[LOGO] ZURICH
Zurich Money Funds
prospectus
December 1, 2000
Zurich Money Market Fund
Zurich Government
Money Fund
Zurich Tax-Free Money Fund
As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.
<PAGE>
table of contents
how the funds work
2 Zurich Money Market Fund
7 Zurich Government Money Fund
11 Zurich Tax-Free Money Fund
15 Other Policies And Risks
16 Who Manages the Funds
18 Financial Highlights
how to invest in the funds
22 How to Buy Shares
24 How to Sell Shares
25 Policies You Should Know About
32 Understanding Distributions and Taxes
<PAGE>
how the funds work
These funds are money market funds, meaning that they seek to
maintain a stable $1.00 share price to preserve the value of
your investment.
Each fund takes its own approach to money market investing.
Zurich Money Market Fund emphasizes yield through a more
diverse universe of investments, while Zurich Government Money
Fund emphasizes government securities. Zurich Tax-Free Money
Fund invests for income that is free from federal income
taxes.
Remember that money funds are investments, not bank deposits.
They're not insured or guaranteed by the FDIC or any other
government agency. Their $1.00 share prices aren't guaranteed,
so be aware that you could lose money.
<PAGE>
TICKER SYMBOL o KMMXX
Zurich Money Market Fund
The fund seeks maximum current income to the extent consistent with
stability of principal.
Investment Approach
The fund pursues its goal by investing exclusively in high quality
short-term securities, as well as repurchase agreements that are backed
by these securities.
The fund may buy securities from many types of issuers, including the
U.S. government and corporations. The fund may invest in obligations of
foreign banks, and may invest more than 25% of total assets in
obligations of U.S. banks. However, everything the fund buys must meet
the rules for money market fund investments (see sidebar). In addition,
the fund currently intends to buy securities that are in the top credit
grade for short-term securities and securities whose remaining
maturities are no more than 397 days.
Working in conjunction with credit analysts, the portfolio managers
screen potential securities and develop a list of those that the fund
may buy. The managers then decide which securities on this list to buy,
looking for attractive yield and weighing considerations such as credit
quality, economic outlook and possible interest rate movements. The
managers may adjust the fund's exposure to interest rate risk,
typically seeking to take advantage of possible rises in interest rates
and to preserve yield when interest rates appear likely to fall.
THE ORIGINAL DOCUMENT CONTAINS A SIDEBAR HERE:
--------------------------------------------------------------------------------
Money Fund Rules
To be called a money market fund, a mutual fund must operate within
strict federal rules. Designed to help maintain a stable $1.00 share
price, these rules limit money funds to particular types of securities
and strategies. Some of these rules:
o individual securities must have remaining maturities of no more than
397 days
o the dollar-weighted average maturity of the fund's holdings cannot
exceed 90 days
o all securities must be in the top two credit grades for short-term
securities and be denominated in U.S. dollars
--------------------------------------------------------------------------------
2 Zurich Money Market Fund
<PAGE>
[ICON] This fund, a broadly diversified money fund with an equal emphasis on
credit quality, yield and stability, could serve investors who want a
versatile money fund that's suited to a range of purposes.
Main Risks To Investors
Money market funds are generally considered to have lower risks than
other types of mutual funds. Even so, there are several risk factors
that could reduce the yield you get from the fund or make it perform
less well than other investments. Although the fund seeks to preserve
the value of your investment at $1.00 per share, you could lose money
by investing in the fund.
As with most money market funds, the most important factor affecting
the fund's performance is short-term market interest rates. The fund's
yield tends to reflect current interest rates, which means that when
these rates fall, the fund's yield generally falls as well.
A second factor is credit quality. If a portfolio security declines in
credit quality or goes into default, it could hurt the fund's
performance. To the extent that the fund emphasizes certain sectors of
the short-term securities market, the fund increases its exposure to
factors affecting these sectors. For example, banks' repayment
abilities could be compromised by broad economic declines or sharp
rises in interest rates. Investments by the fund in Eurodollar
certificates of deposit issued by London branches of U.S. banks, and
different obligations issued by foreign entities, including U.S.
branches of foreign banks, involve additional risks than investments in
securities of domestic branches of U.S. banks. These risks include, but
are not limited to, future unfavorable political and economic
developments, possible withholding taxes on interest payments, seizure
of foreign deposits, currency controls, or interest limitations or
other governmental restrictions that might affect payment of principal
or interest. The market for such obligations may be less liquid and, at
times, more volatile than for securities of domestic branches of U.S.
banks. Additionally, there may be less public information available
about foreign banks and their branches.
3 Zurich Money Market Fund
<PAGE>
Other factors that could affect performance include:
o the managers could be incorrect in their analysis of
interest rate trends, credit quality or other matters
o the counterparty to a repurchase agreement or other
transaction could default on its obligations
o over time, the real value of the fund's yield may be eroded
by inflation
4 Zurich Money Market Fund
<PAGE>
The Fund's Track Record
THE ORIGINAL DOCUMENT CONTAINS A SIDEBAR HERE:
--------------------------------------------------------------------------------
The bar chart shows how the fund's total returns have varied from year to year,
which may give some idea of risk. The table shows how the fund's returns over
different periods average out.
All figures on this page assume reinvestment of dividents and distributions. As
always, past performance is no guarantee of future results.
--------------------------------------------------------------------------------
Zurich Money Market Fund
ANNUAL TOTAL RETURNS (%)
--------------------------------------------------------------
as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
8.21 '90
6.01 '91
3.49 '92
2.89 '93
3.99 '94
5.67 '95
5.23 '96
5.36 '97
5.27 '98
4.97 '99
Best quarter: 2.01%, Q2 1990
Worst quarter: 0.69%, Q2 1993
YTD total return: 4.58% as of 9/30/2000
AVERAGE ANNUAL TOTAL RETURNS (%)
--------------------------------------------------------------
as of 12/31/1999
<TABLE>
<S> <C> <C> <C>
Since
1 Year 5 Years 10 Years inception*
--------------------------------------------------------------
4.97 5.30 5.10 7.57
</TABLE>
* Inception: 11/25/1974
[ICON] To find out the Fund's current seven-day yield, call 1-800-537-6001 or
visit the Zurich Funds Web site at www.zurichfunds.com.
5 Zurich Money Market Fund
<PAGE>
How Much Investors Pay
THE ORIGINAL DOCUMENT CONTAINS A SIDEBAR HERE:
--------------------------------------------------------------------------------
This is no-load fund. It has no sales charges or other shareholder fees. The
fund does have annual operating expenses, and as a shareholder you pay them
indirectly.
--------------------------------------------------------------------------------
Zurich Money Market Fund
FEE TABLE
--------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Fees (%)
(paid directly from your investment) None
--------------------------------------------------------------
Annual Operating Expenses (%)
(deducted from fund assets)
--------------------------------------------------------------
Management Fee 0.27
--------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------
Other Expenses* 0.17
--------------------------------------------------------------
Total Annual Operating Expenses 0.44
</TABLE>
* Includes costs of shareholder servicing, custody and similar
expenses, which may vary with fund size and other factors.
EXAMPLE
--------------------------------------------------------------
Based on the figures above, this example helps you compare the
fund's expenses to those of other mutual funds. The example
assumes the expenses above remain the same, that you invested
$10,000, earned 5% annual returns, reinvested all dividends
and distributions and sold your shares at the end of each
period. This is only an example; actual expenses will be
different.
<TABLE>
<S> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------
$45 $141 $246 $555
</TABLE>
6 Zurich Money Market Fund
<PAGE>
TICKER SYMBOL o KEGXX
Zurich Government Money Fund
The fund seeks maximum current income to the extent consistent with
stability of principal.
Investment Approach
The fund pursues its goal by investing exclusively in:
o short-term securities that are issued or guaranteed by the U.S.
government or its agencies or instrumentalities
o repurchase agreements backed by these securities
The securities the fund may buy range from U.S. Treasury obligations,
which are backed by the full faith and credit of the U.S. government,
to securities of issuers such as the Federal Home Loan Bank that carry
no government guarantees. Everything the fund buys must meet the rules
for money market fund investments (see sidebar). In addition, the fund
currently intends to buy securities that are in the top credit grade
for short-term securities and securities whose remaining maturities are
no more than 397 days.
Working in conjunction with credit analysts, the portfolio managers
screen potential securities and develop a list of those that the fund
may buy. The managers then decide which securities on this list to buy,
looking for attractive yield and weighing considerations such as
economic outlook and possible interest rate movements. The managers may
adjust the fund's exposure to interest rate risk, typically seeking to
take advantage of possible rises in interest rates and to preserve
yield when interest rates appear likely to fall.
THE ORIGINAL DOCUMENT CONTAINS A SIDEBAR HERE:
--------------------------------------------------------------------------------
Money Fund Rules
To be called a money market fund, a mutual fund must operate within
strict federal rules. Designed to help maintain a stable $1.00 share
price, these rules limit money funds to particular types of securities
and strategies. Some of the rules:
o individual securities must have remaining maturities of no more than
397 days
o the dollar-weighted average maturity of the fund's holdings cannot
exceed 90 days
o all securities must be in the top two credit grades for short-term
securities and be denominated in U.S. dollars
--------------------------------------------------------------------------------
7 Zurich Government Money Fund
<PAGE>
[ICON] Investors whose primary concerns are credit quality, liquidity and
stability may want to consider this fund.
Main Risks To Investors
Money market funds are generally considered to have lower risks than
other types of mutual funds. Even so, there are several risk factors
that could reduce the yield you get from the fund or make it perform
less well than other investments. Although the fund seeks to preserve
the value of your investment at $1.00 per share, you could lose money
by investing in the fund.
As with most money market funds, the most important factor affecting
the fund's performance is short-term market interest rates. The fund's
yield tends to reflect current interest rates, which means that when
these rates fall, the fund's yield generally falls as well.
A second factor is credit quality. If a portfolio security declines in
credit quality or goes into default, it could hurt the fund's
performance. While the risk of default is generally considered remote
for any securities guaranteed by the U.S. government, not all of the
fund's securities carry this guarantee; some are guaranteed only by the
agency or instrumentality that issues them. Also, bear in mind that any
guarantees on securities the fund owns do not extend to shares of the
fund itself.
Because of the fund's high credit standards, its yield may be lower
than the yields of money funds that don't limit their investments to
U.S. government and agency securities.
Other factors that could affect performance include:
o the managers could be incorrect in their analysis of interest rate
trends, credit quality or other matters
o the counterparty to a repurchase agreement or other transaction could
default on its obligations
o over time, the real value of the fund's yield may be eroded by
inflation
8 Zurich Government Money Fund
<PAGE>
The Fund's Track Record
THE ORIGINAL DOCUMENT CONTAINS A SIDEBAR HERE:
--------------------------------------------------------------------------------
The bar chart shows how the fund's total returns have varied from year
to year, which may give some idea of risk. The table shows how the
fund's returns over different periods average out.
All figures on this page assume reinvestment of dividends and
distributions. As always, past performance is no guarantee of future
results.
--------------------------------------------------------------------------------
Zurich Government Money Fund
ANNUAL TOTAL RETURNS (%)
-----------------------------------------------------------------------
as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
8.11 '90
5.86 '91
3.57 '92
2.92 '93
3.97 '94
5.71 '95
5.21 '96
5.32 '97
5.18 '98
4.80 '99
Best quarter: 2.00%, Q2 1990
Worst quarter: 0.71%, Q2 1993 and Q3 1993
YTD total return: 4.50% as of 9/30/2000
AVERAGE ANNUAL TOTAL RETURNS (%)
-----------------------------------------------------------------------
as of 12/31/1999
<TABLE>
<S> <C> <C> <C>
Since
1 Year 5 Years 10 Years inception*
-----------------------------------------------------------------------
4.80 5.24 5.05 6.48
</TABLE>
* Inception: 11/30/1981
[ICON] To find out the fund's current seven-day yield, call 1-800-537-6001 or
visit the Zurich Funds Web site at www.zurichfunds.com.
9 Zurich Government Money Fund
<PAGE>
How Much Investors Pay
THE ORIGINAL DOCUMENT CONTAINS A SIDEBAR HERE:
--------------------------------------------------------------------------------
This is a no-load fund. It has no sales charges or other shareholder
fees. The fund does have annual operating expenses, and as a
shareholder you pay them indirectly.
--------------------------------------------------------------------------------
Zurich Government Money Fund
FEE TABLE
-----------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Fees (%)
(paid directly from your investment) None
-----------------------------------------------------------------------
Annual Operating Expenses (%)
(deducted from fund assets)
-----------------------------------------------------------------------
Management Fee 0.27
-----------------------------------------------------------------------
Distribution (12b-1) Fee None
-----------------------------------------------------------------------
Other Expenses* 0.16
-----------------------------------------------------------------------
Total Annual Operating Expenses 0.43
</TABLE>
* Includes costs of shareholder servicing, custody and similar
expenses, which may vary with fund size and other factors.
EXAMPLE
-----------------------------------------------------------------------
Based on the figures above, this example helps you compare the fund's
expenses to those of other mutual funds. The example assumes the
expenses above remain the same, that you invested $10,000, earned 5%
annual returns, reinvested all dividends and distributions and sold
your shares at the end of each period. This is only an example; actual
expenses will be different.
<TABLE>
<S> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------
$44 $138 $241 $542
</TABLE>
10 Zurich Government Money Fund
<PAGE>
TICKER SYMBOL o KXMXX
Zurich Tax-Free Money Fund
The fund seeks maximum current income that is exempt from federal
income taxes to the extent consistent with stability of principal.
Investment Approach
The fund pursues its goal by normally investing at least 80% of total
assets in high quality short-term municipal securities. The income from
these securities is free from regular federal income tax and from
alternative minimum tax (AMT). The fund may buy many types of municipal
securities, including industrial development bonds. The fund may invest
more than 25% of its total assets in industrial development bonds.
However, everything the fund buys must meet the rules for money market
fund investments (see sidebar). In addition, the fund currently intends
to buy securities that are in the top credit grade for short-term
securities.
Working in conjunction with credit analysts, the portfolio managers
screen potential securities and develop a list of those that the fund
may buy. The managers then decide which securities on this list to buy,
looking for attractive yield and weighing considerations such as credit
quality, economic outlook and possible interest rate movements. The
managers may adjust the fund's exposure to interest rate risk,
typically seeking to take advantage of possible rises in interest rates
and to preserve yield when interest rates appear likely to fall.
THE ORIGINAL DOCUMENT CONTAINS A SIDEBAR HERE:
--------------------------------------------------------------------------------
Money Fund Rules
To be called a money market fund, a mutual fund must operate within
strict federal rules. Designed to help maintain a stable $1.00 share
price, these rules limit money funds to particular types of securities
and strategies. Some of the rules:
o individual securities must have remaining maturities of no more than
397 days
o the dollar-weighted average maturity of the fund's holdings cannot
exceed 90 days
o all securities must be in the top two credit grades for short-term
securities and be denominated in U.S. dollars
--------------------------------------------------------------------------------
11 Zurich Tax-Free Money Fund
<PAGE>
[ICON] This fund is designed for investors in a moderate to high tax bracket
who are looking for federally tax-free income along with the liquidity
and stability that a money fund is designed to offer.
Main Risks To Investors
Money market funds are generally considered to have lower risks than
other types of mutual funds. Even so, there are several risk factors
that could reduce the yield you get from the fund or make it perform
less well than other investments. Although the fund seeks to preserve
the value of your investment at $1.00 per share, you could lose money
by investing in the fund.
As with most money market funds, the most important factor affecting
the fund's performance is short-term market interest rates. The fund's
yield tends to reflect current interest rates, which means that when
these rates fall, the fund's yield generally falls as well.
A second factor is credit quality. If a portfolio security declines in
credit quality or goes into default, it could hurt the fund's
performance. To the extent that the fund emphasizes certain geographic
regions or sectors of the short-term securities market, the fund
increases its exposure to factors affecting these regions or sectors.
For example, industrial development bonds are typically backed by
revenues from a given facility and by the credit of a private company,
but are not backed by the taxing power of a municipality.
Other factors that could affect performance include:
o the managers could be incorrect in their analysis of interest rate
trends, credit quality or other matters
o political or legal actions could change the way the fund's dividends
are taxed
o the municipal securities market is narrower and less liquid, with
fewer investors, issuers and market makers than the taxable
securities market
o over time, the real value of the fund's yield may be eroded by
inflation
12 Zurich Tax-Free Money Fund
<PAGE>
The Fund's Track Record
THE ORIGINAL DOCUMENT CONTAINS A SIDEBAR HERE:
--------------------------------------------------------------------------------
The bar chart shows how the fund's total returns have varied from year
to year, which may give some idea of risk. The table shows how the
fund's returns over different periods average out.
All figures on this page assume reinvestment of dividends and
distributions. As always, past performance is no guarantee of future
results.
--------------------------------------------------------------------------------
Zurich Tax-Free Money Fund
ANNUAL TOTAL RETURNS (%)
-----------------------------------------------------------------------
as of 12/31 each year
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
5.80 '90
4.46 '91
2.86 '92
2.28 '93
2.71 '94
3.74 '95
3.33 '96
3.44 '97
3.31 '98
3.01 '99
Best quarter: 1.48%, Q4 1990
Worst quarter: 0.54%, Q1 1994
YTD total return: 2.86% as of 9/30/2000
AVERAGE ANNUAL TOTAL RETURNS (%)
-----------------------------------------------------------------------
as of 12/31/1999
Since
1 Year 5 Years 10 Years inception*
-----------------------------------------------------------------------
3.01 3.37 3.48 3.88
* Inception: 9/10/1987
[ICON] To find out the fund's current seven-day yield, call 1-800-537-6001 or
visit the Zurich Funds Web site at www.zurichfunds.com.
13 Zurich Tax-Free Money Fund
<PAGE>
How Much Investors Pay
THE ORIGINAL DOCUMENT CONTAINS A SIDEBAR HERE:
--------------------------------------------------------------------------------
This is a no-load fund. It has no sales charges or other shareholder
fees. The fund does have annual operating expenses, and as a
shareholder you pay them indirectly.
--------------------------------------------------------------------------------
Zurich Tax-Free Money Fund
FEE TABLE
-----------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Fees (%)
(paid directly from your investment) None
-----------------------------------------------------------------------
Annual Operating Expenses (%)
(deducted from fund assets)
-----------------------------------------------------------------------
Management Fee 0.27
-----------------------------------------------------------------------
Distribution (12b-1) Fee None
-----------------------------------------------------------------------
Other Expenses* 0.12
-----------------------------------------------------------------------
Total Annual Operating Expenses 0.39
</TABLE>
* Includes costs of shareholder servicing, custody and similar
expenses, which may vary with fund size and other factors.
EXAMPLE
-----------------------------------------------------------------------
Based on the figures above, this example helps you compare the fund's
expenses to those of other mutual funds. The example assumes the
expenses above remain the same, that you invested $10,000, earned 5%
annual returns, reinvested all dividends and distributions and sold
your shares at the end of each period. This is only an example; actual
expenses will be different.
<TABLE>
<S> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------
$40 $125 $219 $493
</TABLE>
14 Zurich Tax-Free Money Fund
<PAGE>
other policies and risks
While the fund-by-fund sections on the previous pages describe the main
points of each fund's strategy and risks, there are a few other issues
to know about:
o Although major changes tend to be infrequent, each fund's Board
could change that fund's investment goal without seeking
shareholder approval. However, Zurich Tax-Free Money Fund's
policy of investing at least 80% of total assets in municipal
securities cannot be changed without shareholder approval.
o As a temporary defensive measure, Zurich Tax-Free Money Fund
could shift up to 100% of assets into cash or into investments
such as taxable money market securities. This would mean that the
fund was not pursuing its goal.
o The investment advisor establishes a security's credit grade when
it buys the security, using independent ratings or, for unrated
securities, its own credit analysis. If a security's credit
quality falls below the minimum required for purchase by a fund,
the security will be sold unless the investment advisor believes
this would not be in the shareholders' best interests.
For More Information
This prospectus doesn't tell you about every policy or risk of
investing in the funds.
If you want more information on a fund's allowable securities and
investment practices and the characteristics and risks of each one, you
may want to request a copy of the Statement of Additional Information
(the back cover has information on how to do this).
Keep in mind that there is no assurance that any mutual fund will
achieve its goal.
15 other policies and risks
<PAGE>
who manages the fund
The Investment Advisor
The investment advisor for these funds is Scudder Kemper Investments,
Inc., 345 Park Avenue, New York, NY. Scudder Kemper has more than 80
years of experience managing mutual funds, and currently has more than
$290 billion in assets under management.
Scudder Kemper's asset management teams include investment
professionals, economists, research analysts, traders and other
investment specialists, located in offices across the United States and
around the world.
As payment for serving as investment advisor, Scudder Kemper receives a
management fee from each fund. Below are the actual rates paid by each
fund for the 12 months through the most recent fiscal year end, as a
percentage of average daily net assets:
<TABLE>
<S> <C>
Fund Name Fee Paid
-----------------------------------------------------------------------
Zurich Money Market Fund 0.27%
-----------------------------------------------------------------------
Zurich Government Money Fund 0.27%
-----------------------------------------------------------------------
Zurich Tax-Free Money Fund 0.27%
</TABLE>
[ICON] Scudder Kemper, the company with overall responsibility for managing
the funds, takes a team approach to asset management.
16 who manages the fund
<PAGE>
The Portfolio Managers
Zurich Money Market Fund Zurich Tax-Free Money Fund
Frank J. Rachwalski, Jr. Frank J. Rachwalski, Jr.
Lead Portfolio Manager Lead Portfolio Manager
o Began investment career o Began investment career
in 1973 in 1973
o Joined the advisor in 1973 o Joined the advisor in 1973
o Joined the fund team in o Joined the fund team in
1998 1998
Jerri I. Cohen Jerri I. Cohen
o Began investment career o Began investment career
in 1981 in 1981
o Joined the advisor in 1981 o Joined the advisor in 1981
o Joined the fund team in o Joined the fund team in
1998 2000
Zurich Government Money Fund
Frank J. Rachwalski, Jr.
Lead Portfolio Manager
o Began investment career
in 1973
o Joined the advisor in 1973
o Joined the fund team in
1998
Christopher Proctor
o Began investment career
in 1990
o Joined the advisor in 1999
o Joined the fund team in
1999
17 who manages the fund
<PAGE>
financial highlights
These tables are designed to help you understand each fund's financial
performance in recent years. The figures in the first part of each table are for
a single share. The total return figures represent the percentage that an
investor in a particular fund would have earned, assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP, whose report, along with each fund's financial statements, is
included in that fund's annual report (see "Shareholder reports" on the back
cover).
Zurich Money Market Fund
<TABLE>
<S> <C> <C> <C> <C> <C>
Year ended July 31, 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00
--------------------------------------------------------------------------------------
Net investment income 0.06 0.05 0.05 0.05 0.05
--------------------------------------------------------------------------------------
Less distributions from net investment (0.06) (0.05) (0.05) (0.05) (0.05)
income
--------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00
--------------------------------------------------------------------------------------
Total Return (%) 5.78 4.89 5.38 5.27 5.34
--------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
--------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 5,104 5,110 4,539 4,362 4,226
--------------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 0.44 0.46 0.48 0.45 0.50
--------------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) 0.44 0.46 0.48 0.45 0.50
--------------------------------------------------------------------------------------
Ratio of net investment income (%) 5.61 4.78 5.24 5.14 5.20
--------------------------------------------------------------------------------------
</TABLE>
18 financial highlights
<PAGE>
Zurich Government Money Fund
<TABLE>
<S> <C> <C> <C> <C> <C>
Year ended July 31, 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00
--------------------------------------------------------------------------------------
Net investment income 0.05 0.05 0.05 0.05 0.05
--------------------------------------------------------------------------------------
Less distributions from net investment (0.05) (0.05) (0.05) (0.05) (0.05)
income
--------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00
--------------------------------------------------------------------------------------
Total Return (%) 5.59 4.78 5.33 5.26 5.34
--------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
--------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 668 712 687 671 672
--------------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 0.44 0.43 0.43 0.44 0.46
--------------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) 0.43 0.43 0.43 0.44 0.46
--------------------------------------------------------------------------------------
Ratio of net investment income (%) 5.43 4.67 5.20 5.13 5.20
--------------------------------------------------------------------------------------
</TABLE>
19 financial highlights
<PAGE>
Zurich Tax-Free Money Fund
<TABLE>
<S> <C> <C> <C> <C> <C>
Year ended July 31, 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00
--------------------------------------------------------------------------------------
Net investment income 0.04 0.03 0.03 0.03 0.03
--------------------------------------------------------------------------------------
Less distributions from net investment
income (0.04) (0.03) (0.03) (0.03) (0.03)
--------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00
--------------------------------------------------------------------------------------
Total Return (%) 3.58 2.97 3.46 3.39 3.44
--------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
--------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 745 796 816 771 729
--------------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) 0.39 0.36 0.36 0.37 0.39
--------------------------------------------------------------------------------------
Ratio of expenses after expense
reductions (%) 0.39 0.36 0.36 0.37 0.39
--------------------------------------------------------------------------------------
Ratio of net investment income (%) 3.51 2.93 3.39 3.33 3.38
--------------------------------------------------------------------------------------
</TABLE>
20 financial highlights
<PAGE>
how to invest in the funds
The following pages tell you how to invest in these funds and what to expect as
a shareholder. If you're investing directly with Zurich, all of this information
applies to you.
If you're investing through a "third party provider" -- for example, a financial
advisor or workplace retirement plan -- your provider may have its own policies
or instructions, and you should follow those.
Different terms also apply to investors who are using one of these funds as the
core account for a Zurich MoneyPLUS Account(SM). Check your informational
brochure or your account services guide.
<PAGE>
how to buy shares
INITIAL INVESTMENT
-------------------------------------------------------------
$1,000 or more for regular accounts
$250 or more for IRAs
$10,000 for a Zurich MoneyPLUS Account(SM)
$50 or more with an Automatic Investment Plan ($1,500 a month
for a Zurich MoneyPLUS AccountSM)
Make out your check to "Zurich Money Funds"
<TABLE>
<S> <C>
--------------------------------------------------------------------------------
By mail o Fill out and sign an application
o Send the application and an investment check to:
Kemper Service Company, P.O. Box 219356,
Kansas City, MO 64121-9356
--------------------------------------------------------------------------------
By wire o Call 1-800-537-6001
o Give your account registration instructions to the
representative, who will give you a new account number
o Have your bank wire your investment to: Zurich Money Funds,
UMB Bank of Kansas City, N.A. ABA# 1010-0069-5
o You will also need to provide your name and account number,
along with the name and routing number for the fund of your
choice:
o Zurich Money Market Fund: 98-0103-346-8
o Zurich Government Money Fund: 98-0116-259-4
o Zurich Tax-Free Money Fund: 98-0001-577-6
--------------------------------------------------------------------------------
With an automatic o For investing directly from your bank account, paycheck or
investment plan government check
o Call 1-800-537-6001 to set up a plan or get instructions
--------------------------------------------------------------------------------
By exchange o To invest in one of these funds by selling shares in a
Kemper fund or another Zurich fund, call 1-888-987-4241
--------------------------------------------------------------------------------
On the o If you are a current Zurich shareholder, see the
Internet instructions at www.zurichfunds.com
--------------------------------------------------------------------------------
Through o Contact your representative using the method that's most
a financial convenient for you
advisor
</TABLE>
[ICON] Zurich telephone representatives are available on business
days from 7 a.m. to 6 p.m. Central time and on Saturdays from
8 a.m. to 3 p.m. Call toll-free 1-888-987-4241
(1-888-ZURICH-1).
22 how to buy shares
<PAGE>
ADDITIONAL INVESTMENT
-------------------------------------------------------------
$100 or more for regular accounts
$50 or more for IRAs
$50 or more a month with an Automatic Investment Plan
Make out your check to "Zurich Money Funds"
<TABLE>
<S> <C>
--------------------------------------------------------------------------------
By mail o Send a check and a Zurich investment slip to:
Kemper Service Company, P.O. Box 219154,
Kansas City, MO 64121-9154
o No investment slip? Enclose a letter with your name, fund
and account number and your investment instructions
--------------------------------------------------------------------------------
By wire o Wire your investment using the wire instructions for
initial investments on the previous page
--------------------------------------------------------------------------------
By EZ-Transfer o Call 1-888-987-4241 to make sure EZ-Transfer
is set up on your account; if it is, you can request a
transfer from your bank account of any amount between $100
and $50,000
--------------------------------------------------------------------------------
By Zurich InfoLine o Call 1-888-987-8678 and follow the instructions
--------------------------------------------------------------------------------
With an o For investing directly from your bank account, pay check or
automatic government check
investment plan
o Call 1-888-987-4241 to set up a plan
--------------------------------------------------------------------------------
By exchange o To invest in one of these funds by selling shares in a
Kemper fund or another Zurich fund, call 1-888-987-4241
--------------------------------------------------------------------------------
On the o See the instructions at www.zurichfunds.com
Internet
o Click on "Account Access"
--------------------------------------------------------------------------------
Through o Contact your representative using the method that's most
a financial convenient for you
advisor
</TABLE>
[ICON] Sending an investment by express, registered, or certified
mail?
Use this address: Kemper Service Company, 811 Main Street,
Kansas City, MO 64105-2005
23 how to buy shares
<PAGE>
how to sell shares
SELLING SHARES
-------------------------------------------------------------
Some transactions, including most for over $50,000, can only
be ordered in writing; for more information, see page 29
<TABLE>
<S> <C>
--------------------------------------------------------------------------------
By check o Write a check on your account for at least $500
--------------------------------------------------------------------------------
By phone o Call 1-888-987-4241 for instructions; a check will be mailed
to the address of record
--------------------------------------------------------------------------------
By wire o Call 1-888-987-4241 to make sure that wire transfer
is set up on your account; if it is, you can request a wire
--------------------------------------------------------------------------------
By EZ-Transfer o Call 1-888-987-4241 to make sure that
EZ-Transfer is set up on your account; if it is, you can
request a transfer to your bank account of any amount
between $100 and $50,000
--------------------------------------------------------------------------------
By exchange o To sell shares in a Kemper fund or another
Zurich fund and invest in one of these funds, call
1-888-987-4241
--------------------------------------------------------------------------------
By mail o Write a letter that includes:
o the fund and account number from which you want to sell
shares
o the dollar amount you want to sell
o your name(s), signature(s), and address, exactly as on your
account
o Send the letter to: Kemper Service Company, P.O. Box 219557,
Kansas City, MO 64121-9557
--------------------------------------------------------------------------------
With an automatic o To set up regular exchanges or withdrawals among Kemper or
exchange or Zurich funds, call 1-888-987-4241
withdrawal plan
--------------------------------------------------------------------------------
In a Zurich o To add unlimited checkwriting and a VISA(R) Check Card to your
MoneyPLUS account, call 1-800-537-6001 (annual fee and some transaction
Account(SM) fees apply)
--------------------------------------------------------------------------------
On the o Follow the instructions at www.zurichfunds.com
Internet
o Click on "Account Access"
--------------------------------------------------------------------------------
Through o Contact your representative using the method that's most
a financial convenient for you
advisor
</TABLE>
[ICON] Zurich telephone representatives are available on business
days from 7 a.m. to 6 p.m. Central time and on Saturdays from
8 a.m. to 3 p.m. Call toll-free 1-888-987-4241
(1-888-ZURICH-1).
24 how to sell shares
<PAGE>
policies you should know about
Along with the instructions on the previous pages, the
policies below may affect you as a shareholder. Some of this
information, such as the section on dividends and taxes,
applies to all investors, including those investing through
investment providers.
If you are investing through a third party provider, check the
materials you received from them. As a general rule, you
should follow the information in those materials wherever it
contradicts the information given here. Please note that a
third party provider may charge its own fees.
In order to reduce the amount of mail you receive and to help
reduce fund expenses, we generally send a single copy of any
shareholder report and prospectus to each household. If you do
not want the mailing of these documents to be combined with
those for other members of your household, please call
1-888-987-4241 (1-888-ZURICH-1).
Policies about transactions
The funds are open for business each day the New York Stock
Exchange is open. Zurich Money Market Fund and Zurich
Government Money Fund calculate their share price three times
every business day, first at 11 a.m. Central time, then at 1
p.m. Central time and again as of the close of regular trading
on the Exchange (typically 3 p.m. Central time, but sometimes
earlier, as in the case of scheduled half-day trading or
unscheduled suspensions of trading). Zurich Tax-Free Money
Fund calculates its share price at 11 a.m. Central time and
again as of the close of regular trading on the Exchange.
25 policies you should know about
<PAGE>
Although shares trade during business hours, you can place
orders anytime. Once an order is received by Kemper Service
Company, and they have determined that it is a "good order,"
it will be processed at the next share price calculated.
Because orders placed through third party providers must be
forwarded to Kemper Service Company before they can be
processed, you'll need to allow extra time. A representative
of your third party provider should be able to tell you when
your order will be processed. Wire transactions that arrive by
1 p.m. Central time (11 a.m. Central time for Zurich Tax-Free
Money Fund) will receive that day's dividend.
Wire transactions received between 1 p.m. (11 a.m. Central
time for Zurich Tax-Free Money Fund) and 3 p.m. Central time
will start to accrue dividends the next business day.
Investments by check will be effective at 3 p.m. Central time
on the business day following receipt and will earn dividends
the following calendar day. Orders processed through dealers
or other financial services firms via Fund/SERV will be
effected at the 3 p.m. Central time net asset value effective
on the trade date. These purchases will begin earning
dividends the calendar day following the payment date.
When selling shares, you'll generally receive the dividend for
the day on which your shares were sold. If we receive a sell
request before 11 a.m. Central time and the request calls for
proceeds to be sent out by wire, we will normally wire you the
proceeds on the same day. However, you won't receive that
day's dividend.
26 policies you should know about
<PAGE>
[ICON] If you ever have difficulty placing an order by phone, you can
always send us your order in writing.
Zurich InfoLine, the Zurich automated telephone service, is
available 24 hours a day by calling 1-888-987-8678. You can
use Zurich InfoLine to get information on Zurich funds
generally and on accounts held directly at Zurich. You can
also use it to make exchanges and to buy and sell shares.
EZ-Transfer lets you set up a link between a Zurich account
and a bank account. Once this link is in place, you can move
money between the two with a phone call or on the Internet at
www.zurichfunds.com. You'll need to make sure your bank has
Automated Clearing House (ACH) services. Transactions take two
to three days to be completed, and there is a $100 minimum. To
set up EZ-Transfer on a new account, see the account
application, which can also be downloaded from our Web site;
to add it to an existing account, call 1-888-987-4241.
Share certificates are available on written request. However,
we don't recommend them unless you want them for a specific
purpose, because your shares can only be sold by mailing them
in, and if they're ever lost they're difficult and expensive
to replace.
If you are investing in these funds through a Zurich MoneyPLUS
AccountSM, you have access to a number of different features
and your policies and fees are different in some cases. For
example, there is no minimum dollar amount on checks you
write, and you can access your account using a VISAR Check
Card (a debit card). For more information on the Zurich
MoneyPLUS Account, its cash management features and its
policies and fees, call 1-800-537-6001.
27 policies you should know about
<PAGE>
Checkwriting lets you sell fund shares by writing a check.
Your investment keeps earning dividends until your check
clears. Please note that you'll be charged a $10 service fee
when you write a check for less than $500. You'll also be
charged a $10 service fee when you write a check that's larger
than your available balance at the time the check is presented
to us, and we will not be able to honor the check. We also
cannot honor any check for more than $5,000,000, or any check
written on an account on which there is a Power of Attorney.
It's not a good idea to close out an account using a check
because the account balance could change between the time you
write the check and the time it is processed.
When you call us to sell or exchange shares, we may record the
call, ask you for certain information, or take other steps
designed to prevent fraudulent orders. It's important to
understand that, as long as we take reasonable steps to ensure
that an order appears genuine, we are not responsible for any
losses that may occur.
When you ask us to send or receive a wire, please note that
while we don't charge a fee to send or receive wires, it's
possible that your bank may do so. Wire transactions are
completed within 24 hours. The funds can only send wires of
$1,000 or more.
28 policies you should know about
<PAGE>
Exchanges are a shareholder privilege, not a right: we may
reject any exchange order, particularly when there appears to
be a pattern of "market timing" or other frequent purchases
and sales. We may also reject purchase orders, for these or
other reasons.
When you want to sell more than $50,000 worth of shares, or
send the proceeds to a third party or a new address, you'll
usually need to place your order in writing and include a
signature guarantee. The only exception is if you want money
wired to a bank account that is already on file with us; in
that case, you don't need a signature guarantee. Also, you
don't need a signature guarantee for an exchange, although we
may require one in certain other circumstances.
A signature guarantee is simply a certification of your
signature -- a valuable safeguard against fraud. You can get a
signature guarantee from most brokers, banks, savings
institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.
29 policies you should know about
<PAGE>
Money from shares you sell is normally sent out within one
business day of when your order is received in good order,
although it could be delayed for up to seven days. There are
also two circumstances when it could be longer: when you are
selling shares you bought recently by check or EZ-Transfer, in
which case your check will be held for ten days and you cannot
use our telephone, Internet or checkwriting privileges, or
when unusual circumstances prompt the SEC to allow further
delays.
How the funds calculate share price
For each fund in this prospectus, the share price is the net
asset value per share, or NAV. To calculate NAV, the funds use
the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
---------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
As noted earlier, each fund seeks to maintain a stable $1.00
share price.
In valuing securities, we use the amortized cost method (the
method used by most money market funds).
30 policies you should know about
<PAGE>
Other rights we reserve
For each fund in this prospectus, you should be aware that
we may do any of the following:
o withhold 31% of your distributions as federal income
tax if youhave been notified by the IRS that you are
subject tobackup withholding, or if you fail to provide
us with acorrect taxpayer ID number or certification
that youare exempt from backup withholding
o charge you $3 a month if your account balance is below
$1,000 for the last 30 days; this policy doesn't apply
to retirement accounts, or to accounts with an
automatic investment plan
o reject a new account application if you don't provide a
correct Social Security or other tax ID number; if the
account has already been opened, we may give you 30
days' notice to provide the correct number
o pay you for shares you sell by "redeeming in kind,"
that is, by giving you marketable securities (which
typically will involve brokerage costs for you to
liquidate) rather than cash; in most cases, a fund
won't make a redemption in kind unless your requests
over a 90-day period total more than $250,000 or 1% of
the fund's assets, whichever is less
o change, add or withdraw various services, fees and
account policies (for example, we may change or
terminate the exchange privilege at any time)
o reject or limit purchases of shares for any reason
understanding distributions and taxes
31 policies you should know about
<PAGE>
understanding distributions
and taxes
By law, a mutual fund is required to pass through to its
shareholders virtually all of its net earnings. A fund can
earn money in two ways: by receiving interest, dividends or
other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings
are separate from any gains or losses stemming from your own
purchase of shares.) A fund may not always pay a distribution
for a given period.
The funds intend to declare income dividends daily, and pay
them monthly. Zurich Tax-Free Money Fund may make short- or
long-term capital gains distributions in November or December.
The taxable money funds may take into account capital gains
and losses (other than net long-term capital gains) in their
daily dividend declarations. The funds may make additional
distributions for tax purposes if necessary.
You can choose how to receive your dividends and
distributions. You can have them automatically reinvested in
fund shares or sent to you by check. Tell us your preference
on your application. If you don't indicate a preference, your
dividends and distributions will all be reinvested. For
retirement plans, reinvestment is the only option.
Dividends from Zurich Money Market Fund and Zurich Government
Money Fund are generally taxed at ordinary income rates.
Capital gains may be taxable at different rates depending on
the length of time a fund holds its assets. Any long-term
capital gains distributions are generally taxed at capital
gains rates, although the funds typically don't expect to make
long-term capital gains distributions. Also, because each fund
seeks to maintain a stable share price, you are unlikely to
have a capital gain or loss when you sell fund shares. For tax
purposes, an exchange is the same as a sale.
32 understanding distributions and taxes
<PAGE>
Dividends from Zurich Tax-Free Money Fund are generally
free from federal income tax for most shareholders, and a
portion of dividends from Zurich Government Money Fund are
generally free from state and local income tax. However,
there are a few exceptions:
o a portion of a fund's dividends may be taxable as
ordinary income if it came from investments in taxable
securities, tax-exempt market discount bonds, or as the
result of short-term capital gains
o with Zurich Tax-Free Money Fund, because the fund can
invest in securities whose income is subject to the
federal alternative minimum tax (AMT), you may owe
taxes on a portion of your dividends if you are among
those investors who must pay AMT
o with Zurich Government Money Fund, shareholders who
live in certain states and localities may not be
eligible for the tax exemptions that shareholders in
most locations are
Your fund will send you detailed tax information every
January. These statements tell you the amount and the tax
category of any dividends or distributions you received.
They also have certain details on your purchases and sales
of shares. The tax status of dividends and distributions
is the same whether you reinvest them or not. Dividends or
distributions declared in the last quarter of a given year
are taxed in that year, even though you may not receive
the money until the following January.
33 understanding distributions and taxes
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
to get more information
Shareholder reports -- These include commentary from each
fund's management team about recent market conditions and the
effects of a fund's strategies on its performance. For each
fund, they also have detailed performance figures, a list of
everything the fund owns, and the fund's financial statements.
Shareholders get these reports automatically. For more copies,
call 1-888-987-4241 (1-888-ZURICH-1) or visit our Web site at
www.zurichfunds.com.
Statement of Additional Information (SAI) -- This tells you
more about each fund's features and policies, including
additional risk information. The SAI is incorporated by
reference into this document (meaning that it's legally part
of this prospectus).
If you'd like to ask for copies of these documents please
contact Zurich or the SEC (see below). If you're a shareholder
and have questions, please contact Zurich. Materials you get
from Zurich are free; those from the SEC involve a copying
fee. If you like, you can look over these materials in person
at the SEC's Public Reference Room in Washington, DC or
request them electronically at [email protected]
SEC 450 Fifth Street, N.W., Washington, DC 20549-0102,
www.sec.gov, 1-202-942-8090
Fund Name SEC File
--------------------------------------------------------------
Zurich Money Market Fund 333-21187
--------------------------------------------------------------
Zurich Government Money Fund 333-21187
--------------------------------------------------------------
Zurich Tax-Free Money Fund 333-21187
[LOGO] Zurich
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
www.zurichfunds.com
1-800-537-6001
<PAGE>
ZURICH MONEY FUNDS
STATEMENT OF ADDITIONAL INFORMATION
December 1, 2000
Zurich Money Market Fund
Zurich Government Money Fund
Zurich Tax-Free Money Fund
222 South Riverside Plaza, Chicago, Illinois 60606-5808
1-(888) ZURICH-1 (987-4241)
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus of Zurich Money Funds (the "Trust") dated
December 1, 2000. The prospectus may be obtained without charge by calling or
writing Zurich Money Funds, and is also available along with other related
materials on the Securities and Exchange Commission's internet web site
(http://www.sec.gov).
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS......................................................2
INVESTMENT STRATEGIES AND RISKS..............................................3
Money Market Fund............................................................3
Government Money Fund........................................................4
Tax-Free Money Fund..........................................................5
Additional Investment Information About the Funds............................8
CAPITAL STRUCTURE............................................................9
INVESTMENT ADVISOR..........................................................10
PORTFOLIO TRANSACTIONS......................................................12
PURCHASE AND REDEMPTION OF SHARES...........................................13
DIVIDENDS, NET ASSET VALUE AND TAXES........................................16
PERFORMANCE.................................................................18
OFFICERS AND TRUSTEES.......................................................21
SPECIAL FEATURES............................................................23
SHAREHOLDER RIGHTS..........................................................24
APPENDIX -- RATINGS OF INVESTMENTS..........................................25
The financial statements appearing in the Funds' Annual Report to Shareholders
dated July 31, 2000 are incorporated herein by reference. The Funds' Annual
Report accompanies this Statement of Additional Information and may be obtained
without charge by calling toll-free 1-888-987-4241.
<PAGE>
INVESTMENT RESTRICTIONS
Zurich Money Market Fund (the "Money Market Fund"), Zurich Government Money Fund
(the "Government Money Fund") and Zurich Tax-Free Money Fund (the "Tax-Free
Money Fund") have adopted certain investment restrictions which cannot be
changed without approval by holders of a majority of such Fund's outstanding
voting shares. As defined in the Investment Company Act of 1940, as amended (the
"1940 Act") this means the lesser of the vote of (a) 67% of the shares of the
Fund present at a meeting where more than 50% of the outstanding shares of the
Fund are present in person or by proxy; or (b) more than 50% of the outstanding
shares of the Fund. Each Fund is a diversified open-end management investment
company.
As a matter of fundamental policy, each Fund may not:
(1) Borrow money, except as permitted under the 1940 Act and as interpreted
or modified by regulatory authority having jurisdiction, from time to
time;
(2) Issue senior securities, except as permitted under the 1940 Act and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time;
(3) Concentrate its investments in a particular industry, as the term is
used in the 1940 Act and as interpreted or modified by regulatory
authority having jurisdiction, from time to time (Money Market Fund's
concentration in the banking industry is described on page 4);
(4) Engage in the business of underwriting securities issued by others,
except to the extent that the Fund may be deemed to be an underwriter
in connection with the disposition of portfolio securities;
(5) Purchase or sell real estate, which does not include securities of
companies which deal in real estate or mortgages or investments secured
by real estate or interests therein, except that the Fund reserves
freedom of action to hold and to sell real estate acquired as a result
of the Fund's ownership of securities;
(6) Purchase physical commodities or contracts relating to physical
commodities;
(7) Make loans except as permitted under the 1940 Act and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
With regard to restriction (3) for Money Market Fund, for purposes of
determining the percentage of Money Market Fund's total assets invested in
securities of issuers having their principal business activities in a particular
industry, asset backed securities will be classified separately, based on the
nature of the underlying assets. Currently, the following categories are used:
captive auto, diversified, retail and consumer loans, captive equipment and
business, business trade receivables, nuclear fuel and capital and mortgage
lending.
Government Money Fund and the Tax Free Money Fund have no current intention of
making loans as permitted in investment restriction (7) noted above.
If a Fund adheres to a percentage restriction at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Funds did
not borrow money, as permitted by fundamental investment restriction number 1 in
the latest fiscal year; and they have no present intention of borrowing during
the coming year. In any event, borrowings would only be as permitted by such
restriction. Tax-Free Money Fund may invest more than 25% of its total assets in
industrial development bonds.
2
<PAGE>
The Funds have adopted the following non-fundamental restrictions which may be
changed or eliminated by the Board of Trustees without shareholder approval:
Each Fund may not:
(1) Borrow money in an amount greater than 5% of its total assets,
except for temporary or emergency purposes;
(2) Lend portfolio securities in an amount greater than 5% of its
total assets;
(3) Invest more than 10% of net assets in illiquid securities.
INVESTMENT STRATEGIES AND RISKS
Descriptions in this Statement of Additional Information of a particular
investment practice or technique in which a Fund may engage or a financial
instrument which a Fund may purchase are meant to describe the spectrum of
investments that Scudder Kemper Investments, Inc. (the "Advisor"), in its
discretion, might, but is not required to, use in managing a Fund's assets. The
Advisor may, in its discretion, at any time, employ such practice, technique or
instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
a Fund, but, to the extent employed, could, from time to time, have a material
impact on the Fund's performance.
The Funds described in this Statement of Additional Information seek to maintain
a net asset value of $1.00 per share.
Master/Feeder Fund Structure. The Board of Trustees has the discretion to retain
the current distribution arrangement for the Funds while investing in a master
fund in a master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder fund"), instead
of investing directly in a portfolio of securities, invests most or all of its
investment assets in a separate registered investment company (the "master
fund") with substantially the same investment objective and policies as the
feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization 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. Shareholders
of each Fund will be given at least 30 days' prior notice of any such
investment, although they will not be entitled to vote on the action. Such
investment would be made only if the Trustees determine it to be in the best
interests of the respective Fund and its shareholders.
Money Market Fund
Money Market Fund seeks maximum current income to the extent consistent with
stability of principal. The Fund pursues its objective by investing exclusively
in the following types of U.S. Dollar denominated money market instruments that
mature in 397 days or less:
o Obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities.
o Bank certificates of deposit (including time deposits) or bankers'
acceptances of U.S. banks (including their foreign branches) and
Canadian chartered banks having total assets in excess of $1 billion.
3
<PAGE>
o Bank certificates of deposit, time deposits or bankers' acceptances of
foreign banks (including their U.S. and foreign branches) having total
assets in excess of $10 billion.
o Commercial paper obligations rated A-1 or A-2 by Standard & Poor's
Corporation ("S&P") or Prime-1 or Prime-2 by Moody's Investors Service,
Inc. ("Moody's") or issued by companies with an unsecured debt issue
outstanding currently rated Aa by Moody's or AA by S&P or higher and
investments in other corporate obligations such as publicly traded
bonds, debentures and notes rated Aa by Moody's or AA by S&P or higher.
For a description of these ratings, see "Appendix -- Ratings of
Investments" herein.
o Repurchase agreements of obligations that are suitable for investment
under the categories set forth above. Repurchase agreements are
discussed below.
To the extent Money Market Fund purchases Eurodollar certificates of
deposit issued by London branches of U.S. banks, or commercial paper issued by
foreign entities, consideration will be given to their marketability, to
possible restrictions on international currency transactions and to regulations
imposed by the domicile country of the foreign issuer. Eurodollar certificates
of deposit are not subject to the same regulatory requirements as certificates
issued by U.S. banks and associated income may be subject to the imposition of
foreign taxes.
Money Market Fund may invest in commercial paper which is issued by
major corporations without registration under the Securities Act of 1933 in
reliance on the exemption from registration afforded by Section 3(a)(3) thereof.
Such commercial paper may be issued only to finance current transactions and
must mature in nine months or less. Trading of such commercial paper is
conducted primarily by institutional investors through investment dealers, and
individual investor participation in the commercial paper market is very
limited.
Money Market Fund may also invest in commercial paper issued in
reliance on the so-called "private placement" exemption from registration
afforded by Section 4(2) of the Securities Act of 1933 ("Section 4(2) paper").
Section 4(2) paper is restricted as to disposition under the federal securities
laws, and generally is sold to institutional investors such as the Fund who
agree that they are purchasing the paper for investment and not with a view to
public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper normally is resold to other institutional
investors like the Fund through or with the assistance of the issuer or
investment dealers who make a market in the Section 4(2) paper, thus providing
liquidity. The Fund's investment advisor considers the legally restricted but
readily saleable Section 4(2) paper to be liquid; however, pursuant to
procedures approved by the Board of Trustees of the Trust, if a particular
investment in Section 4(2) paper is not determined to be liquid, that investment
will be included within the 10% limitation on illiquid securities discussed
under "Additional Investment Information About the Funds" below. The Fund's
investment advisor monitors the liquidity of its investments in Section 4(2)
paper on a continuous basis.
Money Market Fund may concentrate more than 25% of its assets in bank
certificates of deposit or banker's acceptances of U.S. banks in accordance with
its investment objective and policies. Accordingly, the Fund may be more
adversely affected by changes in market or economic conditions and other
circumstances affecting the banking industry than it would be if the Fund's
assets were not so concentrated. The Fund will not change this policy without a
vote of shareholders.
Government Money Fund
Government Money Fund seeks maximum current income to the extent
consistent with stability of principal. The Fund pursues its objective by
investing exclusively in the following securities that mature in 12 months or
less.
o U.S. Treasury bills, notes, bonds and other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
o Repurchase agreements of the obligations described above.
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Some securities issued by U.S. Government agencies or instrumentalities
are supported only by the credit of the agency or instrumentality, such as those
issued by the Federal Home Loan Bank, and others are backed by the full faith
and credit of the U.S. Government. Short-term U.S. Government obligations
generally are considered to be the safest short-term investment. The U.S.
Government guarantee of the securities owned by the Fund, however, does not
guarantee the net asset value of its shares, which the Fund seeks to maintain at
$1.00 per share. Also, with respect to securities supported only by the credit
of the issuing agency or instrumentality , there is no guarantee that the U.S.
Government will provide support to such agencies or instrumentalities and such
securities may involve risk of loss of principal and interest.
Tax-Free Money Fund
Tax-Free Money Fund seeks maximum current income that is exempt from
federal income taxes to the extent consistent with stability of principal. The
Fund pursues its objective primarily through a professionally managed,
diversified portfolio of short-term high quality tax-exempt municipal
obligations.
Under normal market conditions at least 80% of the Fund's total assets
will, as a fundamental policy, be invested 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 tax ("Municipal Securities"). In
compliance with the position of the staff of the Securities and Exchange
Commission, the Fund does not consider "private activity" bonds as described in
"Dividends, Net Asset Value and Taxes -- Taxes" as Municipal Securities for
purposes of the 80% limitation. This is a fundamental policy so long as the
staff maintains its position, after which it would become non-fundamental.
Dividends representing net interest income received by Tax-Free Money
Fund on Municipal Securities will be exempt from federal income tax when
distributed to the Fund's shareholders. Such dividend income may be subject to
state and local taxes. See "Dividends, Net Asset Value and Taxes -- Taxes." The
Fund's assets will generally consist of Municipal Securities, temporary
investments as described below and cash. The Fund considers short-term Municipal
Securities to be those that mature in 397 days or less.
Tax-Free Money Fund will invest only in Municipal Securities which at the time
of purchase:
o are rated within the two highest ratings for Municipal Securities (Aaa
or Aa) assigned by Moody's, (AAA or AA) assigned by S&P, (AAA or AA)
assigned by Fitch, or (AAA or AA) assigned by Duff, or any other
nationally recognized statistical rating organization ("NRSRO") as
determined by the Securities and Exchange Commission are rated within
the two highest ratings for Municipal Securities (Aaa or Aa) assigned
by Moody's or (AAA or AA) assigned by S&P;
o are guaranteed or insured by the U.S. Government as to the payment of
principal and interest;
o are fully collateralized by an escrow of U.S. Government securities
acceptable to the Fund's investment advisor;
o have at the time of purchase a Moody's short-term municipal securities
rating of MIG-2 or higher or a municipal commercial paper rating of P-2
or higher, or S&P's municipal commercial paper rating of A-2 or higher,
or Fitch's municipal commercial paper rating of F-2 or higher, or
Duff's municipal commercial paper rating of Duff-2 or higher, or a
rating within the two highest categories of any other NRSRO as
determined by the Securities and Exchange Commission;
o are unrated, if longer term Municipal Securities of that issuer are
rated within the two highest rating categories by Moody's, S&P, Fitch,
Duff or any other NRSRO as determined by the Securities and Exchange
Commission; are unrated, if longer term Municipal Securities of that
issuer are rated within the two highest rating categories by Moody's or
S&P; or
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o are determined to be at least equal in quality to one or more of the
above ratings in the discretion of the Fund's investment Advisor.
Municipal Securities generally are classified as "general obligation"
or "revenue" issues. General obligation bonds are secured by the issuer's pledge
of its full 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 tax or other specific revenue source such as the user of the
facility being financed. Industrial development bonds held by the Fund are in
most cases revenue bonds and are not payable from the unrestricted revenues of
the issuer. Among other types of instruments, the Fund may purchase tax-exempt
commercial paper, warrants and short-term municipal notes such as tax
anticipation notes, bond anticipation notes, revenue anticipation notes,
construction loan notes and other forms of short-term loans. Such notes are
issued with a short-term maturity in anticipation of the receipt of tax
payments, the proceeds of bond placements or other revenues. As discussed below
under "Dividends, Net Asset Value and Taxes -- Taxes," the Fund may invest in
"private activity" bonds.
Tax-Free Money Fund may purchase securities which provide for the right
to resell them to an issuer, bank or dealer at an agreed upon price or yield
within a specified period prior to the maturity date of such securities. Such a
right to resell is referred to as a "Standby Commitment." Securities may cost
more with Standby Commitments than without them. Standby Commitments will be
entered into solely to facilitate portfolio liquidity. A Standby Commitment may
be exercised before the maturity date of the related Municipal Security if the
Fund's investment advisor revises its evaluation of the creditworthiness of the
underlying security or of the entity issuing the Standby Commitment. The Fund's
policy is to enter into Standby Commitments only with issuers, banks or dealers
that are determined by the Fund's investment advisor to present minimal credit
risks. If an issuer, bank or dealer should default on its obligation to
repurchase an underlying security, the Fund might be unable to recover all or a
portion of any loss sustained from having to sell the security elsewhere. For
purposes of valuing the Fund's securities at amortized cost, the stated maturity
of Municipal Securities subject to Standby Commitments is not changed.
Tax-Free Money Fund may purchase high quality Certificates of
Participation in trusts that hold Municipal Securities. A Certificate of
Participation gives the 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. These Certificates of Participation may be variable rate
or fixed rate with remaining maturities of 397 days or less. A Certificate of
Participation may be backed by an irrevocable letter of credit or 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 Fund's investment advisor 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 the Fund. It is anticipated by the Fund's
investment advisor that, for most publicly offered Certificates of
Participation, there will be a liquid secondary market or there may be demand
features enabling the Fund to readily sell its Certificates of Participation
prior to maturity to the issuer or a third party. As to those instruments with
demand features, the Fund intends to exercise its right to demand payment from
the issuer of the demand feature only upon a default under the terms of the
Municipal Security, as needed to provide liquidity to meet redemptions, or to
maintain a high quality investment portfolio.
In seeking to achieve its investment objective, Tax-Free Money Fund may
invest all or any part of its assets in Municipal Securities that are industrial
development bonds. Moreover, although the Fund does not currently intend to do
so on a regular basis, it may invest more than 25% of its assets in Municipal
Securities that are repayable out of revenue streams generated from economically
related projects or facilities, if such investment is deemed necessary or
appropriate by the Fund's investment advisor. To the extent that the Fund's
assets are concentrated in Municipal Securities payable from revenues on
economically related projects and facilities, the Fund
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will be subject to the risks presented by such projects to a greater extent than
it would be if the Fund's assets were not so concentrated.
From time to time, as a defensive measure or when acceptable short-term
Municipal Securities are not available, Tax-Free Money Fund may invest in
taxable "temporary investments" which include:
o obligations of the U.S. Government, its agencies or instrumentalities;
o debt securities rated within the two highest grades by Moody's or S&P;
o commercial paper rated in the two highest grades by either of such
rating services;
o certificates of deposit of domestic banks with assets of $1 billion or
more; and
o repurchase agreements of the obligations described above (Repurchase
agreements are discussed below).
Interest income from temporary investments is taxable to shareholders as
ordinary income. Although the Fund is permitted to invest in taxable securities,
it is the Fund's primary intention to generate income dividends that are not
subject to federal income taxes. See "Dividends, Net Asset Value and Taxes." For
a description of the ratings, see "Appendix -- Ratings of Investments."
Municipal Securities that Tax-Free Money Fund may purchase include, without
limitation, debt obligations issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, public
utilities, schools, streets, and water and sewer works. Other public purposes
for which Municipal Securities may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses and obtaining funds
to loan to other public institutions and facilities.
Municipal Securities, such as industrial development bonds, are issued by or on
behalf of public authorities to obtain funds for purposes including privately
operated airports, housing, conventions, trade shows, ports, sports, parking or
pollution control facilities or for facilities for water, gas, electricity or
sewage and solid waste disposal. Such obligations, which may include lease
arrangements, are included within the term Municipal Securities if the interest
paid thereon qualifies as exempt from federal income tax. Other types of
industrial development bonds, the proceeds of which are used for the
construction, equipment, repair or improvement of privately operated industrial
or commercial facilities, may constitute Municipal Securities, although current
federal tax laws place substantial limitations on the size of such issues.
Examples of Municipal Securities that are issued with original maturities of 397
days or less are short-term tax anticipation notes, bond anticipation notes,
revenue anticipation notes, construction loan notes, pre-refunded municipal
bonds, warrants and tax-free commercial paper.
Tax anticipation notes typically are sold to finance working capital needs of
municipalities in anticipation of receiving property taxes on a future date.
Bond anticipation notes are sold on an interim basis in anticipation of a
municipality issuing a longer term bond in the future. Revenue anticipation
notes are issued in expectation of receipt of other types of revenue such as
those available under the Federal Revenue Sharing Program. Construction loan
notes are instruments insured by the Federal Housing Administration with
permanent financing by "Fannie Mae" (the Federal National Mortgage Association)
or "Ginnie Mae" (the Government National Mortgage Association) at the end of the
project construction period. Pre-refunded municipal bonds are bonds which are
not yet refundable, but for which securities have been placed in escrow to
refund an original municipal bond issue when it becomes refundable. Tax-free
commercial paper is an unsecured promissory obligation issued or guaranteed by a
municipal issuer. Tax-Free Money Fund may purchase other Municipal Securities
similar to the foregoing, which are or may become available, including
securities issued to pre-refund other outstanding obligations of municipal
issuers.
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The federal bankruptcy statutes relating to the adjustments of debts of
political subdivisions and authorities of states of the United States provide
that, in certain circumstances, such subdivisions or authorities may be
authorized to initiate bankruptcy proceedings without prior notice to or consent
of creditors, which proceedings could result in material adverse changes in the
rights of holders of obligations issued by such subdivisions or authorities.
Litigation challenging the validity under state constitutions of present systems
of financing public education has been initiated or adjudicated in a number of
states, and legislation has been introduced to effect changes in public school
finances in some states. In other instances there has been litigation
challenging the issuance of pollution control revenue bonds or the validity of
their issuance under state or federal law which ultimately could affect the
validity of those Municipal Securities or the tax-free nature of the interest
thereon.
Additional Investment Information About the Funds
In addition to the specific investment objective and policies listed
above, each Fund limits its investments to securities that meet the requirements
of Rule 2a-7 under the 1940 Act. See "Dividends, Net Asset Value and Share Price
-- Net Asset Value."
Each Fund may invest in instruments that have interest rates that
adjust periodically or that "float" continuously according to formulae intended
to minimize fluctuation in values of the instruments ("Variable Rate
Securities"). The interest rate on a Variable Rate Security is ordinarily
determined by reference to or is a percentage of an objective standard such as a
bank's prime rate, the 90-day U.S. Treasury bill rate, or the rate of return on
commercial paper or bank certificates of deposit. Generally, the changes in the
interest rate on Variable Rate Securities reduce the fluctuation in the market
value of such securities. Accordingly, as interest rates decrease or increase,
the potential for capital appreciation or depreciation is less than for
fixed-rate obligations. Some Variable Rate Securities ("Variable Rate Demand
Securities") have a demand feature entitling the purchaser to resell the
securities at an amount approximately equal to amortized cost or the principal
amount thereof plus accrued interest. As is the case for other Variable Rate
Securities, the interest rate on Variable Rate Demand Securities varies
according to some objective standard intended to minimize fluctuation in the
values of the instruments. Each Fund determines the maturity of Variable Rate
Securities in accordance with Securities and Exchange Commission rules which
allow the Fund to consider certain of such instruments as having maturities
shorter than the maturity date on the face of the instrument.
Each Fund may invest in repurchase agreements, which are instruments
under which a Fund acquires ownership of a security from a broker-dealer or bank
that agrees to repurchase the security at a mutually agreed upon time and price
(which price is higher than the purchase price), thereby determining the yield
during the Fund's holding period. Maturity of the securities subject to
repurchase may exceed one year. In the event of a bankruptcy or other default of
a seller of a repurchase agreement, a Fund might incur expenses in enforcing its
rights, and could experience losses, including a decline in the value of the
underlying securities and loss of income.
Each Fund may purchase and sell securities on a when-issued or delayed
delivery basis. A when-issued or delayed delivery transaction arises when
securities are bought or sold for future payment and delivery to secure what is
considered to be an advantageous price and yield to the Fund at the time it
enters into the transaction. In determining the maturity of portfolio securities
purchased on a when-issued or delayed delivery basis, the Fund will consider
them to have been purchased on the date when it committed itself to the
purchase.
A security purchased on a when-issued basis, like all securities held by the
Funds, is subject to changes in market value based upon changes in the level of
interest rates and investors' perceptions of the creditworthiness of the issuer.
Generally such securities will appreciate in value when interest rates decline
and decrease in value when interest rates rise. Therefore if, in order to
achieve higher interest income, a Fund remains substantially fully invested at
the same time that it has purchased securities on a when-issued basis, there
will be a greater possibility that the market value of the Fund's assets will
vary from $1.00 per share, since the value of a when-issued security is subject
to market fluctuation and no interest accrues to the purchaser prior to
settlement of the transaction. See "Determining Share Price."
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The Funds will only make commitments to purchase securities on a
when-issued or delayed delivery basis with the intention of actually acquiring
the securities, but the Funds reserve the right to sell these securities before
the settlement date if deemed advisable. The sale of these securities may result
in the realization of gains that are not exempt from federal income tax.
A Fund will not purchase illiquid securities, including time deposits and
repurchase agreements maturing in more than seven days, if, as a result thereof,
more than 10% of such Fund's net assets valued at the time of the transaction
would be invested in such securities. If a Fund holds a material percentage of
its assets in illiquid securities, there may be a question concerning the
ability of such Fund to make payment within seven days of the date its shares
are tendered for redemption. Securities and Exchange Commission ("SEC")
guidelines provide that the usual limit on aggregate holdings by a money market
fund of illiquid assets is 10% of its net assets. Each Fund's investment advisor
monitors holdings of illiquid securities on an ongoing basis and will take such
action as it deems appropriate to help maintain adequate liquidity.
Interfund Borrowing and Lending Program. The Fund has received exemptive relief
from the SEC which permits the Fund to participate in an interfund lending
program among certain investment companies advised by the Advisor. The interfund
lending program allows the participating funds to borrow money from and loan
money to each other for temporary or emergency purposes. The program is subject
to a number of conditions designed to ensure fair and equitable treatment of all
participating funds, including the following: (1) no fund may borrow money
through the program unless it receives a more favorable interest rate than a
rate approximating the lowest interest rate at which bank loans would be
available to any of the participating funds under a loan agreement; and (2) no
fund may lend money through the program unless it receives a more favorable
return than that available from an investment in repurchase agreements and, to
the extent applicable, money market cash sweep arrangements. In addition, a fund
may participate in the program only if and to the extent that such participation
is consistent with the fund's investment objectives and policies (for instance,
money market funds would normally participate only as lenders and tax exempt
funds only as borrowers). Interfund loans and borrowings may extend overnight,
but could have a maximum duration of seven days. Loans may be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed. Any delay in repayment to a lending
fund could result in a lost investment opportunity or additional costs. The
program is subject to the oversight and periodic review of the Boards of the
participating funds. To the extent the Fund is actually engaged in borrowing
through the interfund lending program, the Fund, as a matter of non-fundamental
policy, may not borrow for other than temporary or emergency purposes (and not
for leveraging).
CAPITAL STRUCTURE
Zurich Money Funds is an open-end, diversified, management investment company,
organized as a business trust under the laws of Massachusetts on August 9, 1985.
Effective February 1, 1996, the name of the Trust was changed from Kemper Money
Market Fund to Kemper Money Funds, and effective April 14, 1997, the name of the
Trust was changed from Kemper Money Funds to Zurich Money Funds. Effective
November 29, 1985, Money Market Fund, pursuant to a reorganization, succeeded to
the assets and liabilities of Kemper Money Market Fund, Inc., a Maryland
corporation organized on September 19, 1974. Effective November 14, 1986,
Government Money Fund succeeded to the assets and liabilities of Kemper
Government Money Market Fund, a business trust organized under the laws of
Massachusetts on August 9, 1985. Effective November 29, 1985, Kemper Government
Money Market Fund succeeded to the assets and liabilities of Kemper Government
Money Market Fund, Inc., a Maryland corporation organized November 3, 1981.
Tax-Free Money Fund commenced public offering of its shares on September 10,
1987. The Trust may issue an unlimited number of shares of beneficial interest,
all having no par value, which may be divided by the Board of Trustees into
classes of shares, subject to compliance with the Securities and Exchange
Commission regulations permitting the creation of separate classes of shares.
The Trust's shares are not currently divided into classes. While only shares of
the three previously described Funds are presently being offered, the Board of
Trustees may authorize the issuance of additional series if deemed desirable,
each with its own investment objective, policies and restrictions. Since the
Trust may offer multiple series, it is known as a "series company." Shares of a
Fund have equal noncumulative voting rights and equal rights with respect to
dividends, assets and liquidation of such Fund subject to any preferences,
rights or privileges of any classes of
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shares within the Fund. Generally, each class of shares issued by a particular
Fund would differ as to the allocation of certain expenses of the Fund, such as
distribution and administrative expenses, permitting, among other things,
different levels of services or methods of distribution among various classes.
Shares are fully paid and nonassessable when issued, are transferable without
restriction and have no preemptive or conversion rights. The Trust is not
required to hold annual shareholders' meetings and does not intend to do so.
However, it 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 the Trust, shareholders may remove trustees. Shareholders will vote by
Fund and not in the aggregate except when voting in the aggregate is required
under the 1940 Act, such as for the election of trustees.
Investment Advisor. Scudder Kemper Investments, Inc. ("Scudder Kemper" or "the
Advisor"), 345 Park Avenue, New York, New York 10154-0010 is the Funds'
investment advisor. Scudder Kemper is approximately 70% owned by Zurich
Financial Services, Inc. a newly formed global insurance and financial services
company. The balance of the Advisor is owned by its officers and employees.
Pursuant to an investment management agreement, Scudder Kemper acts as each
Fund's investment advisor, 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 Trust pays the expenses of its operations, including the fees and
expenses of independent auditors, counsel, custodian and transfer agent and the
cost of share certificates, reports and notices to shareholders, costs of
calculating net asset value and maintaining all accounting records thereto,
brokerage commissions or transaction costs, taxes, registration fees, the fees
and expenses of qualifying the Fund and its shares for distribution under
federal and state securities laws and membership dues in the Investment Company
Institute or any similar organization. Trust expenses generally are allocated
among the Funds on the basis of relative net assets at the time of allocation,
except that expenses directly attributable to a particular Fund are charged to
that Fund.
The investment management agreement provides that Scudder Kemper shall not be
liable for any error of judgment or of law, or for any loss suffered by the
Funds in connection with the matters to which the agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of Scudder Kemper in the performance of its obligations and duties, or by
reason of its reckless disregard of its obligations and duties under the
agreement.
The investment management agreement continues in effect from year to year for
each Fund so long as its continuation is approved at least annually (a) by a
majority of the trustees who are not parties to such agreement or interested
persons of any such party except in their capacity as trustees of the Trust and
(b) by the shareholders of each Fund or the Board of Trustees. If continuation
is not approved for a Fund, the investment management agreement nevertheless may
continue in effect for the Funds for which it is approved and Scudder Kemper may
continue to serve as investment advisor for the Fund for which it is not
approved to the extent permitted by the Investment Company Act of 1940. The
agreement may be terminated at any time upon 60 days notice by either party, or
by a majority vote of the outstanding shares of a Fund with respect to that
Fund, and will terminate automatically upon assignment. Shareholders of each
Fund will vote separately upon continuation of the investment management
agreement and upon other matters affecting only an individual Fund. Additional
Funds may be subject to a different agreement.
On September 7, 1998, Zurich Insurance Company ("Zurich") the majority owner of
the Advisor, entered into an agreement with B.A.T. Industries p.l.c. ("B.A.T."),
pursuant to which the financial services business of B.A.T. were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, each Fund's investment management agreement with the Advisor was
deemed to have been assigned and, therefore, terminated. The Board of Trustees
of each Fund and the shareholders of each Fund have approved a new investment
management agreement with the Advisor, which is substantially identical to the
former investment management agreement, except for the dates of execution and
termination. On October 17, 2000, the dual holding company structure of Zurich
Financial Services Group, comprised of Allied Zurich p.l.c. in the United
Kingdom and Zurich Allied A.G. in Switzerland, was unified into a single Swiss
holding company, Zurich Financial Services.
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For the services and facilities furnished, the Trust pays an annual investment
management fee, payable monthly, on a graduated basis of .50% of the first $215
million of average daily net assets of the Trust, 0.375% on the next $335
million, 0.30% on the next $250 million and 0.25% of average daily net assets of
the Trust over $800 million. Scudder Kemper has agreed to reimburse the Trust
should all operating expenses of the Trust, including the investment management
fee of Scudder Kemper but excluding taxes, interest, extraordinary expenses and
brokerage commissions or transaction costs, exceed 1 1/2% of the first $30
million of average net assets of the Trust and 1% of average net assets over $30
million on an annual basis. The investment management fee and the expense
limitation are computed based upon the combined average daily net assets of the
Funds and are allocated among such Funds based upon the relative net assets of
each Fund. For its services as investment advisor and for facilities furnished
during the fiscal years ended July 31 indicated, the Funds incurred investment
management fees as shown.
Fund 2000 1999 1998
---- ---- ---- ----
Money Market $13,606,675 $13,105,647 $12,086,000
Government Money $1,816,620 $1,973,045 $ 1,815,000
Tax-Free Money $2,045,830 $2,167,131 $ 2,156,000
For Money Market Fund, during the fiscal years ended July 31, 2000, July 31,
1999 and July 31, 1998, the investment advisor waived fees in the amounts of $0,
$0 and $0, respectively.
For Government Money Market Fund, during the fiscal years ended July 31, 2000,
July 31, 1999 and July 31, 1998, the investment advisor waived fees in the
amounts of $0, $0 and $0, respectively.
For Tax-Free Money Market Fund, during the fiscal years ended July 31, 2000,
July 31, 1999 and July 31, 1998, the investment advisor waived fees in the
amounts of $0, $0 and $0, respectively.
Fund Accounting Agent. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts 02110, a subsidiary of the Advisor,
is responsible for determining the daily net asset value per share of the Funds
and maintaining all accounting records related thereto. Currently, SFAC receives
no fee for its services to the Funds, however, subject to Board approval, at
some time in the future, SFAC may seek payment for its services under this
agreement.
Principal Underwriter. Kemper Distributors, Inc. ("KDI"), 222 South Riverside
Plaza, Chicago, Illinois, an affiliate of Scudder Kemper, is the principal
underwriter for shares of the Funds and acts as agent of the Funds in the sale
of their shares. The Funds pay the cost for the prospectus and shareholder
reports to be set in type and printed for existing shareholders, and KDI pays
for the printing and distribution of copies thereof used in connection with the
offering of shares to prospective investors. KDI also pays for supplementary
sales literature and advertising costs. Terms of continuation, termination and
assignment under the underwriting agreement are identical to those described
above with regard to the investment management agreement, except that
termination other than upon assignment requires six months notice and shares are
voted in the aggregate and not by Fund whenever shareholders vote with respect
to such agreement. KDI receives no compensation from the Funds as principal
underwriter for the Funds' shares and pays all expenses of distribution of the
Funds' shares.
Certain officers or trustees of the Trust are also directors or officers of
Scudder Kemper and KDI as indicated under "Officers and Trustees."
Custodian, Transfer Agent and Shareholder Service Agent. State Street Bank and
Trust Company ("State Street"), 225 Franklin Street, Boston, Massachusetts
02110, as custodian, has custody of all securities and cash of the Funds. State
Street attends to the collection of principal and income, and payment for and
collection of proceeds bought and sold by the Funds. State Street also acts as
transfer agent for the Funds. Pursuant to a services agreement with State Street
and Kemper Service Company ("KSvC"), an affiliate of the Advisor, serves as
"Shareholder Service Agent." State Street receives, as transfer agent, annual
account fees of a maximum of $8 per account plus out-of-pocket expense
reimbursement. Effective January 1, 1999, this schedule was amended to include a
$10
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annual account fee, a $5 new account set up fee, an annual asset based fee of
0.06% of average daily net assets and out-of-pocket expense reimbursement
Prior to August 31, 2000, Investors Fiduciary Trust Company ("IFTC") acted as
Transfer Agent for the funds.
During the fiscal year ended July 31, 2000, IFTC remitted shareholder service
fees for Money Market Fund in the amount of $5,201,974, for Government Money
Fund in the amount of $631,503, and for Tax-Free Money Fund in the amount of
$534,982 to KSvC as Shareholder Service Agent.
Independent Auditors and Reports to Shareholders. The Funds' independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Funds' annual financial statements, review certain
regulatory reports and the Funds' federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Funds. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
LEGAL COUNSEL. Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street,
Chicago, Illinois 60601, serves as legal counsel to the Fund.
PORTFOLIO TRANSACTIONS
Brokerage
Allocation of brokerage is supervised by the Advisor.
Portfolio transactions are undertaken principally to pursue the objective of
each Fund in relation to movements in the general level of interest rates, to
invest money obtained from the sale of Fund shares, to reinvest proceeds from
maturing portfolio securities and to meet redemptions of Fund shares. This may
increase or decrease the yield of a Fund depending upon management's ability to
correctly time and execute such transactions. Since a Fund's assets are invested
in securities with short maturities, its portfolio will turn over several times
a year. Securities with maturities of less than one year are excluded from
required portfolio turnover rate calculations, so each Fund's portfolio turnover
rate for reporting purposes is zero.
The primary objective of the Advisor in placing orders for the purchase and sale
of securities for a Fund's portfolio 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 SIS's familiarity
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.
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, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers 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 solely on account of receipt of the research,
market or statistical information. 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.
In selecting among firms believed to meet the criteria for handling a particular
transaction, the Advisor may give consideration to those firms that have sold or
are selling shares of a fund managed by the Advisor.
12
<PAGE>
To the maximum extent feasible, it is expected that the Advisor will place
orders for a portfolio transactions through SIS, a corporation registered as a
broker-dealer and a subsidiary of the Advisor. SIS will place orders on behalf
of a fund with issuers, underwriters or other brokers and dealers. SIS will not
receive any commission, fee or other remuneration from a fund 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 its 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 the Fund and not all such information is used by the Advisor
in connection with the 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 transaction is legally permissible and advisable.
Money market instruments are normally purchased in principal transactions
directly from the issuer or from an underwriter or market maker. There usually
are no brokerage commissions paid by the Funds for such purchases. During the
last three fiscal years the Funds paid no portfolio brokerage commissions.
Purchases from underwriters will include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market makers
will include the spread between the bid and asked prices.
There are normally no brokerage commissions paid by the Funds for such purchases
and none were paid by Money Market Fund, Government Money Fund or Tax-Free Money
Fund since they commenced operations.
PURCHASE AND REDEMPTION OF SHARES
Purchase of Shares
Shares of each Fund are sold at their net asset value next determined after an
order and payment are received in the form described in the Funds' prospectus.
There is no sales charge. The minimum initial investment in any Fund is $1,000
($250 for IRAs), $10,000 for a Zurich MoneyPLUS Account and the minimum
subsequent investment is $100 ($50 for IRAs) but such minimum amounts may be
changed at any time. See the prospectus for certain exceptions to these
minimums. The Funds may waive the minimum for purchases by trustees, directors,
officers or employees of the Trust or Scudder Kemper and its affiliates and the
$3 monthly fee assessed on accounts below $1,000. Since each Fund will be
investing in instruments that normally require immediate payment in Federal
Funds (monies credited to a bank's account with its regional Federal Reserve
Bank), each Fund has adopted procedures for the convenience of its shareholders
and to ensure that each Fund receives investable funds. An order for the
purchase of shares that is accompanied by a check drawn on a foreign bank (other
than a check drawn on a Canadian bank in U.S. Dollars) will not be considered in
proper form and will not be processed unless and until the Fund determines that
it has received payment of the proceeds of the check. The time required for such
a determination will vary and cannot be determined in advance.
If shares of a Fund to be redeemed were purchased by check or through certain
Automated Clearing House ("ACH") transactions, the Fund 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 the Fund of the purchase amount. Shareholders may not use expedited
redemption procedures (wire transfer or Redemption Check) until the shares being
redeemed have been owned for at least 10 days, and shareholders may not use such
procedures to redeem shares held in certificated form. There is no delay when
shares being redeemed were purchased by wiring Federal Funds.
Orders for purchase of shares of a Fund received by wire transfer in the form of
Federal Funds will be effected at the next determined net asset value. Shares
purchased by wire will receive (i) that day's dividend if effected at or prior
to the 1:00 p.m. Central time net asset value determination for Money Market
Fund and Government Money Fund
13
<PAGE>
and at or prior to the 11:00 a.m. Central time net asset value determination for
Tax-Free Money Fund otherwise dividends for the next business day if effected at
the 3:00 p.m. Central time net asset value determination. Orders processed
through dealers or other financial services firms via Fund/SERV will be effected
at the 3:00 p.m. Central time net asset value effective on the trade date. These
purchases will begin earning dividends the calendar day following the payment
date.
Orders for purchase accompanied by a check or other negotiable bank draft will
be accepted and effected as of 3:00 p.m. Central time on the next business day
following receipt and such shares will receive the dividend for the next
calendar day following the day the purchase is effected. If an order is
accompanied by a check drawn on a foreign bank, funds must normally be collected
on such check before shares will be purchased.
If payment is wired in Federal Funds, the payment should be directed to Zurich
Money Funds: United Missouri Bank of Kansas City, N.A. (ABA #1010-0069-5) Zurich
Money Market Fund: #98-0103-346-8, or Zurich Government Money Fund:
98-0116-259-4 or, Zurich Tax-Free Money Fund: 98-0001-577-6.
Redemption of Shares
Upon receipt by the Shareholder Service Agent of a request for redemption in
proper form, shares will be redeemed by a Fund at the applicable net asset value
as described in the Funds' prospectus. If processed at 3:00 p.m. Central time,
the shareholders will receive that day's dividend. A shareholder may elect to
use either the regular or expedited redemption procedures. Shareholders who
redeem shares of a Fund will receive the net asset value of such shares and all
declared but unpaid dividends on such shares.
The Funds may suspend the right of redemption or delay payment more than seven
days (a) during any period when the New York Stock Exchange ("Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of a Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of its net assets, or (c) for such other periods as
the Securities and Exchange Commission may by order permit for the protection of
the Funds' shareholders.
Although it is each Fund's present policy to redeem in cash, if the Board of
Trustees determines that a material adverse effect would be experienced by the
remaining shareholders if payment were made wholly in cash, the Trust will pay
the redemption price in part by a distribution of portfolio securities in lieu
of cash, in conformity with the applicable rules of the Securities and Exchange
Commission, taking such securities at the same value used to determine net asset
value, and selecting the securities in such manner as the Board of Trustees may
deem fair and equitable. If such a distribution occurs, shareholders receiving
securities and selling them could receive less than the redemption value of such
securities and in addition could incur certain transaction costs. Such a
redemption would not be as liquid as a redemption entirely in cash. The Trust
has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which
the Trust is obligated to redeem shares of a Fund solely in cash up to the
lesser of $250,000 or 1% of the net assets of the Fund during any 90-day period
for any one shareholder of record.
Regular Redemptions. When shares are held for the account of a shareholder by
the Trust's transfer agent, the shareholder may redeem them by sending a written
request with signatures guaranteed to Kemper Service Company, P.O. Box 219557,
Kansas City, Missouri 64121-9557. 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.
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<PAGE>
Telephone Redemptions. If the proceeds of the redemption are $50,000 or less and
the proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor, guardian and custodian account
holders, provided the trustee, executor guardian or custodian is named in the
account registration. Other institutional account holders may exercise this
special privilege of redeeming shares by telephone request or written request
without signature guarantee subject to the same conditions as individual account
holders and subject to the limitations on liability, 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. Shares purchased by check or through certain ACH
transactions 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 shares by telephone request or by written request without
a signature guarantee may not be used to redeem shares held in certificate 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.
Each Fund reserves the right to terminate or modify this privilege at any time.
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 can be redeemed and proceeds sent by a federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to 11:00 a.m. Central time will result in shares
being redeemed that day and normally the proceeds will be sent to the designated
account that day. 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. A Fund is not responsible for the efficiency of the
federal wire system or the account holder's financial services firm or bank.
Each Fund currently does 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. 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 a Portfolio were purchased. Shares
purchased by check or through certain ACH transactions may not be redeemed by
wire transfer until the shares have been owned for at least 10 days. Account
holders may not use this procedure to redeem shares held in certificate form.
During periods when it is difficult to contact the Shareholder Service Agent by
telephone, it may be difficult to use the expedited wire transfer redemption
privilege. Each Portfolio reserves the right to terminate or modify this
privilege at any time.
Redemptions By Draft. Upon request, shareholders will be provided with drafts to
be drawn on a Fund ("Redemption Checks"). These Redemption Checks may be made
payable to the order of any person for not more than $5 million. Shareholders
should not write Redemption Checks in an amount less than $500 since a $10
service fee will be charged as described below. When a Redemption Check is
presented for payment, a sufficient number of full and fractional shares in the
shareholder's account will be redeemed as of the next determined net asset value
to cover the amount of the Redemption Check. This will enable the shareholder to
continue earning dividends until a Fund receives the Redemption Check. A
shareholder wishing to use this method of redemption must complete and file an
Account Application which is available from each Fund or firms through which
shares were purchased. Redemption Checks should not be used to close an account
since the account normally includes accrued but unpaid dividends. Each Fund
reserves the right to terminate or modify this privilege at any time. This
privilege may not be available through some firms that distribute shares of each
Fund. In addition, firms may impose minimum balance requirements in order to
offer this feature. Firms may also impose fees to investors for this privilege
or establish variations of minimum check amounts if approved by each Fund.
Unless one signer is authorized on the Account Application, Redemption Checks
must be signed by all account holders. Any change in the signature authorization
must be made by written notice to the Shareholder Service Agent. Shares
purchased by check or through certain ACH transactions may not be redeemed by
Redemption Check until the shares have been on a Portfolio's books for at least
10 days. Shareholders may not use this procedure to redeem shares held in
certificate form. Each Fund reserves the right to terminate or modify this
privilege at any time.
15
<PAGE>
A Fund may refuse to honor Redemption Checks whenever the right of redemption
has been suspended or postponed, or whenever the account is otherwise impaired.
A $10 service fee will be charged when a Redemption Check is presented to redeem
Portfolio shares in excess of the value of a Fund account or in an amount less
than $500; when a Redemption Check is presented that would require redemption of
shares that were purchased by check or certain ACH transactions within 10 days;
or when "stop payment" of a Redemption Check is requested.
Special Features. Certain firms that offer Shares of a Fund also provide special
redemption features through charge or debit cards and checks that redeem Fund
Shares. Various firms have different charges for their services. Shareholders
should obtain information from their firm with respect to any special redemption
features, applicable charges, minimum balance requirements and special rules of
the cash management program being offered.
DIVIDENDS, NET ASSET VALUE AND TAXES
Dividends. Dividends are declared daily and paid monthly. Shareholders will
receive dividends in additional shares of the same Fund unless they elect to
receive cash. Dividends will be reinvested monthly at the net asset value
normally on the 25th of each month if a business day, otherwise on the prior
business day. The Funds will pay shareholders who redeem their entire accounts
all unpaid dividends at the time of redemption not later than the next dividend
payment date.
Each Fund calculates its dividends based on its daily net investment income. For
this purpose, the net investment income of a Fund consists of (a) accrued
interest income plus or minus amortized discount or premium (excluding market
discount for Tax-Free Money Fund), (b) plus or minus all short-term realized
gains and losses on portfolio assets and (c) minus accrued expenses allocated to
the Fund. Expenses of the Funds are accrued each day. While each Fund's
investments are valued at amortized cost, there will be no unrealized gains or
losses on portfolio securities. However, should the net asset value of a Fund
deviate significantly from market value, the Board of Trustees could decide to
value the portfolio securities at market value and then unrealized gains and
losses would be included in net investment income above.
Net Asset Value. As described in the prospectus, each Fund values its portfolio
instruments at amortized cost, which does not take into account unrealized
capital gains or losses. This involves initially valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
Calculations are made to compare the value of a Fund's investments valued at
amortized cost with market values. Market valuations are obtained by using
actual quotations provided by market makers, estimates of market value, or
values obtained from yield data relating to classes of money market instruments
published by reputable sources at the mean between the bid and asked prices for
the instruments. If a deviation of of 1% or more were to occur between the net
asset value per share calculated by reference to market values and a Fund's
$1.00 per share net asset value, or if there were any other deviation that the
Board of Trustees of the Trust believed would result in a material dilution to
shareholders or purchasers, the Board of Trustees would promptly consider what
action, if any, should be initiated. If a Fund's net asset value per share
(computed using market values) declined, or were expected to decline, below
$1.00 (computed using amortized cost), the Board of Trustees of the Trust might
temporarily reduce or suspend dividend payments in an effort to maintain the net
asset value at $1.00 per share. As a result of such reduction or suspension of
dividends or other action by the Board of Trustees, an investor would receive
less income during a given period than if such a reduction or suspension had not
taken place. Such action could result in investors receiving no dividends for
the period during which they held shares and receiving, upon redemption, a price
per share lower than that which they paid. On the other hand, if a Fund's net
asset value per share (computed using market values) were to increase, or were
anticipated to increase, above $1.00 (computed using amortized cost), the Board
of Trustees of the Trust might supplement dividends in an effort to maintain the
net asset value at $1.00 per share.
TAXES
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<PAGE>
Taxable Funds. Each Fund intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code (the "Code")
and, if so qualified, will not be subject to Federal income taxes to the extent
its earnings are distributed. Dividends derived from interest and short-term
capital gains are taxable as ordinary income whether received in cash or
reinvested in additional shares. Long-term capital gains distributions, if any,
are taxable as long-term capital gains regardless of the length of time
shareholders have owned their shares. Dividends from these Funds do not qualify
for the dividends received deduction available to corporate shareholders.
Dividends declared in October, November or December to shareholders of record as
of a date in one of those months and paid during the following January are
treated as paid on December 31 of the calendar year in which declared for
Federal income tax purposes. A Fund may adjust its schedule for dividend
reinvestment for the month of December to assist in complying with the reporting
and minimum distribution requirements contained in the Code.
Tax-Free Money Fund. Tax-Free Money Fund intends to continue to qualify under
the Code as a regulated investment company and, if so qualified, will not be
liable for Federal income taxes to the extent its earnings are distributed. This
Portfolio also intends to meet the requirements of the Code applicable to
regulated investment companies distributing tax-exempt interest dividends and,
accordingly, dividends representing net interest received on Municipal
Securities will not be included 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. 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 Tax-Free Money are
to be treated as interest on private activity bonds in proportion to the
interest income the Fund receives from private activity bonds, reduced by
allowable deductions. For the 1999 calendar year 19% of the net interest income
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
other 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 Tax-Free Money 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 Tax-Free Money Fund, and 50% of Social Security
benefits.
The tax exemption of dividends from Tax-Free Money Fund for Federal income tax
purposes does not necessarily result in exemption under the income or other tax
laws of any state or local taxing authority. The laws of the several states and
local taxing authorities vary with respect to the taxation of such income and
shareholders of the Fund are advised to consult their own tax advisers as to the
status of their accounts under state and local tax laws.
Each Fund is required by law to withhold 31% of taxable dividends paid to
certain shareholders who do not furnish a correct taxpayer identification number
(in the case of individuals, a social security number) and in certain other
circumstances. Trustees of qualified retirement plans and 403(b)(7) accounts are
required by law to withhold 20% of the taxable portion of any distribution that
is eligible to be "rolled over." The 20% withholding requirement does not apply
to distributions from IRAs or any part of a distribution that is transferred
directly to another qualified retirement plan, 403(b)(7) account, or IRA.
Shareholders should consult their tax advisers regarding the 20% withholding
requirement.
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<PAGE>
Interest on indebtedness which is incurred to purchase or carry shares of a
mutual fund portfolio which distributes exempt-interest dividends during the
year is not deductible for federal income tax purposes. Further, Tax-Free Money
Fund may not be an appropriate investment for persons who are `substantial
users' of facilities financed by industrial development bonds held by Tax-Free
Money Fund or are `related persons' to such users; such persons should consult
their tax advisers before investing in Tax-Free Money Fund.
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 Tax-Free Money
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.
Shareholders normally will receive monthly confirmations of dividends and of
purchase and redemption transactions except that confirmations of dividend
reinvestment for IRAs and other fiduciary accounts for which Investors Fiduciary
Trust Company serves as trustee will be sent quarterly. Firms may provide
varying arrangements with their clients with respect to confirmations. Tax
information will be provided annually. 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.
PERFORMANCE
From time to time, the Trust may advertise several types of performance
information for the Funds, including "yield", "effective yield" and, for
Tax-Free Money Fund only, "tax equivalent yield." Each of these figures is based
upon historical earnings and is not representative of the future performance of
the Fund. The yield of a Fund refers to the net investment income generated by a
hypothetical investment in the Fund over a specific seven-day period. This net
investment income is then annualized, which means that the net investment income
generated during the seven-day period is assumed to be generated each week over
an annual period and is shown as a percentage of the investment. The effective
yield is calculated similarly, but the net investment income earned by the
investment is assumed to be compounded when annualized. The effective yield will
be slightly higher than the yield due to this compounding effect.
Each Fund's seven-day yield is computed in accordance with a standardized method
prescribed by rules of the Securities and Exchange Commission. Under that
method, the yield quotation is based on a seven-day period and is computed for
the Portfolio as follows. The first calculation is net investment income per
share, which is accrued interest on portfolio securities, plus or minus
amortized discount or premium, less accrued expenses. This number is then
divided by the price per share (expected to remain constant at $1.00) at the
beginning of the period ("base period return"). The result is then divided by 7
and multiplied by 365 and the resulting yield figure is carried to the nearest
one-hundredth of one percent. Realized capital gains or losses and unrealized
appreciation or depreciation of investments are not included in the
calculations. Each Fund's effective yield is determined by taking the base
period return (computed as described above) and calculating the effect of
assumed compounding. The formula for the effective yield is: (base period return
+ 1)^365/7-1.
Each Fund's seven-day effective yield is determined by taking the base period
return (computed as described above) and calculating the effect of assumed
compounding. The formula for the seven-day effective yield is: (seven-day base
period return +1)365/7 - 1. Each Fund may also advertise a thirty-day effective
yield in which case the formula is (thirty-day base period return +1)365/30 - 1.
The tax equivalent yield of Tax-Free Money Fund is computed by dividing that
portion of the Fund's yield (computed as described above) which is tax-exempt by
(one minus the stated Federal income tax rate) and adding the product to that
portion, if any, of the yield of the Fund that is not tax-exempt. For additional
information concerning tax-exempt yields, see "Tax-Free versus Taxable Yield"
below.
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<PAGE>
Average annual total return ("AATR") is found for a specific period by first
taking a hypothetical $1,000 investment ("initial investment") on the first day
of the period and computing the "redeemable value" of that investment at the end
of the period. The redeemable value is then divided by the initial investment,
and this quotient is taken to the Nth root (N representing the number of years
in the period) and 1 is subtracted from the result, which is then expressed as a
percentage. The calculation assumes that all dividends have been reinvested at
net asset value on the reinvestment dates.
Total return is not calculated according to a standard formula, except when
calculated for the "Financial Highlights" table in the financial statements.
Total return is calculated similarly to AATR but is not annualized. It may be
shown as a percentage or the increased dollar value of the hypothetical
investment over the period.
All performance information shown below is for periods ended July 31,
2000.
<TABLE>
<CAPTION>
*Tax-
Effective Equivalent Total Total Total
Yield Yield Yield AATR AATR AATR Return Return Return
Fund 7 days 7 days 7 days 1 yr. 5 yrs. 10 yrs. 1 yr. 5 yrs. 10 yrs.
---- ------ ------ ------ ----- ------ -------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market 6.32% 6.51 N/A 5.78 5.33 4.97 5.78 29.65 62.46
Government Money 6.24% 6.43 N/A 5.59 5.26 4.92 5.59 29.22 61.71
Tax-Free Money 3.96% 4.05 6.31 3.58 3.37 3.37 3.58 18.02 39.33
</TABLE>
* Based upon a marginal federal income tax rate of 37.1%.
Each Fund's yield fluctuates, and the publication of an annualized yield
quotation is not a representation as to what an investment in a Fund will
actually yield for any given future period. Actual yields will depend not
only on changes in interest rates on money market instruments during the
period in which the investment in a Fund is held, but also on such matters
as Fund expenses.
Money market mutual funds allow smaller investors to participate in the money
market and to receive money market yields that previously were available only to
those investors with large sums of money. Prior to the introduction of the first
money market mutual funds, small investors wanting to manage their cash reserves
had a limited choice of bank products available with a predetermined set of
interest rates such as passbook savings accounts and checking accounts.
Currently, there are hundreds of money market funds managing billions of dollars
for millions of investors.
Investors have an extensive choice of money market funds and money market
deposit accounts and the information below may be useful to investors who wish
to compare the past performance of Money Market Fund, Government Money Fund and
Tax-Free Money Fund with that of their competitors. Past performance cannot be a
guarantee of future results.
The performance of the Funds may be compared to that of other mutual funds
tracked by Lipper Analytical Services, Inc. ("Lipper"). Lipper performance
calculations include the reinvestment of all capital gain and income dividends
for the periods covered by the calculations. A Fund's performance also may be
compared to other money market funds reported by IBC Financial Data, Inc.'s
Money Fund Report(R), or Money Market Insight(R), reporting services on money
market funds. As reported by IBC, all investment results represent total return
(annualized results for the period net of management fees and expenses) and one
year investment results are effective annual yields assuming reinvestment of
dividends. From time to time the Funds may include in their sales communications
ranking and rating information received from various organizations, to include
but not be limited to, ratings from Morningstar, Inc. and rankings from Lipper.
A Fund's performance also may be compared on a before or after-tax basis to
various bank products, including the average rate of bank and thrift institution
money market deposit accounts, interest bearing checking accounts and
certificates of deposit as reported in the BANK RATE MONITOR National Index(TM)
of 100 leading bank and thrift
19
<PAGE>
institutions as published by the BANK RATE MONITOR(TM), N. Palm Beach, Florida
33408. The rates published by the BANK RATE MONITOR National Index(TM) are
averages of the personal account rates offered on the Wednesday prior to the
date of publication by 100 large banks and thrifts in the top ten Consolidated
Standard Metropolitan Statistical Areas.
With respect to money market deposit accounts and interest bearing checking
accounts, account minimums range upward from $2,000 in each institution and
compounding methods vary. Interest bearing checking accounts generally offer
unlimited check writing while money market deposit accounts generally restrict
the number of checks that may be written. If more than one rate is offered, the
lowest rate is used. Rates are determined by the financial institution and are
subject to change at any time specified by the institution. Generally, the rates
offered for these products take market conditions and competitive product yields
into consideration when set. Bank products represent a taxable alternative
income producing product. Bank and thrift institution deposit accounts may be
insured. Shareholder accounts in the Funds are not insured. Bank passbook
savings accounts compete with money market mutual fund products with respect to
certain liquidity features but may not offer all of the features available from
a money market mutual fund, such as check writing. Bank passbook savings
accounts normally offer a fixed rate of interest while the yield of the Funds
fluctuates. Bank checking accounts normally do not pay interest but compete with
money market mutual fund products with respect to certain liquidity features
(e.g., the ability to write checks against the account). Bank certificates of
deposit may offer fixed or variable rates for a set term. (Normally, a variety
of terms are available.) Withdrawal of these deposits prior to maturity will
normally be subject to a penalty. In contrast, shares of the Funds are
redeemable at the net asset value (normally, $1.00 per share) next determined
after a request is received, without charge.
Investors may also want to compare a Fund's performance to that of U.S. Treasury
bills or notes because such instruments represent alternative income producing
products. Treasury obligations are issued in selected denominations. Rates of
U.S. Treasury obligations are fixed at the time of issuance and payment of
principal and interest is backed by the full faith and credit of the U.S.
Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Generally, the values of obligations with shorter maturities will
fluctuate less than those with longer maturities. Each Fund's yield will
fluctuate. Also, while each Fund seeks to maintain a net asset value per share
of $1.00, there is no assurance that it will be able to do so.
Tax-Free versus Taxable Yield. You may want to determine which investment --
tax-free or taxable -- will provide you with a higher after-tax return. To
determine the taxable equivalent yield, simply divide the yield from the
tax-free investment by the sum of [1 minus your marginal tax rate]. The tables
below are provided for your convenience in making this calculation for selected
tax-free yields and taxable income levels. These yields are presented for
purposes of illustration only and are not representative of any yield that
Tax-Free Money Fund may generate. Both tables are based upon current law as to
the 1999 federal tax rate schedules.
Taxable Equivalent Yield Table for Persons Whose Adjusted Gross Income is Under
$126,600
<TABLE>
<CAPTION>
Your
Marginal A Tax-Exempt Yield of:
Taxable Income Federal Tax 2% 3% 4% 5% 6% 7%
Single Joint Rate Is Equivalent to a Taxable Yield of:
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$25,751-$62,450 $43,051-$104,050 28.0% 2.78% 4.17% 5.56% 6.94% 8.33% 9.72%
---------------------------------------------------------------------------------------------------------------
Over $62,450 Over $104,050 31.0 2.90% 4.35% 5.80% 7.25% 8.70% 10.14%
---------------------------------------------------------------------------------------------------------------
</TABLE>
Taxable Equivalent Yield Table for Persons Whose Adjusted Gross Income is Over
$126,600*
<TABLE>
<CAPTION>
Your
Marginal A Tax-Exempt Yield of:
Taxable Income Federal Tax 2% 3% 4% 5% 6% 7%
Single Joint Rate Is Equivalent to a Taxable Yield of:
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$62,450-$130,250 $104,051-$158,550 31.9% 2.94% 4.41% 5.87% 7.34% 8.81% 10.28%
20
<PAGE>
---------------------------------------------------------------------------------------------------------------
$130,251-$283,150 $158,551-$283,150 37.1 3.18% 4.77% 6.36% 7.95% 9.54% 11.13%
---------------------------------------------------------------------------------------------------------------
Over $283,150 Over $283,150 40.8 3.38% 5.07% 6.76% 8.45% 10.14% 11.82%
---------------------------------------------------------------------------------------------------------------
</TABLE>
o This table assumes a decrease of $3.00 of itemized deductions for each
$100 of adjusted gross income over $126,600. For a married couple with
adjusted gross income between $186,800 and $309,300 (single between
$126,600 and $247,000), 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%)).
OFFICERS AND TRUSTEES
The officers and trustees of the Trust, their birthdates, their principal
occupations and their affiliations, if any, with the Advisor and KDI, the
principal underwriter, or their affiliates, are as follows:
JOHN W. BALLANTINE (2/16/46), Trustee, 1500 North Lake Shore Drive, Chicago,
Illinois; First Chicago NBD Corporation/The First National Bank of Chicago:
1996-1998 Executive Vice President and Chief Risk Management Officer; 1995-1996
Executive Vice President and Head of International Banking; 1992-1995 Executive
Vice President, Chief Credit and Market Risk Officer.
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.
LINDA C. COUGHLIN (1/1/52), Trustee*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
DONALD L. DUNAWAY (3/8/37), Trustee, 7011 Green Tree Drive, Naples, Florida;
Retired; formerly, Executive Vice President, A.O. Smith Corporation (diversified
manufacturer).
ROBERT B. HOFFMAN (12/11/36), Trustee, 1530 North State Parkway, Chicago,
Illinois; Chairman, Harnischfeger Industries, Inc. (machinery for the mining and
paper industries); formerly, 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.
THOMAS W. LITTAUER (4/26/55), Chairman, Trustee and Vice President*, Two
International Place, Boston, Massachusetts; Managing Director, Advisor;
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.
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 (Tax), U.S. Department of Justice; Director, Bethlehem Steel
Corp.
WILLIAM P. SOMMERS (7/22/33), Trustee, 24717 Harbour View Drive, Ponte Vedra
Beach, Florida; Consultant and Director, SRI Consulting; prior thereto,
President and Chief Executive Officer, SRI International (research and
development); prior thereto, Executive Vice President, Iameter (medical
information and educational service provider); prior thereto, Senior Vice
President and Director, Booz, Allen & Hamilton Inc. (management consulting
firm); Director, PSI Inc., Evergreen Solar, Inc. and Litton Industries.
MARK S. CASADY (9/21/60), President*, 345 Park Avenue, New York, New York;
Managing Director, Advisor; formerly, Institutional Sales Manager of an
unaffiliated mutual fund distributor.
21
<PAGE>
PHILIP J. COLLORA (11/15/45), Vice President and Secretary*, 222 South Riverside
Plaza, Chicago, Illinois; Senior Vice President, Advisor.
KATHRYN L. QUIRK (12/3/52), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Advisor.
FRANK J. RACHWALSKI, JR. (3/26/45), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Advisor.
LINDA J. WONDRACK (9/12/64), Vice President*, Two International Place, Boston,
Massachusetts; Senior Vice President, Advisor.
JOHN R. HEBBLE (6/27/58), Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Advisor.
BRENDA LYONS (2/21/63), Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Advisor.
CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Senior Vice President, Advisor; 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, Advisor; 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).
* Interested persons of the Funds as defined in the 1940 Act.
As of October 31, 2000, the officers and trustees of the Trust, as a group,
owned less than 1% of the outstanding shares of each Fund and no person owned of
record 5% or more of the outstanding shares of any Fund.
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 the
Trust's 2000 fiscal year except that the information in the last column is for
calendar year 1999.
Total Compensation
From Trust and
Aggregate Compensation Fund Complex
Name of Trustee From Trust Paid to Trustees***
--------------- ---------- -------------------
John W. Ballantine* $7,800 $57,200
Lewis A. Burnham 8,000 89,300
Donald L. Dunaway* 9,200 97,000
Robert B. Hoffman 8,600 87,800
Donald R. Jones 8,600 87,800
Shirley D. Peterson 7,800 82,800
William P. Sommers 7,800 82,800
* Mr. Ballantine was elected to the Board on May 18, 1999.
** Pursuant to deferred compensation agreements with the Trust, deferred
amounts accrue interest monthly at a rate equal to the yield of Zurich
Money Funds -- Zurich Money Market Fund. Total deferred fees (including
interest thereon and interest accrued for all prior fiscal years)
accrued through July 31, 2000 and payable from the Trust to Mr. Dunaway
are $51,200.
22
<PAGE>
*** Includes compensation during 1999 for service on 25 funds managed by
Scudder Kemper with 43 fund portfolios. Each trustee currently serves
as a trustee of 26 funds managed by Scudder Kemper with 48 fund
portfolios.
As of October 31, 2000, the officers and trustees of the Trust, as a group,
owned less than 1% of the outstanding shares of each Fund and no person owned of
record 5% or more of the outstanding shares of any Fund.
Code of Ethics. The Funds, the Advisor and principal underwriter have each
adopted codes of ethics under rule 17j-1 of the Investment Company Act. Board
members, officers of the Funds and employees of the Advisor and principal
underwriter are permitted to make personal securities transactions, including
transactions in securities that may be purchased or held by the Funds, subject
to requirements and restrictions set forth in the applicable Code of Ethics. The
Advisor's Code of Ethics contains provisions and requirements designed to
identify and address certain conflicts of interest between personal investment
activities and the interests of the Funds. Among other things, the Advisor's
Code of Ethics prohibits certain types of transactions absent prior approval,
imposes time periods during which personal transactions may not be made in
certain securities, and requires the submission of duplicate broker
confirmations and quarterly reporting of securities transactions. Additional
restrictions apply to portfolio managers, traders, research analysts and others
involved in the investment advisory process. Exceptions to these and other
provisions of the Advisor's Code of Ethics may be granted in particular
circumstances after review by appropriate personnel.
SPECIAL FEATURES
Automatic Withdrawal Program. If you own $5,000 or more of a Fund's shares you
may provide for the payment from your account of any requested dollar amount to
be paid to you or your designated payee monthly, quarterly, semi-annually or
annually. The $5,000 minimum account size is not applicable to Individual
Retirement Accounts. Dividend distributions will be automatically reinvested at
net asset value. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested, redemptions for the purpose of making such payments may reduce or
even exhaust the account. Additionally, there is a $3/month if your account
balance is below $1,000 for the last 30 days. The program may be amended on
thirty days notice by the Fund and may be terminated at any time by the
shareholder or the Funds. The minimum automatic withdrawal amount is $1,000 and
the shareholder will be charged a $5.00 fee for each withdrawal.
Tax-Sheltered Retirement Programs. The Shareholder Service Agent provides
retirement plan services and documents and can establish your account in any of
the following types of retirement plans:
o Individual Retirement Accounts (IRAs) with IFTC as custodian. This
includes Savings Incentive Match Plan for Employees of Small Employers
("SIMPLE"), IRA accounts and Simplified Employee Pension Plan (SEP) IRA
accounts and prototype documents.
o 403(b) Custodial Accounts with IFTC as custodian. This type of plan is
available to employees of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may be
adopted by employers. The maximum contribution per participant is the
lesser of 25% of compensation or $30,000.
Brochures describing the above plans as well as providing model defined benefit
plans, target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and
materials for establishing them are available from the Shareholder Service Agent
upon request. The brochures for plans with State Street Bank and Trust as
custodian describe the current fees payable to State Street Bank and Trust for
its services as custodian. Investors should consult with their own tax advisers
before establishing a retirement plan.
23
<PAGE>
SHAREHOLDER RIGHTS
The Trust generally is not required to hold meetings of its shareholders. Under
the Agreement and Declaration of Trust of the 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 his
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) the 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 the 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 provides that the presence at a shareholder meeting in
person or by proxy of at least 30% of the shares entitled to vote on a matter
shall constitute a quorum. Thus, a meeting of shareholders of the 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 auditors. Some
matters requiring a larger vote under the Declaration of 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 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 the
Trust. The Declaration of 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 provides for
indemnification out of Trust property for all losses and expenses of any
shareholder held personally liable for the obligations of the Trust and the
Trust will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by Scudder Kemper remote
and not material since it is limited to circumstances in which a disclaimer is
inoperative and the Trust itself is unable to meet its obligations.
24
<PAGE>
APPENDIX -- RATINGS OF INVESTMENTS
COMMERCIAL PAPER RATINGS
A-1, A-2 and Prime-1, Prime-2 Commercial Paper Ratings
Commercial paper rated by Standard & Poor's Corporation has the following
characteristics: Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. The reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determine whether the
issuer's commercial paper is rated A-1, A-2 or A-3.
The ratings Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investors Service, Inc. Among the factors considered by it
in assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations. Relative
strength or weakness of the above factors determines whether the issuer's
commercial paper is rated Prime-1, 2 or 3.
MIG-1 and MIG-2 Municipal Notes
Moody's ratings for state and municipal notes and other short-term loans will be
designated Moody's Investment Grade (MIG). This distinction is in recognition of
the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Loans designated MIG-1 are of the
best quality, enjoying strong protection from established cash flows of funds
for their servicing or from established and broad-based access to the market for
refinancing, or both. Loans designated MIG-2 are of high quality, with margins
of protection ample although not so large as in the preceding group.
STANDARD & POOR'S CORPORATION BOND RATINGS
AAA. This is the highest rating assigned by Standard & Poor's Corporation to a
debt obligation and indicates an extremely strong capacity to pay principal and
interest.
AA. Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A. Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
MOODY'S INVESTORS SERVICE, INC. BOND RATINGS
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
25
<PAGE>
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
26
