Filed electronically with the Securities and Exchange Commission
on October 28, 1998
File No. 2-8159
File No. 811-75
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. 27 / X /
And/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 27
Kemper State 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 State 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):
<TABLE>
<CAPTION>
<S> <C>
/ / Immediately upon filing pursuant to / / days after filing pursuant to paragraph ( a )( 1 )
paragraph ( b )
/ / days after filing pursuant to paragraph ( a ) / / On ( date ) pursuant to paragraph ( b )
( 2 )
/ X / On January 1, 1999 pursuant to paragraph ( a ) / / On ( date ) pursuant to paragraph ( a ) ( 2 ) of Rule 485.
( 1 )
</TABLE>
If Appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES:
KEMPER CALIFORNIA TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
Items Required By Forms N-1A
----------------------------
<TABLE>
<CAPTION>
PART A
- ------
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
<S> <C> <C>
1. Front and Back Cover FRONT AND BACK COVER
Pages.
2. Risk / Return TAX FREE INCOME INVESTING - INVESTMENT APPROACH, PRINCIPAL
Summary: RISK FACTORS, INVESTMENT OBJECTIVES AND STRATEGIES
Investments, Risks PRINCIPAL INVESTMENTS AND RELATED RISKS
and Performance. PAST PERFORMANCE
3. Risk/Return Summary: EXPENSE INFORMATION
Fee Table
4. Investment TAX FREE INCOME INVESTING - INVESTMENT APPROACH, PRINCIPAL
Objectives, RISK FACTORS
Principal Investment ABOUT THE FUNDS
Strategies, and INVESTMENT OBJECTIVES AND STRATEGIES
Related Risks. PRINCIPAL INVESTMENTS AND RELATED RISKS
5. Management's NOT APPLICABLE
Discussion of Fund
Performance.
6. Management, PORTFOLIO MANAGEMENT
Organization, and INVESTMENT MANAGER
Capital Structure.
7. Shareholder ABOUT YOUR INVESTMENT -
Information. CHOOSING A SHARE CLASS, BUYING SHARES, SELLING AND
EXCHANGING SHARES, DISTRIBUTION AND TAXES, TRANSACTION
INFORMATION
8. Distribution ABOUT YOUR INVESTMENT -
Arrangements. CHOOSING A SHARE CLASS
9. Financial Highlights FINANCIAL HIGHLIGHTS
Information.
2
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES:
KEMPER CALIFORNIA TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
PART B
- ------
Item No. Item Caption Caption in Statement of Additional Information
- -------- ------------ ----------------------------------------------
10. Cover Page and COVER PAGE
Table of Contents TABLE OF CONTENTS
11. Fund History FUND ORGANIZATION
12. Description of the THE FUNDS INVESTMENT OBJECTIVES AND POLICIES
Fund and Its
Investments and
Risks.
13. Management of the REMUNERATION
Fund TRUSTEES AND OFFICERS
14. Control Persons and REMUNERATION
Principal Holders of
Securities
15. Investment Advisory INVESTMENT ADVISER
and Other Services DISTRIBUTOR
ADDITIONAL INFORMATION- Experts, Other Information
16. Brokerage Allocation PORTFOLIO TRANSACTIONS--Brokerage Commissions, Portfolio
and Other Practices Turnover
17. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
18. Purchase, Redemption PURCHASE, REPURCHASE AND REDEMPTION OF SHARES
and Pricing of FEATURES AND SERVICES OFFERED BY THE FUND--Dividend and
Shares. Capital Gain Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
19. Taxation of the Fund. TAXES
20. Underwriters. DISTRIBUTOR
21. Calculation of PERFORMANCE INFORMATION
Performance Data.
22. Financial Statements. FINANCIAL STATEMENT
3
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES:
KEMPER FLORIDA TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
Items Required By Forms N-1A
----------------------------
PART A
- ------
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Front and Back Cover FRONT AND BACK COVER
Pages.
2. Risk / Return TAX FREE INCOME INVESTING - INVESTMENT APPROACH, PRINCIPAL
Summary: RISK FACTORS, INVESTMENT OBJECTIVES AND STRATEGIES
Investments, Risks PRINCIPAL INVESTMENTS AND RELATED RISKS
and Performance. PAST PERFORMANCE
3. Risk/Return Summary: EXPENSE INFORMATION
Fee Table
4. Investment TAX FREE INCOME INVESTING - INVESTMENT APPROACH, PRINCIPAL
Objectives, RISK FACTORS
Principal Investment ABOUT THE FUNDS
Strategies, and INVESTMENT OBJECTIVES AND STRATEGIES
Related Risks. PRINCIPAL INVESTMENTS AND RELATED RISKS
5. Management's NOT APPLICABLE
Discussion of Fund
Performance.
6. Management, PORTFOLIO MANAGEMENT
Organization, and INVESTMENT MANAGER
Capital Structure.
7. Shareholder ABOUT YOUR INVESTMENT -
Information. CHOOSING A SHARE CLASS, BUYING SHARES, SELLING AND EXCHANGING
SHARES, DISTRIBUTION AND TAXES, TRANSACTION INFORMATION
8. Distribution ABOUT YOUR INVESTMENT -
Arrangements. CHOOSING A SHARE CLASS
9. Financial Highlights FINANCIAL HIGHLIGHTS
Information.
4
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES:
KEMPER FLORIDA TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
PART B
- ------
Item No. Item Caption Caption in Statement of Additional Information
- -------- ------------ ----------------------------------------------
10. Cover Page and COVER PAGE
Table of Contents TABLE OF CONTENTS
11. Fund History FUND ORGANIZATION
12. Description of the THE FUNDS INVESTMENT OBJECTIVES AND POLICIES
Fund and Its
Investments and
Risks.
13. Management of the REMUNERATION
Fund TRUSTEES AND OFFICERS
14. Control Persons and REMUNERATION
Principal Holders of
Securities
15. Investment Advisory INVESTMENT ADVISER
and Other Services DISTRIBUTOR
ADDITIONAL INFORMATION- Experts, Other Information
16. Brokerage Allocation PORTFOLIO TRANSACTIONS--Brokerage Commissions, Portfolio
and Other Practices Turnover
17. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
18. Purchase, Redemption PURCHASE, REPURCHASE AND REDEMPTION OF SHARES
and Pricing of FEATURES AND SERVICES OFFERED BY THE FUND--Dividend and
Shares. Capital Gain Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
19. Taxation of the Fund. TAXES
20. Underwriters. DISTRIBUTOR
21. Calculation of PERFORMANCE INFORMATION
Performance Data.
22. Financial Statements. FINANCIAL STATEMENT
5
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES:
KEMPER MICHIGAN TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
Items Required By Forms N-1A
----------------------------
PART A
- ------
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Front and Back Cover FRONT AND BACK COVER
Pages.
2. Risk / Return TAX FREE INCOME INVESTING - INVESTMENT APPROACH, PRINCIPAL
Summary: RISK FACTORS, INVESTMENT OBJECTIVES AND STRATEGIES
Investments, Risks PRINCIPAL INVESTMENTS AND RELATED RISKS
and Performance. PAST PERFORMANCE
3. Risk/Return Summary: EXPENSE INFORMATION
Fee Table
4. Investment TAX FREE INCOME INVESTING - INVESTMENT APPROACH, PRINCIPAL
Objectives, RISK FACTORS
Principal Investment ABOUT THE FUNDS
Strategies, and INVESTMENT OBJECTIVES AND STRATEGIES
Related Risks. PRINCIPAL INVESTMENTS AND RELATED RISKS
5. Management's NOT APPLICABLE
Discussion of Fund
Performance.
6. Management, PORTFOLIO MANAGEMENT
Organization, and INVESTMENT MANAGER
Capital Structure.
7. Shareholder ABOUT YOUR INVESTMENT -
Information. CHOOSING A SHARE CLASS, BUYING SHARES, SELLING AND EXCHANGING
SHARES, DISTRIBUTION AND TAXES, TRANSACTION INFORMATION
8. Distribution ABOUT YOUR INVESTMENT -
Arrangements. CHOOSING A SHARE CLASS
9. Financial Highlights FINANCIAL HIGHLIGHTS
Information.
6
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES:
KEMPER MICHIGAN TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
PART B
- ------
Item No. Item Caption Caption in Statement of Additional Information
- -------- ------------ ----------------------------------------------
10. Cover Page and COVER PAGE
Table of Contents TABLE OF CONTENTS
11. Fund History FUND ORGANIZATION
12. Description of the THE FUNDS INVESTMENT OBJECTIVES AND POLICIES
Fund and Its
Investments and
Risks.
13. Management of the REMUNERATION
Fund TRUSTEES AND OFFICERS
14. Control Persons and REMUNERATION
Principal Holders of
Securities
15. Investment Advisory INVESTMENT ADVISER
and Other Services DISTRIBUTOR
ADDITIONAL INFORMATION- Experts, Other Information
16. Brokerage Allocation PORTFOLIO TRANSACTIONS--Brokerage Commissions, Portfolio
and Other Practices Turnover
17. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
18. Purchase, Redemption PURCHASE, REPURCHASE AND REDEMPTION OF SHARES
and Pricing of FEATURES AND SERVICES OFFERED BY THE FUND--Dividend and
Shares. Capital Gain Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
19. Taxation of the Fund. TAXES
20. Underwriters. DISTRIBUTOR
21. Calculation of PERFORMANCE INFORMATION
Performance Data.
22. Financial Statements. FINANCIAL STATEMENT
7
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES:
KEMPER NEW JERSEY TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
Items Required By Forms N-1A
----------------------------
PART A
- ------
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Front and Back Cover FRONT AND BACK COVER
Pages.
2. Risk / Return TAX FREE INCOME INVESTING - INVESTMENT APPROACH, PRINCIPAL
Summary: RISK FACTORS, INVESTMENT OBJECTIVES AND STRATEGIES
Investments, Risks PRINCIPAL INVESTMENTS AND RELATED RISKS
and Performance. PAST PERFORMANCE
3. Risk/Return Summary: EXPENSE INFORMATION
Fee Table
4. Investment TAX FREE INCOME INVESTING - INVESTMENT APPROACH, PRINCIPAL
Objectives, RISK FACTORS
Principal Investment ABOUT THE FUNDS
Strategies, and INVESTMENT OBJECTIVES AND STRATEGIES
Related Risks. PRINCIPAL INVESTMENTS AND RELATED RISKS
5. Management's NOT APPLICABLE
Discussion of Fund
Performance.
6. Management, PORTFOLIO MANAGEMENT
Organization, and INVESTMENT MANAGER
Capital Structure.
7. Shareholder ABOUT YOUR INVESTMENT -
Information. CHOOSING A SHARE CLASS, BUYING SHARES, SELLING AND EXCHANGING
SHARES, DISTRIBUTION AND TAXES, TRANSACTION INFORMATION
8. Distribution ABOUT YOUR INVESTMENT -
Arrangements. CHOOSING A SHARE CLASS
9. Financial Highlights FINANCIAL HIGHLIGHTS
Information.
8
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES:
KEMPER NEW JERSEY TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
PART B
- ------
Item No. Item Caption Caption in Statement of Additional Information
- -------- ------------ ----------------------------------------------
10. Cover Page and COVER PAGE
Table of Contents TABLE OF CONTENTS
11. Fund History FUND ORGANIZATION
12. Description of the THE FUNDS INVESTMENT OBJECTIVES AND POLICIES
Fund and Its
Investments and
Risks.
13. Management of the REMUNERATION
Fund TRUSTEES AND OFFICERS
14. Control Persons and REMUNERATION
Principal Holders of
Securities
15. Investment Advisory INVESTMENT ADVISER
and Other Services DISTRIBUTOR
ADDITIONAL INFORMATION- Experts, Other Information
16. Brokerage Allocation PORTFOLIO TRANSACTIONS--Brokerage Commissions, Portfolio
and Other Practices Turnover
17. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
18. Purchase, Redemption PURCHASE, REPURCHASE AND REDEMPTION OF SHARES
and Pricing of FEATURES AND SERVICES OFFERED BY THE FUND--Dividend and
Shares. Capital Gain Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
19. Taxation of the Fund. TAXES
20. Underwriters. DISTRIBUTOR
21. Calculation of PERFORMANCE INFORMATION
Performance Data.
22. Financial Statements. FINANCIAL STATEMENT
9
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES:
KEMPER NEW YORK TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
Items Required By Forms N-1A
----------------------------
PART A
- ------
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Front and Back Cover FRONT AND BACK COVER
Pages.
2. Risk / Return TAX FREE INCOME INVESTING - INVESTMENT APPROACH, PRINCIPAL
Summary: RISK FACTORS, INVESTMENT OBJECTIVES AND STRATEGIES
Investments, Risks PRINCIPAL INVESTMENTS AND RELATED RISKS
and Performance. PAST PERFORMANCE
3. Risk/Return Summary: EXPENSE INFORMATION
Fee Table
4. Investment TAX FREE INCOME INVESTING - INVESTMENT APPROACH, PRINCIPAL
Objectives, RISK FACTORS
Principal Investment ABOUT THE FUNDS
Strategies, and INVESTMENT OBJECTIVES AND STRATEGIES
Related Risks. PRINCIPAL INVESTMENTS AND RELATED RISKS
5. Management's NOT APPLICABLE
Discussion of Fund
Performance.
6. Management, PORTFOLIO MANAGEMENT
Organization, and INVESTMENT MANAGER
Capital Structure.
7. Shareholder ABOUT YOUR INVESTMENT -
Information. CHOOSING A SHARE CLASS, BUYING SHARES, SELLING AND EXCHANGING
SHARES, DISTRIBUTION AND TAXES, TRANSACTION INFORMATION
8. Distribution ABOUT YOUR INVESTMENT -
Arrangements. CHOOSING A SHARE CLASS
9. Financial Highlights FINANCIAL HIGHLIGHTS
Information.
10
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES:
KEMPER NEW YORK TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
PART B
- ------
Item No. Item Caption Caption in Statement of Additional Information
- -------- ------------ ----------------------------------------------
10. Cover Page and COVER PAGE
Table of Contents TABLE OF CONTENTS
11. Fund History FUND ORGANIZATION
12. Description of the THE FUNDS INVESTMENT OBJECTIVES AND POLICIES
Fund and Its
Investments and
Risks.
13. Management of the REMUNERATION
Fund TRUSTEES AND OFFICERS
14. Control Persons and REMUNERATION
Principal Holders of
Securities
15. Investment Advisory INVESTMENT ADVISER
and Other Services DISTRIBUTOR
ADDITIONAL INFORMATION- Experts, Other Information
16. Brokerage Allocation PORTFOLIO TRANSACTIONS--Brokerage Commissions, Portfolio
and Other Practices Turnover
17. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
18. Purchase, Redemption PURCHASE, REPURCHASE AND REDEMPTION OF SHARES
and Pricing of FEATURES AND SERVICES OFFERED BY THE FUND--Dividend and
Shares. Capital Gain Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
19. Taxation of the Fund. TAXES
20. Underwriters. DISTRIBUTOR
21. Calculation of PERFORMANCE INFORMATION
Performance Data.
22. Financial Statements. FINANCIAL STATEMENT
11
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES:
KEMPER OHIO TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
Items Required By Forms N-1A
----------------------------
PART A
- ------
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Front and Back Cover FRONT AND BACK COVER
Pages.
2. Risk / Return TAX FREE INCOME INVESTING - INVESTMENT APPROACH, PRINCIPAL
Summary: RISK FACTORS, INVESTMENT OBJECTIVES AND STRATEGIES
Investments, Risks PRINCIPAL INVESTMENTS AND RELATED RISKS
and Performance. PAST PERFORMANCE
3. Risk/Return Summary: EXPENSE INFORMATION
Fee Table
4. Investment TAX FREE INCOME INVESTING - INVESTMENT APPROACH, PRINCIPAL
Objectives, RISK FACTORS
Principal Investment ABOUT THE FUNDS
Strategies, and INVESTMENT OBJECTIVES AND STRATEGIES
Related Risks. PRINCIPAL INVESTMENTS AND RELATED RISKS
5. Management's NOT APPLICABLE
Discussion of Fund
Performance.
6. Management, PORTFOLIO MANAGEMENT
Organization, and INVESTMENT MANAGER
Capital Structure.
7. Shareholder ABOUT YOUR INVESTMENT -
Information. CHOOSING A SHARE CLASS, BUYING SHARES, SELLING AND EXCHANGING
SHARES, DISTRIBUTION AND TAXES, TRANSACTION INFORMATION
8. Distribution ABOUT YOUR INVESTMENT -
Arrangements. CHOOSING A SHARE CLASS
9. Financial Highlights FINANCIAL HIGHLIGHTS
Information.
12
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES:
KEMPER OHIO TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
PART B
- ------
Item No. Item Caption Caption in Statement of Additional Information
- -------- ------------ ----------------------------------------------
10. Cover Page and COVER PAGE
Table of Contents TABLE OF CONTENTS
11. Fund History FUND ORGANIZATION
12. Description of the THE FUNDS INVESTMENT OBJECTIVES AND POLICIES
Fund and Its
Investments and
Risks.
13. Management of the REMUNERATION
Fund TRUSTEES AND OFFICERS
14. Control Persons and REMUNERATION
Principal Holders of
Securities
15. Investment Advisory INVESTMENT ADVISER
and Other Services DISTRIBUTOR
ADDITIONAL INFORMATION- Experts, Other Information
16. Brokerage Allocation PORTFOLIO TRANSACTIONS--Brokerage Commissions, Portfolio
and Other Practices Turnover
17. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
18. Purchase, Redemption PURCHASE, REPURCHASE AND REDEMPTION OF SHARES
and Pricing of FEATURES AND SERVICES OFFERED BY THE FUND--Dividend and
Shares. Capital Gain Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
19. Taxation of the Fund. TAXES
20. Underwriters. DISTRIBUTOR
21. Calculation of PERFORMANCE INFORMATION
Performance Data.
22. Financial Statements. FINANCIAL STATEMENT
13
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES:
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
Items Required By Forms N-1A
----------------------------
PART A
- ------
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Front and Back Cover FRONT AND BACK COVER
Pages.
2. Risk / Return TAX FREE INCOME INVESTING - INVESTMENT APPROACH, PRINCIPAL
Summary: RISK FACTORS, INVESTMENT OBJECTIVES AND STRATEGIES
Investments, Risks PRINCIPAL INVESTMENTS AND RELATED RISKS
and Performance. PAST PERFORMANCE
3. Risk/Return Summary: EXPENSE INFORMATION
Fee Table
4. Investment TAX FREE INCOME INVESTING - INVESTMENT APPROACH, PRINCIPAL
Objectives, RISK FACTORS
Principal Investment ABOUT THE FUNDS
Strategies, and INVESTMENT OBJECTIVES AND STRATEGIES
Related Risks. PRINCIPAL INVESTMENTS AND RELATED RISKS
5. Management's NOT APPLICABLE
Discussion of Fund
Performance.
6. Management, PORTFOLIO MANAGEMENT
Organization, and INVESTMENT MANAGER
Capital Structure.
7. Shareholder ABOUT YOUR INVESTMENT -
Information. CHOOSING A SHARE CLASS, BUYING SHARES, SELLING AND EXCHANGING
SHARES, DISTRIBUTION AND TAXES, TRANSACTION INFORMATION
8. Distribution ABOUT YOUR INVESTMENT -
Arrangements. CHOOSING A SHARE CLASS
9. Financial Highlights FINANCIAL HIGHLIGHTS
Information.
14
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES:
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
PART B
- ------
Item No. Item Caption Caption in Statement of Additional Information
- -------- ------------ ----------------------------------------------
10. Cover Page and COVER PAGE
Table of Contents TABLE OF CONTENTS
11. Fund History FUND ORGANIZATION
12. Description of the THE FUNDS INVESTMENT OBJECTIVES AND POLICIES
Fund and Its
Investments and
Risks.
13. Management of the REMUNERATION
Fund TRUSTEES AND OFFICERS
14. Control Persons and REMUNERATION
Principal Holders of
Securities
15. Investment Advisory INVESTMENT ADVISER
and Other Services DISTRIBUTOR
ADDITIONAL INFORMATION- Experts, Other Information
16. Brokerage Allocation PORTFOLIO TRANSACTIONS--Brokerage Commissions, Portfolio
and Other Practices Turnover
17. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
18. Purchase, Redemption PURCHASE, REPURCHASE AND REDEMPTION OF SHARES
and Pricing of FEATURES AND SERVICES OFFERED BY THE FUND--Dividend and
Shares. Capital Gain Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
19. Taxation of the Fund. TAXES
20. Underwriters. DISTRIBUTOR
21. Calculation of PERFORMANCE INFORMATION
Performance Data.
22. Financial Statements. FINANCIAL STATEMENT
15
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES:
KEMPER TEXAS TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
Items Required By Forms N-1A
----------------------------
PART A
- ------
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Front and Back Cover FRONT AND BACK COVER
Pages.
2. Risk / Return TAX FREE INCOME INVESTING - INVESTMENT APPROACH, PRINCIPAL
Summary: RISK FACTORS, INVESTMENT OBJECTIVES AND STRATEGIES
Investments, Risks PRINCIPAL INVESTMENTS AND RELATED RISKS
and Performance. PAST PERFORMANCE
3. Risk/Return Summary: EXPENSE INFORMATION
Fee Table
4. Investment TAX FREE INCOME INVESTING - INVESTMENT APPROACH, PRINCIPAL
Objectives, RISK FACTORS
Principal Investment ABOUT THE FUNDS
Strategies, and INVESTMENT OBJECTIVES AND STRATEGIES
Related Risks. PRINCIPAL INVESTMENTS AND RELATED RISKS
5. Management's NOT APPLICABLE
Discussion of Fund
Performance.
6. Management, PORTFOLIO MANAGEMENT
Organization, and INVESTMENT MANAGER
Capital Structure.
7. Shareholder ABOUT YOUR INVESTMENT -
Information. CHOOSING A SHARE CLASS, BUYING SHARES, SELLING AND EXCHANGING
SHARES, DISTRIBUTION AND TAXES, TRANSACTION INFORMATION
8. Distribution ABOUT YOUR INVESTMENT -
Arrangements. CHOOSING A SHARE CLASS
9. Financial Highlights FINANCIAL HIGHLIGHTS
Information.
16
<PAGE>
KEMPER STATE TAX-FREE INCOME SERIES:
KEMPER TEXAS TAX-FREE INCOME FUND
CROSS REFERENCE SHEET
PART B
- ------
Item No. Item Caption Caption in Statement of Additional Information
- -------- ------------ ----------------------------------------------
10. Cover Page and COVER PAGE
Table of Contents TABLE OF CONTENTS
11. Fund History FUND ORGANIZATION
12. Description of the THE FUNDS INVESTMENT OBJECTIVES AND POLICIES
Fund and Its
Investments and
Risks.
13. Management of the REMUNERATION
Fund TRUSTEES AND OFFICERS
14. Control Persons and REMUNERATION
Principal Holders of
Securities
15. Investment Advisory INVESTMENT ADVISER
and Other Services DISTRIBUTOR
ADDITIONAL INFORMATION- Experts, Other Information
16. Brokerage Allocation PORTFOLIO TRANSACTIONS--Brokerage Commissions, Portfolio
and Other Practices Turnover
17. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
18. Purchase, Redemption PURCHASE, REPURCHASE AND REDEMPTION OF SHARES
and Pricing of FEATURES AND SERVICES OFFERED BY THE FUND--Dividend and
Shares. Capital Gain Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
19. Taxation of the Fund. TAXES
20. Underwriters. DISTRIBUTOR
21. Calculation of PERFORMANCE INFORMATION
Performance Data.
22. Financial Statements. FINANCIAL STATEMENT
</TABLE>
17
<PAGE>
LONG TERM
INVESTING
IN A
SHORT TERM
WORLD
January 1, 1999
Prospectus
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
Kemper Tax-Free Income Funds
Kemper Municipal Bond Fund
Kemper Intermediate Municipal Bond Fund
Kemper California Tax-Free Income Fund
Kemper Florida Tax-Free Income Fund
Kemper Michigan Tax-Free Income Fund
Kemper New Jersey Tax-Free Income Fund
Kemper New York Tax-Free Income Fund
Kemper Ohio Tax-Free Income Fund
Kemper Pennsylvania Tax-Free Income Fund
Kemper Texas Tax-Free Income Fund
The Securities and Exchange Commission is not responsible
for the accuracy or completeness of the information
in any prospectus, and gives no opinion
as to the merit of any mutual fund as an investment.
<PAGE>
CONTENTS
TAX FREE INCOME INVESTING...................................................4
Investment approach of the funds..........................................4
Principal risk factors of the funds.......................................4
Principal investments and related risks...................................6
ABOUT THE FUNDS................................................................7
Kemper Municipal Bond Fund..................................................7
Kemper Intermediate Municipal Fund.........................................13
KEMPER CALIFORNIA TAX-FREE INCOME FUND.....................................19
KEMPER FLORIDA TAX-FREE INCOME FUND........................................25
KEMPER MICHIGAN TAX-FREE INCOME FUND.......................................31
KEMPER NEW JERSEY TAX-FREE INCOME FUND.....................................37
KEMPER NEW YORK TAX-FREE INCOME FUND.......................................43
KEMPER OHIO TAX-FREE INCOME FUND...........................................49
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND...................................55
KEMPER TEXAS TAX-FREE INCOME FUND..........................................61
Investment Manager.........................................................67
ABOUT YOUR INVESTMENT.........................................................70
Choosing a share class...................................................70
Buying shares............................................................72
Selling and exchanging shares............................................79
Distributions and taxes..................................................80
Transaction information..................................................82
2
<PAGE>
TAX FREE INCOME INVESTING
Investment approach of the funds
Each fund is designed for persons who are seeking a high level of income exempt
from federal income taxes and, in the case of certain state funds, from taxes of
a particular state. Investors receive the benefits of professional management
and liquidity through a single investment in shares of a fund.. 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.
Principal risk factors of the funds
There are market and investment risks with any security and the value of an
investment in the funds will fluctuate over time.
Interest rates. 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 quality. Municipal Securities are generally assigned ratings that assess
the issuer's ability to make principal and interest payments on time. Those
rated within the four highest grades by Moody's, S&P, Fitch or Duff are
generally considered to be "investment grade." Like higher rated securities,
securities rated in the Baa/BBB categories are considered to have adequate
capacity to pay principal and interest, although they may have fewer protective
provisions than higher rated securities and thus may be more adversely affected
by economic circumstances and are considered to have some speculative
characteristics.
Non-diversified (State Funds). 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. In addition, because these funds focus their
investments in the muncipal securities of one state, adverse economic, political
or regulatory occurrences in that state will have a greater impact on investment
returns than would be the case for a municipal securities fund investing
nationally.
3
<PAGE>
Portfolio strategy. The portfolio management team's skill in choosing
appropriate investments for the funds will determine in large part the funds'
ability to achieve their respective investment objectives.
Tax free Income Investing
Principal investments and related risks
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 the refunding of outstanding obligations
o obtaining funds for general operating expenses
o the obtaining of funds to loan to other public institutions and facilities.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source.
Individual municipal securities may lose value for many reasons, including:
o a downgrade in credit rating
o in the case of bonds issued to finance projects, an adverse change in the
real or perceived value of the project.
o an early call by the issuer
o loss of tax free status
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. These securitiesgenerally 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. A fund may
have difficulty disposing of certain high yield securities because there may be
a thin trading market for such securities.
4
<PAGE>
ABOUT THE FUNDS
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, through investment in a professionally managed,
diversified portfolio of municipal securities. The fund's investment objective
and policies 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 tends to
be in excess of 15 years. Income may be subject to state and local taxes.
The investment manager actively manages the fund's portfolio:
o with respect to the interest rate outlook
o by selecting securities for superior price or income performance
o 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 rates movements, credit quality, maturity, and the
investment manager's skill in managing the fund's portfolio. Please refer to
"Tax Free Income Investing" at the front of this prospectus for details.
5
<PAGE>
Kemper Municipal Bond Fund
Past performance
The chart and table that follow illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
A BAR CHART IS TO BE INSERTED HERE, BUT IS PRESENTLY BLANK
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
BAR CHART
- --------------------------------------------------------------------------------------
</TABLE>
During the fund's last 10 years of operation, the fund's greatest quarterly gain
was ______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
<TABLE>
<CAPTION>
Class A Class B Class C Class I Lehman Brothers
Municipal Bond
For periods ended Index
December 31, 1998
<S> <C> <C> <C> <C> <C>
One Year __.__% __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__% __.__%
</TABLE>
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 the fund's returns, do not reflect any fees or expenses.
6
<PAGE>
Kemper Municipal Bond Fund
Expense information
The following information is designed to help you understand the various costs
and expenses of investing in 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 Special features sections.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various transactions.
----------------------------------------------------------------------------------------------
Class A Class B Class C Class I
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 4.5% None None None
price)
----------------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None None
----------------------------------------------------------------------------------------------
Redemption Fee None None None None
----------------------------------------------------------------------------------------------
Exchange Fee None None None None
---------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1% None
proceeds)
----------------------------------------------------------------------------------------------
(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 .50% during the second year.
- -----------------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income (expressed as a % of average daily net assets).
- -----------------------------------------------------------------------------------------------
Class A Class B Class C Class I
- -----------------------------------------------------------------------------------------------
Investment management fee
- -----------------------------------------------------------------------------------------------
Distribution (12b-1) fees
- -----------------------------------------------------------------------------------------------
Other expenses
- -----------------------------------------------------------------------------------------------
Total fund operating expenses
- -----------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Kemper Municipal Bond Fund
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.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class I Class A Class B Class C Class I
----------------------------------------------------------------------------------------------
<S> <C>
1 Year 1 Year
----------------------------------------------------------------------------------------------
3 Years 3 Years
----------------------------------------------------------------------------------------------
5 Years 5 Years
----------------------------------------------------------------------------------------------
10 Years 10 Years
----------------------------------------------------------------------------------------------
</TABLE>
Principal strategies and investments
Under normal conditions, as a fundamental investment policy, 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.
90% of the municipal securities in which the fund invests are rated, at the time
of purchase, within the four highest ratings of Moody's, S&P, Fitch or Duff or
any other Nationally Recognized Statistical Rating Organization or are of
comparable quality as determined by the Funds' investment manager. Up to 10% of
the fund's net assets may be invested without regard to this limitation.
The fund's portfolio is actively managed with respect to the investment
manager's assessment of the outlook for interest rates. Individual securities
are purchased and sold based on the investment manager's determinations of
geographic and sector strength and relative value.
While not a principal strategy, the fund may also invest in bonds subject to
both the individual and corporate alternative minimum tax, may utilize financial
futures contracts and options, may hold cash and other temporary investments
such as repurchase agreements, and may purchase insurance on the securities in
the fund's portfolio.
8
<PAGE>
Kemper Municipal Bond Fund
From time to time, the fund may invest up to 100% of its assets in short-term
high-grade debt securities, cash and cash equivalents for temporary defensive
purposes. Defensive investments should serve to lessen volatility in an adverse
market, although they will also generate lower returns than most other kinds of
investments in most markets. 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.
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.
9
<PAGE>
Kemper Municipal Bond Fund
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the 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 fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
To Be Updated
10
<PAGE>
Kemper Intermediate Municipal 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, through investment in a professionally
managed, diversified portfolio of municipal securities. The fund's investment
objective and policies may be changed without a vote of shareholders.
The fund invests in municipal securities rated investment grade with an average
maturity range of three 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. Income may be subject to state and local taxes.
Principal risks
The fund's principal risks are associated with investing in tax free fixed
income securities: interest rates movements, credit quality, maturity, and the
investment manager's skill in managing the fund's portfolio. Please refer to
"Tax Free Income Investing" at the front of this prospectus for details.
11
<PAGE>
Kemper Intermediate Municipal Fund
Past performance
The chart and table that follow illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
<TABLE>
<CAPTION>
A BAR CHART IS TO BE INSERTED HERE, BUT IS PRESENTLY BLANK
- --------------------------------------------------------------------------------------
BAR CHART
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
</TABLE>
During the fund's last 10 years of operation, the fund's greatest quarterly gain
was ______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
<TABLE>
<CAPTION>
Average Annual Total Returns
Class A Class B Class C Class I Lehman Brothers
Municipal Bond
Index
<S> <C> <C> <C> <C> <C>
For periods ended
December 31, 1998
One Year __.__% __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__% __.__%
</TABLE>
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 the fund's returns, do not reflect any fees or expenses.
12
<PAGE>
Kemper Intermediate Municipal Fund
Expense information
The following information is designed to help you understand the various costs
and expenses of investing in 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 Special features sections.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various transactions.
-----------------------------------------------------------------------------------------------
Class A Class B Class C Class I
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 2.75% None None None
price)
-----------------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None None
-----------------------------------------------------------------------------------------------
Redemption Fee None None None None
-----------------------------------------------------------------------------------------------
Exchange Fee None None None None
-----------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1% None
proceeds)
-------------------------------------------------------------------------------------------------
</TABLE>
(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 .50% during the second year.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income (expressed as a % of average daily net assets).
-------------------------------------------------------------------------------------------------
Class A Class B Class C Class I
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment management fee
-------------------------------------------------------------------------------------------------
Distribution (12b-1) fees
-------------------------------------------------------------------------------------------------
Other expenses
-------------------------------------------------------------------------------------------------
Total fund operating expenses
-------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Kemper Intermediate Municipal Fund
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.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your
shares:
Class A Class B Class C Class I Class A Class B Class C Class I
----------------------------------------------------------------------------------------------
<S> <C>
1 Year 1 Year
----------------------------------------------------------------------------------------------
3 Years 3 Years
----------------------------------------------------------------------------------------------
5 Years 5 Years
----------------------------------------------------------------------------------------------
10 Years 10 Years
----------------------------------------------------------------------------------------------
</TABLE>
Principal strategies and investments
Under normal conditions, as a fundamental investment policy, 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, except that a security will be treated
as having a maturity earlier than its stated maturity date if it has technical
features (such as puts or demand features) or a variable rate of interest which,
in the judgment of the fund's investment manager, will result in the security
being valued in the market as though it has the earlier maturity.
90% of the municipal securities in which the fund invests are rated, at the time
of purchase, within the four highest ratings of Moody's, S&P, Fitch or Duff or
any other Nationally Recognized Statistical Rating Organization or are of
comparable quality as determined by the fund's investment manager. Up to 10% of
the fund's net assets may be invested without regard to this limitation.
The fund's portfolio is actively managed with respect to the investment
manager's assessment of the outlook for interest rates. Individual securities
are purchased and sold based on the investment manager's determinations of
geographic and sector strength and relative value.
14
<PAGE>
Kemper Intermediate Municipal Fund
While not a principal strategy, the fund may also invest in bonds subject to
both the individual and corporate alternative minimum tax, may utilize financial
futures contracts and options, may hold cash and other temporary investments
such as repurchase agreements, and may purchase insurance on the securities in
the fund's portfolio.
From time to time, the fund may invest up to 100% of its assets in short-term
high-grade debt securities, cash and cash equivalents for temporary defensive
purposes. Defensive investments should serve to lessen volatility in an adverse
market, although they will also generate lower returns than most other kinds of
investments in most markets. 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.
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.
15
<PAGE>
Kemper Intermediate Municipal Fund
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the 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 fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
To Be Updated
16
<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 through a
professionally managed, non-diversified portfolio of municipal securities. The
fund's investment objective and policies may be changed without a vote of
shareholders.
The fund seeks to generate dividends that are exempt from federal and, in some
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 tends to be in excess of 15 years. Income may be subject to
local taxes.
The investment manager actively manages the fund's portfolio:
o with respect to the interest rate outlook
o by selecting securities for superior price or income performance
o 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 rates movements, credit quality, maturity, and the
investment manager's skill in managing the fund's portfolio. Please refer to
"Tax Free Income Investing" at the front of this prospectus for details. In
addition, because the fund invests in the municipal securities of one state, it
will be particularly effected by state-specific economic and political events.
Please refer to "Related risks" below for additional information.
17
<PAGE>
KEMPER CALIFORNIA TAX-FREE INCOME FUND
Past performance
The chart and table that follow illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
<TABLE>
<CAPTION>
A BAR CHART IS TO BE INSERTED HERE, BUT IS PRESENTLY BLANK
- --------------------------------------------------------------------------------------
BAR CHART
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
</TABLE>
During the fund's last 10 years of operation, the fund's greatest quarterly gain
was ______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
<TABLE>
<CAPTION>
Class A Class B Class C Lehman Brothers
For periods ended Municipal Bond
December 31, 1998 Index
<S> <C> <C> <C> <C>
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
</TABLE>
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 the fund's returns, do not reflect any fees or expenses.
18
<PAGE>
KEMPER CALIFORNIA TAX-FREE INCOME FUND
Expense information
The following information is designed to help you understand the various costs
and expenses of investing in 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 Special features sections.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various transactions.
------------------------------------------------------------------------------------------------
Class A Class B Class C
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 4.5% None None
price)
------------------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
------------------------------------------------------------------------------------------------
Redemption Fee None None None
------------------------------------------------------------------------------------------------
Exchange Fee None None None
------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
------------------------------------------------------------------------------------------------
</TABLE>
(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 .50% during the second year.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income (expressed as a % of average daily net assets).
------------------------------------------------------------------------------------------------
Class A Class B Class C
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment 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 fund operating expenses 0.78% 1.63% 1.62%
------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
KEMPER CALIFORNIA TAX-FREE INCOME FUND
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.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $526 $566 $265 1 Year $526 $166 $
- ---------------------------------------------------------------------------------------------
3 Years $688 $814 $511 3 Years $688 $514 $
- ---------------------------------------------------------------------------------------------
5 Years $864 $1,087 $881 5 Years $864 $887 $
- ---------------------------------------------------------------------------------------------
10 Years $1,373 $1,496 $1,922 10 Years $1,373 $1,496 $
- ---------------------------------------------------------------------------------------------
</TABLE>
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.
90% of the municipal securities in which the fund invests are rated, at the time
of purchase, within the four highest ratings of Moody's, S&P, Fitch or Duff or
any other Nationally Recognized Statistical Rating Organization or are of
comparable quality as determined by the fund's investment manager. Up to 10% of
the fund's net assets may be invested without regard to this limitation.
While not a principal strategy, the fund may also invest in bonds subject to
both the individual and corporate alternative minimum tax, may utilize financial
futures contracts and options, may hold cash and other temporary investments
such as repurchase agreements, and may purchase insurance on the securities in
the fund's portfolio.
From time to time, the fund may invest up to 100% of its assets in short-term
high-grade debt securities, cash and cash equivalents for temporary defensive
purposes. Defensive investments should serve to lessen volatility in an adverse
market, although they will also generate lower returns than most other kinds of
investments in most markets. 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.
20
<PAGE>
KEMPER CALIFORNIA TAX-FREE INCOME FUND
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.
Related risks
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.
21
<PAGE>
KEMPER CALIFORNIA TAX-FREE INCOME FUND
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the 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 fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
To Be Updated
22
<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 through a professionally
managed, non-diversified portfolio of municipal securities. The fund's
investment objective and policies 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 tends to be in
excess of 15 years. Income may be subject to state and local taxes. 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 selecting securities for superior price or income performance
o 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 rates movements, credit quality, maturity, and the
investment manager's skill in managing the fund's portfolio. Please refer to
"Tax Free Income Investing" at the front of this prospectus for details. In
addition, because the fund invests in the municipal securities of one state, it
will be particularly effected by state-specific economic and political events.
Please refer to "Related risks" below for additional information.
23
<PAGE>
KEMPER FLORIDA TAX-FREE INCOME FUND
Past performance
The chart and table that follow illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
<TABLE>
<CAPTION>
A BAR CHART IS TO BE INSERTED HERE, BUT IS PRESENTLY BLANK
- --------------------------------------------------------------------------------------
BAR CHART
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
</TABLE>
During the fund's last 10 years of operation, the fund's greatest quarterly gain
was ______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
<TABLE>
<CAPTION>
Average Annual Total Returns
Class A Class B Class C Lehman Brothers
For periods ended Municipal Bond
December 31, 1998 Index
<S> <C> <C> <C> <C>
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
</TABLE>
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 the fund's returns, do not reflect any fees or expenses.
24
<PAGE>
KEMPER FLORIDA TAX-FREE INCOME FUND
Expense information
The following information is designed to help you understand the various costs
and expenses of investing in 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 Special features sections.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
--------------------------------------------------------------------------------------
Class A Class B Class C
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 4.5% None None
price)
--------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
--------------------------------------------------------------------------------------
Redemption Fee None None None
--------------------------------------------------------------------------------------
Exchange Fee None None None
--------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
--------------------------------------------------------------------------------------
</TABLE>
(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 .50% during the second year.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income (expressed as a % of average daily net assets).
--------------------------------------------------------------------------------------
Class A Class B Class C
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment 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 fund operating expenses 0.85% 1.68% 1.69%
--------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
KEMPER FLORIDA TAX-FREE INCOME FUND
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.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $533 $571 $272 1 Year $533 $171 $
- ---------------------------------------------------------------------------------------------
3 Years $709 $830 $533 3 Years $709 $530 $
- ---------------------------------------------------------------------------------------------
5 Years $900 $1,113 $918 5 Years $900 $913 $
- ---------------------------------------------------------------------------------------------
10 Years $1,452 $1,563 $1,998 10 Years $1,452 $1,563 $
- ---------------------------------------------------------------------------------------------
</TABLE>
Principal strategies and investments
Under normal conditions, the fund maintains at least 80% 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.
90% of the municipal securities in which the fund invests are rated, at the time
of purchase, within the four highest ratings of Moody's, S&P, Fitch or Duff or
any other Nationally Recognized Statistical Rating Organization or are of
comparable quality as determined by the fund's investment manager. Up to 10% of
the fund's net assets may be invested without regard to this limitation.
KEMPER FLORIDA TAX-FREE INCOME FUND
While not a principal strategy, the fund may also invest in bonds subject to
both the individual and corporate alternative minimum tax, may utilize financial
futures contracts and options, may hold cash and other temporary investments
such as repurchase agreements, and may purchase insurance on the securities in
the fund's portfolio.
From time to time, the fund may invest up to 100% of its assets in short-term
high-grade debt securities, cash and cash equivalents for temporary defensive
purposes. Defensive investments should serve to lessen volatility in an adverse
market, although they will also generate lower returns than most other kinds of
investments in most markets. Because this defensive policy differs from the
fund's investment objective,
26
<PAGE>
the fund may not achieve its goals during a defensive period. Temporary
defensive investments may also be taxable.
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.
Related risks
Florida municipal securities may at times have lower yields than other
tax-exempt securities. Taking advantage of the exemption from the Florida
intangibles tax could result in higher portfolio turnover and related
transaction costs.
Florida is characterized by rapid growth, substantial capital needs, a
manageable debt burden, a diversifying but still somewhat narrow economic base
and good financial operations. The State continues to experience rapid
population growth although not as great as in previous years. The slower
population growth rate should allow the State to catch up on its capital needs.
Technology-based manufacturing, healthcare and financial services have joined
tourism and agriculture as leading elements of Florida's continued economic
growth. Florida's overall financial position remains healthy, despite swings in
financial operations over the past several years. The swings are reflective of
the State's reliance on the sales tax as the major revenue source. Florida has
increased its funding of capital projects through more frequent debt issuance
rather than the historical pay-as-you-go method.
27
<PAGE>
KEMPER FLORIDA TAX-FREE INCOME FUND
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the 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 fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
To Be Updated
28
<PAGE>
KEMPER MICHIGAN TAX-FREE INCOME FUND
Investment objective and principal strategies
Kemper Michigan Tax-Free Income Fund seeks to provide a high level of current
income that is exempt from federal and Michigan state income taxes through a
professionally managed, non-diversified portfolio of municipal securities. The
fund's investment objective and policies 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 tends to be in
excess of 15 ears. Income may be subject to other state and local taxes.
The investment manager actively manages the fund's portfolio:
o with respect to the interest rate outlook
o by selecting securities for superior price or income performance
o 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 rates movements, credit quality, maturity, and the
investment manager's skill in managing the fund's portfolio. Please refer to
"Tax Free Income Investing" at the front of this prospectus for details. In
addition, because the fund invests in the municipal securities of one state, it
will be particularly effected by state-specific economic and political events.
Please refer to "Related risks" below for additional information.
29
<PAGE>
KEMPER MICHIGAN TAX-FREE INCOME FUND
Past performance
The chart and table that follow illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
<TABLE>
<CAPTION>
A BAR CHART IS TO BE INSERTED HERE, BUT IS PRESENTLY BLANK
- --------------------------------------------------------------------------------------
BAR CHART
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
</TABLE>
During the fund's last 10 years of operation, the fund's greatest quarterly gain
was ______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
<TABLE>
<CAPTION>
Average Annual Total Returns
Class A Class B Class C Lehman Brothers
For periods ended Municipal Bond
December 31, 1998 Index
<S> <C> <C> <C> <C>
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
</TABLE>
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 the fund's returns, do not reflect any fees or expenses.
30
<PAGE>
KEMPER MICHIGAN TAX-FREE INCOME FUND
Expense information
The following information is designed to help you understand the various costs
and expenses of investing in 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 Special features
sections.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- -------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 4.5% None None
price)
-------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
-------------------------------------------------------------------------------------
Redemption Fee None None None
-------------------------------------------------------------------------------------
Exchange Fee None None None
-------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
-------------------------------------------------------------------------------------
</TABLE>
(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 .50% during the second year.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income (expressed as a % of average daily net assets).
-------------------------------------------------------------------------------------
Class A Class B Class C
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment 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 fund operating expenses 0.84% 1.67% 1.67%
-------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
KEMPER MICHIGAN TAX-FREE INCOME FUND
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.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $532 $570 $270 1 Year $532 $170 $
- ---------------------------------------------------------------------------------------------
3 Years $706 $826 $526 3 Years $706 $526 $
- ---------------------------------------------------------------------------------------------
5 Years $895 $1,107 $907 5 Years $895 $907 $
- ---------------------------------------------------------------------------------------------
10 Years $1,440 $1,552 $1,976 10 Years $1,440 $1,552 $
- ---------------------------------------------------------------------------------------------
</TABLE>
Principal strategies and investments
Under normal conditions, the fund maintains at least 80% of its investments in a
portfolio of obligations issued by or on behalf of Michigan, its political
subdivisions, agencies or instrumentalities the interest from which is exempt
from federal and Michigan income taxes.
90% of the municipal securities in which the fund invests are rated, at the time
of purchase, within the four highest ratings of Moody's, S&P, Fitch or Duff or
any other Nationally Recognized Statistical Rating Organization or are of
comparable quality as determined by the fund's investment manager. Up to 10% of
the fund's net assets may be invested without regard to this limitation.
KEMPER MICHIGAN TAX-FREE INCOME FUND
While not a principal strategy, the fund may also invest in bonds subject to
both the individual and corporate alternative minimum tax, may utilize financial
futures contracts and options, may hold cash and other temporary investments
such as repurchase agreements, and may purchase insurance on the securities in
the fund's portfolio.
From time to time, the fund may invest up to 100% of its assets in short-term
high-grade debt securities, cash and cash equivalents for temporary defensive
purposes. Defensive investments should serve to lessen volatility in an adverse
market, although they will also generate lower returns than most other kinds of
investments in most markets. Because this defensive policy differs from the
fund's investment objective,
32
<PAGE>
the fund may not achieve its goals during a defensive period. Temporary
defensive investments may also be taxable.
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.
Related risks
Michigan's economic performance relies heavily on national economic trends. Its
economy is highly industrialized with an economic base concentrated in the
manufacturing sector. This concentration has generally caused the State's
economy to be more volatile than that of more diversified states, although its
long term growth has kept pace with the nation due to gains in other sectors.
The most recent economic recession had a milder affect on the State compared to
the recession of the 1980's. The restructuring of the State's manufacturing
industry following the recession of the 1980's improved the industry's overall
competitive position. In addition, the rebound in the automotive industry of the
past several years has improved the State's current economic and financial
position, which are both at record levels of achievement. Michigan's future
economic growth will likely come from growth in its service sector.
33
<PAGE>
KEMPER MICHIGAN TAX-FREE INCOME FUND
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the 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 fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
To Be Updated
34
<PAGE>
KEMPER NEW JERSEY TAX-FREE INCOME FUND
Investment objective and principal strategies
Kemper New Jersey Tax-Free Income Fund seeks to provide a high level of current
income that is exempt from federal and New Jersey state income taxes through a
professionally managed, non-diversified portfolio of municipal securities. The
fund's investment objective and policies 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 tends to be in
excess of 15 years. Income may be subject to other state and local taxes.
The investment manager actively manages the fund's portfolio:
o with respect to the interest rate outlook
o by selecting securities for superior price or income performance
o 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 rates movements, credit quality, maturity, and the
investment manager's skill in managing the fund's portfolio. Please refer to
"Tax Free Income Investing" at the front of this prospectus for details. In
addition, because the fund invests in the municipal securities of one state, it
will be particularly effected by state-specific economic and political events.
Please refer to "Related risks" below for additional information.
35
<PAGE>
KEMPER NEW JERSEY TAX-FREE INCOME FUND
Past performance
The chart and table that follow illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
<TABLE>
<CAPTION>
A BAR CHART IS TO BE INSERTED HERE, BUT IS PRESENTLY BLANK
- --------------------------------------------------------------------------------------
BAR CHART
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
</TABLE>
During the fund's last 10 years of operation, the fund's greatest quarterly gain
was ______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
<TABLE>
<CAPTION>
Average Annual Total Returns
Class A Class B Class C Lehman Brothers
For periods ended Municipal Bond
December 31, 1998 Index
<S> <C> <C> <C> <C> <C> <C>
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
</TABLE>
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 the fund's returns, do not reflect any fees or expenses.
36
<PAGE>
KEMPER NEW JERSEY TAX-FREE INCOME FUND
Expense information
The following information is designed to help you understand the various costs
and expenses of investing in 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 Special features
sections.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- -------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 4.5% None None
price)
-------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
-------------------------------------------------------------------------------------
Redemption Fee None None None
-------------------------------------------------------------------------------------
Exchange Fee None None None
-------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
-------------------------------------------------------------------------------------
</TABLE>
(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 .50% during the second year.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income (expressed as a % of average daily net assets).
-------------------------------------------------------------------------------------
Class A Class B Class C
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment 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 fund operating expenses 0.87% 1.69% 1.67%
-------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
KEMPER NEW JERSEY TAX-FREE INCOME FUND
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.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $535 $572 $270 1 Year $535 $172 $
- ---------------------------------------------------------------------------------------------
3 Years $715 $833 $526 3 Years $715 $533 $
- ---------------------------------------------------------------------------------------------
5 Years $911 $1,118 $907 5 Years $911 $918 $
- ---------------------------------------------------------------------------------------------
10 Years $1,474 $1,579 $1,976 10 Years $1,474 $1,579 $
- ---------------------------------------------------------------------------------------------
</TABLE>
Principal strategies and investments
Under normal conditions, the fund maintains at least 80% of its investments in a
portfolio of obligations issued by or on behalf of New Jersey, its political
subdivisions, agencies or instrumentalities the interest from which is exempt
from federal and New Jersey income taxes.
90% of the municipal securities in which the fund invests are rated, at the time
of purchase, within the four highest ratings of Moody's, S&P, Fitch or Duff or
any other Nationally Recognized Statistical Rating Organization or are of
comparable quality as determined by the fund's investment manager. Up to 10% of
the fund's net assets may be invested without regard to this limitation.
KEMPER NEW JERSEY TAX-FREE INCOME FUND
While not a principal strategy, the fund may also invest in bonds subject to
both the individual and corporate alternative minimum tax, may utilize financial
futures contracts and options, may hold cash and other temporary investments
such as repurchase agreements, and may purchase insurance on the securities in
the fund's portfolio.
From time to time, the fund may invest up to 100% of its assets in short-term
high-grade debt securities, cash and cash equivalents for temporary defensive
purposes. Defensive investments should serve to lessen volatility in an adverse
market, although they will also generate lower returns than most other kinds of
investments in most markets. Because this defensive policy differs from the
fund's investment objective,
38
<PAGE>
the fund may not achieve its goals during a defensive period. Temporary
defensive investments may also be taxable.
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.
Related risks
New Jersey is the ninth most populous state in the nation. Per capita income in
1995 was the second highest of the states and about 128% of the national
average. The distribution of employment in New Jersey mirrors that of the
nation. After an extraordinary boom in the mid-1980's, New Jersey 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 Jersey climbed out
of the recession more slowly than the rest of the nation. Since 1992, the
unemployment rate in New Jersey has exceeded the national average; the average
unemployment rate for New Jersey and the nation during 1996 was 6.2%, slightly
higher than that of the U.S. The rate is forecast to drop to 5.5% in 1997, more
on par with the rest of the nation.
39
<PAGE>
KEMPER NEW JERSEY TAX-FREE INCOME FUND
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the 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 fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
To Be Updated
40
<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 through a professionally managed, non-diversified portfolio of municipal
securities. The fund's investment objective and policies 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 tends to be in
excess of 15 years. Income may be subject to other state and local taxes.
The investment manager actively manages the fund's portfolio:
o with respect to the interest rate outlook
o by selecting securities for superior price or income performance
o 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 rates movements, credit quality, maturity, and the
investment manager's skill in managing the fund's portfolio. Please refer to
"Tax Free Income Investing" at the front of this prospectus for details. In
addition, because the fund invests in the municipal securities of one state, it
will be particularly effected by state-specific economic and political events.
Please refer to "Related risks" below for additional information.
41
<PAGE>
KEMPER NEW YORK TAX-FREE INCOME FUND
Past performance
The chart and table that follow illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
<TABLE>
<CAPTION>
A BAR CHART IS TO BE INSERTED HERE, BUT IS PRESENTLY BLANK
- --------------------------------------------------------------------------------------
BAR CHART
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
</TABLE>
During the fund's last 10 years of operation, the fund's greatest quarterly gain
was ______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
<TABLE>
<CAPTION>
Average Annual Total Returns
Class A Class B Class C Lehman Brothers
For periods ended Municipal Bond
December 31, 1998 Index
<S> <C> <C> <C> <C>
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
</TABLE>
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 the fund's returns, do not reflect any fees or expenses.
42
<PAGE>
KEMPER NEW YORK TAX-FREE INCOME FUND
Expense information
The following information is designed to help you understand the various costs
and expenses of investing in 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 Special features
sections.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
-------------------------------------------------------------------------------------
Class A Class B Class C
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 4.5% None None
price)
-------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
-------------------------------------------------------------------------------------
Redemption Fee None None None
-------------------------------------------------------------------------------------
Exchange Fee None None None
-------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
-------------------------------------------------------------------------------------
</TABLE>
(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 .50% during the second year.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income (expressed as a % of average daily net assets).
-------------------------------------------------------------------------------------
Class A Class B Class C
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment management fee
-------------------------------------------------------------------------------------
Distribution (12b-1) fees
-------------------------------------------------------------------------------------
Other expenses
-------------------------------------------------------------------------------------
Total fund operating expenses
-------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
KEMPER NEW YORK TAX-FREE INCOME FUND
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.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- ---------------------------------------------------------------------------------------------
<S> <C>
1 Year 1 Year
- ---------------------------------------------------------------------------------------------
3 Years 3 Years
- ---------------------------------------------------------------------------------------------
5 Years 5 Years
- ---------------------------------------------------------------------------------------------
10 Years 10 Years
- ---------------------------------------------------------------------------------------------
</TABLE>
Principal strategies and investments
Under normal conditions, the fund maintains at least 80% 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.
90% of the municipal securities in which the fund invests are rated, at the time
of purchase, within the four highest ratings of Moody's, S&P, Fitch or Duff or
any other Nationally Recognized Statistical Rating Organization or are of
comparable quality as determined by the fund's investment manager. Up to 10% of
the fund's net assets may be invested without regard to this limitation.
KEMPER NEW YORK TAX-FREE INCOME FUND
While not a principal strategy, the fund may also invest in bonds subject to
both the individual and corporate alternative minimum tax, may utilize financial
futures contracts and options, may hold cash and other temporary investments
such as repurchase agreements, and may purchase insurance on the securities in
the fund's portfolio.
From time to time, the fund may invest up to 100% of its assets in short-term
high-grade debt securities, cash and cash equivalents for temporary defensive
purposes. Defensive investments should serve to lessen volatility in an adverse
market, although they will also generate lower returns than most other kinds of
investments in most
44
<PAGE>
markets. 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.
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.
Related risks
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. New
York ranks third in the nation in personal income. In 1994, per capita personal
income was 119% of the national average. Employment distribution is similar to
that of the nation except for a higher concentration 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.
45
<PAGE>
KEMPER NEW YORK TAX-FREE INCOME FUND
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the 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 fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
To Be Updated
46
<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 through a professionally
managed, non-diversified portfolio of municipal securities. The fund's
investment objective and policies 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 tends to be in
excess of 15 years. Income may be subject to other state and local taxes.
The investment manager actively manages the fund's portfolio:
o with respect to the interest rate outlook
o by selecting securities for superior price or income performance
o 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 rates movements, credit quality, maturity, and the
investment manager's skill in managing the fund's portfolio. Please refer to
"Tax Free Income Investing" at the front of this prospectus for details. In
addition, because the fund invests in the municipal securities of one state, it
will be particularly effected by state-specific economic and political events.
Please refer to "Related risks" below for additional information.
47
<PAGE>
KEMPER OHIO TAX-FREE INCOME FUND
Past performance
The chart and table that follow illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
<TABLE>
<CAPTION>
A BAR CHART IS TO BE INSERTED HERE, BUT IS PRESENTLY BLANK
- --------------------------------------------------------------------------------------
BAR CHART
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
</TABLE>
During the fund's last 10 years of operation, the fund's greatest quarterly gain
was ______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
<TABLE>
<CAPTION>
Average Annual Total Returns
Class A Class B Class C Lehman Brothers
<S> <C> <C> <C> <C>
For periods ended Municipal Bond
December 31, 1998 Index
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
</TABLE>
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 the fund's returns, do not reflect any fees or expenses.
48
<PAGE>
KEMPER OHIO TAX-FREE INCOME FUND
Expense information
The following information is designed to help you understand the various costs
and expenses of investing in 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 Special features
sections.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
-------------------------------------------------------------------------------------
Class A Class B Class C
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 4.5% None None
price)
-------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
-------------------------------------------------------------------------------------
Redemption Fee None None None
-------------------------------------------------------------------------------------
Exchange Fee None None None
-------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
-------------------------------------------------------------------------------------
</TABLE>
(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 .50% during the second year.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income (expressed as a % of average daily net assets).
-------------------------------------------------------------------------------------
Class A Class B Class C
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment management fee
-------------------------------------------------------------------------------------
Distribution (12b-1) fees
-------------------------------------------------------------------------------------
Other expenses
-------------------------------------------------------------------------------------
Total fund operating expenses
-------------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
KEMPER OHIO TAX-FREE INCOME FUND
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.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: ____ Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- ---------------------------------------------------------------------------------------------
<S> <C>
1 Year 1 Year
- ---------------------------------------------------------------------------------------------
3 Years 3 Years
- ---------------------------------------------------------------------------------------------
5 Years 5 Years
- ---------------------------------------------------------------------------------------------
10 Years 10 Years
- ---------------------------------------------------------------------------------------------
</TABLE>
Principal strategies and investments
Under normal conditions, the fund maintains at least 80% 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.
90% of the municipal securities in which the fund invests are rated, at the time
of purchase, within the four highest ratings of Moody's, S&P, Fitch or Duff or
any other Nationally Recognized Statistical Rating Organization or are of
comparable quality as determined by the fund's investment manager. Up to 10% of
the fund's net assets may be invested without regard to this limitation.
KEMPER OHIO TAX-FREE INCOME FUND
While not a principal strategy, the fund may also invest in bonds subject to
both the individual and corporate alternative minimum tax, may utilize financial
futures contracts and options, may hold cash and other temporary investments
such as repurchase agreements, and may purchase insurance on the securities in
the fund's portfolio.
From time to time, the fund may invest up to 100% of its assets in short-term
high-grade debt securities, cash and cash equivalents for temporary defensive
purposes. Defensive investments should serve to lessen volatility in an adverse
market, although they will also generate lower returns than most other kinds of
investments in most markets. Because this defensive policy differs from the
fund's investment objective,
50
<PAGE>
the fund may not achieve its goals during a defensive period. Temporary
defensive investments may also be taxable.
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.
Related risks
Ohio dealt successfully with financial difficulties in prior years and may face
long-term problems in certain concentrated regions and the economy. The economy
depends in part upon durable goods manufacturing, primarily motor vehicles and
equipment, steel, rubber products and household appliances. As a result,
economic activity in Ohio tends to be more cyclical than some other states and
the nation as a whole. However, since 1982, the State's economy has been growing
and diversifying as employment shifts into services, trade, finance and
insurance.
51
<PAGE>
KEMPER OHIO TAX-FREE INCOME FUND
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the 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 fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
To Be Updated
52
<PAGE>
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND
Investment objective and principal strategies
Kemper Pennsylvania Tax-Free Income Fund seeks to provide a high level of
current income that is exempt from federal and Pennsylvania state income taxes
through a professionally managed, non-diversified portfolio of municipal
securities. The fund's investment objective and policies 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 tends to be in
excess of 15 years. Income may be subject to other state and local taxes.
The investment manager actively manages the fund's portfolio:
o with respect to the interest rate outlook
o by selecting securities for superior price or income performance
o 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 rates movements, credit quality, maturity, and the
investment manager's skill in managing the fund's portfolio. Please refer to
"Tax Free Income Investing" at the front of this prospectus for details. In
addition, because the fund invests in the municipal securities of one state, it
will be particularly effected by state-specific economic and political events.
Please refer to "Related risks" below for additional information.
53
<PAGE>
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND
Past performance
The chart and table that follow illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
<TABLE>
<CAPTION>
A BAR CHART IS TO BE INSERTED HERE, BUT IS PRESENTLY BLANK
- --------------------------------------------------------------------------------------
BAR CHART
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
</TABLE>
During the fund's last 10 years of operation, the fund's greatest quarterly gain
was ______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
Class A Class B Class C Lehman Brothers
For periods ended Municipal Bond
December 31, 1998 Index
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
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 the fund's returns, do not reflect any fees or expenses.
54
<PAGE>
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND
Expense information
The following information is designed to help you understand the various costs
and expenses of investing in 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 Special features
sections.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
--------------------------------------------------------------------------------------
Class A Class B Class C
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 4.5% None None
price)
--------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
-------------------------------------------------------------------------------------
Redemption Fee None None None
-------------------------------------------------------------------------------------
Exchange Fee None None None
-------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
-------------------------------------------------------------------------------------
</TABLE>
(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 .50% during the second year.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income (expressed as a % of average daily net assets).
-------------------------------------------------------------------------------------
Class A Class B Class C
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment management fee
-------------------------------------------------------------------------------------
Distribution (12b-1) fees
-------------------------------------------------------------------------------------
Other expenses
-------------------------------------------------------------------------------------
Total fund operating expenses
-------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND
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.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- ---------------------------------------------------------------------------------------------
<S> <C>
1 Year 1 Year
- ---------------------------------------------------------------------------------------------
3 Years 3 Years
- ---------------------------------------------------------------------------------------------
5 Years 5 Years
- ---------------------------------------------------------------------------------------------
10 Years 10 Years
- ---------------------------------------------------------------------------------------------
</TABLE>
Principal strategies and investments
Under normal conditions, the fund maintains at least 80% of its investments in a
portfolio of obligations issued by or on behalf of the Commonwealth of
Pennsylvania, its political subdivisions, agencies or instrumentalities the
interest from which is exempt from federal and Pennsylvania income taxes.
90% of the municipal securities in which the fund invests are rated, at the time
of purchase, within the four highest ratings of Moody's, S&P, Fitch or Duff or
any other Nationally Recognized Statistical Rating Organization or are of
comparable quality as determined by the fund's investment manager. Up to 10% of
the fund's net assets may be invested without regard to this limitation.
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND
While not a principal strategy, the fund may also invest in bonds subject to
both the individual and corporate alternative minimum tax, may utilize financial
futures contracts and options, may hold cash and other temporary investments
such as repurchase agreements, and may purchase insurance on the securities in
the fund's portfolio.
From time to time, the fund may invest up to 100% of its assets in short-term
high-grade debt securities, cash and cash equivalents for temporary defensive
purposes. Defensive investments should serve to lessen volatility in an adverse
market, although they will also generate lower returns than most other kinds of
investments in most markets. Because this defensive policy differs from the
fund's investment objective,
56
<PAGE>
the fund may not achieve its goals during a defensive period. Temporary
defensive investments may also be taxable.
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.
Related risks
While Pennsylvania is among the leading states in manufacturing and mining, it
is transforming into a services and high-tech economy as evidenced by its
growing reputation as a health and education center. Following the recession of
the early 1990's, Pennsylvania's economy had become more reflective of the
nation's. Service industries became a larger portion of total employment. The
steel industry had undergone a successful restructuring. The economy while
continuing to experience some growth has not seen the levels of growth that most
states have experienced during this recent expansion. The replacement of highly
paid manufacturing jobs for those in the services and trade sectors will impede
income growth. Relative cost advantages that are available to businesses in the
Commonwealth compared to its neighboring states, as well as the restructuring
and modernization of manufacturing plans, should aid in boosting the economy.
57
<PAGE>
KEMPER PENNSYLVANIA TAX-FREE INCOME FUND
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the 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 fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
To Be Updated
58
<PAGE>
KEMPER TEXAS TAX-FREE INCOME FUND
Investment objective and principal strategies
Kemper Texas Tax-Free Income Fund seeks to provide a high level of current
income that is exempt from federal income taxes through a professionally
managed, non-diversified portfolio of municipal securities. The fund's
investment objective and policies 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 tends to be in
excess of 15 years. Income may be subject to state and local taxes.
The investment manager actively manages the fund's portfolio:
o with respect to the interest rate outlook
o by selecting securities for superior price or income performance
o 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 rates movements, credit quality, maturity, and the
investment manager's skill in managing the fund's portfolio. Please refer to
"Tax Free Income Investing" at the front of this prospectus for details. In
addition, because the fund invests in the municipal securities of one state, it
will be particularly effected by state-specific economic and political events.
Please refer to "Related risks" below for additional information.
59
<PAGE>
KEMPER TEXAS TAX-FREE INCOME FUND
Past performance
The chart and table that follow illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
<TABLE>
<CAPTION>
A BAR CHART IS TO BE INSERTED HERE, BUT IS PRESENTLY BLANK
- --------------------------------------------------------------------------------------
BAR CHART
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
</TABLE>
During the fund's last 10 years of operation, the fund's greatest quarterly gain
was ______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
Class A Class B Class C Lehman Brothers
For periods ended Municipal Bond
December 31, 1998 Index
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
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 the fund's returns, do not reflect any fees or expenses.
60
<PAGE>
KEMPER TEXAS TAX-FREE INCOME FUND
Expense information
The following information is designed to help you understand the various costs
and expenses of investing in 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 Special features
sections.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
-------------------------------------------------------------------------------------
Class A Class B Class C
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 4.5% None None
price)
-------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
-------------------------------------------------------------------------------------
Redemption Fee None None None
-------------------------------------------------------------------------------------
Exchange Fee None None None
-------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
-------------------------------------------------------------------------------------
</TABLE>
(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 .50% during the second year.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income (expressed as a % of average daily net assets).
-------------------------------------------------------------------------------------
Class A Class B Class C
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment management fee
-------------------------------------------------------------------------------------
Distribution (12b-1) fees
-------------------------------------------------------------------------------------
Other expenses
-------------------------------------------------------------------------------------
Total fund operating expenses
-------------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
KEMPER TEXAS TAX-FREE INCOME FUND
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.
<TABLE>
<CAPTION>
Fees and expenses if you sold sharesafter: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- ---------------------------------------------------------------------------------------------
<S> <C>
1 Year 1 Year
- ---------------------------------------------------------------------------------------------
3 Years 3 Years
- ---------------------------------------------------------------------------------------------
5 Years 5 Years
- ---------------------------------------------------------------------------------------------
10 Years 10 Years
- ---------------------------------------------------------------------------------------------
</TABLE>
Principal strategies and investments
Under normal conditions, the fund maintains at least 80% of its investments in a
portfolio of obligations issued by or on behalf of Texas, its political
subdivisions, agencies or instrumentalities the interest from which is exempt
from federal income taxes.
90% of the municipal securities in which the fund invests are rated, at the time
of purchase, within the four highest ratings of Moody's, S&P, Fitch or Duff or
any other Nationally Recognized Statistical Rating Organization or are of
comparable quality as determined by the fund's investment manager. Up to 10% of
the fund's net assets may be invested without regard to this limitation.
KEMPER TEXAS TAX-FREE INCOME FUND
While not a principal strategy, the fund may also invest in bonds subject to
both the individual and corporate alternative minimum tax, may utilize financial
futures contracts and options, may hold cash and other temporary investments
such as repurchase agreements, and may purchase insurance on the securities in
the fund's portfolio.
From time to time, the fund may invest up to 100% of its assets in short-term
high-grade debt securities, cash and cash equivalents for temporary defensive
purposes. Defensive investments should serve to lessen volatility in an adverse
market, although they will also generate lower returns than most other kinds of
investments in most markets. Because this defensive policy differs from the
fund's investment objective,
62
<PAGE>
the fund may not achieve its goals during a defensive period. Temporary
defensive investments may also be taxable.
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.
Related risks
The State's economy has become more diversified since the oil-induced recession
of the mid-1980s and now closely matches the national economy in terms of
employment composition. Direct mining employment in Texas declined from 4.8
percent of total in 1981 to 1.9 percent in 1997, drawing nearer the nation's .5
percent level. The State's employment growth rate has exceeded the national
average each year since 1990. The service sector has been the largest source of
growth due partly to relocation of several high-tech firms to the State. On an
absolute basis, Texas was third among the states in terms of new jobs added
between July 1996 and July 1997. Gross State Product growth outpaced the nation
for calendar year 1996, growing by 3.2% as opposed to 2.4% for the nation.
Although the investment manager anticipates that most of the bonds in the Texas
Fund will be revenue obligations or general obligations of local governments or
authorities, rather than general obligations of the State of Texas itself, any
circumstances that adversely affect the State's credit standing may also affect
the market value of these other bonds held by the Texas Fund, either directly or
indirectly, as a result of a dependency of local governments and other
authorities upon State aid and reimbursement programs.
63
<PAGE>
KEMPER TEXAS TAX-FREE INCOME FUND
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the 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 fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
To Be Updated
64
<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. They are one of the ten largest mutual fund
companies in the U.S., 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.
Portfolio management
The following investment professionals are associated with the funds as
indicated:
<TABLE>
<CAPTION>
Kemper Intermediate Municipal Bond Fund
Name & Title Joined the Fund Background
- -----------------------------------------------------------------------------------
<S> <C> <C>
M. Ashton Patton, 1998 Joined Scudder Kemper Investments in
Lead Portfolio 1990. She began her investment career
Manager in 1986.
Christopher J. Mier, 1989 Joined Scudder Kemper Investments in
Portfolio Manager 1986. He began his investment career
in 1978.
Kemper Municipal Bond Fund
Kemper Florida Tax-Free Income Fund
Name & Title Joined the Fund Background
- -----------------------------------------------------------------------------------
Christopher J. Mier, 1989 Joined Scudder Kemper Investments in
Lead Portfolio 1986. He began his investment career
Manager in 1978.
Eleanor R. Brennan 1998 Joined Scudder Kemper Investments in
Portfolio Manager 1996. She began her investment career
in 1993.
65
<PAGE>
Kemper California Tax-Free Income Fund
Kemper New York Tax-Free Income Fund
Name & Title Joined the Fund Background
- -----------------------------------------------------------------------------------
Christopher J. Mier, 1989 Joined Scudder Kemper Investments in
Lead Portfolio 1986. He began his investment career
Manager in 1978.
Jeremy L. Ragus, 1998 Joined Scudder Kemper Investments in
Portfolio Manager 1990. He began his investment career
in 1981.
Kemper Texas Tax-Free Income Fund
Name & Title Joined the Fund Background
- -----------------------------------------------------------------------------------
Christopher J. Mier, 1989 Joined Scudder Kemper Investments in
Lead Portfolio 1986. He began his investment career
Manager in 1978.
Kemper Ohio Tax-Free Income Fund
Name & Title Joined the Fund Responsibilities & Background
- -----------------------------------------------------------------------------------
Christopher J. Mier, 1989 Joined Scudder Kemper Investments in
Lead Portfolio 1986. He began his investment career
Manager in 1978.
Rebecca Wilson, 1998 Joined Scudder Kemper Investments in
Portfolio Manager 1986. She began her investment career
in 1986.
66
<PAGE>
Kemper Michigan Tax-Free Income Fund
Kemper New Jersey Tax-Free Income Fund
Name & Title Joined the Fund Background
- -----------------------------------------------------------------------------------
Eleanor R. Brennan 1998 Joined Scudder Kemper Investments in
Lead Portfolio 1996. She began her investment career
Manager in 1993.
Christopher J.Mier, 1989 Joined Scudder Kemper Investments in
Portfolio Manager 1986. He began his investment career
in 1978.
Kemper Pennsylvania Tax-Free Income Fund
Name & Title Joined the Fund Background
- -----------------------------------------------------------------------------------
Phillip G. Condon 1998 Joined Scudder Kemper Investments in
1983. He began his investment career
in 1983.
Rebecca Wilson, 1998 Joined Scudder Kemper Investments in
Portfolio Manager 1986. She began her investment career
in 1986.
</TABLE>
Year 2000 issue
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. 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 companies whose
securities are held by a fund or on global markets or economies generally.
67
<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 Shares Offered at net asset value without an initial sales 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.
Class I Shares Offered at net asset value. There is no initial sales
(Kemper Municipal charge, contingent deferred sales charge or Rule 12b-1
Bond Fund and distribution fee.
Kemper Intermediate
Municipal Bond Fund
only)
When placing purchase orders, investors must specify whether the order is for
Class A, Class B, Class C or Class I 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
68
<PAGE>
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. Institutional investors in Kemper Municipal Bond and Kemper
Intermediate Municipal Bond Funds will wish to select Class I shares. For more
information about the 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.
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
the above mentioned 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.
Exchange Privilege -- General. Shareholders of Class A, Class B, Class C and
Class I shares may exchange their shares for shares of the corresponding class
of Kemper Mutual Funds (and in the case of Class I shares, Zurich Money Market
Fund). 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 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.
69
<PAGE>
Buying shares
<TABLE>
<CAPTION>
Class A Shares
Public Amount of Purchase Sales Charge Sales Charge
Offering Price. as a % of as a % of Net
Including Sales Offering Price Asset Value
-------------- -------------
Charge
All Funds except Intermediate Municipal Fund
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than 3.50 3.63
$250,000
$250,000 but less than 2.60 2.67
$500,000
$500,000 but less than $1 2.00 2.04
million
$1 million and over 0.00 0.00
All Funds except Intermediate Municipal Fund
Less than $100,000 2.75 2.83
$100,000 but less than 2.50 2.56
$250,000
$250,000 but less than 2.00 2.04
$500,000
$500,000 but less than $1 1.50 1.52
million
$1 million and over 0.00 0.00
</TABLE>
**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 a participant-directed qualified retirement plan or a
participant-directed non-qualified deferred compensation
plan or a participant-directed qualified retirement plan
which is not sponsored by a K-12 school district,
provided in each case that such plan has not less than
200 eligible employees
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
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
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
70
<PAGE>
o registered representatives and employees of
broker-dealers having selling group agreements with
Kemper Distributors
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
71
<PAGE>
Class A Shares (cont.)
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
o any trust, pension, profit-sharing or other benefit plan
for only 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 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 under which such clients pay a fee to the
investment advisor 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 funds
Contingent A contingent deferred sales charge may be imposed upon
Deferred Sales redemption of Class A shares purchased under the Large Order
Charge 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 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 by a participant-directed qualified
retirement plan or a participant-directed non-qualified
deferred compensation plan or a participant-directed
qualified retirement plan which is not sponsored by a
K-12 school district
o redemptions by employer sponsored employee benefit plans
using the subaccount record keeping system made
available through the Shareholder Service Agent
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 Class A shares may be exchanged for each other at their relative
Privilege 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
72
<PAGE>
Class B Shares
Public Offering Net asset value per share without any sales charge at the time
Price of purchase
Contingent
Deferred Sales A contingent deferred sales charge may be imposed upon
Charge 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.
Year of Redemption First Second Third Fourth Fifth Sixth
After Purchase:
---------------------------------------------------------------
Contingent Deferred 4% 3% 3% 2% 2% 1%
Sales Charge:
---------------------------------------------------------------
The contingent deferred sales charge will be waived:
o for redemptions to satisfy required minimum
distributions after age 70 1/2 from an IRA account (with
the maximum amount subject to this waiver being based
only upon the shareholder's Kemper IRA accounts)
o for redemptions made pursuant to any IRA systematic
withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal
periodic payments described in Code Section
72(t)(2)(A)(iv) prior to age 59 1/2
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 Class B shares of a fund will automatically convert to Class A
Feature 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 Class B shares of a fund and Class B shares of most Kemper Funds
Privilege may be exchanged for each other at their relative net asset
values without a contingent deferred sales charge.
73
<PAGE>
Class C Shares
Public Offering Net asset value per share without any sales charge at the time
Price of purchase
Contingent A contingent deferred sales charge of 1% may be imposed upon
Deferred redemption of Class C shares redeemed within one year of
Sales Charge purchase. 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 redemptions by a participant-directed qualified
retirement plan described in Code Section 401(a) or a
participant-directed non-qualified deferred compensation
plan described in Code Section 457
o redemptions by employer sponsored employee benefit plans
(or their participants) using the subaccount record
keeping system made available through the Shareholder
Service Agent
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 by an employer sponsored employee
benefit plan that offers funds in addition to Kemper
Funds and whose dealer of record has waived the advance
of the first year administrative service and
distribution fees applicable to such shares and agrees
to receive such fees quarterly
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-1Fee 0.75%
Conversion None
Feature
Exchange Class C shares of a fund and Class C shares of most Kemper Funds
Privilege may be exchanged for each other at their relative net asset
values. Class C shares may be exchanged without a contingent
deferred sales charge.
74
<PAGE>
Class I Shares (Kemper Municipal Bond Fund and Kemper Intermediate Municipal
Bond Fund only)
Public Offering Net asset value per share without any sales charge at the time
Price of purchase. Class I shares are available for purchase
exclusively by the following investors:
o tax-exempt retirement plans of Kemper Financial
Services, Inc. and its affiliates
o the following investment advisory clients of Kemper
Financial Services, Inc and its investment advisory
affiliates (including Kemper Asset Management Company)
that invest at least $1 million in a Fund: (1)
unaffiliated benefit plans, such as qualified retirement
plans (other than individual retirement accounts and
self-directed retirement plans); (2) unaffiliated banks
and insurance companies purchasing for their own
accounts; and (3) endowment funds of unaffiliated
non-profit organizations. Class I shares currently are
available for purchase only from Kemper Distributors,
Inc., , Share certificates are not available for Class I
shares.
Contingent None
Deferred
Sales Charge
Rule 12b-1 None
Fee
Conversion None
Feature
Exchange Class I shares of a fund and Class I shares of most Kemper Funds
Privilege and Zurich Money Market Fund may be exchanged for each other at
their relative net asset values. Class I shares may be exchanged
without a contingent deferred sales charge.
Selling and exchanging shares
General
Any shareholder may require a fund to redeem his or her shares. When shares are
held for the account of a shareholder by the funds' transfer agent, the
shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557.
75
<PAGE>
Share certificates
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. 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.
Repurchases (confirmed redemptions)
A request for repurchase may be communicated by a shareholder through a
securities dealer or other financial services firm to Kemper Distributors, which
each fund has authorized to act as its agent. There is no charge by Kemper
Distributors with respect to repurchases; however, dealers or other firms may
charge customary commissions for their services. 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.
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.
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.
76
<PAGE>
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 gain dividends, if any, of a fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
fund at net asset value 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 gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset value;
or
(2) To receive income and capital gain dividends in cash.
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 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.
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% or 28% capital
gains rate (depending on the fund's holding period for the assets giving rise to
the gain), 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.
77
<PAGE>
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.
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. 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
31of the following year.
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
(NYSE), normally 4 p.m. eastern time, on each day the NYSE 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. When reliable market quotations are unavailable, a
fund may use procedures established by its Board.
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 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 NYSE 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 the funds' transfer agent 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.
78
<PAGE>
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 when you sell more than $100,000 worth of
shares. You can obtain one 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
79
<PAGE>
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' transfer agent,
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
order by making payment in whole or in part in readily marketable securities
("redemption 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.
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 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 investment and may cost more than other types of
sales charges.
80
<PAGE>
Additional information about the funds may be found in the Statement of
Additional Information, the Shareholder Service Guide and in shareholder
reports. The Statement of Additional Information contains more detailed
information on fund investments and operations. The Shareholder Service Guide
contains more detailed 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: In Person:
-----------------------------------------------------------------------------
Call Kemper at: Public Reference Room
1-800-621-1048 Securities and Exchange Commission,
Washington, D.C.
(Call 1-800-SEC-0330
for more information).
-----------------------------------------------------------------------------
By Mail: By Internet:
-----------------------------------------------------------------------------
Kemper Distributors, Inc. http://www.sec.gov
222 South Riverside Plaza http://www.kemper.com
Chicago, IL 60606-5808
or
Public Reference Section, Securities
and Exchange Commission, Washington,
D.C. 20549-6009
(a duplication fee is charged)
-----------------------------------------------------------------------------
The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
Investment Company Act file numbers:
<TABLE>
<CAPTION>
<S> <C>
Kemper Intermediate Municipal Bond Fund 811-XXX Kemper New Jersey Tax-Free Income Fund 811-XXX
Kemper Municipal Bond Fund 811-XXX Kemper New York Tax-Free Income Fund 811-XXX
Kemper California Tax-Free Income Fund 811-XXX Kemper Ohio Tax-Free Income Fund 811-XXX
Kemper Florida Tax-Free Income Fund 811-XXX Kemper Pennsylvania Tax-Free Income Fund 811-XXX
Kemper Michigan Tax-Free Income Fund 811-XXX Kemper Texas Tax-Free Income Fund 811-XXX
</TABLE>
Printed with SOYINK Printed on recycled paper xx-xx-xx (codes)
81
<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 Michigan Tax-Free Income Fund ("Michigan Fund")
Kemper New Jersey Tax-Free Income Fund ("New Jersey Fund")
Kemper New York Tax-Free Income Fund ("New York Fund")
Kemper Ohio Tax-Free Income Fund ("Ohio Fund")
Kemper Pennsylvania Tax-Free Income Fund ("Pennsylvania Fund")
Kemper Texas Tax-Free Income Fund ("Texas Fund")
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 ten investment portfolios ("Funds").
This Statement of Additional Information is not a prospectus. It is the combined
Statement of Additional Information for the Trusts. It should be read in
conjunction with the combined prospectus of the Trusts dated January 1, 1999.
The prospectus may be obtained without charge from the Trusts.
TABLE OF CONTENTS
INVESTMENTS............................................................2
INVESTMENT POLICIES AND TECHNIQUES.....................................9
INVESTMENT RESTRICTIONS.............................................. 15
DIVIDENDS AND TAXES...................................................20
PERFORMANCE...........................................................24
INVESTMENT MANAGER AND UNDERWRITER....................................65
PORTFOLIO TRANSACTIONS................................................83
PURCHASE, REPURCHASE AND REDEMPTION OF SHARES.........................84
OFFICERS AND TRUSTEES.................................................97
SHAREHOLDER RIGHTS...................................................107
APPENDIX -- RATINGS OF INVESTMENTS...................................118
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.
<PAGE>
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
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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
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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 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 benefitted 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.
Michigan Fund. The principal sectors of Michigan's diversified economy are
manufacturing of durable goods (including automobiles and components and office
equipment), tourism and agriculture. The transportation equipment sector still
dominates manufacturing jobs at __% of the total. As reflected in historical
employment figures, the State's economy has lessened its dependence upon durable
goods manufacturing. In 1960, employment in such industry accounted for 33% of
the State's workforce. This figure fell to 17.1% for the first 11 months of 199.
However, such manufacturing continues to be an important part of the State's
economy. This particular industry is highly cyclical, which adversely affects
the revenue streams of the State and its political subdivisions because it
adversely impacts tax sources, particularly sales taxes.
Michigan is a large exporter state. It mainly exports to Canada and Mexico. With
the passage of NAFTA, concerns were raised about its effect upon the State's
manufacturing base; but there has been little noticeable effect. Exports of
automobiles declined slightly, but this resulted more from the number of new
auto plants located outside of Michigan than from NAFTA. The State ended 1993
with the highest employment level in fifteen years. The unemployment rate for
1993 was 7.0% compared to 8.8% and 9.2% for 1992 and 1991, respectively. The
1994 unemployment rate was 5.9% and a record low rates were achieved throughout
1995, reflecting the continued improvement in Michigan's economy, particularly
the auto industry. The rate in 1998 was __.
The State's financial position has improved in the last year because of greater
than anticipated revenues. Michigan's economy has continued to strengthen due to
the automotive industry. It had to do major maneuvering in fiscal years 1991
through 1993 to balance the books. The State used accounting changes,
expenditure reductions (hiring freeze, reduction in public aid) and delayed
payments to local governments to balance the budget. The State eliminated a
structural deficit in fiscal year 1992 and began 1993 with limited reserves. Due
to continued cost cutting efforts and greater than anticipated
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revenues from the better than expected economic growth, fiscal year 1993 ended
with a $312 million surplus compared to $1.8 billion deficit from 1991. Fiscal
year 1994 saw similar results, and the strong revenue growth continued in fiscal
year 1995. The State's Rainy Day Fund contained $1 billion, or 6.7% of the
General and School Aid Funds at the conclusion of fiscal 1995. The State
forecast underlying revenue growth for fiscal year 1995 of 6%. The 1996 fiscal
year budget was based on a conservative revenue growth rate of 4.7%. Fiscal 1997
ended with a modest operating surplus of __. The fiscal 1998 budget is premised
upon conservative revenue growth assumptions.
At the present time the State does not levy any ad valorem taxes on real or
tangible personal property. In addition, the State Constitution limits the
extent to which municipalities or political subdivisions may levy taxes upon
real and personal property through a process that regulates assessments. On May
1, 1992, the Governor signed into law a bill relating to the manner by which
property taxes are assessed in Michigan. The bill required, among other things,
that 1992 real property tax assessments remain at 1991 assessment levels,
subject to certain adjustments. Two proposals relating to property tax reform
and to amend the State Constitution appeared on the ballot for the November 1992
general election and were defeated, and a third proposal was rejected at a
special election held June 2, 1992. In addition to the foregoing, several other
proposals for property tax reform in Michigan have been suggested and may again
be submitted to the electors at future elections. On July 21, 1993, the Michigan
State Legislature passed Senate Bill 1 and the Governor signed the Bill into law
on August 19, 1993. Senate Bill 1, which upon passage became Act 145 of the
Michigan Public Acts of 1993 ("Act 145"), is the latest development in a
long-term effort by the State and its electorate to modify the local ad valorem
property tax system. The law significantly affects financing of K-12 school
operations beginning with July 1, 1994 tax levies. Act 145 exempts all property
in the State of Michigan from millage levied for local school and intermediate
school district operating purposes. Millage levied for community colleges and
millage levied for voter-approved general obligation debt are not encompassed
within the exemption. Act 145 did not contain a method for replacing revenues
lost by these exemptions or provide for other means of financing public
education. In December 1993, the Michigan Legislature proposed a school funding
program that included two funding mechanisms. The initial funding program was to
be voted on by the electorate at an election that was held on March 15, 1994 and
an alternative funding program that would automatically go into effect should
the initial program fail to be approved. On March 15, 1994 the initial funding
program was approved by the voters and became effective July 1, 1994. The new
funding program included an increase in the state sales tax to 6 cents from 4
cents, a 2% real estate transfer tax, a six mill property tax levied by the
State on all property and an eighteen mill property tax on commercial property,
an interstate phone charge, an increase in the cigarette tax, and additional
revenue generated from the implementation of Keno. In exchange for the
implementation of the property tax and increased taxes, the State's income tax
was decreased to 4.4% from 4.6%. The full effect of the change in the revenue
structure for financing K-12 public education has not been realized at either
the local or state level. Depending upon its effect on the State's finances, and
as the funding for education matures the State's method of financing public
education may be altered.
As of December, 1998, the State's general obligation bonds are rated __ by
Moody's, __ by Standard & Poor's and __ by Fitch.
New Jersey Fund. New Jersey is the ninth most populous state in the nation. Per
capita income in 1993 was the second highest of the states and 129% of the
national average. The distribution of employment in New Jersey mirrors that of
the nation. After an extraordinary boom in the mid-1980's, New Jersey 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 Jersey climbed out
of the recession more slowly than the rest of the nation. Since 1992, the
unemployment rate in New Jersey has exceeded the national average; the
unemployment rates for New Jersey and the nation during the first quarter of
199__ were __% and __%, respectively.
New Jersey has a complicated debt structure. The State has $__ billion in G.O.
debt outstanding, nearly $__ billion in appropriation backed debt, and another
$__ billion in other tax-supported debt. Net tax-supported debt per capita is
$__, or twice the median and __ in the nation. Net tax-supported debt represents
__% of personal income, __% above the median and __ in the nation.
On a Generally Accepted Accounting Principles ("GAAP") basis, New Jersey has
achieved a surplus in each of the last three fiscal years, increasing its fund
balance to a large __ of expenditures. On a budgetary basis, the State has
purposely drawn down the undesignated General Fund fund balance in recent years.
Even so, at the end of fiscal year 1994, the undesignated fund balance was 6% of
expenditures on a GAAP basis. Preliminary numbers for fiscal year 199__ indicate
a modest budgetary deficit, smaller than planned; the GAAP results cannot be
predicted yet. The fiscal year 199__
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budget substantially reduces the reliance on one-shots, and assumes a slower
economy than in 1995. The budget has been well received by the rating agencies.
The New Jersey Constitution provides, in part, that no money shall be drawn from
the State treasury except for appropriations made by law and that no law
appropriating money for any State purpose shall be enacted if the appropriations
contained therein, together with all prior appropriations made for the same
fiscal period, shall exceed the total amount of the revenue on hand and
anticipated to be available to meet such appropriations during such fiscal
period, as certified by the Governor.
The Local Government Cap Law (the "Cap Law") generally limits the year-to-year
increase of the total appropriations of any municipality and the tax levy of any
county to either five percent or an index rate determined annually by the
Director, whichever is less. However, where the index percentage rate exceeds
five percent, the Cap Law permits the governing body of any municipality or
county to approve the use of a higher percentage rate up to the index rate.
Further, where the index percentage rate is less than five percent, the Cap Law
also permits the governing body of any municipality or county to approve the use
of a higher percentage rate up to five percent. Regardless of the rate utilized,
certain exceptions exist to the Cap Law's limitation on increases in
appropriations. The principal exceptions to this limitation are municipal and
county appropriations to pay debt service requirements; to comply with certain
other State or federal mandates; amounts approved by referendum; and, in the
case of municipalities only, to fund the preceding year's cash deficit or to
reserve for shortfalls in tax collections.
State law also regulates the issuance of debt by local units. The Local Budget
Law limits the amount of tax anticipation notes that may be issued by local
units and requires the repayment of such notes within 120 days of the end of the
fiscal year (six months in the case of the counties) in which issued. With
certain exceptions, no local unit is permitted to issue bonds for the payment of
current expenses. Local units may not issue bonds to pay outstanding bonds,
except for refunding purposes and then only with the approval of the Local
Finance Board. Local units may issue bond anticipation notes for temporary
periods not exceeding in the aggregate approximately ten years from the date of
first issue. The debt that any local unit may authorize is limited to a
percentage of its equalized valuation basis, which is the average of the
equalized value of all taxable real property and improvements within the
geographic boundaries of the local unit, as annually determined by the Director
of the Division of Taxation, for each of the three most recent years.
As of October, 1998, the State's general obligation ratings were __ by Moody's,
__ by Standard & Poor's and __ by Fitch.
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.
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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.
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
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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 November 1995, approved a $1.2 billion general obligation debt for
public intrastructure 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.
Pennsylvania Fund. Pennsylvania is the fifth largest state in terms of
population. Pennsylvania's resource base has remained stable during the past two
decades. The Census Bureau estimates that the Commonwealth's population
increased 1.6% between 1990 and 1995 to 12.1 million people. This is positive
news after the Commonwealth's population increased a slight 0.1% during the
1980's to 11,882,000 in 1990 from 11,864,000 in 1980. Pennsylvania is a highly
urbanized state with approximately 85% of its population residing in
metropolitan areas. Similar to national trends, the Commonwealth's central
cities have lost population to the outlying areas. Pittsburgh and Philadelphia
contain approximately 50% of the Commonwealth's population. Pittsburgh and
Philadelphia lost population while their metropolitan areas experienced a total
gain. Philadelphia's population decreased 6% during the 1980's while
Pittsburgh's declined 12.8%.
Pennsylvania's large population base provides the sixth largest workforce in the
U.S. The economic activity in the Commonwealth has traditionally centered around
manufacturing and mining, particularly steel and coal. The 1980's saw
Pennsylvania diversify the economic base away from the traditional manufacturing
and mining industries into the service industry. Manufacturing employment as a
percent of total employment declined from 22% in 1986 to 19% in 1991 and has
fallen slightly further to 18.4% in 1993. Manufacturing employment continues to
experience some decline although the overall percentage has remained stable
during 1994. Employment in the service industries continues to offset any
decline in manufacturing. Service employment increased to 29.9% of total
employment in 1994 compared to 25% in 1986.
The Commonwealth has been able to favorably improve its financial position since
a financial crisis in 1991. The Commonwealth faced a $1.1 billion deficit in
1991 following a severe recession and a correspondent decline in revenues.
Following a major budgetary revision package in 1992 and improved economic
activity the Commonwealth has turned its financial position around and ended
fiscal year 1994 with a General Fund unreserved balance of $329 million. The
Governor has put into place several tax reductions which have caused a reduction
in base revenues for the Commonwealth. The corporate income tax rate was reduced
from 12.25% to 9.99% over the past three years. The Commonwealth has been able
to maintain growth in expenditures to only 5% since 1993. This reduction has
helped the Commonwealth maintain a satisfactory financial position despite the
loss in revenues. The Commonwealth had ended fiscal year 1996 with a General
Fund balance of $240 million, fiscal year 1997 with a balance of $430 million,
and fiscal year 1998 with a balance of __ million. This is reflective of the
continued economic growth and budgetary constraints the Commonwealth has
instituted. The Commonwealth now has a balance of $__ million in the Rainy Day
Fund.
As of November 19, 1998, all outstanding general obligation bonds of the
Commonwealth of Pennsylvania were rated __- by S&P and __ by Moody's. Local
municipalities issuing Pennsylvania municipal securities, although impacted in
general by the economic condition of the Commonwealth, have credit ratings that
are determined with reference to the economic condition of such local
municipalities. For example, as of November 19, 1998, the ratings on the
long-term obligations of the City of Philadelphia (the "City") supported by
payments from the City's General Fund were rated __ by Moody's and __ by S&P.
Texas Fund. On a cash basis, Texas' general revenue fund posted an operating
surplus during fiscal year 1997 and the cash balance as of the end of May 1998
was in excess of $__ billion. Sales tax revenues continue to be the dominant
revenue stream to the State's general operating fund and on a year over year
basis have increased by __% as of May, 1998. The growth can be attributed to a
growing economy, albeit at a slower pace than in fiscal year 1995. The majority
of the expenses in the State's general operating fund are health, human services
and education.
The debt burden of the State is low compared to other states. The debt issued
going forward will be to finance capital projects. The State's goal going
forward is to finance self supporting projects, which will not affect General
Fund operations. The State
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has utilized a number of commercial paper borrowings to smooth out cash flows
during the fiscal year and will continue to do so going forward.
The State has no personal or corporate income tax currently. In November 1993
legislation was approved by the voters requiring voter approval to implement a
personal income tax. Corporations pay a corporate franchise tax based on the
amount of the corporation's capital and "earned surplus" which includes
corporate net income and officers' and directors' compensation (__% fiscal year
1998 General Fund revenues). The State constitution prohibits the State from
levying an ad valorem tax on property for general revenue purposes. The State
constitution also limits the rate of growth of appropriations from tax revenues
not dedicated by the constitution during any biennium, to the estimated rate of
growth for the State's economy. The legislature may avoid the constitutional
limitation if it finds, by majority vote of both houses, that an emergency
exists. The State constitution authorizes the Legislature to provide by law for
the implementation of this restriction; and the legislature, pursuant to such
authorization, has defined the estimated rate of growth in the State's economy
to mean the estimated increase in personal income for the State.
The State's economy should continue to benefit from increased employment and
industry diversification, job growth, expanded trade with Mexico through NAFTA,
and a modest debt burden. As of October 23, 1998, the State's general obligation
debt was rated __ by Moody's, __ by S&P and __ by Fitch.
INVESTMENT POLICIES AND TECHNIQUES
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.
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.
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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 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
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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 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
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available for a greater variety of securities, and a wider range of expiration
dates and exercise prices, than are exchange traded options. Since there is no
exchange, pricing is normally done by reference to information from market
makers, which information is carefully monitored by the Trust's investment
manager and verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. In the case of OTC options, there can be
no assurance that a continuous liquid secondary market will exist for any
particular option at any specific time. Consequently, a Fund may be able to
realize the value of an OTC option it has purchased only by exercising it or
entering into a closing sale transaction with the dealer that issued it.
Similarly, when a Fund writes an OTC option, it generally can close out that
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it. If a covered
call option writer cannot effect a closing transaction, it cannot sell the
underlying security until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to sell
an underlying security even though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be unable to sell the
securities pledged to secure the put for other investment purposes, while it is
obligated as a put writer. Similarly, a purchaser of such put or call option
might also find it difficult to terminate its position on a timely basis in the
absence of a secondary market.
The Trusts understand the position of the staff of the Securities and Exchange
Commission ("SEC") to be that purchased OTC options and the assets used as
"cover" for written OTC options are illiquid securities. Each Trust's investment
manager disagrees with this position and has found the dealers with which it
engages in OTC options transactions generally agreeable to and capable of
entering into closing transactions. The Trusts have adopted procedures for
engaging in OTC options for the purpose of reducing any potential adverse effect
of such transactions upon the liquidity of a Fund's portfolio. A brief
description of such procedures is set forth below.
A Fund will only engage in OTC options transactions with dealers that have been
specifically approved by the investment manager pursuant to procedures adopted
by the Board of Trustees of each Trust. The investment manager believes that
such dealers should be able to enter into closing transactions if necessary and,
therefore, present minimal credit risks to a Fund. The investment manager will
monitor the creditworthiness of the approved dealers on an on-going basis. A
Fund currently will not engage in OTC options transactions if the amount
invested by the Fund in OTC options, plus a "liquidity charge" related to OTC
options written by the Fund, plus the amount invested by the Fund in illiquid
securities, would exceed 15% of the Fund's net assets. The "liquidity charge"
referred to above is computed as described below.
The Trusts anticipate entering into agreements with dealers to which a Fund
sells OTC options. Under these agreements the Fund would have the absolute right
to repurchase the OTC options from the dealer at any time at a price no greater
than a price established under the agreements (the "Repurchase Price"). The
"liquidity charge" referred to above for a specific OTC option transaction will
be the Repurchase Price related to the OTC option less the intrinsic value of
the OTC option. The intrinsic value of an OTC call option for such purposes will
be the amount by which the current market value of the underlying security
exceeds the exercise price. In the case of an OTC put option, intrinsic value
will be the amount by which the exercise price exceeds the current market value
of the underlying security. If there is no such agreement requiring a dealer to
allow the Fund to repurchase a specific 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.
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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.
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 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.
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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,
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
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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 Michigan and New
York Funds will not exceed 100%.
The National Funds and the California Fund will not borrow money except for
temporary or emergency purposes (but not to purchase investments) and then only
in an amount not to exceed 5% for the National Funds or 10% for the California
Fund of net assets; or pledge its securities or receivables or transfer, assign
or otherwise encumber them in an amount exceeding the amount of the borrowing
secured thereby. Except for the California Fund, each State Fund will not borrow
money except for temporary purposes (but not to purchase investments) and then
only in an amount not to exceed one-third of the value of its total assets
(including the amount borrowed) in order to meet redemption requests that
otherwise might result in the untimely disposition of securities; or pledge its
securities or receivables or transfer or assign or otherwise encumber them in an
amount to exceed 10% of its net assets to secure borrowings.
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.
INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions have been adopted for each Fund
which, together with the investment objective and policies of each Fund, cannot
be changed for a Fund without approval of a majority of its outstanding voting
shares. As defined in the Investment Company Act of 1940, this means the lesser
of the vote of (a) 67% of the shares of the Fund present at a meeting where more
than 50% of the outstanding shares are present in person or by proxy or (b) more
than 50% of the outstanding shares of the Fund.
The Municipal Fund and the Intermediate Municipal Fund 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.
The Municipal Fund and the Intermediate Municipal Fund each may not, as a
fundamental policy:
1.
2. Concentrate its investments in a particular industry, as that term is used
in the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time.
3.
4. Make loans except as permitted under the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory authority having
jurisdiction from time to time
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5. Borrow money, except as permitted under the Investment Company Act of 1940,
as amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
6.
7.
8. Purchase physical commodities or contracts relating to physical
commodities.
9. 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.
10. 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.
11. Issue senior securities, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
The California Fund may not, as a fundamental policy:
1.
2. Concentrate its investments in a particular industry, as that term is used
in the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time.
3.
4. Make loans except as permitted under the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory authority having
jurisdiction from time to time.
5. Borrow money, except as permitted under the Investment Company Act of 1940,
as amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
6.
7.
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8. Purchase physical commodities or contracts relating to physical
commodities.
9. 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.
10. 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.
11. Issue senior securities, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
The Florida Fund, the New York Fund, and the Ohio Fund each may not, as a
fundamental policy:
1.
2. Concentrate its investments in a particular industry, as that term is used
in the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time.
3. Make loans except as permitted under the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory authority having
jurisdiction from time to time.
4. Borrow money, except as permitted under the Investment Company Act of 1940,
as amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
5.
6.
7. 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.
8. Purchase physical commodities or contracts relating to physical
commodities.
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<PAGE>
9. 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.
10. Issue senior securities, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
11.
The Michigan Fund, the New Jersey Fund, the Pennsylvania Fund, and the Texas
Fund, each may not, as a fundamental policy:
1. Make investments other than in accordance with its investment objective and
policies, 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.
2. Purchase securities (other than securities of the United States Government,
its agencies or instrumentalities, or of a state or its political
subdivisions) if as a result of such purchase 25% or more of its total
assets would be invested in any industry, 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.
3. Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term
obligations in accordance with its objective and policies are not
prohibited.
4. Borrow money except for temporary purposes (but not for the purpose of
purchase of investments) and then only in an amount not to exceed one-third
of the value of its total assets (including the amount borrowed) in order
to meet redemption requests which otherwise might result in the untimely
disposition of securities; or pledge its securities or receivables or
transfer or assign or otherwise encumber them in an amount to exceed 10% of
its net assets to secure borrowings. Reverse repurchase agreements are
permitted within the limitations of this paragraph. The Fund will not
purchase securities or make investments while reverse repurchase agreements
or borrowings are outstanding.
5. Make short sales of securities, or purchase any securities on margin,
except to obtain such short-term credit as may be necessary for the
clearance of transactions; however, it may make margin deposits in
connection with financial futures and options transactions.
6. Write or sell put or call options, combinations thereof or similar options
on more than 25% of the Fund's net assets; nor may it purchase put or call
options if more than 5% of the Fund's net assets would be invested in
premiums on put and call options, combinations thereof or similar options;
however, the Fund may buy or sell options on financial futures contracts.
7. Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities, 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.
8. Invest in commodities or commodity futures contracts, although it may buy
or sell financial futures contracts and options on such contracts.
9. Invest in real estate, although it may invest in securities which are
secured by real estate and securities of issuers which invest or deal in
real estate.
10. Issue senior securities except as permitted under the Investment Company
Act of 1940.
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<PAGE>
11. Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities) if, as
a result, more than 5% of the total value of the Fund's assets would be
invested in securities of that issuer except that, with respect to 50% of
the Fund's total assets, the Fund may invest up to 25% of its total assets
in securities of any one issuer, 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.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. In the event
a Fund acquires illiquid assets as a result of the exercise of a security
interest relating to Municipal Securities, the Fund will dispose of such assets
as promptly as possible. A Fund may invest more than 25% of its net assets in
industrial development bonds. For purposes of diversification, identification of
the issuer of a Municipal Security depends on the terms and conditions of the
obligation. Each Fund considers the issuer to be the party with the primary
financial obligation for the issue. The Funds did not borrow money as permitted
by investment restriction number 4 for the Municipal, Intermediate Municipal,
California, Michigan, New Jersey, Pennsylvania and Texas Funds Funds; number 3
for the 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.
Invest more than 15% of its net assets in illiquid securities.
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.
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<PAGE>
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. At special meetings of shareholders, a majority of
the shareholders of the Funds approved a proposal which gives the Trust's Board
of Trustees the discretion to retain the current distribution arrangement for a
Fund 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 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.
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.
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:
20
<PAGE>
(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 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
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a postponement of the recognition of such loss for federal income tax purposes.
An exchange of a Fund's shares for shares of another fund is treated as a
redemption and reinvestment for federal income tax purposes upon which gain or
loss may be recognized.
Interest on indebtedness which is incurred to purchase or carry shares of a
mutual fund which distributes exempt-interest dividends during the year is not
deductible for federal income tax purposes. Further, the Funds may not be
appropriate investments for persons who are "substantial users" of facilities
financed by industrial development bonds held by the Funds or are "related
persons" to such users; such persons should consult their tax advisers before
investing in the Funds.
The "Superfund Act of 1986" (the "Superfund Act") imposes a separate tax on
corporations at a rate of 0.12 percent of the excess of such corporation's
"modified alternative minimum taxable income" over $2 million. A portion of
tax-exempt interest, including exempt-interest dividends from a Fund, may be
includible in modified alternative minimum taxable income. Corporate
shareholders are advised to consult their tax advisers with respect to the
consequences of the Superfund Act.
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, Michigan, New
Jersey, New York, Ohio, Pennsylvania and Texas Funds, respectively, was derived
from "private activity bonds."
Exempt-interest dividends, except to the extent of interest from "private
activity bonds", are not treated as a tax preference item. For a corporate
shareholder, however, such dividends will be included in determining such
corporate shareholder's "adjusted current earnings." Seventy-five percent of the
excess, if any, of "adjusted current earnings" over the corporate shareholder's
alternative minimum taxable income with certain adjustments will be a tax
preference item. Corporate shareholders are advised to consult their tax
advisers with respect to alternative minimum tax consequences.
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.
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During the fiscal year ended August 31, 1998, __% of the income dividends paid
by the Florida Fund constituted tax-exempt dividends for federal income tax
purposes. Additionally, Florida imposes an "intangibles tax" at the rate of
$2.00 per $1,000 of taxable value of certain securities and other intangible
assets owned by Florida residents. U.S. Government securities and Florida
Municipal Securities are exempt from this intangibles tax. The Florida Fund has
received a technical assistance advisement from the State of Florida Department
of Revenue that if, on December 31 of any year, the Florida Fund's portfolio
consists of both exempt and non-exempt assets, then only the portion of the
value of the Florida Fund's shares attributable to U.S. Government securities
will be exempt from the Florida intangibles tax payable in the following year.
Thus, in order to take full advantage of the exemption from the intangibles tax
in any year, the Florida Fund would be required to sell all non-exempt assets
held in its portfolio and reinvest the proceeds in exempt assets prior to
December 31. Transaction costs involved in restructuring the portfolio in this
fashion would likely reduce the Florida Fund's investment return and might
exceed any increased investment return the Florida Fund achieved by investing in
non-exempt assets during the year. On December 31, 1997, the Florida Fund's
portfolio consisted solely of assets exempt from the intangibles tax.
Michigan Fund. Dividends paid by the Michigan Fund derived from interest income
from obligations of Michigan, its political or governmental subdivisions or
obligations of the U.S., its agencies, instrumentalities or possessions will be
exempt from the Michigan personal income tax and Michigan Single Business Tax
provided that at least 50% of the total assets of the Michigan Fund are invested
in such issues at the end of each quarter. During the fiscal year ended August
31, 1998, __% of the income dividends paid by the Michigan Fund constituted
tax-exempt dividends for federal and Michigan income tax purposes. Any
short-term and long-term capital gain dividends will be includable in Michigan
taxable income as dividend income and long-term capital gain, respectively, and
are taxed at ordinary income tax rates. Long-term capital gain dividends paid by
the Fund will be taxable to entities subject to the Michigan Single Business
Tax. Michigan also exempts from its intangible personal property tax obligations
of Michigan, its political and governmental subdivisions and obligations of the
U.S. and its possessions, agencies and instrumentalities. To the extent that the
Fund's portfolio includes such exempt assets, the value of the Fund shares will
also be exempt. Capital gain distributions from the Fund that are reinvested in
additional shares are exempt from the intangibles taxes, whereas capital gain
distributions paid in cash are taxable.
New Jersey Fund. Dividends paid by the New Jersey Fund will be exempt from New
Jersey Gross Income Tax to the extent that the dividends are derived from
interest on obligations of the State or its political subdivisions or
authorities or on obligations issued by certain other government authorities or
from capital gains from the disposition of such obligations, as long as the Fund
meets certain investment and filing requirements necessary to establish and
maintain its status as a "Qualified Investment Fund" in New Jersey. It is the
Fund's intention to satisfy these requirements and maintain Qualified Investment
Fund status. Given this status, capital gain distributions related to exempt
assets and net gains derived from the sale of shares of the Fund will not be
subject to the New Jersey Gross Income Tax. Dividends paid by the Fund derived
from interest on non-exempt assets, and capital gain distributions related to
such non-exempt assets will be subject to New Jersey Gross Income Tax. Dividends
paid by the Fund, including capital gain distributions, will be taxable to
corporate shareholders subject to the New Jersey corporation business
(franchise) tax. During the fiscal year ended August 31, 1998, __% of the income
dividends paid by the New Jersey Fund constituted tax-exempt dividends for
federal and New Jersey income tax purposes.
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.
Pennsylvania Fund. Dividends paid by the Pennsylvania Fund will be exempt from
Pennsylvania income tax to the extent that the dividends are derived from
interest on obligations of Pennsylvania, any public authority, commissions,
board or other state agency, any political subdivision of the state or its
public authority, and certain obligations of the U.S. or its territories
(including Puerto Rico, Guam and the Virgin Islands). During the fiscal year
ended August 31, 1998, __% of the income dividends paid by
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the Pennsylvania Fund constituted tax-exempt dividends for federal and
Pennsylvania income tax purposes. Any dividends of net short-term and long-term
capital gain earned by the Fund are generally included in the Pennsylvania
taxable income as dividend income and long-term capital gain respectively, and
are taxed at ordinary income tax rates. Dividends paid by the Fund representing
interest income on Pennsylvania Municipal Securities are also generally exempt
from the Philadelphia School District Income Tax for residents of Philadelphia
and from the intangibles tax for the City and School District of Pittsburgh for
residents of Pittsburgh. Shareholders of the Fund who are subject to the
Pennsylvania property tax in their county of residence will be exempt from
county personal property tax to the extent that the portfolio of the Fund
consists of such exempt obligations on the annual assessment date of January 1.
Texas Fund. Currently, Texas does not impose any income tax on individuals,
trusts or estates. During the fiscal year ended August 31, 1998, __% of the
income dividends paid by the Texas Fund constituted tax-exempt dividends for
federal income tax purposes. Dividends paid by the Texas Fund to corporate
shareholders subject to the Texas corporate franchise tax, will be exempt to the
extent of interest received from federal, state and local government issues.
General. The tax exemption of Fund dividends for federal income tax and, if
applicable, particular state or local tax purposes does not necessarily result
in exemption under the income or other tax laws of any other state or local
taxing authority. The laws of the several states and local taxing authorities
vary with respect to the taxation of interest income and investments, and
shareholders are advised to consult their own tax advisers as to the status of
their accounts under state and local tax laws. The Funds may not be appropriate
investments for qualified retirement plans and Individual Retirement Accounts.
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.
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
24
<PAGE>
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, 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, the Florida Fund or the Texas Fund, in a stated
combined federal and state income tax bracket
25
<PAGE>
for the California Fund, the Ohio Fund, the Michigan Fund, the New Jersey Fund
and the Pennsylvania Fund, and in a stated combined federal, New York State and
New York City income tax bracket for the New York Fund. The tax equivalent yield
for the Florida Fund does not include the potential effect of an exemption from
the Florida intangibles tax. Average annual total return and total return
measure both the net investment income generated by, and the effect of any
realized or unrealized appreciation or depreciation of, the underlying
investments in a Fund.
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 To be updated
Intermediate Municipal Fund
California Fund
Florida Fund
Michigan Fund
New Jersey Fund
New York Fund
Ohio Fund
Pennsylvania Fund
Texas 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 +1 )^6 - 1]
cd
Where:
A = dividends and interest earned during the period.
B = expenses accrued for the period (net of
reimbursements).
C = the average daily number of shares outstanding
during the period that were
entitled to receive dividends.
D = the maximum offering price per share
on the last day of the period (which is
net asset value for Class B and Class C
shares).
In computing the foregoing yield, each Trust follows certain standardized
accounting practices specified by Securities and Exchange Commission rules.
These practices are not necessarily consistent with those that each Trust uses
to prepare its annual and interim financial statements in conformity with
generally accepted accounting principles.
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, Michigan
Fund's, New Jersey Fund's, New York Fund's, Ohio Fund's and Pennsylvania 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>
26
<PAGE>
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%)
Michigan -- Combined (39.9%)
Michigan -- Federal only (37.1%)
New Jersey -- Combined (41.1%)
New Jersey -- Federal only (37.1%)
New York -- Combined (43.5%)
New York -- Federal only (37.1%)
Ohio -- Combined (41.2%)
Ohio -- Federal only (37.1%)
Pennsylvania -- Combined (38.9%)
Pennsylvania -- Federal only (37.1%)
Texas -- Federal only (37.1%)
</TABLE>
A Fund's average annual total return quotation is computed in accordance with a
standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for a Fund for a specific period is
found by first taking a hypothetical $1,000 investment ("initial investment") in
the Fund's shares on the first day of the period, adjusting to deduct the
maximum sales charge (in the case of Class A shares), and computing the
"redeemable value" of that investment at the end of the period. The redeemable
value in the case of Class B shares includes the effect of the applicable
contingent deferred sales charge that may be imposed at the end of the period.
The redeemable value is then divided by the initial investment, and this
quotient is taken to the Nth root (N representing the number of years in the
period) and 1 is subtracted from the result, which is then expressed as a
percentage. The calculation assumes that all income and capital gains dividends
paid by the Fund have been reinvested at net asset value on the reinvestment
dates during the period. Average annual total return figures for various periods
are set forth in the table below.
Calculation of a Fund's total return is not subject to a standardized formula,
except when calculated for purposes of the Fund's "Financial Highlights" table
in the Fund's financial statements 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
27
<PAGE>
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 Index(TM) or various certificate of deposit indexes.
Money market fund performance may be based upon, among other things,
IBC/Donoghue's Money Fund Report(R) or Money Market Insight(R), reporting
services on money market funds. Performance of U.S. Treasury obligations may be
based upon, among other things, various U.S. Treasury bill indexes. Certain of
these alternative investments may offer fixed rates of return, and guaranteed
principal and may be insured.
A Fund may depict the historical performance of the securities in which the Fund
may invest over periods reflecting a variety of market or economic conditions
either alone or in comparison with alternative investments, performance indexes
of those investments or economic indicators. A Fund may also describe its
portfolio holdings and depict its size or relative size compared to other mutual
funds, the number and make-up of its shareholder base and other descriptive
factors concerning the Fund.
A Fund may include in its sales literature and shareholder reports a quotation
of the current "distribution rate" for a class of a Fund. Distribution rate is
simply a measure of the level of dividends distributed for a specified period.
It differs from yield, which is a measure of the income actually earned by the
Fund's investments, and from total return, which is a measure of the income
actually earned by, plus the effect of any realized and unrealized appreciation
or depreciation of such investments during the period. Distribution rate is,
therefore, not intended to be a complete measure of performance. Distribution
rate may sometimes be greater than yield since, for instance, it may include
gains from the sale of options or other short-term and possibly long-term gains
(which may be non-recurring) and may not include the effect of amortization of
bond premiums. As reflected under "Investment Policies and Techniques --
Additional Investment Information," option writing can limit the potential for
capital appreciation.
The figures below show performance information for various periods. Comparative
information with respect to certain indices is also included. There are
differences and similarities between the investments which a Fund may purchase
and the investments measured by the indexes which are described herein. The
Consumer Price Index is generally considered to be a measure of inflation. The
Salomon Brothers High Grade Corporate Bond Index is an unmanaged index that
generally represents the performance of high grade long-term taxable bonds
during various market conditions. The Lehman Brothers Municipal Bond Index is an
unmanaged index that generally represents the performance of high grade
intermediate and long-term municipal bonds during various market conditions.
IBC's All Tax-Free Money Fund Averages(R) is currently based upon the total
return, assuming reinvestment of dividends, of 382 tax-free money market funds.
The Towers Data Systems U.S. Treasury Bill Index is an unmanaged index based on
the average monthly yield of U.S. Treasury Bills maturing in six months. The
market prices and yields of taxable and tax-exempt bonds will fluctuate. There
are important differences among the various investments included in the indexes
that should be considered in reviewing this information. For more information,
see the disclosure after the charts below. The net asset value and returns of
each class of shares of a Fund will fluctuate. No adjustment has been made for
taxes, if any, payable on dividends. Each period indicated was one of
fluctuating securities prices and interest rates.
28
<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)
- ------------ ------------- ---------- ------------- ------------- ------------- --------------- ---------------
CLASS A SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
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>
<TABLE>
<CAPTION>
COMPARED TO
-----------
Salomon Bros.
TOTAL RETURN Consumer High Grade Lehman Bros. U.S. T-Bill
TABLE Price Index(3) Corp. (4) Muni(5) Index(6) Towers Data Systems CD Index(7)
- ------------ -------------- --------- ------- -------- -------------------------------
<S> <C> <C> <C> <C> <C>
Life of Fund(+) To be updated
Ten Years
Five Years
One Year
Year to Date
LOF (5/31/94)
</TABLE>
<TABLE>
<CAPTION>
Salomon
Bros.
AVERAGE ANNUAL Fund Fund Fund Fund Consumer High Lehman Towers Data
TOTAL Class A Class B Class C Class I Price Grade Bros. U.S. T-Bill Systems CD
RETURN TABLE Shares Shares Shares Shares Index(3) Corp.(4) Muni(5) Index(6) Index (7)
- ------------ ------ ------ ------ ------ -------- -------- ------- -------- ---------
29
<PAGE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund To be
Class A(+)(++) updated
Class B & C
(5-31-94)
Ten Years
Five Years
One Year
</TABLE>
- ----------------
+ Since April 20, 1976 for Class A shares.
++ Since May 31, 1994 for Class B & C shares.
* Not applicable.
See footnotes following tables.
30
<PAGE>
<TABLE>
<CAPTION>
INTERMEDIATE MUNICIPAL FUND -- SEPTEMBER 30, 1998
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)
- ------------ ------------- ---------- ------------- ------------- ------------- --------------- ---------------
CLASS A SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
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>
<TABLE>
<CAPTION>
COMPARED TO
-----------
Consumer Salomon Bros.
TOTAL RETURN Price High Grade Lehman Bros. U.S. T-Bill
TABLE Index(3) Corp.(4) Muni(5) Index(6) Towers Data Systems CD Index(7)
- ------------ -------- -------- ------- -------- -------------------------------
<S> <C> <C> <C> <C> <C>
Life of Fund(+) To be
updated
One Year
Year to Date
</TABLE>
<TABLE>
<CAPTION>
Salomon
Bros.
AVERAGE ANNUAL Fund Fund Fund Fund Consumer High Lehman Towers Data
TOTAL Class A Class B Class C Class I Price Grade Bros. U.S. T-Bill Systems CD
RETURN TABLE Shares Shares Shares Shares Index(3) Corp.(4) Muni(5) Index(6) Index(7)
- ------------ ------ ------ ------ ------ -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) To be
updated
One Year
</TABLE>
31
<PAGE>
- ----------------
+ Since November 1, 1994 for all classes.
* Not applicable.
See footnotes following tables.
32
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA FUND -- AUGUST 31, 1998
Capital
TOTAL RETURN Initial Gain Income Ending Percentage Ending
TABLE $10,000 Dividends Dividends Value Increase Value Percentage Increase
TABLE Investment(1) Reinvested Reinvested(2) (adjusted)(1) (unadjusted)(1) (adjusted)(1) (unadjusted)(1)
- ----- ------------- ---------- ------------- ------------- --------------- ------------- ---------------
CLASS A SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
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>
COMPARED TO
-----------
<TABLE>
<CAPTION>
Consumer
TOTAL RETURN Price Lehman Bros. U.S. T-Bill
TABLE Index(3) Muni(5) Index(6) Towers Data Systems CD Index(7)
- ----- -------- ------- -------- -------------------------------
<S> <C> <C> <C> <C>
Life of Fund(+) To be
updated
Ten Years
Five Years
One Year
Year to Date
Life of Fund
(5/31/94)
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL Fund Fund Fund Consumer Lehman
TOTAL Class A Class B Class C Price Bros. U.S. T-Bill Towers Data Systems
RETURN TABLE Shares Shares Shares Index(3) Muni(5) Index(6) CD Index(7)
- ------------ ------ ------ ------ -------- ------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund To be
Class A(+)(++) updated
Class B & C
(5-31-94)
Ten Years
Five Years
One Year
</TABLE>
33
<PAGE>
- ----------------
+ Since February 17, 1983 for Class A shares.
++ Since May 31, 1994 for Class B & C shares.
* Not applicable.
See footnotes following tables.
34
<PAGE>
<TABLE>
<CAPTION>
FLORIDA FUND -- AUGUST 31, 1998
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)
- ------------ ------------- ---------- ----------------------------------------- --------------- ---------------
CLASS A SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
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>
<TABLE>
<CAPTION>
COMPARED TO
-----------
Consumer
TOTAL RETURN Price Lehman Bros. U.S. T-Bill
TABLE Index(3) Muni(5) Index(6) Towers Data Systems CD Index(7)
- ------------ -------- ------- -------- -------------------------------
<S> <C> <C> <C> <C>
Life of Fund(+) To be
updated
Five Years
One Year
Year to Date
Life of Fund
(5/31/94)
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL Fund Fund Fund Consumer Lehman
TOTAL Class A Class B Class C Price Bros. U.S.T-Bill Towers Data Systems CD
RETURN TABLE Shares Shares Shares Index(3) Muni(5) Index(6) Index(7)
- ------------ ------ ------ ------ -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund To
Class A(+)(++) be
updated
Class B & C
(5-31-94)
Five Years
One Year
</TABLE>
35
<PAGE>
- ----------------
+ Since April 25, 1991 for Class A shares.
++ Since May 31, 1994 for Class B & C shares.
* Not applicable.
See footnotes following tables.
36
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN FUND -- AUGUST 31, 1998
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)
- ------------ ------------- ---------- ----------------------------------------- --------------- ---------------
CLASS A SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
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>
<TABLE>
<CAPTION>
COMPARED TO
-----------
Consumer
TOTAL RETURN Price Lehman Bros. U.S. T-Bill
TABLE Index(3) Muni(5) Index(6) Towers Data Systems CD Index(7)
- ------------ -------- ------- -------- -------------------------------
<S> <C> <C> <C> <C>
Life of Fund(+) To be
updated
One Year
Year to Date
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL Fund Fund Fund Consumer Lehman
TOTAL Class A Class B Class C Price Bros. U.S.T-Bill Towers Data Systems CD
RETURN TABLE Shares Shares Shares Index(3) Muni(5) Index(6) Index(7)
- ------------ ------ ------ ------ -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) To be
updated
One Year
</TABLE>
- ----------------
+ Since March 15, 1995 for all classes.
* Not applicable.
See footnotes following tables.
37
<PAGE>
<TABLE>
<CAPTION>
NEW JERSEY FUND -- AUGUST 31, 1998
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)
- ------------ ------------- ---------- ----------------------------------------- --------------- ---------------
CLASS A SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
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>
<TABLE>
<CAPTION>
COMPARED TO
-----------
Consumer
TOTAL RETURN Price Lehman Bros. U.S. T-Bill
TABLE Index(3) Muni(5) Index(6) Towers Data Systems CD Index(7)
- ------------ -------- ------- -------- -------------------------------
<S> <C> <C> <C> <C>
Life of Fund(+) To be
updated
One Year
Year to Date
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL Fund Fund Fund Consumer Lehman
TOTAL Class A Class B Class C Price Bros. U.S.T-Bill Towers Data Systems CD
RETURN TABLE Shares Shares Shares Index(3) Muni(5) Index(6) Index(7)
- ------------ ------ ------ ------ -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) To be
updated
One Year
</TABLE>
- ----------------
+ Since March 15, 1995 for all classes.
* Not applicable.
See footnotes following tables.
38
<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)
- ------------ ------------- ---------- ----------------------------------------- --------------- ---------------
CLASS A SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
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>
COMPARED TO
-----------
<TABLE>
<CAPTION>
Consumer
TOTAL RETURN Price Lehman Bros. U.S. T-Bill
TABLE Index(3) Muni(5) Index(6) Towers Data Systems CD Index(7)
- ----- -------- ------- -------- -------------------------------
<S> <C> <C> <C> <C>
Life of Fund(+) To be
updated
Ten Years
Five Years
One Year
Year to Date
Life of Fund
5/31/94
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL Fund Fund Fund Consumer Lehman
TOTAL Class A Class B Class C Price Bros. U.S.T-Bill Towers Data Systems CD
RETURN TABLE Shares Shares Shares Index(3) Muni(5) Index(6) Index(7)
- ------------ ------ ------ ------ -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund To be
Class A(+)(++) updated
Class B & C
(5-31-94)
Ten Years
Five Years
</TABLE>
39
<PAGE>
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.
40
<PAGE>
<TABLE>
<CAPTION>
OHIO FUND -- AUGUST 31, 1998
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)
- ------------ ------------- ---------- ------------- ------------- ------------- --------------- ---------------
CLASS A SHARES
<S> <C>
Life of Fund(+) To be <C> <C> <C> <C> <C> <C>
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>
<TABLE>
<CAPTION>
COMPARED TO
-----------
Consumer
TOTAL RETURN Price Lehman Bros. U.S. T-Bill
TABLE Index(3) Muni(5) Index(6) Towers Data Systems CD Index(7)
- ------------ -------- ------- -------- -------------------------------
<S> <C> <C> <C> <C>
Life of Fund(+) To be
updated
One Year
Year to Date
Life of Fund
(5-31-94)
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL Fund Fund Fund Consumer Lehman
TOTAL Class A Class B Class C Price Bros. U.S.T-Bill Towers Data Systems CD
RETURN TABLE Shares Shares Shares Index(3) Muni(5) Index(6) Index(7)
- ------------ ------ ------ ------ -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund To be
Class A(+)(++) updated
Class B & C
(5-31-94)
One Year
</TABLE>
- ----------------
+ Since March 22, 1993 for Class A shares.
++ Since May 31, 1994 for Class B & C shares.
* Not applicable.
See footnotes following tables.
41
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA FUND -- AUGUST 31, 1998
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)
- ----- ------------- ---------- ------------- ------------- ------------- --------------- ---------------
CLASS A SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
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>
<TABLE>
<CAPTION>
COMPARED TO
-----------
Consumer
TOTAL RETURN Price Lehman Bros. U.S. T-Bill
TABLE Index(3) Muni(5) Index(6) Towers Data Systems CD Index(7)
- ----- -------- ------- -------- -------------------------------
<S> <C> <C> <C> <C>
Life of Fund(+) To be
updated
One Year
Year to Date
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL Fund Fund Fund Consumer Lehman
TOTAL Class A Class B Class C Price Bros. U.S.T-Bill Towers Data Systems CD
RETURN TABLE Shares Shares Shares Index(3) Muni(5) Index(6) Index(7)
- ------------ ------ ------ ------ -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund(+) To be
updated
One Year
</TABLE>
- ----------------
+ Since March 15, 1995 all classes.
* Not applicable.
See footnotes following tables.
42
<PAGE>
<TABLE>
<CAPTION>
TEXAS FUND -- AUGUST 31, 1998
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)
- ------------ ------------- ---------- ------------- ------------- ------------- --------------- ---------------
CLASS A SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
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>
<TABLE>
<CAPTION>
COMPARED TO
-----------
Consumer
TOTAL RETURN Price Lehman Bros. U.S. T-Bill
TABLE Index(3) Muni(5) Index(7) Towers Data Systems CD Index(8)
- ------------ -------- ------- -------- -------------------------------
<S> <C>
Life of Fund(+) To be
updated
One Year
Year to Date
Life of Fund
(5-31-94)
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL Fund Fund Fund Consumer Lehman
TOTAL Class A Class B Class C Price Bros. U.S.T-Bill Towers Data Systems CD
RETURN TABLE Shares Shares Shares Index(3) Muni(5) Index(7) Index(8)
- ------------ ------ ------ ------ -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund To be updated
Class A(+)(++)
Class B &C
(5-31-94)
One Year
</TABLE>
- ----------------
* Not available.
+ Since November 1, 1991 for Class A shares.
43
<PAGE>
++ Since May 31, 1994 for Class B & C shares.
* Not applicable.
See footnotes following tables.
44
<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.
(3) The Consumer Price Index is a statistical measure of change, over time, in
the prices of goods and services in major expenditure groups for all urban
consumers. Source is Towers Data Systems.
(4) Salomon Brothers High Grade Corporate Bond Index is on a total return basis
with all dividends reinvested and is comprised of high grade long-term
(taxable) industrial and utility bonds rated in the top two rating
categories. This index is unmanaged. Source is Towers Data Systems.
(5) Lehman Brothers Municipal Bond Index is on a total return basis with all
dividends reinvested and is comprised of high grade long-term municipal
bonds. This index is unmanaged. Source is Towers Data Systems.
(6) U.S. Treasury Bill Index is an unmanaged index based on the average monthly
yield of U.S. Treasury Bills maturing in 6 months. Source is Towers Data
Systems.
(7) Certificate of Deposit Index is an unmanaged index based on the average
monthly yield of 6 month certificates of deposit. Source is Towers Data
Systems.
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.
The following tables illustrate an assumed $10,000 investment in Class A shares
of each Fund which includes the maximum sales charge of 4.5% (2.75% for the
Intermediate Municipal Fund), with income and capital gain dividends reinvested
in additional shares. Each table covers the period from commencement of
operations of the Fund to September 30, 1998 for the Municipal and the
Intermediate Municipal Funds and to August 31, 1998 for the State Funds.
45
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL FUND
--------------
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
--------- -----------------------------------
ANNUAL
ANNUAL INCOME CAPITAL GAIN REINVESTED REINVESTED
YEAR DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
ENDED 12/31+ REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- ------------ ----------- ---------- ---------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
1976 $267 $0 $10,133 $282 $0 $10,415
1977 561 0 10,343 854 0 11,197
1978 596 93 9,550 1,360 88 10,998
1979 669 0 8,882 1,887 80 10,849
1980 810 0 7,067 2,217 65 9,349
1981 947 0 5,740 2,622 52 8,414
1982 1,123 0 7,334 4,639 67 12,040
1983 1,308 0 7,583 6,105 69 13,757
1984 1,301 0 7,630 7,477 70 15,177
1985 1,423 0 8,490 9,821 78 18,389
1986 1,543 0 9,369 12,444 85 21,898
1987 1,664 0 8,948 13,543 82 22,573
1988 1,797 0 9,006 15,437 82 24,525
1989 1,855 0 9,330 17,881 86 27,297
1990 1,956 0 9,273 19,756 85 29,114
1991 1,930 351 9,712 22,679 444 32,834
1992 2,240 378 9,779 25,090 827 35,694
1993 2,528 868 10,144 28,554 1,711 40,409
1994 2,307 141 8,996 27,528 1,659 38,183
1995 2,308 43 10,067 33,215 1,899 45,181
1996 2,421 360 9,780 34,698 2,206 46,684
1997 To be
updated
</TABLE>
September 30, 1998
+ Unless otherwise noted.
* Includes short-term capital gain dividends, if any.
<TABLE>
<CAPTION>
INTERMEDIATE MUNICIPAL FUND
---------------------------
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
--------- -----------------------------------
ANNUAL
ANNUAL INCOME CAPITAL GAIN REINVESTED REINVESTED
YEAR DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
ENDED 12/31+ REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- ------------ ----------- ---------- ---------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
1994 $67 $0 $9,785 $68 $0 $9,853
1995 611 0 10,543 698 0 11,241
1996 500 40 10,389 1,195 40 11,624
1997 To be
updated
</TABLE>
September 30, 1998
+ Unless otherwise noted.
* Includes short-term capital gain dividends, if any.
46
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA FUND DIVIDENDS CUMULATIVE OF SHARES ACQUIRED
------------------------- -----------------------------
ANNUAL
ANNUAL INCOME CAPITAL GAIN REINVESTED REINVESTED
YEAR DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
ENDED 12/31+ REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- ------------ ----------- ---------- ---------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
1983 $652 $0 $9,242 $645 $0 $9,888
1984 924 0 9,111 1,565 0 10,680
1985 1,036 0 10,184 2,845 0 13,029
1986 1,086 0 11,171 4,243 0 15,419
1987 1,189 0 10,781 5,284 0 16,065
1988 1,170 204 10,673 6,393 206 17,272
1989 1,273 236 10,964 7,840 449 19,252
1990 1,292 0 10,950 9,145 448 20,542
1991 1,371 76 11,408 10,936 543 22,887
1992 1,435 260 11,501 12,465 807 24,773
1993 1,614 1,016 11,746 14,322 1,823 27,891
1994 1,460 134 10,460 14,144 1,758 26,362
1995 1,789 101 11,706 17,695 2,070 31,471
1996 1,617 173 11,385 18,838 2,186 32,409
1997 To be
updated
</TABLE>
August 31, 1998
+ Unless otherwise noted.
* Includes short-term capital gain dividends, if any.
<TABLE>
<CAPTION>
FLORIDA FUND
------------
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
--------- -----------------------------------
ANNUAL
ANNUAL INCOME CAPITAL GAIN REINVESTED REINVESTED
YEAR DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
ENDED 12/31+ REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- ------------ ----------- ---------- ---------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
1991 $452 $ 0 $10,043 $ 466 $ 0 $10,509
1992 666 39 10,274 1,153 39 11,466
1993 829 217 10,724 2,032 255 13,011
1994 649 173 9,648 2,451 403 12,502
1995 759 130 10,714 3,510 578 14,802
1996 731 167 10,352 4,123 726 15,201
1997 To be
updated
</TABLE>
August 31, 1998
+ Unless otherwise noted.
* Includes short-term capital gain dividends, if any.
47
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN FUND
-------------
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
--------- -----------------------------------
ANNUAL
ANNUAL INCOME CAPITAL GAIN REINVESTED REINVESTED
YEAR DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
ENDED 12/31+ REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- ------------ ----------- ---------- ---------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
1995 $385 $0 $10,332 $402 $0 $10,734
1996 436 821 10,081 831 114 11,026
1997 To be
updated
</TABLE>
August 31, 1998
+ Unless otherwise noted.
* Includes short-term capital gain dividends, if any.
<TABLE>
<CAPTION>
NEW JERSEY FUND
---------------
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
--------- -----------------------------------
ANNUAL
ANNUAL INCOME CAPITAL GAIN REINVESTED REINVESTED
YEAR DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
ENDED 12/31+ REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- ------------ ----------- ---------- ---------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
1995 $382 $0 $10,301 $399 $0 $10,700
1996 431 65 10,300 821 65 10,916
1997 To be
updated
</TABLE>
August 31, 1998
+ Unless otherwise noted.
* Includes short-term capital gain dividends, if any.
<TABLE>
<CAPTION>
NEW YORK FUND
-------------
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
--------- -----------------------------------
ANNUAL ANNUAL
ANNUAL INCOME CAPITAL GAIN REINVESTED REINVESTED
YEAR DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
ENDED 12/31+ REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- ------------ ----------- ---------- ---------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
1985 $0 $0 $9,550 $0 $0 $9,550
1986 434 0 10,304 449 0 10,753
1987 583 0 9,640 1,000 0 10,640
1988 606 0 9,831 1,632 0 11,463
1989 884 25 10,224 2,591 25 12,840
1990 930 0 10,083 3,494 25 13,602
1991 949 0 10,706 4,690 26 15,423
1992 1,025 84 10,937 5,826 111 16,876
1993 1,080 329 11,437 7,180 443 19,060
1994 996 220 10,171 7,331 615 18,117
1995 1,107 207 11,236 9,250 888 21,374
1996 1,100 170 10,854 10,036 1,029 21,919
1997 To be
updated
</TABLE>
August 31, 1998
+ Unless otherwise noted.
* Includes short-term capital gain dividends, if any.
OHIO FUND
---------
48
<PAGE>
<TABLE>
<CAPTION>
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
--------- -----------------------------------
ANNUAL
ANNUAL INCOME CAPITAL GAIN REINVESTED REINVESTED
YEAR DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
ENDED 12/31+ REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- ------------ ----------- ---------- ---------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
1993 $421 $ 0 $10,080 $ 429 $ 0 $10,509
1994 565 0 9,186 938 0 10,124
1995 556 0 10,341 1,642 0 11,983
1996 566 36 10,140 2,182 37 12,359
1997 To be
updated
</TABLE>
August 31, 1998
+ Unless otherwise noted.
* Includes short-term capital gain dividends, if any.
<TABLE>
<CAPTION>
PENNSYLVANIA FUND
-----------------
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
--------- -----------------------------------
ANNUAL
ANNUAL INCOME CAPITAL GAIN REINVESTED REINVESTED
YEAR DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
ENDED 12/31+ REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- ------------ ----------- ---------- ---------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
1995 $382 $0 $10,402 $401 $0 $10,803
1996 459 0 10,252 860 0 11,112
1997 To be
updated
</TABLE>
August 31, 1998
+ Unless otherwise noted.
* Includes short-term capital gain dividends, if any.
<TABLE>
<CAPTION>
TEXAS FUND
----------
DIVIDENDS CUMULATIVE VALUE OF SHARES ACQUIRED
--------- -----------------------------------
ANNUAL
ANNUAL INCOME CAPITAL GAIN REINVESTED REINVESTED
YEAR DIVIDENDS DIVIDENDS INITIAL INCOME CAPITAL GAIN TOTAL
ENDED 12/31+ REINVESTED* REINVESTED INVESTMENT DIVIDENDS DIVIDENDS* VALUE
- ------------ ----------- ---------- ---------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
1991 $86 $0 $9,698 $87 $0 $9,785
1992 622 0 10,030 722 0 10,752
1993 703 94 10,693 1,485 93 12,271
1994 660 91 9,779 1,996 177 11,952
1995 892 122 10,734 3,106 318 14,158
1996 692 360 10,351 3,683 668 14,702
1997 To be
updated
</TABLE>
August 31, 1998
+ Unless otherwise noted.
* Includes short-term capital gain dividends, if any.
49
<PAGE>
The following tables compare the performance of the Class A shares of each Fund
over various periods with that of other mutual funds within the categories
described below according to data reported by Lipper Analytical Services, Inc.
("Lipper"), New York, New York, which is a mutual fund reporting service. Lipper
performance figures are based on changes in net asset value, with all income and
capital gain dividends reinvested. Such calculations do not include the effect
of any sales charges. Future performance cannot be guaranteed. Lipper publishes
performance analyses on a regular basis. The funds in each Lipper category have
a variety of objectives, policies and market and credit risks that should be
considered in reviewing the rankings.
<TABLE>
<CAPTION>
Lipper-Fixed Income Fund Performance Analysis
---------------------------------------------
Municipal Fund General Municipal Bond Funds
----------------------------
<S> <C>
Ten Years (Period ended 9/30/98) To be updated
Five Years (Period ended 9/30/98)
One Year (Period ended 9/30/98)
The Lipper General Municipal Bond Fund category includes funds which invest 60%
or more of their assets in the top four tax-exempt credit ratings.
Lipper-Fixed Income Fund Performance Analysis
---------------------------------------------
Intermediate Municipal Fund Intermediate Municipal Bond Funds
---------------------------------
One Year (Period ended 9/30/98) To be updated
The Lipper Intermediate Municipal Bond Funds category includes funds that limit
at least 60% or more of their assets in the top four tax-exempt credit ratings.
Lipper-Fixed Income Fund Performance Analysis
---------------------------------------------
California Municipal Fund California Municipal Bond Funds
-------------------------------
Ten Years (Period ended 8/31/98) To be updated
Five Years (Period ended 8/31/98)
One Year (Period ended 8/31/98)
The Lipper California Municipal Bond Funds category includes funds that limit at
least 65% of their investments to those securities that are exempt from federal
and State of California income tax (double tax exempt).
Lipper-Fixed Income Fund Performance Analysis
---------------------------------------------
Florida Fund Florida Municipal Bond Funds
----------------------------
Five Years (Period ended 8/31/98) To be updated
One Year (Period ended 8/31/98)
The Lipper Florida Municipal Bond Funds category includes funds that limit at
least 65% of their investments to those securities that are exempt from federal
income tax.
Lipper-Fixed Income Fund Performance Analysis
---------------------------------------------
Michigan Fund Michigan Municipal Bond Funds
-----------------------------
One Year (Period ended 8/31/98) To be updated
The Lipper Michigan Municipal Bond Funds category includes funds that limit at
least 65% of their investments to those securities that are exempt from federal
and State of Michigan income tax (double tax exempt).
Lipper-Fixed Income Fund Performance Analysis
---------------------------------------------
New Jersey Fund New Jersey Municipal Bond Funds
-------------------------------
One Year (Period ended 8/31/98) To be updated
The Lipper New Jersey Municipal Bond Funds category includes funds that limit at
least 65% of their investments to those securities that are exempt from federal
and State of New Jersey income tax (double tax exempt).
50
<PAGE>
Lipper-Fixed Income Fund Performance Analysis
---------------------------------------------
New York Fund New York Municipal Bond Funds
-----------------------------
Ten Years (Period ended 8/31/98) To be updated
Five Years (Period ended 8/31/98)
One Year (Period ended 8/31/98)
The Lipper New York Municipal Bond Funds category includes funds that limit at
least 65% of their investments to those securities that are exempt from federal,
State of New York and New York City income tax (triple tax exempt).
Lipper-Fixed Income Fund Performance Analysis
---------------------------------------------
Ohio Fund Ohio Municipal Bond Funds
-------------------------
One Year (Period ended 8/31/98) To be updated
The Lipper Ohio Municipal Bond Funds category includes funds that limit at least
65% of their investments to those securities that are exempt from federal and
State of Ohio income tax (double tax exempt).
Lipper-Fixed Income Fund Performance Analysis
---------------------------------------------
Michigan Fund Michigan Municipal Bond Funds
-----------------------------
One Year (Period ended 8/31/98) To be updated
Lipper-Fixed Income Fund Performance Analysis
---------------------------------------------
Pennsylvania Fund Pennsylvania Municipal Bond Funds
---------------------------------
One Year (Period ended 8/31/98) To be updated
The Lipper Pennsylvania Municipal Bond Funds category includes funds that limit
at least 65% of their investments to those securities that are exempt from
federal and State of Pennsylvania income tax (double tax exempt).
Lipper-Fixed Income Fund Performance Analysis
---------------------------------------------
Texas Fund Texas Municipal Bond Funds
--------------------------
Three Years (Period ended 8/31/98) To be updated
One Year (Period ended 8/31/98)
</TABLE>
The Lipper Texas Municipal Bond Funds category includes funds that limit at
least 65% of their investments to those securities that are exempt from federal
income tax.
51
<PAGE>
TAX-EXEMPT VERSUS TAXABLE YIELD. You may want to determine which investment --
tax-exempt or taxable -- will provide you with a higher after-tax return. To
determine the taxable equivalent yield, simply divide the yield from the
tax-exempt investment by [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.
<TABLE>
<CAPTION>
Taxable Equivalent Yield Table for Persons Whose Adjusted Gross Income is Under $121,200
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 2.50
Over $59,750 Over $99,600 31.0 5.80 7.25 8.70 10.14 11.59 13.04
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:
------ ----- ---------------- -----------------------------------
To be updated 5.91
Combined A Tax-Exempt Yield of:
Taxable Income Michigan and 4% 5% 6% 7% 8% 9%
Single Joint Federal Tax Rate Is Equivalent to a Taxable Yield of:
------ ----- ---------------- ------------------------------------
To be updated
Combined A Tax-Exempt Yield of:
Taxable Income New Jersey and 4% 5% 6% 7% 8% 9%
Single Joint Federal Tax Rate Is Equivalent to a Taxable Yield of:
------ ----- ---------------- ------------------------------------
To be updated
Taxable Equivalent Yield Table for Persons Whose Adjusted Gross Income is Under $121,200
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:
------ ----- ---------------- ------------------------------------
To be updated
52
<PAGE>
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:
------ ----- ---------------- ------------------------------------
To be updated
Combined A Tax-Exempt Yield of:
Taxable Income Pennsylvania and 4% 5% 6% 7% 8% 9%
Single Joint Federal Tax Rate Is Equivalent to a Taxable Yield of:
------ ----- ---------------- ------------------------------------
To be updated
Taxable Equivalent Yield Table for Persons Whose Adjusted Gross Income is Over $121,200*
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:
------ ----- ---------------- ------------------------------------
To be updated
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:
------ ----- ---------------- -------------------------------------
To be updated
Combined A Tax-Exempt Yield of:
Taxable Income Michigan and 4% 5% 6% 7% 8% 9%
Single Joint Federal Tax Rate Is Equivalent to a Taxable Yield of:
------ ----- ---------------- --------------------------------------
To be updated
Combined A Tax-Exempt Yield of:
Taxable Income New Jersey and 4% 5% 6% 7% 8% 9%
Single Joint Federal Tax Rate Is Equivalent to a Taxable Yield of:
------ ----- ---------------- ---------------------------------------
To be updated
53
<PAGE>
Taxable Equivalent Yield Table for Persons Whose Adjusted Gross Income is Over $121,200*
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
------ ----- ---------------- ---------------------------------------
To be updated
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:
------ ----- ---------------- ---------------------------------------
To be updated
Combined A Tax-Exempt Yield of:
Taxable Income Pennsylvania and 4% 5% 6% 7% 8% 9%
Single Joint Federal Tax Rate Is Equivalent to a Taxable Yield of:
------ ----- ---------------- ---------------------------------------
To be updated
* 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.
</TABLE>
54
<PAGE>
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.
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
55
<PAGE>
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 will be submitted for shareholder
approval at a special meeting currently scheduled to conclude 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.
56
<PAGE>
<TABLE>
<CAPTION>
Fund Fiscal 1998 Fiscal 1997 Fiscal 1996
- ---- ----------- ----------- -----------
<S> <C> <C> <C>
Municipal To be updated $13,507,000 14,261,000
Intermediate Municipal+ $ 117,000 82,000
California $ 5,417,000 5,661,000
Florida $ 587,000 642,000
Michigan++ $ 18,000* 7,000*
New Jersey++ $ 25,000* 11,000*
New York $ 1,604,000 1,717,000
Ohio $ 212,000 192,000
Pennsylvania++ $ 28,000* 8,000*
Texas $ 72,000 78,000
+ Commenced operations November 1, 1994.
++ Commenced operations March 15, 1995.
* Fee waivers and/or expense absorptions in effect during the period, see
below.
</TABLE>
Scudder Kemper 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 Scudder Kemper and fully reinstated by
April 30, 1996. If the fee waiver had not been in effect, Scudder Kemper would
have received investment management fees from the Intermediate Municipal Fund of
$104,000 and $58,000 for the fiscal periods ended September 30, 1996 and 1995,
respectively. Additionally, Scudder Kemperhas 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 0.96%, 1.76% and 1.73%, respectively.
Scudder Kemper agreed to waive its full investment management fee and to absorb
all other operating expenses of the Ohio Fund from March 22, 1993 (commencement
of operations) through June 30, 1994. Thereafter, the full management fee and
all other operating expenses were gradually instituted under a schedule
determined by Scudder Kemper and fully reinstated by June 30, 1995. For this
purpose, "operating expenses" do not include taxes, interest, extraordinary
expenses, brokerage commissions or transaction costs. If the fee waiver had not
been in effect for the fiscal years ended August 31, 1995 and 1994 Scudder
Kemper would have received investment management fees from the Ohio Fund of
$155,000 and $107,000, respectively.
Scudder Kemper agreed to waive its full investment management fee and absorb
other operating expenses of the Texas Fund for the period from November 1, 1991
(commencement of operations) through December 31, 1992. Thereafter, expenses
were gradually reinstated until they were paid in full (excluding the management
fee) effective October 1, 1993. The management fee was reinstated gradually
commencing June 1, 1994 and fully reinstated by June 30, 1995. For this purpose,
"operating expenses" do not include taxes, interest, extraordinary expenses,
brokerage commissions or transaction costs. If the fee waiver had not been in
effect for the fiscal year ended August 31, 1995 and 1994, Scudder Kemper would
have received investment management fees from the Texas Fund of $83,000 and
$79,000, respectively.
Scudder Kemper agreed to waive its full investment management fee for the
Michigan, New Jersey and Pennsylvania Funds from March 15, 1995 (commencement of
operations) through September 15, 1995. Thereafter, the full management
57
<PAGE>
fee was gradually reinstated under a schedule determined by Scudder Kemper and
fully reinstated by September 15, 1996. If the fee waiver had not been in
effect, Scudder Kemper would have received investment management fees from the
Michigan, New Jersey and Pennsylvania Funds of 17,000, 25,000 and 21,000
respectively for the fiscal year ended August 31, 1996 and $5,000, $8,000 and
$4,000, respectively for the period March 15, to August 31, 1995. Additionally,
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
Operating Expenses" of the Michigan, New Jersey and Pennsylvania Funds for Class
A shares to .96%, .96% and .97%, respectively, Class B shares to 1.76%, 1.76%
and 1.73%, respectively, and Class C Shares to 1.73%, 1.73% and 1.71%,
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 an annual fee of __ of 1% of average daily net assets 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 To be updated
Municipal Fund 9/30/98
9/30/97 $ 6,000 $ 47,000 $ 0
58
<PAGE>
Commissions Paid
Commissions Retained Commissions Underwriter to Kemper
Class A Shares Fiscal Year Ended by Underwriter Paid to All Firms Affiliated Firms
- -------------- ----------------- -------------- ----------------- -------------------
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
Michigan Fund 8/31/98 To be updated
8/31/97 $ 1,000 $ 8,000 $ 0
8/31/96 $ 4,000 $ 21,000 $ 1,000
New Jersey Fund 8/31/98
8/31/97 $ 1,000 $ 0 $ 0
8/31/96 $ 2,000 $ 12,000 $ 0
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
Pennsylvania Fund 8/31/98 To be updated
8/31/97 $ 1,000 $ 10,000 $ 0
8/31/96 $ 1,000 $ 10,000 $ 0
Texas Fund 8/31/98 To be updated
8/31/97 $ 3,000 $ 15,000 $ 0
8/31/96 $ 3,000 $ 22,000 $ 0
</TABLE>
59
<PAGE>
Class B and C Shares. Since the distribution agreement provides for fees charged
to Class B and Class C shares that are used by KDI to pay for distribution
services, the agreement (the "Plan") is approved and renewed separately for the
Class B and Class C shares in accordance with Rule 12b-1 under the Investment
Company Act of 1940, which regulates the manner in which an investment company
may, directly or indirectly, bear expenses of distributing its shares. As of
December 1997, each Fund's Rule 12b-1 Plan has been separated from its
distribution agreement.
Rule 12b-1 Plan. Since each distribution agreement provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by KDI to
pay for distribution services for those classes, that agreement is approved and
reviewed separately for the Class B shares and the Class C shares in accordance
with Rule 12b-1 under the 1940 Act, which regulates the manner in which an
investment company may, directly or indirectly, bear the expenses of
distributing its shares. The table below shows amounts paid in connection with
each Fund's then existing Rule 12b-1 Plan during its 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
Michigan
New Jersey
New York
Ohio
Pennsylvania
Texas
</TABLE>
60
<PAGE>
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, 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".
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.
61
<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 to KDI and Prospectus and Sales Operating Interest
Shares Year to KDI Charges KDI to Affiliated Literature Printing Expenses Expenses Expenses
- ------ ---- ------ Paid to KDI Firms 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 1998
Fund
Michigan 1998
Fund
New Jersey 1998
Fund
New York 1998
Fund
Ohio Fund 1998
Pennsylvania 1998
Fund
Texas Fund 1998
</TABLE>
<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 to KDI and Prospectus and Sales Operating Interest
Shares Year to KDI Charges KDI to Affiliated Literature Printing Expenses Expenses Expenses
- ------ ---- ------ Paid to KDI Firms 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 1997 $ 27,000 $ 5,000 $ 64,000 $ 0 $7,000 $ 0 $18,000 $12,000 $ 20,000
Fund
Michigan 1997 $ 9,000 $ 2,000 $ 3,000 $ 0 $ 0 $ 0 $ 1,000 $10,000 $ 8,000
Fund
New Jersey 1997 $ 21,000 $ 1,000 $ 27,000 $ 0 $ 5,000 $ 0 $12,000 $14,000 $ 17,000
Fund
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
Pennsylvania 1997 $ 17,000 $ 7,000 $ 36,000 $ 0 $ 6,000 $ 0 $14,000 $14,000 $ 13,000
Fund
Texas Fund 1997 $ 5,000 $ 0 $ 21,000 $ 0 $ 3,000 $ 0 $ 7,000 $12,000 $ 5,000
</TABLE>
62
<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 to KDI and Prospectus and Sales Operating Interest
Shares Year to KDI Charges KDI to Affiliated Literature Printing Expenses Expenses Expenses
- ------ ---- ------ Paid to KDI Firms 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
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 1996 $ 21,000 $ 5,000 $ 37,000 $ 0 $ 9,000 $ 1,000 $ 20,000 $18,000 $ 15,000
Fund
Michigan 1996 $ 8,000 $ 1,000 $ 17,000 $ 4,000 $ 7,000 $ 0 $ 15,000 $11,000 $ 7,000
Fund
New Jersey 1996 $ 16,000 $17,000 $ 42,000 $ 0 $15,000 $ 1,000 $ 32,000 $23,000 $ 12,000
Fund
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
Pennsylvania 1996 $ 11,000 $ 2,000 $ 29,000 $11,000 $10,000 $ 1,000 $ 19,000 $19,000 $ 7,000
Fund
Texas Fund 1996 $ 3,000 $ 4,000 $ 5,000 $ 0 $ 2,000 $ 0 $ 3,000 $ 4,000 $ 3,000
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
Other Distribution Expenses Paid by KDI
---------------------------------------
Distribution Contingent Total Commissions
Fees Paid Deferred Commissions Paid By Advertising Marketing Misc.
Class C Fiscal by Fund Sales Paid by KDI to KDI and Prospectus and Sales Operating Interest
Shares Year to KDI Charges KDI to Affiliated Literature Printing Expenses Expenses Expenses
- ------ ---- ------ Paid to KDI Firms 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 1998
Fund
Michigan 1998
Fund
New Jersey 1998
Fund
New York 1998
Fund
Ohio Fund 1998
Pennsylvania 1998
Fund
Texas Fund 1998
</TABLE>
<TABLE>
<CAPTION>
Other Distribution Expenses Paid by KDI
---------------------------------------
Distribution Contingent Total Commissions
Fees Paid Deferred Commissions Paid By Advertising Marketing Misc.
Class C Fiscal by Fund Sales Paid by KDI to KDI and Prospectus and Sales Operating Interest
Shares Year to KDI Charges KDI to Affiliated Literature Printing Expenses Expenses Expenses
- ------ ---- ------ Paid to KDI Firms 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
Municipal
Fund
California 1997 $10,000 $ 0 $ 9,000 $ 0 $ 5,000 $ 0 $12,000 $11,000 $ 5,000
Fund
Florida 1997 $ 3,000 $ 0 $ 3,000 $ 0 $ 2,000 $ 0 $ 6,000 $10,000 $ 2,000
Fund
Michigan 1997 $ 1,000 $1,000 $ 2,000 $ 0 $ 1,000 $ 0 $ 4,000 $13,000 $ 3,000
Fund
New Jersey 1997 $ 1,000 $ 0 $ 1,000 $ 0 $ 1,000 $ 0 $ 2,000 $11,000 $ 1,000
Fund
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
Pennsylvania 1997 $ 5,000 $ 0 $ 7,000 $ 0 $ 1,000 $ 0 $ 2,000 $11,000 $ 3,000
Fund
Texas Fund 1997 $ 2,000 $ 0 $ 2,000 $ 0 $ 0 $ 0 $ 1,000 $10,000 $ 3,000
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Other Distribution Expenses Paid by KDI
---------------------------------------
Distribution Contingent Total Commissions
Fees Paid Deferred Commissions Paid By Advertising Marketing Misc.
Class C Fiscal by Fund Sales Paid by KDI to KDI and Prospectus and Sales Operating Interest
Shares Year to KDI Charges KDI to Affiliated Literature Printing Expenses Expenses Expenses
- ------ ---- ------ Paid to KDI Firms 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 1996 $ 1,000 0 $ 2,000 $ 0 $ 1,000 $ 0 $ 2,000 $ 1,000 $1,000
Fund
Michigan 1996 $ 2,000 0 $ 2,000 $ 0 $ 4,000 $ 0 $ 9,000 $ 9,000 $2,000
Fund
New Jersey 1996 $ 1,000 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 5,000 $1,000
Fund
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
Pennsylvania 1996 $ 4,000 0 $ 3,000 $ 0 $ 6,000 $ 0 $10,000 $ 8,000 $2,000
Fund
Texas Fund 1996 $ 1,000 0 $ 1,000 $ 0 $ 0 $ 0 $ 0 $ 2,000 $2,000
</TABLE>
* From 11/1/94 to 9/30/95.
** From 3/15/95 to 8/31/95.
65
<PAGE>
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 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
Michigan** 1998
New Jersey** 1998
New York 1998
Ohio 1998
Pennsylvania** 1998
Texas 1998
</TABLE>
66
<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 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
Michigan 1997 $ 5,000 $ 3,000 $ 0 $ 8,000 $ 0
New Jersey 1997 $ 4,000 $ 7,000 $ 0 $ 11,000 $ 0
New York 1997 $ 491,000 $ 23,000 $ 5,000 $ 522,000 $19,000
Ohio 1997 $ 60,000 $ 21,000 $ 1,000 $ 84,000 $ 0
Pennsylvania 1997 $ 6,000 $ 5,000 $ 1,000 $ 14,000 $ 0
Texas 1997 $ 22,000 $ 2,000 $ 0 $ 25,000 $ 0
</TABLE>
67
<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
Michigan 1996 $ 5,000 $ 7,000 $ 0 $ 7,000 $ 0
New Jersey 1996 $ 6,000 $ 5,000 $ 0 $ 10,000 $ 0
New York 1996 $ 494,000 $14,000 $2,000 $ 510,000 $ 28,000
Ohio 1996 $ 52,000 $16,000 $1,000 $ 70,000 $ 0
Pennsylvania 1996 $ 4,000 $ 4,000 $1,000 $ 9,000 $ 1,000
Texas 1996 $ 24,000 $ 1,000 $ 0 $ 25,000 $ 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 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. 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, 1997, 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.
68
<PAGE>
PORTFOLIO TRANSACTIONS
Scudder Kemper Investments, Inc. ("Scudder Kemper") and its affiliates furnish
investment management services for the Kemper Funds, Zurich Money Market Funds
and other clients including affiliated insurance companies. These entities share
some common research and trading facilities. At times investment decisions may
be made to purchase or sell the same investment securities for a Fund and for
one or more of the other clients managed by Scudder Kemper or its affiliates.
When two or more of such clients are simultaneously engaged in the purchase or
sale of the same security through the same trading facility, the transactions
are allocated as to amount and price in a manner considered equitable to each.
National securities exchanges have established limitations governing the maximum
number of options in each class which may be written by a single investor or
group of investors acting in concert. An exchange may order the liquidation of
positions found to be in violation of these limits, and it may impose certain
other sanctions. These position limits may restrict the number of options a Fund
will be able to write on a particular security.
The above-mentioned factors may have a detrimental effect on the quantities or
prices of securities, options and futures contracts available to a Trust. On the
other hand, the ability of a Trust to participate in volume transactions may
produce better executions for a Trust in some cases. The Board of Trustees of
each Trust believes that the benefits of Scudder Kemper's organization outweigh
any limitations that may arise from simultaneous transactions or position
limitations.
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.
69
<PAGE>
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.
70
<PAGE>
<TABLE>
<CAPTION>
Allocated to
Firms Based on
Research in
Fund Fiscal 1998 Fiscal 1998 Fiscal 1997 Fiscal 1996
- ---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
Michigan $ 3,000 10,000
New Jersey $ 8,000 9,000
New York $ 594,000 546,000
Ohio $ 48,000 79,000
Pennsylvania $ 15,000 13,000
Texas $ 10,000 35,000
</TABLE>
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
71
<PAGE>
proceeds for redemptions
made during first year
after purchase
Class I None None
</TABLE>
The minimum initial investment for each Fund is $1,000 and the minimum
subsequent investment is $100. Under an automatic investment plan, such as Bank
Direct Deposit, Payroll Direct Deposit or Government Direct Deposit, the minimum
initial and subsequent investment is $50. These minimum amounts may be changed
at any time in management's discretion. The Trusts allocate net investment
income for each Fund to those shares for which the Trust has received payment.
To begin accruing dividends as soon as possible, purchasers may wire payment to
the Trust's sub-custodian, United Missouri Bank 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** ***
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge as discussed below.
*** Commissions payable by KDI as discussed below.
</TABLE>
The Trusts receive the entire net asset value of all Class A shares sold. KDI,
the Trusts' principal underwriter, retains the sales charge on sales of Class A
shares from which it allows discounts from the applicable public offering price
to investment dealers, which discounts are uniform for all dealers in the United
States and its territories. The normal discount allowed to dealers is set forth
in the above table. Upon notice to all dealers with whom it has sales
agreements, KDI may reallow up to the full applicable sales charge, as shown in
the above table, during periods and 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.
72
<PAGE>
Class A shares of a Fund may be purchased at net asset value to the extent that
the amount invested represents the net proceeds from a redemption of shares of a
mutual fund for which Scudder Kemper or an affiliate does not serve as
investment manager ("non-Kemper Fund") provided that: (a) the investor has
previously paid either an initial sales charge in connection with the purchase
of the non-Kemper Fund shares redeemed or a contingent deferred sales charge in
connection with the redemption of the non-Kemper Fund shares, and (b) the
purchase of Fund shares is made within 90 days after the date of such
redemption. To make such a purchase at net asset value, the investor or the
investor's dealer must, at the time of purchase, submit a request that the
purchase be processed at net asset value pursuant to this privilege. The
redemption of the shares of the non-Kemper Fund is, for federal income tax
purposes, a sale upon which a gain or loss may be realized.
Class A shares of a Fund may be purchased at net asset value by 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, .50% on the next $45 million and .25% on amounts over $50 million.
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. 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-transferrable 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
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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 Fund, 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 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. 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 conversion period schedule as that of
their KIP Portfolio. Class B shares representing Initial Shares of a former KIP
Portfolio will automatically convert to Class A shares of the applicable Fund
six years after issuance of the Initial Shares for shares issued on or after
February 1, 1991 and seven years after issuance of the Initial Shares for shares
issued before February 1, 1991. The purpose of the conversion feature is to
relieve holders of Class B shares from the distribution services fee when they
have been outstanding long enough for KDI to have been compensated for
distribution related expenses. For purposes of conversion to
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<PAGE>
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."
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; 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, selected dealers authorized by KDI. Share certificates are not available
for Class I shares.
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
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<PAGE>
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 Fund has 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 the
Fund's behalf. Orders for purchase or redemption will be deemed to have been
received by the Fund when such brokers or their authorized designees accept the
orders. Subject to the terms of the contract between the 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 Fund's shares are arranged and settlement is
made at an investor's election through any other authorized NASD member, that
member may, at its discretion, charge a fee for that service. The Board of
Trustees or Directors as the case may be ("Board") of the 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
Fund 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, effective January 1998,
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.
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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 and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 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
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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.
<TABLE>
<CAPTION>
Contingent
Deferred
Sales
Year of Redemption After Purchase Charge
- --------------------------------- ------
<S> <C>
First 4%
Second 3%
Third 3%
Fourth 2%
Fifth 2%
Sixth 1%
</TABLE>
Class B shareholders who originally acquired their shares as Initial Shares of
Kemper Portfolios, formerly known as Kemper Investment Portfolios ("KIP"), hold
them subject to the same CDSC schedule that applied when those shares were
purchased, as follows:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
--------------------------------
Shares Purchased Shares Purchased on or after
Year of Redemption on or after February 1, 1991 and
After Purchase March 1, 1993 Before March 1, 1993
- -------------- ------------- --------------------
<S> <C> <C>
First 4% 3%
Second 3% 3%
Third 3% 2%
Fourth 2% 2%
Fifth 2% 1%
Sixth 1% 1%
</TABLE>
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
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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, 1996 will be eligible for the second year's charge if redeemed on or
after December 1, 1997. 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 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 Technology
Fund, Kemper Total Return Fund, Kemper Growth Fund, Kemper Small Capitalization
Equity Fund, Kemper Income and Capital Preservation Fund, Kemper Municipal Bond
Fund, Kemper Diversified Income Fund, Kemper High Yield Series, Kemper U.S.
Government Securities Fund, Kemper International Fund, Kemper State Tax-Free
Income Series, Kemper Adjustable Rate U.S. Government Fund, Kemper Blue Chip
Fund, Kemper Global Income Fund, Kemper Target Equity Fund (series are subject
to a limited offering period), Kemper Intermediate Municipal Bond Fund, Kemper
Cash Reserves Fund, Kemper U.S. Mortgage Fund, Kemper Short-Intermediate
Government Fund, Kemper Value Fund, Inc., Kemper Value Plus Growth Fund, Kemper
Quantitative Equity Fund, Kemper Horizon Fund, Kemper Europe Fund, Kemper Asian
Growth Fund and Kemper Aggressive Growth Fund ("Kemper Mutual Funds"). Except as
noted below, there is no
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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 may include: (a) Money Market
Funds as "Kemper Mutual Funds," (b) all classes of shares of any Kemper Mutual
Fund and (c) the value of any other plan investments, such as guaranteed
investment contracts and employer stock, maintained on such sub-account record
keeping system.
CLASS A SHARES--LETTER OF INTENT. The same reduced sales charges for Class A
shares, as 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
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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 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 $500 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.
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<PAGE>
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 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. (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 or other compensation, to firms that sell shares
of a Fund. Non-cash compensation includes luxury merchandise and trips to luxury
resorts. In some instances, such discounts, commissions or other incentives will
be offered only to certain firms who sell or are expected to sell during
specified time periods certain minimum amounts of shares of a Fund, or other
funds underwritten by KDI.
Orders for the purchase of shares of a Fund will be confirmed at a price based
on the net asset value of such Fund next determined after receipt by 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
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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 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), Trustee*, Two International Place, Boston,
Massachusetts; Managing Director, Adviser.
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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.
EDMOND D. VILLANI (3/4/47), Trustee*, 345 Park Avenue, New York, New York;
President, Chief Executive Officer and Managing Director, Adviser.
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.
JERARD K. HARTMAN, Vice President*, 345 Park Avenue, New York, New York; Senior
Vice President, Adviser.
THOMAS W. LITTAUER (4/26/55), 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.
ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York;
Managing Director, Adviser.
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, 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; Senior Vice President, Adviser.
M. ASHTON PATTON (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.
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* 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 1997.
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<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* To be updated
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.
** 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 October 31, 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 October
31, 1998, no shareholder owned of record more than 5% of any class of
outstanding shares of the Funds except as follows:
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<PAGE>
<TABLE>
<CAPTION>
Fund Name and Address Class Percentage
- ---- ---------------- ----- ----------
<S> <C> <C> <C>
Kemper Municipal Bond Fund National Financial Service Corp. To be updated
One World Financial Center
200 Liberty Street
New York, NY 10281
National Financial Service Corp.
One World Financial Center
200 Liberty Street
New York, NY 10281
Donald Isherwood & Lynn Isherwood
5324 Birch Road
Plover, WI
Alex Brown Incorporated
PO Box 1346
Baltimore, MD 21203
Salvation Army Federal
Tax-Free Trust Pool One
International Place
Boston, MA 02110
Kemper Intermediate Municipal Phillips & Martin Company
Bond Fund 228 E. Lake Street
Addison, IL 60101
Woodstock A Partnership
c/o Wood County Trust Co.
181 2nd St.
Wisconsin Rapids, WI 54494
Brian L. Johnson &
Joan M. Johnson JTWROS
PO Box 408
Spooner, WI 54801
GK Anagement
15700 Lathrop Avenue
Harvey, IL 60426
CitiCorp Securities Services
111 Wall Street
New York, NY 10005
Mall Family 1993 Trust
P.O. Box 1148
Modesto, CA 95353
Donald Lufkin Jenrette
P.O. Box 2052
Jersey City, NJ 07303
Ronald Rach & Marilyn Rach
JTWROS
5737 S. Mason
Chicago, IL 60638
Painewebber for the Benefit of
Granada Insurance Company
3911 SW 67th Avenue
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<PAGE>
Fund Name and Address Class Percentage
- ---- ---------------- ----- ----------
Miami, FL 33155
National Financial Services Corp.
One World Financial Center
200 Liberty Street
New York, NY 10281
Orsolina Gigante
232 Thayer St.
River Vale, NJ 07675
Anthony B. Gigante
232 Thayer St.
River Vale, NJ 07675
Painewebber
Charlene Michel
23560 Western Ave.
Park Forest, IL 60466
William Denaer
11202 Mandel Ct.
Westchester, IL 60154
Kemper CA Tax-Free Smith Barney Inc.
Income Fund 388 Greenwich Street
New York, NY 10013
National Financial Services Corp.
One World Financial Center
200 Liberty Street
New York, NY 10281
Donaldson Lufkin Jenrette
P.O. Box 2052
Jersey City, NJ
MLPF&S
4800 Deer Lake Dr.
Jacksonville, FL 32246
National Financial Services Corp.
One World Financial Center
200 Liberty Street
New York, NY 10281
MLPF&S
4800 Deer Lake Dr. East
Jacksonville, FL 32246
Elizabeth L. Erlandson
P.O. Box 2500
Maryland Hts., MO 63043
Backs Family Trust
2323 E. Austin
Fresno, CA 93726
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<PAGE>
Fund Name and Address Class Percentage
- ---- ---------------- ----- ----------
Linderman Family
1057 E. Knollcrest Dr.
Covina, CA 91724
Alexander & Georgina Chuck
6595 Monterey Rd.
Gilroy, CA 95020
Alfred Defrancesco and
Delores Defrancesco
P.O. Box 605
Gilroy, CA 95021
Kemper NY Tax-Free National Financial Service Corp.
Income Fund One World Financial Center
200 Liberty Street
New York, New York 10281
National Financial Service Corp.
One World Financial Center
200 Liberty Street
New York, NY 10281
Painewebber FBO
Mrs. Diana Riklis
1020 Park Ave.
New York, NY 10028
MLPF&S
4800 Deer Lake Drive East
Jacksonville, FL 32246
Josephine Benfatti & Florence
Benfatti JTWROS
2017 Kimball St.
Brooklyn, NY 11234
Painewebber FBO
Le Boeuf A La Mode
539 East 81st Street
New York, NY 10028
Kemper FL Tax-Free MLPF&S
Income Fund 4800 Deer Lake Dr. East 3rd Fl.
Jacksonville, FL 32246
National Financial Service Corp.
One World Financial Center
200 Liberty Street
New York, NY 10281
Prudential Securities Inc. FBO
Mrs. Katherine B. Harrington
3101 NE 57th Ct.
Ft. Lauderdale, FL 33308
MLPF&S
4800 Deer Lake Dr. East
Jacksonville, FL 32246
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<PAGE>
Fund Name and Address Class Percentage
- ---- ---------------- ----- ----------
MLPF&S
4800 Deer Lake Dr. East
Jacksonville, FL 32246
Susan H. Wallace
260 Rafael Blvd NE
St. Petersburg, FL 33704
National Financial Service Corp.
One World Financial Center
200 Liberty Street
New York, NY 10281
Southwest Securities Inc.
Box 509002
Dallas, TX 75250
Kemper OH Tax-Free National Financial Service Corp.
Income Fund One World Financial Center
200 Liberty Street
New York, NY 10281
John M. Wilson &
Patricia Wilson
PO Box 386
Aurora, OH 44202
Smith Barney Inc.
388 Greenwich Street
New York, NY 10013
BHC Securities Inc.
2005 Market Street
Philadelphia, PA 19103
National Financial Service Corp.
One World Financial Center
200 Liberty Street
New York, New York 10281
Smith Barney Inc.
388 Greenwich Street
New York, NY 10013
MLPF&S
4800 Deer Lake Dr. East
Jacksonville, FL 32246
John R. Bender
645 Georgetown Ave.
Elyria, OH 44035
Jay M. Simpson & Valerie
Stocklin JTWROS
7825 N. Dixie Ste. A
Dayton, OH 45414
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<PAGE>
Fund Name and Address Class Percentage
- ---- ---------------- ----- ----------
Joseph E. Mahlmeister
PO Box 210
Trenton, OH 45067
Marjorie M. Freytag
Rt. 362
Minster, OH 45865
Spartan Corporation
35 Enterprise Drive
Middletown, OH 45844
Elton W. Geist Trust
12550 Lake Ave. Ste. 205
Lakewood, OH 44107
Kemper TX Tax-Free Ernst & Co
Income Fund One Battery Park Plaza
New York, NY 10004
Marjorie M. Nugent
800 S. Avondale
Amarillo, TX 77106
MLPF&S
4800 Deer Lake Dr. East
Jacksonville, FL 32246
Everen Clearing Corp.
111 East Kilbourn Avenue
Milwaukee, WI 53202
PaineWebber
9165 Westview
Houston, TX 77055
Charles D. Hayes & Gelinda Hayes
22503 Holly Creek Trail
Tomball, TX 77375
Kemper MI Tax-Free Lynda L. Ufer
Income Fund 25712 Graceland Circle
Dearborn Heights, MI 48125
Jeanne M. Pinardi
11034 Arder
Livonia, MI 48150
Prudential Securities FBO
Milton E. Muelder
1133 Southlawn
East Lansing, MI 48823
Lloyd J. McIntyre
1911 N. Miller Road
Saginaw, MI 48609
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<PAGE>
Fund Name and Address Class Percentage
- ---- ---------------- ----- ----------
Ann M. Wassel
13999 Cranston
Livonia, MI 48154
Donald R. Blanchard
300 Grove
Box 185
Crystal, MI 48818
Melvin E. Potter
28311 Franklin Rd.
Southfield, MI 48034
Jane Broecker &
Herbert A. Broecker
9616 Alger Drive
Brighton, MI 48114
Dorothy M. Converse
201 S. Mall Dr.
Lansing, MI 48911
Karen L. Pearce
6484 Stonebrook Lane
Flushing, MI 48433
Clayton Lowrey
4912 Bennet Rd.
Saranac, MI 48881
Clinton P. Hardy Trust
4 Orchard Way North
Rockville, MD 20854
James R. Volstromer &
Diane C. Volstromer Trust
145 Sunset Dr.
Dowling, MI 49050
MaryJane Fauls Trust
22942 Playview St.
St. Clair Shores, MI 48082
Daniel M. Weikel
1221 Ruddiman
Muskegon, MI 49445
Kemper NJ Tax-Free Wheat First FBO
Income Fund T W Nelson
827 Highland Ave
Westfield, NJ 07090
Samuel B. Kardon
PO Box 519
Pine Plains, NY 12567
Agnes B. Cywinski
18 Springfield Ave.
Cranford, NJ 07016
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Fund Name and Address Class Percentage
- ---- ---------------- ----- ----------
Philip C. Gustafson &
Elaine S. Gustafson
108 Meadow View Ave.
Linwood, NJ
Robert L. Vignolo
842 Kimball Ave.
Westfield, NJ 07090
BHC Securities, Inc.
2005 Market Street
Philadelphia PA 19103
John R. Rosselli
PO Box 3056
Newton, NJ 07860
BHC Securities, Inc.
One Commerce Square
2005 Market Street Ste. 1200
Philadelphia, PA 19103
MLPF&S
4800 Deer Lake Dr. East
Jacksonville, FL 32246
Lisa R. Caprioni
22 Arlene Dr.
W. Long Branch, NJ 07764
Philip Evertz
31 Arthur Terrace
Hackettstown, NJ 07840
Smith Barney, Inc.
388 Greenwich Street
New York, NY 10013
Carol Leick & Albert Leick
339 Willow Dr.
Union, NJ 07083
Painewebber
228 Johnson Avenue
Hackensack, NJ 07601
Kemper PA Tax-Free National Financial Service Corp.
Income Fund One World Financial Center
200 Liberty Street
New York, NY 10281
MLPF&S
4800 Deer Lake Dr.
Jacksonville, FL
National Financial Service Corp.
One World Financial Center
200 Liberty Street
New York, NY 10281
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<PAGE>
Fund Name and Address Class Percentage
- ---- ---------------- ----- ----------
Wheat First FBO
Olga Y. Hyde
3300 Darby Rd.
Haverford, PA 19041
BHC Securities, Inc.
2005 Market Street Ste. 1200
Philadelphia, PA 19103
National Financial Service Corp.
One World Financial Center
200 Liberty Street
New York, NY 10281
Joseph C. Ciccone
and Margaret Ciccone
204 Westminster Dr.
Coraopolis, PA 15108
BHC Securities, Inc.
2005 Market Street
Philadelphia, PA 19103
</TABLE>
SHAREHOLDER RIGHTS
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: (a) tax-exempt retirement plans of
Scudder Kemper and its affiliates; and (b) the following investment advisory
clients of Scudder Kemper and its investment advisory affiliates that invest at
least $1 million in the National Funds: (1) unaffiliated benefit plans, such as
qualified retirement plans (other than individual retirement accounts and
self-directed retirement plans); (2) unaffiliated banks and insurance companies
purchasing for their own accounts; and (3) endowment funds of unaffiliated
non-profit organizations. 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
94
<PAGE>
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 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
95
<PAGE>
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.
96
<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
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<PAGE>
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue. Bonds rated CCC have certain identifiable characteristics
which, if not remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment. Bonds rated CC are
minimally protected. Default in payment of interest and/or principal seems
probable over time. Bonds rated C are in imminent default in payment of interest
or principal. Bonds rated DDD, DD and D are in default on interest and/or
principal payments. Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or reorganization of
the obligor. DDD represents the highest potential for recovery on these bonds,
and D represents the lowest potential for recovery.
The four highest ratings of Duff & Phelps Credit Rating Co. ("Duff") for
municipal bonds are AAA, AA, A and BBB. Bonds rated AAA have the highest rating
assigned by Duff to a debt obligation. They are of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt. Bonds rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions. Bonds rated A have protection factors that are
average but adequate. However, risk factors are more variable and greater in
periods of economic stress. Bonds rated BBB have below average protection
factors but are still considered sufficient for prudent investment. They have
considerable volatility in risk during economic cycles. Bonds rated BB are below
investment grade but deemed likely to meet obligations when due. Present or
prospective financial protection factors fluctuate according to industry
conditions or company fortunes. Overall quality may move up or down frequently
within this category. Bonds rated B are below investment grade and possessing
risk that obligations will not be met when due. Financial protection factors
will fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade. Bonds rated CCC are well
below investment grade securities. Considerable uncertainty exists as to timely
payment of principal or interest. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions, and/or with
unfavorable company developments. Bonds rated D are in default. The issuer
failed to meet scheduled principal and/or interest payments.
The "debt securities" included in the discussions of temporary investments are
corporate (as opposed to municipal) debt obligations rated AAA, AA or A by S&P
or Aaa, Aa or A by Moody's. Corporate debt obligations rated AAA by S&P are
"highest grade obligations." Obligations bearing the rating of AA also qualify
as "high grade obligations" and "in the majority of instances differ from AAA
issues only in small degree." Corporate debt obligations rated A by S&P are
regarded as "upper medium grade" and have "considerable investment strength, but
are not entirely free from adverse effects of changes in economic and trade
conditions." The Moody's corporate debt ratings of Aaa, Aa and A do not differ
materially from those set forth above for municipal bonds.
Taxable or tax-exempt commercial paper ratings of A-1 or A-2 by S&P and P-1 or
P-2 by Moody's are the highest paper ratings of the respective agencies. The
issuer's earnings, quality of long-term debt, management and industry position
are among the factors considered in assigning such ratings.
Subsequent to its purchase by a Fund, an issue of Municipal Securities or a
temporary investment may cease to be rated or its rating may be reduced below
the minimum required for purchase by the Fund. Neither event requires the
elimination of such obligation from the Fund's portfolio, but KFS will consider
such an event in its determination of whether the Fund should continue to hold
such obligation in its portfolio. To the extent that the ratings accorded by
S&P, Moody's, Fitch or Duff for municipal bonds or temporary investments may
change as a result of changes in such organizations, or changes in their rating
systems, the Fund will attempt to use comparable ratings as standards for its
investments in municipal bonds or temporary investments in accordance with the
investment policies contained herein.
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<PAGE>
Investment Manager
Scudder Kemper Investments, Inc.
Principal Underwriter
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
[RECYCLE LOGO] printed on recycled paper
KTFIF-1
KDI 771073
99
<PAGE>
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Item 23. Exhibits
- -------- --------
( a) (a)(1) Amended and Restated Agreement and Declaration of Trust.*
(a)(2) Written Instrument Establishing and Designating Kemper
Michigan Tax-Free Income Fund and Kemper Pennsylvania
Tax-Free Income Fund.*
( b ) By-laws.*
( c ) Inapplicable
( d ) Investment Advisory Agreements.*
(d)(1) Investment Advisory Agreements - Dated September 7, 1998.
(to be filed by Amendment)
( e ) (e)(1) Underwriting and Distribution Services Agreement.*
(e)(1)(a) Underwriting Agreement - Dated September 7, 1998.
(to be filed by Amendment)
(e)(2) Form of Selling Group Agreement.*
(e)(3) Addendum--Selling Group Agreement.*
( f ) Inapplicable.
( g ) Custody Agreement.*
( h ) (h)(a)(1) Agency Agreement.*
(h)(a)(2) Supplement to Agency Agreement.
(h)(b)(1) Administrative Services Agreement.
(h)(b)(2) Amendment to Administrative Services Agreement.*
(h)(c)(1) Assignment and Assumption Agreement.*,
( i ) Inapplicable.
( j ) Consent and Report of Independent Auditors.
(to be filed by Amendment)
( k ) Inapplicable.
( l ) Inapplicable.
( m ) Amended and Restated 12 b-1 Plan dated August 1,1998
between the Registrant and:
(m)(a)(1) Kemper California State Tax-Free Income Fund, Class B
shares.
(filed herein)
18
<PAGE>
(m)(a)(2) Kemper California State Tax-Free Income Fund, Class C
shares.
(filed herein)
(m)(a)(3) Kemper Florida State Tax-Free Income Fund, Class B shares.
(filed herein)
(m)(a)(4) Kemper Florida State Tax-Free Income Fund, Class C shares.
(filed herein)
(m)(a)(5) Kemper Michigan State Tax-Free Income Fund, Class B
shares.
(filed herein)
(m)(a)(6) Kemper Michigan State Tax-Free Income Fund, Class C
shares.
(filed herein)
(m)(a)(7) Kemper New Jersey State Tax-Free Income Fund, Class B
shares.
(filed herein)
(m)(a)(8) Kemper New Jersey State Tax-Free Income Fund, Class C
shares.
(filed herein)
(m)(a)(9) Kemper New York State Tax-Free Income Fund, Class B
shares.
(filed herein)
(m)(a)(10) Kemper New York State Tax-Free Income Fund, Class C
shares.
(filed herein)
(m)(a)(11) Kemper Ohio State Tax-Free Income Fund, Class B shares.
(filed herein)
(m)(a)(12) Kemper Ohio State Tax-Free Income Fund, Class C shares.
(filed herein)
(m)(a)(13) Kemper Pennsylvania State Tax-Free Income Fund, Class B
shares.
(filed herein)
(m)(a)(14) Kemper Pennsylvania State Tax-Free Income Fund, Class C
shares.
(filed herein)
(m)(a)(15) Kemper Texas State Tax-Free Income Fund, Class B shares.
(filed herein)
(m)(a)(16) Kemper Texas State Tax-Free Income Fund, Class C shares.
(filed herein)
( n ) Financial Data Schedule.
(to be filed by Amendment)
( o ) Inapplicable.
</TABLE>
19
<PAGE>
* Incorporated herein by reference to the Amendment to Registrant's
Registration Statement on Form N-1A identified below:
<TABLE>
<CAPTION>
- ------------------------------- ------------------------------------------- --------------------
<S> <C> <C>
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. DATE OF FILING
- ------------------------------- ------------------------------------------- --------------------
- ------------------------------- ------------------------------------------- --------------------
- ------------------------------- ------------------------------------------- --------------------
- ------------------------------- ------------------------------------------- --------------------
(a)(1), (d), (e)(2), No. 22 March 14,1995
(h)(a)(1), (h)(b)(2) &
(h)(c)(1)
- ------------------------------- ------------------------------------------- --------------------
- ------------------------------- ------------------------------------------- --------------------
(b) & (g) No. 23 October 30, 1995
- ------------------------------- ------------------------------------------- --------------------
- ------------------------------- ------------------------------------------- --------------------
(h)(a)(2) No.25 December 13, 1996
- ------------------------------- ------------------------------------------- --------------------
</TABLE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
- -------- -------------------------------------------------------------
Inapplicable.
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.
20
<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.
<TABLE>
<CAPTION>
<S> <C>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
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.#
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of
Switzerland##
Director, ZKI Holding Corporation xx
Steven Gluckstern Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of
Switzerland##
Director, Zurich Holding Company of America o
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.***
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**
21
<PAGE>
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
xxx Grand Cayman, Cayman Islands, British West Indies
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>
<S> <C> <C>
(1) (2) (3)
Positions and
Position and Offices with Offices with
Name Kemper Distributors, Inc. Registrant
---- ------------------------- ----------
James L. Greenawalt President None
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 None
Compliance Officer
22
<PAGE>
Positions and
Position and Offices with Offices with
Name Kemper Distributors, Inc. Registrant
---- ------------------------- ----------
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
Not applicable.
Item 30. Undertakings
Not applicable.
23
<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 26th day
of October, 1998.
KEMPER STATE 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 October 26, 1998 on behalf of
the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Daniel Pierce October 26, 1998
- --------------------------------------
Daniel Pierce* Chairman and Trustee
/s/David W. Belin October 26, 1998
- --------------------------------------
David W. Belin* Trustee
/s/Lewis A. Burnham October 26, 1998
- --------------------------------------
Lewis A. Burnham* Trustee
/s/Donald L. Dunaway October 26, 1998
- --------------------------------------
Donald L. Dunaway* Trustee
/s/Robert B. Hoffman October 26, 1998
- --------------------------------------
Robert B. Hoffman* Trustee
/s/Donald R. Jones October 26, 1998
- --------------------------------------
Donald R. Jones* Trustee
/s/ Shirley D. Peterson October 26, 1998
- --------------------------------------
Shirley D. Peterson* Trustee
/s/ William P. Sommers October 26, 1998
- --------------------------------------
William P. Sommers* Trustee
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Edmond D. Villani October 26, 1998
- --------------------------------------
Edmond D. Villani* Trustee
/s/John R. Hebble October 26, 1998
- --------------------------------------
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 filed
herewith.
2
<PAGE>
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Kathryn L. Quirk,
Caroline Pearson, and Philip J. Collora and each of them, any of whom may act
without the joinder of the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper State Tax-Free Income Series and
Kemper National Tax-Free Income Series.
Signature Title Date
/s/ David W. Belin Trustee July 21, 1998
<PAGE>
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L. Quirk,
Caroline Pearson, and Philip J. Collora and each of them, any of whom may act
without the joinder of the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper State Tax-Free Income Series and
Kemper National Tax-Free Income Series.
Signature Title Date
/s/ Lewis A. Burnham Trustee July 21, 1998
<PAGE>
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L. Quirk,
Caroline Pearson, and Philip J. Collora and each of them, any of whom may act
without the joinder of the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper State Tax-Free Income Series and
Kemper National Tax-Free Income Series.
Signature Title Date
/s/ Donald L. Dunaway Trustee July 21, 1998
<PAGE>
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L. Quirk,
Caroline Pearson, and Philip J. Collora and each of them, any of whom may act
without the joinder of the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper State Tax-Free Income Series and
Kemper National Tax-Free Income Series.
Signature Title Date
/s/ Robert B. Hoffman Trustee July 21, 1998
<PAGE>
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L. Quirk,
Caroline Pearson, and Philip J. Collora and each of them, any of whom may act
without the joinder of the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper State Tax-Free Income Series and
Kemper National Tax-Free Income Series.
Signature Title Date
/s/ Donald R. Jones Trustee July 21, 1998
<PAGE>
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L. Quirk,
Caroline Pearson, and Philip J. Collora and each of them, any of whom may act
without the joinder of the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper State Tax-Free Income Series and
Kemper National Tax-Free Income Series.
Signature Title Date
/s/ Shirley D. Peterson Trustee July 21, 1998
<PAGE>
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L. Quirk,
Caroline Pearson, and Philip J. Collora and each of them, any of whom may act
without the joinder of the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper State Tax-Free Income Series and
Kemper National Tax-Free Income Series.
Signature Title Date
/s/ Daniel Pierce Trustee July 21, 1998
<PAGE>
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L. Quirk,
Caroline Pearson, and Philip J. Collora and each of them, any of whom may act
without the joinder of the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper State Tax-Free Income Series and
Kemper National Tax-Free Income Series.
Signature Title Date
/s/ William P. Sommers Trustee July 21, 1998
<PAGE>
POWER OF ATTORNEY
-----------------
The person whose signature appears below hereby appoints Kathryn L. Quirk,
Caroline Pearson, and Philip J. Collora and each of them, any of whom may act
without the joinder of the others, as such person's attorney-in-fact to sign and
file on such person's behalf individually and in the capacity stated below such
registration statements, amendments, post-effective amendments, exhibits,
applications and other documents with the Securities and Exchange Commission or
any other regulatory authority as may be desirable or necessary in connection
with the public offering of shares of Kemper State Tax-Free Income Series and
Kemper National Tax-Free Income Series.
Signature Title Date
/s/ Edmond D. Villani Trustee July 21, 1998
<PAGE>
File No. 2-8159
File No. 811-75
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 27
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 27
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
KEMPER STATE TAX-FREE INCOME FUND SERIES
24
<PAGE>
KEMPER STATE TAX-FREE INCOME FUND SERIES
EXHIBIT INDEX
Exhibit (m)(a)(1)
Exhibit (m)(a)(2)
Exhibit (m)(a)(3)
Exhibit (m)(a)(4)
Exhibit (m)(a)(5)
Exhibit (m)(a)(6)
Exhibit (m)(a)(7)
Exhibit (m)(a)(8)
Exhibit (m)(a)(9)
Exhibit (m)(a)(10)
Exhibit (m)(a)(11)
Exhibit (m)(a)(12)
Exhibit (m)(a)(13)
Exhibit (m)(a)(14)
Exhibit (m)(a)(15)
Exhibit (m)(a)(16)
25
Exhibit (m)(a)(1)
Fund: Kemper State Tax Free Income Series
(the "Fund")
Series: Kemper California Tax-Free Income Fund (the
"Series")
Class: Class B (the "Class")
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Exhibit (m)(a)(2)
Fund: Kemper State Tax Free Income Series (the "Fund")
Series: Kemper Florida Tax-Free Income Fund (the "Series")
Class: Class B (the "Class")
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Exhibit (m)(a)(3)
Fund: Kemper State Tax Free Income Series (the "Fund")
Series: Kemper Florida Tax-Free Income Fund (the "Series")
Class: Class B (the "Class")
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Exhibit (m)(a)(4)
Fund: Kemper State Tax Free Income Series (the "Fund")
Series: Kemper Florida Tax-Free Income Fund (the "Series")
Class: Class C (the "Class")
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board
on a quarterly basis for the Class showing amounts paid to the various Firms and
such other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect
indefinitely, provided that such continuance is approved at least annually by a
vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose or by vote of at least a majority of
the outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Exhibit (m)(a)(5)
Fund: Kemper State Tax Free Income Series (the "Fund")
Series: Kemper Michigan Tax-Free Income Fund (the "Series")
Class: Class B (the "Class")
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Exhibit (m)(a)(6)
Fund: Kemper State Tax Free Income Series (the "Fund")
Series: Kemper Michigan Tax-Free Income Fund (the "Series")
Class: Class C (the "Class")
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Exhibit (m)(a)(7)
Fund: Kemper State Tax Free Income Series (the "Fund")
Series: Kemper New Jersey Tax-Free Income Fund (the "Series")
Class: Class B (the "Class")
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board
on a quarterly basis for the Class showing amounts paid to the various Firms and
such other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect
indefinitely, provided that such continuance is approved at least annually by a
vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose or by vote of at least a majority of
the outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without
penalty with respect to the Class by vote of a majority of the Qualified Board
Members or by vote of the majority of the outstanding voting securities of the
Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Exhibit (m)(a)(8)
Fund: Kemper State Tax Free Income Series (the "Fund")
Series: Kemper New Jersey Tax-Free Income Fund (the "Series")
Class: Class C (the "Class")
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Exhibit (m)(a)(9)
Fund: Kemper State Tax Free Income Series (the "Fund")
Series: Kemper New York Tax-Free Income Fund (the "Series")
Class: Class B (the "Class")
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Exhibit (m)(a)(10)
Fund: Kemper State Tax Free Income Series (the "Fund")
Series: Kemper New York Tax-Free Income Fund (the "Series")
Class: Class C (the "Class")
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Exhibit (m)(a)(11)
Fund: Kemper State Tax Free Income Series (the "Fund")
Series: Kemper Ohio Tax-Free Income Fund (the "Series")
Class: Class B (the "Class")
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Exhibit (m)(a)(12)
Fund: Kemper State Tax Free Income Series (the "Fund")
Series: Kemper Ohio Tax-Free Income Fund (the "Series")
Class: Class C (the "Class")
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Exhibit (m)(a)(13)
Fund: Kemper State Tax Free Income Series (the "Fund")
Series: Kemper Pennsylvania Tax-Free Income Fund (the
"Series")
Class: Class B (the "Class")
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Exhibit (m)(a)(14)
Fund: Kemper State Tax Free Income Series (the "Fund")
Series: Kemper Pennsylvania Tax-Free Income Fund (the
"Series")
Class: Class C (the "Class")
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Exhibit (m)(a)(15)
Fund: Kemper State Tax Free Income Series (the "Fund")
Series: Kemper Texas Tax-Free Income Fund (the "Series")
Class: Class B (the "Class")
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
Exhibit (m)(a)(16)
Fund: Kemper State Tax Free Income Series (the "Fund")
Series: Kemper Texas Tax-Free Income Fund (the "Series")
Class: Class C (the "Class")
AMENDED AND RESTATED 12b-1 PLAN
Pursuant to the provisions of Rule 12b-1 under the Investment Company
Act of 1940 (the "Act"), this Amended and Restated 12b-1 Plan (the "Plan") has
been adopted for the Fund, on behalf of the Series, for the Class (all as noted
and defined above) by a majority of the members of the Fund's Board (the
"Board"), including 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 or in any agreements related to the Plan (the
"Qualified Board Members") at a meeting called for the purpose of voting on this
Plan.
1. Compensation. The Fund will pay to Kemper Distributors, Inc. ("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
shares. KDI may compensate various financial service firms appointed by KDI
("Firms") in accordance with the provisions of the Fund's Underwriting and
Distribution Agreement (the "Distribution Agreement") for sales of shares at the
fee 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. The
distribution services fee for the Class shall be based upon average daily net
assets of the Series attributable to the Class and such fee shall be charged
only to the Class. For the month and year in which this Plan becomes effective
or terminates, there shall be an appropriate proration of the distribution
services fee set forth in Paragraph 1 hereof on the basis of the number of days
that the Plan and any agreements related to the Plan are in effect during the
month and year, respectively. The distribution services 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.
2. Periodic Reporting. KDI shall prepare reports for the Board on a
quarterly basis for the Class showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board.
3. Continuance. This Plan shall continue in effect indefinitely,
provided that such continuance is approved at least annually by a vote of a
majority of the Board, and of the Qualified Board Members, cast in person at a
meeting called for such purpose or by vote of at least a majority of the
outstanding voting securities of the Class.
4. Termination. This Plan may be terminated at any time without penalty
with respect to the Class by vote of a majority of the Qualified Board Members
or by vote of the majority of the outstanding voting securities of the Class.
<PAGE>
5. Amendment. This Plan may not be amended to increase materially the
amount to be paid to KDI by the Fund for distribution services with respect to
the Class without the vote of a majority of the outstanding voting securities of
the Class. All material amendments to this Plan must in any event be approved by
a vote of a majority of the Board, and of the Qualified Board Members, cast in
person at a meeting called for such purpose.
6. Selection of Non-Interested Board Members. So long as this Plan is
in effect, the selection and nomination of those Board members who are not
interested persons of the Fund will be committed to the discretion of Board
members who are not themselves interested persons.
7. Recordkeeping. The Fund will preserve copies of this Plan, the
Distribution Agreement, and all reports made pursuant to Paragraph 2 above for a
period of not less than six (6) years from the date of this Plan, the
Distribution Agreement, or any such report, as the case may be, the first two
(2) years in an easily accessible place.
8. Limitation of Liability. Any obligation of the Fund hereunder shall
be binding only upon the assets of the Class and shall not be binding on any
Board member, officer, employee, agent, or shareholder of the Fund. Neither the
authorization of any action by the Board members or shareholders of the Fund nor
the adoption of the Plan on behalf of the Fund shall impose any liability upon
any Board member or upon any shareholder.
9. Definitions. The terms "interested person" and "vote of a majority
of the outstanding voting securities" shall have the meanings set forth in the
Act and the rules and regulations thereunder.
10. Severability; Separate Action. If any provision of this Plan shall
be held or made invalid by a court decision, rule or otherwise, the remainder of
this Plan shall not be affected thereby. Action shall be taken separately for
the Series or Class as the Act or the rules thereunder so require.
(Amended and restated August 1, 1998)
