND -- AUGUST 31, 1998
<TABLE>
<CAPTION>
Capital
Initial Gain Income Ending Percentage Ending
TOTAL RETURN $10,000 Dividends Dividends Value Increase Value Percentage 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(+) To be
updated
Five Years
One Year
Year to Date
CLASS B SHARES
Life of Fund(++) To be
updated
One Year
Year to Date
CLASS C SHARES
Life of Fund(++) To be
updated
One Year
Year to Date
</TABLE>
AVERAGE
ANNUAL Fund Fund Fund
TOTAL Class A Class B Class C
RETURN TABLE Shares Shares Shares
- ------------ ------ ------ ------
Life of Fund To be
Class A(+)(++) updated
Class B & C
(5-31-94)
Five Years
One Year
- ----------
+ Since April 25, 1991 for Class A shares.
++ Since May 31, 1994 for Class B & C shares.
* Not applicable.
See footnotes following tables.
28
<PAGE>
NEW YORK FUND -- AUGUST 31, 1998
<TABLE>
<CAPTION>
Capital
Initial Gain Income Ending Percentage Ending
TOTAL RETURN $10,000 Dividends Dividends Value Increase Value Percentage 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(+) To be
updated
Ten Years
Five Years
One Year
Year to Date
CLASS B SHARES
Life of Fund(++) To be
updated
One Year
Year to Date
CLASS C SHARES
Life of Fund(++) To be
updated
One Year
Year to Date
</TABLE>
AVERAGE
ANNUAL Fund Fund Fund
TOTAL Class A Class B Class C
RETURN TABLE Shares Shares Shares
- ------------ ------ ------ ------
Life of Fund To be
Class A(+)(++) updated
Class B & C
(5-31-94)
Ten Years
Five Years
One Year
- ----------
+ Since December 31, 1985 for Class A shares.
++ Since May 31, 1994 for Class B & C shares.
* Not applicable.
See footnotes following tables.
29
<PAGE>
OHIO FUND -- AUGUST 31, 1998
<TABLE>
<CAPTION>
Capital
Initial Gain Income Ending Percentage Ending
TOTAL RETURN $10,000 Dividends Dividends Value Increase Value Percentage 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(+) To be
updated
One Year
Year to Date
CLASS B SHARES
Life of Fund(+) To be
updated
One Year
Year to Date
CLASS C SHARES
Life of Fund(+) To be
updated
One Year
Year to Date
</TABLE>
AVERAGE
ANNUAL Fund Fund Fund
TOTAL Class A Class B Class C
RETURN TABLE Shares Shares Shares
- ------------ ------ ------ ------
Life of Fund To be
Class A(+)(++) updated
Class B & C
(5-31-94)
One Year
- ----------
+ Since March 22, 1993 for Class A shares.
++ Since May 31, 1994 for Class B & C shares.
* Not applicable.
See footnotes following tables.
30
<PAGE>
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.
(2) Includes short-term capital gain dividends, if any.
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 and Class C
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 and Class C 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.
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 [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 1998 federal and
state tax rates and brackets.
Taxable Equivalent Yield Table for Persons Whose Adjusted Gross Income is Under
$121,200
<TABLE>
<CAPTION>
A Tax-Exempt Yield of:
Taxable Income Your Marginal 4% 5% 6% 7% 8% 9%
Single Joint Federal Tax Rate Is Equivalent to a Taxable Yield of
------ ----- ---------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$24,650-$59,750 $41,200-$99,600 28.0% 5.56 6.94 8.33 9.72 11.11 12.50
Over $59,750 Over $99,600 31.0 5.80 7.25 8.70 10.14 11.59 13.04
<CAPTION>
Combined A Tax-Exempt Yield of:
Taxable Income California and 4% 5% 6% 7% 8% 9%
Single Joint Federal Tax Rate Is Equivalent to a Taxable Yield of:
------ ----- ---------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
To be
updated 5.91
</TABLE>
31
<PAGE>
Taxable Equivalent Yield Table for Persons Whose Adjusted Gross Income is Under
$121,200
<TABLE>
<CAPTION>
Combined A Tax-Exempt Yield of:
N.Y. City, N.Y.
Taxable Income State and 4% 5% 6% 7% 8% 9%
Single Joint Federal Tax Rate Is Equivalent to a Taxable Yield of:
------ ----- ---------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
To be updated
<CAPTION>
Combined A Tax-Exempt Yield of:
Taxable Income Ohio and 4% 5% 6% 7% 8% 9%
Single Joint Federal Tax Rate Is Equivalent to a Taxable Yield of:
------ ----- ---------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
To be updated
</TABLE>
Taxable Equivalent Yield Table for Persons Whose Adjusted Gross Income is Over
$121,200*
<TABLE>
<CAPTION>
A Tax-Exempt Yield of:
Taxable Income Your Marginal 4% 5% 6% 7% 8% 9%
Single Joint Federal Tax Rate Is Equivalent to a Taxable Yield of:
------ ----- ---------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
To be updated
<CAPTION>
A Tax-Exempt Yield of:
Taxable Income Your California and 4% 5% 6% 7% 8% 9%
Single Joint Federal Tax Rate Is Equivalent to a Taxable Yield of:
------ ----- ---------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
To be updated
</TABLE>
32
<PAGE>
Taxable Equivalent Yield Table for Persons Whose Adjusted Gross Income is Over
$121,200*
<TABLE>
<CAPTION>
Combined
N.Y. City, N.Y. A Tax-Exempt Yield of:
Taxable Income State and 4% 5% 6% 7% 8% 9%
Single Joint Federal Tax Rate Is Equivalent to a Taxable Yield of:
------ ----- ---------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
To be updated
<CAPTION>
Combined A Tax-Exempt Yield of:
Taxable Income Ohio and 4% 5% 6% 7% 8% 9%
Single Joint Federal Tax Rate Is Equivalent to a Taxable Yield of:
------ ----- ---------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
To be updated
</TABLE>
* This table assumes a decrease of $3.00 of itemized deductions for each
$100 of adjusted gross income over $121,200. For a married couple with an
adjusted gross income between $181,800 and $304,300 (single between
$121,200 and $243,700), add 0.7% to the above Marginal Federal Tax Rate
for each personal and dependency exemption. The taxable equivalent yield
is the tax-exempt yield divided by: 100% minus the adjusted tax rate. For
example, if the table tax rate is 37.1% and you are married with no
dependents, the adjusted tax rate is 38.5% (37.1% + 0.7% + 0.7%). For a
tax-exempt yield of 6%, the taxable equivalent yield is about 9.8% (6%,
(100% - 38.5%)).
** The tables do not reflect the impact of the New York State Tax Table
Benefit Recapture that is intended to eliminate the benefit of the
graduated rate structure and applies to taxable income between $100,000
and $150,000.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc. ("Scudder Kemper" or "the
Advisor"), 345 Park Avenue, New York, New York, is the Trusts' investment
manager. Scudder Kemper is approximately 70% owned by Zurich Financial Services,
a newly formed global insurance and financial services company. The balance of
the Advisor is owned by its officers and employees. There is one investment
management agreement for the Municipal Fund, one for the Intermediate Municipal
Fund and a separate investment management agreement for each of the State Funds.
The agreements are substantially the same. Pursuant to the investment management
agreements, Scudder Kemper acts as each Fund's investment adviser, manages its
investments, administers its business affairs, furnishes office facilities and
equipment, provides clerical 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 Scudder Kemper),
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 and maintaining all
accounting records thereto, taxes and membership dues.
Each Trust bears the expenses of registration of its shares with the Securities
and Exchange Commission, while Kemper Distributors, Inc. ("KDI"), as principal
underwriter, pays the cost of qualifying and maintaining the qualification of
the Trust's shares for sale under the securities laws of the various states.
Scudder Kemper has agreed to reimburse the Municipal Fund should all operating
expenses of that Fund, including the compensation of Scudder Kemper, 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.
Scudder Kemper has agreed to reimburse the California Fund should all operating
expenses of the California Fund, including the compensation of Scudder Kemper,
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.
The agreements provide that Scudder Kemper 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 Scudder Kemper in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the agreements.
33
<PAGE>
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.
Responsibility for overall management of each Trust rests with its Board of
Trustees and officers. Professional investment supervision is provided by
Scudder Kemper. The investment management agreement for a Fund provides that
Scudder Kemper shall act as the Fund's investment adviser, manage its
investments and provide the Fund with various services and facilities.
On December 31, 1997, pursuant to the terms of an agreement, Scudder, Stevens &
Clark, Inc. ("Scudder") and Zurich Insurance Company ("Zurich") formed a new
global organization by combining Scudder with Zurich Kemper Investments, Inc., a
former subsidiary of Zurich and the former investment manager to each Fund, and
Scudder changed its name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owned approximately 70% of the Adviser, with the balance
owned by the Adviser's officers and employees.
On September 7, 1998, the businesses of Zurich (including Zurich's 70% interest
in Scudder Kemper) and the financial services businesses of B.A.T Industries
p.l.c. ("B.A.T") were combined to form a new global insurance and financial
services company known as Zurich Financial Services, Inc. By way of a dual
holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services, Inc., with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, each Fund's existing investment
management agreement with Scudder Kemper was deemed to have been assigned and,
therefore, terminated. The Board has approved a new investment management
agreement with Scudder Kemper, which is substantially identical to the current
investment management agreement, except for the date of execution and
termination. This agreement became effective upon the termination of the then
current investment management agreement and was approved by shareholders at a
special meeting in December 1998.
The current investment management fee rates paid by the Funds are as follows:
The Municipal Fund pays Scudder Kemper an investment management fee, payable
monthly, at the annual rate of 0.45% of the first $250 million of average daily
net assets, 0.43% of average daily net assets between $250 million and $1
billion, 0.41% of average daily net assets between $1 billion and $2.5 billion,
0.40% of average daily net assets between $2.5 billion and $5 billion, 0.38% of
average daily net assets between $5 billion and $7.5 billion, 0.36% of average
daily net assets between $7.5 billion and $10 billion, 0.34% of average daily
net assets between $10 billion and $12.5 billion and 0.32% of average daily net
assets over $12.5 billion.
Each State Fund and the Intermediate Municipal Fund pay Scudder Kemper an
investment management fee, payable monthly, at the annual rate (computed
separately for each State Fund and for the Intermediate Municipal Fund) of 0.55%
of the first $250 million of average daily net assets, 0.52% of average daily
net assets between $250 million and $1 billion, 0.50% of average daily net
assets between $1 billion and $2.5 billion, 0.48% of average daily net assets
between $2.5 billion and $5 billion, 0.45% of average daily net assets between
$5 billion and $7.5 billion, 0.43% of average daily net assets between $7.5
billion and $10 billion, 0.41% of average daily net assets between $10 billion
and $12.5 billion and 0.40% of average daily net assets over $12.5 billion.
The investment management fees paid by each Fund for its last three fiscal years
are shown in the table below.
Fund Fiscal 1998 Fiscal 1997 Fiscal 1996
- ---- ----------- ----------- -----------
Municipal $13,507,000 14,261,000
Intermediate Municipal $ 117,000 82,000
California $ 5,417,000 5,661,000
Florida $ 587,000 642,000
New York $ 1,604,000 1,717,000
Ohio $ 212,000 192,000
The Adviser agreed to waive its full investment management fee for the
Intermediate Municipal Fund from November 1, 1994 (commencement of operations)
through April 30, 1995. Thereafter the full management fee was gradually
reinstated under a schedule determined by the Adviser and fully reinstated by
April 30, 1996. If the fee waiver had not been in effect,
34
<PAGE>
the Adviser would have received an investment management fees from the
Intermediate Municipal Fund of $104,000 for the fiscal period ended September
30, 1996. [ Additionally, the Adviser has agreed to reduce temporarily its
management fee and reimburse or pay certain operating expenses to the extent
necessary to limit the "Total Operating Expenses" of the Intermediate Municipal
Fund for Class A, B and C shares to ___%, ___% and ___%, respectively.]
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts, 02110, a subsidiary of Scudder
Kemper, is responsible for determining the daily net asset value per share of
the Funds and maintaining all accounting records related thereto. Currently,
SFAC receives no fee for its services to the Funds.
PRINCIPAL UNDERWRITER. Pursuant to separate underwriting and distribution
services agreements ("distribution agreements"), Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois, 60606, an affiliate of
Scudder Kemper, 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.
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. 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. 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
Commissions Retained Commissions Underwriter to Kemper
Class A Shares Fiscal Year Ended by Underwriter Paid to All Firms Affiliated Firms
- -------------- ----------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Municipal Fund 9/30/98 To be updated
9/30/97 $293,000 $1,580,000 $ 8,000
9/30/96 $351,000 $1,950,000 $142,000
Intermediate
Municipal Fund 9/30/98 To be updated
9/30/97 $ 6,000 $ 47,000 $ 0
9/30/96 $ 9,000 $ 53,000 $ 2,000
California Fund 8/31/98 To be updated
8/31/97 $129,000 $ 813,000 $ 0
8/31/96 $138,000 $ 924,000 $ 36,000
Florida Fund 8/31/98 To be updated
8/31/97 $ 22,000 $ 104,000 $ 0
8/31/96 $ 21,000 $ 81,000 $ 3,000
Ohio Fund 8/31/98 To be updated
8/31/97 $ 11,000 $ 77,000 $ 0
8/31/96 $ 9,000 $ 84,000 $ 0
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Commissions Paid
Commissions Retained Commissions Underwriter to Kemper
Class A Shares Fiscal Year Ended by Underwriter Paid to All Firms Affiliated Firms
- -------------- ----------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C>
New York Fund 8/31/98 To be updated
8/31/97 $ 42,000 $ 219,000 $ 0
8/31/96 $ 45,000 $ 248,000 $ 14,000
</TABLE>
Class B and C Shares. Each Fund has adopted a plan under Rule 12b-1 (the "Rule
12b-1 Plan") that provides for fees payable as an expense of the Class B shares
and Class C shares that are used by KDI to pay for distribution and services for
those classes. Because 12b-1 fees are paid out of fund assets on an ongoing
basis they will, over time, increase the cost of an investment and cost more
than other types of sales charges.
Expenses of the Funds and of KDI 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.
36
<PAGE>
<TABLE>
<CAPTION>
Other Distribution Expenses Paid by KDI
---------------------------------------
Distribution Contingent Total Commissions
Fees Paid Deferred Commissions Paid By Advertising Marketing Misc.
Class B Fiscal by Fund Sales Paid by KDI KDI to KDI and Prospectus and Sales Operating Interest
Shares Year to KDI Charges to Firms Affiliated Literature Printing Expenses Expenses Expenses
- ------ ---- ------ Paid to KDI -------- Firms ---------- -------- -------- -------- --------
----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal 1998 To Be
Fund updated
Intermediate 1998
Municipal
Fund
California 1998
Fund
Florida Fund 1998
New York 1998
Fund
Ohio Fund 1998
<CAPTION>
Other Distribution Expenses Paid by KDI
---------------------------------------
Distribution Contingent Total Commissions
Fees Paid Deferred Commissions Paid By Advertising Marketing Misc.
Class B Fiscal by Fund Sales Paid by KDI KDI to KDI and Prospectus and Sales Operating Interest
Shares Year to KDI Charges to Firms Affiliated Literature Printing Expenses Expenses Expenses
- ------ ---- ------ Paid to KDI -------- Firms ---------- -------- -------- -------- --------
----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal 1997 $391,000 $88,000 $637,000 $ 0 $108,000 $8,000 $271,000 $39,000 $248,000
Fund
Intermediate 1997 $ 32,000 $17,000 $ 25,000 $ 0 $ 6,000 $ 0 $ 14,000 $13,000 $ 26,000
Municipal
Fund
California 1997 $166,000 $46,000 $367,000 $ 0 $ 60,000 $4,000 $150,000 $26,000 $120,000
Fund
Florida Fund 1997 $ 27,000 $ 5,000 $ 64,000 $ 0 $ 7,000 $ 0 $ 18,000 $12,000 $ 20,000
New York 1997 $ 67,000 $ 9,000 $118,000 $ 0 $ 21,000 $2,000 $ 53,000 $16,000 $ 47,000
Fund
Ohio Fund 1997 $ 63,000 $28,000 $111,000 $ 0 $ 18,000 $1,000 $ 44,000 $20,000 $ 48,000
<CAPTION>
Other Distribution Expenses Paid by KDI
---------------------------------------
Distribution Contingent Total Commissions
Fees Paid Deferred Commissions Paid By Advertising Marketing Misc.
Class B Fiscal by Fund Sales Paid by KDI KDI to KDI and Prospectus and Sales Operating Interest
Shares Year to KDI Charges to Firms Affiliated Literature Printing Expenses Expenses Expenses
- ------ ---- ------ Paid to KDI -------- Firms ---------- -------- -------- -------- --------
----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal 1996 $ 285,000 $92,000 $727,000 $34,000 $179,000 $13,000 $384,000 $48,000 $171,000
Fund
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Other Distribution Expenses Paid by KDI
---------------------------------------
Distribution Contingent Total Commissions
Fees Paid Deferred Commissions Paid By Advertising Marketing Misc.
Class B Fiscal by Fund Sales Paid by KDI KDI to KDI and Prospectus and Sales Operating Interest
Shares Year to KDI Charges to Firms Affiliated Literature Printing Expenses Expenses Expenses
- ------ ---- ------ Paid to KDI -------- Firms ---------- -------- -------- -------- --------
----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate 1996 $ 27,000 $ 4,000 $ 81,000 $ 1,000 $ 21,000 $ 2,000 $ 42,000 $19,000 $ 19,000
Municipal
Fund
California 1996 $ 109,000 $69,000 $320,000 $29,000 $ 74,000 $ 5,000 $165,000 $47,000 $ 76,000
Fund
Florida Fund 1996 $ 21,000 $ 5,000 $ 37,000 $ 0 $ 9,000 $ 1,000 $ 20,000 $18,000 $ 15,000
New York 1996 $ 41,000 $20,000 $144,000 $69,000 $ 36,000 $ 3,000 $ 77,000 $19,000 $ 28,000
Fund
Ohio Fund 1996 $ 48,000 $16,000 $105,000 $ 0 $ 29,000 $ 2,000 $ 64,000 $27,000 $ 35,000
<CAPTION>
Other Distribution Expenses Paid by KDI
---------------------------------------
Distribution Total
Fees Paid Contingent Distribution Distribution Advertising Marketing Misc.
Class C Fiscal by Fund Deferred Fees Paid Fees Paid By and Prospectus and Sales Operating Interest
Shares Year to KDI Sales by KDI KDI to KDI Literature Printing Expenses Expenses Expenses
- ------ ---- ------ Charges to Firms Affiliated ---------- -------- -------- -------- --------
Paid to KDI -------- Firms
----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal 1998 To be
Fund updated
Intermediate 1998
Municipal
Fund
California 1998
Fund
Florida Fund 1998
New York 1998
Fund
Ohio Fund 1998
<CAPTION>
Other Distribution Expenses Paid by KDI
---------------------------------------
Total
Distribution Contingent Distribution Distribution
Fees Paid Deferred Fees Paid Fees Paid By Advertising Marketing Misc.
Class C Fiscal by Fund Sales by KDI KDI to KDI and Prospectus and Sales Operating Interest
Shares Year to KDI Charges to Firms Affiliated Literature Printing Expenses Expenses Expenses
- ------ ---- ------ Paid to KDI -------- Firms ---------- -------- -------- -------- --------
----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal 1997 $35,000 $2,000 $35,000 $ 0 $16,000 $1,000 $40,000 $14,000 $17,000
Fund
Intermediate 1997 $ 6,000 $2,000 $ 6,000 $ 0 $ 4,000 $ 0 $ 9,000 $13,000 $ 4,000
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Other Distribution Expenses Paid by KDI
---------------------------------------
Total
Distribution Contingent Distribution Distribution
Fees Paid Deferred Fees Paid Fees Paid By Advertising Marketing Misc.
Class C Fiscal by Fund Sales by KDI KDI to KDI and Prospectus and Sales Operating Interest
Shares Year to KDI Charges to Firms Affiliated Literature Printing Expenses Expenses Expenses
- ------ ---- ------ Paid to KDI -------- Firms ---------- -------- -------- -------- --------
----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal
Fund
California 1997 $10,000 $ 0 $ 9,000 $ 0 $ 5,000 $ 0 $12,000 $11,000 $ 5,000
Fund
Florida Fund 1997 $ 3,000 $ 0 $ 3,000 $ 0 $ 2,000 $ 0 $ 6,000 $10,000 $ 2,000
New York 1997 $16,000 $ 0 $20,000 $ 0 $10,000 $1,000 $26,000 $13,000 $ 7,000
Fund
Ohio Fund 1997 $ 3,000 $1,000 $ 4,000 $ 0 $ 1,000 $ 0 $ 4,000 $ 6,000 $ 2,000
<CAPTION>
Other Distribution Expenses Paid by KDI
---------------------------------------
Total
Distribution Contingent Distribution Distribution
Fees Paid Deferred Fees Paid Fees Paid By Advertising Marketing Misc.
Class C Fiscal by Fund Sales by KDI KDI to KDI and Prospectus and Sales Operating Interest
Shares Year to KDI Charges to Firms Affiliated Literature Printing Expenses Expenses Expenses
- ------ ---- ------ Paid to KDI -------- Firms ---------- -------- -------- -------- --------
----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal 1996 $20,000 $1,000 $34,000 $1,000 $26,000 $2,000 $42,000 $11,000 $9,000
Fund
Intermediate 1996 $ 6,000 0 $ 1,000 $ 0 $ 4,000 $ 0 $ 8,000 $12,000 $2,000
Municipal
Fund
California 1996 $ 4,000 0 $ 7,000 $1,000 $ 6,000 $ 0 $14,000 $ 2,000 $2,000
Fund
Florida Fund 1996 $ 1,000 0 $ 2,000 $ 0 $ 1,000 $ 0 $ 2,000 $ 1,000 $1,000
New York 1996 $ 6,000 0 $ 8,000 $ 0 $ 9,000 $1,000 $20,000 $ 2,000 $3,000
Fund
Ohio Fund 1996 $ 2,000 0 $ 1,000 $ 0 $ 1,000 $ 0 $ 3,000 $ 2,000 $1,000
</TABLE>
- ----------
* From 11/1/94 to 9/30/95.
** From 3/15/95 to 8/31/95.
39
<PAGE>
Rule 12b-1 Plan. Each Fund has adopted a plan under Rule 12b-1 (the "Rule 12b-1
Plan") that provides for fees payable as an expense of the Class B shares and
Class C shares that are used by KDI to pay for distribution and services for
those classes. Because 12b-1 fees are paid out of fund assets on an ongoing
basis they will, over time, increase the cost of an investment and cost more
than other types of sales charges. The table below shows amounts paid in
connection with each Fund's then existing Rule 12b-1 Plan during its 1997 fiscal
year.
<TABLE>
<CAPTION>
Distribution Distribution Contingent Deferred
Expenses Incurred Paid by Fund Sales Charges Paid
by Underwriter to Underwriter to Underwriter
-------------- -------------- --------------
Fund Class B Class C Class B Class C Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Municipal To be updated
Intermediate Municipal
California
Florida
New York
Ohio
</TABLE>
If a Rule 12b-1 Plan (the "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 for its expenses incurred.
For its services under the distribution agreement, KDI receives a fee from each
Trust, payable monthly, at the annual rate of 0.75% of average daily net assets
of each Fund attributable to Class B shares. This fee is accrued daily as an
expense of Class B shares. KDI also receives any contingent deferred sales
charges. See "Purchase, Repurchase and Redemption 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%.
For its services under the distribution agreement, KDI receives a fee from each
Trust pursuant to the Rule 12b-1 Plan, payable monthly, at the annual rate of
0.75% of average daily net assets of each Fund attributable to Class C shares.
This fee is accrued daily as an expense of Class C shares. KDI currently
advances to firms the first year distribution fee at a rate of 0.75% of the
purchase price of Class C shares. For periods after the first year, KDI
currently pays firms for sales of Class C shares a distribution fee, payable
quarterly, at an annual rate of 0.75% of net assets attributable to Class C
shares maintained and serviced by the firm and the fee continues until
terminated by KDI or a Trust. KDI also receives any contingent deferred sales
charges. See "Purchase, Repurchase and Redemption of Shares Contingent Deferred
Sales Charges Class C Shares".
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 Scudder Kemper and the Trust, including the
payment of service fees. For the services under the administrative agreement,
each Fund pays KDI an administrative services fee, payable monthly, at the
annual rate of up to 0.25% of average daily net assets of each class of the
Fund.
KDI enters into related arrangements with various broker-dealer firms and other
service or administrative firms ("firms"), that provide services and facilities
for their customers or clients who are investors 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 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 administrative 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, normally payable quarterly, at
an annual rate of (a) up to 0.10% 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 0.25% 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 and Class C shares, KDI currently advances to firms the
first-year service fee at a rate of up to 0.25% of the purchase price of such
shares. For periods after the first year, KDI currently intends to pay firms a
service fee at an annual rate of up to 0.25% (calculated monthly and normally
paid quarterly) of the net assets attributable to Class B and Class C shares
maintained and serviced by the firm and the fee continues until terminated by
KDI or the Trust. Firms to which service fees may be paid include
40
<PAGE>
broker-dealers affiliated with KDI. The administrative services fee may be
increased to an annual rate of 0.25% 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 for the fiscal years ended 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Service Fees Paid
Total Service Fees Paid by Administrator
Administrative by Administrator to Kemper
Service Fees Paid by Fund to Firms Affiliated Firms
------------------------- -------- ----------------
Fiscal
Fund Year Class A Class B Class C
- ---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Municipal 1998 To be
updated
Intermediate
Municipal* 1998
California 1998
Florida 1998
New York 1998
Ohio 1998
<CAPTION>
Service Fees Paid
Total Service Fees Paid by Administrator
Administrative by Administrator to Kemper
Service Fees Paid by Fund to Firms Affiliated Firms
------------------------- -------- ----------------
Fiscal
Fund Year Class A Class B Class C
- ---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Municipal 1997 $5,237,000 $130,000 $ 12,000 $5,402,000 $18,000
Intermediate
Municipal 1997 $ 37,000 $ 10,000 $ 2,000 $ 48,000 $ 0
California 1997 $1,659,000 $ 55,000 $ 4,000 $1,726,000 $ 0
Florida 1997 $ 179,000 $ 9,000 $ 1,000 $ 191,000 $ 2,000
New York 1997 $ 491,000 $ 23,000 $ 5,000 $ 522,000 $19,000
Ohio 1997 $ 60,000 $ 21,000 $ 1,000 $ 84,000 $ 0
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Service Fees Paid
Total Service Fees Paid by Administrator
Administrative by Administrator to Kemper
Service Fees Paid by Fund to Firms Affiliated Firms
------------------------- -------- ----------------
Fiscal
Fund Year Class A Class B Class C
- ---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Municipal 1996 $5,178,000 $94,000 $9,000 $5,307,000 $198,000
Intermediate
Municipal 1996 $ 31,000 $ 9,000 $1,000 $ 43,000 $ 1,000
California 1996 $1,618,000 $36,000 $1,000 $1,651,000 $ 60,000
Florida 1996 $ 189,000 $ 7,000 $ 0 $ 194,000 $ 8,000
New York 1996 $ 494,000 $14,000 $2,000 $ 510,000 $ 28,000
Ohio 1996 $ 52,000 $16,000 $1,000 $ 70,000 $ 0
</TABLE>
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 a firm provides administrative services 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
Scudder Kemper or KDI as indicated under "Officers and Trustees."
CUSTODIAN AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary Trust Company
("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105, as custodian,
and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of the 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 Scudder Kemper, serves as "Shareholder Service Agent" of each Trust
and, as such, performs all of IFTC's duties as transfer agent and dividend
paying agent. IFTC receives as transfer agent, and pays to KSvC as follows:
prior to January 1, 1999, annual account fees at a maximum rate of $8 per
account plus account set up, transaction and maintenance charges, annual fees
associated with the contingent deferred sales charge (Class B only) and
out-of-pocket expense reimbursement and effective January 1, 1999, annual
account fees of $14.00 ($23.00 for retirement accounts) plus account set up
charges, annual fees associated with the contingent deferred sales charges
(Class B shares only), an asset based fee of 0.02% and out-of-pocket expense
reimbursement. IFTC's fee is reduced by certain earnings credits in favor of
each Trust. For the National Trust for the fiscal year ended September 30, 1998,
IFTC remitted shareholder service fees in the amount of $__ to KSvC as
Shareholder Service Agent. For the State Trust for the fiscal year ended August
31, 1998, IFTC remitted shareholder service fees in the amount of $__ 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.
LEGAL COUNSEL Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street,
Chicago, Illinois 60601, serves as legal counsel to each Fund.
42
<PAGE>
BROKERAGE COMMISSIONS
Allocation of brokerage is supervised by the Advisor.
The primary objective of the Advisor in placing orders for the purchase and sale
of securities for a Fund is to obtain the most favorable net results, taking
into account such factors as price, commission where applicable, size of order,
difficulty of execution and skill required of the executing broker/dealer. The
Advisor seeks to evaluate the overall reasonableness of brokerage commissions
paid (to the extent applicable) through the familiarity of the Distributor with
commissions charged on comparable transactions, as well as by comparing
commissions paid by a Fund to reported commissions paid by others. The Advisor
reviews on a routine basis commission rates, execution and settlement services
performed, making internal and external comparisons.
The Funds' purchases and sales of fixed income securities are generally placed
by the Advisor with primary market makers for these securities on a net basis,
without any brokerage commission being paid by a Fund. Trading does, however,
involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Advisor's practice to place such orders with
broker/dealers who supply research, market and statistical information to a
Fund. The term "research and market statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchases or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Advisor is authorized when placing portfolio transactions for a Fund to pay
a brokerage commission in excess of that which another broker might charge for
executing the same transaction on account of execution services and the receipt
of research, market or statistical information. The Advisor may place orders
with broker/dealers on the basis that the broker/dealer has or has not sold
shares of a Fund. In effecting transactions in over-the-counter securities,
orders are placed with the principal market makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available elsewhere.
To the maximum extent feasible, it is expected that the Advisor will place
orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker/dealer and a subsidiary of the Advisor, the
Distributor will place orders on behalf of the Funds with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Funds for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to a Fund and to the Advisor, it is the opinion of
the Advisor that such information only supplements the Advisor's own research
effort since the information must still be analyzed, weighed, and reviewed by
the Advisor's staff. Such information may be useful to the Advisor in providing
services to clients other than a Fund, and not all such information is used by
the Advisor in connection with a Fund. Conversely, such information provided to
the Advisor by broker/dealers through whom other clients of the Advisor effect
securities transactions may be useful to the Advisor in providing services to a
Fund.
The Trustees review from time to time whether the recapture for the benefit of a
Fund of some portion of the brokerage commissions or similar fees paid by a Fund
on portfolio transactions is legally permissible and advisable.
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.
43
<PAGE>
Allocated to
Firms Based on
Research in
Fund Fiscal 1998 Fiscal 1998 Fiscal 1997 Fiscal 1996
- ---- ----------- ----------- ----------- -----------
Municipal To be updated $5,069,000 4,987,000
Intermediate $ 32,000 37,000
California $1,463,000 1,430,000
Florida $ 204,000 269,000
New York $ 594,000 546,000
Ohio $ 48,000 79,000
PURCHASE, REPURCHASE AND REDEMPTION OF SHARES
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 sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. 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. When
placing purchase orders, investors must specify whether the order is for Class
A, Class B, Class C or Class I 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. Each
class has distinct advantages and disadvantages for different investors, and
investors may choose the class that best suits their circumstances and
objectives.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average daily
Sales Charge net assets) Other Information
------------ ----------- -----------------
<S> <C> <C> <C>
Class A Maximum initial sales None Initial sales charge
charge of 4.5% (2.75% waived or reduced for
Intermediate Municipal certain purchases
Fund only) of the public
offering price
Class B Maximum contingent deferred 0.75% Shares convert to Class
sales charge of 4% of A shares six years
redemption proceeds; after issuance
declines to zero after
six years
Class C Contingent deferred sales 0.75% No conversion feature
charge of 1% of redemption
proceeds for redemptions
made during first year
after purchase
Class I None None
</TABLE>
- --------------------------------------------------------------------------------
44
<PAGE>
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 of Kansas City, N.A., 10th and
Grand Avenue, Kansas City, Missouri 64106.
Share certificates are issued only on request to the Fund and may not be
available for certain types of accounts. 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 Percentage
As a Percentage Percentage of
of Offering Net 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** ***
</TABLE>
* 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.
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 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.
45
<PAGE>
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 two years of shares purchased under the Large Order NAV
Purchase Privilege may be subject to a contingent deferred sales charge. See
"Purchase, Repurchase and Redemption 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: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and .25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer sponsored
employee benefit plans using the subaccount record keeping system made available
through KSvC. For purposes of determining the appropriate commission percentage
to be applied to a particular sale, 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. No compensation will be paid pursuant to
this paragraph with respect to plans within the KemStar(TM) program. 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 (including the purchase of Class A shares
of the Cash Reserves Fund).
Effective on February 1, 1996, Class A shares of a Fund or any other Kemper
Mutual Fund listed under "Special Features -- Class A Shares Combined Purchases"
may be purchased at net asset value in any amount by members of the plaintiff
class in the proceeding known as Howard and Audrey Tabankin, et al. v. Kemper
Short-Term Global Income Fund, et al., Case No. 93 C 5231 (N.D. IL). This
privilege is generally non-transferable and continues for the lifetime of
individual class members and for a ten year period for non-individual class
members. To make a purchase at net asset value under this privilege, the
investor must, at the time of purchase, submit a written request that the
purchase be processed at net asset value pursuant to this privilege specifically
identifying the purchaser as a member of the "Tabankin Class." Shares purchased
under this privilege will be maintained in a separate account that includes only
shares purchased under this privilege. For more details concerning this
privilege, class members should refer to the Notice of (1) Proposed Settlement
with Defendants; and (2) Hearing to Determine Fairness of Proposed Settlement,
dated August 31, 1995, issued in connection with the aforementioned court
proceeding. For sales of Fund shares at net asset value pursuant to this
privilege, KDI may at its discretion pay investment dealers and other financial
services firms a concession, payable quarterly, at an annual rate of up to .25%
of net assets attributable to such shares maintained and serviced by the firm. A
firm becomes eligible for the concession based upon assets in accounts
attributable to shares purchased under this privilege in the month after the
month of purchase and the concession continues until terminated by KDI. The
privilege of purchasing Class A shares of a Fund at net asset value under this
privilege is not available if another net asset value purchase privilege also
applies.
Class A shares of the Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of .50% of the
amount of Class A shares purchased.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, directors, employees (including retirees) and sales representatives of
each Trust, its investment manager, its principal underwriter or certain
affiliated companies, for themselves or members of their families; (b)
registered representatives and employees of broker-dealers having selling group
agreements with KDI and officers, directors and employees of service agents of
the Trusts, for themselves or their spouses or dependent children; (c)
shareholders who owned shares of Kemper Value Series, Inc. ("KVF") on September
8, 1995, and have continuously owned shares of KVF (or a Kemper Fund acquired by
exchange of KVF shares) since that date, for themselves or members of their
families, and (d) any trust or pension, profit sharing or other benefit plan for
only such persons. Class A shares may be sold at net asset value in any amount
to selected employees (including their spouses and dependent children) of banks
and other financial services firms that provide administrative services related
to order placement and payment to facilitate transactions in shares of each Fund
for their clients pursuant to an agreement with KDI or
46
<PAGE>
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
sponsored by Ranson & Associates, Inc. In addition, unitholders of unit
investment trusts sponsored by Ranson & Associates, Inc. or its predecessors may
purchase Fund Class A shares at net asset value through reinvestment programs
described in the prospectuses of such trusts that have such programs. Class A
shares of a Fund may be sold at net asset value through certain investment
advisers registered under the Investment Advisers Act of 1940 and other
financial services firms that adhere to certain standards established by KDI,
including a requirement that such shares be sold for the benefit of their
clients participating in an investment advisory program under which such clients
pay a fee to the investment adviser or other firm for portfolio management and
other services. 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.
Class A shares of the Fund may be purchased at net asset value by persons who
purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm.
Class A shares of the Fund may be purchased at net asset value by persons who
purchase shares of the Fund through KDI as part of an automated billing and wage
deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups.
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 "Purchase, Repurchase and Redemption 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 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 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. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Purchase, Repurchase or Redemption of Shares -- Contingent Deferred Sales
Charge -- Class C Shares." KDI currently advances to firms the first year
distribution fee at a rate of 0.75% of the purchase price of such shares. For
periods after the first year, KDI currently intends to pay firms for sales of
Class C shares a distribution fee, payable quarterly, at an annual rate of 0.75%
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."
47
<PAGE>
PURCHASE OF CLASS I SHARES. Class I shares are offered for the Municipal Fund
and the Intermediate Municipal Fund 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 administration 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 value, will typically be higher for Class I
shares than for Class A, Class B, or Class C shares.
Class I shares are available for purchase exclusively by the following
categories of institutional investors: (1) tax-exempt retirement plans (Profit
Sharing, 401(k), Money Purchase Pension and Defined Benefit Plans) of Scudder
Kemper Investments, Inc. ("Scudder Kemper") and its affiliates and rollover
accounts from those plans; (2) the following investment advisory clients of
Scudder Kemper and its investment advisory affiliates that invest at least $1
million in a Fund: unaffiliated benefit plans, such as qualified retirement
plans (other than individual retirement accounts and self-directed retirement
plans); unaffiliated banks and insurance companies purchasing for their own
accounts; and endowment funds of unaffiliated non-profit organizations; (3)
investment-only accounts for large qualified plans, with at least $50 million in
total plan assets or at least 1000 participants; (4) trust and fiduciary
accounts of trust companies and bank trust departments providing fee based
advisory services that invest at least $1 million in a Fund on behalf of each
trust; (5) policy holders under Zurich-American Insurance Group's collateral
investment program investing at least $200,000 in a Fund; and (6) investment
companies managed by Scudder Kemper that invest primarily in other investment
companies. Class I shares currently are available for purchase only from Kemper
Distributors, Inc. ("KDI"), principal underwriter for the Funds, and, in the
case of category 4 above, selected dealers authorized by KDI. Share certificates
are not available for Class I shares.
Generally, as described herein, 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. 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 herein.
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 or Class C shares by certain classes of persons or
through certain types of transactions are 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.
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.
The Funds have authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than Kemper Distributors, Inc. ("KDI")
to accept purchase and redemption orders for the Fund's shares. Those brokers
may also designate other parties to accept purchase and redemption orders on a
Fund's behalf. Orders for purchase or redemption will be deemed to have been
received by a Fund when such brokers or their authorized designees accept the
orders. Subject to the terms of the contract between a Fund and the broker,
ordinarily orders will be priced as the Fund's net asset value next computed
after acceptance by such brokers or their authorized designees. Further, if
purchases or redemptions of the Funds' shares are arranged and settlement is
made at an investor's election through any other authorized NASD member, that
48
<PAGE>
member may, at its discretion, charge a fee for that service. The Board of each
Fund and KDI each has the right to limit the amount of purchases by, and to
refuse to sell to, any person. The Board and KDI may suspend or terminate the
offering of shares of the Funds at any time for any reason.
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 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 (i.e., purchases by check, Express-Transfer or Bank Direct
Deposit), 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 10 days from receipt by a Trust of the purchase
amount. The redemption within two years of Class A shares purchased at net asset
value under the Large Order NAV Purchase Privilege may be subject to a
contingent deferred sales charge (see "Purchase of Shares Initial Sales Charge
Alternative-Class A Shares") and the redemption of Class B shares within six
years may be subject to a contingent deferred sales charge (see "Contingent
Deferred Sales Charge-Class B Shares" above), and the redemption of Class C
Shares within the first year following purchase may be subject to a contingent
deferred sales charge (See "Contingent Deferred Sales Charge-Class C Shares"
below).
Because of the high cost of maintaining small accounts, a Fund may assess a
quarterly fee of $9 on an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. A Trust or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Trust or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The shareholder will bear the risk of loss,
including loss resulting from fraudulent or unauthorized transactions, as long
as the reasonable verification procedures are followed. 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) 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 guardian and custodial account
holders, provided the trustee, executor guardian or custodian is named in the
account registration. Other institutional account holders may exercise this
special privilege of redeeming shares by telephone request or written request
without signature guarantee subject to the same conditions as individual account
holders and subject to the limitations on liability described under "General"
above, provided that this privilege has been pre-authorized by the institutional
account holder or guardian
49
<PAGE>
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 10 days. This privilege of
redeeming 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 Scudder Kemper 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
10 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
wire or wire transfer or this 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 may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and .50% if they
are redeemed during the second year after 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); (c) redemptions under a Fund's Systematic Withdrawal
Plan at a maximum of 10% per year of the net asset value of the account; and (d)
redemptions of shares whose dealer of record at the time of the investment
notifies KDI that the dealer waives the discretionary commission applicable to
such Large Order NAV Purchase.
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.
- -------------------------------------------------------------------------
Year of Redemption After Contingent Deferred
Purchase Sales Charge
- -------------------------------------------------------------------------
50
<PAGE>
- -------------------------------------------------------------------------
First 4%
- -------------------------------------------------------------------------
Second 3%
- -------------------------------------------------------------------------
Third 3%
- -------------------------------------------------------------------------
Fourth 2%
- -------------------------------------------------------------------------
Fifth 2%
- -------------------------------------------------------------------------
Sixth 1%
- -------------------------------------------------------------------------
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:
Contingent Deferred Sales Charge
Shares Purchased Shares Purchased on or after
Year of Redemption on or after February 1, 1991 and
After Purchase March 1, 1993 Before March 1, 1993
First 4% 3%
Second 3% 3%
Third 3% 2%
Fourth 2% 2%
Fifth 2% 1%
Sixth 1% 1%
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner) and (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features-Systematic Withdrawal Plan" below).
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares 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: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner) and (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special
Features-Systematic Withdrawal Plan").
CONTINGENT DEFERRED SALES CHARGE--GENERAL. 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 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
December, 1998 will be eligible for the second year's charge if redeemed on or
after December 1, 1999. In the event no specific order is requested when
redeeming shares subject to a contingent deferred sales charge, the redemption
will be made first from shares representing reinvested dividends and then from
the earliest purchase of shares. KDI receives any contingent deferred sales
charge directly.
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" (other than shares of Kemper Cash
51
<PAGE>
Reserves Fund purchased directly at net asset value) 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--Initial Sales Charge Alternative--Class A Shares") or
Class B shares or Class C 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, Class B shares or Class C 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 Mutual 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 Fund's shares, the reinvestment in the
same Fund may be subject to the "wash sale" rules if made within 30 days of the
redemption, resulting in a postponement of the recognition of such loss for
federal income tax purposes. The reinvestment privilege may be terminated or
modified at any time.
SPECIAL FEATURES
CLASS A SHARES--COMBINED PURCHASES. 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 Adjustable
Rate U.S. Government Fund, Kemper Aggressive Growth Fund, Kemper Asian Growth
Fund, Kemper Blue Chip Fund, Kemper California Tax-Free Income Fund, Kemper Cash
Reserves Fund, Kemper Contrarian Fund, Kemper Diversified Income Fund, Kemper
Emerging Markets Growth Fund, Kemper Emerging Markets Income Fund, Kemper Europe
Fund, Kemper Florida Tax-Free Income Fund, Kemper Global Blue Chip Fund, Kemper
Global Income Fund, Kemper Growth Fund, Kemper High Yield Fund, Kemper High
Yield Opportunity, Kemper Horizon 10+ Portfolio, Kemper Horizon 20+ Portfolio,
Kemper Horizon 5 Portfolio, Kemper Income And Capital Preservation Fund, Kemper
Intermediate Municipal Bond, Kemper International Fund, Kemper International
Growth and Income Fund, Kemper Large Company Growth Fund (currently available
only to employees of Scudder Kemper Investments, Inc.; not available in all
states), Kemper Latin America Fund, Kemper Municipal Bond Fund, Kemper New York
Tax-Free Income Fund, Kemper Ohio Tax-Free Income Fund, Kemper Quantitative
Equity Fund, Kemper Research Fund (currently available only to employees of
Scudder Kemper Investments, Inc.; not available in all states), Kemper
Retirement Fund -- Series I, Kemper Retirement Fund -- Series II, Kemper
Retirement Fund -- Series III, Kemper Retirement Fund -- Series IV, Kemper
Retirement Fund -- Series V, Kemper Retirement Fund -- Series VI, Kemper
Retirement Fund -- Series VII, Kemper Short-Intermediate Government Fund, Kemper
Small Cap Value Fund, Kemper Small Cap Value+Growth Fund (currently available
only to employees of Scudder Kemper Investments, Inc.; not available in all
states), Kemper Small Capitalization Equity Fund, Kemper Small Cap Relative
Value Fund, Kemper Technology Fund, Kemper Total Return Fund, Kemper U.S.
Government Securities Fund, Kemper U.S. Growth and Income Fund, Kemper U.S.
Mortgage Fund, Kemper Value+Growth Fund, Kemper Worldwide 2004 Fund,
Kemper-Dreman High Return Equity Fund, Kemper-Dreman Financial Services Fund
("Kemper Mutual Funds"). Except as noted below, there is no combined purchase
credit for direct purchases of shares of Zurich Money Funds, Cash Equivalent
Fund, Tax-Exempt California Money Market Fund, Cash Account Trust, Investors
Municipal Cash 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
the Shareholder Service Agent or its affiliates 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.
52
<PAGE>
CLASS A SHARES--LETTER OF INTENT. The same reduced sales charges for Class A
shares, as above, also apply to the aggregate amount of purchases of such Kemper
Mutual Funds listed above made by any purchaser within a 24-month period under a
written Letter of Intent ("Letter") provided by KDI. The Letter, which imposes
no obligation to purchase or sell additional Class A shares, provides for a
price adjustment depending upon the actual amount purchased within such period.
The Letter provides that the first purchase following execution of the Letter
must be at least 5% of the amount of the intended purchase, and that 5% of the
amount of the intended purchase normally will be held in escrow in the form of
shares pending completion of the intended purchase. If the total investments
under the Letter are less than the intended amount and thereby qualify only for
a higher sales charge than actually paid, the appropriate number of escrowed
shares are redeemed and the proceeds used toward satisfaction of the obligation
to pay the increased sales charge. The Letter for an employer sponsored employee
benefit plan maintained on the subaccount record keeping system available
through 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 and the Kemper Cash Reserves Fund that were
acquired by purchase (not including shares acquired by dividend reinvestment)
are subject to the applicable sales charge on exchange. Series of Kemper Target
Equity Fund are available on exchange only during the Offering Period for such
series as described in the applicable prospectus. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Investors Municipal
Cash Fund and Investors Cash Trust are available on exchange but only through a
financial services firm having a services agreement with KDI.
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 Class B 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. Class C
shares may be exchanged without a contingent deferred sales charge being imposed
at the time of exchange. For determining whether there is a contingent deferred
sales charge that may be imposed upon the redemption of the Class C shares
received by exchange, they retain the cost and purchase date of the shares that
were originally purchased and exchanged.
General. Shares of a Kemper Mutual Fund with a value in excess of $1,000,000
(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 "15-Day Hold Policy"). For purposes of
determining whether the 15-Day Hold Policy applies to a particular exchange, the
value of the shares to be exchanged shall be computed by aggregating the value
of
53
<PAGE>
shares being exchanged for all accounts under common control, direction or
advice, including without limitation accounts administered by a financial
services firm offering market timing, asset allocation or similar services. 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 Service Company,
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 "Purchase, Repurchase and Redemption 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.
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 Investors Municipal Cash Fund
is available for sale only in certain states.
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 other
Kemper Fund. Exchanges are subject to the terms and conditions described above
under "Exchange Privilege," except that the $1,000 minimum investment
requirement for the Kemper Fund acquired on exchange is not applicable.
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 $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in a Fund. Shareholders can also redeem shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such shares have been owned for at least 10 days. 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 "Purchase, Repurchase and Redemption 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,
investments are made automatically (minimum $50, maximum $50,000) 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 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.
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<PAGE>
(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 (and
Class A shares purchased under the Large Order NAV Purchase Privilege and Class
C shares in their first year following the purchase) 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 A shares purchased under the Large Order NAV Purchase Privilege, Class
B and Class C 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.
ADDITIONAL TRANSACTION INFORMATION
GENERAL. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of a Fund for their clients, and KDI may pay them a transaction fee up to
the level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. 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, to firms that sell shares of a Fund. 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 KDI of the
order accompanied by payment. However, orders received by dealers or other
financial services firms prior to the determination of net asset value (see "Net
Asset Value") and received by KDI prior to the close of its business day will be
confirmed at a price based on the net asset value of such Fund effective on that
day ("trade date"). 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.
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
55
<PAGE>
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.
The Trusts reserve the right to withdraw all or any part of the offering made
herein 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 Statement of Additional Information.
OFFICERS AND TRUSTEES
The officers and trustees of the Trusts, their birthdates, their principal
occupations and their affiliations, if any, with Scudder Kemper, the Trusts'
investment manager and KDI, the Trusts' principal underwriter, are as follows:
DAVID W. BELIN (6/20/28), Trustee, 2000 Financial Center, 7th and Walnut, Des
Moines, Iowa; Member, Belin Lamson McCormick Zumbach Flynn, P.C. (attorneys).
LEWIS A. BURNHAM (1/8/33), Trustee, 16410 Avila Boulevard, Tampa, Florida;
Retired; formerly, Partner, Business Resources Group; formerly, Executive Vice
President, Anchor Glass Container Corporation.
DONALD L. DUNAWAY (3/8/37), Trustee, 7515 Pelican Bay Boulevard, Naples,
Florida; Retired; formerly, Executive Vice President, A.O. Smith Corporation
(diversified manufacturer).
ROBERT B. HOFFMAN (12/11/36), Trustee, 800 North Lindbergh Boulevard, St. Louis,
Missouri; Vice Chairman and Chief Financial Officer, Monsanto Company
(agricultural, pharmaceutical and nutritional/food products); formerly, Vice
President, Head of International Operations, FMC Corporation (manufacturer of
machinery and chemicals).
DONALD R. JONES (1/17/30), Trustee, 182 Old Wick Lane, Inverness, Illinois;
Retired; Director, Motorola, Inc. (manufacturer of electronic equipment and
components); formerly, Executive Vice President and Chief Financial Officer,
Motorola, Inc.
SHIRLEY D. PETERSON (9/3/41), Trustee, 401 Rosemont Avenue, Frederick, Maryland;
President, Hood College; formerly, Partner, Steptoe & Johnson (attorneys); prior
thereto, Commissioner, Internal Revenue Service; prior thereto, Assistant
Attorney General, U.S. Department of Justice; Director, Bethlehem Steel Corp.
DANIEL PIERCE (3/18/34), Chairman, Trustee*, Two International Place, Boston,
Massachusetts; Managing Director, Adviser.
WILLIAM P. SOMMERS (7/22/33), Trustee, 333 Ravenswood Avenue, Menlo Park,
California; President and Chief Executive Officer, SRI International (research
and development); formerly, 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.
THOMAS W. LITTAUER (4/26/55), Trustee and Vice President*, Two International
Place, Boston, Massachusetts; Managing Director, Adviser; formerly, Head of
Broker Dealer Division of an unaffiliated investment management firm during
1997; prior thereto, President of Client Management Services of an unaffiliated
investment management firm from 1991 to 1996.
MARK S. CASADY (9/21/60), President*, 345 Park Avenue, New York, New York;
Managing Director, Adviser; formerly, Institutional Sales Manager of an
unaffiliated mutual fund distributor.
PHILIP J. COLLORA (11/15/45), Vice President and Secretary*, 222 South Riverside
Plaza, Chicago, Illinois; Senior Vice President and Assistant Secretary,
Adviser.
ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York;
Managing Director, Adviser.
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<PAGE>
ROBERT C. PECK, JR. (10/1/46), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Adviser; formerly, Executive Vice
President and Chief Investment Officer with an unaffiliated investment
management firm from 1988 to June 1997.
KATHRYN L. QUIRK (12/3/52), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Adviser.
LINDA J. WONDRACK (9/12/64), Vice President*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser.
JOHN R. HEBBLE (6/27/58), Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser.
BRENDA LYONS (2/21/63), Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser.
CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Senior Vice President, Adviser; formerly, Associate,
Dechert Price & Rhoads (law firm) 1989 to 1997.
MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Adviser; formerly, Assistant Vice
President of an unaffiliated investment management firm; prior thereto,
Associate Staff Attorney of an unaffiliated investment management firm;
Associate, Peabody & Arnold (law firm).
ELIZABETH C. WERTH (10/1/47), Assistant Secretary*, 222 South Riverside Plaza,
Chicago, Illinois; Vice President, Adviser and KDI.
Kemper National Tax-Free Income Series:
CHRISTOPHER J. MIER (8/11/56), Vice President, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Adviser.
ASHTON P. GOODFIELD (10/3/63), Vice President, Two International Place, Boston,
Massachusetts; Vice President, Adviser.
Kemper State Tax-Free Income Series:
CHRISTOPHER J. MIER, see above.
ELEANOR R. BRENNAN, (__),Vice President, Two International Place, Boston,
Massachusetts; Vice President, Adviser.
PHILIP G. CONDON, (8/15/50), Vice President, Two International Place, Boston,
Massachusetts; Managing Director, Adviser.
o 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. The table below shows amounts paid or
accrued to those trustees who are not designated "interested persons" during
each Trust's 1998 fiscal year except that the information in the last column is
for calendar year 1998.
<TABLE>
<CAPTION>
Aggregate
Compensation from Funds Pension or Total
----------------------- Retirement Compensation
Benefits Accrued from Trusts
Name of Trustee National Trust State Trust As Part of Fund Expenses Paid to Trustees**
- --------------- -------------- ----------- ------------------------ ------------------
<S> <C> <C> <C> <C>
David W. Belin*
Lewis A. Burnham
Donald L. Dunaway*
Robert B. Hoffman
Donald R. Jones
Shirley D. Peterson
William P. Sommers
</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 Zurich Money Funds -- Zurich Money
Market Fund. Total deferred fees and interest accrued for the latest and
all prior fiscal years are $83,100 and $55,600 for Mr. Belin and $57,200
and $40,500 for Mr. Dunaway from National and State Trusts, respectively.
57
<PAGE>
** Includes compensation for service on the boards of 24 Kemper funds with 41
fund portfolios. Each trustee currently serves as a trustee of 23 Kemper
funds with 40 fund portfolios.
As of November 30, 1998, the officers and trustees of each Trust, as a group,
owned less than 1% of the then outstanding shares of each Fund. As of November
30, 1998, no shareholder owned of record more than 5% of any class of
outstanding shares of the Funds except as follows:
Kemper California Tax Free Income Fund
--------------------------------------
Name and Address Class Percentage
- ---------------- ----- ----------
Salomon Smith Barney Inc. A 6.79
333 West 34th St.
New York, NY 10001
Everen Clearing Corp Cust A 7.15
Attn Chris Scotto
111 E Kilbourn Avenue
Milwaukee, WI 53202
National Financial Svcs Corp. B 11.78
200 Liberty Street
New York, NY 10281
Donaldson Lufkin Jenrette B 7.75
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303
MLPF&S for the Sole Benefit of ITS B 5.30
Customers
Attn Fund Administration
4800 Deer Lake Dr East 2nd Fl
Jacksonville, FL 32246
Everen Clearing Corp Cust B 8.57
Attn Chris Scotto
111 E Kilbourn Avenue
Milwaukee, WI 53202
Helena G Hale TTEE C 5.65
803 Paseo Alicante
Santa Barbara, CA 93103
Marilyn L Ginsburg-Kindler TTEE C 6.50
427 Beirut Ave
Pacific PLSDS, CA 90272
MLPF&S for the Sole Benefit of ITS C 6.05
Customers
Attn Fund Administration
4800 Deer Lake Dr East 2nd Fl
58
<PAGE>
Jacksonville, FL 32246
59
<PAGE>
Kemper Florida Tax Free Income Fund
-----------------------------------
Name and Address Class Percentage
- ---------------- ----- ----------
National Financial Svcs Corp., A 6.88
200 Liberty Street
New York, NY 10281
MLPF&S for the Sole Benefit of ITS A 8.41
Customers
Attn Fund Administration
4800 Deer Lake Dr East 2nd Fl
Jacksonville, FL 32246
National Financial Svcs Corp., B 13.60
200 Liberty Street
New York, NY 10281
Donaldson Lufkin Jenrette B 10.01
Securities Corp. Inc.
PO Box 2052
Jersey City, NJ 07303
MLPF&S for the Sole Benefit of ITS B 18.34
Customers
Attn Fund Administration
4800 Deer Lake Dr East 2nd Fl
Jacksonville, FL 32246
Albert J Thompson & Fern L Thompson JT B 5.12
WROS
526 Pendleton Dr.
Venice, FL 34292
National Financial Svcs Corp., C 11.42
200 Liberty Street
New York, NY 10281
Wexford Clearing Services Corp The C 5.84
Marilyn Milbauer Trust
Lake Worth, FL 33467
MLPF&S for the Sole Benefit of ITS C 22.38
Customers
Attn Fund Administration
4800 Deer Lake Dr East 2nd Fl
Jacksonville, FL 32246
Southwest Securities Inc FBO C 45.36
Box 509002
60
<PAGE>
Dallas, TX 75250
61
<PAGE>
Kemper New York Tax Free Income Fund
------------------------------------
Name and Address Class Percentage
- ---------------- ----- ----------
ABN AMRO Incorporation A 11.78
Attn: Mutual Fund Operations
P.O. Box 6108
Chicago, IL 60680
National Financial Svcs Corp., B 31.40
200 Liberty Street
New York, NY 10281
National Financial Svcs Corp., C 15.13
200 Liberty Street
New York, NY 10281
Painewebber C 16.50
1000 Harbor Blvd. 8Flr
Weehawken, NJ 07087
MLPF&S for the Sole Benefit of ITS C 19.98
Customers
Attn Fund Administration
4800 Deer Lake Dr East 2nd Fl
Jacksonville, FL 32246
First Albany Corporation C 7.59
30 SO Pearl Street
Albany, NY 12207
62
<PAGE>
Kemper Ohio Tax Free Income Fund
--------------------------------
Name and Address Class Percentage
- ---------------- ----- ----------
National Financial Svcs Corp., A 13.76
200 Liberty Street
New York, NY 10281
Everen Clearing Corp A 26.63
Attn: Chris Scotto
111 E Kilbourn Ave
Milwaukee, WI 53202
National Financial Svcs Corp., B 10.58
200 Liberty Street
New York, NY 10281
Salomon Smith Barney Inc. B 5.06
333 West 34th St.
New York, NY 10001
BHC Securities Inc B 44.04
One Commerce Square
2005 Market Street Suite 1200
Philadelphia, PA 19103
Everen Clearing Corp B 6.56
Attn: Chris Scotto
111 E Kilbourn Ave
Milwaukee, WI 53202
MLPF&S for the Sole Benefit of ITS C 11.35
Customers
Attn Fund Administration
4800 Deer Lake Dr East 2nd Fl
Jacksonville, FL 32246
Jay M Simpson & Valerie Stocklin JTWROS C 6.01
7825 N Dixie Suite A
Dayton, OH 45414
Everen Clearing Corp C 54.67
Attn: Chris Scotto
111 E Kilbourn Ave
Milwaukee, WI 53202
Edward D Jones & Co C 5.23
P.O. Box 2500
Maryland Hts, MO 63043
63
<PAGE>
Kemper Pennsylvania Tax Free Income Fund
----------------------------------------
Name and Address Class Percentage
- ---------------- ----- ----------
National Financial Svcs Corp., A 0.00
200 Liberty Street
New York, NY 10281
64
<PAGE>
65
<PAGE>
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." Each National Fund is an open-end,
diversified Fund.
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 State Fund is an open-end,
non-diversified Fund.
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 have different
expenses, which may affect performance, and that are available for purchase
exclusively by the following investors: (1) tax-exempt retirement plans (Profit
Sharing, 401(k), Money Purchase Pension and Defined Benefit Plans)of Scudder
Kemper and its affiliates and rollover accounts from those plans; (2) the
following investment advisory clients of Scudder Kemper and its investment
advisory affiliates that invest at least $1 million in the National Funds:
unaffiliated benefit plans, such as qualified retirement plans (other than
individual retirement accounts and self-directed retirement plans); unaffiliated
banks and insurance companies purchasing for their own accounts; and endowment
funds of unaffiliated non-profit organizations; (3) investment-only accounts for
large qualified plans, with at least $50 million in total plan assets or at
least 1,000 participants; (4) trust and fiduciary accounts of trust companies
and bank trust departments providing fee based advisory services that invest at
least $1 million in a Fund; (5) policy holders under Zurich-American Insurance
Group's collateral investment program investing at least $200,000 in a Fund; and
(6) investment companies managed by Scudder Kemper that invest primarily in
other investment companies. 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 1940 Act, such as for the election of trustees, or when
voting by class is appropriate.
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 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
66
<PAGE>
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
Scudder Kemper 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.
67
<PAGE>
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 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.
68
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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.
69
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PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits
<S> <C>
(a)(1) Amended and Restated Agreement and Declaration of Trust.
(Incorporated by Reference to Post-Effective Amendment No. 39 to
Registrant's Registration Statement Filed on Form N-1A on March 14,
1995.)
(a)(2) Written Instrument amending the Agreement and Declaration of Trust.
(Incorporated by Reference to Post-Effective Amendment No. 39 to
Registrant's Registration Statement Filed on Form N-1A on March 14,
1995.)
(b) By-laws.
(Incorporated by Reference to Post-Effective Amendment No. 40 to
Registrant's Registration Statement Filed on Form N-1A on October 30,
1995.)
(c)(1) Text of Share Certificate.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registrant's Registration Statement on Form N-1A which was filed on
March 14, 1995.)
(c)(2) Written Instrument Establishing and Designating Separate Classes of
Shares.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registrant's Registration Statement on Form N-1A which was filed on
March 14, 1995.)
(c)(3) Amended and Restated Written Instrument Establishing and Designating
Separate Classes of Shares.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registrant's Registration Statement on Form N-1A which was filed on
December 13, 1996.)
(d)(1) Investment Management Agreement between the Registrant, on behalf of
Kemper Municipal Bond Fund, and Scudder Kemper Investments, Inc., dated
December 31, 1997. Filed herein.
(d)(2) Investment Management Agreement between the Registrant, on behalf of
Kemper Intermediate Municipal Bond Fund, and Scudder Kemper
Investments, Inc., dated December 31, 1997. Filed herein.
(d)(3) Investment Management Agreement between the Registrant, on behalf of
Kemper Municipal Bond Fund, and Scudder Kemper Investments, Inc., dated
September 7, 1998. Filed herein.
(d)(4) Investment Management Agreement between the Registrant, on behalf of
Kemper Intermediate Municipal Bond Fund, and Scudder Kemper
Investments, Inc., dated September 7, 1998. Filed herein.
(e)(1) Underwriting and Distribution Services Agreement between the Registrant
and Kemper Distributors, Inc., dated December 31, 1997. Filed herein.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(e)(2) Underwriting and Distribution Services Agreement between the Registrant
and Kemper Distributors, Inc., dated August 1, 1998. Filed herein.
(e)(3) Underwriting and Distribution Services Agreement between the Registrant
and Kemper Distributors, Inc., dated September 7, 1998. Filed herein.
(e)(4) Selling Group Agreement.
(Incorporated by Reference to Post-Effective Amendment No. 39 to
Registrant's Registration Statement Filed on Form N-1A on March 14,
1995.)
(e)(5) Addendum--Selling Group Agreement.
(Incorporated by Reference to Post-Effective Amendment No. 42 to
Registrant's Registration Statement Filed on Form N-1A on December 18,
1996.)
(f) Inapplicable.
(g) Custody Agreement.
(Incorporated by Reference to Post-Effective Amendment No. 40 to
Registrant's Registration Statement Filed on Form N-1A on October 30,
1995.)
(h)(1) Agency Agreement.
(Incorporated by Reference to Post-Effective Amendment No. 39 to
Registrant's Registration Statement Filed on Form N-1A on March 14,
1995.)
(h)(2) Supplement to Agency Agreement.
(Incorporated by Reference to Post-Effective Amendment No. 42 to
Registrant's Registration Statement Filed on Form N-1A on December 18,
1996.)
(h)(3) Administrative Services Agreement.
(Incorporated by Reference to Post-Effective Amendment No. 39 to
Registrant's Registration Statement Filed on Form N-1A on March 14,
1995.)
(h)(4) Amendment to Administrative Services Agreement.
(Incorporated by Reference to Post-Effective Amendment No. 39 to
Registrant's Registration Statement Filed on Form N-1A on March 14,
1995.)
(h)(5) Assignment and Assumption Agreement.
(Incorporated by Reference to Post-Effective Amendment No. 39 to
Registrant's Registration Statement Filed on Form N-1A on March 14,
1995.)
(h)(6) Fund Accounting Services Agreement between the Registrant, on behalf of
Kemper Municipal Bond Fund, and Scudder Fund Accounting Corp., dated
December 31, 1997. Filed herein.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(h)(7) Fund Accounting Services Agreement between the Registrant, on behalf of
Kemper Intermediate Municipal Bond Fund, and Scudder Fund
Accounting Corp., dated December 31, 1997. Filed herein.
(i) Inapplicable.
(j) Consent and Report of Independent Auditors. Filed herein.
(k) Inapplicable.
(l) Inapplicable.
(m)(1) Amended and Restated 12b-1 Plan between the Registrant, on behalf of
Kemper Intermediate Municipal Bond Fund (Class B shares), and Kemper
Distributors, Inc., dated August 1, 1998.
(Incorporated by Reference to Post-Effective Amendment No. 44 to
Registrant's Registration Statement Filed on Form N-1A on October 28,
1998.)
(m)(2) Amended and Restated 12b-1 Plan between the Registrant, on behalf of
Kemper Intermediate Municipal Bond Fund (Class C shares), and Kemper
Distributors, Inc., dated August 1, 1998.
(Incorporated by Reference to Post-Effective Amendment No. 44 to
Registrant's Registration Statement Filed on Form N-1A on October 28,
1998.)
(m)(3) Amended and Restated 12b-1 Plan between the Registrant, on behalf of
Kemper Municipal Bond Fund (Class B shares), and Kemper Distributors,
Inc., dated August 1, 1998.
(Incorporated by Reference to Post-Effective Amendment No. 44 to
Registrant's Registration Statement Filed on Form N-1A on October 28,
1998.)
(m)(4) Amended and Restated 12b-1 Plan between the Registrant, on behalf of
Kemper Municipal Bond Fund (Class C shares), and Kemper Distributors,
Inc., dated August 1, 1998.
(Incorporated by Reference to Post-Effective Amendment No. 44 to
Registrant's Registration Statement Filed on Form N-1A on October 28,
1998.)
(n) Financial Data Schedule. Filed herein.
(o) Multi-Distribution System Plan.
(Incorporated by Reference to Post-Effective Amendment No. 42 to
Registrant's Registration Statement Filed on Form N-1A on December 18,
1996.)
</TABLE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Inapplicable.
<PAGE>
Item 25. 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.
On June 26, 1997, Zurich Insurance Company ("Zurich"), ZKI Holding Corp.
("ZKIH"), Zurich Kemper Investments, Inc. ("ZKI"), Scudder, Stevens & Clark,
Inc. ("Scudder") and the representatives of the beneficial owners of the capital
stock of Scudder ("Scudder Representatives") entered into a transaction
agreement ("Transaction Agreement") pursuant to which Zurich became the majority
stockholder in Scudder with an approximately 70% interest, and ZKI was combined
with Scudder ("Transaction"). In connection with the trustees' evaluation of the
Transaction, Zurich agreed to indemnify the Registrant and the trustees who were
not interested persons of ZKI or Scudder (the "Independent Trustees") for and
against any liability and expenses based upon any action or omission by the
Independent Trustees in connection with their consideration of and action with
respect to the Transaction. In addition, Scudder has agreed to indemnify the
Registrant and the Independent Trustees for and against any liability and
expenses based upon any misstatements or omissions by Scudder to the Independent
Trustees in connection with their consideration of the Transaction.
<PAGE>
Item 26. Business or Other Connections of Investment Adviser
Scudder Kemper Investments, Inc. has stockholders and employees who are
denominated officers but do not as such have corporation-wide responsibilities.
Such persons are not considered officers for the purpose of this Item 28.
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<TABLE>
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc. **
Vice President and Treasurer, Scudder Fund Accounting Corporation *
Director, Scudder Stevens & Clark Corporation **
Director and Chairman, Scudder Defined Contribution Services, Inc. **
Director and President, Scudder Capital Asset Corporation **
Director and President, Scudder Capital Stock Corporation **
Director and President, Scudder Capital Planning Corporation **
Director and President, SS&C Investment Corporation **
Director and President, SIS Investment Corporation **
Director and President, SRV Investment Corporation **
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc. *
Director, Scudder, Stevens & Clark (Luxembourg) S.A. #
William H. Bolinder Director, Scudder Kemper Investments, Inc. **
Member, Group Executive Board, Zurich Financial Services, Inc. ##
Chairman, Zurich-American Insurance Company o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc. **
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc. **
CFO and Member, Group Executive Board, Zurich Financial Services, Inc. ##
CEO/Branch Offices, Zurich Life Insurance Company ##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc. **
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Director, Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc. **
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation *
Director, Vice President & Secretary, Scudder Realty Holdings Corporation *
Director & Assistant Clerk, Scudder Service Corporation *
Director, SFA, Inc. *
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc. ***
Director, Scudder, Stevens & Clark Japan, Inc. ***
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd. ***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited ***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation **
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc. *
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc. **
Director, Vice President and Secretary, Scudder Capital Asset Corporation **
Director, Vice President and Secretary, Scudder Capital Stock Corporation **
Director, Vice President and Secretary, Scudder Capital Planning Corporation **
Director, Vice President and Secretary, SS&C Investment Corporation **
Director, Vice President and Secretary, SIS Investment Corporation **
Director, Vice President and Secretary, SRV Investment Corporation **
Director, Vice President and Secretary, Scudder Brokerage Services, Inc. *
Director, Korea Bond Fund Management Co., Ltd. +
Cornelia M. Small Managing Director, Scudder Kemper Investments, Inc. **
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc. **
Director, Scudder, Stevens & Clark Japan, Inc. ###
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
President and Director, Scudder, Stevens & Clark Corporation **
Director, Scudder Realty Advisors, Inc. x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
</TABLE>
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C.
Luxembourg B 34.564
*** Toronto, Ontario, Canada
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman,
British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
Item 27. Principal Underwriters.
(a) Kemper Distributors, Inc. acts as principal underwriter of
the Registrant's shares and acts as principal underwriter of the
Kemper Funds.
(b) Information on the officers and directors of Kemper
Distributors, Inc., principal underwriter for the Registrant is set
forth below. The principal business address is 222 South Riverside
Plaza, Chicago, Illinois 60606.
<TABLE>
<CAPTION>
(1) (2) (3)
Position and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
<S> <C> <C>
James L. Greenawalt President None
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Position and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
<S> <C> <C>
Thomas W. Littauer Director, Chief Executive Officer Vice President
Kathryn L. Quirk Director, Secretary, Chief Legal Vice President
Officer & Vice President
James J. McGovern Chief Financial Officer & Vice None
President
Linda J. Wondrack Vice President & Chief Compliance None
Officer
Paula Gaccione Vice President None
Michael E. Harrington Vice President None
Robert A. Rudell Vice President None
William M. Thomas Vice President None
Elizabeth C. Werth Vice President Assistant Secretary
Todd N. Gierke Assistant Treasurer None
Philip J. Collora Assistant Secretary Vice President and
Secretary
Paul J. Elmlinger Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
Daniel Pierce Director, Chairman Trustee
Mark S. Casady Director, Vice Chairman President
Stephen R. Beckwith Director None
</TABLE>
(c) Not applicable
Item 28. Location of Accounts and Records
Accounts, books and other documents are maintained at the offices of
the Registrant, the offices of Registrant's investment adviser, Scudder Kemper
Investments, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, at the
offices of the Registrant's principal underwriter, Kemper Distributors, Inc.,
222 South Riverside Plaza, Chicago, Illinois 60606 or, in the case of records
concerning custodial functions, at the offices of the custodian, Investors
Fiduciary Trust Company "IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri
64105 or, in the case of records concerning transfer agency functions, at the
offices of IFTC and of the shareholder service agent, Kemper Service Company,
811 Main Street, Kansas City, Missouri 64105.
Item 29. Management Services
<PAGE>
Not applicable.
Item 30. Undertakings
Not applicable.
<PAGE>
SIGNATURES
----------
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(a) 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 21st day
of December, 1998.
KEMPER NATIONAL TAX-FREE INCOME SERIES
By /s/Mark S. Casady
-----------------
Mark S. Casady, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on December 21, 1998 on behalf of
the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/Daniel Pierce
- ---------------------------------------------------
Daniel Pierce* Chairman and Trustee
/s/David W. Belin
- ---------------------------------------------------
David W. Belin* Trustee
/s/Lewis A. Burnham
- ---------------------------------------------------
Lewis A. Burnham* Trustee
/s/Donald L. Dunaway
- ---------------------------------------------------
Donald L. Dunaway* Trustee
/s/Robert B. Hoffman
- ---------------------------------------------------
Robert B. Hoffman* Trustee
/s/Donald R. Jones
- ---------------------------------------------------
Donald R. Jones* Trustee
/s/ Shirley D. Peterson
- ---------------------------------------------------
Shirley D. Peterson* Trustee
/s/ William P. Sommers
- ---------------------------------------------------
William P. Sommers* Trustee
<PAGE>
SIGNATURE TITLE
- --------- -----
/s/Edmond D. Villani
- ---------------------------------------------------
Edmond D. Villani* Trustee
/s/John R. Hebble
- ---------------------------------------------------
John R. Hebble Treasurer (Principal Financial and
Accounting Officer)
</TABLE>
By: /s/Philip J. Collora
--------------------
Philip J. Collora
* Philip J. Collora signs this document pursuant to powers of
attorney incorporated by reference to the Registrant's Post
Effective Amendment to the Registration Statement No. 44 filed on
October 28, 1998.
2
<PAGE>
File No. 2-47008
File No. 811-2353
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 45
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 45
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
KEMPER NATIONAL TAX-FREE INCOME SERIES
<PAGE>
KEMPER NATIONAL TAX-FREE INCOME SERIES
EXHIBIT INDEX
Exhibit (d)(1)
Exhibit (d)(2)
Exhibit (d)(3)
Exhibit (d)(4)
Exhibit (e)(1)
Exhibit (e)(2)
Exhibit (e)(3)
Exhibit (h)(6)
Exhibit (h)(7)
Exhibit (j)
Exhibit (n)
INVESTMENT MANAGEMENT AGREEMENT
Kemper National Tax-Free Income Series
222 South Riverside Plaza
Chicago, Illinois 60606
December 31, 1997
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Kemper Municipal Bond Fund
Ladies and Gentlemen:
KEMPER NATIONAL TAX-FREE INCOME SERIES (the "Trust") has been established as a
Massachusetts business trust to engage in the business of an investment company.
Pursuant to the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees is authorized to issue the Trust's shares
of beneficial interest (the "Shares"), in separate series, or funds. The Board
of Trustees has authorized Kemper Municipal Bond Fund (the "Fund"). Series may
be abolished and dissolved, and additional series established, from time to time
by action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the investment
manager of the Fund and to provide certain other services, as more fully set
forth below, and you have indicated that you are willing to act as such
investment manager and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Trust on behalf of the Fund agrees with
you as follows:
1) Delivery of Documents. The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to the Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement") filed
by the Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the Fund:
a) The Declaration, as amended to date.
b) By-Laws of the Trust as in effect on the date hereof (the
"By-Laws").
c) Resolutions of the Trustees of the Trust and the shareholders of the
Fund selecting you as investment manager and approving the form of
this Agreement.
d) Establishment and Designation of Series of Shares of Beneficial
Interest relating to the Fund, as applicable.
The Trust will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing,
including the Prospectus, the SAI and the Registration Statement.
2) Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
<PAGE>
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 2, you shall
be entitled to receive and act upon advice of counsel to the Trust. You shall
also make available to the Trust promptly upon request all of the Fund's
investment records and ledgers as are necessary to assist the Trust in complying
with the requirements of the 1940 Act and other applicable laws. To the extent
required by law, you shall furnish to regulatory authorities having the
requisite authority any information or reports in connection with the services
provided pursuant to this Agreement which may be requested in order to ascertain
whether the operations of the Trust are being conducted in a manner consistent
with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3) Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Fund necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing the accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith; establishing
and monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining the amount of dividends and distributions
available to be paid by the Fund to its shareholders, preparing and arranging
for the printing of dividend notices to shareholders, and providing the transfer
and dividend paying agent, the custodian, and the accounting agent with such
information as is required for such parties to effect the payment of dividends
and distributions; and otherwise assisting the Trust as it may reasonably
request in the conduct of the Fund's business, subject to the direction and
control of the Trust's Board of Trustees. Nothing in this Agreement shall be
2
<PAGE>
deemed to shift to you or to diminish the obligations of any agent of the Fund
or any other person not a party to this Agreement which is obligated to provide
services to the Fund.
4) Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
3
<PAGE>
5) Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Trust
on behalf of the Fund shall pay you in United States Dollars on the last day of
each month the unpaid balance of a fee equal to the excess of (a) 1/12 of .45 of
1 percent of the average daily net assets as defined below of the Fund for such
month; provided that, for any calendar month during which the average of such
values exceeds $250,000,000 the fee payable for that month based on the portion
of the average of such values in excess of $250,000,000 shall be 1/12 of .43 of
1 percent of such portion; provided that, for any calendar month during which
the average of such values exceeds $1,000,000,000, the fee payable for that
month based on the portion of the average of such values in excess of
$1,000,000,000 shall be 1/12 of .41 of 1 percent of such portion; provided that,
for any calendar month during which the average of such values exceeds
$2,500,000,000, the fee payable for that month based on the portion of the
average of such values in excess of $2,500,000,000 shall be 1/12 of .40 of 1
percent of such portion; provided that, for any calendar month during which the
average of such values exceeds $5,000,000,000, the fee payable for that month
based on the portion of the average of such values in excess of $5,000,000,000
shall be 1/12 of .38 of 1 percent of such portion; provided that, for any
calendar month during which the average of such values exceeds $7,500,000,000,
the fee payable for that month based on the portion of the average of such
values in excess of $7,500,000,000 shall be 1/12 of .36 of 1 percent of such
portion; provided that, for any calendar month during which the average of such
values exceeds 10,000,000,000, the fee payable for that month based on the
portion of the average of such values in excess of $10,000,000,000 shall be 1/12
of .34 of 1 percent of such portion; and provided that, for any calendar month
during which the average of such values exceeds 12,500,000,000, the fee payable
for that month based on the portion of the average of such values in excess of
$12,500,000,000 shall be 1/12 of .32 of 1 percent of such portion; over (b) the
greater of (i) the amount by which the Fund's expenses exceed 1% of average
daily net assets or (ii) any compensation waived by you from time to time (as
more fully described below). You shall be entitled to receive during any month
such interim payments of your fee hereunder as you shall request, provided that
no such payment shall exceed 75 percent of the amount of your fee then accrued
on the books of the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 5, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 5.
You agree that your gross compensation for any fiscal year shall not be greater
than an amount which, when added to other expenses of the Fund, shall cause the
aggregate expenses of the Fund to equal 1% of average daily net assets. Except
to the extent that such amount has been reflected in reduced payments to you,
you shall refund to the Fund the amount of any payment received in excess of the
limitation pursuant to this section 5 as promptly as practicable after the end
of such fiscal year, provided that you shall not be required to pay the Fund an
amount greater than the fee paid to you in respect of such year pursuant to this
Agreement. As used in this section 5, "expenses" shall mean those expenses
included in the applicable expense limitation having the broadest specifications
thereof, and "expense limitation" means a limit on the maximum annual expenses
which may be incurred by an investment company determined (i) by multiplying a
fixed percentage by the average, or by multiplying more than one such percentage
by different specified amounts of the average, of the values of an investment
company's net assets for a fiscal year or (ii) by multiplying a fixed percentage
by an investment company's net investment income for a fiscal year.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
4
<PAGE>
6) Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Trust. Whenever the Fund and one
or more other accounts or investment companies advised by you have available
funds for investment, investments suitable and appropriate for each shall be
allocated in accordance with procedures believed by you to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by you to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
7) Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Trust agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Trust, the Fund
or its shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
8) Duration and Termination of This Agreement. This Agreement shall remain in
force until March 1, 1998, and continue in force from year to year thereafter,
but only so long as such continuance is specifically approved at least annually
(a) by the vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by the
Trustees of the Trust, or by the vote of a majority of the outstanding voting
securities of the Fund. The aforesaid requirement that continuance of this
Agreement be "specifically approved at least annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations thereunder and
any applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time, without
the payment of any penalty, by the vote of a majority of the outstanding voting
securities of the Fund or by the Trust's Board of Trustees on 60 days' written
notice to you, or by you on 60 days' written notice to the Trust. This Agreement
shall terminate automatically in the event of its assignment.
This Agreement may be terminated with respect to the Fund 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 the Fund in the event that it shall have
been established by a court of competent jurisdiction that you or any of your
officers or directors has taken any action which results in a breach of your
covenants set forth herein.
9) Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
10) Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Kemper National
Tax-Free Income Series" refers to the Trustees under the Declaration
collectively as Trustees and not as individuals or
5
<PAGE>
personally, and that no shareholder of the Fund, or Trustee, officer, employee
or agent of the Trust, shall be subject to claims against or obligations of the
Trust or of the Fund to any extent whatsoever, but that the Trust estate only
shall be liable.
You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Trust
on behalf of the Fund pursuant to this Agreement shall be limited in all cases
to the Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or any other
series of the Trust, or from any Trustee, officer, employee or agent of the
Trust. You understand that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
11) Miscellaneous. 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. 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.
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
KEMPER NATIONAL TAX-FREE INCOME
SERIES, on behalf of Kemper Municipal Bond Fund
By: /s/John E. Neal
---------------
Vice President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/Lynn S. Birdsong
----------------
Vice President
6
INVESTMENT MANAGEMENT AGREEMENT
Kemper National Tax-Free Income Series
222 South Riverside Plaza
Chicago, Illinois 60606
December 31, 1997
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Kemper Intermediate Municipal Bond Fund
Ladies and Gentlemen:
KEMPER NATIONAL TAX-FREE INCOME SERIES (the "Trust") has been established as a
Massachusetts business trust to engage in the business of an investment company.
Pursuant to the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees is authorized to issue the Trust's shares
of beneficial interest (the "Shares"), in separate series, or funds. The Board
of Trustees has authorized Kemper Intermediate Municipal Bond Fund (the "Fund").
Series may be abolished and dissolved, and additional series established, from
time to time by action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the investment
manager of the Fund and to provide certain other services, as more fully set
forth below, and you have indicated that you are willing to act as such
investment manager and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Trust on behalf of the Fund agrees with
you as follows:
1) Delivery of Documents. The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to the Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement") filed
by the Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the Fund:
a) The Declaration, as amended to date.
b) By-Laws of the Trust as in effect on the date hereof (the "By-
Laws").
c) Resolutions of the Trustees of the Trust and the shareholders of the
Fund selecting you as investment manager and approving the form of
this Agreement.
d) Establishment and Designation of Series of Shares of Beneficial
Interest relating to the Fund, as applicable.
The Trust will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing,
including the Prospectus, the SAI and the Registration Statement.
2) Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
<PAGE>
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 2, you shall
be entitled to receive and act upon advice of counsel to the Trust. You shall
also make available to the Trust promptly upon request all of the Fund's
investment records and ledgers as are necessary to assist the Trust in complying
with the requirements of the 1940 Act and other applicable laws. To the extent
required by law, you shall furnish to regulatory authorities having the
requisite authority any information or reports in connection with the services
provided pursuant to this Agreement which may be requested in order to ascertain
whether the operations of the Trust are being conducted in a manner consistent
with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3) Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Fund necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing the accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith; establishing
and monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining the amount of dividends and distributions
available to be paid by the Fund to its shareholders, preparing and arranging
for the printing of dividend notices to shareholders, and providing the transfer
and dividend paying agent, the custodian, and the accounting agent with such
information as is required for such parties to effect the payment of dividends
and distributions; and otherwise assisting the Trust as it may reasonably
request in the conduct of the Fund's business, subject to the direction and
control of the Trust's Board of Trustees. Nothing in this Agreement shall be
2
<PAGE>
deemed to shift to you or to diminish the obligations of any agent of the Fund
or any other person not a party to this Agreement which is obligated to provide
services to the Fund.
4) Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
3
<PAGE>
5) Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Trust
on behalf of the Fund shall pay you in United States Dollars on the last day of
each month the unpaid balance of a fee equal to the excess of (a) 1/12 of .55 of
1 percent of the average daily net assets as defined below of the Fund for such
month; provided that, for any calendar month during which the average of such
values exceeds $250,000,000 the fee payable for that month based on the portion
of the average of such values in excess of $250,000,000 shall be 1/12 of .52 of
1 percent of such portion; provided that, for any calendar month during which
the average of such values exceeds $1,000,000,000, the fee payable for that
month based on the portion of the average of such values in excess of
$1,000,000,000 shall be 1/12 of .50 of 1 percent of such portion; provided that,
for any calendar month during which the average of such values exceeds
$2,500,000,000, the fee payable for that month based on the portion of the
average of such values in excess of $2,500,000,000 shall be 1/12 of .48 of 1
percent of such portion; provided that, for any calendar month during which the
average of such values exceeds $5,000,000,000, the fee payable for that month
based on the portion of the average of such values in excess of $5,000,000,000
shall be 1/12 of .45 of 1 percent of such portion; provided that, for any
calendar month during which the average of such values exceeds $7,500,000,000,
the fee payable for that month based on the portion of the average of such
values in excess of $7,500,000,000 shall be 1/12 of .43 of 1 percent of such
portion; provided that, for any calendar month during which the average of such
values exceeds 10,000,000,000, the fee payable for that month based on the
portion of the average of such values in excess of $10,000,000,000 shall be 1/12
of .41 of 1 percent of such portion; and provided that, for any calendar month
during which the average of such values exceeds 12,500,000,000, the fee payable
for that month based on the portion of the average of such values in excess of
$12,500,000,000 shall be 1/12 of .40 of 1 percent of such portion; over (b) any
compensation waived by you from time to time (as more fully described below).
You shall be entitled to receive during any month such interim payments of your
fee hereunder as you shall request, provided that no such payment shall exceed
75 percent of the amount of your fee then accrued on the books of the Fund and
unpaid.
The "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 5, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 5.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
6) Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
4
<PAGE>
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Trust. Whenever the Fund and one
or more other accounts or investment companies advised by you have available
funds for investment, investments suitable and appropriate for each shall be
allocated in accordance with procedures believed by you to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by you to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
7) Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Trust agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Trust, the Fund
or its shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
8) Duration and Termination of This Agreement. This Agreement shall remain in
force until March 1, 1998, and continue in force from year to year thereafter,
but only so long as such continuance is specifically approved at least annually
(a) by the vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by the
Trustees of the Trust, or by the vote of a majority of the outstanding voting
securities of the Fund. The aforesaid requirement that continuance of this
Agreement be "specifically approved at least annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations thereunder and
any applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time, without
the payment of any penalty, by the vote of a majority of the outstanding voting
securities of the Fund or by the Trust's Board of Trustees on 60 days' written
notice to you, or by you on 60 days' written notice to the Trust. This Agreement
shall terminate automatically in the event of its assignment.
This Agreement may be terminated with respect to the Fund 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 the Fund in the event that it shall have
been established by a court of competent jurisdiction that you or any of your
officers or directors has taken any action which results in a breach of your
covenants set forth herein.
9) Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
10) Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Kemper National
Tax-Free Income Series" refers to the Trustees under the Declaration
collectively as Trustees and not as individuals or personally, and that no
shareholder of the Fund, or Trustee, officer, employee or agent of the Trust,
shall be subject to claims against or obligations of the Trust or of the Fund to
any extent whatsoever, but that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Trust
on behalf of the Fund pursuant to this Agreement shall be limited in all cases
to the Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or any other
series of the Trust, or from any Trustee, officer, employee or agent of the
Trust.
5
<PAGE>
You understand that the rights and obligations of each Fund, or series, under
the Declaration are separate and distinct from those of any and all other
series.
11) Miscellaneous. 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. 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.
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
KEMPER NATIONAL TAX-FREE INCOME
SERIES, on behalf of Kemper Intermediate Municipal
Bond Fund
By: /s/John E. Neal
----------------
Vice President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/Lynn S. Birdsong
--------------------
President
6
INVESTMENT MANAGEMENT AGREEMENT
Kemper National Tax-Free Income Series
222 South Riverside Plaza
Chicago, Illinois 60606
September 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Kemper Municipal Bond Fund
Ladies and Gentlemen:
KEMPER NATIONAL TAX-FREE INCOME SERIES (the "Trust") has been established as a
Massachusetts business trust to engage in the business of an investment company.
Pursuant to the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees is authorized to issue the Trust's shares
of beneficial interest (the "Shares"), in separate series, or funds. The Board
of Trustees has authorized Kemper Municipal Bond Fund (the "Fund"). Series may
be abolished and dissolved, and additional series established, from time to time
by action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the investment
manager of the Fund and to provide certain other services, as more fully set
forth below, and you have indicated that you are willing to act as such
investment manager and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Trust on behalf of the Fund agrees with
you as follows:
1. Delivery of Documents. The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to the Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement") filed
by the Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the Fund:
(a) The Declaration, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof (the "By-
Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders of the
Fund selecting you as investment manager and approving the form of
this Agreement.
(d) Establishment and Designation of Series of Shares of Beneficial
Interest relating to the Fund, as applicable.
The Trust will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing,
including the Prospectus, the SAI and the Registration Statement.
<PAGE>
2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 2, you shall
be entitled to receive and act upon advice of counsel to the Trust. You shall
also make available to the Trust promptly upon request all of the Fund's
investment records and ledgers as are necessary to assist the Trust in complying
with the requirements of the 1940 Act and other applicable laws. To the extent
required by law, you shall furnish to regulatory authorities having the
requisite authority any information or reports in connection with the services
provided pursuant to this Agreement which may be requested in order to ascertain
whether the operations of the Trust are being conducted in a manner consistent
with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Fund necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing the accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith;
<PAGE>
establishing and monitoring the Fund's operating expense budgets; reviewing the
Fund's bills; processing the payment of bills that have been approved by an
authorized person; assisting the Fund in determining the amount of dividends and
distributions available to be paid by the Fund to its shareholders, preparing
and arranging for the printing of dividend notices to shareholders, and
providing the transfer and dividend paying agent, the custodian, and the
accounting agent with such information as is required for such parties to effect
the payment of dividends and distributions; and otherwise assisting the Trust as
it may reasonably request in the conduct of the Fund's business, subject to the
direction and control of the Trust's Board of Trustees. Nothing in this
Agreement shall be deemed to shift to you or to diminish the obligations of any
agent of the Fund or any other person not a party to this Agreement which is
obligated to provide services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
3
<PAGE>
5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Trust
on behalf of the Fund shall pay you in United States Dollars on the last day of
each month the unpaid balance of a fee equal to the excess of (a) 1/12 of .45 of
1 percent of the average daily net assets as defined below of the Fund for such
month; provided that, for any calendar month during which the average of such
values exceeds $250,000,000 the fee payable for that month based on the portion
of the average of such values in excess of $250,000,000 shall be 1/12 of .43 of
1 percent of such portion; provided that, for any calendar month during which
the average of such values exceeds $1,000,000,000, the fee payable for that
month based on the portion of the average of such values in excess of
$1,000,000,000 shall be 1/12 of .41 of 1 percent of such portion; provided that,
for any calendar month during which the average of such values exceeds
$2,500,000,000, the fee payable for that month based on the portion of the
average of such values in excess of $2,500,000,000 shall be 1/12 of .40 of 1
percent of such portion; provided that, for any calendar month during which the
average of such values exceeds $5,000,000,000, the fee payable for that month
based on the portion of the average of such values in excess of $5,000,000,000
shall be 1/12 of .38 of 1 percent of such portion; provided that, for any
calendar month during which the average of such values exceeds $7,500,000,000,
the fee payable for that month based on the portion of the average of such
values in excess of $7,500,000,000 shall be 1/12 of .36 of 1 percent of such
portion; provided that, for any calendar month during which the average of such
values exceeds 10,000,000,000, the fee payable for that month based on the
portion of the average of such values in excess of $10,000,000,000 shall be 1/12
of .34 of 1 percent of such portion; and provided that, for any calendar month
during which the average of such values exceeds 12,500,000,000, the fee payable
for that month based on the portion of the average of such values in excess of
$12,500,000,000 shall be 1/12 of .32 of 1 percent of such portion; over (b) the
greater of (i) the amount by which the Fund's expenses exceed 1% of average
daily net assets or (ii) any compensation waived by you from time to time (as
more fully described below). You shall be entitled to receive during any month
such interim payments of your fee hereunder as you shall request, provided that
no such payment shall exceed 75 percent of the amount of your fee then accrued
on the books of the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 5, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 5.
You agree that your gross compensation for any fiscal year shall not be greater
than an amount which, when added to other expenses of the Fund, shall cause the
aggregate expenses of the Fund to equal 1% of average daily net assets. Except
to the extent that such amount has been reflected in reduced payments to you,
you shall refund to the Fund the amount of any payment received in excess of the
limitation pursuant to this section 5 as promptly as practicable after the end
of such fiscal year, provided that you shall not be required to pay the Fund an
amount greater than the fee paid to you in respect of such year pursuant to this
Agreement. As used in this section 5, "expenses" shall mean those expenses
included in the applicable expense limitation having the broadest specifications
thereof, and "expense limitation" means a limit on the maximum annual expenses
which may be incurred by an investment company determined (i) by multiplying a
fixed percentage by the average, or by multiplying more than one such percentage
by different specified amounts of the average, of the values of an investment
company's net assets for a fiscal year or (ii) by multiplying a fixed percentage
by an investment company's net investment income for a fiscal year.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction
4
<PAGE>
in purchase price of your services. You shall be contractually bound hereunder
by the terms of any publicly announced waiver of your fee, or any limitation of
the Fund's expenses, as if such waiver or limitation were fully set forth
herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Trust. Whenever the Fund and one
or more other accounts or investment companies advised by you have available
funds for investment, investments suitable and appropriate for each shall be
allocated in accordance with procedures believed by you to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by you to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Trust agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Trust, the Fund
or its shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
8. Duration and Termination of This Agreement. This Agreement shall remain in
force until March 1, 1998, and continue in force from year to year thereafter,
but only so long as such continuance is specifically approved at least annually
(a) by the vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by the
Trustees of the Trust, or by the vote of a majority of the outstanding voting
securities of the Fund. The aforesaid requirement that continuance of this
Agreement be "specifically approved at least annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations thereunder and
any applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time, without
the payment of any penalty, by the vote of a majority of the outstanding voting
securities of the Fund or by the Trust's Board of Trustees on 60 days' written
notice to you, or by you on 60 days' written notice to the Trust. This Agreement
shall terminate automatically in the event of its assignment.
This Agreement may be terminated with respect to the Fund 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 the Fund in the event that it shall have
been established by a court of competent jurisdiction that you or any of your
officers or directors has taken any action which results in a breach of your
covenants set forth herein.
9. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until
5
<PAGE>
approved in a manner consistent with the 1940 Act and rules and regulations
thereunder and any applicable SEC exemptive order therefrom.
10. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Kemper National
Tax-Free Income Series" refers to the Trustees under the Declaration
collectively as Trustees and not as individuals or personally, and that no
shareholder of the Fund, or Trustee, officer, employee or agent of the Trust,
shall be subject to claims against or obligations of the Trust or of the Fund to
any extent whatsoever, but that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Trust
on behalf of the Fund pursuant to this Agreement shall be limited in all cases
to the Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or any other
series of the Trust, or from any Trustee, officer, employee or agent of the
Trust. You understand that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
11. Miscellaneous. 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. 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.
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
KEMPER NATIONAL TAX-FREE INCOME
SERIES, on behalf of Kemper Municipal Bond Fund
By: /s/Mark S. Casady
-------------------------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/S R Beckwith
-------------------------------------------
Treasurer
6
INVESTMENT MANAGEMENT AGREEMENT
Kemper National Tax-Free Income Series
222 South Riverside Plaza
Chicago, Illinois 60606
September 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Kemper Intermediate Municipal Bond Fund
Ladies and Gentlemen:
KEMPER NATIONAL TAX-FREE INCOME SERIES (the "Trust") has been established as a
Massachusetts business trust to engage in the business of an investment company.
Pursuant to the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees is authorized to issue the Trust's shares
of beneficial interest (the "Shares"), in separate series, or funds. The Board
of Trustees has authorized Kemper Intermediate Municipal Bond Fund (the "Fund").
Series may be abolished and dissolved, and additional series established, from
time to time by action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the investment
manager of the Fund and to provide certain other services, as more fully set
forth below, and you have indicated that you are willing to act as such
investment manager and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Trust on behalf of the Fund agrees with
you as follows:
1. Delivery of Documents. The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to the Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement") filed
by the Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the Fund:
(a) The Declaration, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof (the
"By-Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders of the
Fund selecting you as investment manager and approving the form of
this Agreement.
(d) Establishment and Designation of Series of Shares of Beneficial
Interest relating to the Fund, as applicable.
The Trust will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing,
including the Prospectus, the SAI and the Registration Statement.
<PAGE>
2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 2, you shall
be entitled to receive and act upon advice of counsel to the Trust. You shall
also make available to the Trust promptly upon request all of the Fund's
investment records and ledgers as are necessary to assist the Trust in complying
with the requirements of the 1940 Act and other applicable laws. To the extent
required by law, you shall furnish to regulatory authorities having the
requisite authority any information or reports in connection with the services
provided pursuant to this Agreement which may be requested in order to ascertain
whether the operations of the Trust are being conducted in a manner consistent
with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Fund necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing the accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's
2
<PAGE>
independent accountants, legal counsel and the Fund's other agents as necessary
in connection therewith; establishing and monitoring the Fund's operating
expense budgets; reviewing the Fund's bills; processing the payment of bills
that have been approved by an authorized person; assisting the Fund in
determining the amount of dividends and distributions available to be paid by
the Fund to its shareholders, preparing and arranging for the printing of
dividend notices to shareholders, and providing the transfer and dividend paying
agent, the custodian, and the accounting agent with such information as is
required for such parties to effect the payment of dividends and distributions;
and otherwise assisting the Trust as it may reasonably request in the conduct of
the Fund's business, subject to the direction and control of the Trust's Board
of Trustees. Nothing in this Agreement shall be deemed to shift to you or to
diminish the obligations of any agent of the Fund or any other person not a
party to this Agreement which is obligated to provide services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
3
<PAGE>
5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Trust
on behalf of the Fund shall pay you in United States Dollars on the last day of
each month the unpaid balance of a fee equal to the excess of (a) 1/12 of .55 of
1 percent of the average daily net assets as defined below of the Fund for such
month; provided that, for any calendar month during which the average of such
values exceeds $250,000,000 the fee payable for that month based on the portion
of the average of such values in excess of $250,000,000 shall be 1/12 of .52 of
1 percent of such portion; provided that, for any calendar month during which
the average of such values exceeds $1,000,000,000, the fee payable for that
month based on the portion of the average of such values in excess of
$1,000,000,000 shall be 1/12 of .50 of 1 percent of such portion; provided that,
for any calendar month during which the average of such values exceeds
$2,500,000,000, the fee payable for that month based on the portion of the
average of such values in excess of $2,500,000,000 shall be 1/12 of .48 of 1
percent of such portion; provided that, for any calendar month during which the
average of such values exceeds $5,000,000,000, the fee payable for that month
based on the portion of the average of such values in excess of $5,000,000,000
shall be 1/12 of .45 of 1 percent of such portion; provided that, for any
calendar month during which the average of such values exceeds $7,500,000,000,
the fee payable for that month based on the portion of the average of such
values in excess of $7,500,000,000 shall be 1/12 of .43 of 1 percent of such
portion; provided that, for any calendar month during which the average of such
values exceeds 10,000,000,000, the fee payable for that month based on the
portion of the average of such values in excess of $10,000,000,000 shall be 1/12
of .41 of 1 percent of such portion; and provided that, for any calendar month
during which the average of such values exceeds 12,500,000,000, the fee payable
for that month based on the portion of the average of such values in excess of
$12,500,000,000 shall be 1/12 of .40 of 1 percent of such portion; over (b) any
compensation waived by you from time to time (as more fully described below).
You shall be entitled to receive during any month such interim payments of your
fee hereunder as you shall request, provided that no such payment shall exceed
75 percent of the amount of your fee then accrued on the books of the Fund and
unpaid.
The "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 5, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 5.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that
4
<PAGE>
you may render investment advice, management and services to others. In acting
under this Agreement, you shall be an independent contractor and not an agent of
the Trust. Whenever the Fund and one or more other accounts or investment
companies advised by you have available funds for investment, investments
suitable and appropriate for each shall be allocated in accordance with
procedures believed by you to be equitable to each entity. Similarly,
opportunities to sell securities shall be allocated in a manner believed by you
to be equitable. The Fund recognizes that in some cases this procedure may
adversely affect the size of the position that may be acquired or disposed of
for the Fund.
7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Trust agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Trust, the Fund
or its shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
8. Duration and Termination of This Agreement. This Agreement shall remain in
force until March 1, 1998, and continue in force from year to year thereafter,
but only so long as such continuance is specifically approved at least annually
(a) by the vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of any party to this Agreement, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by the
Trustees of the Trust, or by the vote of a majority of the outstanding voting
securities of the Fund. The aforesaid requirement that continuance of this
Agreement be "specifically approved at least annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations thereunder and
any applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time, without
the payment of any penalty, by the vote of a majority of the outstanding voting
securities of the Fund or by the Trust's Board of Trustees on 60 days' written
notice to you, or by you on 60 days' written notice to the Trust. This Agreement
shall terminate automatically in the event of its assignment.
This Agreement may be terminated with respect to the Fund 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 the Fund in the event that it shall have
been established by a court of competent jurisdiction that you or any of your
officers or directors has taken any action which results in a breach of your
covenants set forth herein.
9. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
10. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Kemper National
Tax-Free Income Series" refers to the Trustees under the Declaration
collectively as Trustees and not as individuals or personally, and that no
shareholder of the Fund, or Trustee, officer, employee or agent of the Trust,
shall be subject to claims against or obligations of the Trust or of the Fund to
any extent whatsoever, but that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Trust
on behalf of the Fund pursuant to this Agreement shall be limited in all cases
to the Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any
5
<PAGE>
shareholder of the Fund or any other series of the Trust, or from any Trustee,
officer, employee or agent of the Trust. You understand that the rights and
obligations of each Fund, or series, under the Declaration are separate and
distinct from those of any and all other series.
11. Miscellaneous. 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. 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.
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
KEMPER NATIONAL TAX-FREE INCOME
SERIES, on behalf of Kemper Intermediate
Municipal Bond Fund
By: /s/Mark S. Casady
----------------------------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/S R Beckwith
----------------------------------------------
Treasurer
6
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 31st day of December, 1997, between KEMPER NATIONAL TAX-FREE
INCOME SERIES, a Massachusetts business trust (the "Fund"), and KEMPER
DISTRIBUTORS, INC., a Delaware corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to act as 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 KDI shall act as exclusive distributor, who wish to exchange
all or a portion of their investment in shares of such other investment company
for shares of the Fund. KDI shall appoint various 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. KDI may also provide some of the above services for the
Fund.
KDI 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. KDI 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. KDI, by separate agreement with the Fund, may also serve the Fund in
other capacities. The services of KDI to the Fund under this Agreement are not
to be deemed exclusive, and KDI shall be free to render similar services or
other services to others so long as its services hereunder are not impaired
thereby.
In carrying out its duties and responsibilities hereunder, KDI will, pursuant to
separate written contracts, appoint various
<PAGE>
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 KDI and not the Fund. KDI 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. KDI shall sell shares of the Fund to or through qualified Firms in such
manner, not inconsistent with the provisions hereof and the then effective
registration statement (and related prospectus) of the Fund under the Securities
Act, as KDI may determine from time to time, provided that no Firm or other
person shall be appointed or authorized to act as agent of the Fund without the
prior consent of the Fund. In addition to sales made by it as agent of the Fund,
KDI may, in its discretion, also sell shares of the Fund as principal to persons
with whom it does not have selling group agreements.
Shares of any class of any series of the Fund offered for sale or sold by KDI
shall be so offered or sold at a price per share determined in accordance with
the then current prospectus. 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 KDI as agent
shall be retained by KDI as a commission for its services hereunder. KDI may
compensate Firms for sales of shares at the commission levels provided in the
Fund's prospectus from time to time. KDI may pay other commissions, fees or
concessions to Firms, and may pay them to others in its discretion, in such
amounts as KDI shall determine from time to time. KDI shall be entitled to
receive and retain any applicable contingent deferred sales charge as described
in the Fund's prospectus. KDI shall also receive any distribution services fee
payable by the Fund as provided in Section 8 hereof.
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price or net asset value, as
applicable, of the
-2-
<PAGE>
Fund's shares, and neither KDI nor any such Firms shall withhold the placing of
purchase orders so as to make a profit thereby.
3. The Fund will use its best efforts to keep effectively registered under the
Securities Act for sale as herein contemplated such shares as KDI shall
reasonably request and as the Securities and Exchange Commission shall permit to
be so registered. Notwithstanding any other provision hereof, the Fund may
terminate, 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 KDI may reasonably
request (it being understood that the Fund shall not be required without its
consent to comply with any requirement which in its opinion is unduly
burdensome). The Fund will furnish to KDI from time to time such information
with respect to the Fund and its shares as KDI may reasonably request for use in
connection with the sale of shares of the Fund.
5. KDI shall issue and deliver or shall arrange for various Firms to issue and
deliver on behalf of the Fund such confirmations of sales made by it pursuant to
this agreement as may be required. At or prior to the time of issuance of
shares, KDI will pay or cause to be paid to the Fund the amount due the Fund for
the sale of such shares. Certificates shall be issued or shares registered on
the transfer books of the Fund in such names and denominations as KDI may
specify.
6. KDI shall order shares of the Fund from the Fund only to the extent that it
shall have received purchase orders therefor. KDI will not make, or authorize
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 KDI 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. KDI, as agent of and for the
account of the Fund, may repurchase the shares of the Fund at such prices and
upon such terms and conditions as shall be specified in the current prospectus
of the Fund. In selling or reacquiring shares of the Fund for the account of the
Fund, KDI will in all respects
-3-
<PAGE>
conform to the requirements of all state and federal laws and the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., relating to
such sale or reacquisition, as the case may be, and will indemnify and save
harmless the Fund from any damage or expense on account of any wrongful act by
KDI or any employee, representative or agent of KDI. KDI will observe and be
bound by all the provisions of the Agreement and Declaration of Trust of the
Fund (and of any fundamental policies adopted by the Fund pursuant to the
Investment Company Act of 1940, notice of which shall have been given to KDI)
which at the time in any way require, limit, restrict, prohibit or otherwise
regulate any action on the part of KDI hereunder.
7. The Fund shall assume and pay all charges and expenses of its operations not
specifically assumed or otherwise to be provided by KDI under this Agreement.
The Fund will pay or cause to be paid expenses (including the fees and
disbursements of its own counsel) 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. KDI will pay all expenses (other than
expenses which one or more Firms may bear pursuant to any agreement with KDI)
incident to the sale and distribution of the shares issued or sold hereunder,
including, without limiting the generality of the foregoing, all (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 KDI 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 KDI 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
-4-
<PAGE>
of the Fund, the Fund will pay to KDI 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 KDI under Section
2 hereof.
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.
-5-
<PAGE>
9. KDI 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, 1998; 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 KDI 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 KDI's failure to fulfill any of its
obligations hereunder.
This Agreement may not be amended to increase the amount to be paid to KDI 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 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
-6-
<PAGE>
forth in the Investment Company Act of 1940 and the rules and regulations
thereunder.
Termination of this Agreement shall not affect the right of KDI to receive
payments on any unpaid balance of the compensation described in Section 8 earned
prior to such termination.
11. KDI will not use or distribute, or authorize the use, distribution or
dissemination by Firms or others in connection with the sale of 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. KDI will furnish the Fund with copies of
all such material.
12. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
13. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
14. All parties hereto are expressly put on notice of the Fund's Agreement and
Declaration of Trust, and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund hereunder
are not binding upon any of the Trustees, officers or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund. With
respect to any claim by KDI for recovery of any liability of the Fund arising
hereunder allocated to a particular series or class, whether in accordance with
the express terms hereof or otherwise, KDI 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 the laws of the Commonwealth of Massachusetts.
16. This Agreement is the entire contract between the parties relating to the
subject matter hereof and supersedes all prior
-7-
<PAGE>
agreements between the parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the Fund and KDI 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. Neal
----------------
Title: Vice President
---------------------
ATTEST:
/s/Philip J. Collora
- --------------------
Title: Secretary
---------
KEMPER DISTRIBUTORS, INC.
By: /s/James L. Greenawalt
----------------------
Title: President
----------------
ATTEST:
/s/Joan V. Pearson
Title:___________________
-8-
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 1st day of August, 1998 between KEMPER NATIONAL TAX-FREE
INCOME SERIES, a Massachusetts business trust (the "Fund"), and KEMPER
DISTRIBUTORS, INC., a Delaware corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to act as agent for distribution of shares
of beneficial interest (hereinafter called "shares") of the Fund in
jurisdictions wherein shares of the Fund may legally be offered for sale;
provided, however, that the Fund in its absolute discretion may (a) issue or
sell shares directly to holders of shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the payment
or reinvestment of dividends or distributions, or otherwise; or (b) issue or
sell shares at net asset value to the shareholders of any other investment
company, for which KDI shall act as exclusive distributor, who wish to exchange
all or a portion of their investment in shares of such other investment company
for shares of the Fund. KDI shall appoint various 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. KDI may also provide some of the above services for the
Fund.
KDI 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. KDI 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. KDI, by separate agreement with the Fund, may also serve the
Fund in other capacities. The services of KDI to the Fund under this Agreement
are not to be deemed exclusive, and KDI shall be free to render similar services
or other services to others so long as its services hereunder are not impaired
thereby.
In carrying out its duties and responsibilities hereunder, KDI 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 KDI and not the Fund.
KDI 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
<PAGE>
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 Fund's
organizational documents.
2. KDI shall sell shares of the Fund to or through qualified Firms in such
manner, not inconsistent with the provisions hereof and the then effective
registration statement (and related prospectus) of the Fund under the Securities
Act, as KDI may determine from time to time, provided that no Firm or other
person shall be appointed or authorized to act as agent of the Fund without
prior consent of the Fund. In addition to sales made by it as agent of the Fund,
KDI may, in its discretion, also sell shares of the Fund as principal to persons
with whom it does not have selling group agreements.
Shares of any class of any series of the Fund offered for sale or sold by
KDI shall be so offered or sold at a price per share determined in accordance
with the then current prospectus. 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 KDI as
agent shall be retained by KDI as a commission for its services hereunder. KDI
may compensate Firms for sales of shares at the commission levels provided in
the Fund's prospectus from time to time. KDI may pay other commissions, fees or
concessions to Firms, any may pay them to others in its discretion, in such
amounts as KDI shall determine from time to time. KDI shall be entitled to
receive and retain any applicable contingent deferred sales charge as described
in the Fund's prospectus. KDI shall also receive any distribution services fee
payable by the Fund as provided in the Fund's Amended and Restated 12b-1 Plan,
as amended from time to time (the "Plan").
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price or net asset value, as
applicable, of the Fund's shares, and neither KDI nor any such Firms shall
withhold the placing of purchase orders so as to make a profit thereby.
3. The Fund will use its best efforts to keep effectively registered under
the Securities Act for sale as herein contemplated such shares as KDI shall
reasonably request and as the Securities and Exchange Commission shall permit to
be so registered. Notwithstanding any other provision hereof, the Fund may
terminate, 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 KDI may reasonably
request (it being understood that the Fund shall not be required without its
consent to comply with any requirement which in its opinion is unduly
burdensome). The Fund will furnish to KDI from time to time such information
with respect to the Fund and its shares as KDI may reasonably request for use in
connection with the sale of shares of the Fund.
<PAGE>
5. KDI shall issue and deliver or shall arrange for various Firms to issue
and deliver on behalf of the Fund such confirmations of sales made by it
pursuant to this Agreement as may be required. At or prior to the time of
issuance of shares, KDI will pay or cause to be paid to the Fund the amount due
the Fund for the sale of such shares. Certificates shall be issued or shares
registered on the transfer books of the Fund in such names and denominations as
KDI may specify.
6. KDI shall order shares of the Fund from the Fund only to the extent
that it shall have received purchase orders therefor. KDI will not make, or
authorize Firms or others to make (a) any short sales of shares of the Fund; or
(b) any sales of such shares to any Board member or officer of the Fund or to
any officer or Board member of KDI 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. KDI, as
agent of and for the account of the Fund, may repurchase the shares of the Fund
at such prices and upon such terms and conditions as shall be specified in the
current prospectus of the Fund. In selling or reacquiring shares of the Fund for
the account of the Fund, KDI will in all respects conform to the requirements of
all state and federal laws and the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., relating to such sale or reacquisition,
as the case may be, and will indemnify and save harmless the Fund from any
damage or expense on account of any wrongful act by KDI or any employee,
representative or agent of KDI. KDI will observe and be bound by all the
provisions of the Fund's organizational documents (and of any fundamental
policies adopted by the Fund pursuant to the Investment Company Act of 1940 (the
"Investment Company Act"), notice of which shall have been given to KDI) which
at the time in any way require, limit, restrict, prohibit or otherwise regulate
any action on the part of KDI hereunder.
7. The Fund shall assume and pay all charges and expenses of its
operations not specifically assumed or otherwise to be provided by KDI under
this Agreement or the Plan. 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. KDI will pay
all expenses (other than expenses which one or more Firms may bear pursuant to
any agreement with KDI) incident to the sale and distribution of the shares
issued or sold hereunder, including, without limiting the generality of the
foregoing, all (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
<PAGE>
the qualification of the Fund as a dealer or broker under the laws of such
states as may be designated by KDI under the conditions herein specified. No
transfer taxes, if any, which may be payable in connection with the issue or
delivery or shares sold as herein contemplated or of the certificates for such
shares shall be borne by the Fund, and KDI will indemnify and hold harmless the
Fund against liability for all such transfer taxes.
8. This Agreement shall become effective on the date hereof and shall
continue until March 1, 1999; 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.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by KDI on sixty (60) days' written notice to the other party. The
Fund may effect termination with respect to any class of any series of the Fund
by a vote of (i) a majority of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement, or in any other agreement related to the
Plan, or (ii) a majority of the outstanding voting securities of such series or
class. Without prejudice to any other remedies of the Fund, the Fund may
terminate this Agreement at any time immediately upon KDI's failure to fulfill
any of its obligations hereunder.
All material amendments to this Agreement must be approved by a vote of a
majority of the Board, and of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement or in any other agreement related to the
Plan, cast in person at a meeting called for such purpose.
The terms "assignment," "interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the
Investment Company Act and the rules and regulations thereunder.
KDI shall receive such compensation for its distribution services as set
forth in the Plan. Termination of this Agreement shall not affect the right of
KDI to receive payments on any unpaid balance of the compensation earned prior
to such termination, as set forth in the Plan.
9. KDI 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. KDI will furnish the Fund with copies of
all such material.
10. 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.
11. Any notice under this Agreement shall be in writing, addressed and
delivered or
<PAGE>
mailed, postage prepaid, to the other party at such address as such other party
may designate for the receipt of such notice.
12. All parties hereto are expressly put on notice of the Fund's Agreement
and Declaration of Trust, and all amendments thereto, all of which are on file
with the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund hereunder
are not binding upon any of the Trustees, officers or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund. With
respect to any claim by KDI for recovery of any liability of the Fund arising
hereunder allocated to a particular series or class, whether in accordance with
the express terms hereof or otherwise, KDI 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.
13. This Agreement shall be construed in accordance with applicable
federal law and with the laws of The Commonwealth of Massachusetts.
14. 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.
[SIGNATURES APPEAR ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be
executed as of the day and year first above written.
KEMPER NATIONAL TAX-FREE INCOME
SERIES
By: /s/Mark S. Casady
----------------------------------
Title: President
-------------------------------
ATTEST:
/s/ Maureen Kane
- --------------------------
Title: Ass't. Sec.
-------------------
KEMPER DISTRIBUTORS, INC.
By: /s/ James L. Greenawalt
----------------------------------
Title: President
-------------------------------
ATTEST:
/s/ Joan V. Pearson
- --------------------------
Title: Executive Assistant
-------------------
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 7th day of September, 1998 between KEMPER NATIONAL TAX-FREE
INCOME SERIES, a Massachusetts business trust (the "Fund"), and KEMPER
DISTRIBUTORS, INC., a Delaware corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to act as agent for distribution of shares
of beneficial interest (hereinafter called "shares") of the Fund in
jurisdictions wherein shares of the Fund may legally be offered for sale;
provided, however, that the Fund in its absolute discretion may (a) issue or
sell shares directly to holders of shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the payment
or reinvestment of dividends or distributions, or otherwise; or (b) issue or
sell shares at net asset value to the shareholders of any other investment
company, for which KDI shall act as exclusive distributor, who wish to exchange
all or a portion of their investment in shares of such other investment company
for shares of the Fund. KDI shall appoint various 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. KDI may also provide some of the above services for the
Fund.
KDI 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. KDI 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. KDI, by separate agreement with the Fund, may also serve the
Fund in other capacities. The services of KDI to the Fund under this Agreement
are not to be deemed exclusive, and KDI shall be free to render similar services
or other services to others so long as its services hereunder are not impaired
thereby.
In carrying out its duties and responsibilities hereunder, KDI 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 KDI and not the Fund.
KDI 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
<PAGE>
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 Fund's
organizational documents.
2. KDI shall sell shares of the Fund to or through qualified Firms in such
manner, not inconsistent with the provisions hereof and the then effective
registration statement (and related prospectus) of the Fund under the Securities
Act, as KDI may determine from time to time, provided that no Firm or other
person shall be appointed or authorized to act as agent of the Fund without
prior consent of the Fund. In addition to sales made by it as agent of the Fund,
KDI may, in its discretion, also sell shares of the Fund as principal to persons
with whom it does not have selling group agreements.
Shares of any class of any series of the Fund offered for sale or sold by
KDI shall be so offered or sold at a price per share determined in accordance
with the then current prospectus. 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 KDI as
agent shall be retained by KDI as a commission for its services hereunder. KDI
may compensate Firms for sales of shares at the commission levels provided in
the Fund's prospectus from time to time. KDI may pay other commissions, fees or
concessions to Firms, any may pay them to others in its discretion, in such
amounts as KDI shall determine from time to time. KDI shall be entitled to
receive and retain any applicable contingent deferred sales charge as described
in the Fund's prospectus. KDI shall also receive any distribution services fee
payable by the Fund as provided in the Fund's Amended and Restated 12b-1 Plan,
as amended from time to time (the "Plan").
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price or net asset value, as
applicable, of the Fund's shares, and neither KDI nor any such Firms shall
withhold the placing of purchase orders so as to make a profit thereby.
3. The Fund will use its best efforts to keep effectively registered under
the Securities Act for sale as herein contemplated such shares as KDI shall
reasonably request and as the Securities and Exchange Commission shall permit to
be so registered. Notwithstanding any other provision hereof, the Fund may
terminate, 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 KDI may reasonably
request (it being understood that the Fund shall not be required without its
consent to comply with any requirement which in its opinion is unduly
burdensome). The Fund will furnish to KDI from time to time such information
with respect to the Fund and its shares as KDI may reasonably request for use in
connection with the sale of shares of the Fund.
<PAGE>
5. KDI shall issue and deliver or shall arrange for various Firms to issue
and deliver on behalf of the Fund such confirmations of sales made by it
pursuant to this Agreement as may be required. At or prior to the time of
issuance of shares, KDI will pay or cause to be paid to the Fund the amount due
the Fund for the sale of such shares. Certificates shall be issued or shares
registered on the transfer books of the Fund in such names and denominations as
KDI may specify.
6. KDI shall order shares of the Fund from the Fund only to the extent
that it shall have received purchase orders therefor. KDI will not make, or
authorize Firms or others to make (a) any short sales of shares of the Fund; or
(b) any sales of such shares to any Board member or officer of the Fund or to
any officer or Board member of KDI 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. KDI, as
agent of and for the account of the Fund, may repurchase the shares of the Fund
at such prices and upon such terms and conditions as shall be specified in the
current prospectus of the Fund. In selling or reacquiring shares of the Fund for
the account of the Fund, KDI will in all respects conform to the requirements of
all state and federal laws and the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., relating to such sale or reacquisition,
as the case may be, and will indemnify and save harmless the Fund from any
damage or expense on account of any wrongful act by KDI or any employee,
representative or agent of KDI. KDI will observe and be bound by all the
provisions of the Fund's organizational documents (and of any fundamental
policies adopted by the Fund pursuant to the Investment Company Act of 1940 (the
"Investment Company Act"), notice of which shall have been given to KDI) which
at the time in any way require, limit, restrict, prohibit or otherwise regulate
any action on the part of KDI hereunder.
7. The Fund shall assume and pay all charges and expenses of its
operations not specifically assumed or otherwise to be provided by KDI under
this Agreement or the Plan. 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. KDI will pay
all expenses (other than expenses which one or more Firms may bear pursuant to
any agreement with KDI) incident to the sale and distribution of the shares
issued or sold hereunder, including, without limiting the generality of the
foregoing, all (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
<PAGE>
the qualification of the Fund as a dealer or broker under the laws of such
states as may be designated by KDI under the conditions herein specified. No
transfer taxes, if any, which may be payable in connection with the issue or
delivery or shares sold as herein contemplated or of the certificates for such
shares shall be borne by the Fund, and KDI will indemnify and hold harmless the
Fund against liability for all such transfer taxes.
8. This Agreement shall become effective on the date hereof and shall
continue until March 1, 1999; 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.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by KDI on sixty (60) days' written notice to the other party. The
Fund may effect termination with respect to any class of any series of the Fund
by a vote of (i) a majority of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement, or in any other agreement related to the
Plan, or (ii) a majority of the outstanding voting securities of such series or
class. Without prejudice to any other remedies of the Fund, the Fund may
terminate this Agreement at any time immediately upon KDI's failure to fulfill
any of its obligations hereunder.
All material amendments to this Agreement must be approved by a vote of a
majority of the Board, and of the Board members who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan, this Agreement or in any other agreement related to the
Plan, cast in person at a meeting called for such purpose.
The terms "assignment," "interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the
Investment Company Act and the rules and regulations thereunder.
KDI shall receive such compensation for its distribution services as set
forth in the Plan. Termination of this Agreement shall not affect the right of
KDI to receive payments on any unpaid balance of the compensation earned prior
to such termination, as set forth in the Plan.
9. KDI 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. KDI will furnish the Fund with copies of
all such material.
10. 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.
11. Any notice under this Agreement shall be in writing, addressed and
delivered or
<PAGE>
mailed, postage prepaid, to the other party at such address as such other party
may designate for the receipt of such notice.
12. All parties hereto are expressly put on notice of the Fund's Agreement
and Declaration of Trust, and all amendments thereto, all of which are on file
with the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund hereunder
are not binding upon any of the Trustees, officers or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund. With
respect to any claim by KDI for recovery of any liability of the Fund arising
hereunder allocated to a particular series or class, whether in accordance with
the express terms hereof or otherwise, KDI 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.
13. This Agreement shall be construed in accordance with applicable
federal law and with the laws of The Commonwealth of Massachusetts.
14. 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.
[SIGNATURES APPEAR ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be
executed as of the day and year first above written.
KEMPER NATIONAL TAX-FREE INCOME SERIES
By: /s/Mark S. Casady
----------------------------------
Title: President
-------------------------------
ATTEST:
/s/Maureen Kane
- --------------------------
Title: Asst. Sec.
-------------------
KEMPER DISTRIBUTORS, INC.
By: /s/James L. Greenawalt
----------------------------------
Title: President
-------------------------------
ATTEST:
/s/ Joan V. Pearson
- --------------------------
Title: Executive Assistant
-------------------
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 31st day of December, 1997 between Kemper National
Tax-Free Income Series (the "Fund"), on behalf of Kemper Municipal Bond Fund
(hereinafter called the "Portfolio"), a registered open-end management
investment company with its principal place of business in 222 South Riverside
Plaza, Chicago, Illinois 60606 and Scudder Fund Accounting Corporation, with its
principal place of business in Boston, Massachusetts (hereinafter called "FUND
ACCOUNTING").
WHEREAS, the Portfolio has need to determine its net asset value which service
FUND ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement to
calculate the net asset value of the Portfolio as provided in the
prospectus of the Portfolio and in connection therewith shall:
a. Maintain and preserve all accounts, books, financial records and
other documents as are required of the Fund under Section 31 of the
Investment Company Act of 1940 (the "1940 Act") and Rules 31a-1,
31a-2 and 31a-3 thereunder, applicable federal and state laws and
any other law or administrative rules or procedures which may be
applicable to the Fund on behalf of the Portfolio, other than those
accounts, books and financial records required to be maintained by
the Fund's investment adviser, custodian or transfer agent and/or
books and records maintained by all other service providers
necessary for the Fund to conduct its business as a registered
open-end management investment company. All such books and records
shall be the property of the Fund and shall at all times during
regular business hours be open for inspection by, and shall be
surrendered promptly upon request of, duly authorized officers of
the Fund. All such books and records shall at all times during
regular business hours be open for inspection, upon request of duly
authorized officers of the Fund, by employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission.
b. Record the current day's trading activity and such other proper
bookkeeping entries as are necessary for determining that day's net
asset value and net income.
<PAGE>
c. Render statements or copies of records as from time to time are
reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by the Fund
or by any regulatory body with jurisdiction over the Fund.
e. Compute the Portfolio's public offering price and/or its daily
dividend rates and money market yields, if applicable, in accordance
with Section 3 of the Agreement and notify the Fund and such other
persons as the Fund may reasonably request of the net asset value
per share, the public offering price and/or its daily dividend rates
and money market yields.
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's Registration
Statement, as amended or supplemented from time to time (hereinafter
referred to as the "Registration Statement"); (b) the resolutions of the
Board of Trustees of the Fund at the time in force and applicable, as they
may from time to time be delivered to FUND ACCOUNTING, and (c) Proper
Instructions from such officers of the Fund or other persons as are from
time to time authorized by the Board of Trustees of the Fund to give
instructions with respect to computation and determination of the net
asset value. FUND ACCOUNTING may use one or more external pricing
services, including broker-dealers, provided that an appropriate officer
of the Fund shall have approved such use in advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily
Dividend Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value, including
net income, in a manner consistent with the specific provisions of the
Registration Statement. Such computation shall be made as of the time or
times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yields, if applicable, in accordance with the methodology set forth in the
Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the necessary
computations FUND ACCOUNTING shall be entitled
2
<PAGE>
to receive, and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on
the books of the Portfolio;
b. The source of quotations to be used for such securities as may not
be available through FUND ACCOUNTING's normal pricing services;
c. The value to be assigned to any asset for which no price quotations
are readily available;
d. If applicable, the manner of computation of the public offering
price and such other computations as may be necessary;
e. Transactions in portfolio securities;
f. Transactions in capital shares.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person authorized
by the Fund's Board of Trustees.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel for the Fund at the reasonable expense of the Portfolio and shall
be without liability for any action taken or thing done in good faith in
reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
3
<PAGE>
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND ACCOUNTING
to be genuine and to have been properly made or signed by any authorized
officer of the Fund or person certified to FUND ACCOUNTING as being
authorized by the Board of Trustees. The Fund, on behalf of the Portfolio,
shall cause oral instructions to be confirmed in writing. Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices as from time to time agreed to by
an authorized officer of the Fund and FUND ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the appropriate
person(s) within FUND ACCOUNTING a copy of the Registration Statement as
in effect from time to time. FUND ACCOUNTING may conclusively rely on the
Fund's most recently delivered Registration Statement for all purposes
under this Agreement and shall not be liable to the Portfolio or the Fund
in acting in reliance thereon.
Section 6. Standard of Care
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND ACCOUNTING
shall not be liable under this Agreement for any error of judgment or
mistake of law made in good faith and consistent with the foregoing
standard of care, provided that nothing in this Agreement shall be deemed
to protect or purport to protect FUND ACCOUNTING against any liability to
the Fund, the Portfolio or its shareholders to which FUND ACCOUNTING would
otherwise be subject by reason of willful misfeasance, bad faith or
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties hereunder.
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon
in writing by the two parties. FUND ACCOUNTING shall be entitled, if
agreed to by the Fund on behalf of the Portfolio, to recover its
reasonable telephone, courier or delivery service, and all other
reasonable out-of-pocket, expenses as incurred,
4
<PAGE>
including, without limitation, reasonable attorneys' fees and reasonable
fees for pricing services.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated as
hereinafter provided, may be amended at any time by mutual agreement of
the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take effect
not sooner than sixty (60) days after the date of delivery or mailing of
such notice of termination. Any termination date is to be no earlier than
four months from the effective date hereof. Upon termination, FUND
ACCOUNTING will turn over to the Fund or its designee and cease to retain
in FUND ACCOUNTING files, records of the calculations of net asset value
and all other records pertaining to its services hereunder; provided,
however, FUND ACCOUNTING in its discretion may make and retain copies of
any and all such records and documents which it determines appropriate or
for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be deemed
to be exclusive, and it is understood that FUND ACCOUNTING may perform
fund accounting services for others. In acting under this Agreement, FUND
ACCOUNTING shall be an independent contractor and not an agent of the Fund
or the Portfolio.
Section 10. Limitation of Liability for Claims
The Fund's Amended and Restated Declaration of Trust, as amended to date
(the "Declaration"), a copy of which, together with all amendments
thereto, is on file in the Office of the Secretary of State of the
Commonwealth of Massachusetts, provides that the name "Kemper National
Tax-Free Income Series" refers to the Trustees under the Declaration
collectively as trustees and not as individuals or personally, and that no
shareholder of the Fund or the Portfolio, or Trustee, officer, employee or
agent of the Fund shall be subject to claims against or obligations of the
Trust or of the Portfolio to any extent whatsoever, but that the Trust
estate only shall be liable.
5
<PAGE>
FUND ACCOUNTING is expressly put on notice of the limitation of liability
as set forth in the Declaration and FUND ACCOUNTING agrees that the
obligations assumed by the Fund and/or the Portfolio under this Agreement
shall be limited in all cases to the Portfolio and its assets, and FUND
ACCOUNTING shall not seek satisfaction of any such obligation from the
shareholders or any shareholder of the Fund or the Portfolio or any other
series of the Fund, or from any Trustee, officer, employee or agent of the
Fund. FUND ACCOUNTING understands that the rights and obligations of the
Portfolio under the Declaration are separate and distinct from those of
any and all other series of the Fund.
Section 11. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such other
person or at such other address as such party may from time to time
specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President
If to the Fund - Portfolio: Kemper National Tax-Free
Income Series
222 South Riverside Plaza
Chicago, Illinois 60606
Attn: President, Secretary
or Treasurer
6
<PAGE>
Section 12. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the consent
of the Fund as authorized or approved by resolution of its Board of
Trustees.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive of
or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive or
additional provisions shall be in writing, signed by both parties and
annexed hereto, but no such provisions shall be deemed to be an amendment
of this Agreement.
This Agreement shall be governed and construed in accordance with the laws
of the Commonwealth of Massachusetts.
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.
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
[SEAL] KEMPER NATIONAL TAX-FREE
INCOME SERIES
on behalf of Kemper Municipal
Bond Fund
By: /s/Mark S. Casady
---------------------------------
President
[SEAL] SCUDDER FUND ACCOUNTING CORPORATION
By: /s/John R. Hebble
---------------------------------
ATTEST:
/s/Joan V. Pearson
- --------------------------
Title: Executive Assistant
-------------------
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 31st day of December, 1997 between Kemper National
Tax-Free Income Series (the "Fund"), on behalf of Kemper Intermediate Municipal
Bond Fund (hereinafter called the "Portfolio"), a registered open-end management
investment company with its principal place of business in 222 South Riverside
Plaza, Chicago, Illinois 60606 and Scudder Fund Accounting Corporation, with its
principal place of business in Boston, Massachusetts (hereinafter called "FUND
ACCOUNTING").
WHEREAS, the Portfolio has need to determine its net asset value which service
FUND ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made, the Fund and
FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement to
calculate the net asset value of the Portfolio as provided in the
prospectus of the Portfolio and in connection therewith shall:
a. Maintain and preserve all accounts, books, financial records and
other documents as are required of the Fund under Section 31 of the
Investment Company Act of 1940 (the "1940 Act") and Rules 31a-1,
31a-2 and 31a-3 thereunder, applicable federal and state laws and
any other law or administrative rules or procedures which may be
applicable to the Fund on behalf of the Portfolio, other than those
accounts, books and financial records required to be maintained by
the Fund's investment adviser, custodian or transfer agent and/or
books and records maintained by all other service providers
necessary for the Fund to conduct its business as a registered
open-end management investment company. All such books and records
shall be the property of the Fund and shall at all times during
regular business hours be open for inspection by, and shall be
surrendered promptly upon request of, duly authorized officers of
the Fund. All such books and records shall at all times during
regular business hours be open for inspection, upon request of duly
authorized officers of the Fund, by employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission.
b. Record the current day's trading activity and such other proper
bookkeeping entries as are necessary for determining that day's net
asset value and net income.
<PAGE>
c. Render statements or copies of records as from time to time are
reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by the Fund
or by any regulatory body with jurisdiction over the Fund.
e. Compute the Portfolio's public offering price and/or its daily
dividend rates and money market yields, if applicable, in accordance
with Section 3 of the Agreement and notify the Fund and such other
persons as the Fund may reasonably request of the net asset value
per share, the public offering price and/or its daily dividend rates
and money market yields.
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Trustees of the Fund at the time in
force and applicable, as they may from time to time be delivered to
FUND ACCOUNTING, and (c) Proper Instructions from such officers of
the Fund or other persons as are from time to time authorized by the
Board of Trustees of the Fund to give instructions with respect to
computation and determination of the net asset value. FUND
ACCOUNTING may use one or more external pricing services, including
broker-dealers, provided that an appropriate officer of the Fund
shall have approved such use in advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset value,
including net income, in a manner consistent with the specific
provisions of the Registration Statement. Such computation shall be
made as of the time or times specified in the Registration
Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money
market yields, if applicable, in accordance with the methodology set
forth in the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making the
necessary computations FUND ACCOUNTING shall be entitled to receive,
and may rely upon, information furnished it by means of Proper
Instructions, including but not limited to:
2
<PAGE>
a. The manner and amount of accrual of expenses to be recorded on the
books of the Portfolio;
b. The source of quotations to be used for such securities as may not
be available through FUND ACCOUNTING's normal pricing services;
c. The value to be assigned to any asset for which no price quotations
are readily available;
d. If applicable, the manner of computation of the public offering
price and such other computations as may be necessary;
e. Transactions in portfolio securities;
f. Transactions in capital shares.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person authorized
by the Fund's Board of Trustees.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel for the Fund at the reasonable expense of the Portfolio and shall
be without liability for any action taken or thing done in good faith in
reliance upon such advice.
FUND ACCOUNTING shall be entitled to receive, and may rely upon,
information received from the Transfer Agent.
3
<PAGE>
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate, letter or
other instrument or telephone call reasonably believed by FUND ACCOUNTING
to be genuine and to have been properly made or signed by any authorized
officer of the Fund or person certified to FUND ACCOUNTING as being
authorized by the Board of Trustees. The Fund, on behalf of the Portfolio,
shall cause oral instructions to be confirmed in writing. Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices as from time to time agreed to by
an authorized officer of the Fund and FUND ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to the appropriate
person(s) within FUND ACCOUNTING a copy of the Registration Statement as
in effect from time to time. FUND ACCOUNTING may conclusively rely on the
Fund's most recently delivered Registration Statement for all purposes
under this Agreement and shall not be liable to the Portfolio or the Fund
in acting in reliance thereon.
Section 6. Standard of Care
FUND ACCOUNTING shall exercise reasonable care and diligence in the
performance of its duties hereunder. The Fund agrees that FUND ACCOUNTING
shall not be liable under this Agreement for any error of judgment or
mistake of law made in good faith and consistent with the foregoing
standard of care, provided that nothing in this Agreement shall be deemed
to protect or purport to protect FUND ACCOUNTING against any liability to
the Fund, the Portfolio or its shareholders to which FUND ACCOUNTING would
otherwise be subject by reason of willful misfeasance, bad faith or
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties hereunder.
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon
in writing by the two parties. FUND ACCOUNTING shall be entitled, if
agreed to by the Fund on behalf of the Portfolio, to recover its
reasonable telephone, courier or delivery service, and all other
reasonable out-of-pocket, expenses as incurred,
4
<PAGE>
including, without limitation, reasonable attorneys' fees and reasonable
fees for pricing services.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated as
hereinafter provided, may be amended at any time by mutual agreement of
the parties hereto and may be terminated by an instrument in writing
delivered or mailed to the other party. Such termination shall take effect
not sooner than sixty (60) days after the date of delivery or mailing of
such notice of termination. Any termination date is to be no earlier than
four months from the effective date hereof. Upon termination, FUND
ACCOUNTING will turn over to the Fund or its designee and cease to retain
in FUND ACCOUNTING files, records of the calculations of net asset value
and all other records pertaining to its services hereunder; provided,
however, FUND ACCOUNTING in its discretion may make and retain copies of
any and all such records and documents which it determines appropriate or
for its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be deemed
to be exclusive, and it is understood that FUND ACCOUNTING may perform
fund accounting services for others. In acting under this Agreement, FUND
ACCOUNTING shall be an independent contractor and not an agent of the Fund
or the Portfolio.
Section 10. Limitation of Liability for Claims
The Fund's Amended and Restated Declaration of Trust, as amended to date
(the "Declaration"), a copy of which, together with all amendments
thereto, is on file in the Office of the Secretary of State of the
Commonwealth of Massachusetts, provides that the name "Kemper National
Tax-Free Income Series" refers to the Trustees under the Declaration
collectively as trustees and not as individuals or personally, and that no
shareholder of the Fund or the Portfolio, or Trustee, officer, employee or
agent of the Fund shall be subject to claims against or obligations of the
Trust or of the Portfolio to any extent whatsoever, but that the Trust
estate only shall be liable.
5
<PAGE>
FUND ACCOUNTING is expressly put on notice of the limitation of liability
as set forth in the Declaration and FUND ACCOUNTING agrees that the
obligations assumed by the Fund and/or the Portfolio under this Agreement
shall be limited in all cases to the Portfolio and its assets, and FUND
ACCOUNTING shall not seek satisfaction of any such obligation from the
shareholders or any shareholder of the Fund or the Portfolio or any other
series of the Fund, or from any Trustee, officer, employee or agent of the
Fund. FUND ACCOUNTING understands that the rights and obligations of the
Portfolio under the Declaration are separate and distinct from those of
any and all other series of the Fund.
Section 11. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such other
person or at such other address as such party may from time to time
specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President
If to the Fund - Portfolio: Kemper National Tax-Free
Income Series
222 South Riverside Plaza
Chicago, Illinois 60606
Attn: President, Secretary
or Treasurer
6
<PAGE>
Section 12. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING without the consent
of the Fund as authorized or approved by resolution of its Board of
Trustees.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive of
or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive or
additional provisions shall be in writing, signed by both parties and
annexed hereto, but no such provisions shall be deemed to be an amendment
of this Agreement.
This Agreement shall be governed and construed in accordance with the laws
of the Commonwealth of Massachusetts.
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.
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date first written above.
[SEAL] KEMPER NATIONAL TAX-FREE INCOME
SERIES
on behalf of Kemper Intermediate
Municipal Bond Fund
By: /s/Mark S. Casady
-------------------------------
President
[SEAL] SCUDDER FUND ACCOUNTING CORPORATION
By: /s/John R. Hebble
-------------------------------
8
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 financial statements of the Kemper National Tax-Free
Income Series - Kemper Municipal Bond Fund and Kemper Intermediate Municipal
Bond Fund dated November 17, 1998 in the Registration Statement (Form N-1A) of
Kemper National Tax-Free Income Series and its 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 Amendement No. 45 to the Registration Statement under the
Securities Act of 1933 (Registration No. 2-47008) and in this Amendment No. 45
to the Registration Statement under the Investment Company Act of 1940
(Registration No. 811-2353).
ERNST & YOUNG LLP
Chicago, Illinois
December 28, 1998
<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 1998 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055190
<NAME> KEMPER NATIONAL TAX-FREE INCOME SERIES
<SERIES>
<NUMBER> 011
<NAME> KEMPER MUNICIPAL BOND FUND - CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 2,979,461
<INVESTMENTS-AT-VALUE> 3,243,335
<RECEIVABLES> 87,575
<ASSETS-OTHER> 2,217
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,333,127
<PAYABLE-FOR-SECURITIES> 105,805
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,679
<TOTAL-LIABILITIES> 112,484
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,928,271
<SHARES-COMMON-STOCK> 295,280
<SHARES-COMMON-PRIOR> 301,050
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 28,498
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 263,874
<NET-ASSETS> 3,220,643
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 180,219
<OTHER-INCOME> 0
<EXPENSES-NET> (22,307)
<NET-INVESTMENT-INCOME> 157,912
<REALIZED-GAINS-CURRENT> 56,655
<APPREC-INCREASE-CURRENT> 55,759
<NET-CHANGE-FROM-OPS> 270,326
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (154,791)
<DISTRIBUTIONS-OF-GAINS> (65,478)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 93,619
<NUMBER-OF-SHARES-REDEEMED> (113,073)
<SHARES-REINVESTED> 13,684
<NET-CHANGE-IN-ASSETS> 4,422
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 38,813
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13,233
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 22,307
<AVERAGE-NET-ASSETS> 3,197,193
<PER-SHARE-NAV-BEGIN> 10.46
<PER-SHARE-NII> .52
<PER-SHARE-GAIN-APPREC> .37
<PER-SHARE-DIVIDEND> (.52)
<PER-SHARE-DISTRIBUTIONS> (.22)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.61
<EXPENSE-RATIO> .68
<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 1998 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055190
<NAME> KEMPER NATIONAL TAX-FREE INCOME SERIES
<SERIES>
<NUMBER> 012
<NAME> KEMPER MUNICIPAL BOND FUND - CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 2,979,461
<INVESTMENTS-AT-VALUE> 3,243,335
<RECEIVABLES> 87,575
<ASSETS-OTHER> 2,217
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,333,127
<PAYABLE-FOR-SECURITIES> 105,805
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,679
<TOTAL-LIABILITIES> 112,484
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,928,271
<SHARES-COMMON-STOCK> 7,402
<SHARES-COMMON-PRIOR> 5,878
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 28,498
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 263,874
<NET-ASSETS> 3,220,643
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 180,219
<OTHER-INCOME> 0
<EXPENSES-NET> (22,307)
<NET-INVESTMENT-INCOME> 157,912
<REALIZED-GAINS-CURRENT> 56,655
<APPREC-INCREASE-CURRENT> 55,759
<NET-CHANGE-FROM-OPS> 270,326
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,809)
<DISTRIBUTIONS-OF-GAINS> (1,358)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,704
<NUMBER-OF-SHARES-REDEEMED> (1,453)
<SHARES-REINVESTED> 273
<NET-CHANGE-IN-ASSETS> 4,422
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 38,813
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13,233
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<GROSS-EXPENSE> 22,307
<AVERAGE-NET-ASSETS> 3,197,193
<PER-SHARE-NAV-BEGIN> 10.44
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> .36
<PER-SHARE-DIVIDEND> (.43)
<PER-SHARE-DISTRIBUTIONS> (.22)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.58
<EXPENSE-RATIO> 1.52
<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 1998 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055190
<NAME> KEMPER NATIONAL TAX-FREE INCOME SERIES
<SERIES>
<NUMBER> 013
<NAME> KEMPER MUNICIPAL BOND FUND - CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 2,979,461
<INVESTMENTS-AT-VALUE> 3,243,335
<RECEIVABLES> 87,575
<ASSETS-OTHER> 2,217
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,333,127
<PAYABLE-FOR-SECURITIES> 105,805
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,679
<TOTAL-LIABILITIES> 112,484
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,928,271
<SHARES-COMMON-STOCK> 947
<SHARES-COMMON-PRIOR> 519
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 28,498
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 263,874
<NET-ASSETS> 3,220,643
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 180,219
<OTHER-INCOME> 0
<EXPENSES-NET> (22,307)
<NET-INVESTMENT-INCOME> 157,912
<REALIZED-GAINS-CURRENT> 56,655
<APPREC-INCREASE-CURRENT> 55,759
<NET-CHANGE-FROM-OPS> 270,326
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (312)
<DISTRIBUTIONS-OF-GAINS> (134)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,263
<NUMBER-OF-SHARES-REDEEMED> (3,866)
<SHARES-REINVESTED> 31
<NET-CHANGE-IN-ASSETS> 4,422
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 38,813
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 22,307
<AVERAGE-NET-ASSETS> 3,197,193
<PER-SHARE-NAV-BEGIN> 10.47
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> .37
<PER-SHARE-DIVIDEND> (.43)
<PER-SHARE-DISTRIBUTIONS> (.22)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> 1.52
<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 1998 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055190
<NAME> KEMPER NATIONAL TAX-FREE INCOME SERIES
<SERIES>
<NUMBER> 014
<NAME> KEMPER MUNICIPAL BOND FUND - CLASS I
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 2,979,461
<INVESTMENTS-AT-VALUE> 3,243,335
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<OTHER-ITEMS-ASSETS> 0
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<PAYABLE-FOR-SECURITIES> 105,805
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,679
<TOTAL-LIABILITIES> 112,484
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,928,271
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 30
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 28,498
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 263,874
<NET-ASSETS> 3,220,643
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 180,219
<OTHER-INCOME> 0
<EXPENSES-NET> (22,307)
<NET-INVESTMENT-INCOME> 157,912
<REALIZED-GAINS-CURRENT> 56,655
<APPREC-INCREASE-CURRENT> 55,759
<NET-CHANGE-FROM-OPS> 270,326
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (30)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,422
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 38,813
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13,233
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 22,307
<AVERAGE-NET-ASSETS> 3,197,193
<PER-SHARE-NAV-BEGIN> 10.46
<PER-SHARE-NII> .48
<PER-SHARE-GAIN-APPREC> .36
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.48)
<RETURNS-OF-CAPITAL> (.22)
<PER-SHARE-NAV-END> 10.60
<EXPENSE-RATIO> .60
<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 OF
FINANCIAL INFORMATION EXTRACTED FROM THE 1998 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055190
<NAME> KEMPER NATIONAL TAX-FREE INCOME SERIES
<SERIES>
<NUMBER> 021
<NAME> KEMPER INTERMEDIATE MUNICIPAL BOND FUND - CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 24,546
<INVESTMENTS-AT-VALUE> 26,209
<RECEIVABLES> 460
<ASSETS-OTHER> 28
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,697
<PAYABLE-FOR-SECURITIES> 1,052
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 472
<TOTAL-LIABILITIES> 1,524
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,549
<SHARES-COMMON-STOCK> 1,819
<SHARES-COMMON-PRIOR> 1,609
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (39)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,663
<NET-ASSETS> 25,173
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,236
<OTHER-INCOME> 0
<EXPENSES-NET> (270)
<NET-INVESTMENT-INCOME> 966
<REALIZED-GAINS-CURRENT> 85
<APPREC-INCREASE-CURRENT> 555
<NET-CHANGE-FROM-OPS> 1,606
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (761)
<DISTRIBUTIONS-OF-GAINS> (106)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 830
<NUMBER-OF-SHARES-REDEEMED> (677)
<SHARES-REINVESTED> 57
<NET-CHANGE-IN-ASSETS> 3,284
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 16
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 127
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 270
<AVERAGE-NET-ASSETS> 23,482
<PER-SHARE-NAV-BEGIN> 10.31
<PER-SHARE-NII> .45
<PER-SHARE-GAIN-APPREC> .29
<PER-SHARE-DIVIDEND> (.45)
<PER-SHARE-DISTRIBUTIONS> (.07)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.53
<EXPENSE-RATIO> .96
<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 OF
FINANCIAL INFORMATION EXTRACTED FROM THE 1998 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055190
<NAME> KEMPER NATIONAL TAX-FREE INCOME SERIES
<SERIES>
<NUMBER> 022
<NAME> KEMPER INTERMEDIATE MUNICIPAL BOND FUND - CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 24,546
<INVESTMENTS-AT-VALUE> 26,209
<RECEIVABLES> 460
<ASSETS-OTHER> 28
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,697
<PAYABLE-FOR-SECURITIES> 1,052
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 472
<TOTAL-LIABILITIES> 1,524
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,549
<SHARES-COMMON-STOCK> 498
<SHARES-COMMON-PRIOR> 443
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (39)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,663
<NET-ASSETS> 25,173
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,236
<OTHER-INCOME> 0
<EXPENSES-NET> (270)
<NET-INVESTMENT-INCOME> 966
<REALIZED-GAINS-CURRENT> 85
<APPREC-INCREASE-CURRENT> 555
<NET-CHANGE-FROM-OPS> 1,606
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (181)
<DISTRIBUTIONS-OF-GAINS> (29)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 178
<NUMBER-OF-SHARES-REDEEMED> (135)
<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> 3,284
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 16
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 127
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 270
<AVERAGE-NET-ASSETS> 23,482
<PER-SHARE-NAV-BEGIN> 10.31
<PER-SHARE-NII> .37
<PER-SHARE-GAIN-APPREC> .28
<PER-SHARE-DIVIDEND> (.37)
<PER-SHARE-DISTRIBUTIONS> (.07)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.52
<EXPENSE-RATIO> 1.76
<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 OF
FINANCIAL INFORMATION EXTRACTED FROM THE 1998 ANNUAL REPORT TO SHAREHOLDERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000055190
<NAME> KEMPER NATIONAL TAX-FREE INCOME SERIES
<SERIES>
<NUMBER> 023
<NAME> KEMPER INTERMEDIATE MUNICIPAL BOND FUND - CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 24,546
<INVESTMENTS-AT-VALUE> 26,209
<RECEIVABLES> 460
<ASSETS-OTHER> 28
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,697
<PAYABLE-FOR-SECURITIES> 1,052
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 472
<TOTAL-LIABILITIES> 1,524
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,549
<SHARES-COMMON-STOCK> 75
<SHARES-COMMON-PRIOR> 70
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (39)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,663
<NET-ASSETS> 25,173
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,236
<OTHER-INCOME> 0
<EXPENSES-NET> (270)
<NET-INVESTMENT-INCOME> 966
<REALIZED-GAINS-CURRENT> 85
<APPREC-INCREASE-CURRENT> 555
<NET-CHANGE-FROM-OPS> 1,606
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (24)
<DISTRIBUTIONS-OF-GAINS> (5)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 56
<NUMBER-OF-SHARES-REDEEMED> (53)
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 3,284
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 16
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 127
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 270
<AVERAGE-NET-ASSETS> 23,482
<PER-SHARE-NAV-BEGIN> 10.31
<PER-SHARE-NII> .37
<PER-SHARE-GAIN-APPREC> .29
<PER-SHARE-DIVIDEND> (.37)
<PER-SHARE-DISTRIBUTIONS> (.07)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.53
<EXPENSE-RATIO> 1.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
