Filed electronically with the Securities and Exchange Commission
on July 30, 1997
File No. 2-83498
File No. 811-3729
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
--------
Post-Effective Amendment No. 16
--------
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 18
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Scudder California Tax Free Trust
---------------------------------
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
--------------
Thomas F. McDonough
Scudder, Stevens & Clark, Inc.
Two International Place, Boston, MA 02110-4103
----------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
--------
on __________ pursuant to paragraph (b)
--------
60 days after filing pursuant to paragraph (a)(i)
--------
X on August 1, 1997 pursuant to paragraph (a)(i)
--------
75 days after filing pursuant to paragraph (a)(ii)
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on ___________ pursuant to paragraph (a)(ii) of Rule 485
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If appropriate, check the following:
this post-effective amendment designates a new effective date
-------- for a previously filed post-effective amendment
The Registrant has filed a declaration registering an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. The Registrant filed the notice required by Rule 24f-2 for its most
recent fiscal year on May 30, 1996.
<PAGE>
SCUDDER CALIFORNIA TAX FREE MONEY FUND
AND
SCUDDER CALIFORNIA TAX FREE FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
---------------------------
PART A
- ------
<TABLE>
<CAPTION>
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
<S> <C> <C>
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information DISTRIBUTION AND PERFORMANCE INFORMATION
4. General Description of SCUDDER CALIFORNIA TAX FREE MONEY FUND--Investment objectives
Registrant and policies
SCUDDER CALIFORNIA TAX FREE FUND--Investment objective and
policies
WHY INVEST IN THESE FUNDS?
ADDITIONAL INFORMATION ABOUT POLICIES AND INVESTMENTS
FUND ORGANIZATION
5. Management of the Fund FINANCIAL HIGHLIGHTS
A MESSAGE FROM SCUDDER'S CHAIRMAN
FUND ORGANIZATION--Investment adviser, Transfer agent
SHAREHOLDER BENEFITS--A team approach to investing
TRUSTEES AND OFFICERS
5A. Management's Discussion of NOT APPLICABLE
Fund Performance
6. Capital Stock and Other DISTRIBUTION AND PERFORMANCE INFORMATION--Dividends and capital
Securities gains distributions
FUND ORGANIZATION
TRANSACTION INFORMATION--Tax Information
SHAREHOLDER BENEFITS--SAIL(TM) (Scudder Automated Information
Line), Dividend reinvestment plan, T.D.D. service for the
hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of Securities Being PURCHASES
Offered FUND ORGANIZATION--Underwriter
TRANSACTION INFORMATION--Purchasing shares, Share price, Processing time,
Minimum balances, Third party transactions
SHAREHOLDER BENEFITS--Dividend reinvestment plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming shares, Tax identification
number, Minimum balances
9. Pending Legal Proceedings NOT APPLICABLE
Cross Reference-Page 1
<PAGE>
PART B
- ------
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and ORGANIZATION OF THE FUNDS
History
13. Investment Objectives and THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
Policies INVESTMENT RESTRICTIONS
14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION
15. Control Persons and Principal TRUSTEES AND OFFICERS
Holders of Securities
16. Investment Advisory and Other INVESTMENT ADVISER
Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts, Other Information
17. Brokerage Allocation and PORTFOLIO TRANSACTIONS--Brokerage Commissions, Portfolio Turnover
Other Practices
18. Capital Stock and Other ORGANIZATION OF THE FUNDS
Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
19. Purchase, Redemption and PURCHASES
Pricing of Securities Being EXCHANGES AND REDEMPTIONS
Offered FEATURES AND SERVICES OFFERED BY THE FUNDS--Dividend and capital
gain distribution options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of Performance PERFORMANCE INFORMATION
Data
23. Financial Statements FINANCIAL STATEMENTS
</TABLE>
Cross Reference-Page 2
<PAGE>
This combined prospectus sets forth concisely the information about Scudder
California Tax Free Money Fund and Scudder California Tax Free Fund, each a
series of Scudder California Tax Free Trust, an open-end management investment
company, that a prospective investor should know before investing. Please retain
it for future reference.
Shares of the Funds are not insured or guaranteed by the U.S. Government.
Scudder California Tax Free Money Fund seeks to maintain a constant net asset
value of $1.00 per share but there can be no assurance that the stable net asset
value will be maintained.
If you require more detailed information, a Statement of Additional Information
for the Funds dated August 1, 1997, as amended from time to time, may be
obtained without charge by writing Scudder Investor Services, Inc., Two
International Place, Boston, MA 02110-4103 or calling 1-800-225-2470. The
Statement, which is incorporated by reference into this prospectus, has been
filed with the Securities and Exchange Commission and is available along with
other related materials on the SEC's Internet Web site (http://www.sec.gov).
Because of its focus on California tax-exempt investments, the Scudder
California Tax Free Money Fund may have to concentrate a significant percentage
of its assets in a single issuer. An investment in this Fund may be riskier than
an investment in a money market fund that does not focus on investments from a
single state.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS COMBINED PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Contents--see page 5.
- --------------------------------
NOT FDIC - MAY LOSE VALUE
INSURED NO BANK GUARANTEE
- --------------------------------
SCUDDER [logo]
Scudder California
Tax Free Money Fund
- ------------------------------
Scudder California
Tax Free Fund
Prospectus
August 1, 1997
Two pure no-load(TM) (no sales charges) mutual fund series which seek to provide
double tax-free income, exempt from both California state personal income tax
and regular federal income tax.
<PAGE>
Expense information
How to compare a Scudder pure no-load(TM) fund
This information is designed to help you understand the various costs and
expenses of investing in Scudder California Tax Free Money Fund and Scudder
California Tax Free Fund (the "Funds"). By reviewing this table and those in
other mutual funds' prospectuses, you can compare each Fund's fees and expenses
with those of other funds. With Scudder's pure no-load(TM) funds, you pay no
commissions to purchase or redeem shares, or to exchange from one fund to
another. As a result, all of your investment goes to work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in either Fund for various transactions.
<TABLE>
<CAPTION>
Scudder California Scudder California
Tax Free Money Fund Tax Free Fund
------------------- -------------
<C> <C> <C>
Sales commissions to purchase shares (sales load) NONE NONE
Commissions to reinvest dividends NONE NONE
Redemption fees NONE* NONE*
Fees to exchange shares NONE NONE
2) Annual Fund operating expenses: Expenses paid by either Fund before it
distributes its net investment income, expressed as a percentage of its
average daily net assets for the fiscal year ended March 31, 1997.
Investment management fees (after waiver, if applicable) 0.31%** 0.62%
12b-1 fees NONE NONE
Other expenses 0.29% 0.16%
----- -----
Total Fund operating expenses (after waiver, if applicable) 0.60%** 0.78%
===== =====
Example
Based on the levels of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by each Fund before it distributes its
net investment income to shareholders. (As noted above, the Funds have no
redemption fees of any kind.)
One year $ 6 $ 8
Three years 19 25
Five years 33 43
Ten years 75 97
</TABLE>
See "Fund organization--Investment adviser" for further information about the
investment management fees. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than those
shown.
* You may redeem by writing or calling the Funds, or by Write-A-Check for
Scudder California Tax Free Money Fund. If you wish to receive redemption
proceeds via wire, there is a $5 wire service fee. For additional
information, please refer to "Transaction information--Redeeming shares."
** Until July 31, 1998, the Adviser has agreed to waive a portion of its fee
for Scudder California Tax Free Money Fund to the extent necessary so that
the total annualized expenses of the Fund do not exceed 0.60% of average
daily net assets. If the Adviser had not agreed to waive a portion of its
fee, Fund expenses would have been: investment management fee 0.50%, other
expenses 0.29% and total Fund operating expenses 0.79% for the fiscal year
ended March 31, 1997.
2
<PAGE>
Financial highlights
Scudder California Tax Free Money Fund
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited
financial statements.
If you would like more detailed information concerning the Fund's
performance, a complete portfolio listing and audited financial statements
are available in the Fund's Annual Report dated March 31, 1997 and
may be obtained without charge by writing or calling Scudder Investor
Services, Inc.
<TABLE>
<CAPTION>
For the Period
May 28, 1987
(commencement of
operations) to
Years Ended March 31, March 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning ---------------------------------------------------------------------------------------------------
of period ............... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------------------------------------------------------------------------------------------------
Net investment income ...... .028 .032 .027 .019 .023 .035 .047 .052 .049 .035
Distributions from net
investment income ....... (.028) (.032) (.027) (.019) (.023) (.035) (.047) (.052) (.049) (.035)
Net asset value, end of ---------------------------------------------------------------------------------------------------
period .................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) ....... 2.87 3.28 2.72 1.92 2.35 3.54 4.79 5.35 5.04 3.86**
Ratios and Supplemental Data
Net assets, end of period
($ millions) ............ 69 67 64 72 56 58 64 65 64 53
Ratio of operating
expenses, net to average
daily net assets (%) .... .60 .60 .60 .60 .60 .60 .65 .75 .67 .45*
Ratio of operating
expenses before
expense reductions (%) .. .79 .81 .84 .90 .86 .88 .92 .90 .84 1.32*
Ratio of net investment
income to average daily
net assets (%) .......... 2.83 3.23 2.68 1.90 2.33 3.50 4.68 5.22 4.98 4.41*
</TABLE>
(a) Total returns would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
3
<PAGE>
Financial highlights
Scudder California Tax Free Fund
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited
financial statements.
If you would like more detailed information concerning the Fund's
performance, a complete portfolio listing and audited financial statements
are available in the Fund's Annual Report dated March 31, 1997 and
may be obtained without charge by writing or calling Scudder Investor
Services, Inc.
<TABLE>
<CAPTION>
Years Ended March 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of --------------------------------------------------------------------------------------------------
period ..................... $ 10.36 $ 10.07 $ 10.02 $ 11.05 $ 10.60 $ 10.41 $ 10.29 $ 10.26 $ 9.99 $ 11.18
--------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income ......... .52 .51 .51 .53 .59 .61 .63 .65 .68 .69
Net realized and unrealized
gain (loss) on investment
transactions ............... .04 .29 .14 (.35) .94 .47 .21 .22 .27 (.93)
Total from investment --------------------------------------------------------------------------------------------------
operations ................. .56 .80 .65 .18 1.53 1.08 .84 .87 .95 (.24)
--------------------------------------------------------------------------------------------------
Less distributions:
From net investment income .... (.52) (.51) (.51) (.53) (.59) (.61) (.63) (.65) (.68) (.69)
From net realized gains on
investments ................ (.01) -- (.09) (.63) (.49) (.28) (.09) (.19) -- (.26)
In excess of net realized gains -- -- -- (.05) -- -- -- -- -- --
--------------------------------------------------------------------------------------------------
Total distributions ........... (.53) (.51) (.60) (1.21) (1.08) (.89) (.72) (.84) (.68) (.95)
--------------------------------------------------------------------------------------------------
Net asset value, end of --------------------------------------------------------------------------------------------------
period ..................... $ 10.39 $ 10.36 $ 10.07 $ 10.02 $ 11.05 $ 10.60 $ 10.41 $ 10.29 $ 10.26 $ 9.99
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (%) .............. 5.44 8.01 6.75 1.30 15.13 10.74 8.53 8.62 9.80 (1.70)
Ratios and Supplemental Data
Net assets, end of period
($ millions) ............... 289 293 294 325 309 242 208 193 171 153
Ratio of operating expenses
to average daily net
assets (%) ................. .78 .77 .80 .78 .79 .81 .84 .83 .89 .88
Ratio of net investment income
to average daily net assets
(%) ........................ 4.98 4.88 5.18 4.85 5.42 5.79 6.13 6.23 6.71 6.95
Portfolio turnover rate (%).... 70.8 49.2 87.3 126.5 208.6 143.0 170.6 70.4 158.9 52.3
</TABLE>
4
<PAGE>
A message from Scudder's chairman
Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. Today, we manage in excess of $115 billion for many private accounts and
over 50 mutual fund portfolios. We manage the mutual funds in a special program
for the American Association of Retired Persons, as well as the fund options
available through Scudder Horizon Plan, a tax-advantaged variable annuity. We
also advise The Japan Fund and nine closed-end funds that invest in countries
around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to all shareholders include toll-free access to the
professional service representatives of Scudder Investor Relations, easy
exchange among funds, shareholder reports, informative newsletters and the
walk-in convenience of Scudder Funds Centers.
All Scudder mutual funds are pure no-load(TM). This means you pay no commissions
to purchase or redeem your shares or to exchange from one fund to another. There
are no "12b-1" fees either, which many other funds now charge to support their
marketing efforts. All of your investment goes to work for you. We look forward
to welcoming you as a shareholder.
/s/Daniel Pierce
The Funds
o seek to provide double tax-free income, exempt from both California state
personal income tax and regular federal income tax
o active portfolio management by Scudder's professional team of credit analysts
and municipal bond market experts
o dividends declared daily and paid monthly
Scudder California Tax Free Money Fund
o seeks to maintain a constant share price of $1.00 and investment in high
quality, short-term municipal securities tax-exempt in California
Scudder California Tax Free Fund
o invests primarily in long-term investment-grade municipal securities
tax-exempt in California
Contents
Why invest in these Funds? 6
Summary of important features 7
Tax-exempt vs. taxable income 8
Scudder California Tax Free Money Fund 9
Scudder California Tax Free Fund 10
Additional information about policies
and investments 11
Distribution and performance information 16
Fund organization 18
Transaction information 19
Shareholder benefits 23
Purchases 25
Exchanges and redemptions 26
Trustees and Officers 28
Investment products and services 29
How to contact Scudder 30
5
<PAGE>
Why invest in these Funds?
Scudder California Tax Free Money Fund and Scudder California Tax Free Fund (the
"Funds") are non-diversified and diversified series, respectively, of Scudder
California Tax Free Trust and are designed for California residents seeking
income exempt from both state and regular federal income tax. Because these
Funds are intended for investors subject to California state personal income and
regular federal income taxes, they may not be appropriate for all investors and
are not available in all states.
Tax-free income
As illustrated in the chart "Tax-exempt vs. taxable income," depending on your
tax bracket and individual situation, you may earn a substantially higher
after-tax return from these Funds than from comparable investments that pay
income subject to both California state personal and regular federal income tax.
For example, if your federal marginal tax rate is 39.6% and your California
marginal tax rate is 9.3%, your effective combined marginal tax rate is 45.22%.
Thus, you would need to earn a taxable return of 5.15% to receive after-tax
income equal to the 2.82% tax-free yield provided by Scudder California Tax Free
Money Fund for the seven-day period ended March 31, 1997, or earn a taxable
return of 8.63% to receive after-tax income equal to the 4.73% tax-free yield
provided by Scudder California Tax Free Fund for the 30-day period ended March
31, 1997. In other words, it would be necessary to earn $1,825 from a taxable
investment to equal $1,000 of tax-free income you receive from either Fund. The
yield levels of tax-free and taxable investments change continuously. Before
investing in either Fund, you should compare its yield to the after-tax yield
you would receive from a comparable investment paying taxable income. For
up-to-date yield information on either Fund, shareholders can call SAIL, Scudder
Automated Information Line, for toll-free information at any time.
Investment characteristics of each Fund
The Funds are income-oriented portfolios advised by Scudder, Stevens & Clark,
Inc. (the "Adviser"). Each Fund seeks to provide income free from both
California state personal income and regular federal income tax. Each Fund
normally invests at least 80% of its net assets in California municipal
securities. The two Funds, however, have different investment objectives and
characteristics. The two Funds' prospectuses are presented together so you can
understand their important differences and decide which Fund or combination of
the two is most suitable for your needs.
Scudder California Tax Free Money Fund seeks stability of capital and the
maintenance of a $1.00 net asset value per share. Scudder California Tax Free
Fund ordinarily provides a higher, more stable income stream, but its net asset
value per share fluctuates with market changes. As a result of these
differences, the average portfolio maturities of the Funds are different.
Scudder California Tax Free Money Fund invests primarily in short-term municipal
obligations (notes and bonds) with individual remaining maturities of 397
calendar days or less. The weighted average maturity of the portfolio is 90 days
or less. Scudder California Tax Free Fund has flexible investment policies
regarding maturity but normally invests primarily in long-term municipal bonds.
The yield and the potential for price fluctuation are generally greater, the
greater the maturity of the municipal security. Other factors affecting the
yield and price variability include the absolute level of interest rates, the
relationship among short-, medium- and long-term interest rates, the quality of
each Fund's investments and each Fund's expenses.
6
<PAGE>
Except as otherwise indicated, each Fund's investment objectives and policies
are not fundamental and may be changed without a vote of shareholders. If there
is a change in investment objective, shareholders should consider whether that
Fund remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that either Fund's objectives will
be met.
In addition, the Funds offer all the benefits of the Scudder Family of Funds.
Scudder, Stevens & Clark, Inc. manages a diverse family of pure no-load(TM)
funds and provides a wide range of services to help investors meet their
investment needs. Please refer to "Investment products and services" for
additional information.
Summary of important features
<TABLE>
<CAPTION>
Investment
objectives
and characteristics Investments Maturity Quality Dividends
<S> <C> <C> <C> <C> <C>
Scudder o price stability o short-term o average o 100% of o declared
California California maturity of 90 investments daily and
Tax Free o income exempt municipal days or less; rated within paid monthly
Money from both securities no single top two quality
Fund California state investment ratings or o option to
personal income maturity judged to be of receive in
tax and regular longer than comparable cash or
federal income tax 397 calendar quality reinvest in
days additional
shares
Scudder o prices will o primarily o primarily o 100% of o declared
California fluctuate with long-term long-term investments daily and
Tax Free changes in California bonds rated within paid monthly
Fund interest rates municipal top six quality
bonds ratings or o option to
o income exempt judged to be receive in
from both of comparable cash or
California state quality reinvest in
personal income additional
tax and regular shares
federal income tax
</TABLE>
7
<PAGE>
Tax-exempt vs. taxable income
Tax Free Yields and Corresponding Taxable Equivalents: The table below shows
California taxpayers what an investor would have to earn from a comparable
taxable investment to equal the Scudder California Tax Free Money Fund and the
Scudder California Tax Free Fund's double tax free yield. Today, many investors
may find that regular federal and California state personal income tax rates
make either Fund an attractive alternative to investments paying taxable income.
<TABLE>
<CAPTION>
COMBINED TO EQUAL HYPOTHETICAL TAX-FREE
MARGINAL YIELDS OF 5%, 7% AND 9%, A TAXABLE
TAX INVESTMENT WOULD HAVE TO EARN*:
1996 TAXABLE INCOME: RATE: 5% 7% 9%
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDIVIDUAL
------------------------------
$24,000-25,484 32.32% 7.39% 10.34% 13.30%
25,485-32,207 33.76 7.55 10.57 13.59
32,208-58,150 34.70 7.66 10.72 13.78
58,151-121,300 37.42 7.99 11.19 14.38
121,301-263,750 41.95 8.61 12.06 15.50
OVER $263,750 45.22 9.13 12.78 16.43
- ------------------------------------------------------------------------------------------------------------------------
JOINT RETURN
------------------------------
$40,001-50,968 32.32% 7.39% 10.34% 13.30%
50,969-64,414 33.76 7.55 10.57 13.59
64,415-96,900 34.70 7.66 10.72 13.78
96,901-147,700 37.42 7.99 11.19 14.38
147,701-263,750 41.95 8.61 12.06 15.50
OVER $263,750 45.22 9.13 12.78 16.43
* Combined marginal tax rates are adjusted for the deductibility of state taxes. These illustrations assume a marginal
federal income tax rate of 28% to 39.6% and that the federal alternative minimum tax is not applicable. Upper income
individuals may be subject to an effective federal income tax rate in excess of the applicable marginal rate as a
result of the phase-out of personal exemptions and itemized deductions made permanent by the Revenue Reconciliation
Act of 1993. Individuals subject to these phase-out provisions would have to invest in taxable securities with a
yield in excess of those shown on the table in order to achieve an after-tax
yield equivalent to the yield on a comparable tax-exempt security.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Scudder California Tax Free Money Fund
Investment objectives and policies
Scudder California Tax Free Money Fund seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share while providing
California taxpayers income exempt from both California personal and regular
federal income tax. The Fund is a professionally managed portfolio of high
quality, short-term California municipal securities. All of the Fund's
investments are high quality, have a remaining maturity of 397 calendar days or
less and have minimal credit risk as determined by the Adviser. The weighted
average maturity of the Fund's portfolio is 90 days or less.
Quality
All of the Fund's municipal securities must meet certain quality criteria at the
time of purchase. Generally, the Fund may purchase only securities which are
rated, or issued by an issuer rated, within the two highest quality ratings of
two or more of the following rating agencies: Moody's Investors Service, Inc.
("Moody's") (Aaa and Aa, MIG-1 and MIG-2, and P1 and P2), Standard & Poor's
("S&P") (AAA and AA, SP1+ and SP1, A1+ and A1 and A2), and Fitch Investors
Service, Inc. ("Fitch") (AAA and AA, F1+, F1 and F2). Where only one rating
agency has rated a security (or its issuer), the Fund may purchase that security
as long as the rating falls within the categories described above. Where a
security (or its issuer) is unrated, the Fund may purchase that security if, in
the judgment of the Adviser, it is comparable in quality to securities described
above. All of the securities in which the Fund may invest are dollar-denominated
and must meet credit standards applied by the Adviser pursuant to procedures
established by the Trustees. Should an issue of municipal securities cease to be
rated or if its rating is reduced below the minimum required for purchase by a
money market fund, the Adviser will dispose of any such security unless the
Trustees of the Fund determine that such disposal would not be in the best
interests of the Fund.
Investments
The Fund invests in municipal securities of issuers located in California and
other qualifying issuers (including Puerto Rico, the U.S. Virgin Islands and
Guam). It is the opinion of bond counsel, rendered on the date of issuance, that
the income from these obligations is exempt from both California personal income
tax and regular federal income tax ("California municipal securities"). These
securities include general obligation and revenue bonds and notes of issuers
located in California and of other qualifying issuers. General obligation bonds
and notes are secured by the issuer's pledge of its full faith, credit and
taxing power for payment of principal and interest. Revenue bonds and notes are
generally paid from the revenues of a particular facility or a specific excise
tax or other revenue source. The Fund may invest in municipal notes, which are
generally used to provide short-term capital needs, and have maturities of one
year or less. Municipal notes include tax anticipation notes, revenue
anticipation notes, bond anticipation notes and construction loan notes. The
Fund may also invest in municipal bonds with remaining maturities of 397
calendar days or less.
Ordinarily, the Fund expects that 100% of its portfolio securities will be
California municipal securities. The Fund may also, for temporary defensive
purposes, hold cash or invest its assets in short-term taxable securities. It is
impossible to accurately predict how long such alternative strategies may be
utilized.
The Fund is concentrated in securities issued by California governments and
related entities. Changes in the financial condition or market assessment of the
financial condition of these entities could have a significant adverse impact on
the Fund. Consequently, an investment in the Fund may be riskier than an
9
<PAGE>
investment in a money market fund that does not concentrate in securities issued
by, or within, a single state.
The Fund may invest in stand-by commitments, third party puts, when-issued
securities and enter into repurchase agreements and reverse repurchase
agreements, which may involve certain expenses and risks, including credit
risks. The Fund may invest in variable rate demand instruments. These securities
and techniques are not expected to comprise a major portion of the Fund's
investments.
See "Additional information about policies and investments" for more information
about these investment techniques.
A portion of the Fund's income may be subject to federal, state and local income
taxes.
Scudder California Tax Free Fund
Investment objective and policies
Scudder California Tax Free Fund seeks to provide California taxpayers with
income exempt from both California personal income and regular federal income
tax. The Fund is a professionally managed portfolio consisting primarily of
investment-grade municipal securities.
The Adviser believes that investment results can be enhanced by active
professional management. Professional management distinguishes the Fund from
unit investment trusts, which cannot be actively managed.
Quality
Normally, at least 75% of the intermediate- and long-term securities purchased
by the Fund will be investment-grade municipal securities which are those rated
Aaa, Aa, A, or Baa by Moody's or AAA, AA, A, or BBB by S&P or Fitch, or unrated
securities judged by the Adviser to be of equivalent quality, or securities
issued or guaranteed by the U.S. Government. The Fund may also invest up to 25%
of its total assets in fixed-income securities rated below investment- grade,
that is, rated below Baa by Moody's or below BBB by S&P or Fitch, or in unrated
securities considered to be of equivalent quality as determined by the Adviser.
The Fund may not invest in fixed-income securities rated below B by Moody's, S&P
or Fitch, or their equivalent.
The Fund expects to invest principally in securities rated A or better by
Moody's, S&P or Fitch or unrated securities judged by the Adviser to be of
equivalent quality at the time of purchase. Securities in these three rating
categories are judged by the Adviser to have an adequate if not strong capacity
to repay principal and pay interest.
High quality bonds, those within the two highest of the quality rating
categories, characteristically have a strong capacity to pay interest and repay
principal. Medium-grade bonds, those within the next two such categories, are
defined as having adequate capacity to pay interest and repay principal. In
addition, certain medium-grade bonds are considered to have speculative
characteristics. While some lower-grade bonds (so-called "junk bonds") have
produced higher yields than investment-grade bonds in the past, they are
considered to be predominantly speculative and, therefore, carry greater risk.
The Fund's investments must also meet credit standards applied by the Adviser.
Should the rating of a portfolio security be downgraded after being purchased by
the Fund, the Adviser will determine whether it is in the best interest of the
Fund to retain or dispose of the security.
Investments
The Fund invests in municipal securities of issuers located in California and
other qualifying issuers (including Puerto Rico, the U.S. Virgin Islands and
Guam). It is the opinion of bond counsel, rendered on the date of issuance,
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that the income from these obligations is exempt from both California personal
income tax and regular federal income tax ("California municipal securities").
The Fund may invest in municipal bonds, which meet longer-term capital needs and
generally have maturities of more than one year when issued. These securities
include general obligation and revenue bonds, industrial development and
pollution control bonds of issuers located in California. The Fund may invest in
municipal notes, which are generally used to provide short-term capital needs
and have maturities of one year or less. Municipal notes include tax
anticipation notes, revenue anticipation notes, bond anticipation notes and
construction loan notes. General obligation bonds and notes are secured by the
issuer's pledge of its full faith, credit and taxing power for payment of
principal and interest. Revenue bonds and notes are generally paid from the
revenues of a particular facility, a specific excise tax or other revenue
source.
Under normal market conditions, the Fund expects to invest principally in
California municipal securities with long-term maturities (i.e., more than 10
years). The Fund has the flexibility, however, to invest in California municipal
securities with short- and medium-term maturities.
The Fund may also invest up to 20% of its total assets in municipal securities
the interest income from which is taxable or subject to the alternative minimum
tax ("AMT" bonds). Fund distributions from interest on certain municipal
securities subject to the alternative minimum tax, such as private activity
bonds, will be a preference item for purposes of calculating individual and
corporate alternative minimum taxes, depending upon investors' particular
situations. In addition, state and local taxes may apply, depending upon your
state and local tax laws.
Ordinarily, the Fund expects 100% of its portfolio securities to be California
municipal securities. The Fund may also, for temporary defensive purposes, hold
cash or invest its assets in taxable securities.
The Fund may invest its assets in municipal securities which are rated, or
issued by an issuer rated, P2 by Moody's, A2 by S&P, or F2 by Fitch, to the
extent permitted by Rule 2a-7 of the Investment Company Act of 1940 ("The 1940
Act").
The Fund may invest in stand-by commitments, third party puts, when-issued
securities and enter into repurchase agreements and reverse repurchase
agreements, which may involve certain expenses and risks, including credit
risks. The Fund may also invest in variable rate demand instruments. These
securities and techniques are not expected to comprise a major portion of the
Fund's investments. The Fund may also utilize various other strategic
transactions, including derivatives. See "Additional information about policies
and investments" for more information about these investment techniques.
During the fiscal year ended March 31, 1997, based upon the dollar-weighted
average ratings of the Fund's portfolio holdings at the end of each month during
that period, the Fund had the following percentages of its net assets invested
in debt securities rated (or if unrated, considered by the Adviser to be
equivalent to rated securities) in the categories indicated: 4.59% BB+ and 0.69%
BB.
A portion of the Fund's income may be subject to federal, state and local income
taxes.
Additional information about policies and investments
Investment restrictions
Each Fund has adopted certain fundamental policies which may not be changed
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without a vote of shareholders and which are designed to reduce the Funds'
investment risk.
Each Fund may not borrow money except as a temporary measure for extraordinary
or emergency purposes or except in connection with reverse repurchase
agreements. Each Fund may not make loans except through the lending of portfolio
securities, the purchase of debt securities or through repurchase agreements.
Scudder California Tax Free Money Fund is a non-diversified fund (except to the
extent diversification is required for federal income tax purposes). Scudder
California Tax Free Fund is a diversified fund.
Each Fund may invest more than 25% of its assets in industrial development or
other private activity bonds. For purposes of each Fund's investment limitation
regarding concentration of investments in any one industry, all such bonds
ultimately payable by companies within the same industry will be considered as
if they were issued by issuers in the same industry.
Each Fund normally invests at least 80% of its net assets in California
municipal securities.
When the Adviser determines that market conditions warrant, each Fund may, for
temporary defensive purposes, invest more than 20% of its net assets in taxable
securities.
In addition, as a matter of nonfundamental policy, up to 20% of each Fund's net
assets may be held in cash or invested in short-term taxable investments,
including repurchase agreements, U.S. Government and other money market
instruments and in California municipal securities whose interest income is
specifically treated as a tax preference item under the individual alternative
minimum tax.
A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Funds' Statement of Additional
Information.
Investing in California
Each Fund is more susceptible to factors adversely affecting issuers of
California municipal securities than are comparable municipal bond funds that do
not emphasize these issuers to this degree. Although the California economy is
in the second year of its recovery, it is impossible to predict the ultimate
impact of future fluctuations. On July 15, 1994, Moody's lowered California's
general obligation bond ratings from Aa to A1, citing the State's deteriorating
financial position. On July 30, 1996, S&P raised the State's general obligation
bond ratings from A to A+. For additional information about the California
economy, see the Funds' Statement of Additional Information dated August 1,
1997.
When-issued securities
Each Fund may purchase securities on a when-issued or forward delivery basis,
for payment and delivery at a later date. The price and yield are generally
fixed on the date of commitment to purchase. During the period between purchase
and settlement, no interest accrues to the Fund. At the time of settlement, the
market value of the security may be more or less than the purchase price.
Repurchase agreements
As a means of earning taxable income for periods as short as overnight, each
Fund may enter into repurchase agreements with selected banks and
broker/dealers. Under a repurchase agreement, a Fund acquires securities,
subject to the seller's agreement to repurchase them at a specified time and
price. Income from repurchase agreements will be taxable when distributed to
shareholders.
Stand-by commitments
To facilitate liquidity, each Fund may enter into "stand-by commitments"
permitting them to resell municipal securities to the original seller at a
specified price. Stand-by commitments generally involve no cost to the Fund, and
any costs would be, in any event, limited to no more than 0.50% of the value of
the total assets of the Fund. Any such costs may, however, reduce yield.
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Third party puts
Each Fund may purchase long-term fixed rate bonds that have been coupled with an
option granted by a third party financial institution allowing the Fund at
specified intervals (not exceeding 397 calendar days in the case of Scudder
California Tax Free Money Fund) to tender (or "put") its bonds to the
institution and receive the face value thereof. These third party puts are
available in several different forms, may be represented by custodial receipts
or trust certificates and may be combined with other features such as interest
rate swaps.
Variable rate demand instruments
Each Fund may purchase variable rate demand instruments that are tax-exempt
municipal obligations providing for a periodic adjustment in the interest rate
paid on the instrument according to changes in interest rates generally. These
instruments also permit each Fund to demand payment of the unpaid principal
balance plus accrued interest upon a specified number of days' notice to the
issuer or its agent.
Municipal lease obligations
Scudder California Tax Free Fund may invest in municipal lease obligations and
participation interests in such obligations. These obligations, which may take
the form of a lease, an installment purchase contract or a conditional sales
contract, are issued by state and local governments and authorities to acquire
land and a wide variety of equipment and facilities. Generally, the Fund will
not hold such obligations directly, but will purchase a certificate of
participation or other participation interest in a municipal obligation from a
bank or other financial intermediary. A participation interest gives the Fund a
proportionate interest in the underlying obligation.
Indexed securities
Scudder California Tax Free Fund may invest in indexed securities, the value of
which is linked to currencies, interest rates, commodities, indices or other
financial indicators ("reference instruments"). The interest rate or (unlike
most fixed-income securities) the principal amount payable at maturity of an
indexed security may be increased or decreased, depending on changes in the
value of the reference instrument.
Illiquid and restricted securities
Each Fund may invest a portion of its assets in securities for which there is
not an active trading market, or which have resale restrictions ("restricted
securities"). These types of securities generally offer a higher return than
more readily marketable securities, but carry the risk that the Fund may not be
able to dispose of them at an advantageous time or price. Some restricted
securities purchased by the Fund, however, may be considered liquid despite
resale restrictions, since they can be sold to other qualified institutional
buyers under a rule of the Securities and Exchange Commission (the "SEC") (Rule
144A).
Strategic Transactions and derivatives
Scudder California Tax Free Fund may, but is not required to, utilize various
other investment strategies as described below to hedge various market risks
(such as interest rates and broad or specific market movements), to manage the
effective maturity or duration of the Fund's portfolio, or to enhance potential
gain. These strategies may be executed through the use of derivative contracts.
Such strategies are generally accepted as a part of modern portfolio management
and are regularly utilized by many mutual funds and other institutional
investors. Techniques and instruments may change over time as new instruments
and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, Scudder California Tax
Free Fund may purchase and sell exchange-listed and over-the-counter put and
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call options on securities, fixed-income indices and other financial
instruments, purchase and sell financial futures contracts and options thereon,
and enter into various interest rate transactions such as swaps, caps, floors or
collars (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets fluctuations, to
protect the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the Fund's portfolio, or to establish a
position in the derivatives markets as a temporary substitute for purchasing or
selling particular securities. Some Strategic Transactions may also be used to
enhance potential gain although no more than 5% of the Fund's assets will be
committed to Strategic Transactions entered into for non-hedging purposes. Any
or all of these investment techniques may be used at any time and in any
combination, and there is no particular strategy that dictates the use of one
technique rather than another, as use of any Strategic Transaction is a function
of numerous variables including market conditions. The ability of Scudder
California Tax Free Fund to utilize these Strategic Transactions successfully
will depend on the Adviser's ability to predict pertinent market movements,
which cannot be assured. The Fund will comply with applicable regulatory
requirements when implementing these strategies, techniques and instruments.
Strategic Transactions involving financial futures and options thereon will be
purchased, sold or entered into only for bona fide hedging, risk management or
portfolio management purposes and not for speculative purposes. Please refer to
"Risk factors--Strategic Transactions and derivatives" for more information.
Risk factors
The Funds' risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques that the
Funds may use from time to time.
Non-diversified investment company. As a "non-diversified" investment company,
Scudder California Tax Free Money Fund may invest a greater proportion of its
assets in the securities of a smaller number of issuers than a diversified
investment company. Investment in the Fund may involve greater risk than
investment in a diversified fund.
Investing in California. If either California or any of its local governmental
entities were to be unable to meet its financial obligations, the income derived
by each Fund, its net asset value or liquidity and the ability to preserve or
realize appreciation of each Fund's capital could be adversely affected.
In 1978, California passed Proposition 13 limiting the level of property taxes.
In 1988, California passed Proposition 98 guaranteeing public schools a minimum
share of State revenues. These propositions and subsequent legislation may
affect the State's creditworthiness in the future. See "Investing in California"
in the Funds' Statement of Additional Information for further details about the
risks of investing in California obligations.
Securities backed by guarantees. Scudder California Tax Free Money Fund invests
in securities backed by guarantees from banks, insurance companies and other
financial institutions. The Fund's ability to maintain a stable share price may
depend upon such guarantees, which are not supported by federal deposit
insurance. Consequently, changes in the credit quality of these institutions
could have an adverse impact on securities they have guaranteed or backed, which
could cause losses to the Fund and affect its share price.
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Debt securities. Scudder California Tax Free Fund may invest in securities rated
below Baa by Moody's or BBB by S&P or Fitch. Moody's considers bonds it rates
Baa to have speculative elements as well as investment-grade characteristics.
Securities rated below investment-grade are commonly referred to as "junk bonds"
and involve greater price volatility and higher degrees of speculation with
respect to the payment of principal and interest than higher quality
fixed-income securities. The market prices of such lower rated debt securities
may decline significantly in periods of general economic difficulty. In
addition, the trading market for these securities is generally less liquid than
for higher rated securities and the Fund may have difficulty disposing of these
securities at the time it wishes to do so. The lack of a liquid secondary market
for certain securities may also make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing its portfolio and calculating
its net asset value.
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted, or
the value of the securities may decline before the Fund is able to dispose of
them. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the securities before repurchase of the securities
under a repurchase agreement, the Fund may encounter delay and incur costs,
including a decline in the value of the securities, before being able to sell
the securities.
Third party puts. In connection with third party puts, the financial institution
granting the option does not provide credit enhancement, and typically if there
is a default on or significant downgrading of the bond or a loss of its
tax-exempt status the put option will terminate automatically; the risk of the
Fund will be that of holding a long-term bond and, in the case of the Scudder
California Tax Free Money Fund, the weighted average maturity of the Fund's
portfolio would be adversely affected.
Municipal lease obligations. Municipal lease obligations and participation
interests in such obligations frequently have risks distinct from those
associated with general obligation or revenue bonds. Municipal lease obligations
are not secured by the governmental issuer's credit, and if funds are not
appropriated for lease payments, the lease may terminate, with the possibility
of default on the lease obligation and significant loss to the Fund. Although
"non-appropriation" obligations are secured by the leased property, disposition
of that property in the event of foreclosure might prove difficult, time
consuming and costly. In addition, the tax treatment of such obligations in the
event of non-appropriation is unclear. In evaluating the credit quality of a
municipal lease obligation that is unrated, the Adviser will consider a number
of factors including the likelihood that the governmental issuer will
discontinue appropriating funding for the leased property. For more information,
please refer to the Funds' Statement of Additional Information.
Indexed securities. Indexed securities may be positively or negatively indexed,
so that appreciation of the reference instrument may produce an increase or a
decrease in the interest rate or value at maturity of the security. In addition,
the change in the interest rate or value at maturity of the security may be some
multiple of the change in the value of the reference instrument. Thus, in
addition to the credit risk of the security's issuer, the Fund will bear the
market risk of the reference instrument.
Illiquid and restricted securities. The absence of a trading market can make it
difficult to ascertain a market value for illiquid or restricted securities.
Disposing of illiquid or restricted securities may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for the
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<PAGE>
Fund to sell them promptly at an acceptable price.
Strategic Transactions and derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the purchase or sale of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of the Fund creates the possibility that losses on the hedging
instrument may be greater than gains in the value of the Fund's position. In
addition, futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring
substantial losses, if at all.
Although the use of futures contracts and options transactions for hedging
should tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time they tend to limit any potential gain which
might result from an increase in value of such position. Finally, the daily
variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that the Fund may
use and some of their risks are described more fully in the Funds' Statement of
Additional Information.
Distribution and performance information
Dividends and capital gains distributions
The Funds' dividends from net investment income are declared daily and
distributed monthly. The Funds intend to distribute net realized capital gains
after utilization of capital loss carryforwards, if any, in November or December
to prevent application of federal excise tax. Any dividends or capital gains
distributions declared in October, November or December with a record date in
such a month and paid during the following January will be treated by
shareholders for federal income tax purposes as if received on December 31 of
the calendar year declared. An additional distribution may be made, if
necessary. According to preference, shareholders may receive distributions in
cash or have them reinvested in additional shares of the Funds.
Distributions derived from interest on California municipal securities are not
subject to California state personal income taxes or to regular federal income
taxes, except for the possible applicability of the federal alternative minimum
tax. Interest on obligations of Puerto Rico and other U.S. possessions may also
be distributed as dividends exempt from California state personal income taxes.
Other distributions are generally taxable to shareholders for California state
personal income tax purposes. For federal income tax purposes, a portion of each
Fund's income may be taxable to shareholders as ordinary income. Long-term
capital gains distributions, if any, are taxable as long-term capital gains for
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federal and California state personal income tax purposes regardless of the
length of time shareholders have owned their shares. Short-term capital gains
and any other taxable income distributions are taxable as ordinary income.
Distributions of tax-exempt income are taken into consideration in computing the
portion, if any, of Social Security and railroad retirement benefits subject to
federal and, in some cases, state taxes.
Each Fund ordinarily provides income that is 100% free from California state
personal income and regular federal income taxes. However, income from
repurchase agreements and gains from certain Strategic Transactions are taxable.
Moreover, dividends paid to shareholders subject to California state franchise
or corporate income taxes may be taxed as ordinary dividends for the purposes of
such taxes notwithstanding that all or a portion of such dividends is exempt
from California state personal income tax. Some of a Fund's interest income may
be treated as a tax preference item that may subject an individual investor to
liability (or increased liability) under the alternative minimum tax, depending
upon an investor's particular situation. However, at least 80% of each Fund's
net assets will normally be invested in California municipal securities whose
interest income is not treated as a tax preference item under the individual
alternative minimum tax. Tax-exempt income may also subject a corporate investor
to liability (or increased liability) under the corporate alternative minimum
tax.
Each Fund sends detailed tax information to shareholders about the amount and
type of its distributions by January 31 of each year.
Performance information
From time to time, quotations of the Funds' performance may be included in
advertisements, sales literature, or shareholder reports.
All performance figures are historical, show the performance of a hypothetical
investment and are not intended to indicate future performance. The "yield" of
Scudder California Tax Free Money Fund refers to income generated by an
investment in the Fund over a specified seven-day period. The "SEC yield" of
Scudder California Tax Free Fund is an annualized expression of the net income
generated by the Fund over a specified 30-day (one month) period, as a
percentage of the Fund's share price on the last day of that period. This yield
is calculated according to methods required by the SEC and therefore may not
equate to the level of income paid to shareholders. The "effective yield" of
Scudder California Tax Free Money Fund is expressed similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested and will reflect the effects of compounding. Each Fund's
"tax-equivalent yield" is calculated by determining the rate of return that
would have to be achieved on a fully taxable investment to produce the after-tax
equivalent of each Fund's yield, assuming certain tax brackets for a Fund
shareholder. Yields are expressed as annualized percentages. "Total return" is
the change in value of an investment in each Fund for a specified period. The
"average annual total return" of each Fund is the average annual compound rate
of return of an investment in the Fund assuming the investment has been held for
one year, five years and ten years. (If a Fund has not been in operation for at
least ten years, the life of the Fund is used where applicable.) "Cumulative
total return" represents the cumulative change in value of an investment in each
Fund for various periods. All types of total return calculations assume that all
dividends and capital gains distributions during the period were reinvested in
shares of the Fund. Performance will vary based upon, among other things,
changes in market conditions and the level of each Fund's expenses.
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Fund organization
Scudder California Tax Free Money Fund and Scudder California Tax Free Fund are
series of Scudder California Tax Free Trust (the "Trust"), an open-end
management investment company registered under the 1940 Act. The Trust was
organized as a Massachusetts business trust in May 1983.
The Funds' activities are supervised by the Trust's Board of Trustees.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Trust is not required to hold, and has no current
intention of holding annual shareholder meetings, although special meetings may
be called for purposes such as electing or removing Trustees, changing
fundamental investment policies or approving an investment advisory contract.
Shareholders will be assisted in communicating with other shareholders in
connection with removing a Trustee as if Section 16(c) of the 1940 Act were
applicable.
The prospectuses of both Funds are combined in this prospectus. Each Fund offers
only its own shares, yet it is possible that a Fund might become liable for a
misstatement or omission in the prospectus of the other Fund. The Trustees of
the Trust have considered this and approved the use of a combined prospectus.
Investment adviser
Each Fund retains the investment management firm of Scudder, Stevens & Clark,
Inc., a Delaware corporation, to manage its daily investment and business
affairs subject to the policies established by the Board of Trustees. The
Trustees have overall responsibility for the management of the Trust under
Massachusetts law.
For the fiscal year ended March 31, 1997, the Adviser received monthly an
investment management fee of 0.62% of Scudder California Tax Free Fund's average
daily net assets.
The fee is graduated so that increases in the Fund's net assets may result in a
lower fee and decreases in the Fund's net assets may result in a higher fee.
The fee payable under Scudder California Tax Free Money Fund's Investment
Management Agreement is equal to an annual rate of 0.50% of the Fund's average
daily net assets. The Adviser has agreed to maintain the annualized expenses of
the Fund at not more than 0.60% of the average daily net assets of the Fund
until July 31, 1998.
For the fiscal year ended March 31, 1997, the Adviser received an investment
management fee of 0.31% of Scudder California Tax Free Money Fund's average
daily net assets on an annual basis.
Each Fund's fee is payable monthly, provided that a Fund will make such interim
payments as may be requested by the Adviser not to exceed 75% of the amount of
the fee then accrued on the books of a Fund and unpaid.
All of a Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment or administrative services.
Scudder, Stevens & Clark, Inc. is located at Two International Place, Boston,
Massachusetts.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Funds.
Underwriter
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the Funds'
principal underwriter. Scudder Investor Services, Inc. confirms, as agent, all
purchases of shares of the Funds. Scudder Investor Relations is a telephone
information service provided by Scudder Investor Services, Inc.
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Fund accounting agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Funds.
Custodian
State Street Bank and Trust Company is the Funds' custodian.
Transaction information
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Funds' transfer agent receives the purchase request in good order. Purchases
are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared. If
you purchase shares by federal funds wire, you may avoid this delay. Redemption
requests by telephone or by "Write-A-Check" in the case of Scudder California
Tax Free Money Fund prior to the expiration of the seven-day period will not be
accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and a Scudder fund account number.
Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
- -- the name of the fund in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s) of the account holder(s).
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By telephone order. To a limited extent, certain financial institutions may
place orders to purchase shares of Scudder California Tax Free Fund
unaccompanied by payment prior to the close of regular trading on the New York
Stock Exchange (the "Exchange"), normally 4:00 p.m. eastern time, and receive
that day's price. Please call 1-800-854-8525 for more information, including the
dividend treatment and method and manner of payment for Fund shares.
By "AutoBuy." If you elected "AutoBuy" for your account, you can call toll-free
to purchase shares. The money will be automatically transferred from your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "AutoBuy," call
1-800-225-5163 for more information.
To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from your bank checking account in two or three business days following your
call. For requests received by the close of regular trading on the Exchange,
shares will be purchased at the net asset value per share calculated at the
close of trading on the day of your call. "AutoBuy" requests received after the
close of regular trading on the Exchange will begin their processing and be
purchased at the net asset value calculated the following business day.
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If you purchase shares by "AutoBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "AutoBuy" transactions are not
available for most retirement plan accounts. However, "AutoBuy" transactions are
available for Scudder IRA accounts.
By exchange. The Fund may be exchanged for shares of other funds in the Scudder
Family of Funds, unless otherwise determined by the Board of Trustees. Your new
account will have the same registration and address as your existing account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts.
Please call 1-800-225-5163 for more information, including information about the
transfer of special account features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
Redeeming shares
Each Fund allows you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.
By telephone. This is the quickest and easiest way to sell Fund shares. If you
elected telephone redemption to your bank on your application, you can call to
request that federal funds be sent to your authorized bank account. If you did
not elect telephone redemption to your bank on your application, call
1-800-225-5163 for more information.
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds will be
mailed to your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions from your Scudder fund account on SAIL by calling
1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
Funds' transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
By "AutoSell." If you elected "AutoSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "AutoSell,"
call 1-800-225-5163 for more information.
To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "AutoSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.
"AutoSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.
By "Write-A-Check." You may redeem shares of Scudder California Tax Free Money
Fund by writing checks against your account balance for at least $100. Your Fund
investments will continue to earn dividends until your check is presented to the
Fund for payment.
20
<PAGE>
Checks will be returned by the Fund's transfer agent if there are insufficient
shares to meet the withdrawal amount. You should not attempt to close an account
by check, because the exact balance at the time the check clears will not be
known when the check is written.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $100,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations or clearing
agencies deemed eligible by the SEC. Signature guarantees by notaries public are
not acceptable. Redemption requirements for corporations, other organizations,
trusts, fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. For more information, please call
1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $100,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. The Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.
Share price
Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation determines net asset value per share for
Scudder California Tax Free Money Fund as of twelve o'clock noon and as of the
close of regular trading on the Exchange, normally 4 p.m. eastern time, on each
day the Exchange is open for trading. For Scudder California Tax Free Fund,
Scudder Fund Accounting Corporation determines net asset value per share once a
day as of the close of regular trading on the Exchange. Net asset value per
share is calculated by dividing the value of total Fund assets, less all
liabilities, by the total number of shares outstanding. In calculating the net
asset value per share, Scudder California Tax Free Fund uses the current market
value of the securities, and Scudder California Tax Free Money Fund uses the
amortized cost value.
Processing time
All purchase and redemption requests must be received in good order by the
Funds' transfer agent.
For Scudder California Tax Free Money Fund, purchases made by wire and received
by the Fund's transfer agent before noon on any business day are executed at
noon on that day and begin earning income the same day. Those made by wire
between noon and the close of regular trading on the Exchange on any business
day are executed at the close of trading the same day and begin earning income
the next business day. Purchases made by check are executed on the day the check
is received in good order by the Fund's transfer agent and begin earning income
on the next business day. Redemption requests received in good order by the
Fund's transfer agent between noon and the close of regular trading on the
Exchange are executed at the net asset value calculated at the close of regular
trading on that day and will earn a dividend on the redeemed shares that day. If
21
<PAGE>
a redemption request for Scudder California Tax Free Money Fund is received by
noon, proceeds will normally be wired that day, if requested by the shareholder,
but no dividend will be earned on the redeemed shares on that day.
For Scudder California Tax Free Fund, those requests received by the close of
regular trading on the Exchange are executed at the net asset value per share
calculated at the close of trading that day. Purchase and redemption requests
received after the close of regular trading on the Exchange will be executed the
following business day. Purchases made by federal funds wire before noon eastern
time will begin earning income that day; all other purchases received before the
close of regular trading on the Exchange will begin earning income the next
business day. Redeemed shares will earn income on the day on which the
redemption request is executed.
If you wish to make a purchase of $500,000 or more you should notify Scudder
Investor Relations by calling 1-800-225-5163.
Each Fund will normally send redemption proceeds within one business day
following the redemption request, but may take up to seven business days (or
longer in the case of shares recently purchased by check).
Purchase restrictions
Purchases and sales of Scudder California Tax Free Fund should be made for
long-term investment purposes only. The Fund and Scudder Investor Services, Inc.
each reserves the right to reject purchases of Fund shares (including exchanges)
for any reason including when a pattern of frequent purchases and sales made in
response to short-term fluctuations in the Fund's share price appears evident.
Tax information
A redemption of shares of Scudder California Tax Free Fund, including an
exchange into another Scudder fund, is a sale of shares and may result in a gain
or loss for income tax purposes. No gain or loss will be realized in the case of
a redemption or exchange of shares of Scudder California Tax Free Money Fund if
it maintains a constant net asset value per share.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires each Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a certified Social Security or tax identification number and certain
other certified information or upon notification from the IRS or a broker that
withholding is required. Each Fund reserves the right to reject new account
applications without a certified Social Security or tax identification number.
Each Fund also reserves the right, following 30 days' notice, to redeem all
shares in accounts without a certified Social Security or tax identification
number. A shareholder may avoid involuntary redemption by providing the Fund
with a tax identification number during the 30-day notice period.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Trustees. Scudder retirement plans and certain
other accounts have similar or lower minimum share balance requirements. A
shareholder may open an account with at least $1,000, if an automatic investment
plan of $100/month is established.
Shareholders who maintain a non-fiduciary account balance of less than $2,500 in
the Fund, without establishing an automatic investment plan, will be assessed an
annual $10.00 per fund charge with the fee to be paid to the Fund. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
22
<PAGE>
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account. The Fund
will mail the proceeds of the redeemed account to the shareholder. Reductions in
value that result solely from market activity will not trigger an involuntary
redemption. Retirement accounts and certain other accounts will not be assessed
the $10.00 charge or be subject to automatic liquidation. Please refer to
"Exchanges and Redemptions--Other Information" in the Fund's Statement of
Additional Information for more information.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
Shareholder benefits
Experienced professional management
Scudder, Stevens & Clark, Inc., one of the nation's most experienced investment
management firms, actively manages your Scudder fund investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities.
A team approach to investing
Scudder California Tax Free Money Fund and Scudder California Tax Free Fund are
each managed by a team of Scudder investment professionals who each play an
important role in the Funds' management process. Team members work together to
develop investment strategies and select securities for the Funds' portfolios.
They are supported by Scudder's large staff of economists, research analysts,
traders, and other investment specialists. We believe our team approach benefits
the Funds' investors by bringing together many disciplines and leveraging
Scudder's extensive resources.
Rebecca L. Wilson is Lead Portfolio Manager for Scudder California Tax Free
Money Fund and contributes 11 years of experience in municipal investing and
research. Ms. Wilson assumed responsibility for the Fund in 1987 after joining
Scudder in 1986. K. Sue Cote, Portfolio Manager, joined the Fund's team in 1987
and has spent 13 years working with short-term fixed-income investments.
Scudder California Tax Free Fund's Lead Portfolio Manager Jeremy L. Ragus has
had responsibility for the Fund's day-to-day operations since he joined Scudder
in 1990. Mr. Ragus has 16 years of experience in municipal investing. Donald C.
Carleton, Portfolio Manager, has 28 years of investment management experience
and has worked on the Fund's team since he arrived at Scudder in 1983.
SAIL(TM)--Scudder Automated Information Line
For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
event you should write to the Fund; please see "How to contact Scudder" for the
address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. Telephone and
fax redemptions and exchanges are subject to termination and their terms are
23
<PAGE>
subject to change at any time by the Fund or the transfer agent. In some cases,
the transfer agent or Scudder Investor Services, Inc. may impose additional
conditions on telephone transactions.
Personal Counsel(SM) -- A Managed Fund Portfolio Program
If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder, Stevens & Clark, Inc., combines the benefits of a
customized portfolio of pure no-load Scudder Funds with ongoing portfolio
monitoring and individualized service, for an annual fee of generally 1% or less
of assets (with a $1,000 minimum). In addition, it draws upon Scudder's more
than 75-year heritage of providing investment counsel to large corporate and
private clients. If you have $100,000 or more to invest initially and would like
more information about Personal Counsel, please call 1-800-700-0183.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You receive a detailed account statement every time you purchase or redeem
shares. All of your statements should be retained to help you keep track of
account activity and the cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.
Newsletters
Four times a year, Scudder sends you Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Investor Centers
As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Investor Centers in Boca Raton, Boston,
Chicago, New York and San Francisco.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
24
<PAGE>
Purchases
<TABLE>
<CAPTION>
Opening Minimum initial investment: $2,500; IRAs $1,000
an account Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
<S> <C> <C> <C> <C>
Make checks o By Mail Send your completed and signed application and check
payable to "The
Scudder Funds."
by regular mail to: or by express, registered,
or certified mail to:
The Scudder Funds Scudder Shareholder
P.O. Box 2291 Service Center
Boston, MA 42 Longwater Drive
02107-2291 Norwell, MA
02061-1612
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number.
Then call 1-800-225-5163 for instructions.
o In Person Visit one of our Investor Centers to complete your application
with the help of a Scudder representative. Investor Center
locations are listed under Shareholder benefits.
- --------------------------------------------------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
shares See appropriate plan literature.
Make checks
payable to "The o By Mail Send a check with a Scudder investment slip, or with a letter of
Scudder Funds." instruction including your account number and the complete
Fund name, to the appropriate address listed above.
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number.
o In Person Visit one of our Investor Centers to make an additional
investment in your Scudder fund account. Investor Center
locations are listed under Shareholder benefits.
o By Telephone Please see Transaction information--Purchasing shares--
By AutoBuy for more details.
o By Automatic You may arrange to make investments on a regular basis
Investment Plan through automatic deductions from your bank checking
($50 minimum) account. Please call 1-800-225-5163 for more information and
an enrollment form.
</TABLE>
25
<PAGE>
Exchanges and redemptions
<TABLE>
<CAPTION>
Exchanging Minimum investments: $2,500 to establish a new account;
shares $100 to exchange among existing accounts
<S> <C> <C> <C> <C>
o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day).
o By Mail Print or type your instructions and include:
or Fax - the name of the Fund and the account number you are exchanging from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the Fund you are exchanging into;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:
The Scudder Funds Scudder Shareholder 1-800-821-6234
P.O. Box 2291 Service Center
Boston, MA 02107-2291 42 Longwater Drive
Norwell, MA 02061-1612
- ------------------------------------------------------------------------------------------------------------------------
Redeeming shares o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may have
redemption proceeds sent to your predesignated bank account, or
redemption proceeds of up to $100,000 sent to your address of record.
o By "Write- You may redeem shares by writing checks against your account
A-Check" balance as often as you like for at least $100, but not more than
$5,000,000.
o By Mail Send your instructions for redemption to the appropriate address or fax number
or Fax above and include:
- the name of the Fund and account number you are redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
A signature guarantee is required for redemptions over $100,000.
See Transaction information--Redeeming shares.
o By Automatic You may arrange to receive automatic cash payments periodically.
Withdrawal Call 1-800-225-5163 for more information and an enrollment form.
Plan
</TABLE>
26
<PAGE>
Scudder tax-advantaged
retirement plans
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of up to $2,000 per person for anyone with earned income (up
to $2,000 per individual for married couples if only one spouse has earned
income). Many people can deduct all or part of their contributions from
their taxable income, and all investment earnings accrue on a tax-deferred
basis. The Scudder No-Fee IRA charges you no annual custodial fee.
o 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.
o Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make
annual, tax-deductible contributions of up to $30,000 for each person
covered by the plans. Plans may be adopted individually or paired to
maximize contributions. These are sometimes known as Keogh plans. The
Scudder Keogh charges you no annual custodial fee.
o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
o SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation. The Scudder SEP-IRA charges
you no annual custodial fee.
o Scudder Horizon Plan. A no-load variable annuity that lets you build
assets by deferring taxes on your investment earnings. You can start with
$2,500 or more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s please call
1-800-323-6105. To effect transactions in existing IRA, SEP-IRA, Profit Sharing
or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State, Nevada
and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is the
Principal Underwriter. Scudder Horizon Plan is not available in all states.
Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.
27
<PAGE>
Trustees and Officers
David S. Lee*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager,
WGBH Educational Foundation
Dawn-Marie Driscoll
Trustee; Executive Fellow, Center for Business Ethics and President,
Driscoll Associates
Peter B. Freeman
Trustee; Corporate Director and Trustee
George M. Lovejoy, Jr.
Trustee
Daniel Pierce*
Trustee
Olin Barrett*
Vice President
Donald C. Carleton*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Jeremy L. Ragus*
Vice President
Rebecca L. Wilson*
Vice President
* Scudder, Stevens & Clark, Inc.
28
<PAGE>
Investment products and services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares**
Managed Shares**
Scudder Government Money Market Series --
Managed Shares**
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares**
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Retirement Programs
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan *+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *Not available in all
states. **A class of shares of the Fund. +++ +++A no-load variable annuity
contract provided by Charter National Life Insurance Company and its affiliate,
offered by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised
by Scudder, Stevens & Clark, Inc., are traded on various stock exchanges.
29
<PAGE>
<TABLE>
<CAPTION>
How to contact Scudder
Account Service and Information:
<S> <C>
For existing account service and transactions
Scudder Investor Relations -- 1-800-225-5163
For 24 hour account information, fund information, exchanges, and an
overview of all the services available to you
Scudder Electronic Account Services -- http://funds.scudder.com
For personalized information about your Scudder accounts, exchanges and redemptions
Scudder Automated Information Line (SAIL) -- 1-800-343-2890
Investment Information:
For information about the Scudder funds, including additional
applications and prospectuses, or for answers to investment questions
Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105
Scudder Brokerage Services:
To receive information about this discount brokerage service and to obtain an application
Scudder Brokerage Services* -- 1-800-700-0820
Personal Counsel(SM) -- A Managed Fund Portfolio Program:
To receive information about this mutual fund portfolio guidance and management program
Personal Counsel from Scudder -- 1-800-700-0183
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Or Stop by a Scudder Investor Center:
Many shareholders enjoy the personal, one-on-one service of the Scudder
Investor Centers. Check for an Funds Center near you--they can be
found in the following cities:
Boca Raton Chicago San Francisco
Boston New York
Scudder Investor Relations and Scudder Investor Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA
02061--Member NASD/SIPC.
</TABLE>
30
<PAGE>
SCUDDER CALIFORNIA TAX FREE MONEY FUND
and
SCUDDER CALIFORNIA TAX FREE FUND
Two Pure No-Load(TM) (No Sales Charges) Mutual Funds
Specializing in the Management of
California Municipal Security Portfolios
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1997
- --------------------------------------------------------------------------------
This combined Statement of Additional Information is not a prospectus
and should be read in conjunction with the combined prospectus of Scudder
California Tax Free Money Fund and Scudder California Tax Free Fund dated August
1, 1997, as amended from time to time, a copy of which may be obtained without
charge by writing to Scudder Investor Services, Inc., Two International Place,
Boston, Massachusetts 02110-4103.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES.........................................................................1
General Investment Objectives and Policies of Scudder California Tax Free Money Fund.........................1
General Investment Objective and Policies of Scudder California Tax Free Fund................................3
Investments..................................................................................................4
Investments, Investment Techniques and Considerations of the Funds..........................................13
Economic Factors............................................................................................16
Constitutional, Legislative and Other Factors...............................................................19
Trustees' Power to Change Objectives and Policies...........................................................27
Investment Restrictions.....................................................................................27
PURCHASES............................................................................................................29
Additional Information About Opening an Account.............................................................29
Checks......................................................................................................30
Wire Transfer of Federal Funds..............................................................................30
Additional Information About Making Subsequent In vestments................................................30
Additional Information About Making Subsequent Investments by AutoBuy.......................................30
Share Price.................................................................................................31
Share Certificates..........................................................................................31
Other Information...........................................................................................31
EXCHANGES AND REDEMPTIONS............................................................................................32
Exchanges...................................................................................................32
Redemption by Telephone.....................................................................................32
Redemption By AutoSell......................................................................................33
Redemption by Mail or Fax...................................................................................34
Redemption by Write-A-Check.................................................................................34
Redemption-in-kind..........................................................................................34
Other Information...........................................................................................34
FEATURES AND SERVICES OFFERED BY THE FUNDS...........................................................................35
The Pure No-Load(TM) Concept................................................................................35
Internet access.............................................................................................36
Dividend and Capital Gain Distribution Options..............................................................37
Scudder Investor Centers....................................................................................37
Reports to Shareholders.....................................................................................37
Transaction Summaries.......................................................................................37
THE SCUDDER FAMILY OF FUNDS..........................................................................................37
SPECIAL PLAN ACCOUNTS................................................................................................42
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................43
PERFORMANCE INFORMATION..............................................................................................44
Average Annual Total Return.................................................................................44
Cumulative Total Return.....................................................................................44
Total Return................................................................................................45
Yield.......................................................................................................45
Effective Yield.............................................................................................45
Tax-Equivalent Yield........................................................................................46
Comparison of Portfolio Performance.........................................................................46
ORGANIZATION OF THE FUNDS............................................................................................49
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TABLE OF CONTENTS (continued)
Page
INVESTMENT ADVISER...................................................................................................50
Personal Investments by Employees of the Adviser............................................................53
TRUSTEES AND OFFICERS................................................................................................53
REMUNERATION.........................................................................................................55
Responsibilities of the Board--Board and Committee Meetings.................................................55
Compensation of Officers and Trustees.......................................................................55
DISTRIBUTOR..........................................................................................................56
TAXES................................................................................................................57
Federal Taxation............................................................................................57
State Taxation..............................................................................................60
PORTFOLIO TRANSACTIONS...............................................................................................61
Brokerage Commissions.......................................................................................61
Portfolio Turnover..........................................................................................62
NET ASSET VALUE......................................................................................................62
ADDITIONAL INFORMATION...............................................................................................64
Experts.....................................................................................................64
Shareholder Indemnification.................................................................................64
Ratings of Municipal Obligations............................................................................64
Commercial Paper Ratings....................................................................................65
Glossary....................................................................................................66
Other Information...........................................................................................66
FINANCIAL STATEMENTS.................................................................................................67
Scudder California Tax Free Money Fund......................................................................67
Scudder California Tax Free Fund............................................................................67
</TABLE>
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THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
(See "Investment objectives and policies" in the
Funds' prospectus.)
Scudder California Tax Free Money Fund and Scudder California Tax Free
Fund (each a "Fund," collectively the "Funds") are each a series of Scudder
California Tax Free Trust (the "Trust"). The Funds are series of an open-end
management investment company but are not investment companies themselves.
General Investment Objectives and Policies of Scudder
California Tax Free Money Fund
The investment objectives of Scudder California Tax Free Money Fund are
stability of capital and the maintenance of a constant net asset value of $1.00
per share, while providing California taxpayers income exempt from California
state personal income and regular federal income tax. The Fund pursues these
objectives through the professional and efficient management of a high quality
portfolio consisting primarily of short-term municipal obligations (as defined
under "Investments, Investment Techniques and Considerations of the Funds --
Municipal Obligations") having remaining maturities 397 calendar days or less
with a dollar-weighted average portfolio maturity of 90 days or less. The Fund
seeks to maintain a constant net asset value of $1.00 per share, although in
certain circumstances this may not be possible. There can be no assurance that
the Fund's objectives will be met or that income to shareholders which is exempt
from regular federal income tax will be exempt from state and local taxes and
the federal alternative minimum tax. Because of its focus on California
tax-exempt investments, the Scudder California Tax Free Money Fund may have to
concentrate a significant percentage of its assets in a single issuer. Changes
in the financial condition or market assessment of the financial condition of
these entities could have a significant adverse impact on the Fund. An
investment in the Fund may be riskier than an investment in a money market fund
that does not focus on investments from a single state. Because the Fund is
intended for investors subject to both California state personal income and
federal income taxes, it may not be appropriate for all investors and is not
available in all states.
Under normal market conditions, the Fund's portfolio securities consist
of California municipal securities. In addition, the Fund may make temporary
taxable investments as described below, and may hold cash. Generally, the Fund
may purchase only securities which are rated, or issued by an issuer rated,
within the two highest quality ratings categories of two or more of the
following rating agencies: Moody's Investors Service, Inc. ("Moody's") (Aaa and
Aa, MIG-1 and MIG-2, and P1 and P2), Standard & Poor's ("S&P") (AAA and AA, SP1+
and SP1, A1+ and A1 and A2), and Fitch Investors Service, Inc. ("Fitch") (AAA
and AA, F1+, F1 and F2). Where only one rating agency has rated a security (or
its issuer), the Fund may purchase that security as long as the rating falls
within the categories described above. Where a security (or its issuer) is
unrated, the Fund may purchase that security if, in the judgment of the Adviser,
it is comparable in quality to securities described above. All of the securities
in which the Fund may invest are dollar-denominated and must meet credit
standards applied by the Adviser pursuant to procedures established by the
Trustees. Should an issue of municipal securities cease to be rated or if its
rating is reduced below the minimum required for purchase by a money market
fund, the Adviser will dispose of any such security unless the Trustees of the
Fund determine that such disposal would not be in the best interests of the
Fund.
The Fund's Investments. Scudder California Tax Free Money Fund invests in
municipal securities of issuers located in California and other qualifying
issuers (including Puerto Rico, the U.S. Virgin Islands and Guam). It is the
opinion of bond counsel, rendered on the date of issuance, that the income from
these obligations is exempt from both California personal income tax and regular
federal income tax ("California municipal securities"). These securities include
general obligation and revenue bonds and notes of issuers located in California
and of other qualifying issuers. General obligation bonds and notes are secured
by the issuer's pledge of its full faith, credit and taxing power for payment of
principal and interest. Revenue bonds and notes are generally paid from the
revenues of a particular facility or a specific excise tax or other revenue
source. The Fund may invest in municipal notes, which are generally used to
provide short-term capital needs, and have maturities of one year or less.
Municipal notes include tax anticipation notes, revenue anticipation notes, bond
anticipation notes and construction loan notes. The Fund may also invest in
municipal bonds with remaining maturities of 397 calendar days or less.
<PAGE>
Ordinarily, the Fund expects that 100% of its portfolio securities will
be California municipal securities. As a matter of fundamental policy which
cannot be changed without the approval of a majority of the Fund's outstanding
voting securities (as defined under "Investment Restrictions"), at least 80% of
the net assets of the Fund will be invested in municipal obligations the income
from which is exempt from both regular federal and California state personal
income tax except that the Fund may invest more than 20% of its net assets in
securities the income from which may be subject to federal and California income
taxes during periods which, in the opinion of the Fund's investment adviser,
Scudder, Stevens & Clark, Inc. (the "Adviser"), require a temporary defensive
position for the protection of shareholders. It is impossible to accurately
predict how long such alternative strategies may be utilized.
From time to time on a temporary basis or for temporary defensive
purposes, the Fund may, subject to its investment restrictions, hold cash and
invest in temporary taxable investments which mature in 397 calendar days or
less at the time of purchase, consisting of (1) other obligations issued by or
on behalf of municipal or corporate issuers; (2) U.S. Treasury notes, bills and
bonds; (3) obligations of agencies and instrumentalities of the U.S. Government;
(4) money market instruments, such as domestic bank certificates of deposit,
finance company and corporate commercial paper, and bankers' acceptances; and
(5) repurchase agreements with respect to any of the obligations which the Fund
is permitted to purchase. The Fund does not invest in instruments issued by
banks or savings and loan associations unless at the time of investment such
issuers have total assets in excess of $1 billion (as of the date of their most
recently published financial statements). Commercial paper investments are
limited to commercial paper rated A-1 by S&P, Prime 1 by Moody's or F-1 by
Fitch. The Fund may hold cash or invest in temporary taxable investments due,
for example, to market conditions or pending investment of proceeds of
subscriptions for shares of the Fund or proceeds from the sale of portfolio
securities or in anticipation of redemptions. However, the Adviser expects to
invest such proceeds in municipal obligations as soon as practicable. Interest
income from temporary investments may be taxable to shareholders as ordinary
income.
Amortized Cost Valuation of Portfolio Securities. Pursuant to Rule 2a-7 of the
Securities and Exchange Commission (the "SEC"), Scudder California Tax Free
Money Fund uses the amortized cost method of valuing its investments, which
facilitates the maintenance of the Fund's per share net asset value at $1.00.
The amortized cost method, which is used to value all of the Fund's portfolio
securities, involves initially valuing a security at its cost and thereafter
amortizing to maturity any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument.
Consistent with the provisions of the Rule, the Fund maintains a
dollar-weighted average portfolio maturity of 90 days or less, purchases only
instruments having remaining maturities of 397 calendar days or less, and
invests only in securities determined by the Trustees to be of high quality with
minimal credit risks.
The Trustees have also established procedures designed to stabilize, to
the extent reasonably possible, the Fund's price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures include review of the
Fund's portfolio by the Trustees, at such intervals as they deem appropriate, to
determine whether the Fund's net asset value calculated by using available
market quotations or market equivalents (i.e., determination of value by
reference to interest rate levels, quotations of comparable securities and other
factors) deviates from $1.00 per share based on amortized cost. Market
quotations and market equivalents used in such review may be obtained from an
independent pricing service approved by the Trustees.
The extent of deviation between the Fund's net asset value based upon
available market quotations or market equivalents and $1.00 per share based on
amortized cost will be periodically examined by the Trustees. If such deviation
exceeds l/2 of l%, the Trustees will promptly consider what action, if any, will
be initiated. In the event the Trustees determine that a deviation exists which
may result in material dilution or other unfair results to investors or existing
shareholders, they will take such corrective action as they regard to be
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding part or all of dividends or payment of distributions from
capital or capital gains; redemptions of shares in kind; or establishing a net
asset value per share by using available market quotations or equivalents. In
addition, in order to stabilize the net asset value per share at $1.00 the
Trustees have the authority (1) to reduce or increase the number of shares
outstanding on a pro-rata basis, and (2) to offset each shareholder's pro-rata
portion of the deviation between net asset value per share and $1.00 from the
shareholder's accrued dividend account or from future dividends. The Fund may
2
<PAGE>
hold cash for the purpose of stabilizing its net asset value per share. Holdings
of cash, on which no return is earned, would tend to lower the yield of the
Fund.
Special Considerations. The investment objectives and policies of
Scudder California Tax Free Money Fund are sought through the following
additional strategies employed in the management of the portfolio which are
described under "Investments, Investment Techniques and Considerations of the
Funds":
1. Income Level and Credit Risk.
2. Municipal Obligations.
3. Investing in California.
4. When-Issued Securities.
5. Stand-By Commitments.
6. Third Party Puts.
7. Repurchase Agreements.
8. Reverse Repurchase Agreements.
General Investment Objective and Policies of Scudder California Tax Free Fund
Scudder California Tax Free Fund seeks to provide California taxpayers
with income exempt from both California personal income and regular federal
income tax. The Fund is a professionally managed portfolio consisting primarily
of investment-grade municipal securities.
The Adviser believes that investment results can be enhanced by active
professional management. Professional management distinguishes the Fund from
unit investment trusts, which cannot be actively managed.
There can be no assurance that the objective of the Fund will be met or
that all income to shareholders which is exempt from regular federal income
taxes will be exempt from state or local taxes, or from the federal alternative
minimum tax.
The Fund's Investments. Normally, at least 75% of the intermediate- and
long-term securities purchased by the Fund will be investment-grade municipal
securities which are those rated Aaa, Aa, A, or Baa by Moody's or AAA, AA, A, or
BBB by S&P or Fitch, or unrated securities judged by the Adviser to be of
equivalent quality, or securities issued or guaranteed by the U.S. Government.
The Fund may also invest up to 25% of its total assets in fixed-income
securities rated below investment-grade, that is, rated below Baa by Moody's or
below BBB by S&P or Fitch, or in unrated securities considered to be of
equivalent quality as determined by the Adviser. The Fund may not invest in
fixed-income securities rated below B by Moody's, S&P or Fitch, or their
equivalent.
Moody's considers bonds it rates Baa to have speculative elements as
well as investment-grade characteristics. Securities rated below BBB are
commonly referred to as "junk bonds" and involve greater price volatility and
higher degrees of speculation with respect to the payment of principal and
interest than higher-quality fixed-income securities. In addition, the trading
market for these securities is generally less liquid than for higher-rated
securities and the Funds may have difficulty disposing of these securities at
the time they wish to do so. The lack of a liquid secondary market for certain
securities may also make it more difficult for the Funds to obtain accurate
market quotations for purposes of valuing their portfolios and calculating their
net asset values.
Issuers of junk bonds may be highly leveraged and may not have
available to them more traditional methods of financing. Therefore, the risks
associated with acquiring the securities of such issuers generally are greater
than is the case with higher rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, issuers of high yield
3
<PAGE>
securities may be more likely to experience financial stress, especially if such
issuers are highly leveraged. In addition, the market for high yield municipal
securities is relatively new and has not weathered a major economic recession,
and it is unknown what effects such a recession might have on such securities.
During such a period, such issuers may not have sufficient revenues to meet
their interest payment obligations. The issuer's ability to service its debt
obligations also may be adversely affected by specific issuer developments, or
the issuer's inability to meet specific projected business forecasts, or the
unavailability of additional financing. The risk of loss due to default by the
issuer is significantly greater for the holders of junk bonds because such
securities may be unsecured and may be subordinated to other creditors of the
issuer.
It is expected that a significant portion of the junk bonds acquired by
the Fund will be purchased upon issuance, which may involve special risks
because the securities so acquired are new issues. In such instances the Fund
may be a substantial purchaser of the issue and therefore have the opportunity
to participate in structuring the terms of the offering. Although this may
enable the Fund to seek to protect itself against certain of such risks, the
considerations discussed herein would nevertheless remain applicable.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of junk bonds,
particularly in a thinly traded market. Factors adversely affecting the market
value of such securities are likely to affect adversely the Fund's net asset
value. In addition, the Fund may incur additional expenses to the extent that it
is required to seek recovery upon a default on a portfolio holding or
participate in the restructuring of the obligation.
The Fund expects to invest principally in securities rated A or better
by Moody's, S&P or Fitch or unrated securities judged by the Adviser to be of
equivalent quality at the time of purchase. Securities in these three rating
categories are judged by the Adviser to have an adequate if not strong capacity
to repay principal and pay interest.
High quality bonds, those within the two highest of the quality rating
categories, characteristically have a strong capacity to pay interest and repay
principal. Medium-grade bonds, those within the next two such categories, are
defined as having adequate capacity to pay interest and repay principal. In
addition, certain medium-grade bonds are considered to have speculative
characteristics. While some lower-grade bonds (so-called "junk bonds") have
produced higher yields than investment-grade bonds in the past, they are
considered to be predominantly speculative and, therefore, carry greater risk.
The Fund's investments must also meet credit standards applied by the
Adviser. Should the rating of a portfolio security be downgraded after being
purchased by the Fund, the Adviser will determine whether it is in the best
interest of the Fund to retain or dispose of the security.
Investments
The Fund invests in municipal securities of issuers located in
California and other qualifying issuers (including Puerto Rico, the U.S. Virgin
Islands and Guam). It is the opinion of bond counsel, rendered on the date of
issuance, that the income from these obligations is exempt from both California
personal income tax and regular federal income tax ("California municipal
securities"). The Fund may invest in municipal bonds, which meet longer-term
capital needs and generally have maturities of more than one year when issued.
These securities include general obligation and revenue bonds, industrial
development and pollution control bonds of issuers located in California. The
Fund may invest in municipal notes, which are generally used to provide
short-term capital needs and have maturities of one year or less. Municipal
notes include tax anticipation notes, revenue anticipation notes, bond
anticipation notes and construction loan notes. General obligation bonds and
notes are secured by the issuer's pledge of its full faith, credit and taxing
power for payment of principal and interest. Revenue bonds and notes are
generally paid from the revenues of a particular facility, a specific excise tax
or other revenue source.
Under normal market conditions, the Fund expects to invest principally
in California municipal securities with long-term maturities (i.e., more than 10
years). The Fund has the flexibility, however, to invest in California municipal
securities with short- and medium-term maturities.
4
<PAGE>
The Fund may also invest up to 20% of its total assets in municipal
securities the interest income from which is taxable or subject to the
alternative minimum tax ("AMT" bonds). Fund distributions from interest on
certain municipal securities subject to the alternative minimum tax, such as
private activity bonds, will be a preference item for purposes of calculating
individual and corporate alternative minimum taxes, depending upon investors'
particular situations. In addition, state and local taxes may apply, depending
upon your state and local tax laws.
Ordinarily, the Fund expects 100% of its portfolio securities to be
California municipal securities. As a matter of fundamental policy which cannot
be changed without the approval of a majority of the Fund's outstanding voting
securities (as defined under "Investment Restrictions"), at least 80% of the net
assets of the Fund will be invested in California municipal securities except as
stated below. The Fund may also, for temporary defensive purposes, hold cash or
invest its assets in taxable securities. It is impossible to accurately predict
how long these alternative strategies may be utilized.
When, in the opinion of the Adviser, defensive considerations or an
unusual disparity between the after-tax income on taxable investments and
comparable municipal obligations make it advisable to do so, up to 20% of the
Fund's net assets may be held in cash or invested in short-term taxable
investments such as (1) U.S. Treasury notes, bills and bonds; (2) obligations of
agencies and instrumentalities of the U.S. Government; and (3) money market
instruments, such as domestic bank certificates of deposit, finance company and
corporate commercial paper, and bankers' acceptances. Notwithstanding the
foregoing, the Fund may invest more than 20% of its net assets in securities the
income from which may be subject to federal and California income tax during
periods which, in the opinion of the Adviser, require a defensive position for
the protection of shareholders. Investors should be aware that shares of the
Fund do not represent a complete investment program.
The Fund may invest in stand-by commitments, third party puts,
when-issued securities and enter into repurchase agreements and reverse
repurchase agreements, which may involve certain expenses and risks, including
credit risks. The Fund may also invest in variable rate demand instruments.
These securities and techniques are not expected to comprise a major portion of
the Fund's investments. The Fund may also utilize various other strategic
transactions, including derivatives. See "Additional information about policies
and investments" for more information about these investment techniques.
During the fiscal year ended March 31, 1997, based upon the
dollar-weighted average ratings of the Fund's portfolio holdings at the end of
each month during that period, the Fund had the following percentages of its net
assets invested in debt securities rated (or if unrated, considered by the
Adviser to be equivalent to rated securities) in the categories indicated: 4.59%
BB+ and 0.69% BB.
A portion of the Fund's income may be subject to federal, state and
local income taxes.
Municipal Lease Obligations and Participation Interests. A municipal lease
obligation may take the form of a lease, installment purchase contract or
conditional sales contract which is issued by a state or local government and
authorities to acquire land, equipment and facilities. Income from such
obligations is generally exempt from state and local taxes in the state of
issuance. Municipal lease obligations frequently involve special risks not
normally associated with general obligations or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title in the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
relieve the governmental issuer of any obligation to make future payments under
the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. In addition,
such leases or contracts may be subject to the temporary abatement of payments
in the event the issuer is prevented from maintaining occupancy of the leased
premises or utilizing the leased equipment. Although the obligations may be
secured by the leased equipment or facilities, the disposition of the property
in the event of nonappropriation or foreclosure might prove difficult, time
consuming and costly, and result in a delay in recovery or the failure to fully
recover the Fund's original investment.
5
<PAGE>
Participation interests represent undivided interests in municipal
leases, installment purchase contracts, conditional sales contracts or other
instruments. These are typically issued by a trust or other entity which has
received an assignment of the payments to be made by the state or political
subdivision under such leases or contracts.
Certain municipal lease obligations and participation interests may be
deemed illiquid for the purpose of the Fund's limitation on investments in
illiquid securities. Other municipal lease obligations and participation
interests acquired by the Fund may be determined by the Adviser to be liquid
securities for the purpose of such limitation. In determining the liquidity of
municipal lease obligations and participation interests, the Adviser will
consider a variety of factors including: (1) the willingness of dealers to bid
for the security; (2) the number of dealers willing to purchase or sell the
obligation and the number of other potential buyers; (3) the frequency of trades
or quotes for the obligation; and (4) the nature of the marketplace in which the
security trades. In addition, the Adviser will consider factors unique to
particular lease obligations and participation interests affecting the
marketability thereof. These include the general creditworthiness of the issuer,
the importance to the issuer of the property covered by the lease and the
likelihood that the marketability of the obligation will be maintained
throughout the time the obligation is held by the Fund.
The Fund may purchase participation interests in municipal lease
obligations held by a commercial bank or other financial institution. Such
participations provide the Fund with the right to a pro rata undivided interest
in the underlying municipal lease obligations. In addition, such participations
generally provide the Fund with the right to demand payment, on not more than
seven days' notice, of all or any part of the Fund's participation interest in
the underlying municipal lease obligation, plus accrued interest. The Fund will
only invest in such participations if, in the opinion of bond counsel, counsel
for the issuers of such participations or counsel selected by the Adviser, the
interest from such participations is exempt from regular federal income tax and
state income tax, if applicable.
Indexed Securities. Scudder California Tax Free Fund may invest in indexed
securities, the value of which is linked to currencies, interest rates,
commodities, indices or other financial indicators ("reference instruments").
Most indexed securities have maturities of three years or less.
Indexed securities differ from other types of debt securities in which
the Fund may invest in several respects. First, the interest rate or, unlike
other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference
instruments, such as an interest rate compared with a fixed interest rate or the
currency exchange rates between two currencies (neither of which need be the
currency in which the instrument is denominated). The reference instrument need
not be related to the terms of the indexed security. For example, the principal
amount of a U.S. dollar denominated indexed security may vary based on the
exchange rate of two foreign currencies. An indexed security may be positively
or negatively indexed; that is, its value may increase or decrease if the value
of the reference instrument increases. Further, the change in the principal
amount payable or the interest rate of an indexed security may be a multiple of
the percentage change (positive or negative) in the value of the underlying
reference instrument(s).
Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
Illiquid and Restricted Securities. Each Fund may occasionally purchase
securities other than in the open market. While such purchases may often offer
attractive opportunities for investment not otherwise available on the open
market, the securities so purchased are often "restricted securities" or "not
readily marketable," i.e., securities which cannot be sold to the public without
registration under the Securities Act of 1933 or the availability of an
exemption from registration (such as Rules 144 or 144A) or because they are
subject to other legal or contractual delays in or restrictions on resale.
Strategic Transactions and Derivatives. Scudder California Tax Free Fund may,
but is not required to, utilize various other investment strategies as described
below to hedge various market risks (such as interest rates and broad or
specific market movements), to manage the effective maturity or duration of the
Fund's portfolio, or to enhance potential gain. These strategies may be executed
6
<PAGE>
through the use of derivative contracts. Such strategies are generally accepted
as a part of modern portfolio management and are regularly utilized by many
mutual funds and other institutional investors. Techniques and instruments may
change over time as new instruments and strategies are developed or regulatory
changes occur.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, and enter into various
interest rate transactions such as swaps, caps, floors or collars (collectively,
all the above are called "Strategic Transactions"). Strategic Transactions may
be used without limit to attempt to protect against possible changes in the
market value of securities held in or to be purchased for the Fund's portfolio
resulting from securities markets fluctuations, to protect the Fund's unrealized
gains in the value of its portfolio securities, to facilitate the sale of such
securities for investment purposes, to manage the effective maturity or duration
of the Fund's portfolio, or to establish a position in the derivatives markets
as a temporary substitute for purchasing or selling particular securities. Some
Strategic Transactions may also be used to enhance potential gain although no
more than 5% of the Fund's assets will be committed to Strategic Transactions
entered into for non-hedging purposes. Any or all of these investment techniques
may be used at any time and in any combination, and there is no particular
strategy that dictates the use of one technique rather than another, as use of
any Strategic Transaction is a function of numerous variables including market
conditions. The ability of the Fund to utilize these Strategic Transactions
successfully will depend on the Adviser's ability to predict pertinent market
movements, which cannot be assured. The Fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments. Strategic Transactions involving financial futures and options
thereon will be purchased, sold or entered into only for bona fide hedging, risk
management or portfolio management purposes and not for speculative purposes.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
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security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options that are subject to a buy-back provision
permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. The Fund expects generally to enter
into OTC options that have cash settlement provisions, although it is not
required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers," or broker/dealers, domestic or foreign banks
or other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any other nationally recognized
statistical rating organization ("NRSRO") or are determined to be of equivalent
credit quality by the Adviser. The staff of the SEC currently takes the position
that OTC options purchased by the Fund, and portfolio securities "covering" the
amount of the Fund's obligation pursuant to an OTC option sold by it (the cost
of the sell-back plus the in-the-money amount, if any) are illiquid, and are
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subject to the Fund's limitation on investing no more than 10% of its assets in
illiquid securities.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, municipal obligations, mortgage-backed
securities and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices and futures contracts. All calls sold by the Fund must be "covered"
(i.e., the Fund must own the securities or futures contract subject to the call)
or must meet the asset segregation requirements described below as long as the
call is outstanding. Even though the Fund will receive the option premium to
help protect it against loss, a call sold by the Fund exposes the Fund during
the term of the option to possible loss of opportunity to realize appreciation
in the market price of the underlying security or instrument and may require the
Fund to hold a security or instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities, including
U.S. Treasury and agency securities, mortgage-backed securities, municipal
obligations and Eurodollar instruments (whether or not it holds the above
securities in its portfolio) and on securities indices and futures contracts
other than futures on individual corporate debt and individual equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the Fund's assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.
General Characteristics of Futures. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate or fixed-income market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The sale of a futures contract creates
a firm obligation by the Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to index futures and Eurodollar
instruments, the net cash amount). Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right in return for the premium paid to assume a position in a
futures contract and obligates the seller to deliver such position.
The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the Commodity Futures Trading Commission and will
be entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of options on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
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Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions and multiple
interest rate transactions and any combination of futures, options and interest
rate transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate and index swaps and the purchase or sale of
related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. An index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the Investment Company Act of 1940, as amended (the "1940 Act") and,
accordingly, will not treat them as being subject to its borrowing restrictions.
The Fund will not enter into any swap, cap, floor or collar transaction unless,
at the time of entering into such transaction, the unsecured long-term debt of
the Counterparty, combined with any credit enhancements, is rated at least A by
S&P or Moody's or has an equivalent rating from an NRSRO or is determined to be
of equivalent credit quality by the Adviser. If there is a default by the
Counterparty, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
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Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate cash or liquid assets equal to the amount of the Fund's
obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid assets
having a value equal to the accrued excess. Caps, floors and collars require
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segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
The Fund's activities involving Strategic Transactions may be limited
by the requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company. (See
"TAXES.")
Management Strategies. In pursuit of its investment objectives, the Fund
purchases securities that it believes are attractive and competitive values in
terms of quality, yield, and the relationship of current price to maturity
value. However, recognizing the dynamics of municipal bond prices in response to
changes in general economic conditions, fiscal and monetary policies, interest
rate levels and market forces such as supply and demand for various bond issues,
the Adviser, subject to the Trustees' review, performs credit analysis and
manages the Fund's portfolio continuously, attempting to take advantage of
opportunities to improve total return, which is a combination of income and
principal performance over the long term. The primary strategies employed in the
management of the Fund's portfolio are:
Emphasis on Credit Analysis. As indicated above, the Fund's portfolio
is invested in municipal obligations rated within, or judged by the Adviser to
be of a quality comparable to, the six highest rating categories of Moody's, S&P
or Fitch. The ratings assigned by Moody's, S&P and Fitch represent their
opinions as to the quality of the securities which they undertake to rate. It
should be emphasized, however, that ratings are relative and are not absolute
standards of quality. Furthermore, even within this segment of the municipal
bond market, relative credit standing and market perceptions thereof may shift.
Therefore, the Adviser believes that it should review continuously the quality
of municipal obligations.
The Adviser has over many years developed an experienced staff to
assign its own quality ratings which are considered in making value judgments
and in arriving at purchase or sale decisions. Through the discipline of this
procedure the Adviser attempts to discern variations in credit rankings of the
published services and to anticipate changes in credit ranking.
Variations of Maturity. In an attempt to capitalize on the differences
in total return from municipal obligations of differing maturities, maturities
may be varied according to the structure and level of interest rates, and the
Adviser's expectations of changes therein. To the extent that a Fund invests in
short-term maturities, capital volatility will be reduced.
Emphasis on Relative Valuation. The interest rate (and hence price)
relationships between different categories of municipal obligations of the same
or generally similar maturity tend to change constantly in reaction to broad
swings in interest rates and factors affecting relative supply and demand. These
disparities in yield relationships may afford opportunities to implement a
flexible policy of trading a Fund's holdings in order to invest in more
attractive market sectors or specific issues.
Market Trading Opportunities. In pursuit of the above the Fund may
engage in short-term trading (selling securities held for brief periods of time,
usually less than three months) if the Adviser believes that such transactions,
net of costs, would further the attainment of the Fund's objective. The needs of
different classes of lenders and borrowers and their changing preferences and
circumstances have in the past caused market dislocations unrelated to
fundamental creditworthiness and trends in interest rates which have presented
market trading opportunities. There can be no assurance that such dislocations
will occur in the future or that either Fund will be able to take advantage of
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them. The Fund will limit its voluntary short-term trading to the extent such
limitation is necessary for it to qualify as a "regulated investment company"
under the Code.
Special Considerations. The investment objectives and policies of Scudder
California Tax Free Fund are sought through the following additional strategies
employed in the management of the portfolio which are described under
"Investments, Investment Techniques and Considerations of the Funds":
1. Income Level and Credit Risk.
2. Municipal Obligations.
3. Investing in California.
4. When-Issued Securities.
5. Stand-by Commitments.
6. Third Party Puts.
7. Repurchase Agreements.
8. Reverse Repurchase Agreements.
Investments, Investment Techniques and Considerations of the Funds
Income Level and Credit Risk. Because the Funds principally intend to hold
investment-grade (in the case of California Tax Free Fund) and high quality (in
the case of California Tax Free Money Fund) municipal obligations, the income
earned on shares of each Fund tend to be less than it might be on a portfolio
emphasizing lower quality securities. Municipal obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal bankruptcy laws, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon municipalities to levy taxes. There is
also the possibility that as a result of litigation or other conditions, the
power or ability of any one or more issuers to pay, when due, principal of and
interest on its or their municipal obligations may be materially affected.
Scudder California Tax Free Fund may invest in municipal securities rated B by
S&P, Fitch or Moody's although it intends to invest principally in securities
rated in higher grades. Although each Fund's quality standards are designed to
minimize the credit risk of investing in the Fund, that risk cannot be entirely
eliminated. Shares of the Funds are not insured by any agency of California or
of the U.S. Government.
Municipal Obligations. Municipal obligations are issued by or on behalf of
states, territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities to obtain funds for various public
purposes. The interest on most of these obligations is generally exempt from
regular federal income tax in the hands of most individual investors, although
it may be subject to the individual and corporate alternative minimum tax. The
two principal classifications of municipal obligations are "notes" and "bonds."
1. Municipal Notes. Municipal notes are generally used to provide for
short-term capital needs and generally have maturities of one year or less.
Municipal notes include: tax anticipation notes; revenue anticipation notes;
bond anticipation notes; and construction loan notes.
Tax anticipation notes are sold to finance working capital needs of
municipalities. They are generally payable from specific tax revenues expected
to be received at a future date. Revenue anticipation notes are issued in
expectation of receipt of other types of revenue such as federal revenues
available under the Federal Revenue Sharing Program. Tax anticipation notes and
revenue anticipation notes are generally issued in anticipation of various
seasonal revenues such as income, sales, use, and business taxes. Bond
anticipation notes are sold to provide interim financing. These notes are
generally issued in anticipation of long-term financing in the market. In most
cases, such financing provides for the repayment of the notes. Construction loan
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notes are sold to provide construction financing. After the projects are
successfully completed and accepted, many projects receive permanent financing
through the Federal Housing Administration under "Fannie Mae" (the Federal
National Mortgage Association) or "Ginnie Mae" (the Government National Mortgage
Association). There are, of course, a number of other types of notes issued for
different purposes and secured differently from those described above.
2. Municipal Bonds. Municipal bonds which meet longer term capital
needs generally have maturities of more than one year when issued, have two
principal classifications: "general" obligation bonds and "revenue" bonds.
Issuers of general obligation bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to fund
a wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate or amount or special assessments.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may also be
used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security including partially or
fully insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund. Lease rental revenue bonds issued by a state or local authority for
capital projects are secured by annual lease rental payments from the state or
locality to the authority sufficient to cover debt service on the authority's
obligations.
Industrial development and pollution control bonds, although nominally
issued by municipal authorities, are generally not secured by the taxing power
of the municipality but are secured by the revenues of the authority derived
from payments by the industrial user. Under federal tax legislation, certain
types of Industrial Development Bonds and Pollution Control Bonds may no longer
be issued on a tax-exempt basis, although previously-issued bonds of these types
and certain refundings of such bonds are not affected. Each Fund may invest more
than 25% of its assets in industrial development or other private activity
bonds, subject to each Fund's fundamental investment policies, and also subject
to each Fund's current intention not to invest in municipal securities whose
investment income is taxable or subject to the Fund's 20% limitation on
investing in AMT bonds. For the purposes of each Fund's investment limitation
regarding concentration of investments in any one industry, industrial
development or other private activity bonds ultimately payable by companies
within the same industry will be considered as if they were issued by issuers in
the same industry.
3. Other Municipal Obligations. There is, in addition, a variety of
hybrid and special types of municipal obligations as well as numerous
differences in the security of municipal obligations both within and between the
two principal classifications above.
The Funds may purchase variable rate demand instruments that are
tax-exempt municipal obligations providing for a periodic adjustment in the
interest rate paid on the instrument according to changes in interest rates
generally. These instruments also permit a Fund to demand payment of the unpaid
principal balance plus accrued interest upon a specified number of days' notice
to the issuer or its agent. The demand feature may be backed by a bank letter of
credit or guarantee issued with respect to such instrument. The Funds intend to
exercise the demand only (1) upon a default under the terms of the municipal
obligation, (2) as needed to provide liquidity to the Funds, or (3) to maintain
their respective investment portfolio ratings standards. A bank that issues a
repurchase commitment may receive a fee from a Fund for this arrangement. The
issuer of a variable rate demand instrument may have a corresponding right to
prepay in its discretion the outstanding principal of the instrument plus
accrued interest upon notice comparable to that required for the holder to
demand payment.
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The variable rate demand instruments that these Funds may purchase are
payable on demand on not more than thirty calendar days' notice. The terms of
the instruments provide that interest rates are adjustable at intervals ranging
from daily up to six months, and the adjustments are based upon the prime rate
of a bank or other appropriate interest rate adjustment index as provided in the
respective instruments. The Funds determine the variable rate demand instruments
that they purchase in accordance with procedures approved by the Trustees to
minimize credit risks. The Adviser may determine that an unrated variable rate
demand instrument meets a Fund's quality criteria by reason of being backed by a
letter of credit or guarantee issued by a bank that meets the quality criteria
for the Fund. Thus, either the credit of the issuer of the municipal obligation
or the guarantor bank or both meet the quality standards of a Fund. The Adviser
reevaluates each unrated variable rate demand instrument held by a Fund on a
quarterly basis to determine that it continues to meet the Fund's quality
criteria.
The value of the underlying variable rate demand instruments may change
with changes in interest rates generally, but the variable rate nature of these
instruments should decrease changes in value due to interest rate fluctuations.
Accordingly, as interest rates decrease or increase, the potential for capital
gain and the risk of capital loss on the disposition of portfolio securities are
less than would be the case with the comparable portfolio of fixed income
securities. The Funds may purchase variable rate demand instruments on which
stated minimum or maximum rates, or maximum rates set by state law, limit the
degree to which interest on such variable rate demand instruments may fluctuate;
to the extent it does, increases or decreases in value of such variable rate
demand notes may be somewhat greater than would be the case without such limits.
Because the adjustment of interest rates on the variable rate demand instruments
is made in relation to movements of the applicable rate adjustment index, the
variable rate demand instruments are not comparable to long-term fixed interest
rate securities. Accordingly, interest rates on the variable rate demand
instruments may be higher or lower than current market rates for fixed rate
obligations of comparable quality with similar final maturities.
The maturity of the variable rate demand instruments held by the Funds
are ordinarily deemed to be the longer of (1) the notice period required before
the Fund is entitled to receive payment of the principal amount of the
instrument or (2) the period remaining until the instrument's next interest rate
adjustment.
General Considerations. An entire issue of municipal obligations may be
purchased by one or a small number of institutional investors such as one of the
Funds. Thus, the issue may not be said to be publicly offered. Unlike securities
which must be registered under the Securities Act of 1933 prior to offer and
sale unless an exemption from such registration is available, municipal
obligations which are not publicly offered may nevertheless be readily
marketable. A secondary market exists for municipal obligations which were not
publicly offered initially.
Obligations purchased for the Funds are subject to the limitations on
holdings of securities which are not readily marketable contained in each Fund's
investment restrictions. The Adviser determines whether a municipal obligation
is readily marketable based on whether it may be sold in a reasonable time
consistent with the customs of the municipal markets (usually seven days) at a
price (or interest rate) which accurately reflects its value. The Adviser
believes that the quality standards applicable to each Fund's investments
enhance marketability. In addition, Stand-by Commitments and demand obligations
also enhance marketability.
For the purpose of each Fund's investment restrictions, the
identification of the "issuer" of municipal obligations which are not general
obligation bonds is made by the Adviser on the basis of the characteristics of
the obligation as described above, the most significant of which is the source
of funds for the payment of principal of and interest on such obligations.
Yields on municipal obligations depend on a variety of factors,
including money market conditions, municipal bond market conditions, the size of
a particular offering, the maturity of the obligation and the quality of the
issue.
The Funds expect that each will not invest more than 25% of its total
assets in municipal obligations the security of which is derived from any one of
the following categories: hospitals and health facilities; turnpikes and toll
roads; ports and airports; or colleges and universities. Each Fund may invest
more than 25% of its total assets in municipal obligations of one or more of the
following types: public housing authorities; general obligations of states and
localities; lease rental obligations of states and local authorities; state and
local housing finance authorities; municipal utilities systems; bonds that are
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secured or backed by the Treasury or other U.S. Government guaranteed
securities; or industrial development and pollution control bonds. There could
be economic, business or political developments, which might affect all
municipal obligations of a similar type. However, each Fund believes that the
most important consideration affecting risk is the quality of municipal
obligations.
Investing in California. The following information constitutes only a brief
summary, does not purport to be a complete description, and is based on
information available as of the date of this Prospectus from official statements
and prospectuses relating to securities offerings of the State of California and
various local agencies in California. While the Sponsors have not independently
verified such information, they have no reason to believe that such information
is not correct in all material respects.
Economic Factors
Fiscal Years Prior to 1996-97. By the close of the 1989-90 Fiscal Year,
California's revenues had fallen below projections so that the State's budget
reserve, the Special Fund for Economic Uncertainties (the "Special Fund"), was
fully depleted by June 30, 1990. A recession which had begun in mid-1990,
combined with higher health and welfare costs driven by the State's rapid
population growth, adversely affected General Fund revenues and raised
expenditures above initial budget appropriations.
As a result of these factors and others, the State confronted a period
of budget imbalance. Beginning with the 1990-91 Fiscal Year and for several
years thereafter, the budget required multibillion dollar actions to bring
projected revenues and expenditures into balance. During this period,
expenditures exceeded revenues in four out of six years, and the State
accumulated and sustained a budget deficit in the Special Fund - approaching
$2.8 billion at its peak on June 30, 1993.
By the 1993-94 Fiscal Year, the accumulated deficit was too large to be
prudently retired in one year and a two-year program was implemented. This
program used revenue anticipation warrants to carry a portion of the deficit
over to the end of the fiscal year.
The 1994-95 Budget Act projected General Fund revenues and transfers of
$41.9 billion. Expenditures were projected to be $40.9 billion - an increase of
$1.6 billion over the prior year. As a result of the improving economy, however,
the fiscal year ultimately produced revenues and transfers of $42.7 billion
which more than offset expenditures of $42.0 billion and thereby reduced the
accumulated budget deficit.
With strengthening revenues and reduced caseload growth driven by an
improving economy, the State entered the 1995-96 Fiscal Year budget negotiations
with the smallest nominal "budget gap" to be closed in many years. The 1995-96
Budget Act projected General Fund revenues and transfers of $44.1 billion, a 3.5
percent increase from the prior year, and expenditures were budgeted at $43.4
billion. In addition, the Department of Finance projected that after repaying
the last of the carryover budget deficit, there would be a positive balance of
$28 million in the budget reserve as of June 30, 1996.
1996-97 Fiscal Year. The 1996-97 Governor's Budget, released January
10, 1996, projected General Fund revenues and transfers of $45.6 billion, a 1.3%
increase over 1995-96. The Governor's budget proposed two major initiatives, a
15% personal and corporate income tax cut and a revision of the trial court
funding program, which would have the effect of reducing General Fund revenues.
The Governor's Budget proposed General Fund expenditures of $45.2 billion. The
Governor's Budget also proposed Special Fund revenues equal to expenditures, at
a level of $13.3 billion.
The May Revision of the Governor's Budget, released on May 21, 1996
("The May Revision"), updated revenue estimates for the 1996-97 Fiscal Year,
reflecting stronger economic activity in the State and thus greater revenue
growth. The revised estimate was for $47.1 billion of revenues, still assuming
the Governor's tax cut would be enacted, and $46.5 billion of expenditures.
1996-97 Budget Act. The 1996-97 Budget Act was signed by the Governor
on July 15, 1996, along with various implementing bills. The Governor vetoed
about $82 million of appropriations (both General Fund and Special Fund). With
the signing
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of the Budget Act, the State implemented its regular cash flow borrowing program
with the issuance of $3.0 billion of Revenue Anticipation Notes to mature on
June 30, 1997. The Budget Act appropriates a budget reserve in the Special Fund
of $305 million, as of June 30, 1997. The Department of Finance projects that,
on June 30, 1997, the State's available borrowable (cash) resources will be $2.9
billion, after payment of all obligations due by that date, so that no
cross-fiscal year borrowing is anticipated.
Revenues. The Legislature rejected the Governor's proposed 15% cut in
personal income taxes (to be phased in over three years), approved a 5% cut in
bank and corporation taxes, to be effective for income years commencing on
January 1, 1997. As a result of the Legislature's failure to enact the personal
income tax cut, revenues for the Fiscal Year are estimated to be $550 million
higher than projected in the May Revision, and are now estimated to total
$47.643 billion, a 3.3 percent increase over the final estimated 1995-96
revenues. Special Fund revenues are estimated to be $13.3 billion.
Expenditures. The Budget Act contains General Fund appropriations
totaling $47.251 billion, a 4.0 percent increase over the final estimated
1995-96 expenditures. Special Fund expenditures are budgeted at $12.6 billion.
The following are principal features of the 1996-97 Budget Act:
1. Proposition 98 funding for schools and community college districts
increased by almost $1.6 billion (General Fund) and $1.65 billion above revised
1995-96 levels. Almost half of this money was budgeted to fund class-size
reductions in kindergarten and grades 1-3. Also, for the second consecutive
year, the full cost of living allowance (3.2 percent) was funded. Proposition 98
increases have brought K-12 expenditures to almost $4,800 per pupil (also called
ADA, or Average Daily Attendance), an almost 15% increase over the level
prevailing during the recession years. Out of this $1.6 billion total community
colleges will receive an increase in funding of $157 million for 1996-97.
Due to higher than projected revenues in 1995-96, an additional $1.1
billion ($190 per K-12 ADA and $145 million for community colleges) was
appropriated and retroactively applied towards the 1995-96 Proposition 98
guarantee, bringing K-12 expenditures in that year to over $4,600 per ADA.
Similar retroactive increases totaling $230 million, based on final figures on
revenues and State population growth, were made to the 1991-92 and the 1994-95
Proposition 98 guarantees, most of which was allocated to each school site.
2. The Budget Act assumed savings of approximately $660 million in
health and welfare costs which required changes in federal law, including
federal welfare reform. The Budget Act further assumed federal law changes in
August 1996 which would allow welfare cash grant levels to be reduced by October
1, 1996. These cuts totaled approximately $163 million of the anticipated $660
million savings. See "Federal Welfare Reform".
3. A 4.9 percent increase in funding for the University of California
($130 million General Fund) and the California State University system ($101
million General Fund), with no increases in student fees.
4. The Budget Act assumed the federal government will provide
approximately $700 million in new aid for incarceration and health care costs of
illegal immigrants. These funds reduce appropriations in these categories that
would otherwise have to be paid from the General Fund. (For purposes of cash
flow projections, the Department of Finance expects $540 million of this amount
to be received during the 1996-97 fiscal year.)
5. General Fund support for the Department of Corrections was increased
by about 7 percent over the prior year, reflecting estimates of increased prison
population.
6. With respect to aid to local governments, the principal new programs
included in the Budget Act are $100 million in grants to cities and counties for
law enforcement purposes, and budgeted $50 million for competitive grants to
local governments for programs to combat juvenile crime.
The Budget Act did not contain any tax increases. As noted, there was a
reduction in bank and corporate taxes. In addition, the Legislature approved
another one-year suspension of the Renters Tax Credit, saving $520 million in
expenditures.
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Federal Welfare Reform. Following enactment of the 1996-97 Budget Act,
Congress passed and the President signed (on August 22, 1996) the Personal
Responsibility and Work Opportunity Act of 1996 (P.L. 104-193, the "Law") making
a fundamental reform of the current welfare system. Among many provisions, the
Law includes: (i) conversion of Aid to Families with Dependent Children from an
entitlement program to a block grant titled Temporary Assistance for Needy
Families (TANF), with lifetime time limits on TANF recipients, work requirements
and other changes; (ii) provisions denying certain federal welfare and public
benefits to legal noncitizens, allowing states to elect to deny additional
benefits (including TANF) to legal noncitizens, and generally denying almost all
benefits to illegal immigrants; and (iii) changes in the Food Stamp program,
including reducing maximum benefits and imposing work requirements.
The Law requires states to implement the new TANF program not later
than July 1, 1997 and provides California approximately $3.7 billion in block
grant funds for FY 1996-97. States are allowed to implement TANF as soon as
possible and will receive a prorated block grant effective the date of
application. The California State Plan is to be submitted in time to allow grant
reductions to be implemented effective January 1, 1997 (allowing $92 million of
the $163 million referred to in paragraph 2 above to be saved) and to allow the
State to capture approximately $267 million in additional federal block grant
funds over the currently budgeted level. None of the other federal changes
needed to achieve the balance of the $660 million cost savings were enacted.
Thus in lieu of the $660 million savings initially assumed to be saved, it is
now projected that savings will total approximately $360 million.
A preliminary analysis of the Law by the Legislative Analyst's Office
indicated that an overall assessment of how these changes will affect the
State's General Fund will not be known for some time, and will depend on how the
State implements the Law. There are many choices including how quickly the State
implements the Law; the degree to which the State elects to make up for cuts in
federal aid; provide more aid to counties, or cut some of its own existing
programs for noncitizens; and the State's ability to avoid certain penalties
written into the Law.
1997-98 Fiscal Year Proposed Budget. On January 9, 1997, the Governor
released his proposed budget for the 1997-98 Fiscal Year (the "Governor's
Budget"). The Governor's Budget projects General Fund revenues and transfers in
1997-98 of $50.7 billion, a 4.6% increase from revised 1996-97 figures. The
Governor proposes expenditures of $50.3 billion, a 3.9% increase from 1996-97.
The Governor's Budget projects a balance in the SFEU of $553 million on June 30,
1998. The Governor's Budget also anticipates about $3 billion of external
borrowing for cash flow purposes during the year, with no requirement for
cross-fiscal year borrowing.
Among the major initiatives and features of the Governor's Budget are
the following:
1. A proposed 10% cut in the Bank and Corporation Tax rate, to be
phased in over two years.
2. Proposition 98 funding for K-14 schools will be increased again, as
a result of stronger revenues. Per-pupil funding for K-12 schools will reach
$5,010, compared to $4,220 as recently as the 1993-94 Fiscal Year. Part of the
new funding is proposed to be dedicated to the completion of the current program
to reduce class size to 20 pupils in lower elementary grades, and to expand the
program by one grade, so that it will cover K-3rd grade.
3. Funding for higher education will be increased consistent with a
four-year "compact" established in 1995-96. There is not projected to be any
increase in student fees at any of the three levels of the State higher
education system.
4. The 1997-98 proposed Governor's Budget assumes approximately $500
million in savings contingent upon federal action. The Budget assumes that
federal law will be enacted to remove the maintenance-of-effect requirement for
Supplemental Security Income (SSI) payments, thereby enabling the state to
reduce grant levels pursuant to previously enacted state law ($279 million). The
Budget also assumes the federal government will fund $216 million in costs of
health care for illegal immigrants.
The Orange County Bankruptcy. On December 6, 1994, Orange County,
California and its Investment Pool (the "Pool") filed for bankruptcy under
Chapter 9 of the United States Bankruptcy Code. The subsequent restructuring led
to the sale of substantially all of the Pool's portfolio and resulted in losses
estimated to be approximately $1.7 billion (or approximately 22% of amounts
deposited by the
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Pool investors). Approximately 187 California public entities -- substantially
all of which are public agencies within the county -- had various bonds, notes
or other forms of indebtedness outstanding. In some instances the proceeds of
such indebtedness were invested in the Pool.
In April, 1996, the County emerged from bankruptcy after closing on a
$900 million recovery bond deal. At that time, the County and its financial
advisors stated that the County had emerged from the bankruptcy without any
structural fiscal problems and assured that the County would not slip back into
bankruptcy. However, for many of the cities, schools and special districts that
lost money in the County portfolio, repayment remains contingent on the outcome
of litigation which is pending against investment firms and other finance
professionals. Thus, it is impossible to determine the ultimate impact of the
bankruptcy and its aftermath on these various agencies and their claims.
Constitutional, Legislative and Other Factors
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could produce
the adverse effects described below, among others.
Revenue Distribution. Certain Debt Obligations in the Portfolio may be
obligations of issuers which rely in whole or in part on California State
revenues for payment of these obligations. Property tax revenues and a portion
of the State's general fund surplus are distributed to counties, cities and
their various taxing entities and the State assumes certain obligations
theretofore paid out of local funds. Whether and to what extent a portion of the
State's general fund will be distributed in the future to counties, cities and
their various entities is unclear.
Health Care Legislation. Certain Debt Obligations in the Portfolio may
be obligations which are payable solely from the revenues of health care
institutions. Certain provisions under California law may adversely affect these
revenues and, consequently, payment on those Debt Obligations.
The Federally sponsored Medicaid program for health care services to
eligible welfare beneficiaries in California is known as the Medi-Cal program.
Historically, the Medi-Cal program has provided for a cost-based system of
reimbursement for inpatient care furnished to Medi-Cal beneficiaries by any
hospital wanting to participate in the Medi-Cal program, provided such hospital
met applicable requirements for participation. California law now provides that
the State of California shall selectively contract with hospitals to provide
acute inpatient services to Medi-Cal patients. Medi-Cal contracts currently
apply only to acute inpatient services. Generally, such selective contracting is
made on a flat per diem payment basis for all services to Medi-Cal
beneficiaries, and generally such payment has not increased in relation to
inflation, costs or other factors. Other reductions or limitations may be
imposed on payment for services rendered to Medi-Cal beneficiaries in the
future.
Under this approach, in most geographical areas of California, only
those hospitals which enter into a Medi-Cal contract with the State of
California will be paid for non-emergency acute inpatient services rendered to
Medi-Cal beneficiaries. The State may also terminate these contracts without
notice under certain circumstances and is obligated to make contractual payments
only to the extent the California legislature appropriates adequate funding
therefor.
California enacted legislation in 1982 that authorizes private health
plans and insurers to contract directly with hospitals for services to
beneficiaries on negotiated terms. Some insurers have introduced plans known as
"preferred provider organizations" ("PPOs"), which offer financial incentives
for subscribers who use only the hospitals which contract with the plan. Under
an exclusive provider plan, which includes most health maintenance organizations
("HMOs"), private payors limit coverage to those services provided by selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to the
contracting hospital of less than actual cost and the volume of patients
directed to a hospital under an HMO or PPO contract may vary significantly from
projections. Often, HMO or PPO contracts are enforceable for a stated term,
regardless of provider losses or of bankruptcy of the respective HMO or PPO. It
is expected that failure to execute and maintain such PPO and HMO contracts
would reduce a hospital's patient base or gross revenues. Conversely,
participation may maintain or increase the patient base, but may result in
reduced payment and lower net income to the contracting hospitals.
These Debt Obligations may also be insured by the State of California
pursuant to an insurance program implemented by the Office of Statewide Health
Planning and Development for health facility construction loans. If a default
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occurs on insured Debt Obligations, the State Treasurer will issue debentures
payable out of a reserve fund established under the insurance program or will
pay principal and interest on an unaccelerated basis from unappropriated State
funds. At the request of the Office of Statewide Health Planning and
Development, Arthur D. Little, Inc. prepared a study in December 1983, to
evaluate the adequacy of the reserve fund established under the insurance
program and based on certain formulations and assumptions found the reserve fund
substantially underfunded. In September of 1986, Arthur D. Little, Inc. prepared
an update of the study and concluded that an additional 10% reserve be
established for "multi-level" facilities. For the balance of the reserve fund,
the update recommended maintaining the current reserve calculation method. In
March of 1990, Arthur D. Little, Inc. prepared a further review of the study and
recommended that separate reserves continue to be established for "multi-level"
facilities at a reserve level consistent with those that would be required by an
insurance company.
Mortgages and Deeds. Certain Debt Obligations in the Portfolio may be
obligations which are secured in whole or in part by a mortgage or deed of trust
on real property. California has five principal statutory provisions which limit
the remedies of a creditor secured by a mortgage or deed of trust. Two statutes
limit the creditor's right to obtain a deficiency judgment, one limitation being
based on the method of foreclosure and the other on the type of debt secured.
Under the former, a deficiency judgment is barred when the foreclosure is
accomplished by means of a nonjudicial trustee's sale. Under the latter, a
deficiency judgment is barred when the foreclosed mortgage or deed of trust
secures certain purchase money obligations. Another California statute, commonly
known as the "one form of action" rule, requires creditors secured by real
property to exhaust their real property security by foreclosure before bringing
a personal action against the debtor. The fourth statutory provision limits any
deficiency judgment obtained by a creditor secured by real property following a
judicial sale of such property to the excess of the outstanding debt over the
fair value of the property at the time of the sale, thus preventing the creditor
from obtaining a large deficiency judgment against the debtor as the result of
low bids at a judicial sale. The fifth statutory provision gives the debtor the
right to redeem the real property from any judicial foreclosure sale as to which
a deficiency judgment may be ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to
California real property, the creditor's nonjudicial foreclosure rights under
the power of sale contained in the mortgage or deed of trust are subject to the
constraints imposed by California law upon transfers of title to real property
by private power of sale. During the three-month period beginning with the
filing of a formal notice of default, the debtor is entitled to reinstate the
mortgage by making any overdue payments. Under standard loan servicing
procedures, the filing of the formal notice of default does not occur unless at
least three full monthly payments have become due and remain unpaid. The power
of sale is exercised by posting and publishing a notice of sale for at least 20
days after expiration of the three-month reinstatement period. The debtor may
reinstate the mortgage, in the manner described above, up to five business days
prior to the scheduled sale date. Therefore, the effective minimum period for
foreclosing on a mortgage could be in excess of seven months after the initial
default. Such time delays in collections could disrupt the flow of revenues
available to an issuer for the payment of debt service on the outstanding
obligations if such defaults occur with respect to a substantial number of
mortgages or deeds of trust securing an issuer's obligations.
In addition, a court could find that there is sufficient involvement of
the issuer in the nonjudicial sale of property securing a mortgage for such
private sale to constitute "state action," and could hold that the
private-right-of-sale proceedings violate the due process requirements of the
Federal or State Constitutions, consequently preventing an issuer from using the
nonjudicial foreclosure remedy described above.
Certain Debt Obligations in the Portfolio may be obligations which
finance the acquisition of single family home mortgages for low and moderate
income mortgagors. These obligations may be payable solely from revenues derived
from the home mortgages, and are subject to California's statutory limitations
described above applicable to obligations secured by real property. Under
California antideficiency legislation, there is no personal recourse against a
mortgagor of a single family residence purchased with the loan secured by the
mortgage, regardless of whether the creditor chooses judicial or nonjudicial
foreclosure.
Under California law, mortgage loans secured by single-family
owner-occupied dwellings may be prepaid at any time. Prepayment charges on such
mortgage loans may be imposed only with respect to voluntary prepayments made
during the first five years during the term of the mortgage loan, and then only
if the borrower prepays an amount in excess of 20% of the original principal
amount of the mortgage loan in a 12-month period; a prepayment charge cannot in
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any event exceed six months' advance interest on the amount prepaid during the
12-month period in excess of 20% of the original principal amount of the loan.
This limitation could affect the flow of revenues available to an issuer for
debt service on the outstanding debt obligations which financed such home
mortgages.
Proposition 13. Certain of the Debt Obligations may be obligations of
issuers who rely in whole or in part on ad valorem real property taxes as a
source of revenue. On June 6, 1978, California voters approved an amendment to
the California Constitution known as Proposition 13, which added Article XIIIA
to the California Constitution. The effect of Article XIIIA was to limit ad
valorem taxes on real property and to restrict the ability of taxing entities to
increase real property tax revenues.
Section 1 of Article XIIIA, as amended, limits the maximum ad valorem
tax on real property to 1% of full cash value to be collected by the counties
and apportioned according to law. The 1% limitation does not apply to ad valorem
taxes or special assessments to pay the interest and redemption charges on any
bonded indebtedness for the acquisition or improvement of real property approved
by two-thirds of the votes cast by the voters voting on the proposition. Section
2 of Article XIIIA defines "full cash value" to mean "the County Assessor's
valuation of real property as shown on the 1975/76 tax bill under 'full cash
value' or, thereafter, the appraised value of real property when purchased,
newly constructed, or a change in ownership has occurred after the 1975
assessment." The full cash value may be adjusted annually to reflect inflation
at a rate not to exceed 2% per year, or reduction in the consumer price index or
comparable local data, or reduced in the event of declining property value
caused by damage, destruction or other factors.
Legislation enacted by the California Legislature to implement Article
XIIIA provides that notwithstanding any other law, local agencies may not levy
any ad valorem property tax except to pay debt service on indebtedness approved
by the voters prior to July 1, 1978, and that each county will levy the maximum
tax permitted by Article XIIIA.
Proposition 9. On November 6, 1979, an initiative known as "Proposition
9" or the "Gann Initiative" was approved by the California voters, which added
Article XIIIB to the California Constitution. Under Article XIIIB, State and
local governmental entities have an annual "appropriations limit" and are not
allowed to spend certain moneys called "appropriations subject to limitation" in
an amount higher than the "appropriations limit." Article XIIIB does not affect
the appropriation of moneys which are excluded from the definition of
"appropriations subject to limitation," including debt service on indebtedness
existing or authorized as of January 1, 1979, or bonded indebtedness
subsequently approved by the voters. In general terms, the "appropriations
limit" is required to be based on certain 1978/79 expenditures, and is to be
adjusted annually to reflect changes in consumer prices, population, and certain
services provided by these entities. Article XIIIB also provides that if these
entities' revenues in any year exceed the amounts permitted to be spent, the
excess is to be returned by revising tax rates or fee schedules over the
subsequent two years.
Proposition 98. On November 8, 1988, voters of the State approved
Proposition 98, a combined initiative constitutional amendment and statute
called the "Classroom Instructional Improvement and Accountability Act."
Proposition 98 changed State funding of public education below the university
level and the operation of the State Appropriations Limit, primarily by
guaranteeing K-14 schools a minimum share of General Fund revenues. Under
Proposition 98 (modified by Proposition 111 as discussed below), K-14 schools
are guaranteed the greater of (a) in general, a fixed percent of General Fund
revenues ("Test 1"), (b) the amount appropriated to K-14 schools in the prior
year, adjusted for changes in the cost of living (measured as in Article XIII B
by reference to State per capita personal income) and enrollment ("Test 2"), or
(c) a third test, which would replace Test 2 in any year when the percentage
growth in per capita General Fund revenues from the prior year plus one half of
one percent is less than the percentage growth in State per capita personal
income ("Test 3"). Under Test 3, schools would receive the amount appropriated
in the prior year adjusted for changes in enrollment and per capita General Fund
revenues, plus an additional small adjustment factor. If Test 3 is used in any
year, the difference between Test 3 and Test 2 would become a "credit" to
schools which would be the basis of payments in future years when per capita
General Fund revenue growth exceeds per capita personal income growth.
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Proposition 98 permits the Legislature - by two-thirds vote of both
houses, with the Governor's concurrence - to suspend the K-14 schools' minimum
funding formula for a one-year period. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the Article XIII B limit to
K-14 schools.
During the recession years of the early 1990s, General Fund revenues
for several years were less than originally projected, so that the original
Proposition 98 appropriations turned out to be higher than the minimum
percentage provided in the law. The Legislature responded to these developments
by designating the "extra" Proposition 98 payments in one year as a "loan" from
future years' Proposition 98 entitlements, and also intended that the "extra"
payments would not be included in the Proposition 98 "base" for calculating
future years' entitlements. In 1992, a lawsuit was filed, California Teachers'
Association v. Gould, which challenged the validity of these off-budget loans.
During the course of this litigation, a trial court determined that almost $2
billion in "loans" which had been provided to school districts during the
recession violated the constitutional protection of support for public
education. A settlement was reached on April 12, 1996 which ensures that future
school funding will not be in jeopardy over repayment of these so-called loans.
Proposition 111. On June 30, 1989, the California Legislature enacted
Senate Constitutional Amendment 1, a proposed modification of the California
Constitution to alter the spending limit and the education funding provisions of
Proposition 98. Senate Constitutional Amendment 1 - on the June 5, 1990 ballot
as Proposition 111 - was approved by the voters and took effect on July 1, 1990.
Among a number of important provisions, Proposition 111 recalculated spending
limits for the State and for local governments, allowed greater annual increases
in the limits, allowed the averaging of two years' tax revenues before requiring
action regarding excess tax revenues, reduced the amount of the funding
guarantee in recession years for school districts and community college
districts (but with a floor of 40.9 percent of State general fund tax revenues),
removed the provision of Proposition 98 which included excess moneys transferred
to school districts and community college districts in the base calculation for
the next year, limited the amount of State tax revenue over the limit which
would be transferred to school districts and community college districts, and
exempted increased gasoline taxes and truck weight fees from the State
appropriations limit. Additionally, Proposition 111 exempted from the State
appropriations limit funding for capital outlays.
Proposition 62. On November 4, 1986, California voters approved an
initiative statute known as Proposition 62. This initiative provided the
following:
1. Requires that any tax for general governmental purposes
imposed by local governments be approved by resolution or ordinance
adopted by a two-thirds vote of the governmental entity's legislative
body and by a majority vote of the electorate of the governmental
entity;
2. Requires that any special tax (defined as taxes levied for
other than general governmental purposes) imposed by a local
governmental entity be approved by a two-thirds vote of the voters
within that jurisdiction;
3. Restricts the use of revenues from a special tax to the
purposes or for the service for which the special tax was imposed;
4. Prohibits the imposition of ad valorem taxes on real
property by local governmental entities except as permitted by Article
XIIIA;
5. Prohibits the imposition of transaction taxes and sales
taxes on the sale of real property by local governments;
6. Requires that any tax imposed by a local government on or
after August 1, 1985 be ratified by a majority vote of the electorate
within two years of the adoption of the initiative;
7. Requires that, in the event a local government fails to
comply with the provisions of this measure, a reduction in the amount
of property tax revenue allocated to such local government occurs in an
amount equal to the revenues received by such entity attributable to
the tax levied in violation of the initiative; and
8. Permits these provisions to be amended exclusively by the
voters of the State of California.
In September 1988, the California Court of Appeal in City of
Westminster v. County of Orange, 204 Cal.App. 3d 623, 215 Cal.Rptr. 511
(Cal.Ct.App. 1988), held that Proposition 62 is unconstitutional to the extent
that it requires a general tax by a general law city, enacted on or after August
1, 1985 and prior to the effective date of Proposition 62, to be subject to
approval by a majority of voters. The Court held that the California
Constitution prohibits the imposition of a requirement that local tax measures
be submitted to the electorate by either referendum or initiative. It is
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impossible to predict the impact of this decision on charter cities, on special
taxes or on new taxes imposed after the effective date of Proposition 62. The
California Court of Appeal in City of Woodlake v. Logan, (1991) 230 Cal.App.3d
1058, subsequently held that Proposition 62's popular vote requirements for
future local taxes also provided for an unconstitutional referenda. The
California Supreme Court declined to review both the City of Westminster and the
City of Woodlake decisions.
In Santa Clara Local Transportation Authority v. Guardino, (Sept. 28,
1995) 11 Cal.4th 220, reh'g denied, modified (Dec. 14, 1995) 12 Cal.4th 344e,
the California Supreme Court upheld the constitutionality of Proposition 62's
popular vote requirements for future taxes, and specifically disapproved of the
City of Woodlake decision as erroneous. The Court did not determine the
correctness of the City of Westminster decision, because that case appeared
distinguishable, was not relied on by the parties in Guardino, and involved
taxes not likely to still be at issue. It is impossible to predict the impact of
the Supreme Court's decision on charter cities or on taxes imposed in reliance
on the City of Woodlake case.
Senate Bill 1590 (O'Connell), introduced February 16, 1996, would make
the Guardino decision inapplicable to any tax first imposed or increased by an
ordinance or resolution adopted before December 14, 1995. The California State
Senate passed the Bill on May 16, 1996 and it is currently pending in the
California State Assembly. It is not clear whether the Bill, if enacted, would
be constitutional as a non-voted amendment to Proposition 62 or as a non-voted
change to Proposition 62's operative date.
Proposition 218. On November 5, 1996, the voters of the State approved
Proposition 218, a constitutional initiative, entitled the "Right to Vote on
Taxes Act" ("Proposition 218"). Proposition 218 adds Articles XIII C and XIII D
to the California Constitution and contains a number of interrelated provisions
affecting the ability of local governments to levy and collect both existing and
future taxes, assessments, fees and charges. Proposition 218 became effective on
November 6, 1996. The Sponsors are unable to predict whether and to what extent
Proposition 218 may be held to be constitutional or how its terms will be
interpreted and applied by the courts. However, if upheld, Proposition 218 could
substantially restrict certain local governments' ability to raise future
revenues and could subject certain existing sources of revenue to reduction or
repeal, and increase local government costs to hold elections, calculate fees
and assessments, notify the public and defend local government fees and
assessments in court.
Article XIII C of Proposition 218 requires majority voter approval for
the imposition, extension or increase of general taxes and two-thirds voter
approval for the imposition, extension or increase of special taxes, including
special taxes deposited into a local government's general fund. Proposition 218
also provides that any general tax imposed, extended or increased without voter
approval by any local government on or after January 1, 1995 and prior to
November 6, 1996 shall continue to be imposed only if approved by a majority
vote in an election held within two years of November 6, 1996.
Article XIII C of Proposition 218 also expressly extends the
initiative's power to give voters the power to reduce or repeal local taxes,
assessments, fees and charges, regardless of the date such taxes, assessments,
fees or charges were imposed. This extension of the initiative's power to some
extent constitutionalizes the March 6, 1995 State Supreme Court decision in
Rossi v. Brown, which upheld an initiative that repealed a local tax and held
that the State constitution does not preclude the repeal, including the
prospective repeal, of a tax ordinance by an initiative, as contrasted with the
State constitutional prohibition on referendum powers regarding statutes and
ordinances which impose a tax. Generally, the initiative process enables
California voters to enact legislation upon obtaining requisite voter approval
at a general election. Proposition 218 extends the authority stated in Rossi v.
Brown by expanding the initiative power to include reducing or repealing
assessments, fees and charges, which had previously been considered
administrative rather than legislative matters and therefore beyond the
initiative power.
The initiative power granted under Article XIII C of Proposition 218,
by its terms, applies to all local taxes, assessments, fees and charges and is
not limited to local taxes, assessments, fees and charges that are property
related.
Article XIII D of Proposition 218 adds several new requirements making
it generally more difficult for local agencies to levy and maintain
"assessments" for municipal services and programs. "Assessment" is defined to
mean any levy or charge upon real property for a special benefit conferred upon
the real property.
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Article XIII D of Proposition 218 also adds several provisions
affecting "fees" and "charges" which are defined as "any levy other than an ad
valorem tax, a special tax, or an assessment, imposed by a local government upon
a parcel or upon a person as an incident of property ownership, including a user
fee or charge for a property related service." All new and, after June 30, 1997,
existing property related fees and charges must conform to requirements
prohibiting, among other things, fees and charges which (i) generate revenues
exceeding the funds required to provide the property related service, (ii) are
used for any purpose other than those for which the fees and charges are
imposed, (iii) are for a service not actually used by, or immediately available
to, the owner of the property in question, or (iv) are used for general
governmental services, including police, fire or library services, where the
service is available to the public at large in substantially the same manner as
it is to property owners. Further, before any property related fee or charge may
be imposed or increased, written notice must be given to the record owner of
each parcel of land affected by such fee or charges. The local government must
then hold a hearing upon the proposed imposition or increase of such property
based fee, and if written protests against the proposal are presented by a
majority of the owners of the identified parcels, the local government may not
impose or increase the fee or charge. Moreover, except for fees or charges for
sewer, water and refuse collection services, no property related fee or charge
may be imposed or increased without majority approval by the property owners
subject to the fee or charge or, at the option of the local agency, two-thirds
voter approval by the electorate residing in the affected area.
Proposition 87. On November 8, 1988, California voters approved
Proposition 87. Proposition 87 amended Article XVI, Section 16, of the
California Constitution by authorizing the California Legislature to prohibit
redevelopment agencies from receiving any of the property tax revenue raised by
increased property tax rates levied to repay bonded indebtedness of local
governments which is approved by voters on or after January 1, 1989.
When-Issued Securities. The Funds may purchase securities offered on a
"when-issued" or "forward delivery" basis. When so offered, the price, which is
generally expressed in yield terms, is fixed at the time the commitment to
purchase is made, but delivery and payment for the when-issued or forward
delivery securities take place at a later date. During the period between
purchase and settlement, no payment is made by the purchaser to the issuer and
no interest accrues to the purchaser. To the extent that assets of the Fund are
not invested prior to the settlement of a purchase of securities, a Fund earns
no income; however, it is intended that the Funds will be fully invested to the
extent practicable and subject to the policies stated herein. When-issued or
forward delivery purchases are negotiated directly with the other party, and are
not traded on an exchange. While when-issued or forward delivery securities may
be sold prior to the settlement date, it is intended that the Fund will purchase
such securities with the purpose of actually acquiring them unless a sale
appears desirable for investment reasons. At the time the Fund makes the
commitment to purchase securities on a when-issued or forward delivery basis, it
will record the transaction and reflect the value of the security in determining
its net asset value. The Trust does not believe that either Fund's net asset
value or income will be adversely affected by its purchase of securities on a
when-issued or forward delivery basis. Each Fund establishes a segregated
account in which it maintains cash, U.S. Government securities or other
high-grade debt obligations equal in value to commitments for when-issued or
forward delivery securities. Such segregated securities either will mature or,
if necessary, be sold on or before the settlement date. Neither Fund enters into
such transactions for leverage purposes.
Stand-by Commitments. Subject to the receipt of any required regulatory
authorization, a Fund may acquire "Stand-by Commitments," which will enable that
Fund to improve its portfolio liquidity by making available same-day settlements
on portfolio sales (and thus facilitate the payment of same-day payments of
redemption proceeds in federal funds). Each Fund may enter into such
transactions subject to the limitations in the rules under the 1940 Act. A
Stand-by Commitment is a right acquired by a Fund, when it purchases a municipal
obligation from a broker/dealer or other financial institution ("seller"), to
sell up to the same principal amount of such securities back to the seller, at
the Fund's option, at a specified price. Stand-by Commitments are also known as
"puts." Each Fund's investment policies permit the acquisition of Stand-by
Commitments solely to facilitate portfolio liquidity. The exercise by a Fund of
a Stand-by Commitment is subject to the ability of the other party to fulfill
its contractual commitment.
Stand-by Commitments acquired by a Fund have the following features:
(1) they are in writing and are physically held by the Fund's custodian; (2) the
Fund's rights to exercise them are unconditional and unqualified; (3) they are
entered into only with sellers which in the Adviser's opinion present a minimal
risk of default; (4) although Stand-by Commitments are not transferable,
municipal obligations purchased subject to such commitments may be sold to a
third party at any time, even though the commitment is outstanding; and (5)
their exercise price is (i) the Fund's acquisition cost (excluding the cost, if
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any, of the Stand-by Commitment) of the municipal obligations which are subject
to the commitment (excluding any accrued interest which the Fund paid on their
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Fund owned the securities, plus
(ii) all interest accrued on the securities since the last interest payment
date. Each Fund expects to refrain from exercising a Stand-by Commitment in the
event that the amount receivable upon exercise of the Stand-by Commitment is
significantly greater than the then current market value of the underlying
municipal obligations, determined as described in the section entitled "Net
Asset Value," in order to avoid imposing a loss on a seller and thus
jeopardizing a Fund's business relationship with that seller.
Each Fund expects that Stand-by Commitments generally are available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, each Fund will pay for Stand-by Commitments, either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitments. As a matter of nonfundamental policy,
the total amount "paid" by a Fund in either manner for outstanding Stand-by
Commitments will not exceed one-half of 1% of the value of the total assets of
that Fund calculated immediately after any Stand-by Commitment is acquired. If
the Fund pays additional consideration for a Stand-by Commitment, the yield on
the security to which the Stand-by Commitment relates will, in effect, be lower
than if the Fund had not acquired such Stand-by Commitment.
It is difficult to evaluate the likelihood of use or the potential
benefit of a Stand-by Commitment. Therefore, it is expected that the Trustees
will determine that Stand-by Commitments ordinarily have a "fair value" of zero,
regardless of whether any direct or indirect consideration was paid. However, if
the market price of the security subject to the Stand-by Commitment is less than
the exercise price of the Stand-by Commitment, such security will ordinarily be
valued at such exercise price. Where a Fund has paid for a Stand-by Commitment,
its cost will be reflected as unrealized depreciation for the period during
which the commitment is held.
Management understands that the Internal Revenue Service (the "IRS")
has issued a revenue ruling to the effect that, under specified circumstances, a
registered investment company is the owner of tax-exempt municipal obligations
acquired subject to a put option. The IRS has also issued private letter rulings
to certain taxpayers (which do not serve as precedent for other taxpayers) to
the effect that tax-exempt interest received by a regulated investment company
with respect to such obligations is tax-exempt in the hands of the company and
may be distributed to its shareholders as exempt-interest dividends. The IRS has
subsequently announced that it will not ordinarily issue advance ruling letters
as to the identity of the true owner of property in cases involving the sale of
securities or participation interests therein if the purchaser has the right to
cause the security, or the participation interest therein, to be purchased by
either the seller or a third party. Each Fund intends to take the position that
it is the owner of any municipal obligations acquired subject to a Stand-By
Commitment and that tax-exempt interest earned with respect to such municipal
obligations is tax-exempt in its hands. There is no assurance that the IRS will
agree with such position in any particular case. There is no assurance that
Stand-by Commitments will be available to a Fund nor has either Fund assumed
that such commitments would continue to be available under all market
conditions.
Third Party Puts. The Funds may also purchase long-term fixed rate bonds that
have been coupled with an option granted by a third party financial institution
allowing a Fund, at specified intervals, (not exceeding 397 calendar days in the
case of Scudder California Tax Free Money Fund) to tender (or "put") the bonds
to the institution and receive the face value thereof (plus accrued interest).
These third party puts are available in several different forms, may be
represented by custodial receipts or trust certificates and may be combined with
other features such as interest rate swaps. The Fund receives a short-term rate
of interest (which is periodically reset), and the interest rate differential
between that rate and the fixed rate on the bond is retained by the financial
institution. The financial institution granting the option does not provide
credit enhancement, and in the event that there is a default in the payment of
principal, or interest on, or downgrading of, a bond to below investment grade,
or a loss of the bond's tax-exempt status, the put option will terminate
automatically, and the risk to the Fund will be that of holding such a long-term
bond and, in the case of Scudder California Tax Free Money Fund, the weighted
average maturity of the Fund's portfolio would be adversely affected.
These bonds coupled with puts may present the same tax issues as are
associated with Stand-By Commitments discussed above. As with any Stand-by
Commitments acquired by the Funds, each Fund intends to take the position that
it is the owner of any municipal obligation acquired subject to a third-party
put, and that tax-exempt interest earned with respect to such municipal
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obligations are tax-exempt in its hands. There is no assurance that the IRS will
agree with such position in any particular case. Additionally, the federal
income tax treatment of certain other aspects of these investments, including
the treatment of tender fees and swap payments, in relation to various regulated
investment company tax provisions is unclear. However, the Adviser intends to
manage the Funds' portfolios in a manner designed to minimize any adverse impact
from these investments.
Repurchase Agreements. The Funds may enter into repurchase agreements with any
member bank of the Federal Reserve System or any domestic broker/dealer which is
recognized as a reporting Government securities dealer if the creditworthiness
of the bank or broker/dealer has been determined by the Adviser to be at least
as high as that of other obligations the Funds may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's, S&P or Fitch.
A repurchase agreement provides a means for a Fund to earn taxable
income on funds for periods as short as overnight. It is an arrangement under
which the purchaser (i.e., the Fund) acquires a security ("Obligation") and the
seller agrees, at the time of sale, to repurchase the Obligation at a specified
time and price. Securities subject to a repurchase agreement are held in a
segregated account and the value of such securities kept at least equal to the
repurchase price on a daily basis. The repurchase price may be higher than the
purchase price, the difference being income to the Fund, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to the
Fund together with the repurchase price on the date of repurchase. In either
case, the income to a Fund (which is taxable) is unrelated to the interest rate
on the Obligation itself. Obligations will be held by the custodian or in the
Federal Reserve Book Entry system.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from a Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to that Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by a Fund subject to a repurchase agreement as being owned
by that Fund or as being collateral for a loan by the Fund to the seller. In the
event of the commencement of bankruptcy or insolvency proceedings with respect
to the seller of the Obligation before repurchase of the Obligation under a
repurchase agreement, a Fund may encounter delay and incur costs before being
able to sell the security. Delays may involve loss of interest or decline in
price of the Obligation. If the court characterized the transaction as a loan
and a Fund has not perfected an interest in the Obligation, that Fund may be
required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, a Fund is at risk of
losing some or all of the principal and income involved in the transaction. As
with any unsecured debt obligation purchased for each Fund, the Adviser seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the seller may fail to repurchase the Obligation, in which case the
Fund may incur a loss if the proceeds to the Fund of the sale to a third party
are less than the repurchase price. However, if the market value of the
Obligation subject to the repurchase agreement becomes less than the repurchase
price (including interest), each Fund will direct the seller of the Obligation
to deliver additional securities so that the market value of all securities
subject to the repurchase agreement will equal or exceed the repurchase price.
It is possible that a Fund will be unsuccessful in seeking to enforce the
seller's contractual obligation to deliver additional securities.
Reverse Repurchase Agreements. The Funds may enter into "reverse repurchase
agreements," which are repurchase agreements in which a Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. Each Fund
maintains a segregated account, as described under "When-Issued Securities" in
connection with outstanding reverse repurchase agreements. Reverse repurchase
agreements are deemed to be borrowings subject to each Fund's investment
restrictions applicable to that activity. Each Fund will enter into reverse
repurchase agreements only when the Adviser believes that the interest income to
be earned from the investment of the proceeds of the transaction will be greater
than the interest expense of the transaction. Each Fund does not intend to
invest more than 5% of its net assets in reverse repurchase agreements.
Securities backed by guarantees. The Funds invests in securities backed by
guarantees from banks, insurance companies and other financial institutions.
Scudder California Tax Free Money Fund's ability to maintain a stable share
price may depend upon such guarantees, which are not supported by federal
deposit insurance. Consequently, changes in the credit quality of these
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institutions could have an adverse impact on securities they have guaranteed or
backed, which could cause losses to the Fund and affect its share price.
Trustees' Power to Change Objectives and Policies
Except as specifically stated to the contrary, the objectives and
policies of the Funds stated above may be changed by the Trustees without a vote
of the shareholders.
Investment Restrictions
The following restrictions are fundamental policies and may not be
changed with respect to each Fund without the approval of a majority of the
outstanding voting securities of such Fund which, under the 1940 Act and the
rules thereunder and as used in this Statement of Additional Information, means
the lesser of (1) 67% or more of the voting securities of such Fund present at
such meeting, if the holders of more than 50% of the outstanding voting
securities of such Fund are present or represented by proxy, or (2) more than
50% of the outstanding voting securities of a Fund. Any investment restrictions
herein which involve a maximum percentage of securities or assets shall not be
considered to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition or encumbrance of securities
or assets of, or borrowings by, the Fund.
As a matter of fundamental policy, the Trust may not, on behalf of each
Fund:
(1) borrow money except as a temporary measure for extraordinary
or emergency purposes or except in connection with reverse
repurchase agreements; provided that the Fund maintains asset
coverage of 300% for all borrowings;
(2) purchase or sell real estate (except that the Fund may invest
in (i) securities of companies which deal in real estate or
mortgages and (ii) securities secured by real estate or
interests therein, and the Trust, on behalf of Scudder
California Tax Free Fund only, reserves freedom of action to
hold and to sell real estate acquired as a result of Scudder
California Tax Free Fund's ownership of securities); and the
Trust, on behalf of each Fund, may not purchase or sell
physical commodities or contracts relating to physical
commodities;
(3) act as underwriter of the securities issued by others, except
to the extent that it may be deemed an underwriter in
connection with the disposition of portfolio securities of the
Funds;
(4) make loans to other persons, except (a) loans of portfolio
securities and (b) to the extent the purchase of debt
securities in accordance with its investment objective and
investment policies and the entry into repurchase agreements
may be deemed to be loans;
(5) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except for
shares of the separate classes or series of the Trust,
provided, in the case of Scudder California Tax Free Fund
only, that collateral arrangements with respect to
currency-related contracts, futures contracts, options or
other permitted investments, including deposits of initial and
variation margin, are not considered to be the issuance of
senior securities for purposes of this restriction;
(6) purchase (a) private activity bonds, or (b) securities which
are neither municipal obligations nor securities of the U.S.
Government, its agencies or instrumentalities, if in either
case the purchase would cause more than 25% of the market
value of its total assets at the time of such purchase to be
invested in the securities of one or more issuers having their
principal business activities in the same industry (for the
purposes of this restriction, telephone companies are
considered to be in a separate industry from gas and electric
public utilities, and wholly-owned finance companies are
considered to be in the industry of their parents if their
activities are primarily related to financing the activities
of their parents); or
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(7) (Scudder California Tax Free Money Fund only) invest more than
25% of the value of its total assets in the securities of any
one issuer;
As a matter of nonfundamental policy, the Trust, on behalf of each
Fund, may not:
(a) purchase or retain securities of any open-end investment
company, or securities of closed-end investment companies
except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchases, or
except when such purchase, though not made in the open market,
is part of a plan of merger, consolidation, reorganization or
acquisition of assets; in any event the Fund may not purchase
more than 3% of the outstanding voting securities of another
investment company, may not invest more than 5% of its assets
in another investment company, and may not invest more than
10% of its assets in other investment companies;
(b) pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;
(c) purchase or retain securities of an issuer any of whose
officers, directors, trustees or security holders is an
officer, director or trustee of the Trust or a member,
officer, director or trustee of the investment adviser of the
Trust if one or more of such individuals owns beneficially
more than one-half of one percent (1/2%) of the outstanding
shares or securities or both (taken at market value) of such
issuer and such individuals owning more than one-half of one
percent (1/2%) of such shares or securities together own
beneficially more than 5% of such shares or securities or
both;
(d) purchase securities on margin or make short sales, unless, by
virtue of its ownership of other securities, it has the right
to obtain securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is
made upon the same conditions, except in connection with
arbitrage transactions (for Scudder California Tax Free Fund
only,) and except that the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of securities;
(e) invest more than 10% of its net assets in securities which are
not readily marketable, the disposition of which is restricted
under Federal securities laws, or in repurchase agreements not
terminable within 7 days and the Fund will not invest more
than 10% of its total assets in restricted securities;
(f) purchase securities of any issuer with a record of less than
three years continuous operations, including predecessors
(except U.S. Government securities, securities of such issuers
which are rated by at least one nationally recognized
statistical rating organization, municipal obligations and
obligations issued or guaranteed by any foreign Government or
its agencies or instrumentalities, if such purchase would
cause the investments of the Fund in all such issuers to
exceed 5% of the total assets of the Fund taken at market
value;
(g) (Scudder California Tax Free Fund only) purchase from or sell
to any of the Trust's officers or Trustees, its investment
adviser, its principal underwriter or the officers and
Directors of its investment adviser or principal underwriter,
portfolio securities of the Fund;
(h) (Scudder California Tax Free Fund only) buy options on
securities or financial instruments, unless the aggregate
premiums paid on all such options held by the Fund at any time
do not exceed 20% of its net assets; or sell put options on
securities if, as a result, the aggregate value of the
obligations underlying such put options would exceed 50% of
the Fund's net assets;
(i) (Scudder California Tax Free Fund only) enter into futures
contracts or purchase options thereon unless immediately after
the purchase, the value of the aggregate initial margin with
respect to all futures contracts entered into on behalf of the
Fund and the premiums paid for options on futures contracts
does not exceed 5% of the fair market value of the Fund's
total assets; provided that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount
may be excluded in computing the 5% limit;
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(j) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which
own or invest in such interests);
(k) borrow money (including reverse repurchase agreements), except
for temporary or emergency purposes, in excess of 5% of its
total assets (taken at market value) or borrow other than from
banks;
(l) (Scudder California Tax Free Fund only) purchase warrants if
as a result warrants taken at the lower of cost or market
value would represent more than 5% of the value of the Fund's
total net assets or more than 2% of its net assets in warrants
that are not listed on the New York or American Stock
Exchanges or on an exchange with comparable listing
requirements (for this purpose, warrants attached to
securities will be deemed to have no value);
(m) (Scudder California Tax Free Money Fund only) purchase
warrants, unless attached to other securities in which it is
permitted to invest;
(n) invest more than 25% of its total assets in municipal
obligations the security of which is derived from any one of
the following categories: hospitals and health facilities;
turnpikes and toll roads; ports and airports; or colleges and
universities;
(o) enter into Stand-by Commitments if, the total amount "paid" by
a Fund in either manner for outstanding Stand-by Commitments
will not exceed 1/2 of 1% of the value of the total assets of
that Fund calculated immediately after any Stand-by Commitment
is acquired;
(p) purchase or sell real estate limited partnership interests; or
(q) make securities loans unless all loans of portfolio securities
are fully collateralized and marked to market daily.
PURCHASES
See "Purchases" and "Transaction information" in the Funds' prospectus.)
Additional Information About Opening an Account
Shareholders of other Scudder funds who have submitted an account
application and have a certified tax identification number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the
National Association of Securities Dealers, Inc. ("NASD"), and banks may open an
account by wire. These investors must call 1-800-225-5163 to get an account
number. During the call, the investor will be asked to indicate the Fund name,
amount to be wired ($2,500 minimum), name of bank or trust company from which
the wire will be sent, the exact registration of the new account, the tax
identification number or Social Security number, address and telephone number.
The investor must then call the bank to arrange a wire transfer to State Street
Bank, Attention: Mutual Funds, 225 Franklin Street, Boston, MA 02110. The
investor must give the Scudder fund name, account name and the new account
number. Finally, the investor must send a completed and signed application to
the Fund promptly.
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Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
If shares of a Fund are purchased by a check which proves
uncollectible, that Trust reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Trust or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, the Trust shall have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from or restricted in placing future orders in any of the Scudder
funds.
Wire Transfer of Federal Funds
To purchase shares of Scudder California Tax Free Fund and obtain the
same day's dividend you must have your bank forward federal funds by wire
transfer and provide the required account information so as to be available to
the Fund prior to twelve o'clock noon eastern time on that day. If you wish to
make a purchase of $500,000 or more you should notify the Fund's transfer agent,
Scudder Service Corporation (the "Transfer Agent") of such a purchase by calling
1-800-225-5163. If either the federal funds or the account information is
received after twelve o'clock noon eastern time, but both the funds and the
information are made available before the close of regular trading on the New
York Stock Exchange (the "Exchange") (normally 4 p.m. eastern time) on any
business day, shares will be purchased at net asset value determined on that day
but will not receive the dividend; in such cases, dividends commence on the next
business day.
In the case of Scudder California Tax Free Money Fund, to obtain the
net asset value determined as of twelve o'clock noon and the same day dividend
your bank must forward federal funds by wire transfer and provide the required
account information so as to be available to the Fund prior to twelve o'clock
noon eastern time on that day. If the federal funds are made available or the
account information is received after twelve o'clock noon eastern time but both
the funds and the information are made available before the close of regular
trading on the Exchange, normally 4 p.m. eastern time, on any day, shares will
be purchased at the net asset value determined as of the close of trading on
that day but will not receive the dividend; in such cases, dividends commence on
the next business day.
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Distributor pays a fee for receipt by State
Street Bank and Trust Company (the "Custodian") of "wired funds," but the right
to charge investors for this service is reserved.
Boston banks are presently closed on certain holidays although the
Exchange may be open. These holidays include Martin Luther King, Jr. Day (the
3rd Monday in January), Columbus Day (the 2nd Monday in October) and Veterans
Day (November 11). Investors are not able to purchase shares by wiring federal
funds on such holidays because the Custodian is not open to receive such federal
funds on behalf of a Fund.
Additional Information About Making Subsequent Investments
To a limited extent, certain financial institutions may place orders to
purchase shares of Scudder California Tax Free Fund unaccompanied by payment
prior to the close of regular trading on the Exchange, normally 4:00 p.m.
eastern time, and receive that day's price. Please call 1-800-854-8525 for more
information, including the dividend treatment and method and manner of payment
for Fund shares.
Additional Information About Making Subsequent Investments by AutoBuy
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the AutoBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
AutoBuy, shareholders should call before 4 p.m. eastern time. Proceeds in the
amount of your purchase will be transferred from your bank checking account two
or three business days following your call. For requests received by the close
of regular trading on the Exchange, shares will be purchased at the net asset
30
<PAGE>
value per share calculated at the close of trading on the day of your call.
AutoBuy requests received after the close of regular trading on the Exchange
will begin their processing and be purchased at the net asset value calculated
the following business day. If you purchase shares by AutoBuy and redeem them
within seven days of the purchase, the Fund may hold the redemption proceeds for
a period of up to seven business days. If you purchase shares and there are
insufficient funds in your bank account the purchase will be canceled and you
will be subject to any losses or fees incurred in the transaction. AutoBuy
transactions are not available for most retirement plan accounts. However,
AutoBuy transactions are available for Scudder IRA accounts.
In order to request purchases by AutoBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish AutoBuy may so indicate on the application.
Existing shareholders who wish to add AutoBuy to their account may do so by
completing an AutoBuy Enrollment Form. After sending in an enrollment form
shareholders should allow for 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Share Price
Purchases are filled without sales charge at the net asset value next
computed after receipt of the purchase order in good order. Net asset value per
share for Scudder California Tax Free Money Fund normally is computed twice a
day, as of twelve o'clock noon and the close of regular trading on each day
during which the Exchange is open for trading. Net asset value per share for
Scudder California Tax Free Fund normally is computed once a day, as of the
close of regular trading on each day during which the Exchange is open for
trading. Orders received after the close of regular trading on the Exchange are
executed at the next business day's net asset value. If the order has been
placed by a member of the NASD other than Scudder Investor Services, Inc., it is
the responsibility of that member broker, rather than a Fund, to forward the
purchase order to the Funds' Transfer Agent by the close of regular trading on
the Exchange.
Share Certificates
Due to the desire of the Trust to afford ease of redemption,
certificates are not issued to indicate ownership in a Fund.
Other Information
If purchases or redemptions of Fund shares are arranged and settlement
is made, at an investor's election through a member of the NASD other than the
Distributor, that member may, at its discretion, charge a fee for that service.
The Board of Trustees and the Distributor each has the right to limit
the amount of purchases by, and to refuse to sell to any person and each may
suspend or terminate the offering of shares of each Fund at any time.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information
(e.g., from exempt organizations, certification of exempt status) may be
returned to the investor.
The Trust may issue shares of each Fund at net asset value in
connection with any merger or consolidation with, or acquisition of the assets
of, any investment company (or series thereof) or personal holding company,
subject to the requirements of the 1940 Act.
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EXCHANGES AND REDEMPTIONS
(See "Exchanges and redemptions" and "Transaction
information" in the Funds' prospectus.) Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange may be
either an additional investment into an existing account or may involve opening
a new account in the other fund. When an exchange involves a new account, the
new account is established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features do not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration, tax
identification number, address, and account options/features as the account of
origin. Exchanges into an existing account must be for $100 or more. If the
account receiving the exchange proceeds is different in any respect, the
exchange request must be in writing and must contain an original signature
guarantee as described under "Transaction information -- Redeeming shares --
Signature guarantees" in the Funds' prospectus.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily are executed at respective net asset
values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund at current net asset value through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic Exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.
No commission is charged to the shareholder for any exchange described
above. An exchange into another Scudder fund is a redemption of shares, and
therefore may result in tax consequences (gain or loss) to the shareholder and
the proceeds of such exchange may be subject to backup withholding. (See
"TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Trust employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Trust does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Trust will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of exchanging by telephone or fax at any time.
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated.
Redemption by Telephone
Shareholders currently receive the right, automatically without having
to elect it, to redeem up to $50,000 and have the proceeds mailed to their
address of record. Shareholders may request to have the proceeds mailed or wired
to their predesignated bank account. In order to request redemptions by
telephone, shareholders must have completed and returned to the Transfer Agent
the application, including the designation of a bank account to which the
redemption proceeds are to be sent.
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(a) NEW INVESTORS wishing to establish telephone redemption to a
designated bank account must complete the appropriate section
on the application.
(b) EXISTING SHAREHOLDERS who wish to establish telephone
redemption to a designated bank account or who want to change
the bank account previously designated to receive redemption
proceeds should either return a Telephone Redemption Option
Form (available upon request) or send a letter identifying the
account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s)
appears on the account. An original signature and an original
signature guarantee are required for each person in whose name
the account is registered.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be made by Federal Reserve Bank wire to the bank
account designated on the application unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5.00
charge for all wire redemptions.
Note: Investors designating that a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a
participant in the Federal Reserve System, redemption proceeds must be
wired through a commercial bank which is a correspondent of the savings
bank. As this may delay receipt by the shareholder's account, it is
suggested that investors wishing to use a savings bank discuss wire
procedures with their bank and submit any special wire transfer
information with the telephone redemption authorization. If appropriate
wire information is not supplied, redemption proceeds will be mailed to
the designated bank.
The Trust employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Trust does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Trust will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption requests by telephone (technically a repurchase by agreement
between a Fund and the shareholder) of shares purchased by check are not
accepted until the purchase check has cleared.
Redemption By AutoSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and have elected to participate in
the AutoSell program may sell shares of a Fund by telephone. To sell shares by
AutoSell, shareholders should call before 4 p.m. eastern time. Redemptions must
be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account in two or three business days
following your call. For requests received by the close of regular trading on
the Exchange, shares will be redeemed at the net asset value per share
calculated at the close of trading on the day of your call. AutoSell requests
received after the close of regular trading on the Exchange will begin their
processing and be redeemed at the net asset value calculated the following
business day. AutoSell transactions are not available for Scudder IRA accounts
and most other retirement plan accounts.
In order to request redemptions by AutoSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which redemption proceeds will be credited. New
investors wishing to establish AutoSell may so indicate on the application.
Existing shareholders who wish to add AutoSell to their account may do so by
completing an AutoSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.
The Funds employ procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that a Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Funds will not be liable
for acting upon instructions communicated by telephone that they reasonably
believe to be genuine.
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<PAGE>
Redemption by Mail or Fax
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor/executrix, certificates of corporate authority and waivers of tax
(required in some states when settling estates).
It is suggested that shareholders holding shares or share certificates
registered in other than individual names contact the Transfer Agent prior to
any redemptions to ensure that all necessary documents accompany the request.
When shares are held in the name of a corporation, trust, fiduciary agent,
attorney or partnership, the Transfer Agent requires, in addition to the stock
power, certified evidence of authority to sign. These procedures are for the
protection of shareholders and should be followed to ensure prompt payment.
Redemption requests must not be conditional as to date or price of the
redemption. Proceeds of a redemption are sent within seven business days after
receipt by the Transfer Agent of a request for redemption that complies with the
above requirements. Delays in payment of more than seven business days for
shares tendered for repurchase or redemption may result because the purchase
check has not yet cleared.
Redemption by Write-A-Check
All new investors and existing shareholders of Scudder California Tax
Free Money Fund who apply to the Custodian for checks may use them to pay any
person, provided that each check is for at least $100 and not more than $5
million. By using the checks, the shareholder receives daily dividend credit on
his or her shares until the check has cleared the banking system. Investors who
purchased shares by check may write checks against those shares only after they
have been on the Fund's books for seven business days. Shareholders who use this
service may also use other redemption procedures. No shareholder may write
checks against certificated shares. Scudder California Tax Free Money Fund pays
the bank charges for this service. However, Scudder California Tax Free Money
Fund reviews the cost of operation periodically and reserves the right to
determine if direct charges to the persons who avail themselves of this service
are appropriate.
Checks are returned by the Custodian if there are insufficient shares
to meet the withdrawal amount. Possible fluctuations in the per share value of
the Fund, although not anticipated, should be considered in determining the
amount of the check. An investor should not attempt to close an account by
check, because the exact balance at the time the check clears cannot be known
when the check is written. The Trust, on behalf of Scudder California Tax Free
Money Fund, the Transfer Agent, and the Custodian each reserves the right at any
time to suspend or terminate the "Write-A-Check" procedure.
Redemption-in-kind
The Fund reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Fund and valued as they are for purposes of computing the Fund's net asset
value (a redemption-in-kind). If payment is made in securities, a shareholder
may incur transaction expenses in converting these securities to cash.
Other Information
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder receives, in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares redeemed
or repurchased may be more or less than a shareholder's cost depending upon the
net asset value at the time of redemption or repurchase. The Trust does not
impose a redemption charge, although a wire charge may be applicable for
redemption proceeds wired to an investor's bank account. Redemptions of shares,
including an exchange for shares of another Scudder fund, may result in tax
consequences (gain or loss) to the shareholder and the proceeds of such
redemptions may be subject to backup withholding. (See "TAXES.")
The determination of net asset value may be suspended at times and a
shareholder's right to redeem shares and to receive payment may be suspended at
times during which (a) the Exchange is closed, other than customary weekend and
holiday closings, (b) trading on the Exchange is restricted for any reason, (c)
an emergency exists as a result of which disposal by a Fund of securities owned
34
<PAGE>
by it is not reasonably practicable or it is not reasonably practicable for a
Fund fairly to determine the value of its net assets, or (d) the SEC may by
order permit such a suspension for the protection of the Trust's shareholders;
provided that applicable rules and regulations of the SEC (or any succeeding
governmental authority) shall govern as to whether the conditions prescribed in
(b) or (c) exist.
If transactions at any time reduce a shareholder's account balance in
the Fund to below $2,500 in value, such Fund notifies the shareholder that,
unless the account balance is brought up to at least $2,500, the Trust will
redeem all shares, close the account, and send redemption proceeds to the
shareholder. The shareholder has sixty days to bring the account balance up to
$2,500 before any action is taken by the Trust. No transfer from an existing
account to a new fund account may be for less than $2,500 or the new account
will be redeemed as described above. (This policy applies to accounts of new
shareholders, but does not apply to certain Special Plan Accounts.) The Trustees
have the authority to change the minimum account size.
FEATURES AND SERVICES OFFERED BY THE FUNDS
(See "Shareholder benefits" in the Funds' prospectus)
The Pure No-Load(TM) Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its funds from the
vast majority of mutual funds available today. The primary distinction is
between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the NASD
Rules of Fair Practice, a mutual fund can call itself a "no-load" fund only if
the 12b-1 fee and/or service fee does not exceed 0.25% of a fund's average
annual net assets.
Because Scudder funds do not pay any asset-based sales charges or
service fees, Scudder developed and trademarked the phrase pure no-load(TM) to
distinguish Scudder funds from other no-load mutual funds. Scudder pioneered the
no-load concept when it created the nation's first no-load fund in 1928, and
later developed the nation's first family of no-load mutual funds.
The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder pure no-load fund over investing the same amount
in a load fund that collects an 8.50% front-end load, a load fund that collects
only a 0.75% 12b-1 and/or service fee, and a no-load fund charging only a 0.25%
12b-1 and/or service fee. The hypothetical figures in the chart show the value
of an account assuming a constant 10% rate of return over the time periods
indicated and reinvestment of dividends and distributions.
35
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Scudder No-Load Fund with
YEARS Pure No-Load(TM)Fund 8.50% Load Fund Load Fund with 0.75% 0.25% 12b-1
12b-1 Fee Fee
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10 $ 25,937 $ 23,733 $ 24,222 $ 25,354
- -------------------------------------------------------------------------------------------------------------------
15 41,772 38,222 37,698 40,371
- -------------------------------------------------------------------------------------------------------------------
20 67,275 61,557 58,672 64,282
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Internet access
World Wide Web Site -- The address of the Scudder Funds site is
http://funds.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.
The site is designed for interactivity, simplicity and maneuverability.
A section entitled "Planning Resources" provides information on asset
allocation, tuition, and retirement planning to users who fill out interactive
"worksheets." Investors can easily establish a "Personal Page," that presents
price information, updated daily, on funds they're interested in following. The
"Personal Page" also offers easy navigation to other parts of the site. Fund
performance data from both Scudder and Lipper Analytical Services, Inc. are
available on the site. Also offered on the site is a news feature, which
provides timely and topical material on the Scudder Funds.
Scudder has communicated with shareholders and other interested parties
on Prodigy since 1988 and has participated since 1994 in GALT's Networth
"financial marketplace" site on the Internet. The firm made Scudder Funds
information available on America Online in early 1996.
Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
A Call Me(TM) feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call Me(TM) feature, an individual must have two phone lines
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.
Investors are encouraged to review the fee tables on page 2 of the
Funds' prospectus for more specific information about the rates at which
management fees and other expenses are assessed.
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Dividend and Capital Gain Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of a Fund. A change of instructions for the method of
payment must be received by the Transfer Agent at least five days prior to a
dividend record date. Shareholders also may change their dividend option either
by calling 1-800-225-5163 or by sending written instructions to the Transfer
Agent. Please include your account number with your written request. See "How to
contact Scudder" in the prospectus for the address.
Reinvestment is usually made on the day following the record date.
Investors may leave standing instructions with the Transfer Agent designating
their option for either reinvestment or cash distribution of any income
dividends or capital gains distributions. If no election is made, dividends and
distributions will be invested in additional shares of a Fund.
Investors may also have dividends and distributions automatically
deposited to their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Scudder Investor Centers
Investors may visit any of the Investor Centers maintained by Scudder
Investor Services, Inc. and listed in the Funds' prospectus. The Centers are
designed to provide individuals with services during any business day. Investors
may pick up literature, or find assistance with opening an account, adding
monies or special options to existing accounts, making exchanges within the
Scudder Family of Funds, redeeming shares or opening retirement plans. Checks
should not be mailed to the Centers but should be mailed to "The Scudder Funds"
at the address listed under "How to Contact Scudder" in the prospectus.
Reports to Shareholders
Each Fund issues to shareholders semiannual financial statements
including a list of investments held and statements of assets and liabilities,
operations, changes in net assets and financial highlights for each Fund.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.
THE SCUDDER FAMILY OF FUNDS
(See "Investment products and services" in the Funds' prospectuses.)
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
Initial purchases in most Scudder funds must be at least $2,500 or $1,000 in the
case of IRAs. Subsequent purchases must be for $100 or more. Minimum investments
for special plan accounts may be lower. The minimum initial purchase required
for the Cash Fund's Premium Shares is $25,000 and subsequent purchases must be
for $1,000 or more. The minimum initial required purchase for each Fund's
Managed Shares is $100,000 and subsequent purchases must be for $1,000 or more.
The minimum initial purchase required for a Fund's Institutional Shares is
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<PAGE>
$1,000,000 and there is no minimum subsequent purchase. Please see the
respective prospectuses for these classes of shares for further information
regarding minimum balance requirements.
MONEY MARKET
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and consistent therewith to provide current income
through investment in a supervised portfolio of U.S. Government and
U.S. Government guaranteed obligations with maturities of not more than
762 calendar days. The Fund intends to seek to maintain a constant net
asset value of $1.00 per share, although in certain circumstances this
may not be possible.
Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability
of capital, and consistent therewith, to maintain the liquidity of
capital and to provide current income through investment in a
supervised portfolio of short-term debt securities. SCIT intends to
seek to maintain a constant net asset value of $1.00 per share,
although in certain circumstances this may not be possible.
Scudder Money Market Series seeks to provide investors with as high a
level of current income as is consistent with its investment polices
and with preservation of capital and liquidity. The Fund seeks to
maintain a constant net asset value of $1.00 per share and declares
dividends daily. The institutional class of shares of this Fund is not
within the Scudder Family of Funds.
Scudder Government Money Market Series seeks to provide investors with
as high a level of current income as is consistent with its investment
polices and with preservation of capital and liquidity. The Fund
invests exclusively in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities that have remaining
maturities of not more than 397 calendar days and certain repurchase
agreements. The institutional class of shares of this Fund is not
within the Scudder Family of Funds.
INCOME
Scudder Emerging Markets Income Fund seeks to provide high current
income and, secondarily, long-term capital appreciation through
investments primarily in high-yielding debt securities issued in
emerging markets.
Scudder Global Bond Fund seeks to provide total return with an emphasis
on current income by investing primarily in high-grade bonds
denominated in foreign currencies and the U.S. dollar. As a secondary
objective, the Fund will seek capital appreciation.
Scudder GNMA Fund seeks to provide investors with high current income
from a portfolio of high-quality GNMA securities.
Scudder High Yield Bond Fund seeks to provide a high level of current
income and, secondarily, capital appreciation through investment
primarily in below investment grade domestic debt securities.
Scudder Income Fund seeks to earn a high level of income consistent
with the prudent investment of capital through a flexible investment
program emphasizing high-grade bonds.
Scudder International Bond Fund seeks to provide income from a
portfolio of high-grade bonds denominated in foreign currencies. As a
secondary objective, the Fund seeks protection and possible enhancement
of principal value by actively managing currency, bond market and
maturity exposure and by security selection.
Scudder Short Term Bond Fund seeks to provide a higher and more stable
level of income than is normally provided by money market investments,
and more price stability than investments in intermediate- and
long-term bonds.
38
<PAGE>
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with the minimization of
reinvestment risks through investments primarily in zero coupon
securities.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") is designed to provide investors
with income exempt from regular federal income tax while seeking
stability of principal. STFMF seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may
not be possible.
Scudder Tax Free Money Market Series seeks to provide investors with as
high a level of current income that cannot be subjected to federal
income tax by reason of federal law as is consistent with its
investment policies and with preservation of capital and liquidity. The
institutional class of shares of this Fund is not within the Scudder
Family of Funds.
Scudder California Tax Free Money Fund* is designed to provide
California taxpayers income exempt from California state and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.
Scudder New York Tax Free Money Fund* is designed to provide New York
taxpayers income exempt from New York state, New York City and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.
TAX FREE
Scudder High Yield Tax Free Fund seeks to provide high income which is
exempt from regular federal income tax by investing in municipal
securities.
Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a
high degree of principal stability.
Scudder Managed Municipal Bonds seeks to provide income which is exempt
from regular federal income tax primarily through investments in
high-grade, long-term municipal securities.
Scudder Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation by investing in high-grade municipal securities of
intermediate maturities.
Scudder California Tax Free Fund* seeks to provide income exempt from
both California and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
California state, municipal and local government obligations.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide as
high a level of income exempt from Massachusetts personal and regular
federal income tax as is consistent with a high degree of principal
stability.
Scudder Massachusetts Tax Free Fund* seeks to provide income exempt
from both Massachusetts and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
Massachusetts state, municipal and local government obligations.
- ---------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
39
<PAGE>
Scudder New York Tax Free Fund* seeks to provide income exempt from New
York state, New York City and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
investments in New York state, municipal and local government
obligations.
Scudder Ohio Tax Free Fund* seeks to provide income exempt from both
Ohio and regular federal income taxes through the professional and
efficient management of a portfolio consisting of Ohio state, municipal
and local government obligations.
Scudder Pennsylvania Tax Free Fund* seeks to provide income exempt from
both Pennsylvania and regular federal income taxes through a portfolio
consisting of Pennsylvania state, municipal and local government
obligations.
GROWTH AND INCOME
Scudder Balanced Fund seeks to provide a balance of growth and income,
as well as long-term preservation of capital, from a diversified
portfolio of equity and fixed income securities.
Scudder Growth and Income Fund seeks to provide long-term growth of
capital, current income, and growth of income through a portfolio
invested primarily in common stocks and convertible securities by
companies which offer the prospect of growth of earnings while paying
current dividends.
GROWTH
Scudder Classic Growth Fund seeks long-term growth of capital with
reduced share price volatility compared to other growth mutual funds.
Scudder Development Fund seeks to achieve long-term growth of capital
primarily through investments in marketable securities, principally
common stocks, of relatively small or little-known companies which in
the opinion of management have promise of expanding their size and
profitability or of gaining increased market recognition for their
securities, or both.
Scudder Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the
globe.
Scudder Global Discovery Fund seeks above-average capital appreciation
over the long term by investing primarily in the equity securities of
small companies located throughout the world.
Scudder Global Fund seeks long-term growth of capital primarily through
a diversified portfolio of marketable equity securities selected on a
worldwide basis. It may also invest in debt securities of U.S. and
foreign issuers. Income is an incidental consideration.
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder International Fund seeks long-term growth of capital through
investment principally in a diversified portfolio of marketable equity
securities selected primarily to permit participation in non-U.S.
companies and economies with prospects for growth. It also invests in
fixed-income securities of foreign governments and companies, with a
view toward total investment return.
- -------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
40
<PAGE>
Scudder International Growth and Income Fund seeks long-term growth of
capital and current income primarily from foreign equity.
Scudder Large Company Growth Fund seeks to provide long-term growth of
capital through investment primarily in equity securities of large U.S.
growth companies.
Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a broad and flexible investment program
emphasizing common stocks.
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-cap stocks.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies.
Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in securities of emerging growth companies poised
to be leaders in the 21st century.
Scudder Value Fund seeks long-term growth of capital through investment
in undervalued equity securities.
The Japan Fund, Inc. seeks capital appreciation through investment in
Japanese securities, primarily in common stocks of Japanese companies.
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio will, under normal market conditions, invest
substantially in a select mix of Scudder bond mutual funds, but will
have some exposure to Scudder equity mutual funds.
Scudder Pathway Series: Balanced Portfolio seeks a balance of growth
and income by investing in a select mix of Scudder money market, bond
and equity mutual funds.
Scudder Pathway Series: Growth Portfolio seeks to provide investors
with long-term growth of capital. In pursuing this objective, the
Portfolio will, under normal market conditions, invest predominantly in
a select mix of Scudder equity mutual funds designed to provide
long-term growth.
Scudder Pathway Series: International Portfolio seeks maximum total
return. Total return consists of any capital appreciation plus dividend
income and interest. To achieve this objective, the Portfolio invests
in a select mix of international and global Scudder Funds.
The net asset values of most Scudder Funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder Funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
41
<PAGE>
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
service representative of Scudder Investor Relations; and easy telephone
exchanges into other Scudder funds.
SPECIAL PLAN ACCOUNTS
(See "Scudder tax-advantaged retirement plans," "Purchases--By Automatic
Investment Plan" and "Exchanges and redemptions--By Automatic Withdrawal
Plan" in the Fund's prospectus.)
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. It is
advisable for an investor considering the funding of the investment plans
described below to consult with an attorney or other investment or tax adviser
with respect to the suitability requirements and tax aspects thereof.
Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRA's other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Automatic Withdrawal Plan
Non-retirement plan shareholders who currently own or purchase $10,000
or more of shares of the Fund may establish an Automatic Withdrawal Plan. The
investor can then receive monthly, quarterly or periodic redemptions from his or
her account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s) as
described under "Transaction information--Redeeming shares--Signature
guarantees" in the Fund's prospectus. Any such requests must be received by the
Fund's transfer agent ten days prior to the date of the first automatic
withdrawal. An Automatic Withdrawal Plan may be terminated at any time by the
shareholder, the Trust or its agent on written notice, and will be terminated
when all shares of the Fund under the Plan have been liquidated or upon receipt
by the Trust of notice of death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
Cash Management System - Group Sub-Accounting Plan
for Trust Accounts, Nominees and Corporations
To minimize record-keeping by fiduciaries and corporations,
arrangements have been made with the Transfer Agent to offer a convenient group
sub-accounting and dividend payment system to bank trust departments and others.
Debt obligations of banks which utilize the Cash Management System are not given
any preference in the acquisition of investments for a Fund or Portfolio.
In its discretion, a Fund may accept minimum initial investments of
less than $2,500 (per Portfolio) as part of a continuous group purchase plan by
fiduciaries and others (e.g., brokers, bank trust departments, employee benefit
42
<PAGE>
plans) provided that the average single account in any one Fund or Portfolio in
the group purchase plan will be $2,500 or more. A Fund may also wire all
redemption proceeds where the group maintains a single designated bank account.
Shareholders who withdraw from the group purchase plan through which
they were permitted to initiate accounts under $2,500 will be subject to the
minimum account restrictions described under "EXCHANGES AND REDEMPTIONS--Other
Information."
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of investment program may be suitable for
various investment goals such as, but not limited to, college planning or saving
for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See "Distribution and performance information--
Dividends and capital gains distributions" in the Funds'
prospectus.)
Each Fund follows the practice of distributing substantially all, and
in no event less than 90% of its net investment income (defined under
"ADDITIONAL INFORMATION--Glossary") and any excess of net realized short-term
capital gains over net realized long-term capital losses. Each Fund may follow
the practice of distributing the entire excess of net realized long-term capital
gains over net realized short-term capital losses. However, if it appears to be
in the best interest of a Fund and its shareholders, such Fund may retain all or
part of such gain for reinvestment.
Dividends are declared daily and distributions from net investment
income are made monthly. Any dividends or capital gains distributions declared
in October, November or December with a record date in such a month and paid
during the following January are treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared.
Distributions from net short-term and net long-term capital gains realized
during each fiscal year, if any, are made annually within three months after the
end of the Funds' fiscal year end. An additional distribution may be made (or
treated as made) in November or December if necessary to avoid the excise tax
described under "TAXES." Both types of distributions are made in shares of the
Funds and confirmations are mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check is sent.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year each Fund issues to each shareholder a statement of the
federal income tax status of all distributions, including a statement of the
43
<PAGE>
percentage of the prior calendar year's distributions which the Fund has
designated as tax-exempt and the percentage of such tax-exempt distributions
treated as a tax-preference item for purposes of the alternative minimum tax.
PERFORMANCE INFORMATION
(See "Distribution and performance
information--Performance information" in the
Funds' prospectus.)
From time to time, quotations of the Funds' performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures may be calculated in the following manner:
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of
return for the periods of one year, five years and the life of the Fund, where
applicable, all ended on the last day of a recent calendar quarter. Average
annual total return quotations reflect changes in the price of the Funds' shares
and assume that all dividends and capital gains distributions during the
respective periods were reinvested in Fund shares. Average annual total return
is calculated by finding the average annual compound rates of return of a
hypothetical investment over such periods, according to the following formula
(average annual total return is then expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical
$1,000 investment made at the beginning of the
applicable period.
Average Annual Total Return for periods ended March 31, 1997
<TABLE>
<CAPTION>
One Five Ten Life of
Year Years Years Fund
---- ----- ----- ----
<S> <C> <C> <C>
Scudder California Tax Free Money Fund 2.87% 2.62% 3.62%*
Scudder California Tax Free Fund 5.44% 7.23% 7.16% 8.41%
</TABLE>
* For the period beginning May 28, 1987 (commencement of operations)
Cumulative Total Return
Cumulative Total Return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect the change in the price of a Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative total return is calculated by finding the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):
C = (ERV/P)-1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical
$1,000 investment made at the beginning of the
applicable period.
44
<PAGE>
Cumulative Total Return for periods ended March 31, 1997
<TABLE>
<CAPTION>
One Five Ten Life of
Year Years Years Fund
---- ----- ----- ----
<S> <C> <C> <C>
Scudder California Tax Free Money Fund 2.87% 13.83% 41.95% *
Scudder California Tax Free Fund 5.44% 41.78% 99.76%
</TABLE>
* For the period beginning May 28, 1987 (commencement of operations)
Total Return
Total Return is the rate of return on an investment for a specified
period of time calculated in the same manner as Cumulative Total Return.
Yield
Yield for Scudder California Tax Free Money Fund is the net annualized
yield based on a specified seven calendar days calculated at simple interest
rates. Yield is calculated by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return. The yield is annualized by multiplying the base period return by
365/7. The yield figure is stated to the nearest hundredth of one percent. The
yield of the Fund for the seven-day period ended March 31, 1997 was 2.82%.
Yield for Scudder California Tax Free Fund is the SEC net annualized
yield based on a specified 30-day or one month) period assuming a semiannual
compounding of income. Yield is calculated by dividing the net investment income
per share earned during the period by the maximum offering price per share on
the last day of the period, according to the following formula:
YIELD = 2[(a-b/cd + 1)^6-1]
Where:
a = dividends and interest earned during the period
including the amortization of market premium or
accretion of market discount.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The SEC 30-day net annualized yield of the Fund for the period ended
March 31, 1997 was 4.73%.
Effective Yield
Effective Yield for Scudder California Tax Free Money Fund is the net
annualized yield for a specified seven calendar days assuming a reinvestment of
the income or compounding. Effective yield is calculated by the same method as
yield except the yield figure is compounded by adding one, raising the sum to a
power equal to 365 divided by seven, and subtracting one from the result,
according to the following formula:
Effective Yield = [(Base Period Return + 1)^365/7] - 1
The effective yield of the Fund for the seven-day period ended March
31, 1997 was 2.82%.
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<PAGE>
Tax-Equivalent Yield
Tax-Equivalent Yield for Scudder California Tax Free Money Fund is the
net annualized taxable yield needed to produce a specified tax-exempt yield at a
given tax rate based on a specified seven day period assuming a reinvestment of
all dividends paid during such period. Tax-equivalent yield is calculated by
dividing that portion of the Fund's yield (as computed in the yield description
above) which is tax-exempt by one minus a stated income tax rate and adding the
product to that portion, if any, of the yield of the Fund that is not
tax-exempt.
Thus, taxpayers with an effective combined marginal income tax rate of
45.22% would need to earn a taxable yield of 5.15% to receive the after-tax
income equal to the 2.82% tax-free effective yield of Scudder California Tax
Free Money Fund for the seven-day period ended March 31, 1997.
Tax-Equivalent Yield for Scudder California Tax Free Fund is the net
annualized taxable yield needed to produce a specified tax-exempt yield at a
given tax rate based on a specified 30-day (or one month) period assuming
semiannual compounding of income. Tax-equivalent yield is calculated by dividing
that portion of the Fund's yield (as computed in the yield description above)
which is tax-exempt by one minus a stated income tax rate and adding the product
to that portion, if any, of the yield of the Fund that is not tax-exempt. Thus,
taxpayers with an effective combined marginal income tax rate of 45.22% would
have to earn 8.63% to receive the after-tax income equal to the 4.73% tax-free
yield of Scudder California Tax Free Fund for the 30-day period ended March 31,
1997.
Quotations of a Fund's performance are historical, show the performance
of a hypothetical investment and are not intended to indicate future
performance. Performance of the Fund will vary based on changes in market
conditions and the level of the Fund's expenses. An investor's shares when
redeemed may be worth more or less than their original cost.
Investors should be aware that the principal of each Fund is not
insured.
Comparison of Portfolio Performance
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of a Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, a Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the Nasdaq OTC Composite Index, the Nasdaq
Industrials Index, the Russell 2000 Index, and statistics published by the Small
Business Administration.
From time to time, in advertising and marketing literature, a Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, a Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.
From time to time, in marketing and other Fund literature, Trustees and
officers of the Funds, the Funds' portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Funds. In addition, the amount of assets that the Adviser has under management
46
<PAGE>
in various geographical areas may be quoted in advertising and marketing
materials.
The Funds may be advertised as an investment choice in Scudder's
college planning program. The description may contain illustrations of projected
future college costs based on assumed rates of inflation and examples of
hypothetical fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Funds. The
description may include a "risk/return spectrum" which compares the Funds to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Funds to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Funds, including reprints of, or selections from, editorials or
articles about these Funds. Sources for Fund performance information and
articles about the Funds include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
47
<PAGE>
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
48
<PAGE>
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
SmartMoney, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication issued 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
ORGANIZATION OF THE FUNDS
(See "Fund organization" in the Funds' prospectus.)
The Funds are series of Scudder California Tax Free Trust. The Trust is
a Massachusetts business trust established under a Declaration of Trust dated
May 3, 1983. Such Declaration of Trust was amended and restated on December 8,
1987. Its authorized capital consists of an unlimited number of shares of
beneficial interest of $.01 par value. The shares are currently divided into two
series. Each share of each Fund has equal rights with each other share of that
Fund as to voting, dividends and liquidation. Shareholders have one vote for
each share held on matters on which they are entitled to vote. All shares issued
and outstanding are fully paid and nonassessable by the Trust, and redeemable as
described in this Statement of Additional Information and in the Funds'
prospectus.
49
<PAGE>
The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with its equitable share of the
general liabilities of the Trust, as determined by the Trustees. Expenses with
respect to any two or more series are to be allocated in proportion to the asset
value of the respective series except where allocations of direct expenses can
otherwise be fairly made. The officers of the Trust, subject to the general
supervision of the Trustees, have the power to determine which liabilities are
allocable to a given series, or which are general or allocable to two or more
series. In the event of the dissolution or liquidation of the Trust or any
series, the holders of the shares of any series are entitled to receive as a
class the underlying assets of such shares available for distribution to
shareholders.
Shares of the Trust entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series. Approval by the shareholders of one series is
effective as to that series whether or not enough votes are received from the
shareholders of the other series to approve such agreement as to the other
series.
The Trustees, in their discretion, may authorize the division of shares
of the Fund (or shares of a series) into different classes permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution. The Trustees have no present
intention of taking the action necessary to effect the division of shares into
separate classes (which under present regulations requires the Fund first to
obtain an exemptive order of the SEC), or of changing the method of distribution
of shares of the Fund.
The Declaration of Trust provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust,
that the Trustees and officers are not liable for errors of judgment or mistakes
of fact or law, and that the Trust indemnifies its Trustees and officers against
liabilities and expenses incurred in connection with litigation in which they
may be involved because of their offices with the Trust except if it is
determined in the manner provided in the Declaration of Trust that they have not
acted in good faith in the reasonable belief that their actions were in the best
interests of the Trust. However, nothing in the Declaration of Trust protects or
indemnifies a Trustee or officer against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
INVESTMENT ADVISER
(See "Fund organization-Investment adviser" in the Funds' prospectus.)
Scudder, Stevens & Clark, Inc., an investment counsel firm, acts as
investment adviser to the Funds. This organization is one of the most
experienced investment management firms in the United States. It was established
as a partnership in 1919 and pioneered the practice of providing investment
counsel to individual clients on a fee basis. In 1928, it introduced the first
no-load mutual fund to the public. In 1953, the Adviser introduced Scudder
International Fund, the first mutual fund available in the U.S. investing
internationally in several foreign countries. The firm reorganized from a
partnership to a corporation on June 28, 1985.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Scudder
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder Global Fund,
Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder Institutional Fund,
Inc., Scudder International Fund, Inc., Scudder Investment Trust, Scudder
Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia Fund, Inc.,
Scudder New Europe Fund, Inc., Scudder Pathway Series, Scudder Securities Trust,
Scudder State Tax Free Trust, Scudder Tax Free Money Fund, Scudder Tax Free
Trust, Scudder U.S. Treasury Money Fund, Scudder Variable Life Investment Fund,
50
<PAGE>
Scudder World Income Opportunities Fund, Inc., The Argentina Fund, Inc., The
Brazil Fund, Inc., Scudder Spain and Portugal Fund, Inc., The Korea Fund, Inc.,
The Japan Fund, Inc. and The Latin America Dollar Income Fund, Inc. Some of the
foregoing companies or trusts have two or more series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $13 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.
Pursuant to an Agreement between Scudder, Stevens & Clark, Inc.
("Scudder") and AMA Solutions, Inc., a subsidiary of the American Medical
Association (the "AMA"), dated May 9, 1997, Scudder has agreed, subject to
applicable state regulations, to pay AMA Solutions, Inc. royalties in an amount
equal to 5% of the management fee received by Scudder with respect to assets
invested by AMA members in Scudder funds in connection with the AMA
InvestmentLinkSM Program. Scudder will also pay AMA Solutions, Inc. a general
monthly fee, currently in the amount of $833. The AMA and AMA Solutions, Inc.
are not engaged in the business of providing investment advice and neither is
registered as an investment adviser or broker/dealer under federal securities
laws. Any person who participates in the AMA InvestmentLinkSM Program will be a
customer of Scudder (or of a subsidiary thereof) and not the AMA or AMA
Solutions, Inc. AMA InvestmentLinkSM is a service mark of AMA Solutions, Inc.
In selecting the securities in which the Funds may invest, the
conclusions and investment decisions of the Adviser with respect to the Funds
are based primarily on the analyses of its own research department. The Adviser
receives published reports and statistical compilations of the issuers
themselves, as well as analyses from broker/dealers who may execute portfolio
transactions for the Adviser's clients. However, the Adviser regards this
information and material as an adjunct to its own research activities.
Certain investments may be appropriate for a Fund and also for other
clients advised by the Adviser. Investment decisions for the Funds and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions are allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by a Fund. Purchase and sale orders for a Fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to a Fund.
The Investment Management Agreements (the "Agreements") for each Fund
are dated December 12, 1990. The Agreements were most recently approved by the
Trustees on August 11, 1996 and will continue in effect until September 30,
1997. The Agreements will continue in effect thereafter by its terms from year
to year only so long as its continuance is specifically approved at least
annually by the vote of a majority of those Trustees who are not parties to such
Agreements or "interested persons" of the Adviser or the Trust cast in person at
a meeting called for the purpose of voting on such approval and either by vote
of the majority of the Trustees or a majority of the outstanding voting
securities of each Fund. The Agreements may be terminated at any time without
payment of penalty by either party on sixty days' written notice, and
automatically terminates in the event of its assignment.
Under the Agreements, the Adviser regularly provides each Fund with
continuing investment management consistent with each Fund's investment
objectives, policies and restrictions and determines what securities shall be
purchased for each Fund's portfolio, what securities shall be held or sold by
each Fund, and what portion of each Fund's assets shall be held uninvested,
subject always to the provisions of the Trust's Declaration of Trust and
By-Laws, of the 1940 Act and of the Code and to each Fund's investment
objectives, policies and restrictions, and subject further to such policies and
instructions as the Trustees of the Trust may from time to time establish. The
Adviser also advises and assists the officers of the Trust in taking such steps
51
<PAGE>
as are necessary or appropriate to carry out the decisions of its Trustees and
the appropriate committees of the Trustees regarding the conduct of the business
of the Trust.
Under the Agreements, the Adviser renders significant administrative
services (not otherwise provided by third parties) necessary for the Trust's
operations as an open-end investment company including, but not limited to,
preparing reports and notices to the Trustees and shareholders; supervising,
negotiating contractual arrangements with, and monitoring various third-party
service providers to each Fund (such as the Transfer Agent, pricing agents,
Custodian, accountants and others); preparing and making filings with the SEC
and other regulatory agencies; assisting in the preparation and filing of each
Fund's federal, state and local tax returns; preparing and filing each Fund's
federal excise tax returns; assisting with investor and public relations
matters; monitoring the valuation of securities and the calculation of net asset
value; monitoring the registration of shares of each Fund under applicable
federal and state securities laws; maintaining each Fund's books and records to
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies of each Fund; assisting in the resolution of accounting and
legal issues; establishing and monitoring each Fund's operating budget;
processing the payment of each Fund's bills; assisting each Fund in, and
otherwise arranging for, the payment of distributions and dividends and
otherwise assisting each Fund in the conduct of its business, subject to the
direction and control of the Trustees.
The Adviser pays the compensation and expenses (except those of
attending Board and committee meetings outside New York, New York and Boston,
Massachusetts) of all affiliated Trustees, officers and executive employees of
the Trust and makes available, without expense to the Trust, the services of
such of the Adviser's directors, officers and employees as may duly be elected
officers of the Trust, subject to their individual consent to serve and to any
limitations imposed by law, and provides the Trust's office space and
facilities.
For these services, Scudder California Tax Free Fund pays an annual fee
of 0.625 of 1% of the first $200 million of average daily net assets of such
Fund and 0.60 of 1% of such net assets in excess of $200 million, and Scudder
California Tax Free Money Fund pays an annual fee of 0.50 of 1% of the average
daily net assets of such Fund.
For the fiscal years ended March 31, 1997, 1996 and 1995 the investment
management fees incurred by Scudder California Tax Free Fund were $1,800,657,
$1,842,488, and $1,861,185, respectively, and the investment management fees
incurred by Scudder California Tax Free Money Fund were $210,030, $193,014, and
$180,098, respectively.
With respect to Scudder California Tax Free Money Fund, the Adviser has
agreed to continue not to impose all or a portion of its management fee and to
take other action, (to the extent necessary) until July 31, 1998, and during
such time to maintain the annualized expenses at not more than 0.60% of average
daily net assets. For the fiscal year ended March 31, 1997, the Adviser did not
impose a portion of the fee which would have amounted to $128,299.
Under the Agreements, the Funds are responsible for all of their other
expenses, including fees and expenses incurred in connection with membership in
investment company organizations; brokers' commissions; legal, auditing or
accounting expenses; taxes and governmental fees; the fees and expenses of the
Transfer Agent; any other expenses, including clerical expenses of issue, sale,
underwriting, distribution, redemption or repurchase of shares; the expenses of
and fees for registering or qualifying securities for sale; the fees and
expenses of the Trustees, officers and employees of the Fund who are not
affiliated with the Adviser; the cost of printing and distributing reports and
notices to shareholders; and the fees or disbursements of custodians. Each Fund
may arrange to have third parties assume all or part of the expenses of sale,
underwriting and distribution of shares of such Fund. The Trust is also
responsible for its expenses incurred in connection with litigation, proceedings
and claims and the legal obligation it may have to indemnify its officers and
Trustees with respect thereto.
Each Agreement requires the Adviser to return to each Fund all or a
portion of advances of its management fee to the extent annual expenses of such
Fund (including the management fee stated above) exceed the limitations
prescribed by any state in which such Fund's shares are offered for sale.
Any such fee advance required to be returned to a Fund is returned as
promptly as practicable after the end of the Funds' fiscal year. However, no fee
payment is made to the Adviser during any fiscal year which causes year- to-date
expenses to exceed the cumulative pro rata expense limitation at the time of
such payment.
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<PAGE>
The Agreements also provide that the Trust may use any name derived
from the name "Scudder, Stevens & Clark" only as long as the Agreements or any
extension, renewal or amendment thereof remains in effect.
In reviewing the terms of each Agreement and in discussions with the
Adviser concerning the Agreements, Trustees who are not "interested persons" of
the Adviser are represented by independent counsel at the Trust's expense.
Each Agreement provides that the Adviser is not liable for any error of
judgment or mistake of law or for any loss suffered by a Fund in connection with
matters to which the Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Custodian. It is the Adviser's
opinion that the terms and conditions of those transactions which have occurred
were not influenced by existing or potential custodial or other Trust
relationships.
None of the Trustees or officers of the Trust may have dealings with
the Trust as principals in the purchase or sale of securities, except as
individual subscribers to or holders of shares of the Funds.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, 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 monthly 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 Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Principal Occupation** Scudder Investor
Name, Age and Address Position with Trust and Affiliations Services, Inc.
- --------------------- ------------------- ---------------- --------------
<S> <C> <C> <C>
David S. Lee (63)*++@ President and Trustee Managing Director of Scudder, Director, President
Stevens & Clark, Inc. and Assistant
Treasurer
Henry P. Becton, Jr. (53)++ Trustee President and General Manager, --
WGBH WGBH Educational Foundation
125 Western Avenue
Allston, MA 02134
Dawn-Marie Driscoll (50) Trustee Executive Fellow, Center for --
4909 SW 9th Place Business Ethics and President,
Cape Coral, FL 33914 Driscoll Associates
53
<PAGE>
Position with
Underwriter,
Principal Occupation** Scudder Investor
Name, Age and Address Position with Trust and Affiliations Services, Inc.
- --------------------- ------------------- ---------------- --------------
Peter B. Freeman (64)++ Trustee Corporate Director and Trustee --
100 Alumni Avenue
Providence, RI 02906
George M. Lovejoy, Jr. (67) Trustee President and Director --
Fifty Associates (Real Estate
Corporation)
Daniel Pierce (62)*++@ Trustee Chairman of the Board and Director, Vice
Managing Director of Scudder, President and
Stevens & Clark, Inc. Assistant Treasurer
Olin Barrett (59) Vice President Managing Director of Scudder, --
333 South Hope Street Stevens & Clark, Inc.
Los Angeles, CA 90071
Donald C. Carleton (63)@ Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.
Jerard K. Hartman (64)+ Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.
Thomas W. Joseph (58)@ Vice President Principal of Scudder, Stevens & Director, Vice
Clark, Inc. President, Treasurer
and Assistant Clerk
Thomas F. McDonough (50)@ Vice President and Principal of Scudder, Stevens & Clerk
Secretary Clark, Inc.
Pamela A. McGrath (43)@ Vice President and Managing Director of Scudder, --
Treasurer Stevens & Clark, Inc.
Edward J. O'Connell (52)+ Vice President and Principal of Scudder, Stevens & Assistant Treasurer
Assistant Treasurer Clark, Inc.
Jeremy L. Ragus (45) Vice President Principal of Scudder, Stevens & --
Clark, Inc.
Rebecca L. Wilson (35) Vice President Assistant Vice President of --
Scudder, Stevens & Clark, Inc.
</TABLE>
* Messrs. Lee and Pierce are considered by the Trust and its counsel to
be Trustees who are "interested persons" of the Adviser or of the
Trust, within the meaning of the 1940 Act.
** Unless otherwise stated, all officers and Trustees have been associated
with their respective companies for more than five years but not
necessarily in the same capacity.
++ Messrs. Becton, Freeman, Lee and Pierce are members of the Executive
Committee which has the power to declare dividends from ordinary income
and distributions of realized capital gains to the same extent as the
Board is so empowered.
+ Address: 345 Park Avenue, New York, New York 10154
@ Address: Two International Place, Boston, Massachusetts 02110
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<PAGE>
As of June 30, 1997, all Trustees and officers of the Trust as a group
owned beneficially (as defined in Section 13(d) of the Securities Exchange Act
of 1934) 2.76% of Scudder California Tax Free Money Fund and less than 1% of
Scudder California Tax Free Fund.
As of June 30, 1997, 2,125,280 shares, in the aggregate, or 7.62% of
the outstanding shares of Scudder California Tax Free Fund were held in the name
of Charles Schwab, 101 Montgomery Street, San Francisco, CA 94101-4122, who may
be deemed to be the beneficial owner of certain of these shares but disclaims
any beneficial ownership therein.
Certain accounts for which the Adviser acts as investment adviser owned
7,026,717 shares in the aggregate, or 10.67% of the outstanding shares of
Scudder California Tax Free Money Fund. The Adviser may be deemed to be the
beneficial owner of such shares but disclaims any beneficial ownership in such
shares.
To the best of the Funds' knowledge, as of June 30, 1997, no person
owned beneficially more than 5% of each Fund's outstanding shares except as
stated above.
The Trustees and officers of the Trust also serve in similar capacities
with other Scudder Funds.
REMUNERATION
Responsibilities of the Board--Board and Committee Meetings
The Board of Trustees is responsible for the general oversight of each
Fund's business. A majority of the Board's members are not affiliated with
Scudder, Stevens & Clark, Inc. (The "Advisor"). These "Independent Trustees"
have primary responsibility for assuring that each Fund is managed in the best
interests of its shareholders.
The Board of Trustees meets at least quarterly to review the investment
performance of each Fund and other operational matters, including policies and
procedures designated to assure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, each
Funds' investment performance, the quality and efficiency of the various other
services provided, costs incurred by the Adviser and its affiliates, and
comparative information regarding fees and expenses of competitive funds. They
are assisted in this process by each Fund's independent public accountants and
by independent legal counsel selected by the Independent Trustees.
All of the Independent Trustees serve on the Committee on Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects each Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Trustees from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
The Independent Trustees met six times during 1996, including Board and
Committee meetings and meetings to review each Fund's contractual arrangements
as described above. All of the Independent Trustees attended 100% of all such
meetings.
Compensation of Officers and Trustees
Several of the officers and Trustees of the Trust may be officers of
the Adviser, or of the Distributor, the Transfer Agent, Scudder Trust Company or
Scudder Fund Accounting Corporation from whom they receive compensation, as a
result of which they may be deemed to participate in fees paid by the Trust. The
Trust pays no direct remuneration to any officer of the Trust. However, each of
the Trustees who is not affiliated with the Adviser will be compensated for all
expenses relating to Trust business (specifically including travel expenses
relating to Trust business). Each of these unaffiliated Trustees receives a
revised annual Trustee's fee of $1,800 for California Tax Free Money Fund and
$3,600 for California Tax Free Fund from the Trust plus $100 for attending each
Trustees' meeting, audit committee meeting or meeting held for the purpose of
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<PAGE>
considering arrangements between the Trust on behalf of a Fund and the Adviser
or any affiliates. Each unaffiliated Trustee also receives $100 per committee
meeting, other than those set forth above, attended. For the fiscal year ended
March 31, 1997, fees totaled $14,242 for Scudder California Tax Free Fund and
$14,241 for Scudder California Tax Free Money Fund.
No additional compensation is paid to any Independent Trustee for
travel time to meetings, attendance at directors' educational seminars or
conferences, service on industry or association committees, participation as
speakers at directors' conferences, service on special trustee task forces or
subcommittees or service as lead or liaison trustee. Independent Trustees do not
receive any employee benefits such as pension, retirement or health insurance.
The Independent Trustees also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type an complexity
and in some cases have substantially different Trustee fee schedules. The
following table shows the aggregate compensation received by each Independent
Trustee during 1997 from the Trust and from all of Scudder funds as a group.
<TABLE>
Name Scudder California Tax Free Trust* All Scudder Funds
---- ---------------------------------- -----------------
<S> <C> <C>
Henry P. Becton, Jr., Trustee $8,900 $91,012 (16 funds)
Dawn-Marie Driscoll, Trustee $9,500 $103,000 (16 funds)
Peter B. Freeman, Trustee $9,500 $131,734 (33 funds)
George M. Lovejoy, Jr., Trustee 0 $124,512 (13 funds)
</TABLE>
* Scudder California Tax Free Trust consists of two Funds: Scudder
California Tax Free Money Fund and California Tax Free Fund.
Members of the Board of Trustees who are employees of Scudder or its
affiliates receive no direct compensation from the Trust, although they are
compensated as employees of Scudder, or its affiliates, as a result of which
they may be deemed to participate in fees paid by each Fund.
DISTRIBUTOR
The Trust has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor") a Massachusetts corporation, which is a subsidiary of
the Adviser, a Delaware corporation. The Trust's underwriting agreement dated
June 1, 1987, will remain in effect until September 30, 1997, and from year to
year thereafter only if its continuance is approved annually by a majority of
the members of the Board of Trustees who are not parties to such agreement or
interested persons of any such party and either by vote of a majority of the
Board of Trustees or a majority of the outstanding voting securities of the
Trust. The underwriting agreement was last approved by the Trustees on August
13, 1996.
Under the principal underwriting agreement, the Trust is responsible
for: the payment of all fees and expenses in connection with the preparation and
filing with the SEC of its registration statement and prospectus and any
amendments and supplements thereto; the registration and qualification of shares
for sale in the various states, including registering the Trust as a
broker/dealer in various states as required; the fees and expenses of preparing,
printing and mailing prospectuses annually to existing shareholders (see below
for expenses relating to prospectuses paid by the Distributor), notices, proxy
statements, reports or other communications to shareholders of a Fund; the cost
of printing and mailing confirmations of purchases of shares and the
prospectuses accompanying such confirmations; any issuance taxes and/or any
initial transfer taxes; a portion of shareholder toll-free telephone charges and
expenses of shareholder service representatives; the cost of wiring funds for
share purchases and redemptions (unless paid by the shareholder who initiates
the transaction); the cost of printing and postage of business reply envelopes;
and a portion of the cost of computer terminals used by both the Trust and the
Distributor.
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The Distributor pays for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Funds'
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of a Fund to the public.
The Distributor pays all fees and expenses in connection with its qualification
and registration as a broker/dealer under federal and state laws, a portion of
the cost of toll-free telephone service and expenses of shareholder service
representatives, a portion of the cost of computer terminals, and expenses of
any activity which is primarily intended to result in the sale of shares issued
by each Fund, unless a Rule 12b-1 plan is in effect which provides that each
Fund shall bear some or all of such expenses.
Note: Although the Trust does not currently have a 12b-1 Plan and the
Trustees have no current intention of adopting one, the Trust will also
pay those fees and expenses permitted to be paid or assumed by the
Trust pursuant to a 12b-1 Plan, if any, were adopted by the Trust,
notwithstanding any other provision to the contrary in the underwriting
agreement.
As agent the Distributor currently offers shares of each Fund on a
continuous basis to investors in all states in which shares of each Fund may
from time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of either Fund.
TAXES
(See "Transaction information--Tax information, tax identification
number" and "Distribution and performance information -- Dividends
and capital gains distributions" in the Funds' prospectus.)
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situation.
Certain political events, including federal elections and future
amendments to federal income tax laws, may affect the desirability of investing
in the Funds.
Federal Taxation
Each Fund within the Trust is separate for investment and accounting
purposes, and is treated as a separate taxable entity for federal income tax
purposes. Each Fund therefore has qualified and elected to be treated as a
separate regulated investment company under Subchapter M of the Code and intends
to continue to so qualify.
As a regulated investment company qualifying under Subchapter M of the
Code, each Fund is required to distribute to its shareholders at least 90% of
its taxable net investment income (including net short-term capital gain in
excess of net long-term capital loss) and at least 90% of its tax-exempt net
investment income and is not subject to federal income tax to the extent that it
distributes annually all of its taxable net investment income and net realized
capital gains in accordance with the timing requirements of the Code. Each Fund
intends to distribute at least annually substantially all, and in no event less
than 90% of its taxable and tax-exempt net investment income and net realized
capital gains.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by a Fund for reinvestment, requiring
federal income taxes to be paid thereon by a Fund, the Fund will elect to treat
such capital gains as having been distributed to shareholders. As a result, each
shareholder will report such capital gains as long-term capital gains, will be
able to claim a share of federal income taxes paid by a Fund on such gains as a
credit against any personal federal income tax liability, and will be entitled
to increase the adjusted tax basis of Fund shares owned by the difference
between the pro rata share of such gains and any tax credit.
Each Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of a Fund's taxable ordinary income for the calendar
year and at least 98% of the excess of its capital gains over capital losses
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realized during the one-year period ending October 31 during such year, together
with any undistributed, untaxed amounts of ordinary income and capital gains
from the previous calendar year. Each Fund has adjusted its distribution
policies to minimize any adverse impact from this tax or eliminate its
application.
Net investment income is made up of dividends and interest, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward or post-October loss of a Fund. Each
Fund intends to offset realized capital gains by using their capital loss
carryforwards before distributing any capital gains. In addition, each Fund
intends to offset realized capital gains by using its post-October losses before
distributing any capital gains. As of March 31, 1997 Scudder California Tax Free
Money Fund had a net tax basis capital loss carryforward of approximately
$95,000, which may be applied against any realized net taxable capital gains of
each succeeding year until fully utilized or until March 31, 2000 ($14,000),
March 31, 2002 ($7,000), March 31, 2003 ($55,000), March 31, 2004 ($18,000), and
March 31, 2005 ($1,000) the respective expiration dates, whichever occurs first.
As of March 31, 1997, Scudder California Tax Free Fund had a net tax basis
capital loss carryforward of approximately $6,884,000, which may be applied
against any realized net taxable capital gains of each succeeding year until
fully utilized or until March 31, 2003 ($6,492,000) and March 31, 2004
($392,000), the respective expiration dates, whichever occurs first.
Distributions of taxable net investment income and the excess of net
short-term capital gain over net long-term capital loss are taxable to
shareholders as ordinary income.
Subchapter M of the Code permits the character of tax-exempt interest
distributed by a regulated investment company to flow through as tax-exempt
interest to its shareholders, provided that at least 50% of the value of its
assets at the end of each quarter of its taxable year is invested in state,
municipal and other obligations the interest on which is excluded from gross
income under Section 103(a) of the Code. Each Fund intends to satisfy this 50%
requirement in order to permit its distributions of tax-exempt interest to be
treated as such for federal income tax purposes in the hands of its
shareholders. Distributions to shareholders of tax-exempt interest earned by the
Fund for the taxable year are therefore not subject to federal income tax,
although they may be subject to the individual and corporate alternative minimum
taxes described below. A portion of discount from certain stripped tax-exempt
obligations or their coupons, however, may be taxable.
The Revenue Reconciliation Act of 1993 requires that market discount
recognized on a tax-exempt bond is taxable as ordinary income. This rule applies
only for disposals of bonds purchased after April 30, 1993. A market discount
bond is a bond acquired in the secondary market at a price below its redemption
value. Under prior law, the treatment of market discount as ordinary income did
not apply to tax-exempt obligations. Instead, realized market discount on
tax-exempt obligations was treated as capital gain. Under the new law, gain on
the disposition of a tax-exempt obligation or any other market discount bond
that is acquired for a price less than its principal amount will be treated as
ordinary income (instead of capital gain) to the extent of accrued market
discount. This rule is effective only for bonds purchased after April 30, 1993.
Since no portion of either Fund's income is comprised of dividends from
domestic corporations, none of the income distributions of a Fund are eligible
for the dividends-received deduction available for certain taxable dividends
received by corporations.
Properly designated distributions of the excess of net long-term
capital gains over net short-term capital loss are taxable to shareholders as
long-term capital gain, regardless of the length of time the shares of a Fund
have been held by such shareholders. Such distributions to corporate
shareholders of a Fund are not eligible for the dividends-received deduction.
Any loss realized upon the redemption of shares within six months from the date
of their purchase are treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gains with respect to such
shares.
Any loss realized upon the redemption of shares within six months from
the date of their purchase are disallowed to the extent of any tax-exempt
dividends received with respect to such shares, although the period may be
reduced under Treasury regulations to be prescribed. Any loss realized on the
redemption of shares of Scudder California Tax Free Fund may be disallowed if
shares of such Fund are purchased within 30 days before or after such
redemption.
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Distributions derived from interest exempt from regular federal income
tax may subject corporate shareholders to, or increase their liability under,
the 20% corporate alternative minimum tax. A portion of such distributions may
constitute a tax preference item for shareholders and may subject them to, or
increase their liability under, the two-tiered 26%/28% individual alternative
minimum tax, but normally no more than 20% of a Fund's net assets are invested
in securities the interest on which is such a tax preference item for
individuals.
Distributions of taxable net investment income and net realized capital
gains are taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.
All distributions of taxable net investment income and net realized
capital gains, whether received in shares or in cash, must be reported by each
shareholder on a federal income tax return. Dividends and capital gains
distributions declared and payable to shareholders of record as of a specified
date in October, November or December are deemed to have been received by
shareholders in December if paid during January of the following year.
Shareholders are also required to report tax-exempt interest. Redemptions of
shares of Scudder California Tax Free Fund, including exchanges for shares of
another Scudder fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.
Interest which is tax-exempt for federal income tax purposes is
included as income for purposes of determining the amount of social security or
railroad retirement benefits subject to tax.
Interest on indebtedness incurred by shareholders to purchase or carry
shares of a Fund is not deductible for federal income tax purposes. Under rules
used by the IRS to determine when borrowed funds are used for the purpose of
purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though the borrowed funds
are not directly traceable to the purchase of shares.
Section 147(a) of the Code prohibits exemption from taxation of
interest on certain Governmental obligations to persons who are "substantial
users" (or persons related thereto) of facilities financed by such obligations.
The Trust has not undertaken any investigation as to the users of the facilities
financed by bonds in a Fund's portfolio.
Distributions by Scudder California Tax Free Fund result in a reduction
in the net asset value of the Fund's shares. Should a distribution reduce the
net asset value below a shareholder's cost basis, such distribution would
nevertheless be taxable to the shareholder, to the extent it is derived from
other than tax-exempt interest, as ordinary income or capital gains as described
above, even though, from an investment standpoint, it may constitute a partial
return of capital. In particular, investors should consider the tax implications
of buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution receive a partial return of capital upon the
distribution, which, to the extent it is derived from other than tax-exempt
interest, is nevertheless taxable to them.
All futures contracts entered into by Scudder California Tax Free Fund
and all listed nonequity options written or purchased by that Fund (including
options on futures contracts and options on securities indices) are governed by
Section 1256 of the Code. Absent a tax election to the contrary, gain or loss
attributable to the lapse, exercise or closing out of any such position are
treated as 60% long-term and 40% short-term capital gain or loss, and on the
last trading day of the Fund's fiscal year, all outstanding Section 1256
positions are marked to market (i.e. treated as if such positions were closed
out at their closing price on such day), with any resulting gain or loss
recognized as 60% long-term and 40% short-term capital gain or loss. Under
certain circumstances, entry into a futures contract to sell a security may
constitute a short sale for federal income tax purposes, causing an adjustment
in the holding period of the underlying security or a substantially identical
security in the Fund's portfolio.
Positions of Scudder California Tax Free Fund which consist of at least
one debt security not governed by Section 1256 and at least one futures contract
or nonequity option governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such debt security will be treated as a
"mixed straddle." Mixed straddles are subject to the straddle rules of Section
1092 of the Code, the operation of which may cause deferral of losses,
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adjustments in the holding periods of securities and conversion of short-term
capital losses into long-term capital losses. Certain tax elections, however,
exist for them which reduce or eliminate the operation of these rules. The Trust
monitors the Fund's transactions in options and futures and may make certain tax
elections in order to mitigate the operation of these rules and prevent
disqualification of the Fund as a regulated investment company for federal
income tax purposes.
Under the federal income tax law, each Fund is required to report to
the IRS all distributions of taxable income and capital gains as well, as in the
case of Scudder California Tax Free Fund, gross proceeds from the redemption or
exchange of Fund shares, except in the case of certain exempt shareholders.
Under the backup withholding provisions of Section 3406 of the Code,
distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company are
generally subject to withholding of federal income tax at the rate of 31% in the
case of nonexempt shareholders who fail to furnish the investment company with
their taxpayer identification numbers and with required certifications regarding
their status under the federal income tax law. Under a special exception,
distributions of taxable income and capital gains of a Fund are not subject to
backup withholding if the Fund reasonably estimates that at least 95% of all of
its distributions consist of tax-exempt interest. However, in this case, the
proceeds from the redemption or exchange of shares may be subject to backup
withholding. Under another special exception, proceeds from the redemption or
exchange of Fund shares are exempt from withholding if the Fund maintains a
constant net asset value per share. Withholding may also be required if a Fund
is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, are reduced by the amounts required to be
withheld.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. domestic corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of a Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her.
State Taxation
The Trust is organized as a Massachusetts business trust, and neither
the Trust nor the Funds are liable for any income or franchise tax in the
Commonwealth of Massachusetts provided that each Fund qualifies as a regulated
investment company.
In any year in which the Funds qualify as regulated investment
companies under Subchapter M of the Code and are exempt from federal income tax,
the Funds will also be relieved of liability for California state franchise and
corporate income tax to the extent their earnings are distributed to their
shareholders. Each Fund may be taxed on its undistributed taxable income
(including interest income on California municipal securities for franchise tax
purposes). If for any year either of the Funds does not qualify for the special
tax treatment afforded regulated investment companies, then all of such Fund's
taxable income may be subject to California state franchise or income tax at
regular corporate rates.
If at the close of each quarter of its taxable year, at least 50% of
the value of the total assets of a regulated investment company (or series
thereof) consists of obligations the interest on which, if held by an
individual, is exempt from taxation by California, then the regulated investment
company (or series thereof) will be qualified to pay dividends exempt from
California personal income tax (hereinafter referred to as "California
exempt-interest dividends"). Each of the Funds intends to qualify under the
above requirements so it can pay California exempt-interest dividends. However,
if a Fund fails to so qualify, then no part of its dividends to shareholders
will be exempt from California personal income tax.
Within 60 days after the close of its taxable year, each Fund will
notify each shareholder of the portion of the dividends paid by the Fund with
respect to such taxable year which is exempt from California state personal
income tax. Interest on obligations of Puerto Rico and other U.S. Possessions,
as well as interest on obligations of the State of California or its political
subdivisions, may be distributed as California tax-exempt interest dividends.
Distributions from the Funds which are attributable to sources other than those
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described in the preceding sentence generally are taxable to such shareholders
as ordinary income. However, distributions derived from interest on U.S.
Government obligations, if any, may also be designated by a Fund and treated by
shareholders as exempt under the California personal income tax provided the 50%
requirement of the preceding paragraph is satisfied.
In cases where shareholders of a Fund are "substantial users" or
"related persons" with respect to California municipal securities held by the
Fund, such shareholders should consult their own tax advisers to determine
whether California exempt-interest dividends paid by the Fund with respect to
such securities retain California state personal income tax exclusion for such
shareholders. In this connection, rules similar to those regarding the possible
unavailability of exempt interest treatment of Fund dividends to "substantial
users" (or persons related thereto) for federal income tax purposes are
applicable for California state tax purposes. See "Federal Taxation" above.
To the extent, if any, dividends paid to shareholders of a Fund are
derived from the excess of net long-term capital gains over net short-term
capital losses, such dividends will not constitute California exempt-interest
dividends. Such dividends will generally be taxed as long-term capital gains
under rules similar to those regarding the treatment of capital gain dividends
for federal income tax purposes; provided that California has not adopted the
federal rule that allows a regulated investment company to elect to treat such
capital gains as having been distributed even though no capital gain dividend
has actually been paid. See "Federal Taxation" above. In the case where the
Funds make this election for federal income tax purposes, any such capital gains
may be subject to tax at the Fund level for California franchise or corporate
income tax purposes.
Shares of the Funds are not subject to the California property tax.
Interest on indebtedness incurred or continued by shareholders to
purchase or carry shares of a Fund are not deductible for California personal
income tax purposes. In addition, any loss realized by a shareholder of a Fund
upon the sale of shares held for six months or less may be disallowed to the
extent of any exempt-interest dividends received with respect to such shares.
Moreover, any loss realized upon the redemption of shares within six months from
the date of purchase of such shares and following receipt of a long-term capital
gains distribution on such shares is treated as long-term capital loss to the
extent of such long-term capital gains distribution. Finally, any loss realized
upon the redemption shares within 30 days before or after the acquisition of
other shares of the same Fund may be disallowed under the "wash sale" rules.
The foregoing is only a summary of some of the important California
state personal income tax considerations generally affecting the Funds and their
shareholders. No attempt is made to present a detailed explanation of the
California state personal income tax treatment of the Funds or their
shareholders, and this discussion is not intended as a substitute for careful
planning. Further, it should be noted that the portion of any Fund dividends
constituting California exempt-interest dividends is excludable for California
state personal income tax only. Any dividends paid to shareholders subject to
California state franchise or California state corporate income tax may
therefore be taxed as ordinary dividends to such shareholders notwithstanding
that all or a portion of dividends is exempt from California state personal
income tax. Accordingly, potential investors in a Fund, excluding, in
particular, corporate investors which may be subject to either California
franchise tax or California corporate income tax, should consult their tax
advisers with respect to the application of such taxes to the receipt of Fund
dividends and as to their own California state tax situation, in general.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
To the maximum extent feasible, the Adviser places orders for portfolio
transactions for each Fund through the Distributor which in turn places orders
on behalf of a Fund with issuers, underwriters or other broker/dealers. The
Distributor receives no commissions, fees or other remuneration from the Funds
for this service. Allocation of brokerage is supervised by the Adviser.
Each Fund's purchases and sales of portfolio securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
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however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made which will involve an underwriting fee paid to
the underwriter.
The primary objective of the Adviser 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 (negotiable in the case of U.S. national securities exchange
transactions), size of order, difficulty of execution and skill required of the
executing broker/dealer. The Adviser seeks to evaluate the overall
reasonableness of brokerage commissions paid (to the extent applicable) through
the familiarity of the Distributor with commissions charged on comparable
transactions, as well as by comparing commissions paid by a Fund to reported
commissions paid by others. The Adviser 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 Adviser's practice to place such orders with
broker/dealers who supply market quotations to Scudder Fund Accounting
Corporation for appraisal purposes or who supply research, market and
statistical information to the Trust or the Adviser. 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 Adviser is authorized,
when placing portfolio transactions for a Fund, to pay a brokerage commission
(to the extent applicable) in excess of that which another broker might charge
for executing the same transaction, solely on account of the receipt of
research, market or statistical information. The Adviser does not place orders
with broker/dealers on the basis that a broker/dealer has or has not sold shares
of a Fund. In effecting transactions in over-the-counter securities, orders are
placed with the principal market makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
elsewhere.
Although certain research, market and statistical information from
broker/dealers may be useful to the Trust and to the Adviser, it is the opinion
of the Adviser that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by the
Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Trust and not all such information is used by
the Adviser in connection with the Funds. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to the Trust.
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 the Fund on portfolio transactions is legally permissible and advisable.
Portfolio Turnover
Each Fund's portfolio experiences turnover. The portfolio turnover
rates of Scudder California Tax Free Fund (defined by the SEC as the ratio of
the lesser of sales or purchases of securities to the monthly average value of
the portfolio, excluding all securities with remaining maturities at the time of
acquisition of one year or less) for the fiscal years ended March 31, 1997 and
1996, were 70.8% and 49.2%, respectively.
NET ASSET VALUE
Scudder California Tax Free Fund. The net asset value of shares of the Fund is
computed as of the close of regular trading on the Exchange on each day the
Exchange is open for trading (the "Value Time"). The Exchange is scheduled to be
closed on the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Net asset
value per share is determined by dividing the value of the total assets of a
Fund, less all liabilities, by the total number of shares outstanding.
An exchange-traded equity security (not subject to resale restrictions)
is valued at its most recent sale price as of the Value Time. Lacking any sales,
the security is valued at the calculated mean between the most recent bid
quotation and the most recent asked quotation (the "Calculated Mean"). If there
are no bid and asked quotations, the security is valued at the most recent bid
quotation. An unlisted equity security which is traded on The Nasdaq Stock
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Market ("Nasdaq") is valued at the most recent sale price. If there are no such
sales, the security is valued at the most recent bid quotation. The value of an
equity security not quoted on the Nasdaq System, but traded in another
over-the-counter market, is the most recent sale price. If there are no such
sales, the security is valued at the Calculated Mean. If there is no Calculated
Mean, the security is valued at the most recent bid quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term purchased
securities with remaining maturities of sixty days or less shall be valued by
the amortized cost method, which the Board believes approximates market value.
If it is not possible to value a particular debt security pursuant to these
valuation methods, the value of such security is the most recent bid quotation
supplied by a bona fide marketmaker. If no such bid quotation is available, the
Adviser may calculate the price of that debt security, subject to limitations
established by the Board.
Option contracts on securities, currencies, futures and other financial
instruments traded on an exchange are valued at their most recent sale price on
the exchange. If no sales are reported, the value is the Calculated Mean, or if
the Calculated Mean is not available, the most recent bid quotation in the case
of purchased options, or the most recent asked quotation in the case of written
options. Option contracts traded over-the-counter are valued at the most recent
bid quotation in the case of purchased options and at the most recent asked
quotation in the case of written options. Futures contracts are valued at the
most recent settlement price. Foreign currency forward contracts are valued at
the value of the underlying currency at the prevailing currency exchange rate.
If a security is traded on more than one exchange, or on one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Fund's Valuation Committee, the value of an
asset as determined in accordance with these procedures does not represent the
fair market value of the asset, the value of the asset is taken to be an amount
which, in the opinion of the Valuation Committee, represents fair market value
on the basis of all available information. The value of other portfolio holdings
owned by the Fund is determined in a manner which, in the discretion of the
Valuation Committee most fairly reflects fair market value of the property on
the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these assets in terms of U.S. dollars is calculated by
converting the Local Currency into U.S. dollars at the prevailing currency
exchange rates on the valuation date.
Scudder California Tax Free Money Fund. The net asset value per share of Scudder
California Tax Free Money Fund is determined (twice daily as of twelve o'clock
noon and the close of trading on the Exchange) on each day when the Exchange is
open for trading (as noted above). Net asset value per share is determined by
dividing the total assets of the Fund, less all of its liabilities, by the total
number of shares of the Fund outstanding. The valuation of the Fund's portfolio
securities is based upon their amortized cost which does not take into account
unrealized securities gains or losses. This method involves initially valuing an
instrument at its cost and thereafter amortizing to maturity 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.
During periods of declining interest rates, the quoted yield on shares of the
Fund may tend to be higher than a like computation made by a fund with identical
investments utilizing a method of valuation based upon market prices and
estimates of market prices for all of its portfolio instruments. Thus, if the
use of amortized cost by the Fund resulted in a lower aggregate portfolio value
on a particular day, a prospective investor in the Fund would be able to obtain
a somewhat higher yield if he purchased shares of the Fund on that day, than
would result from investment in a fund utilizing solely market values, and
existing investors in the Fund would receive less investment income. The
converse would apply in a period of rising interest rates. Other assets for
which market quotations are not readily available are valued in good faith at
fair value using methods determined by the Trustees and applied on a consistent
basis. For example, securities with remaining maturities of more than 60 days
for which market quotations are not readily available are valued on the basis of
market quotations for securities of comparable maturity, quality and type. The
Trustees review the valuation of the Fund's securities through receipt of
regular reports from the Adviser at each regular Trustees' meeting.
Determinations of net asset value made other than as of the close of the
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Exchange may employ adjustments for changes in interest rates and other market
factors.
ADDITIONAL INFORMATION
Experts
The Financial highlights of each Fund included in the prospectus and
the Financial Statements incorporated by reference in this Statement of
Additional Information have been so included or incorporated by reference in
reliance on the report of Coopers & Lybrand L.L.P. , One Post Office Square,
Boston, MA 02109, independent accountants, and given on the authority of that
firm as experts in accounting and auditing.
Shareholder Indemnification
The Trust is an organization of the type commonly known as a
Massachusetts business trust. Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with each Fund's property or
the acts, obligations or affairs of the Trust. The Declaration of Trust also
provides for indemnification out of the respective Fund's property of any
shareholder held personally liable for the claims and liabilities to which a
shareholder may become subject by reason of being or having been a shareholder.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself would
be unable to meet its obligations.
Ratings of Municipal Obligations
The six highest ratings of Moody's for municipal bonds are Aaa, Aa, A,
Baa, Ba and B. Bonds rated Aaa are judged by Moody's to be of the best quality.
Bonds 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-quality bonds.
Moody's states that Aa bonds are rated lower than the best bonds because margins
of protection or other elements make long-term risks appear somewhat larger than
for Aaa municipal bonds. Municipal bonds which are rated A by Moody's possess
many favorable investment attributes and are considered "upper medium grade
obligations." Factors giving security to principal and interest of A rated
municipal bonds are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future. Securities rated
Baa are considered medium grade, with factors giving security to principal and
interest adequate at present but may be unreliable over any period of time. Such
bonds have speculative elements as well as investment-grade characteristics.
Securities rated Ba or below by Moody's are considered below investment grade,
with factors giving security to principal and interest inadequate and
potentially unreliable over any period of time. Such securities are commonly
referred to as "junk" bonds and as such they carry a high margin of risk.
Moody's ratings for municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). This distinction is in recognition of
the differences between short-term and long-term credit risk. Loans bearing the
designation MIG1 are of the best quality, enjoying strong protection by
establishing cash flows of funds for their servicing or by established and
broad-based access to the market for refinancing, or both. Loans bearing the
designation MIG2 are of high quality, with margins of protection ample although
not as large as in the preceding group.
The six highest ratings of S&P for municipal bonds are AAA (Prime), AA
(High-grade), A (Good-grade), BBB (Investment-grade) and BB and B (Below
investment-grade). Bonds rated AAA have the highest rating assigned by S&P to a
municipal obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree. 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. Bonds rated BBB have an adequate capacity to pay principal
and interest. Adverse economic conditions or changing circumstances are likely
to lead to a weakened capacity to pay interest and repay principal for bonds of
this category than for bonds of higher rated categories. Securities rated BB or
below by S&P are considered below investment grade, with factors giving security
to principal and interest inadequate and potentially unreliable over any period
64
<PAGE>
of time. Such securities are commonly referred to as "junk" bonds and as such
they carry a high margin of risk.
S&P's top ratings for municipal notes issued after July 29, 1984 are
SP-1 and SP-2. The designation SP-1 indicates a very strong capacity to pay
principal and interest. A "+" is added for those issues determined to possess
overwhelming safety characteristics. An "SP-2" designation indicates a
satisfactory capacity to pay principal and interest.
The six highest ratings of Fitch for municipal bonds are AAA, AA, A,
BBB, BB and B. Bonds rated AAA are considered to be investment-grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated 'AAA.'
Because bonds rated in the 'AAA' and 'AA' categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated 'f-1+.' Bonds rated A are considered to be investment grade
and of high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with higher rates.
Bonds rated BBB are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse effects on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with greater ratings. Securities
rated BB or below by Fitch are considered below investment grade, with factors
giving security to principal and interest inadequate and potentially unreliable
over any period of time. Such securities are commonly referred to as "junk"
bonds and as such they carry a high margin of risk.
Commercial Paper Ratings
Commercial paper rated A-1 or better by S&P has the following
characteristics: liquidity ratios are adequate to meet cash requirements;
long-term senior debt is rated "A" or better, although in some cases "BBB"
credits may be allowed; the issuer has access to at least two additional
channels of borrowing; and 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.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's 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
relationship which exists 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.
The rating F-1+ is the highest rating assigned by Fitch. Among the
factors considered by Fitch in assigning this rating are: (1) the issuer's
liquidity; (2) its standing in the industry; (3) the size of its debt; (4) its
ability to service its debt; (5) its profitability; (6) its return on equity;
(7) its alternative sources of financing; and (8) its ability to access the
capital markets. Analysis of the relative strength or weakness of these factors
and others determines whether an issuer's commercial paper is rated F-1+.
Relative strength or weakness of the above factors determine how the
issuer's commercial paper is rated within the above categories.
65
<PAGE>
Glossary
1. Bond
A contract by an issuer (borrower) to repay the owner of the contract
(lender) the face amount of the bond on a specified date (maturity
date) and to pay a stated rate of interest until maturity. Interest is
generally paid semi-annually in amounts equal to one half the annual
interest rate.
2. Debt Obligation
A general term which includes fixed income and variable rate
securities, obligations issued at a discount and other types of
securities which evidence a debt.
3. Discount and Premium
A discount (premium) bond is a bond selling in the market at a price
lower (higher) than its face value. The amount of the market discount
(premium) is the difference between market price and face value.
4. Maturity
The date on which the principal amount of a debt obligation comes due
by the terms of the instrument.
5. Municipal Obligation
Obligations issued by or on behalf of states, territories and
possessions of the U.S., their political subdivisions, agencies and
instrumentalities, the District of Columbia and other issuers, the
interest from which is, at the time of issuance in the opinion of bond
counsel for the issuers, exempt from regular federal income tax.
6. Net Asset Value Per Share
The value of each share of a Fund for purposes of sales and
redemptions.
7. Net Investment Income
The net investment income of each Fund is comprised of its interest
income, including amortizations of original issue discounts, less
amortizations of premiums and expenses paid or accrued.
8. Unit Investment Trust
An investment company organized under a trust or similar agreement
which does not have a board of trustees and which issues only
redeemable securities each of which represents an undivided interest in
a portfolio of specified securities.
Other Information
The CUSIP number of Scudder California Tax Free Money Fund is
811115-20-3. The CUSIP number of Scudder California Tax Free Fund is
811115-10-4.
Each Fund has a fiscal year ending on March 31.
Portfolio securities of each Fund are held separately, pursuant to a
custodian agreement, by the Funds' custodian, State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02101.
The law firm of Willkie Farr & Gallagher is counsel for the Trust.
66
<PAGE>
The name "Scudder California Tax Free Trust" is the designation of the
Trustees for the time being under an Amended and Restated Declaration of Trust
dated December 8, 1987, as amended from time to time, and all persons dealing
with a Fund must look solely to the property of that Fund for the enforcement of
any claims against a Fund as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of a Fund. No series of the Trust is liable for the obligations of any
other series of the Trust. Upon the initial purchase of shares, the shareholder
agrees to be bound by the Fund's Declaration of Trust, as amended from time to
time. The Declaration of Trust of the Trust is on file at the Massachusetts
Secretary of State's Office in Boston, Massachusetts. All persons dealing with a
Fund must look only to the assets of that Fund for the enforcement of any claims
against such Fund as no other series of the Trust assumes any liabilities for
obligations entered into on behalf of a Fund.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts 02110-4103, a subsidiary of the Adviser, computes net asset value
for the Funds. Scudder California Tax Free Money Fund pays Scudder Fund
Accounting Corporation an annual fee equal to 0.0200% of the first $150 million
of the average daily net assets, 0.0060% of such assets in excess of $150
million and 0.0035% of such assets in excess of $1 billion, plus holding and
transaction charges. Scudder California Tax Free Fund pays Scudder Fund
Accounting Corporation an annual fee equal to 0.024% of the first $150 million
of the average daily net assets, 0.007% of such assets in excess of $150 million
and 0.004% of such assets in excess of $1 billion, plus holding and transaction
charges for this service. For the fiscal year ended March 31, 1995, Scudder
California Tax Free Money Fund and Scudder California Tax Free Fund incurred
fees to Scudder Fund Accounting Corporation amounting to $203,558 and $188,774,
respectively. For the fiscal year ended March 31, 1996, Scudder California Tax
Free Money Fund and Scudder California Tax Free Fund incurred fees to Scudder
Fund Accounting Corporation amounting to $30,000 and $66,107, respectively. For
the fiscal year ended March 31, 1997, Scudder California Tax Free Money Fund and
Scudder California Tax Free Fund incurred fees to Scudder Fund Accounting
Corporation amounting to $30,000 and $66,630, respectively, of which $2,500 and
$5,640 were unpaid at March 31, 1997, respectively.
Scudder Service Corporation (the "Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer,
shareholder service and dividend-paying agent for the Funds and provides
subaccounting and recordkeeping services for shareholder accounts in certain
retirement and employee benefit plans. Scudder California Tax Free Fund pays
Service Corporation an annual fee of $29.00 for each account maintained for a
shareholder. Scudder California Tax Free Money Fund pays Service Corporation an
annual fee of $34.50. The Service Corporation fees incurred by Scudder
California Tax Free Money Fund and Scudder Tax Free Fund for the fiscal years
ended March 31, 1997, 1996 and 1995 amounted to $67,597, $71,043 and $84,167 and
$159,122, $164,689 and $188,744, respectively, of which $5,620 and $13,336 were
unpaid at March 31, 1997, respectively.
The Funds' prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Trust has
filed with the SEC under the Securities Act of 1933 and reference is hereby made
to the Registration Statement for further information with respect to the Funds
and the securities offered hereby. This Registration Statement is available for
inspection by the public at the SEC in Washington, D.C.
FINANCIAL STATEMENTS
Scudder California Tax Free Money Fund
The financial statements, including the investment portfolio, of
Scudder California Tax Free Money Fund, together with the Report of Independent
Accountants, Financial Highlights and the Notes to Financial Statements in the
Annual Report to the Shareholders of the Fund dated March 31, 1997, are
incorporated herein by reference and are hereby deemed to be a part of this
Statement of Additional Information.
Scudder California Tax Free Fund
The financial statements, including the investment portfolio, of
Scudder California Tax Free Fund, together with the Report of Independent
Accountants, Financial Highlights and the Notes to Financial Statements in the
Annual Report to the Shareholders of the Fund dated March 31, 1997, are
incorporated herein by reference and are hereby deemed to be a part of this
Statement of Additional Information.
67
<PAGE>
Scudder
California
Tax Free Money Fund
Scudder
California
Tax Free Fund
Annual Report
March 31, 1997
Pure No-Load(TM) Funds
For investors seeking double-tax-free income exempt from both California and
regular federal income taxes.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER
<PAGE>
Table of Contents
2 In Brief
3 Letter from the Funds' President
Scudder California
Tax Free Fund
4 Performance Update
5 Portfolio Summary
8 Portfolio Management Discussion
19 Investment Portfolio
27 Financial Statements
30 Financial Highlights
Scudder California
Tax Free Money Fund
6 Portfolio Management Discussion
11 Investment Portfolio
15 Financial Statements
18 Financial Highlights
31 Notes to Financial Statements
35 Report of Independent Accountants
36 Tax Information
36 Officers and Trustees
37 Investment Products and Services
38 Scudder Solutions
In Brief
Scudder California Tax Free Money Fund
o Scudder California Tax Free Money Fund offered a seven-day effective yield of
2.82% on March 31, 1997, equivalent to a 5.15% taxable yield for investors in
the top federal and state income tax brackets.
Scudder California Tax Free Fund
o Scudder California Tax Free Fund provided a 4.73% 30-day net annualized SEC
yield on March 31, 1997.
o For shareholders subject to the 45.22% maximum combined federal and state
income tax rate, the Fund's yield was equal to a taxable yield of 8.63%.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
30-Day Yield on March 31, 1997
BAR CHART DATA:
Scudder California Tax Free Fund 4.73%
Taxable Equivalent Yield 8.63%
2-Scudder California Tax Free Money Fund
Scudder California Tax Free Fund
<PAGE>
Letter From the Fund's President
Dear Shareholders,
We are pleased to report to you on Scudder California Tax Free Fund's
performance over its most recent fiscal year ended March 31, 1997. The Fund
posted a 4.73% 30-day net annualized SEC yield as of March 31, which is
equivalent to a taxable yield of 8.63% for investors in the top California tax
bracket. The Fund also earned a total return of 5.44% for the 12 months ended
March 31.
In addition, Scudder California Tax Free Money Fund posted a 5.15% tax
equivalent yield based on the maximum federal and state tax rates at the close
of the period. Please read the portfolio management discussions beginning on
page 6 for more information.
As part of Scudder's ongoing efforts to meet the needs of investors, last
fall we launched an innovative new product called Scudder Pathway Series. A
"fund of funds," Pathway Series is a collection of four distinct portfolios --
Conservative, Balanced, Growth, and International -- that offers flexibility,
diversification, and simplicity. Each portfolio invests in a diverse mix of
Scudder funds, and each is geared toward people with different investment goals
and risk tolerances. Moreover, a team of Scudder's investment professionals
rebalances the mix within the portfolios as market conditions warrant.
Before closing, we'd like to take this opportunity to tell you that the
Scudder Family of Funds was recently recognized by Morningstar* for stability in
management and conformity to investment style. The mutual fund rating service
ranked Scudder 4th among 20 leading mutual fund companies for overall management
consistency. We are pleased with this superior track record and will strive to
maintain our reputation for consistency going forward. Please see pages 37
through 39 for more information on Scudder products and services. As always,
please call a Scudder Investor Information representative at 1-800-225-2470 if
you have questions about your account or any Scudder fund. Thank you for
choosing Scudder's California Tax Free Funds to help meet your investment needs.
Sincerely,
/s/David S. Lee
David S. Lee
President,
Scudder California Tax Free Money Fund
Scudder California Tax Free Fund
* Morningstar Investor, February 1997
3-Scudder California Tax Free Money Fund
Scudder California Tax Free Fund
<PAGE>
PERFORMANCE UPDATE as of March 31, 1997
- ----------------------------------------------------------------
Fund Index Comparisons
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
3/31/97 $10,000 Cumulative Annual
- --------------------------------------------
Scudder California Tax Free Fund
- --------------------------------------------
1 Year $ 10,544 5.44% 5.44%
5 Year $ 14,178 41.78% 7.23%
10 Year $ 19,976 99.76% 7.16%
- --------------------------------------------
Lehman Brothers Municipal Bond Index
- --------------------------------------------
1 Year $ 10,545 5.45% 5.45%
5 Year $ 14,135 41.35% 7.16%
10 Year $ 20,632 106.32% 7.51%
- --------------------------------------------
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
SCUDDER CALIFORNIA TAX FREE FUND
Year Amount
- ----------------------
87 $10,000
88 $ 9,830
89 $10,793
90 $11,724
91 $12,723
92 $14,089
93 $16,221
94 $16,431
95 $17,540
96 $18,946
97 $19,976
LEHMAN BROTHERS MUNICIPAL BOND INDEX
Year Amount
- ----------------------
87 $10,000
88 $10,251
89 $10,990
90 $12,149
91 $13,270
92 $14,596
93 $16,424
94 $16,805
95 $18,053
96 $19,566
97 $20,632
Yearly periods ended March 31
The Lehman Brothers Municipal Bond Index is a market value weighted measure
of municipal bonds issued across the United States. Index issues have a credit
rating of at least Baa and a maturity of at least two years. Index returns
assume reinvestment of dividends and, unlike Fund returns, do not reflect any
fees or expenses.
- -----------------------------------------------------------------
Returns and Per Share Information
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly Periods Ended March 31
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------------------------------------------------------------------------------------------------
NET ASSET VALUE... $ 9.99 $ 10.26 $ 10.29 $ 10.41 $ 10.60 $ 11.05 $ 10.02 $ 10.07 $ 10.36 $ 10.39
INCOME DIVIDENDS.. $ .69 $ .68 $ .65 $ .63 $ .61 $ .59 $ .53 $ .51 $ .51 $ .52
CAPITAL GAINS
AND OTHER
DISTRIBUTIONS..... $ .26 $ - $ .19 $ .09 $ .28 $ .49 $ .68 $ .09 $ - $ .01
FUND TOTAL
RETURN (%)........ -1.70 9.80 8.62 8.53 10.74 15.13 1.30 6.75 8.01 5.44
INDEX TOTAL
RETURN (%)........ 2.52 7.21 10.56 9.22 10.02 12.52 2.32 7.43 8.38 5.45
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return and
principal value will fluctuate, so an investor's shares, when redeemed, may be
worth more or less than when purchased.
4 - Scudder California Tax Free Fund
<PAGE>
PORTFOLIO SUMMARY as of March 31, 1997
- ---------------------------------------------------------------------------
Diversification
- ---------------------------------------------------------------------------
County General Obligation/
Lease 15%
Hospital/Health 14%
Housing Finance Authority 13%
Other General Obligation/Lease 11%
Toll Revenue/Transportation 8%
State General Obligation 6%
Project Revenue/
Special Assessment 6%
Sales/Special Tax 5%
School District/Lease 4%
Miscellaneous Municipal 18%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Diversification remains an
important strategy for the Fund,
allowing us to spread risk over a
large number of sectors and
maturities.
- --------------------------------------------------------------------------
Quality
- --------------------------------------------------------------------------
AAA 49%
AA 5%
A 24%
BBB 16%
Not Rated 6%
- --------------------------------------
100%
- --------------------------------------
Weighted average quality: AA
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Fund's overall quality remains
high, with 78% of portfolio
securities rated A or better.
- --------------------------------------------------------------------------
Effective Maturity
- --------------------------------------------------------------------------
Less than 1 year 5%
1-5 years 12%
5-10 years 27%
10-20 years 41%
Greater than 20 years 15%
- --------------------------------------
100%
- --------------------------------------
Weighted average effective maturity: 12.05 years
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
To take advantage of
opportunities to lock in a
substantial income stream, we
purchased premium noncallable
intermediate maturity bonds.
- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 19.
5 - Scudder California Tax Free Fund
<PAGE>
Portfolio Management Discussion
Scudder California Tax Free Money Fund
Dear Shareholders,
Scudder California Tax Free Money Fund's most recent fiscal year marked a change
in the short-term debt market's stance from anticipating a "Fed ease" (lower
yields) to anticipating a "Fed tightening" (higher yields) due to stronger than
expected labor market statistics. The Federal Reserve raised the federal funds
rate by one quarter of a percentage point on March 25 in an attempt to slow down
the economy and ward off wage inflation. The effect on short-term California
tax-exempt yields has been somewhat muted, however, because of limited supply in
this market. Our strategy over the past fiscal year was to use commercial paper
as an effective tool for managing the average maturity of the Fund in a
potentially volatile market by "locking in" yields for one to three months. We
also maintained a substantial variable rate demand bond position to provide
stability for the fund given the uncertainty of the market. These securities
maintain their principal value and accrue a current market interest rate that
resets daily, weekly or monthly.
During the period we sought a relatively high yield by maintaining an average
maturity slightly longer than Scudder California Tax Free Money Fund's peers. As
of March 31, 1997, the Fund's average maturity was 58 days, compared with 54
days as of March 31, 1996. The Fund's 7-day effective yield as of March 31 was
2.82%. For investors in the highest combined state and federal income tax
bracket, the Fund's yield equaled a 5.15% compounded taxable yield, higher than
6-Scudder California Tax Free Money Fund
<PAGE>
the 5.08% average for taxable money funds, according to IBC Financial Data,
Inc., an independent firm that tracks money fund performance. The Fund provided
a total return of 2.87% for the 12-month period ended March 31, assuming
reinvestment of all income distributions, which totaled $0.028 per share during
the most recent fiscal year.
Our continuing goal is to provide Fund shareholders with a competitive
double-tax-free yield by searching for high-quality, short-term municipal
securities while actively managing the Fund's average maturity.
Sincerely,
Your Portfolio Management Team
/s/Rebecca Wilson /s/K. Sue Cote
Rebecca Wilson K. Sue Cote
Scudder California Tax Free Money Fund:
A Team Approach to Investing
Scudder California Tax Free Money Fund is managed by a team of Scudder
investment professionals who each play an important role in the Fund's
management process. Team members work together to develop investment strategies
and select securities for the Fund's portfolio. They are supported by Scudder's
large staff of economists, research analysts, traders, and other investment
specialists who work in Scudder's offices across the United States and abroad.
We believe our team approach benefits Fund investors by bringing together many
disciplines and leveraging Scudder's extensive resources.
Lead Portfolio Manager Rebecca Wilson has had responsibility for Scudder
California Tax Free Money Fund's day-to-day management since 1986. Ms. Wilson,
who joined Scudder in 1986, has 11 years of experience in municipal investing
and research. K. Sue Cote, Portfolio Manager, has been a member of Scudder
California Tax Free Money Fund's team since 1987 and has 13 years of short-term
fixed-income investment experience.
7-Scudder California Tax Free Money Fund
<PAGE>
Portfolio Management Discussion
Scudder California Tax Free Fund
Dear Shareholders,
Scudder California Tax Free Fund performed well over a fiscal year that
witnessed mixed performance for California municipal bonds, and ended with an
interest rate hike by the Federal Reserve. On March 31, 1997, the Fund's 30-day
net annualized SEC yield was 4.73%, equivalent to a taxable yield of 8.63% for
shareholders subject to the 45.22% maximum combined state and federal income tax
rate. The Fund's "tax-equivalent" yield is significantly higher than current
yields available from taxable investments of similar maturity and credit
quality.
During a 12-month period that saw little price movement in the
intermediate-maturity municipal bonds the Fund primarily invests in, the Fund's
share price increased $0.03 to $10.39 per share. The modest increase in the
Fund's share price along with distributions during the fiscal year of $0.52 in
interest income and $0.01 in short-term capital gains combined to produce a
total return of 5.44% for the Fund over the fiscal year ended March 31, 1997.
The Fund's return compares favorably with the 5.23% average total return of 99
similar funds tracked by Lipper Analytical Services over the same period. The
Fund placed in the top 30% of similar California tax free funds tracked by
Lipper for total return performance over three-, five-, and 10-year periods.
California Update
California was one of the last states to emerge from the nationwide recession
that began in 1990, and the State is now reaping the benefits of a strong
economy. All of the jobs lost during the recession have been restored, as
aerospace and defense jobs were replaced by high technology jobs. In addition to
a declining unemployment rate, the strength of the State's economy has resulted
in operating surpluses, growth in international trade, and more spending on
schools.
California ended its 1996 fiscal year with an operating surplus in its General
Fund of $1.3 billion, or 3% of revenues. Sizable increases in the State's
personal income tax and sales tax receipts, up 12% and 8% respectively over the
State's 1995 fiscal year, are indicative of the strength of its economy. Barring
any unforeseen revenue shortfalls, the State will end its 1997 fiscal year with
an operating surplus. California is also one of the largest issuers of municipal
debt with over $24 billion of debt outstanding, but the State's size and wealth
levels mitigate the impact that debt of such magnitude might otherwise have.
Municipals Outperform
Treasuries
Scudder California Tax Free Fund's most recent fiscal year witnessed a healthy
U.S. economy spurred on by increased consumer spending with continued low
inflation. The economy experienced real (inflation-adjusted) Gross Domestic
8-Scudder California Tax Free Fund
<PAGE>
Product (GDP) growth of 2.4% during 1996, and at the close of the first quarter
was on track for GDP growth of 2.5% or higher in 1997. The stock market scaled
unprecedented heights until mid-March, and the bond market struggled
unsuccessfully to keep up. In the midst of this healthy environment for
corporate profits and the stock market, bond market participants continued to
closely monitor indicators for signs of economic overheating and accelerating
inflation. Their worry was reflected in the performance of the Treasury market
over the Fund's most recent fiscal year, where yields of 10-year Treasury bonds
rose almost one half of a percentage point, and prices declined 3.64%. Concern
over the Federal Reserve Open Market Committee's decision to raise the Fed Funds
rate by one quarter of a percentage point on March 25 was balanced by the
feeling in some quarters that this and any further increases had already been
priced into the market.
Municipals outperformed Treasuries during the 12-month period, as yields of
10-year municipals rose only one tenth of a percentage point, and prices
declined 0.66%. Municipal bond prices were supported by shrinking overall supply
as large numbers of bonds were called away in June and July, a moderate level of
new issuance, and steady demand from both individuals and institutions such as
insurance companies.
Focus on Intermediate
Noncallable Bonds
Our portfolio strategy over the Fund's most recent fiscal year has been to take
advantage of opportunities to lock in a substantial income stream for the Fund
over time by purchasing premium noncallable intermediate maturity bonds (those
with maturities of 15 years or less). As of March 31, 70% of the Fund's
securities had maturities in this range. We also looked for opportunities to add
higher yielding BBB-rated and non-rated bonds to the portfolio. These issues,
while carrying some additional credit risk, generally exhibit less interest rate
sensitivity than municipal bonds rated A or above. The Fund held 22% of bonds in
these two categories as of March 31. (For a summary of the Fund's quality,
diversification, and maturity structure, see page 5.)
The Fund's overall quality remains high, with 78% of portfolio securities rated
A or better as of March 31. We continue to invest in a broad selection of
California municipal bonds, including county general obligation, hospital/health
care, and housing finance authority bonds.
The Fund seeks to provide investors with a competitive level of federal and
state tax-exempt income as well as the best possible total return performance.
Our longer-term investment strategy continues to focus on four basic elements:
(1) purchasing bonds with effective maturities of less than 20 years; (2)
purchasing noncallable bonds at yields close to those of callable bonds with
comparable maturities; (3) purchasing high-yielding callable bonds, and (4)
diversifying investments based on careful credit selection.
9-Scudder California Tax Free Fund
<PAGE>
Our Outlook
Though it is possible that the national economy's favorable momentum will carry
over for the remainder of 1997, we believe that a slight slowdown could occur in
the spring or summer. U.S. consumers, the major drivers of the country's
economic growth, continue to be overextended: Credit card defaults recently
matched levels last seen just after the 1989-90 recession. Deregulation of key
industries worldwide, the globalization of economic activity, and technological
advances continue to dampen any resurgence of inflation, and any signs that the
economy is slowing even slightly could soothe the bond market and diminish
upward pressure on rates coming from the Federal Reserve or market participants.
In the near term, we will continue to focus on bonds with favorable call
structures as well as search for high yield bonds that meet our credit
standards. We will continue to purchase premium noncallable intermediate
maturity bonds and to pay close attention to credit quality as we pursue
double-tax-free income and competitive total return for Scudder California Tax
Free Fund shareholders.
Sincerely,
Your Portfolio Management Team
/s/Jeremy L. Ragus /s/Donald C. Carleton
Jeremy L. Ragus Donald C. Carleton
Scudder California Tax
Free Fund:
A Team Approach to Investing
Scudder California Tax Free Fund is managed by a team of Scudder investment
professionals, who each play an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund's portfolio. They are supported by Scudder's large staff
of economists, research analysts, traders and other investment specialists who
work in Scudder's offices across the United States and abroad. Scudder believes
its team approach benefits Fund investors by bringing together many disciplines
and leveraging Scudder's extensive resources.
Lead Portfolio Manager Jeremy L. Ragus has had responsibility for Scudder
California Tax Free Fund's day-to-day management since 1990. Mr. Ragus, who
joined Scudder in 1990, has 16 years of experience in municipal investing and
research. Donald C. Carleton, Portfolio Manager, has been a member of Scudder
California Tax Free Fund's team since 1983 and has over 27 years of investment
experience.
10-Scudder California Tax Free Fund
<PAGE>
Tax Information
Of the dividends paid by the California Tax Free Money Fund and California Tax
Free Fund from net investment income for the year ended March 31, 1997, 100%
constituted exempt interest dividends for regular federal income tax and
California State income tax purposes.
Please consult a tax adviser if you have any questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have specific
questions about your Scudder Fund account, please call a Scudder Investor
Relations Representative at 1-800-225-5163.
Officers and Trustees
David S. Lee*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation
Dawn-Marie Driscoll
Trustee; Executive Fellow; President, Driscoll Associates
Peter B. Freeman
Trustee; Corporate Director and Trustee
Daniel Pierce*
Trustee
Olin Barrett*
Vice President
Donald C. Carleton*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Jeremy L. Ragus*
Vice President
Rebecca L. Wilson*
Vice President
*Scudder, Stevens & Clark, Inc.
36-Scudder California Tax Free Money Fund
Scudder California Tax Free Fund
<PAGE>
Investment Portfolio as of March 31, 1997
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Value ($)
Amount ($) (Unaudited) (Note A)
- ------------------------------------------------------------------------------------------------------------------------------
Municipal Investments 100.0%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California
Anaheim, CA, Electric Utility Revenue Anticipation Notes, Tax Exempt
Commercial Paper, 3.45%, 6/24/97 ............................................. 1,750,000 A1+ 1,750,000
Anaheim, CA, Housing Authority, Multi-Family Housing Revenue, Harbor Cliff
Project, Variable Rate Demand Note, 3.2%, 7/1/06* ............................ 400,000 MIG1 400,000
Berkeley, CA, Tax & Revenue Anticipation Note, Series 1996, 4.5%, 8/13/97 ...... 2,000,000 MIG1 2,003,814
California Health Facilities Finance Authority:
Catholic Healthcare West, Series C, Variable Rate Demand Note, 3.2%,
7/1/20 (c)* ............................................................... 1,000,000 A1+ 1,000,000
Pooled Loan Program, Series 1985B, Weekly Demand Note, 3.3%, 10/1/10 (c)* .... 100,000 MIG1 100,000
California Pollution Control, Southern California Edison, Series 1985C,
Tax Exempt Commercial Paper:
3.45%, 5/22/97 .............................................................. 1,000,000 P1 1,000,000
3.4%, 6/19/97 ............................................................... 1,000,000 P1 1,000,000
California Pollution Control Finance Authority:
Colmac Energy Project, Weekly Demand Note, 3.3%, 12/1/16* .................... 1,900,000 A1+ 1,900,000
Pacific Gas & Electric Company, Series C, Tax Exempt Commercial Paper, 3.35%,
7/22/97 ................................................................... 1,000,000 A1+ 1,000,000
Shell Oil Co., Martinez Project, Daily Demand Note, 3.6%, 10/1/24* ........... 700,000 MIG1 700,000
Shell Oil Co. Project, Series A, Daily Demand Bonds, 3.65%, 10/1/10* ......... 100,000 A1+ 100,000
Solid Waste Revenue, CR&R Inc. Project, Series 1995A, Weekly Demand Notes,
3.4%, 10/1/10* ............................................................ 1,100,000 NR 1,100,000
California School Cash Reserve Program Authority, Pool Note, Series 1996B, 4.5%,
12/19/97 ..................................................................... 1,500,000 MIG1 1,509,351
California General Obligation, Revenue Anticipation Note, Series 1996, 4.5%,
6/30/97 ...................................................................... 1,000,000 SP1+ 1,001,257
California General Obligation, Series 1996, Tax Exempt Commercial Paper,
3.25%, 5/20/97 ............................................................... 2,000,000 A1 2,000,000
East Bay Municipal Utility District, CA, Tax Exempt Commercial Paper, 3.45%,
5/28/97 ...................................................................... 500,000 A1+ 500,000
Eastern Municipal Water District, CA, Water & Sewer Revenues, Series 1993B,
Weekly Demand Notes, 3.2%, 7/1/20 (c)* ....................................... 1,100,000 MIG1 1,100,000
Escondido, CA, Multi-Family Housing Revenue, Series 1985A, Morning View Terrace
Project, Variable Rate Demand Note, 3.2%, 2/15/07* ........................... 500,000 MIG1 500,000
Huntington Beach, CA, Multi-Family Housing Revenue, River Meadows Apartments,
Series B, Weekly Demand Bonds, 3.425%, 10/1/05* .............................. 1,500,000 NR 1,500,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 -- Scudder California Tax Free Money Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Value ($)
Amount ($) (Unaudited) (Note A)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Irvine Ranch Water District, CA:
California Refunding, Series B, Daily Demand Notes, 3.55%, 10/1/99* .......... 1,300,000 A1+ 1,300,000
Conservation District, Daily Demand Note, 3.55%, 5/1/09* ..................... 300,000 A1+ 300,000
Series 1985B, Daily Demand Note, 3.55%, 10/1/04* ............................. 400,000 A1+ 400,000
Kern County, CA, Certificates of Participation, Public Facilities Project:
Series A, Variable Rate Demand Bond, 3.2%, 8/1/06* ........................... 1,300,000 MIG1 1,300,000
Series D, Variable Rate Demand Bond, 3.2%, 8/1/06* ........................... 1,600,000 MIG1 1,600,000
Kern, CA, High School District, Tax & Revenue Anticipation Note, 4.5%, 7/31/97 . 1,500,000 SP1+ 1,502,877
Lancaster, CA, Redevelopment Agency, Multi-Family Housing Revenue, Westwood
Park Apartments, Variable Rate Demand Notes, 3.2%, 12/1/07* .................. 600,000 MIG1 600,000
Los Angeles County Metropolitan Transportation Authority, Sales Tax Revenue,
Tax Exempt Commercial Paper, 3.35%, 6/12/97 .................................. 1,900,000 P1 1,900,000
Los Angeles County, CA, Tax and Revenue Anticipation Note, Series 1996A, 4.5%,
6/30/97 ...................................................................... 1,000,000 MIG1 1,001,501
Los Angeles Department of Water & Power Electric Plant-Short Term Certificates,
Tax Exempt Commercial Paper, 3.45%, 9/8/97 ................................... 2,000,000 A1+ 2,000,000
Los Angeles, CA, Multi-Family Housing Revenue, Series K, Variable Rate Demand
Bond, 3.1%, 7/1/10* .......................................................... 3,100,000 A1+ 3,100,000
M-S-R Public Power Agency, San Juan Project Revenue, Subordinate Lien, Series B,
Weekly Demand Bonds, 3.25%, 7/1/22* .......................................... 1,000,000 A1+ 1,000,000
Metropolitan Water District of Southern California, Tax Exempt Commercial Paper,
3.35%, 6/26/97 ............................................................... 1,000,000 A1+ 1,000,000
Ontario, CA, Multi-Family Residential Mortgage Revenue, Park Centre Partners,
Variable Rate Demand Bond, 3.2%, 8/1/07* ..................................... 2,000,000 MIG1 2,000,000
Ontario, CA, Redevelopment Agency, Multi-Family Housing Revenue, Weekly
Demand Bond, 3.2%, 4/1/98* ................................................... 1,000,000 A1+ 1,000,000
Orange County, CA, Sanitation District, Series 1990, Daily Demand Note, 3.7%,
8/1/15* ...................................................................... 500,000 A1+ 500,000
Orange County, CA, Water District Public Facilities Corporation, Tax Exempt
Commercial Paper, 3.4%, 5/15/97 .............................................. 1,000,000 P1 1,000,000
Riverside County, CA, School Financing Authority, Revenue Anticipation Note,
Series 1996, 4.625%, 7/17/97 ................................................. 1,000,000 SP1+ 1,001,618
Sacramento County, CA Tax and Revenue Anticipation Notes, Series 1996,
4.5%, 9/30/97 ................................................................ 1,000,000 MIG1 1,003,299
Sacramento Municipal Utility District, CA, Series 1, Tax Exempt Commercial Paper:
3.35%, 5/22/97 ............................................................... 1,500,000 A1+ 1,500,000
3.4%, 6/23/97 ................................................................ 1,000,000 A1+ 1,000,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 -- Scudder California Tax Free Money Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Value ($)
Amount ($) (Unaudited) (Note A)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
San Bernardino County, CA, Multi-Family Housing Revenue,
Variable Rate Demand Bonds:
Western Properties 1, 3%, 2/1/05* ........................................... 900,000 MIG1 900,000
Western Properties, 3%, 5/1/05* ............................................. 400,000 MIG1 400,000
Woodview Apartments Project, 3.35%, 4/1/07* ................................. 1,100,000 MIG1 1,100,000
San Bernardino, CA, Certificates of Participation, County Center Refinancing,
Series 1996, Weekly Demand Note, 3.3%, 7/1/15* ............................... 1,000,000 MIG1 1,000,000
San Carlos CA, School District, Tax & Revenue Anticipation Note, Series 1996,
4.25%, 7/10/97 ............................................................... 1,600,000 SP1+ 1,601,433
San Diego County, CA, Tax and Revenue Anticipation Note, Series 1996, 4.375%,
9/30/97 ...................................................................... 1,500,000 MIG1 1,503,840
San Diego, CA, Multi-Family Housing Revenue, Lusk Mira Mesa Project, Issue E,
Variable Rate Demand Bond, 3.35%, 4/1/07* .................................... 1,900,000 MIG1 1,900,000
San Diego Industrial Revenue Refunding Bonds, San Diego Gas & Electric,
Series 1995, Tax Exempt Commercial Paper, 3.45%, 7/15/97 ..................... 2,000,000 P1 2,000,000
San Jose-Santa Clara, CA, Clean Water Financing Sewer Revenue Bonds, Series
1995B, Weekly Demand Note, 3.2%, 11/15/11 (c)* ............................... 1,000,000 MIG1 1,000,000
San Jose, CA, Multi-Family Housing Revenue, Kimberly Woods Project,
Variable Rate Demand Bond, 3.2%, 11/1/08* .................................... 500,000 MIG1 500,000
San Marcos, CA, Redevelopment Agency, Multi-Family Rental Housing Agency,
Variable Rate Demand Bonds, 3.55%, 6/1/05* ................................... 2,700,000 NR 2,700,000
Santa Clara County, CA, Housing Authority, Fox Chase I Project, Weekly Demand
Note, 3.2%, 11/1/07 (c)* ..................................................... 1,000,000 MIG1 1,000,000
Santa Clara, CA, Electric Revenue:
Series B, Junior Lien, Variable Rate Demand Bonds, 3.3%, 7/1/10* ............. 1,100,000 MIG1 1,100,000
Series C, Junior Lien, Variable Rate Demand Bond, 3.3%, 7/1/10* .............. 1,300,000 MIG1 1,300,000
Santa Paula County, CA, School District Tax and Revenue Anticipation Notes,
Series 1996, 4.5%, 7/2/97 .................................................... 1,000,000 SP1+ 1,001,552
South San Francisco, CA, 1991 Water Quality Control, Variable Rate Demand Bond,
3.35%, 7/1/12* ............................................................... 275,000 MIG1 275,000
Southern California Public Power Authority, Transmission Project, Series 1991,
Weekly Demand Note, 3.2%, 7/1/19 (c)* ........................................ 1,300,000 A1+ 1,300,000
Sutter County, CA Office of Education, Tax and Revenue Anticipation Notes,
Series 1996, 4.5%, 10/22/97 .................................................. 1,000,000 SP1+ 1,003,767
- -------------------------------------------------------------------------------------------------------------------------------
Total Municipal Investments (Cost $67,759,309) 67,759,309
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio - 100.0% (Cost $67,759,309) (a) 67,759,309
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 -- Scudder California Tax Free Money Fund
<PAGE>
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $67,759,309.
(b) All of the securities held have been determined to be of appropriate credit
quality as required by the Fund's investment objectives. Credit ratings
shown are assigned by either Standard & Poor's Rating Group, Moody's
Investors Service, Inc. or Fitch Investors Service, Inc. Unrated securities
(NR) have been determined by the Investment Adviser to be of comparable
quality to rated eligible securities.
(c) Bond is insured by one of these companies: AMBAC, FGIC, or MBIA.
* Floating rate and monthly, weekly, or daily demand notes are securities
whose yields vary with a designated market index or market rate, such as
the coupon-equivalent of the Treasury bill rate. Variable rate demand notes
are securities whose yields are periodically reset at levels that are
generally comparable to tax-exempt commercial paper. These securities are
payable on demand within seven calendar days and normally incorporate an
irrevocable letter of credit from a major bank. These notes are carried,
for purposes of calculating average weighted maturity, at the longer of the
period remaining until the next rate change or to the extent of the demand
period.
The accompanying notes are an integral part of the financial statements.
14 -- Scudder California Tax Free Money Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of March 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Assets
----------------------------------------------------------------------------------------------------------------------------
Investments, at value (identified cost $67,759,309) .............. $ 67,759,309
Cash ............................................................. 126,501
Interest receivable .............................................. 593,784
Receivable on Fund shares sold ................................... 496,293
Other assets ..................................................... 2,104
----------------
Total assets ..................................................... 68,977,991
Liabilities
----------------------------------------------------------------------------------------------------------------------------
Dividends payable ................................................ 28,595
Payable for Fund shares redeemed ................................. 173,694
Accrued management fee ........................................... 33,729
Other accrued expenses ........................................... 46,293
----------------
Total liabilities ................................................ 282,311
-------------------------------------------------------------------------------------------
Net assets, at value $ 68,695,680
-------------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated net realized loss .................................... (94,865)
Paid-in capital .................................................. 68,790,545
-------------------------------------------------------------------------------------------
Net assets, at value $ 68,695,680
-------------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($68,695,680 / 68,706,496 outstanding shares of beneficial ----------------
interest, $.01 par value, unlimited number of shares authorized) . $ 1.00
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 -- Scudder California Tax Free Money Fund
<PAGE>
Statement of Operations
year ended March 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Investment Income
------------------------------------------------------------------------------------------------------------------------------
Interest ........................................................ $ 2,319,754
-----------------
Expenses:
Management fee .................................................. 338,329
Services to shareholders ........................................ 76,430
Custodian and accounting fees ................................... 50,983
Trustees' fees and expenses ..................................... 14,241
Auditing ........................................................ 25,852
Reports to shareholders ......................................... 11,917
Legal ........................................................... 4,627
Registration fees ............................................... 5,082
Other ........................................................... 6,772
-----------------
Total expenses before reductions ................................ 534,233
Expense reductions .............................................. (128,299)
-----------------
Expenses, net ................................................... 405,934
--------------------------------------------------------------------------------------------
Net investment income 1,913,820
--------------------------------------------------------------------------------------------
Realized gain (loss) on investment transactions
------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net realized loss from investments (373)
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 1,913,447
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 -- SCUDDER CALIFORNIA TAX FREE MONEY FUND
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended March 31,
Increase (Decrease) in Net Assets 1997 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ....................................... $ 1,913,820 $ 2,142,783
Net realized loss from investments .......................... (373) (1,913)
---------------- ---------------
Net increase in net assets resulting from operations ........ 1,913,447 2,140,870
---------------- ---------------
Distributions to shareholders from net investment income .... (1,913,820) (2,142,783)
---------------- ---------------
Fund share transactions at net asset value of $1.00 per share:
Shares sold ................................................. 61,962,492 53,468,668
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................ 1,568,824 1,832,601
Shares redeemed ............................................. (61,801,311) (52,560,504)
---------------- ---------------
Net increase in net assets from Fund share transactions ..... 1,730,005 2,740,765
---------------- ---------------
Increase in net assets ...................................... 1,729,632 2,738,852
Net assets at beginning of period ........................... 66,966,048 64,227,196
---------------- ---------------
Net assets at end of period ................................. $ 68,695,680 $ 66,966,048
---------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 -- Scudder California Tax Free Money Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
May 28, 1987
(commencement of
operations) to
Years Ended March 31, March 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning ---------------------------------------------------------------------------------------------------
of period ............... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------------------------------------------------------------------------------------------------
Net investment income ...... .028 .032 .027 .019 .023 .035 .047 .052 .049 .035
Distributions from net
investment income ....... (.028) (.032) (.027) (.019) (.023) (.035) (.047) (.052) (.049) (.035)
Net asset value, end of ---------------------------------------------------------------------------------------------------
period .................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) ....... 2.87 3.28 2.72 1.92 2.35 3.54 4.79 5.35 5.04 3.86**
Ratios and Supplemental Data
Net assets, end of period
($ millions) ............ 69 67 64 72 56 58 64 65 64 53
Ratio of operating
expenses, net to average
daily net assets (%) .... .60 .60 .60 .60 .60 .60 .65 .75 .67 .45*
Ratio of operating
expenses before
expense reductions (%) .. .79 .81 .84 .90 .86 .88 .92 .90 .84 1.32*
Ratio of net investment
income to average daily
net assets (%) .......... 2.83 3.23 2.68 1.90 2.33 3.50 4.68 5.22 4.98 4.41*
</TABLE>
(a) Total returns would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
18 -- Scudder California Tax Free Money Fund
<PAGE>
Investment Portfolio as of March 31, 1997
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Short-Term Municipal Investments 2.6%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California Health Facilities Finance Authority:
Sutter Health, Series 1990B, Daily Demand Bond, 3.6%, 3/1/20* ................ 1,500,000 A1+ 1,500,000
St. Joseph's Health, Series 1991B, Daily Demand Note, 3.6%, 7/1/09* .......... 3,100,000 A1+ 3,100,000
California Statewide Community Development Authority, Certificate of
Participation, Northern California-Retired Officers, Daily Demand Note,
3.7%, 6/1/26* ................................................................ 800,000 MIG1 800,000
Irvine Ranch Water District, CA, Conservation District,
Daily Demand Note, 3.55%, 5/1/09* ............................................ 2,000,000 A1+ 2,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Municipal Investments (Cost $7,400,000) 7,400,000
- ------------------------------------------------------------------------------------------------------------------------------
Long-Term Municipal Investments 97.4%
- ------------------------------------------------------------------------------------------------------------------------------
California
ABAG Financing Authority, CA, Stanford Health Systems,
Certificates of Participation, 6%, 11/1/07 (c) ............................... 605,000 AAA 645,504
Anaheim, CA, Convention Center Financing, Certificate of Participation,
Zero Coupon, 8/1/05 (c) ...................................................... 1,250,000 AAA 822,250
Anaheim, CA, Public Financing Authority, Lease Revenue Public
Improvements Project:
Series 1997A, 6%, 9/1/24 (c) ................................................ 2,500,000 AAA 2,589,100
Series 1997C, Zero Coupon, 9/1/18 (c) ....................................... 1,000,000 AAA 275,550
Series 1997C:
6%, 9/1/10 (c) ............................................................ 1,000,000 AAA 1,056,700
6%, 9/1/11 (c) ............................................................ 4,570,000 AAA 4,809,142
6%, 9/1/14 (c) ............................................................ 1,000,000 AAA 1,035,040
6%, 9/1/16 (c) ............................................................ 1,000,000 AAA 1,027,770
California Department of Veterans Affairs, Series 1986A, 7.375%, 8/1/12 ........ 2,915,000 AA 2,975,253
California Educational Facilities Authority Revenue,
University of Southern California, Series 1997A, 5.6%, 10/1/07 (d) ........... 500,000 AA 510,305
California Health Facilities Finance Authority Revenue,
Capital Appreciation, Kaiser, Series 1989A, Zero Coupon, 10/1/12 (c) ......... 4,900,000 AAA 2,041,242
Catholic Healthcare West, Series 1996E:
5.25%, 7/1/16 (c) ........................................................... 1,500,000 AAA 1,380,465
5.25%, 7/1/23 (c) ........................................................... 1,000,000 AAA 908,730
Children's Hospital, Series 1996, 5.375%, 7/1/16 (c) ......................... 1,935,000 AAA 1,808,296
Henry Mayo Newhall, Series A, 8%, 10/1/18 .................................... 3,655,000 A 3,906,391
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 -- Scudder California Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California Housing Finance Agency:
Home Mortgage Revenue, Series F1, Subject to AMT:
6.2%, 8/1/05 (c) ............................................................ 840,000 AAA 861,202
6.3%, 8/1/06 (c) ............................................................ 1,310,000 AAA 1,348,763
Multi-Unit Rental Housing Revenue, Series A:
7.2%, 8/1/97 ................................................................ 1,620,000 A 1,637,302
7.3%, 8/1/99 ................................................................ 2,435,000 A 2,575,962
7.35%, 8/1/00 ............................................................... 2,615,000 A 2,808,510
7.4%, 8/1/01 ................................................................ 1,555,000 A 1,661,207
7.45%, 8/1/02 ............................................................... 1,015,000 A 1,125,310
7.6%, 8/1/06 ................................................................ 4,030,000 A 4,405,999
7.65%, 8/1/07 (e) ........................................................... 2,335,000 A 2,546,901
7.7%, 8/1/09 ................................................................ 700,000 A 761,754
7.75%, 8/1/16 ............................................................... 2,440,000 A 2,622,561
7.8%, 8/1/23 ................................................................ 2,635,000 A 2,825,669
Series G, Subject to AMT:
5.7%, 2/1/07 (c) ............................................................ 500,000 AAA 504,300
5.8%, 2/1/08 (c) ............................................................ 1,330,000 AAA 1,335,626
5.9%, 2/1/09 (c) ............................................................ 200,000 AAA 200,288
Series II:
7%, 8/1/97 .................................................................. 280,000 A 282,486
7.25%, 8/1/98 ............................................................... 300,000 A 310,416
7.3%, 8/1/00 ................................................................ 345,000 A 369,599
7.3%, 8/1/99 ................................................................ 325,000 A 343,954
7.3%, 8/1/01 ................................................................ 375,000 A 406,526
7.35%, 8/1/02 ............................................................... 400,000 A 436,460
7.35%, 8/1/03 ............................................................... 430,000 A 470,571
7.35%, 8/1/04 ............................................................... 460,000 A 506,952
7.35%, 8/1/05 ............................................................... 495,000 A 547,148
California Pollution Control Financing Authority:
Mobil Oil Corp Project, Series 1996, Subject to AMT, 5.5%, 12/1/29 ........... 2,000,000 AA 1,841,280
Southern California Edison, Subject to AMT, Series A, 6.9%, 9/1/06 ........... 3,750,000 A 3,974,438
California Public Works Board, Department of Corrections:
Lease Based Revenue, Medera Prison, Series A-2, 7.4%, 9/1/10 (c) ............. 1,000,000 AAA 1,182,340
Series 1997D, 5.75%, 9/1/07 (c) .............................................. 3,500,000 AAA 3,681,930
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 -- Scudder California Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California Public Works Board, Lease Revenue:
Various Cal State University Projects, Series 1997A, 5.1%, 12/1/10 (c) ....... 1,430,000 AAA 1,379,421
Various State University Projects, Series 1997A, 5.5%, 10/1/07 ............... 2,000,000 A 2,043,200
California Statewide Community Development Authority, Certificates of
Participation:
Children's Hospital, Series 1993, 6%, 6/1/08 (c) ............................. 1,700,000 AAA 1,803,598
Lutheran Homes, 5.5%, 11/15/08 ............................................... 1,500,000 A 1,525,680
Lutheran Homes, Series 1993, 5.6%, 11/15/13 .................................. 4,750,000 A 4,639,278
St. Joseph's Health System, 6.2%, 7/1/08 ..................................... 200,000 AA 208,404
Unihealth America, Series A, Zero Coupon, 10/1/05 (c) ........................ 1,450,000 AAA 941,935
Castaic Lake, CA, Water Agency, Certificate of Participation, Water System
Improvement Project, Series A, 7.25%, 8/1/07 (c) ............................. 1,000,000 AAA 1,168,130
Center, CA, Unified School District, Capital Appreciation, Series 1997C:
Zero Coupon, 9/1/14 (c) ..................................................... 2,240,000 AAA 820,557
Zero Coupon, 9/1/15 (c) ..................................................... 2,270,000 AAA 776,567
Central Coast Water Authority Revenue, CA, State Water Project Regional
Facilities, Series 1996A, 5%, 10/1/22 (c) .................................... 3,000,000 AAA 2,657,070
Chino Basin, CA, Regional Financing Authority, Municipal Water District,
Sewer System, 5.9%, 8/1/11 (c) ............................................... 1,290,000 AAA 1,348,424
Coronado, CA, Community Development Agency,
Tax Anticipation Note, 6%, 9/1/07 (c) ........................................ 1,150,000 AAA 1,232,777
Costa Mesa, CA, Public Financing Authority, Public Facilities Project,
Series 1993A, 5.25%, 10/1/18 ................................................. 4,500,000 A 4,075,155
Delmar, CA, Race Track Authority, Series 1996, 6%, 8/15/06 ..................... 2,000,000 NR 2,002,680
Duarte, CA, Certificates of Participation, City of Hope Medical Center:
6%, 4/1/08 ................................................................... 3,750,000 BBB 3,782,438
5.75%, 4/1/02 ................................................................ 3,525,000 BBB 3,555,421
5.8%, 4/1/03 ................................................................. 3,735,000 BBB 3,759,390
Elk Grove, CA, Unified School District #1, Special Tax, Community Facilities,
6.5%, 12/1/08 (c) ............................................................ 1,000,000 AAA 1,119,070
Fontana, CA, Tax Allocation Revenue, North Fontana Redevelopment Project,
Series 1993A, 5%, 9/1/20 (c) ................................................. 1,200,000 AAA 1,059,636
Foothill Eastern Transportation Corridor Agency, CA, Toll Road Revenue, Senior
Lien, Series A:
Step-up Coupon, 0% to 1/1/05, 7.10% to 1/1/11 ............................... 6,000,000 BBB 3,928,740
Step-up Coupon, 0% to 1/1/05, 7.15% to 1/1/13 ............................... 975,000 BBB 639,805
Step-up Coupon, 0% to 1/1/05, 7.15% to 1/1/14 ............................... 2,875,000 BBB 1,874,356
Senior Lien, Series 1995A, Step-up Coupon, 0% to 1/1/05, 6.95% to 1/1/07 ..... 575,000 BBB 375,320
</TABLE>
The accompanying notes are an integral part of the financial statements.
21 -- Scudder California Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hayward, CA, Certificate of Participation, Civic Center Projects,
Series 1996, 5.25%, 8/1/26 (c) ............................................... 2,000,000 AAA 1,819,520
Healdsburg, CA, Unified School District, Capital Appreciation, Series 1997:
Zero Coupon, 7/15/11 (c) .................................................... 400,000 AAA 179,928
Zero Coupon, 7/15/12 (c) .................................................... 400,000 AAA 168,632
Zero Coupon, 7/15/13 (c) .................................................... 400,000 AAA 157,864
Zero Coupon, 7/15/14 (c) .................................................... 400,000 AAA 147,612
Imperial Irrigation District, CA, Certificate of Participation, Refunding
Electric System Revenue, 5.2%, 11/1/09 (c) ................................... 2,500,000 AAA 2,484,150
Inland Empire Solid Waste Financing Authority, California Landfill Improvement
Financing Project B Series 1996B, 6%, Zero Coupon, 8/1/06 (c) ................ 1,000,000 AAA 1,041,960
La Cananda, CA, Unified School District, Capital Appreciation,
Series 1995, Zero Coupon, 8/1/18 (c) ......................................... 2,000,000 AAA 565,460
Los Angeles, CA, Harbor Department Revenue, Subject to AMT,
Series 1995B, 6%, 8/1/06 ..................................................... 2,000,000 AA 2,095,120
Los Angeles, CA, State Building Authority Lease Revenue, California Department,
General Services, Series 1993A, 5.6%, 5/1/08 ................................. 7,000,000 A 7,136,360
Los Angeles County, CA, Certificate of Participation, Capital Appreciation,
Disney Parking Project:
Zero coupon, 9/1/06 ......................................................... 2,500,000 A 1,399,625
Zero coupon, 3/1/08 ......................................................... 2,780,000 BBB 1,406,458
Zero coupon, 9/1/08 ......................................................... 4,865,000 BBB 2,385,699
Marina Del Ray, Series A:
6.25%, 7/1/03 ............................................................... 2,500,000 NR 2,585,775
6.5%, 7/1/08 ................................................................ 2,500,000 NR 2,567,850
Series 1993 A, 5.75%, 7/1/98 ................................................. 5,000,000 NR 5,045,650
Los Angeles County, CA, Convention and Exhibition Center Authority
Lease Revenue, Series 1993A, 6.125%, 8/15/11 (c) ............................. 1,000,000 AAA 1,069,690
Los Angeles County, CA, Public Works Financing Authority, Lease Revenue,
Multiple Cap Facilities:
Project IV, Series 1993, 4.75%, 12/1/13 (c) ................................. 5,000,000 AAA 4,404,500
Project V, Series 1996A, 5.125%, 6/1/17 (c) ................................. 1,000,000 AAA 919,160
Los Angeles County, CA, Wastewater Revenue, Series 1993 D, 4.7%, 11/1/17 (c) ... 1,960,000 AAA 1,661,002
Metropolitan Water District, Southern California Waterworks
Revenue, Series 1996C, 5%, 7/1/37 ............................................ 2,000,000 AA 1,710,640
Modesto, CA, Certificate of Participation, Community Project,
Series A, 5.6%, 11/1/14 (c) .................................................. 1,370,000 AAA 1,364,767
</TABLE>
The accompanying notes are an integral part of the financial statements.
22 -- Scudder California Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mojave Desert & Mountain Region, Solid Waste Joint Powers Authority,
California Project Revenue, 7.875%, 6/1/20 ................................... 2,350,000 BBB 2,583,496
Newport Mesa, CA, United School District Special Tax District Number 90-1,
Series 1996, 6.625%, 9/1/14 .................................................. 500,000 NR 508,170
Oakland, CA, Port Revenue, Subject to AMT, Series 1997G, 5.375%, 11/1/25 (c) ... 1,000,000 AAA 915,000
Orange County, CA:
Local Transportation Authority, Sales Tax Revenue, Measure M, Step-up Coupon,
5.07% to 2/15/98, 4/30% to 2/15/01 (c) .................................... 5,000,000 AAA 4,894,400
Recovery Note:
Series 1995A, 5.6%, 6/1/07 (c) .............................................. 4,430,000 AAA 4,585,892
Series 1995A, 6%, 6/1/08 (c) ................................................ 2,500,000 AAA 2,667,600
Recovery Participation Certification:
Series 1996A, 6%, 7/1/06 (c) ................................................ 3,000,000 AAA 3,185,490
Series 1996A, 6%, 7/1/08 (c) ................................................ 1,000,000 AAA 1,049,980
Pomona, CA, Unified School District, General Obligation, ETM:
Series 1992B, 6.25%, 8/1/14 (c)** ............................................ 1,020,000 AAA 1,094,021
Series 1993D, 5.6%, 8/1/14 (c)** ............................................. 170,000 AAA 170,323
Series 1993D, 5.6%, 8/1/15 (c)** ............................................. 180,000 AAA 179,739
Series 1993D, 5.6%, 8/1/16 (c)** ............................................. 190,000 AAA 188,434
Series 1993D, 5.6%, 8/1/17 (c)** ............................................. 175,000 AAA 173,518
Series 1993D, 5.6%, 8/1/18 (c)** ............................................. 205,000 AAA 202,968
Port of Hueneme, CA, Certificate of Participation, Capital Improvement,
6%, 4/1/19 (c) ............................................................... 925,000 AAA 950,160
Richmond, CA, Joint Powers Finance Authority:
Series 1996, Port Term Lease Revenue, 5.875%, 9/1/06 ......................... 500,000 BBB 504,465
Series 1996, 6.6%, 9/1/16 .................................................... 1,000,000 BBB 1,011,920
Riverside County, CA, Asset Leasing Corp., Leasehold Revenue,
Hospital Project, Series 1997, Zero Coupon, 6/1/16 (c) ....................... 1,000,000 AAA 315,510
Sacramento, CA, Power Authority Cogeneration Project, Revenue Bonds,
Series 1995, 6.5%, 7/1/04 .................................................... 2,000,000 BBB 2,111,920
Sacramento, CA, Finance Authority Lease, Series 1993B, 5%, 11/1/14 ............. 3,200,000 AA 2,943,136
Sacramento, CA, City Financing Authority Revenue,
Capital Appreciation, Tax Allocation, Series 1993B, Zero Coupon, 11/1/16 (c) . 2,685,000 AAA 850,071
Saddleback Valley Unified School District, Public Financing Authority,
Special Tax Revenue, Series 1997A:
5.25%, 9/1/09 (c) ........................................................... 1,440,000 AAA 1,433,448
6%, 9/1/10 (c) .............................................................. 1,565,000 AAA 1,656,803
</TABLE>
The accompanying notes are an integral part of the financial statements.
23 -- Scudder California Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6%, 9/1/13 (c) .............................................................. 1,000,000 AAA 1,043,620
6%, 9/1/14 (c) .............................................................. 1,000,000 AAA 1,037,290
6%, 9/1/15 (c) .............................................................. 1,000,000 AAA 1,032,720
San Bernardino County, CA, Certificates of Participation,
Medical Center Financing Project:
Refunding, Series 1994, 5.5%, 8/1/17 (c) ..................................... 2,215,000 AAA 2,161,884
Refunding Revenue, Series 1994, 6%, 8/1/09 (c) ............................... 3,000,000 AAA 3,193,710
Series 1996, 5.25% 8/1/16, (c) ............................................... 2,145,000 AAA 1,992,297
San Francisco, CA, City and County Redevelopment Agency, Residential
Facility, Coventry Park Project, Series 1996A, 8.5%, 12/1/26 ................. 2,000,000 NR 1,988,880
San Francisco, CA, Redevelopment Financing Agency, Tax Allocation Revenue,
Series A, Zero Coupon, 8/1/03 (c) ............................................ 1,080,000 AAA 795,809
San Francisco, CA, State Building Authority, Lease Revenue,
San Francisco Civic Center Complex, Series 1996A, 5.25%, 12/1/21 (c) ......... 2,000,000 AAA 1,839,280
San Joaquin Hills, CA, Transportation Corridor Agency, Toll Road Revenue:
Junior Lien, Series 1993:
Zero Coupon, 1/1/10 ......................................................... 1,500,000 NR 634,755
Zero Coupon, 1/1/02 ......................................................... 515,000 NR 382,516
Zero Coupon, 1/1/06 ......................................................... 200,000 BBB 112,738
Senior Lien:
Zero Coupon, 1/1/00 ......................................................... 1,500,000 BBB 1,300,410
Step-up Coupon, 0% to 1/1/02, 7.3% to 1/1/04 ................................ 1,000,000 BBB 763,500
Step-up Coupon, 0% to 1/1/02, 7.35% to 1/1/05 .............................. 2,500,000 BBB 1,914,700
Step-up Coupon, 0% to 1/1/02, 7.4% to 1/1/07 ............................... 6,000,000 BBB 4,615,860
Zero Coupon, 1/1/14 ......................................................... 2,500,000 NR 854,900
San Jose, CA, Financing Revenue, Community Facilities Project:
Zero Coupon, 11/15/03 ........................................................ 735,000 A 530,663
Zero Coupon, 11/15/04 ........................................................ 1,605,000 A 1,094,995
Zero Coupon, 11/15/05 ........................................................ 1,605,000 A 1,031,838
Zero Coupon, 11/15/06 ........................................................ 1,605,000 A 971,153
Santa Ana, CA, Financing Authority, Lease Revenue, Bonds, Police Administration
and Holding Facility, Series 1994A, 6.25%, 7/1/24 (c) ....................... 2,000,000 AAA 2,127,980
Santa Clara County, CA, Finance Authority, Lease Revenue, VMC Facility
Replacement Project, 7.75%, 11/15/08 (c) ..................................... 3,250,000 AAA 3,951,513
Santa Clara, CA,
Certificate of Participation, Series A, 4.75%, 2/1/14 (c) .................... 3,000,000 AAA 2,620,230
</TABLE>
The accompanying notes are an integral part of the financial statements.
24 -- Scudder California Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Santa Cruz County, CA, Certificates of Participation,
Capital Facilities Project, Series 1997:
5.5%, 9/1/16 (c) ............................................................ 955,000 AAA 927,238
5.5%, 9/1/17 (c) ............................................................ 1,005,000 AAA 972,639
5.5%, 9/1/18 (c) ............................................................ 1,060,000 AAA 1,021,225
5.6%, 9/1/19 (c) ............................................................ 1,115,000 AAA 1,084,438
5.6%, 9/1/20 (c) ............................................................ 1,180,000 AAA 1,142,582
5.65%, 9/1/24 (c) ........................................................... 1,445,000 AAA 1,401,462
5.65%, 9/1/25 (c) ........................................................... 1,520,000 AAA 1,473,549
5.65%, 9/1/26 (c) ........................................................... 1,605,000 AAA 1,552,886
Santa Margarita/Dana Point, CA:
Improvement Districts 1-2-2A and 8, Series 1994A, 7.25%, 8/1/06 (c) .......... 465,000 AAA 541,172
Improvement Districts 3, 3A, 4 and 4A, Series B, 7.25%, 8/1/05 (c) ........... 2,895,000 AAA 3,336,777
South Orange County, CA, Public Power Authority,
Special Tax Revenue, Series A, 7%, 9/1/06 (c) ................................ 2,230,000 AAA 2,534,663
Southern California Public Power Authority, Series 1989, 6.75%, 7/1/10 ......... 6,000,000 A 6,620,940
Tustin, CA, Public Financing Authority Revenue, Tustin Ranch,
Series 1996A, 5%, 9/2/13 (c) .................................................. 4,995,000 AAA 4,615,080
University of California Medical Center, Revenue Bonds,
Series 1996, 10%, 7/1/03 (c) ................................................. 4,470,000 AAA 5,678,420
Valley Health System, CA, Revenue Bonds, Refunding and Improvement Project,
Series 1996A:
6.5%, 5/15/15 ............................................................... 385,000 BBB 387,995
6.5%, 5/15/25 ............................................................... 5,075,000 BBB 5,074,493
Watsonville, CA, Community Hospital Revenue, Series 1996, 5.95%, 7/1/07 ........ 1,135,000 A 1,158,449
West Covina, CA, Redevelopment Agency Facility, Series 1996, 5.75%, 9/1/09 ..... 865,000 A 866,471
West Covina, CA, Queen of the Valley Hospital, Certificate of Participation,
Hospital Revenue, Series 1994:
5.7%, 8/15/00 ............................................................... 380,000 A 387,193
5.8%, 8/15/01 ............................................................... 750,000 A 766,463
Westminster, CA, Redevelopment Agency, Tax Allocation Revenue,
Community Development, Project #1, Series A, 7.3%, 8/1/21 .................... 2,690,000 BBB 2,883,277
Whittier, CA, Presbyterian Intercommunity Hospital, Health Facilities Revenue:
6.25%, 6/1/08 (c) ............................................................ 1,000,000 AAA 1,094,230
6.25%, 6/1/10 (c) ............................................................ 1,250,000 AAA 1,355,238
</TABLE>
The accompanying notes are an integral part of the financial statements.
25 -- Scudder California Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Virgin Islands
Virgin Islands, General Obligation, Public Finance Authority, Mortgage Fund
Loan Notes, Series 1992 A, 7%, 10/1/02 .................................... 1,000,000 BBB 1,066,460
Virgin Islands, Special Tax Bonds, Hugo Bonds, 7.75%, 10/1/06 ................ 1,720,000 NR 1,851,546
- ------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Municipal Investments (Cost $273,348,950) (a) 278,366,257
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio - 100.0% (Cost $280,748,950) (a) 285,766,257
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $280,763,673. At March 31,
1997, net unrealized appreciation for all securities based on tax cost was
$5,002,584. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $7,172,737 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$2,170,153.
(b) All of the securities held have been determined to be of appropriate credit
quality as required by the Fund's investment objectives. Credit ratings
shown are assigned by either Standard & Poor's Rating Group, Moody's
Investors Service, Inc. or Fitch Investors Service, Inc. Unrated securities
(NR) have been determined by the Investment Adviser to be of comparable
quality to rated eligible securities.
(c) Bond is insured by one of these companies: AMBAC, FGIC, FSA, or MBIA.
(d) When-issued or forward delivery securities.
(e) At March 31, 1997, these securities, in part or in whole, have been
segregated to cover when-issued or forward delivery securities.
* Floating rate and monthly, weekly, or daily demand notes are securities
whose yields vary with a designated market index or market rate, such as
the coupon-equivalent of the Treasury bill rate. Variable rate demand notes
are securities whose yields are periodically reset at levels that are
generally comparable to tax-exempt commercial paper. These securities are
payable on demand within seven calendar days and normally incorporate an
irrevocable letter of credit from a major bank. These notes are carried,
for purposes of calculating average weighted maturity, at the longer of the
period remaining until the next rate change or to the extent of the demand
period.
** ETM: Bonds bearing the description ETM (escrowed to maturity) are
collateralized by U.S. Treasury securities which are held in escrow by a
trustee and used to pay principal and interest on bonds so designated.
AMT: Alternative minimum tax
The accompanying notes are an integral part of the financial statements.
26 -- Scudder California Tax Free Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of March 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Assets
----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $280,748,950) ........... $ 285,766,257
Receivable on investments sold .................................. 1,302,917
Cash ............................................................ 31,669
Interest receivable ............................................. 3,795,939
Receivable on Fund shares sold .................................. 87,101
Other assets .................................................... 9,034
----------------
Total assets .................................................... 290,992,917
Liabilities
----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ............................... 1,065,858
Payable for when issued and forward delivery securities ......... 506,950
Dividends payable ............................................... 458,113
Payable for Fund shares redeemed ................................ 139,457
Accrued management fee .......................................... 150,299
Other accrued expenses .......................................... 96,199
----------------
Total liabilities ............................................... 2,416,876
-------------------------------------------------------------------------------------------
Net assets, at market value $ 288,576,041
-------------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation on investments ...................... 5,017,307
Accumulated net realized loss ................................... (9,163,495)
Paid-in capital ................................................. 292,722,229
-------------------------------------------------------------------------------------------
Net assets, at market value $ 288,576,041
-------------------------------------------------------------------------------------------
Net Asset Value
----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($288,576,041 / 27,774,183 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) .................................................. $10.39
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
27 -- Scudder California Tax Free Fund
<PAGE>
Statement of Operations
year ended March 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Investment Income
------------------------------------------------------------------------------------------------------------------------------
Interest ........................................................ $ 16,803,173
-----------------
Expenses:
Management fee .................................................. 1,800,657
Services to shareholders ........................................ 227,189
Trustees' fees and expenses ..................................... 14,242
Custodian and accounting fees ................................... 133,195
Reports to shareholders ......................................... 36,525
Auditing ........................................................ 41,540
Legal ........................................................... 8,467
Registration fees ............................................... 11,610
Other ........................................................... 12,333
-----------------
2,285,758
--------------------------------------------------------------------------------------------
Net investment income 14,517,415
--------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
------------------------------------------------------------------------------------------------------------------------------
Net realized gain from:
Investments ..................................................... 3,235,400
Futures ......................................................... 75,382
Options ......................................................... 77,613
-----------------
3,388,395
Net unrealized depreciation on investments ...................... (2,601,367)
--------------------------------------------------------------------------------------------
Net gain on investment transactions 787,028
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 15,304,443
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
28 -- Scudder California Tax Free Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended March 31,
Increase (Decrease) in Net Assets 1997 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ..................................... $ 14,517,415 $ 14,572,292
Net realized gain from investment transactions ............ 3,388,395 2,260,608
Net unrealized appreciation (depreciation) on investment
transactions during the period ......................... (2,601,367) 6,496,809
---------------- ---------------
Net increase in net assets resulting from operations ...... 15,304,443 23,329,709
---------------- ---------------
Distributions to shareholders:
From net investment income ................................ (14,517,415) (14,572,292)
---------------- ---------------
From net realized gains from investment transactions ...... (140,246) --
---------------- ---------------
Fund share transactions:
Proceeds from shares sold ................................. 42,826,716 34,646,046
Net asset value of shares issued to shareholders in
reinvestment of distributions .......................... 8,972,653 8,891,876
Cost of shares redeemed ................................... (56,494,954) (53,733,869)
---------------- ---------------
Net decrease in net assets from Fund share transactions ... (4,695,585) (10,195,947)
---------------- ---------------
Increase (decrease) in net assets ......................... (4,048,803) (1,438,530)
Net assets at beginning of period ......................... 292,624,844 294,063,374
---------------- ---------------
Net assets at end of period ............................... $ 288,576,041 $ 292,624,844
---------------- ---------------
Other Information
---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................. 28,232,177 29,207,833
---------------- ---------------
Shares sold ............................................... 4,110,618 3,337,194
Shares issued to shareholders in reinvestment of
distributions .......................................... 860,296 855,726
Shares redeemed ........................................... (5,428,908) (5,168,576)
---------------- ---------------
Net decrease in Fund shares ............................... (457,994) (975,656)
---------------- ---------------
Shares outstanding at end of period ....................... 27,774,183 28,232,177
---------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
29 -- Scudder California Tax Free Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Years Ended March 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of --------------------------------------------------------------------------------------------------
period ..................... $ 10.36 $ 10.07 $ 10.02 $ 11.05 $ 10.60 $ 10.41 $ 10.29 $ 10.26 $ 9.99 $ 11.18
--------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income ......... .52 .51 .51 .53 .59 .61 .63 .65 .68 .69
Net realized and unrealized
gain (loss) on investment
transactions ............... .04 .29 .14 (.35) .94 .47 .21 .22 .27 (.93)
Total from investment --------------------------------------------------------------------------------------------------
operations ................. .56 .80 .65 .18 1.53 1.08 .84 .87 .95 (.24)
--------------------------------------------------------------------------------------------------
Less distributions:
From net investment income .... (.52) (.51) (.51) (.53) (.59) (.61) (.63) (.65) (.68) (.69)
From net realized gains on
investments ................ (.01) -- (.09) (.63) (.49) (.28) (.09) (.19) -- (.26)
In excess of net realized gains -- -- -- (.05) -- -- -- -- -- --
--------------------------------------------------------------------------------------------------
Total distributions ........... (.53) (.51) (.60) (1.21) (1.08) (.89) (.72) (.84) (.68) (.95)
--------------------------------------------------------------------------------------------------
Net asset value, end of --------------------------------------------------------------------------------------------------
period ..................... $ 10.39 $ 10.36 $ 10.07 $ 10.02 $ 11.05 $ 10.60 $ 10.41 $ 10.29 $ 10.26 $ 9.99
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (%) .............. 5.44 8.01 6.75 1.30 15.13 10.74 8.53 8.62 9.80 (1.70)
Ratios and Supplemental Data
Net assets, end of period
($ millions) ............... 289 293 294 325 309 242 208 193 171 153
Ratio of operating expenses
to average daily net
assets (%) ................. .78 .77 .80 .78 .79 .81 .84 .83 .89 .88
Ratio of net investment income
to average daily net assets
(%) ........................ 4.98 4.88 5.18 4.85 5.42 5.79 6.13 6.23 6.71 6.95
Portfolio turnover rate ....... 70.8 49.2 87.3 126.5 208.6 143.0 170.6 70.4 158.9 52.3
</TABLE>
30 -- Scudder California Tax Free Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder California Tax Free Money Fund ("Tax Free Money Fund"), a nondiversified
fund, and California Tax Free Fund ("Tax Free Fund"), a diversified fund, are
each a series of Scudder California Tax Free Trust (the "Trust") which is
organized as a Massachusetts business trust and registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company.
The Funds' financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Funds in the
preparation of their financial statements.
Security Valuation. Tax Free Money Fund values all portfolio securities
utilizing the amortized cost method permitted in accordance with Rule 2a-7 under
the 1940 Act and pursuant to which Tax Free Money Fund must adhere to certain
conditions. Under this method, which does not take into account unrealized gains
and losses on securities, an instrument is initially valued at its cost and
thereafter assumes a constant accretion/amortization to maturity of any
discount/premium.
Tax Free Fund's portfolio debt securities with remaining maturities greater than
sixty days are valued by pricing agents approved by the Officers of the Fund,
which quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. All other debt securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Trustees.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
When-issued and Forward Delivery Securities. The Tax Free Fund may purchase
securities on a when-issued or forward delivery basis, for payment and delivery
at a later date. The price of such securities, which may be expressed in yield
terms, is fixed at the time the commitment to purchase is made, but delivery and
payment take place at a later time. At the time the Tax Free Fund makes the
commitment to purchase a security on a when-issued or forward delivery basis, it
will record the transaction and reflect the value of the security in determining
its net asset value. During the period between purchase and settlement, no
payment is made by the Tax Free Fund to the issuer and no interest accrues to
the Tax Free Fund. At the time of settlement, the market value of the security
may be more or less than the purchase price.
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the period, the Tax
Free Fund purchased interest rate futures to manage the duration of the
portfolio. Additionally, during the period the Tax Free Fund sold interest rate
futures to hedge against declines in the value of portfolio securities.
Upon entering into a futures contract, the Tax Free Fund is required to deposit
with a financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Tax Free Fund each
day, dependent on the daily fluctuations in the value of the underlying
security, and are recorded for financial reporting purposes as unrealized gains
or losses by the Tax Free Fund. When entering into a closing transaction, the
Tax Free Fund will realize a gain or loss equal to the difference between the
value of the futures contract to sell and the futures contract to buy. Futures
contracts are valued at the most recent settlement price.
31 -- Scudder California Tax Free Money Fund
Scudder California Tax Free Fund
<PAGE>
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Tax Free Fund's ability to
close out a futures contract prior to the settlement date and that a change in
the value of a futures contract may not correlate exactly with changes in the
value of the securities or currencies hedged. When utilizing futures contracts
to hedge, the Tax Free Fund gives up the opportunity to profit from favorable
price movements in the hedged positions during the term of the contract.
Options. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the Tax Free Fund if the option is exercised.
During the period, the Tax Free Fund wrote call options on securities as a hedge
against potential adverse price movements in the value of portfolio assets. In
addition, during the period the Tax Free Fund purchased call options on interest
rate futures to manage the duration of the portfolio.
If the Tax Free Fund writes an option and the option expires unexercised, the
Tax Free Fund will realize income, in the form of a capital gain, to the extent
of the amount received for the option (the "premium"). If the Tax Free Fund
elects to close out the option it would recognize a gain or loss based on the
difference between the cost of closing the option and the initial premium
received. If the Tax Free Fund purchased an option and allows the option to
expire it would realize a loss to the extent of the premium paid. If the Tax
Free Fund elects to close out the option it would recognize a gain or loss equal
to the difference between the cost of acquiring the option and the amount
realized upon the sale of the option.
The gain or loss recognized by the Tax Free Fund upon the exercise of a written
call or purchased put option is adjusted for the amount of option premium. If a
written put or purchased call option is exercised the Tax Free Fund's cost basis
of the acquired security or currency would be the exercise price adjusted for
the amount of the option premium.
The liability representing the Tax Free Fund's obligation under an exchange
traded written option or investment in a purchased option is valued at the last
sale price or, in the absence of a sale, the mean between the closing bid and
asked price or at the most recent asked price (bid for purchased options) if no
bid and asked price are available. Over-the-counter written or purchased options
are valued using dealer supplied quotations.
When the Tax Free Fund writes a covered call option, the Tax Free Fund foregoes,
in exchange for the premium, the opportunity to profit during the option period
from an increase in the market value of the underlying security or currency
above the exercise price. When the Tax Free Fund writes a put option it accepts
the risk of a decline in the market value of the underlying security or currency
below the exercise price. Over-the-counter options have the risk of the
potential inability of counterparties to meet the terms of their contracts. The
Tax Free Fund's maximum exposure to purchased options is limited to the premium
initially paid. In addition, certain risks may arise upon entering into option
contracts including the risk that an illiquid secondary market will limit the
Tax Free Fund's ability to close out an option contract prior to the expiration
date and, that a change in the value of the option contract may not correlate
exactly with changes in the value of the securities or currencies hedged.
Amortization and Accretion. All premiums and original issue discounts are
amortized/accreted for both tax and financial reporting purposes.
32 -- Scudder California Tax Free Money Fund
Scudder California Tax Free Fund
<PAGE>
Federal Income Taxes. The Funds' policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment companies
and to distribute all of their taxable and tax-exempt income to their
shareholders. Accordingly, the Funds paid no federal income taxes and no
provisions for federal income taxes were required.
As of March 31, 1997, the Tax Free Money Fund had a net tax basis capital loss
carryforward of approximately $95,000, which may be applied against any realized
net taxable capital gains of each succeeding year until fully utilized or until
March 31, 2000 ($14,000), March 31, 2002 ($7,000), March 31, 2003 ($55,000),
March 31, 2004 ($18,000), and March 31, 2005 ($1,000), the respective expiration
dates, whichever occurs first.
As of March 31, 1997, the Tax Free Fund had a net tax basis capital loss
carryforward of approximately $6,884,000, which may be applied against any
realized net taxable capital gains of each succeeding year until fully utilized
or until March 31, 2003 ($6,492,000) and March 31, 2004 ($392,000), the
respective expiration dates, whichever occurs first.
Distribution of Income and Gains. All of the net investment income of the Funds
is declared as dividends to shareholders of record as of the close of business
each day and is paid to shareholders monthly. During any particular year, net
realized gains from investment transactions, in excess of available capital loss
carryforwards, would be taxable to the Funds if not distributed and, therefore,
will be distributed to shareholders. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined in accordance with federal tax regulations which
may differ from generally accepted accounting principles. These differences
primarily relate to investments in options, futures, and certain securities sold
at a loss for the Tax Free Fund. As a result, net investment income and net
realized gain (loss) on investment transactions for a reporting period may
differ significantly from distributions during such period. Accordingly, the
Funds may periodically make reclassifications among certain of its capital
accounts without impacting the net asset value of the Funds.
The Funds use the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
Other. Investment transactions are accounted for on a trade-date basis.
Distributions of net realized gains to shareholders are recorded on the
ex-dividend date. Interest income is accrued pro rata to the earlier of the call
or maturity date.
B. Purchases and Sales of Securities
For the year ended March 31, 1997, purchases and sales of long-term municipal
securities aggregated $201,353,395 and $194,558,548, respectively, for the Tax
Free Fund.
The aggregate face value of futures contracts opened and closed during the year
ended March 31, 1997 for the Tax Free Fund, was $208,550,491.
33 -- Scudder California Tax Free Money Fund
Scudder California Tax Free Fund
<PAGE>
Transactions in written call options on securities for the year ended March 31,
1997 were as follows:
Number of Contracts Premiums Received ($)
------------------- ---------------------
Outstanding at March 31, 1996 .. -- --
Contracts written .............. 300 49,013
Contracts closed ............... (300) (49,013)
------------------------------------------------------------------------------
Outstanding at March 31, 1997 -- --
C. Related Parties
Each Fund has entered into an Investment Management Agreement (each an
"Agreement" and collectively the "Agreements") with Scudder, Stevens & Clark,
Inc. (the "Adviser"), under which each Fund agrees to pay the Adviser a fee
computed and accrued daily and paid monthly. The management fee payable under
the Agreements is equal to an annual rate of 0.50% of the average daily net
assets of Tax Free Money Fund, and 0.625% of the first $200,000,000 of the
average daily net assets and 0.60% of such net assets in excess of $200,000,000
for Tax Free Fund. As manager of the assets of Tax Free Money Fund and Tax Free
Fund, the Adviser directs the investments of Tax Free Money Fund and Tax Free
Fund in accordance with the investment objectives, policies, and restrictions of
each Fund. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by each
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreements. The Agreements also
provide that if the Funds' expenses, exclusive of taxes, interest and certain
other expenses exceed specified limits, such excess, up to the amount of the
management fee, will be paid by the Adviser. For the year ended March 31, 1997,
the fee for the Tax Free Fund pursuant to the Agreement amounted to $1,800,657,
which was equivalent to an annualized effective rate of .62% of the Fund's
average daily net assets.
With respect to Tax Free Money Fund, the Adviser has agreed not to impose all or
a portion of its management fee until July 31, 1997 and during such period to
maintain the annualized expenses of Tax Free Money Fund at not more than 0.60%
of average daily net assets. For the year ended March 31, 1997, the Adviser did
not impose a portion of its fee amounting to $128,299, and the portion imposed
amounted to $210,030.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend-paying and shareholder service agent for the Funds. For the
year ended March 31, 1997, $67,597 and $159,122 were charged by SSC to Tax Free
Money Fund and Tax Free Fund, of which $5,620 and $13,336 are unpaid at March
31, 1997, respectively.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records for the Tax Free Money Fund and Tax
Free Fund. For the year ended March 31, 1997, SFAC imposed fees amounting to
$30,000 and $66,630 of which $2,500 and $5,640 are unpaid at March 31, 1997 for
the Tax Free Money Fund and Tax Free Fund, respectively.
The Trust pays each Trustee not affiliated with the Adviser $4,000 annually plus
specified amounts for attended board and committee meetings. For the year ended
March 31, 1997, Trustees' fees and expenses aggregated $14,241 and $14,242 for
Tax Free Money Fund and Tax Free Fund, respectively.
34 -- Scudder California Tax Free Money Fund
Scudder California Tax Free Fund
<PAGE>
Report of Independent Accountants
To the Trustees of Scudder California Tax Free Trust and the Shareholders of
Scudder California Tax Free Money Fund and Scudder California Tax Free Fund:
We have audited the accompanying statements of assets and liabilities of Scudder
California Tax Free Money Fund and Scudder California Tax Free Fund, including
the investment portfolios, as of March 31, 1997, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder California Tax Free Money Fund and Scudder California Tax Free Fund as
of March 31, 1997, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and their financial highlights for each of the periods indicated therein in
conformity with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
May 16, 1997
35 -- Scudder California Tax Free Money Fund
Scudder California Tax Free Fund
<PAGE>
Tax Information
Of the dividends paid by the California Tax Free Money Fund and California Tax
Free Fund from net investment income for the year ended March 31, 1997, 100%
constituted exempt interest dividends for regular federal income tax and
California State income tax purposes.
Please consult a tax adviser if you have any questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have specific
questions about your Scudder Fund account, please call a Scudder Investor
Relations Representative at 1-800-225-5163.
36 -- Scudder California Tax Free Money Fund
Scudder California Tax Free Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds
- --------------------------------------------------------------------------------
Money Market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term
Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Bond Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Classic Growth Fund
Scudder Development Fund
Scudder Emerging Markets Growth Fund
Scudder Global Discovery Fund
Scudder Global Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Micro Cap Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Small Company Value Fund
Scudder 21st Century Growth Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
- --------------------------------------------------------------------------------
IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase
Pension Plans
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
Institutional Cash Management
- --------------------------------------------------------------------------------
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(TM)++
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +A portion of the income from the tax-free funds may
be subject to federal, state, and local taxes. *Not available in all states.
+++A no-load variable annuity contract provided by Charter National Life
Insurance Company and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc., are
traded on various stock exchanges. ++For information on Scudder Treasurers
Trust,(TM) an institutional cash management service that utilizes certain
portfolios of Scudder Fund, Inc. ($100,000 minimum), call 1-800-541-7703.
37-Scudder California Tax Free Money Fund
Scudder California Tax Free Fund
<PAGE>
Scudder Solutions
<TABLE>
<S> <C> <C>
Convenient ways to invest, quickly and reliably:
- --------------------------------------------------------------------------------------------------------------------------
Automatic Investment Plan AutoBuy
A convenient investment program in which you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is higher and electronically debited from that account.
fewer when it's lower, which can reduce your average
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- --------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(tm)-- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient, timely, and reliable
automated withdrawal programs:
- --------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan AutoSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.
DistributionsDirect
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- --------------------------------------------------------------------------------------------------------------------------
38-Scudder California Tax Free Money Fund
Scudder California Tax Free Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- --------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(sm) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(sm)
transaction fees or commissions. Scudder Developed for investors who prefer the benefits of no-load
shareholders can take advantage of a Scudder Scudder funds but want ongoing professional assistance in
Brokerage account already reserved for them, with managing a portfolio. Personal Counsel(sm) is a highly
no minimum investment. For information about customized, fee-based asset management service for
Scudder Brokerage Services, call 1-800-700-0820. individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(sm) and Personal Counsel(sm) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- --------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- --------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Funds Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Funds Centers. Check for a Funds Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
New From Scudder: Pathway Series
In a complex financial world, Scudder Pathway Series is a refreshingly simple concept. With one
investment, Pathway gives you instant access to broad diversification in U.S. markets and
across the globe. Select from four Portfolios -- Conservative, Balanced, Growth, or
International -- each with a distinct investment objective that can match your goals. Each
Portfolio, rather than investing in individual securities, invests in carefully selected
Scudder mutual funds.
The share price of each Pathway Series portfolio will fluctuate and the risk associated with
each portfolio is determined by the securities held in each underlying Scudder fund. Contact
Scudder Investor Services, Inc., Distributor, for a prospectus which contains more complete
information, including management fees and other expenses. Please read it carefully before you
invest or send money.
</TABLE>
39-Scudder California Tax Free Money Fund
Scudder California Tax Free Fund
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark was the first independent investment counsel firm in
the United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the investment
industry. In 1928, we introduced the nation's first no-load mutual fund. Today
we offer over 40 pure no load(TM) funds, including the first international
mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
<PAGE>
SCUDDER CALIFORNIA TAX FREE TRUST
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
<S> <C>
a. Financial Statements
Included in Part A of this Registration Statement:
Financial Highlights for Scudder California Tax Free Money
Fund for the period March 28, 1987 (commencement of
operations) to March 31, 1988, and the eight fiscal years
ended March 31, 1996
Financial Highlights for Scudder California Tax Free Fund
for the ten fiscal years ended March 31, 1996
Included in Part B of this Registration Statement:
For Scudder California Tax Free Money Fund:
Investment Portfolio as of March 31, 1996
Statement of Assets and Liabilities as of March 31, 1996
Statement of Operations for the year ended March 31, 1996
Statements of Changes in Net Assets for the two years ended
March 31, 1996
Financial Highlights for the period March 28, 1987
(commencement of operations) to March 31, 1988 and the eight
fiscal years ended March 31, 1996
Notes to Financial Statements
Report of Independent Accountants
For Scudder California Tax Free Fund:
Investment Portfolio as of March 31, 1996
Statement of Assets and Liabilities as of March 31, 1996
Statement of Operations for the year ended March 31, 1996
Statements of Changes in Net Assets for the two years ended
March 31, 1996
Financial Highlights for the ten years ended March 31, 1996
Notes to Financial Statements
Report of Independent Accountants
Statements, schedules and historical information other than those
listed above have been omitted since they are either not applicable
or are not required.
b. Exhibits:
1. (a) Amended and Restated Declaration of Trust dated as of December 8, 1987
filed herein.
(b) Instrument Establishing and Designating Additional Series of Shares
filed herein.
(c) Certificate of Amendment dated December 11, 1990 filed herein.
2. (a)(1) By-laws of the Registrant dated as of May 3, 1983.
(Incorporated by reference as Exhibit 2 to the Registration Statement.)
(a)(2) Amendment to the By-laws dated August 13, 1991.
Part C - Page 1
<PAGE>
(Incorporated by reference as Exhibit 2(a)(2) to Post-Effective
Amendment No. 14 to the Registration Statement.)
(a)(3) Amendment to the By-laws dated December 10, 1991.
(Incorporated by reference as Exhibit 2(a)(3) to Post-Effective
Amendment No. 14 to the Registration Statement.)
3. Inapplicable.
4. Specimen certificate representing shares of beneficial interest $.01 par
value.
(Incorporated by reference as Exhibit 4 to Post-Effective Amendment No.
6 to the Registration Statement.)
5. (a) Investment Management Agreement between the Registrant (on behalf of
Scudder California Tax Free Fund) and Scudder, Stevens & Clark, Inc.
dated December 12, 1990 filed herein.
(b) Investment Management Agreement between the Registrant (on behalf of
Scudder California Tax Free Money Fund) and Scudder, Stevens & Clark,
Inc. dated December 12, 1990 filed herein.
6. Underwriting Agreement between the Registrant and Scudder Investor
Services, Inc., formerly Scudder Fund Distributors, Inc., dated June 1,
1987 filed herein.
7. Inapplicable.
8. (a)(1) Custodian Agreement between the Registrant and State Street Bank and
Trust Company dated June 14, 1983 filed herein.
(a)(2) Fee schedule for Exhibit 8(a)(l) filed herein.
(a)(3) Amendment No. 1 dated April 16, 1986 to the Custodian Agreement between
the Registrant and State Street Bank and Trust Company dated June 14,
1983 filed herein.
(a)(4) Amendment to the Custodian Contract between the Registrant and State
Street Bank and Trust Company dated August 9, 1988 filed herein.
(a)(5) Amendment dated December 11, 1990 to the Custodian Contract between the
Registrant and State Street Bank and Trust Company.
(Incorporated by reference as Exhibit 8(a)(5) to Post-Effective
Amendment No. 14 to the Registration Statement.)
(a)(6) Fee schedule for the Custodian Agreement dated June 14, 1983, as amended.
(Incorporated by reference as Exhibit 8(a)(6) to Post-Effective
Amendment No. 14 to the Registration Statement.)
(b) Subcustodian Agreement between State Street Bank and Trust Company and
Morgan Guaranty Trust Company of New York dated November 25, 1985 filed
herein.
(c) Subcustodian Agreement between Irving Trust Company and State Street
Bank and Trust Company dated November 30, 1987 filed herein.
Part C - Page 2
<PAGE>
(d) Subcustodian Agreement between Chemical Bank and State Street Bank and
Trust Company dated October 6, 1988 filed herein.
(e) Subcustodian Agreement between Security Pacific Natural Trust Company
(New York) and State Street Bank and Trust Company dated February 18,
1988 filed herein.
(f) Subcustodian Agreement between Bankers Trust Company and State Street
Bank and Trust Company dated August 15, 1989.
(Incorporated by reference as Exhibit 8(f) to Post-Effective Amendment
No. 14 to the Registration Statement.)
9. (a)(1) Transfer Agency and Service Agreement between the Registrant and Scudder
Service Corporation dated October 2, 1989 filed herein.
(a)(2) Fee schedule for Exhibit 9(a)(1) filed herein.
(b) Fund Accounting Services Agreement between the Registrant, on behalf of
Scudder California Tax Free Money Fund, and Scudder Fund Accounting
Corporation dated September 27, 1994.
(Incorporated by reference as Exhibit 9(c) to Post-Effective Amendment
No. 14 to the Registration Statement.)
(c) Fund Accounting Services Agreement between the Registrant, on behalf of
Scudder California Tax Free Fund, and Scudder Fund Accounting
Corporation dated August 1, 1994.
(Incorporated by reference as Exhibit 9(d) to Post-Effective Amendment
No. 14 to the Registration Statement.)
10. Inapplicable.
11. Consent of Independent Accountants is filed herein.
12. Inapplicable.
13. Inapplicable.
14. Inapplicable.
15. Inapplicable.
16. Schedule for Computation of Performance Quotations filed herein.
17. Financial Data Schedules are filed herein.
18. Inapplicable.
Power of Attorney
(Filed as part of the signature page of Post-Effective Amendment No. 10
to the Registration Statement.)
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant.
- -------- --------------------------------------------------------------
None
Part C - Page 3
<PAGE>
Item 26. Number of Holders of Securities (as of June 30, 1996).
(1) (2)
Title of Class Number of Record
Shareholders
-------------- ----------------
Shares of beneficial interest
$.01 par value
Scudder California Tax Free Money Fund 1,994
Scudder California Tax Free Fund 5,909
Item 27. Indemnification.
- -------- ----------------
A policy of insurance covering Scudder, Stevens & Clark, Inc.
its subsidiaries including Scudder Investor Services, Inc.,
and all of the registered investment companies advised by
Scudder, Stevens & Clark, Inc. insures the Registrant's
trustees and officers and others against liability arising by
reason of an alleged breach of duty caused by any negligent
act, error or accidental omission in the scope of their
duties.
Article IV, Sections 4.1 - 4.3 of Registrant's Declaration of
Trust provide as follows:
Section 4.1 No Personal Liability of Shareholders, Trustees,
Etc. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or
the acts, obligations or affairs of the Trust. No Trustee,
officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to
the Trust or its Shareholders, in connection with Trust
Property or the affairs of the Trust, save only that arising
from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person;
and all such Persons shall look solely to the Trust Property
for satisfaction of claims of any nature arising in connection
with the affairs of the Trust. If any Shareholder, Trustee,
officer, employee, or agent, as such, of the Trust, is made a
party to any suit or proceeding to enforce any such liability
of the Trust, he shall not, on account thereof, be held to any
personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and
liabilities, to which such Shareholder may become subject by
reason of his being or having been a Shareholder, and shall
reimburse such Shareholder for all legal and other expenses
reasonably incurred by him in connection with any such claim
or liability. The indemnification and reimbursement required
by the preceding sentence shall be made only out of the assets
of the one or more Series of which the Shareholder who is
entitled to indemnification or reimbursement was a Shareholder
at the time the act or event occurred which gave rise to the
claim against or liability of said Shareholder. The rights
accruing to a Shareholder under this Section 4.1 shall not
impair any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not
specifically provided herein.
Section 4.2 Non-Liability of Trustees Etc. No Trustee,
officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee,
officer, employee, or agent thereof for any action or failure
to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard of the duties involved
in the conduct of his office.
Section 4.3 Mandatory Indemnification.
(a) Subject to the exceptions and limitations
contained in paragraph (b) below:
(i) every person who is, or has been, a
Trustee or officer of the Trust shall be
indemnified by the Trust to the fullest
extent permitted by law against all
liability and against all expenses
reasonably incurred or paid by him in
connection with any claim, action, suit or
proceeding in which he becomes involved as a
party or otherwise by virtue of his being or
Part C - Page 4
<PAGE>
having been a Trustee or officer and against
amounts paid or incurred by him in the
settlement thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims,
actions, suits or proceedings (civil,
criminal, administrative or other, including
appeals), actual or threatened; and the
words "liability" and "expenses" shall
include, without limitation, attorneys'
fees, costs, judgments, amounts paid in
settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to
a Trustee or officer:
(i) against any liability to the Trust, a
Series thereof, or the Shareholders by
reason of a final adjudication by a court or
other body before which a proceeding was
brought that he engaged in willful
misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in
the conduct of his office;
(ii) with respect to any matter as to which
he shall have been finally adjudicated not
to have acted in good faith in the
reasonable belief that his action was in the
best interest of the Trust;
(iii) in the event of a settlement or other
disposition not involving a final
adjudication as provided in paragraph (b)(i)
or (b)(ii) resulting in a payment by a
Trustee or officer, unless there has been a
determination that such Trustee or officer
did not engage in willful misfeasance, bad
faith, gross negligence or reckless
disregard of the duties involved in the
conduct of his office;
(A) by the court or other body
approving the settlement or other
disposition; or
(B) based upon a review of readily
available facts (as opposed to a
full trial-type inquiry) by (x) vote
of a majority of the Disinterested
Trustees acting on the matter
(provided that a majority of the
Disinterested Trustees then in
office act on the matter) or (y)
written opinion of independent legal
counsel.
(c) The rights of indemnification herein provided may
be insured against by policies maintained by the
Trust, shall be severable, shall not affect any other
rights to which any Trustee or officer may now or
hereafter be entitled, shall continue as to a person
who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing
contained herein shall affect any rights to
indemnification to which personnel of the Trust other
than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a
defense to any claim, action, suit or proceeding of
the character described in paragraph (a) of this
Section 4.3 shall be advanced by the Trust prior to
final disposition thereof upon receipt of an
undertaking by or on behalf of the recipient to repay
such amount if it is ultimately determined that he is
not entitled to indemnification under this Section
4.3 provided that either:
(i) such undertaking is secured by a surety
bond or some appropriate security provided
by the recipient, or the Trust shall be
insured against losses arising out of any
such advances: or
(ii) a majority of the Disinterested
Trustees acting on the matter (provided that
a majority of the Disinterested Trustees act
on the matter) or an independent legal
counsel in a written opinion shall
determine, based upon a review of readily
available facts (as opposed to a full
trial-type inquiry), that there is reason to
believe that the recipient ultimately will
be found entitled to indemnification.
Part C - Page 5
<PAGE>
As used in this Section 4.3, a "Disinterested Trustee" is one
who is not (i) an "Interested Person" of the Trust (including
anyone who has been exempted from being an "Interested Person"
by any rule, regulation or order of the Commission), or (ii)
involved in the claim, action, suit or proceeding.
Item 28. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
The Adviser has stockholders and employees who are denominated
officers but do not as such have corporation-wide
responsibilities. Such persons are not considered officers for
the purpose of this Item 28.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Director, Vice President, Treasurer, Chief Operating Officer & Chief Financial Officer,
Scudder, Stevens & Clark, Inc. (investment adviser)**
Lynn S. Birdsong Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
President & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
President, The Japan Fund, Inc. (investment company)**
Supervisory Director, The Latin America Income and Appreciation Fund N.V. (investment
company) +
Supervisory Director, The Venezuela High Income Fund N.V. (investment company) xx
Supervisory Director, Scudder Mortgage Fund (investment company)+
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company) +
Director, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund (investment company)#
Director, Sovereign High Yield Investment Company (investment company)+
Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager) #
Nicholas Bratt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, Scudder New Europe Fund, Inc. (investment company)**
President & Director, The Brazil Fund, Inc. (investment company)**
President & Director, The First Iberian Fund, Inc. (investment company)**
President & Director, Scudder International Fund, Inc. (investment company)**
President & Director, Scudder Global Fund, Inc. (President on all series except Scudder
Global Fund) (investment company)**
President & Director, The Korea Fund, Inc. (investment company)**
President & Director, Scudder New Asia Fund, Inc. (investment company)**
President, The Argentina Fund, Inc. (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Vice President, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
Toronto, Ontario, Canada
Vice President, Scudder, Stevens & Clark Overseas Corporation oo
E. Michael Brown Director, Chief Administrative Officer, Scudder, Stevens & Clark, Inc. (investment
adviser)**
Trustee, Scudder GNMA Fund (investment company)*
Trustee, Scudder Portfolio Trust (investment company)*
Trustee, Scudder U.S. Treasury Fund (investment company)*
Trustee, Scudder Tax Free Money Fund (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Part C - Page 6
<PAGE>
Trustee, Scudder Cash Investment Trust (investment company)*
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Director & President, Scudder Realty Holding Corporation (a real estate holding
company)*
Director & President, Scudder Trust Company (a trust company)+++
Director, Scudder Trust (Cayman) Ltd.
Mark S. Casady Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director & Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Director & Vice President, Scudder Service Corporation (in-house transfer agent)*
Director, SFA, Inc. (advertising agency)*
Linda C. Coughlin Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Trustee, AARP Cash Investment Funds (investment company)**
Chairman & Trustee, AARP Growth Trust (investment company)**
Chairman & Trustee, AARP Income Trust (investment company)**
Chairman & Trustee, AARP Tax Free Income Trust (investment company)**
Chairman & Trustee, AARP Managed Investment Portfolios Trust (investment company)**
Director & Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Director, SFA, Inc. (advertising agency)*
Margaret D. Hadzima Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Jerard K. Hartman Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder California Tax Free Trust (investment company)*
Vice President, Scudder Equity Trust (investment company)**
Vice President, Scudder Cash Investment Trust (investment company)*
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President, Scudder Portfolio Trust (investment company)*
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President, Scudder International Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President, Scudder Municipal Trust (investment company)*
Vice President, Scudder Mutual Funds, Inc. (investment company)**
Vice President, Scudder New Asia Fund, Inc. (investment company)**
Vice President, Scudder New Europe Fund, Inc. (investment company)**
Vice President, Scudder Securities Trust (investment company)*
Vice President, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder Funds Trust (investment company)**
Vice President, Scudder Tax Free Money Fund (investment company)*
Vice President, Scudder Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Vice President, Scudder Pathway Series (investment company)*
Vice President, Scudder Variable Life Investment Fund (investment company)*
Vice President, The Brazil Fund, Inc. (investment company)**
Vice President, The Korea Fund, Inc. (investment company)**
Vice President, The Argentina Fund, Inc. (investment company)**
Vice President & Director, Scudder, Stevens & Clark of Canada, Ltd. (Canadian
investment adviser) Toronto, Ontario, Canada
Vice President, The First Iberian Fund, Inc. (investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Part C - Page 7
<PAGE>
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**
Richard A. Holt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Variable Life Investment Fund (investment company)*
John T. Packard Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, Montgomery Street Income Securities, Inc. (investment company) o
Chairman, Scudder Realty Advisors, Inc. (realty investment adviser) x
Daniel Pierce Chairman & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman, Vice President & Director, Scudder Global Fund, Inc. (investment company)**
Chairman & Director, Scudder New Europe Fund, Inc. (investment company)**
Chairman & Director, The First Iberian Fund, Inc. (investment company)**
Chairman & Director, Scudder International Fund, Inc. (investment company)**
Chairman & Director, Scudder New Asia Fund, Inc. (investment company)**
President & Trustee, Scudder Equity Trust (investment company)**
President & Trustee, Scudder GNMA Fund (investment company)*
President & Trustee, Scudder Portfolio Trust (investment company)*
President & Trustee, Scudder Funds Trust (investment company)**
President & Trustee, Scudder Securities Trust (investment company)*
President & Trustee, Scudder Investment Trust (investment company)*
President & Director, Scudder Institutional Fund, Inc. (investment company)**
President & Director, Scudder Fund, Inc. (investment company)**
President & Director, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Trustee, Scudder Municipal Trust (investment company)*
Vice President & Trustee, Scudder Variable Life Investment Fund (investment company)*
Vice President & Trustee, Scudder Pathway Series (investment company)*
Trustee, Scudder California Tax Free Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Montgomery Street Income Securities, Inc. (investment company) o
Chairman & President, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment
adviser), Toronto, Ontario, Canada
Chairman & Director, Scudder Global Opportunities Funds (investment company) Luxembourg
Chairman, Scudder, Stevens & Clark, Ltd. (investment adviser) London, England
President & Director, Scudder Precious Metals, Inc. xxx
Vice President, Director & Assistant Secretary, Scudder Realty Holdings Corporation
(a real estate holding company)*
Vice President, Director & Assistant Treasurer, Scudder Investor Services, Inc.
(broker/dealer)*
Director, Scudder Latin America Investment Trust PLC (investment company)@
Director, Fiduciary Trust Company (banking & trust company) Boston, MA
Director, Fiduciary Company Incorporated (banking & trust company) Boston, MA
Trustee, New England Aquarium, Boston, MA
Incorporator, Scudder Trust Company (a trust company)+++
Kathryn L. Quirk Director, Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder, Stevens
& Clark, Inc. (investment adviser)**
Director, Vice President & Assistant Secretary, The Argentina Fund, Inc. (investment
company)**
Director, Vice President & Assistant Secretary, Scudder International Fund, Inc.
(investment company)**
Part C - Page 8
<PAGE>
Director, Vice President & Assistant Secretary, Scudder New Asia Fund (investment
company)**
Director, Vice President & Assistant Secretary, Scudder Global Fund, Inc. (investment
company)**
Trustee, Vice President & Assistant Secretary, Scudder Equity Trust (investment
company)**
Trustee, Vice President & Assistant Secretary, Scudder Securities Trust (investment
company)*
Trustee, Vice President & Assistant Secretary, Scudder Funds Trust (investment
company)**
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Vice President & Trustee, Scudder Cash Investment Trust (investment company)*
Vice President & Trustee, Scudder Tax Free Money Fund (investment company)*
Vice President & Trustee, Scudder Tax Free Trust (investment company)*
Vice President & Secretary, AARP Growth Trust (investment company)**
Vice President & Secretary, AARP Income Trust (investment company)**
Vice President & Secretary, AARP Tax Free Income Trust (investment company)**
Vice President & Secretary, AARP Cash Investment Funds (investment company)**
Vice President & Secretary, AARP Managed Investment Portfolios Trust (investment
company)**
Vice President & Secretary, The Japan Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder World Income Opportunities Fund, Inc.
(investment company)**
Vice President & Assistant Secretary, The Korea Fund, Inc. (investment company)**
Vice President & Assistant Secretary, The Brazil Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Montgomery Street Income Securities, Inc.
(investment company)o
Vice President & Assistant Secretary, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder Pathway Series (investment company)*
Vice President & Assistant Secretary, Scudder New Europe Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, Scudder Variable Life Investment Fund (investment
company)*
Vice President & Assistant Secretary, The First Iberian Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, The Latin America Dollar Income Fund, Inc.
(investment company)**
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Director, Senior Vice President & Clerk, Scudder Investor Services, Inc.
(broker/dealer)*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation (in-house
fund accounting agent)*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation (a real
estate holding company)*
Director & Clerk, Scudder Service Corporation (in-house transfer agent)*
Director, SFA, Inc. (advertising agency)*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc. xxx
Cornelia M. Small Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, AARP Cash Investment Funds (investment company)**
President, AARP Growth Trust (investment company)**
President, AARP Income Trust (investment company)**
Part C - Page 9
<PAGE>
President, AARP Tax Free Income Trust (investment company)**
President, AARP Managed Investment Portfolio Trust (investment company)**
Edmond D. Villani Director, President & Chief Executive Officer, Scudder, Stevens & Clark, Inc.
(investment adviser)**
Chairman & Director, The Argentina Fund, Inc. (investment company)**
Chairman & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
Chairman & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Supervisory Director, Scudder Mortgage Fund (investment company) +
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company)+
Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Director, The Brazil Fund, Inc. (investment company)**
Director, Indosuez High Yield Bond Fund (investment company) Luxembourg
President & Director, Scudder, Stevens & Clark Overseas Corporation oo
President & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Director, IBJ Global Investment Management S.A., (Luxembourg investment management
company) Luxembourg, Grand-Duchy of Luxembourg
Stephen A. Wohler Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Montgomery Street Income Securities, Inc. (investment company) o
</TABLE>
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
++ Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, IL
+++ 5 Industrial Way, Salem, NH
o 101 California Street, San Francisco, CA
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C.
Luxembourg B 34.564
+ John B. Gorsiraweg 6, Willemstad Curacao, Netherlands Antilles
xx De Ruyterkade 62, P.O. Box 812, Willemstad Curacao,
Netherlands Antilles
## 2 Boulevard Royal, Luxembourg
*** B1 2F3F 248 Section 3, Nan King East Road, Taipei, Taiwan
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
@ c/o Sinclair Hendersen Limited, 23 Cathedral Yard, Exeter,
Devon, U.K.
Item 29. Principal Underwriters.
- -------- -----------------------
(a) Scudder California Tax Free Trust
Scudder Cash Investment Trust
Scudder Equity Trust
Scudder Fund, Inc.
Scudder Funds Trust
Scudder Global Fund, Inc.
Scudder GNMA Fund
Scudder Institutional Fund, Inc.
Scudder International Fund, Inc.
Scudder Investment Trust
Scudder Municipal Trust
Scudder Mutual Funds, Inc.
Part C - Page 10
<PAGE>
Scudder Pathway Series
Scudder Portfolio Trust
Scudder Securities Trust
Scudder State Tax Free Trust
Scudder Tax Free Money Fund
Scudder Tax Free Trust
Scudder U.S. Treasury Money Fund
Scudder Variable Life Investment Fund
AARP Cash Investment Funds
AARP Growth Trust
AARP Income Trust
AARP Tax Free Income Trust
AARP Managed Investment Portfolios Trust
The Japan Fund, Inc.
<TABLE>
(b)
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C>
Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY 10154
E. Michael Brown Assistant Treasurer None
Two International Place
Boston, MA 02110
Mark S. Casady Director and Vice President None
Two International Place
Boston, MA 02110
Linda Coughlin Director and Senior Vice President None
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and Assistant None
345 Park Avenue Clerk
New York, NY 10154
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, Vice President
Two International Place Treasurer and Assistant Clerk
Boston, MA 02110
Part C - Page 11
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
David S. Lee Director, President and Assistant President and Trustee
Two International Place Treasurer
Boston, MA 02110
Thomas F. McDonough Clerk Vice President and
Two International Place Secretary
Boston, MA 02110
Thomas H. O'Brien Assistant Treasurer None
345 Park Avenue
New York, NY 10154
Edward J. O'Connell Assistant Treasurer Vice President and
345 Park Avenue Assistant Treasurer
New York, NY 10154
Daniel Pierce Director, Vice President Trustee
Two International Place and Assistant Treasurer
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President and None
345 Park Avenue Assistant Clerk
New York, NY 10154
Robert A. Rudell Vice President None
Two International Place
Boston, MA 02110
Edmund J. Thimme Vice President None
345 Park Avenue
New York, NY 10154
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
Sydney S. Tucker Vice President None
Two International Place
Boston, MA 02110
David B. Watts Assistant Treasurer None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President None
Two International Place
Boston, MA 02110
</TABLE>
Part C - Page 12
<PAGE>
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 29.
(c)
<TABLE>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder, Stevens &
Clark, Inc., Two International Place, Boston, MA 02110-4103.
Records relating to the duties of the Registrant's custodian
are maintained by State Street Bank and Trust Company,
Heritage Drive, North Quincy, Massachusetts. Records relating
to the duties of the Registrant's transfer agent are
maintained by Scudder Service Corporation, Two International
Place, Boston, Massachusetts 02110-4103.
Item 31. Management Services.
- -------- --------------------
Inapplicable.
Item 32. Undertakings.
- -------- -------------
Inapplicable.
Part C - Page 13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston and the
Commonwealth of Massachusetts on the 15th day of July, 1997.
SCUDDER CALIFORNIA TAX FREE TRUST
By /s/Thomas F. McDonough
------------------------------
Thomas F. McDonough,
Vice President and Secretary
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/David S. Lee
- --------------------------------------
David S. Lee* President (Principal Executive July 15, 1997
Officer) and Trustee
/s/Henry P. Becton, Jr.
- --------------------------------------
Henry P. Becton, Jr.* Trustee July 15, 1997
/s/Dawn-Marie Driscoll
- --------------------------------------
Dawn-Marie Driscoll* Trustee July 15, 1997
/s/Peter B. Freeman
- --------------------------------------
Peter B. Freeman* Trustee July 15, 1997
/s/Daniel Pierce
- --------------------------------------
Daniel Pierce* Trustee July 15, 1997
- --------------------------------------
Pamela A. McGrath Treasurer (Principal Financial and July , 1997
Accounting Officer) and Vice President
</TABLE>
*By: /s/Thomas F. McDonough
------------------------
Thomas F. McDonough**
** Attorney-in-fact pursuant to a power of
attorney contained in the signature page
of Post-Effective Amendment No. 10 to the
Registration Statement filed May 21, 1991.
<PAGE>
File No. 2-83498
File No. 811-3729
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 16
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 18
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER CALIFORNIA TAX FREE TRUST
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SCUDDER CALIFORNIA TAX FREE TRUST
EXHIBIT INDEX
Exhibit 1(a)
Exhibit 1(b)
Exhibit 1(c)
Exhibit 2(a)(1)
Exhibit 5(a)
Exhibit 5(b)
Exhibit 6
Exhibit 8(a)(1)
Exhibit 8(a)(2)
Exhibit 8(a)(3)
Exhibit 8(a)(4)
Exhibit 8(b)
Exhibit 8(c)
Exhibit 8(d)
Exhibit 8(e)
Exhibit 9(a)(1)
Exhibit 9(a)(2)
Exhibit 11
Exhibit 16
Exhibit 17
Exhibit 1
FILED
DEC 9 1987
SECRETARY OF STATE
CORPORATION DIVISION
SCUDDER CALIFORNIA TAX FREE TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST
DATED DECEMBER 8, 1987
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TABLE OF CONTENTS
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ARTICLE I -- Name and Definitions 1
Section 1.1 Name 1
Section 1.2 Definitions 1
ARTICLE II -- Trustees 3
Section 2.1 General Powers 3
Section 2.2 Investments 4
Section 2.3 Legal Title 5
Section 2.4 Issuance and Repurchase of
Shares 6
Section 2.5 Delegation; Committees 6
Section 2.6 Collection and Payment 6
Section 2.7 Expenses 6
Section 2.8 Manner of Acting; By-laws 6
Section 2.9 Miscellaneous Powers 7
Section 2.10 Principal Transactions 7
Section 2.11 Number of Trustees 8
Section 2.12 Election and Term 8
Section 2.13 Resignation and Removal 8
Section 2.14 Vacancies 9
Section 2.15 Delegation of Power to Other
Trustees 9
ARTICLE III -- Contracts 9
Section 3.1 Distribution Contract 9
Section 3.2 Advisory or Management Contract 10
Section 3.3 Affiliations of Trustees or
Officers, Etc. 10
Section 3.4 Compliance with 1940 Act 11
ARTICLE IV -- Limitations of Liability of,
Shareholders Trustees and Others 11
Section 4.1 No Personal Liability of Share-
holders, Trustees, Etc. 11
Section 4.2 Non-Liability of Trustees, Etc. 12
Section 4.3 Mandatory Indemnification 12
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Section 4.4 No Bond Required of Trustees 14
Section 4.5 No Duty of Investigation; Notice
in Trust Instruments, Etc. 14
Section 4.6 Reliance on Experts, Etc. 14
ARTICLE V -- Shares of Beneficial Interest 15
Section 5.1 Beneficial Interest 15
Section 5.2 Rights of Shareholders 15
Section 5.3 Trust Only 15
Section 5.4 Issuance of Shares 15
Section 5.5 Register of Shares 16
Section 5.6 Transfer of Shares 16
Section 5.7 Notices, Reports 17
Section 5.8 Treasury Shares 17
Section 5.9 Voting Powers 17
Section 5.10 Meetings of Shareholders 18
Section 5.11 Series Designation 18
Section 5.12 Assent to Declaration of Trust 20
ARTICLE VI -- Redemption and Repurchase of Shares 20
Section 6.1 Redemption of Shares 20
Section 6.2 Price 21
Section 6.3 Payment 21
Section 6.4 Effect of Suspension of
Determination of Net
Asset Value 21
Section 6.5 Repurchase by Agreement 21
Section 6.6 Redemption of Shareholder's
Interest 22
Section 6.7 Redemption of Shares in Order
to Qualify as Regulated
Investment Company;
Disclosure of Holding 22
Section 6.8 Reductions in Number of
Outstanding Shares Pursuant
to Net Asset Value Formula 22
Section 6.9 Suspension of Right of Redemption 23
ARTICLE VII -- Determination of Net Asset Value, Net
Income and Distributions 23
Section 7.1 Net Asset Value 23
Section 7.2 Distributions to Shareholders 24
Section 7.3 Determination of Net Income:
Constant Net Asset Value;
Reduction of Outstanding Shares 25
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Section 7.4 Allocation Between Principal
and Income 25
Section 7.5 Power to Modify Foregoing
Procedures 26
ARTICLE VIII -- Duration; Termination of Trust;
Amendment; Mergers, Etc. 26
Section 8.1 Duration 26
Section 8.2 Termination of Trust 26
Section 8.3 Amendment Procedure 27
Section 8.4 Merger, Consolidation and Sale
of Assets 28
Section 8.5 Incorporation 28
ARTICLE IX -- Reports to Shareholders 28
ARTICLE X -- Miscellaneous 29
Section 10.1 Filing 29
Section 10.2 Governing Law 29
Section 10.3 Counterparts 29
Section 10.4 Reliance by Third Parties 29
Section 10.5 Provisions in Conflict with Law
or Regulations 30
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AMENDED AND RESTATED
DECLARATION OF TRUST
OF
SCUDDER CALIFORNIA TAX FREE TRUST
DATED DECEMBER 8, 1987
AMENDED AND RESTATED DECLARATION OF TRUST made December 8, 1987, by the
undersigned Trustees;
WHEREAS, pursuant to a Declaration of Trust dated May 3, 1983, the
Trustees, established a Massachusetts business trust for the investment and
reinvestment of funds contributed thereto;
WHEREAS, said Declaration of Trust has been amended from time to time;
WHEREAS, the Trustees desire to amend and restate said Declaration of
Trust in its entirety;
NOW, THEREFORE, the Trustees amend and restate the Declaration of Trust as
follows:
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the Trust created hereby is the "Scudder
California Tax Free Trust".
Section 1.2. Definitions. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "By-laws" means the By-laws referred to in Section 2.8 hereof, as from
time to time amended.
(b) The term "Commission" has the meaning given it in the 1940 Act. The
term "Interested Person" has the meaning given it in the 1940 Act, as modified
by any applicable order or orders of the Commission. Except as otherwise defined
by the Trustees in conjunction with the establishment of any series of Shares,
the term "vote of a majority of the Shares outstanding and entitled to vote"
shall have the same meaning as the term "vote of a majority of the outstanding
voting securities" given it in the 1940 Act.
(c) "Custodian" means any Person other than the Trust who has custody of
any Trust Property as required by Section 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
Section 17(f).
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(d) "Declaration" means this Declaration of Trust as further amended from
time to time. Reference in this Declaration of Trust to "Declaration," "hereof,"
"herein," and "hereunder" shall be deemed to refer to this Declaration rather
than exclusively to the article or section in which such words appear.
(e) "Distributor" means the party, other than the Trust, to the contract
described in Section 3.1 hereof.
(f) "His" shall include the feminine and neuter, as well as the masculine
genders.
(g) "Investment Adviser" means the party, other than the Trust, to the
contract described in Section 3.2 hereof.
(h) "Municipal Bonds" means obligations issued by or on behalf of states,
territories of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest from which
is exempt from regular Federal income tax.
(i) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
(j) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
(k) "Series" individually or collectively means the two or more Series as
may be established and designated from time to time by the Trustees pursuant to
Section 5.11 hereof.
(1) "Shareholder" means a record owner of Outstanding Shares.
(m) "Shares" means the equal proportionate units of interest into which
the beneficial interest in the Trust shall be divided from time to time,
including the Shares of any and all series which may be established by the
Trustees, and includes fractions of Shares as well as whole Shares. "Outstanding
Shares" means those Shares shown from time to time on the books of the Trust or
its Transfer Agent as then issued and outstanding, but shall not include Shares
which have been redeemed or repurchased by the Trust and which are at the time
held in the treasury of the Trust.
(n) "Transfer Agent" means any one or more Persons other than the Trust
who maintains the Shareholder records of the Trust, such as the list of
Shareholders, the number of Shares credited to each account, and the like.
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(o) The "Trust" means the Scudder California Tax Free Trust.
(p) The "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
(q) The "Trustees" means the person or persons who has or have signed this
Declaration, so long as he or they shall continue in office in accordance with
the terms hereof, and all other persons who may from time to time be duly
qualified and serving as Trustees in accordance with the provisions of Article
II hereof, and reference herein to a Trustee or the Trustees shall refer to such
person or persons in this capacity or their capacities as trustees hereunder.
ARTICLE II
TRUSTEES
Section 2.1. General Powers. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the Trust to
the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein specifically
mentioned. Any determination as to what is in the interests of the Trust made by
the Trustees in good faith shall be conclusive. In construing the provisions of
this Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
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Section 2.2. Investments. The Trustees shall have the power:
(a) To operate as and carry on the business of an investment company, and
exercise all the powers necessary and appropriate to the conduct of such
operations.
(b) To invest in, hold for investment, or reinvest in securities,
including common and preferred stocks; warrants; bonds, debentures, bills, time
notes and all other evidences of indebtedness; negotiable or non-negotiable
instruments; government securities, including securities of any state,
municipality or other political subdivision thereof, or any governmental or
quasi-governmental agency or instrumentality; and money market instruments
including bank certificates of deposit, finance paper, commercial paper, bankers
acceptances and all kinds of repurchase agreements, of any corporation, company,
trust, association, firm or other business organization however established, and
of any country, state, municipality or other political subdivision, or any
governmental or quasi-governmental agency or instrumentality.
(c) To acquire (by purchase, subscription or otherwise), to hold, to trade
in and deal in, to acquire any rights or options to purchase or sell, to sell or
otherwise dispose of, to lend, and to pledge any such securities and to enter
into repurchase agreements and forward foreign currency exchange contracts, to
purchase and sell futures contracts on securities, securities indices and
foreign currencies, to purchase or sell options on such contracts, foreign
currency contracts and foreign currencies and to engage in all types of hedging
and risk management transactions.
(d) To exercise all rights, powers and privileges of ownership or interest
in all securities, repurchase agreements, futures contracts and options and
other assets included in the Trust Property, including the right to vote thereon
and otherwise act with respect thereto and to do all acts for the preservation,
protection, improvement and enhancement in value of all such assets.
(e) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, including cash, and any interest therein.
(f) To borrow money and in this connection issue notes or other evidence
of indebtedness; to secure borrowings by mortgaging, pledging or otherwise
subjecting as security the Trust Property; to endorse, guarantee, or undertake
the performance of any obligation or engagement of any other Person and to lend
Trust Property.
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(g) To aid by further investment any corporation, company, trust,
association or firm, any obligation of or interest in which is included in the
Trust Property or in the affairs of which the Trustees have any direct or
indirect interest; to do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest, and to guarantee or
become surety on any or all of the contracts, stocks, bonds, notes, debentures
and other obligations of any such corporation, company, trust, association or
firm.
(h) To enter into a plan of distribution and any related agreements
whereby the Trust may finance directly or indirectly any activity which is
primarily intended to result in the sale of Shares.
(i) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 2.3. Legal Title. Legal title to all the Trust Property, including
the property of any Series of the Trust, shall be vested in the Trustees as
joint tenants except that the Trustees shall have power to cause legal title to
any Trust Property to be held by or in the name of one or more of the Trustees,
or in the name of the Trust, or in the name of any other Person as nominee, on
such terms as the Trustees may determine, provided that the interest of the
Trust therein is deemed appropriately protected. The right, title and interest
of the Trustees in the Trust Property and the property of each Series of the
Trust shall vest automatically in each Person who may hereafter become a
Trustee. Upon the termination of the term of office, resignation, removal or
death of a Trustee he shall automatically cease to have any right, title or
interest in any of the Trust Property or the property of any Series of the
Trust, and the right, title and interest of such Trustee in the Trust Property
shall vest automatically in the remaining Trustees. Such vesting and cessation
of title shall be
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effective whether or not conveyancing documents have been executed and
delivered.
Section 2.4. Issuance and Repurchase of Shares. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in Shares and, subject
to the provisions set forth in Articles VI and VII and Section 5.11 hereof, to
apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the particular Series of the
Trust with respect to which such Shares are issued, whether capital or surplus
or otherwise, to the full extent now or hereafter permitted by the laws of the
Commonwealth of Massachusetts governing business corporations.
Section 2.5. Delegation; Committees. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient, to the same extent as such
delegation is permitted by the 1940 Act.
Section 2.6. Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
Section 2.7. Expenses. The Trustees shall have the power to incur and pay
any expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the funds of the Trust to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees.
Section 2.8. Manner of Acting; By-laws. Except as otherwise provided
herein or in the By-laws, any action to be taken by the Trustees may be taken by
a majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of the entire number
of Trustees then in office. The Trustees may adopt By-laws not inconsistent with
this Declaration to provide for the conduct of the business of the Trust and may
amend or repeal such By-laws to the extent such power is not reserved to the
Shareholders.
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Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-Laws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
Section 2.9. Miscellaneous Powers. Subject to Section 5.11, hereof, the
Trustees shall have the power to: (a) employ or contract with such Persons as
the Trustees may deem desirable for the transaction of the business of the
Trust; (b) enter into joint ventures, partnerships and any other combinations or
associations; (c) remove Trustees or fill vacancies in or add to their number,
elect and remove such officers and appoint and terminate such agents or
employees as they consider appropriate, and appoint from their own number, and
terminate, any one or more committees which may exercise some or all of the
power and authority of the Trustees as the Trustees may determine; (d) purchase,
and pay for out of Trust Property, insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, distributors,
selected dealers or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such liability; (e) establish pension, profit-sharing, share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (f) to the extent permitted by law,
indemnify any person with whom the Trust has dealings, including the Investment
Adviser, Distributor, Transfer Agent and selected dealers, to such extent as the
Trustees shall determine; (g) guarantee indebtedness or contractual obligations
of others; (h) determine and change the fiscal year of the Trust and the method
by which its accounts shall be kept; and (i) adopt a seal for the Trust, but the
absence of such seal shall not impair the validity of any instrument executed on
behalf of the Trust.
Section 2.10. Principal Transactions. Except in transactions not permitted
by the 1940 Act or rules and regulations adopted by the Commission, the Trustees
may, on behalf of the Trust, buy any securities from or sell any securities to,
or lend any assets of the Trust to, any Trustee or officer of the Trust or any
firm of which any such Trustee or officer is a
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member acting as principal, or have any such dealings with the Investment
Adviser, Distributor or Transfer Agent or with any Interested Person of such
Person; and the Trust may employ any such Person, or firm or company in which
such Person is an Interested Person, as broker, legal counsel, registrar,
Transfer Agent, dividend disbursing agent or Custodian upon customary terms.
Section 2.11. Number of Trustees. The number of Trustees shall initially
be one (1), and thereafter shall be such number as shall be fixed from time to
time by a written instrument signed by a majority of the Trustees, provided,
however, that the number of Trustees shall in no event be more than fifteen
(15).
Section 2.12. Election and Term. Except for the Trustees named herein or
appointed to fill vacancies pursuant to Section 2.14 hereof, the Trustees shall
be elected by the Shareholders owning of record a plurality of the Shares voting
at a meeting of Shareholders. Such a meeting shall be held on a date fixed by
the Trustees. Except in the event of resignation or removals pursuant to Section
2.13 hereof, each Trustee shall hold office until such time as less than a
majority of the Trustees holding office have been elected by Shareholders. In
such event the Trustees then in office will call a Shareholders' meeting for the
election of Trustees. Except for the foregoing circumstances, the Trustees shall
continue to hold office and may appoint successor Trustees.
Section 2.13. Resignation and Removal. Any Trustee may resign his trust
(without the need for any prior or subsequent accounting) by an instrument in
writing signed by him and delivered to the other Trustees and such resignation
shall be effective upon such delivery, or at a later date according to the terms
of the instrument. Any of the Trustees may be removed (provided the aggregate
number of Trustees after such removal shall not be less than one) with cause, by
the action of two-thirds of the remaining Trustees. Any Trustee may be removed
at any meeting of Shareholders by vote of two-thirds of the Outstanding Shares.
The Trustees shall promptly call a meeting of the Shareholders for the purpose
of voting upon the question of removal of any such Trustee or Trustees when
requested in writing so to do by the holders of not less than ten percent of the
Outstanding Shares and, in that connection, the Trustees will assist shareholder
communications to the extent provided for in Section 16(c) under the 1940 Act.
Upon the resignation or removal of a Trustee, or his otherwise ceasing to be a
Trustee, he shall execute and deliver such documents as the remaining Trustees
shall require for the purpose of conveying to the Trust or the remaining
Trustees any Trust property or property of any series of the Trust held in the
name of the resigning or removed Trustee. Upon the incapacity
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or death of any Trustee, his legal representative shall execute and deliver on
his behalf such documents as the remaining Trustees shall require as provided in
the preceding sentence.
Section 2.14. Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the duties
of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject to the
provisions of Section l6(a) of the 1940 Act, the remaining Trustees shall fill
such vacancy by the appointment of such other person as they in their discretion
shall see fit, made by a written instrument signed by a majority of the Trustees
then in office. Any such appointment shall not become effective, however, until
the person named in the written instrument of appointment shall have accepted in
writing such appointment and agreed in writing to be bound by the terms of the
Declaration. An appointment of a Trustee may be made in anticipation of a
vacancy to occur at a later date by reason of retirement, resignation or
increase in the number of Trustees, provided that such appointment shall not
become effective prior to such retirement, resignation or increase in the number
of Trustees. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in this Section 2.14, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees in office shall be conclusive evidence of the existence
of such vacancy.
Section 2.15. Delegation of Power to Other Trustees. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
less than two (2) Trustees personally exercise the powers granted to the
Trustees under this Declaration except as herein otherwise expressly provided.
ARTICLE III
CONTRACTS
Section 3.1. Distribution Contract. The Trustees may in their discretion
from time to time enter into an exclusive or non-exclusive underwriting contract
or contracts providing for the sale of the Shares at a price based on the net
asset value
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of a Share, whereby the Trustees may either agree to sell the Shares to the
other party to the contract or appoint such other party their sales agent for
the Shares, and in either case on such terms and conditions, if any, as may be
prescribed in the By-laws, and such further terms and conditions as the Trustee
may in their discretion determine not inconsistent with the provisions of this
Article III or of the By-laws; and such contract may also provide for the
repurchase of the Shares by such other party as agent of the Trustees.
Section 3.2. Advisory or Management Contract. The Trustees may in their
discretion from time to time enter into an investment advisory or management
contract or separate advisory contracts with respect to one or more Series
whereby the other party to such contract shall undertake to furnish to the Trust
such management, investment advisory, statistical and research facilities and
services and such other facilities and services, if any, and all upon such terms
and conditions as the Trustees may in their discretion determine, including the
grant of authority to such other party to determine what securities shall be
purchased or sold by the Trust and what portion of its assets shall be
uninvested, which authority shall include the power to make changes in the
investments of the Trust or any Series.
The Trustees may also employ, or authorize the Investment Adviser to
employ, one or more sub-advisers from time to time to perform such of the acts
and services of the Investment Adviser and upon such terms and conditions as may
be agreed upon between the Investment Adviser and such sub-advisers and approved
by the Trustees. Any reference in this Declaration to the Investment Adviser
shall be deemed to include such sub-advisers unless the context otherwise
requires.
Section 3.3. Affiliations of Trustees or Officers, Etc. The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser or distributor of or for any partnership, corporation, trust,
association or other organization or of or for any parent or affiliate of
any organization, with which a contract of the character described in
Sections 3.1 or 3.2 above or for services as Custodian, Transfer Agent or
disbursing agent or for related services may have been or may hereafter be
made, or that any such organization, or any parent or affiliate thereof,
is a Shareholder of or has an interest in the Trust, or that
(ii) any partnership, corporation, trust, association or other
organization with which a contract of the
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character described in Sections 3.1 or 3.2 above or for services as
Custodian, Transfer Agent or disbursing agent or for related services may
have been or may hereafter be made also has any one or more of such
contracts with one or more other partnerships, corporations, trusts,
associations or other organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
Section 3.4. Compliance with 1940 Act. Any contract entered into pursuant
to Sections 3.1 or 3.2 shall be consistent with and subject to the requirements
of Section 15 of the 1940 Act (including any amendment thereof or other
applicable act of Congress hereafter enacted), as modified by any applicable
order or orders of the Commission, with respect to its continuance in effect,
its termination and the method of authorization and approval of such contract or
renewal thereof.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person; and all such
Persons shall look solely to the Trust Property for satisfaction of claims of
any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is
made a party to any suit or proceeding to enforce any such liability of the
Trust, he shall not, on account thereof, be held to any personal liability. The
Trust shall indemnify and hold each Shareholder harmless from and against all
claims and liabilities, to which such Shareholder may become subject by reason
of his being or having been a Shareholder, and shall reimburse such Shareholder
for all legal and other expenses reasonably incurred by him in connection with
any such claim or liability. The indemnification and reimbursement required by
the preceding sentence shall be made only out of the assets of
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the one or more Series of which the Shareholder who is entitled to
indemnification or reimbursement was a Shareholder at the time the act or event
occurred which gave rise to the claim against or liability of said Shareholder.
The rights accruing to a Shareholder under this Section 4.1 shall not impair any
other right to which such Shareholder may be lawfully entitled nor shall
anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee, officer, employee
or agent of the Trust shall be liable to the Trust, its Shareholders, or to any
Shareholder, Trustee, officer, employee, or agent thereof for any action or
failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the exceptions and
limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of the
Trust shall be indemnified by the Trust to the fullest extent permitted by
law against all liability and against all expenses reasonably incurred or
paid by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his being
or having been a Trustee or officer and against amounts paid or incurred
by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal,
administrative or other, including appeals) actual or threatened; and the
words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust, a Series thereof, or
the Shareholders by reason of a final adjudication by a court or
other body before which a proceeding was brought that he engaged in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office;
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(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of the
Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i) or
(b)(ii) resulting in a payment by a Trustee or officer, unless there
has been a determination that such Trustee or officer did not engage
in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office:
(A) by the court or other body approving the settlement
or other disposition; or
(B) based upon a review of readily available facts (as
opposed to a full trial-type inquiry) by (x) vote of a
majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then
in office act on the matter) or (y) written opinion of
independent legal counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be entitled,
shall continue as to a person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors, administrators and assigns
of such a person. Nothing contained herein shall affect any rights to
indemnification to which personnel of the Trust other than Trustees and officers
may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Section 4.3 may be advanced by the Trust prior to final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it is ultimately determined that he is not entitled to indemnification under
this Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust shall be
insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees act on the matter)
or an independent legal counsel
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in a written opinion shall determine, based upon a review of readily
available facts (as opposed to a full trial-type inquiry), that there is
reason to believe that the recipient ultimately will be found entitled to
indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is
not (i) an Interested Person of the Trust (including anyone who has been
exempted from being an Interested Person by any rule, regulation or order
of the Commission), or (ii) involved in the claim, action, suit or
proceeding.
Section 4.4. No Bond Required of Trustees. No Trustee shall be obligated
to give any bond or other security for the performance of any of his duties
hereunder.
Section 4.5. No Duty of Investigation; Notice in Trust Instruments, Etc.
No purchaser, lender, transfer agent or other Person dealing with the Trustees
or any officer, employee or agent of the Trust shall be bound to make any
inquiry concerning the validity of any transaction purporting to be made by the
Trustees or by said officer, employee or agent or be liable for the application
of money or property paid, loaned, or delivered to or on the order of the
Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust under any such instrument are not binding upon
any of the Trustees or Shareholders individually, but bind only the trust
estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees individually. The Trustees shall at all times maintain insurance for
the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
Section 4.6. Reliance on Experts, Etc. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other
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records of the Trust, upon an opinion of counsel, or upon reports made to the
Trust by any of its officers or employees or by the Investment Adviser, the
Distributor, Transfer Agent, selected dealers, accountants, appraisers or other
experts or consultants selected with reasonable care by the Trustees, officers
or employees of the Trust, regardless of whether such counsel or expert may also
be a Trustee.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable Shares of beneficial interest, all
of one class, except as provided in Section 5.11 hereof, par value $.01 per
share. The number of Shares of beneficial interest authorized hereunder is
unlimited. All Shares issued hereunder including, without limitation, Shares
issued in connection with a dividend in Shares or a split of Shares, shall be
fully paid and non-assessable.
Section 5.2. Rights of Shareholders. The ownership of the Trust Property
and the property of each Series of the Trust of every description and the right
to conduct any business hereinbefore described are vested exclusively in the
Trustees, and the Shareholders shall have no interest therein other than the
beneficial interest conferred by their Shares, and they shall have no right to
call for any partition or division of any property, profits, rights or interests
of the Trust nor can they be called upon to share or assume any losses of the
Trust or suffer an assessment of any kind by virtue of their ownership of
Shares. The Shares shall be personal property giving only the rights
specifically set forth in this Declaration. The Shares shall not entitle the
holder to preference, preemptive, appraisal, conversion or exchange rights,
except as the Trustees may determine with respect to any Series of Shares.
Section 5.3. Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration of Trust shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
Section 5.4. Issuance of Shares. The Trustees in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
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party or parties and for such amount and type of consideration including cash or
property, at such time or times and on such terms as the Trustees may deem best,
and may in such manner acquire other assets (including the acquisition of assets
subject to, and in connection with the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares and Shares held in the treasury. The Trustees may from time to
time divide or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the Trust.
Contributions to the Trust may be accepted for, and Shares shall be redeemed as,
whole Shares and/or l/1,000ths of a Share or integral multiples thereof.
Section 5.5. Register of Shares. A register shall be kept at the principal
office of the Trust or an office of the Transfer Agent which shall contain the
names and addresses of the Shareholders and the number of Shares held by them
respectively and a record of all transfers thereof. Such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or distribution, nor to have notice given to him as herein or in the
By-laws provided, until he has given his address to the Transfer Agent or such
other officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the issuance of share
certificates and promulgate appropriate rules and regulations as to their use.
Section 5.6. Transfer of Shares. Except as otherwise provided by the
Trustees, shares shall be transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Transfer Agent of a duly executed instrument of
transfer, together with such evidence of the genuineness of each such execution
and authorization and of other matters as may reasonably be required. Upon such
delivery the transfer shall be recorded on the register of the Trust. Until such
record is made, the Shareholder of record shall be deemed to be the holder of
such Shares for all purposes hereunder and neither the Trustees nor any transfer
agent or registrar nor any officer, employee or agent of the Trust shall be
affected by any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
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Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
Section 5.7. Notices, Reports. Any and all notices to which any
Shareholder may be entitled and any and all communications shall be deemed duly
served or given if mailed, postage prepaid, addressed to any Shareholder of
record at his last known address as recorded on the register of the Trust. A
notice of a meeting, an annual report and any other communication to
Shareholders need not be sent to a Shareholder (i) if an annual report and a
proxy statement for two consecutive shareholder meetings have been mailed to
such Shareholder's address and have been returned as undeliverable, (ii) if all,
and at least two, checks (if sent by first class mail) in payment of dividends
on Shares during a twelve-month period have been mailed to such Shareholder's
address and have been returned as undeliverable or (iii) in any other case in
which a proxy statement concerning a meeting of security holders is not required
to be given pursuant to the Commission's proxy rules as from time to time in
effect under the Securities Exchange Act of 1934. However, delivery of such
proxy statements, annual reports and other communications shall resume if and
when such Shareholder delivers or causes to be delivered to the Trust written
notice setting forth such Shareholder's then current address.
Section 5.8. Treasury Shares. Shares held in the treasury shall, until
reissued pursuant to Section 5.4, not confer any voting rights on the Trustees,
nor shall such Shares be entitled to any dividends or other distributions
declared with respect to the Shares.
Section 5.9. Voting Powers. The Shareholders shall have power to vote only
(i) for the election of Trustees as provided in Section 2.12; (ii) for the
removal of Trustees as provided in section 2.13; (iii) with respect to any
investment advisory or management contract entered into pursuant to Section 3.2;
(iv) with respect to termination of the Trust as provided in Section 8.2; (v)
with respect to any amendment of this Declaration to the extent and as provided
in Section 8.3; (vi) with respect to any merger, consolidation or sale of assets
as provided in Section 8.4; (vii) with respect to incorporation of the Trust or
any Series to the extent and as provided in Section 8.5; (viii) to the same
extent as the stockholders of Massachusetts business corporation as to whether
or not a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders; (ix) with respect to any plan
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adopted pursuant to Rule l2b-l (or any successor rule) under the 1940 Act; and
(x) with respect to such additional matters relating to the Trust as may be
required by this Declaration, the By-laws or any registration of the Trust as an
investment company under the 1940 Act with the Commission (or any successor
agency) or as the Trustees may consider necessary or desirable. Each whole Share
shall be entitled to one vote as to any matter on which it is entitled to vote
and each fractional Share shall be entitled to a proportionate fractional vote,
except that the Trustees may, in conjunction with the establishment of any
Series of Shares, establish or reserve the right to establish conditions under
which the several Series shall have separate voting rights or, if a Series would
not, in the sole judgment of the Trustees, be materially affected by a proposal,
no voting rights. There shall be no cumulative voting in the election of
Trustees. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, this Declaration or the
By-laws to be taken by Shareholders. The By-laws may include further provisions
for Shareholders' votes and meetings and related matters.
Section 5.10. Meetings of Shareholders. Meetings of Shareholders may be
called at any time by the President, and shall be called by the President and
Secretary at the request in writing or by resolution, of a majority of Trustees,
or at the written request of the holder or holders of ten percent (l0%) or more
of the total number of Shares then issued and outstanding of the Trust entitled
to vote at such meeting. Any such request shall state the purpose of the
proposed meeting.
Section 5.11. Series Designation. The Trustees, in their discretion, may
authorize the division of Shares into two or more Series, and the different
Series shall be established and designated, and the variations in the relative
rights and preferences as between the different Series shall be fixed and
determined, by the Trustees; provided, that all Shares shall be identical except
that there may be variations so fixed and determined between different Series as
to investment objective, purchase price, allocation of expenses, right of
redemption, special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several Series shall have
separate voting rights. All references to Shares in this Declaration shall be
deemed to be Shares of any or all series as the context may require.
If the Trustees shall divide the Shares of the Trust into two or more
Series, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust shall apply equally to
each Series of the Trust except as the context requires otherwise.
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(b) The number of authorized Shares and the number of Shares of each
Series that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired of
any Series into one or more Series that may be established and designated from
time to time. The Trustees may hold as treasury Shares (of the same or some
other Series), reissue for such consideration and on such terms as they may
determine, or cancel any Shares of any Series reacquired by the Trust at their
discretion from time to time.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the rights
of creditors of such Series and except as may otherwise be required by
applicable laws, and shall be so recorded upon the books of account of the
Trust. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular Series, the Trustees shall allocate them among any
one or more of the Series established and designated from time to time in such
manner and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and binding
upon the shareholders of all Series for all purposes.
(d) The assets belonging to each particular Series shall be charged with
the liabilities of the Trust in respect of that Series and all expenses, costs,
charges and reserves attributable to that Series, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular Series shall be allocated and
charged by the Trustees to and among any one or more of the Series established
and designated from time to time in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items are capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders. The assets of
a particular Series of the Trust shall, under no circumstances, be charged with
liabilities attributable to any other Series of the Trust. All persons extending
credit to, or contracting with or having any claim
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against a particular Series of the Trust shall look only to the assets of that
particular Series for payment of such credit, contract or claim. No Shareholder
or former Shareholder of any Series shall have any claim on or right to any
assets allocated or belonging to any other series.
(e) Each Share of a Series of the Trust shall represent a beneficial
interest in the net assets of such Series. Each holder of Shares of a Series
shall be entitled to receive the pro rata share of distributions of income and
capital gains made with respect to such Series. Upon redemption of his Shares or
indemnification for liabilities incurred by reason of his being or having been a
Shareholder of a Series, such shareholder shall be paid solely out of the funds
and property of such Series of the Trust. Upon liquidation or termination of
Series of the Trust, Shareholders of such Series shall be entitled to receive a
pro rata share of the net assets of such Series. A Shareholder of a particular
Series of the Trust shall not be entitled to participate in a derivative or
class action on behalf of any other Series or the Shareholders of another Series
of the Trust.
(f) The establishment and designation of any Series of Shares shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such Series, or as otherwise provided in such instrument. The
Trustees may by an instrument executed by a majority of their number abolish any
Series and the establishment and designation thereof. Except as otherwise
provided in this Article V, the Trustees shall have the power to determine the
designations, preferences, privileges, limitations and rights, of each class and
Series of Shares. Each instrument referred to in this paragraph shall have the
status of an amendment to this Declaration.
Section 5.12. Assent to Declaration of Trust. Every Shareholder, by virtue
of having become a shareholder, shall be held to have expressly assented and
agreed to the terms hereof and to have become a party hereto.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.1. Redemption of Shares. All Shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. Redeemed or repurchased Shares may be resold by the Trust.
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The Trust shall redeem the Shares upon the appropriately verified written
application of the record holder thereof (or upon such other form of request as
the Trustees may determine) at such office or agency as may be designated from
time to time for that purpose in the Trust's then effective registration
statement under the Securities Act of 1933. The Trustees may from time to time
specify additional conditions, not inconsistent with the 1940 Act, regarding the
redemption of Shares in the Trust's then effective registration statement under
the Securities Act of 1933.
Section 6.2. Price. Shares shall be redeemed at their net asset value
determined as set forth in Section 7.1 hereof as of such time as the Trustees
shall have theretofore prescribed by resolution. In the absence of such
resolution, the redemption price of Shares deposited shall be the net asset
value of such Shares next determined as set forth in Section 7.1 hereof after
receipt of such application.
Section 6.3. Payment. Payment for such Shares shall be made in cash or in
property out of the assets of the relevant series of the Trust to the
Shareholder of record at such time and in the manner, not inconsistent with the
1940 Act or other applicable laws, as may be specified from time to time in the
Trust's then effective registration statement under the Securities Act of 1933,
subject to the provisions of Section 6.4 hereof.
Section 6.4. Effect of Suspension of Determination of Net Asset Value. If,
pursuant to Section 6.9 hereof, the Trustees shall declare a suspension of the
determination of net asset value, the rights of Shareholders (including those
who shall have applied for redemption pursuant to Section 6.1 hereof but who
shall not yet have received payment) to have Shares redeemed and paid for by the
Trust shall be suspended until the termination of such suspension is declared.
Any record holder who shall have his redemption right so suspended may, during
the period of such suspension, by appropriate written notice of revocation at
the office or agency where application was made, revoke any application for
redemption not honored and withdraw any certificates on deposit. The redemption
price of Shares for which redemption applications have not been revoked shall be
the net asset value of such Shares next determined as set forth in Section 7.1
after the termination of such suspension, and payment shall be made within seven
(7) days after the date upon which the application was made plus the period
after such application during which the determination of net asset value was
suspended.
Section 6.5. Repurchase by Agreement. The Trust may repurchase Shares
directly, or through the Distributor or another agent designated for the
purpose, by agreement with the
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owner thereof at a price not exceeding the net asset value per share determined
as of the time when the purchase or contract of purchase is made or the net
asset value as of any time which may be later determined pursuant to Section 7.1
hereof, provided payment is not made for the Shares prior to the time as of
which such net asset value is determined.
Section 6.6. Redemption of Shareholder's Interest. The Trust shall have
the right at any time without prior notice to the shareholder to redeem Shares
of any shareholder for their then current net asset value per Share if at such
time the shareholder owns Shares having an aggregate net asset value of less
than $1,000 subject to such terms and conditions as the Trustees may approve,
and subject to the Trust's giving general notice to all shareholders of its
intention to avail itself of such right, either by publication in the Trust's
registration statement, if any, or by such other means as the Trustees may
determine.
Section 6.7. Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding. If the Trustees shall, at any time
and in good faith, be of the opinion that direct or indirect ownership of Shares
or other securities of the Trust has or may become concentrated in any Person to
an extent which would disqualify any Series of the Trust as a regulated
investment company under the Internal Revenue Code, then the Trustees shall have
the power by lot or other means deemed equitable by them (i) to call for
redemption by any such Person a number, or principal amount, of Shares or other
securities of the Trust sufficient to maintain or bring the direct or indirect
ownership of Shares or other securities of the Trust into conformity with the
requirements for such qualification and (ii) to refuse to transfer or issue
Shares or other securities of the Trust to any Person whose acquisition of the
Shares or other securities of the Trust in question would result in such
disqualification. The redemption shall be effected at the redemption price and
in the manner provided in Section 6.1.
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other taxing authority.
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net
Asset Value Formula. The Trust may also reduce the number of Outstanding Shares
pursuant to the provisions of Section 7.3.
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Section 6.9. Suspension of Right of Redemption. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary week-end and holiday closings,
(ii) during which trading on the New York Stock Exchange is restricted, (iii)
during which an emergency exists as a result of which disposal by the Trust of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the value of its net assets, or
(iv) during any other period when the Commission may for the protection of
Shareholders of the Trust by order permit suspension of the right of redemption
or postponement of the date of payment or redemption; provided that applicable
rules and regulations of the Commission shall govern as to whether the
conditions prescribed in (ii), (iii), or (iv) exist. Such suspension shall take
effect at such time as the Trust shall specify but not later than the close of
business on the business day next following the declaration of suspension, and
thereafter there shall be no right of redemption or payment on redemption until
the Trust shall declare the suspension at an end, except that the suspension
shall terminate in any event on the first day on which said stock exchange shall
have reopened or the period specified in (ii) or (iii) shall have expired (as to
which in the absence of an official ruling by the Commission, the determination
of the Trust shall be conclusive) . In the case of a suspension of the right of
redemption, a Shareholder may either withdraw his request for redemption or
receive payment based on the net asset value existing after the termination of
the suspension.
ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 7.1. Net Asset Value. The value of the assets of the Trust or any
Series of the Trust shall be determined by appraisal of the securities of the
Trust or allocated to such Series, such appraisal to be on the basis of the
amortized cost of such securities in the case of money market securities, market
value in the case of other securities, or by such other method as shall be
deemed to reflect the fair value thereof, determined in good faith by or under
the direction of the Trustees. From the total value of said assets, there shall
be deducted all indebtedness, interest, taxes, payable or accrued, including
estimated taxes on unrealized book profits, expenses and management charges
accrued to the appraisal date, net income determined and declared as a
distribution and all other items in the nature of liabilities attributable to
the Trust or such Series which shall be deemed appropriate. The resulting amount
which shall represent the total net assets of the Trust
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or the Series shall be divided by the number of Shares of the Trust or such
Series outstanding at the time and the quotient so obtained shall be deemed to
be the net asset value of the Shares. The net asset value of the Shares shall be
determined at least once on each business day, as of the close of trading on the
New York Stock Exchange or as of such other time or times as the Trustees shall
determine. The power and duty to make the daily calculations may be delegated by
the Trustees to the Investment Adviser, the Custodian, the Transfer Agent or
such other Person as the Trustees may determine by resolution or by approving a
contract which delegates such duty to another Person. The Trustees may suspend
the daily determination of net asset value to the extent permitted by the 1940
Act.
Section 7.2. Distributions to Shareholders. The Trustees shall from time
to time distribute ratably among the Shareholders of the Trust or a Series such
proportion of the net profits, surplus (including paid-in surplus), capital, or
assets of the Trust or such Series held by the Trustees as they may deem proper.
Such distributions may be made in cash or property (including without limitation
any type of obligations of the Trust or such Series or any assets thereof), and
the Trustees may distribute ratably among the Shareholders additional Shares of
the Trust or such Series issuable hereunder in such manner, at such times, and
on such terms as the Trustees may deem proper. Such distributions may be among
the Shareholders of record at the time of declaring a distribution or among the
Shareholders of record at such other date or time or dates or times as the
Trustees shall determine. The Trustees may in their discretion determine that,
solely for the purposes of such distributions, Outstanding Shares shall exclude
Shares for which orders have been placed subsequent to a specified time on the
date the distribution is declared or on the next preceding day if the
distribution is declared as of a day on which Boston banks are not open for
business, all as described in the registration statement under the Securities
Act of 1933. The Trustees may always retain from the net profits such amount as
they may deem necessary to pay the debts or expenses of the Trust or the Series
or to meet obligations of the Trust or the Series, or as they may deem desirable
to use in the conduct of its affairs or to retain for future requirements or
extensions of the business. The Trustees may adopt and offer to Shareholders
such dividend reinvestment plans, cash dividend payout plans or related plans as
the Trustees shall deem appropriate.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts
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sufficient to enable the Trust or the Series to avoid or reduce liability for
taxes.
Section 7.3. Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares. Subject to Section 5.11 hereof, the net income
of the Trust or any Series shall be determined in such manner as the Trustees
shall provide by resolution. Expenses of the Trust or a Series, including the
advisory or management fee, shall be accrued each day. Such net income may be
determined by or under the direction of the Trustees as of the close of trading
on the New York Stock Exchange on each day on which such Exchange is open or as
of such other time or times as the Trustees shall determine, and, except as
provided herein, all the net income of the Trust or any Series, as so
determined, may be declared as a dividend on the Outstanding Shares of the Trust
or such Series. If, for any reason, the net income of the Trust or any Series,
determined at any time is a negative amount, the Trustees shall have the power
with respect to the Trust or such Series (i) to offset each Shareholder's pro
rata share of such negative amount from the accrued dividend account of such
Shareholder, or (ii) to reduce the number of Outstanding Shares of the Trust or
such Series by reducing the number of Shares in the account of such Shareholder
by that number of full and fractional Shares which represents the amount of such
excess negative net income, or (iii) to cause to be recorded on the books of the
Trust or such Series an asset account in the amount of such negative net income,
which account may be reduced by the amount, provided that the same shall
thereupon become the property of the Trust or such Series with respect to the
Trust or such Series and shall not be paid to any Shareholder, of dividends
declared thereafter upon the Outstanding Shares of the Trust or such Series on
the day such negative net income is experienced, until such asset account is
reduced to zero; or (iv) to combine the methods described in clauses (i) and
(ii) and (iii) of this sentence, in order to cause the net asset value per Share
of the Trust or such Series to remain at a constant amount per Outstanding Share
immediately after each such determination and declaration. The Trustees shall
also have the power to fail to declare a dividend out of net income for the
purpose of causing the net asset value per Share to be increased to a constant
amount. The Trustees shall not be required to adopt, but may at any time adopt,
discontinue or amend the practice of maintaining the net asset value per Share
of the Trust or a Series at a constant amount.
Section 7.4. Allocation Between Principal and Income. The Trustees shall
have full discretion to determine whether any cash or property received shall be
treated as income or as principal and whether any item of expense shall be
charged to the income or the principal account, and their determination made in
good faith shall be conclusive upon the Shareholders.
-25-
<PAGE>
In the case of stock dividends received, the Trustees shall have full discretion
to determine, in the light of the particular circumstances, how much if any of
the value thereof shall be treated as income, the balance, if any, to be treated
as principal.
Section 7.5. Power to Modify Foregoing Procedures. Notwithstanding any of
the foregoing provisions of this Article VII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the per
Share net asset value or net income, or the declaration and payment of dividends
and distributions as they may deem necessary or desirable.
ARTICLE VIII
DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC.
Section 8.1. Duration. The Trust shall continue without limitation of time
but subject to the provisions of this Article VIII.
Section 8.2. Termination of Trust. (a) The Trust or any Series of the
Trust may be terminated by an instrument in writing signed by a majority of the
Trustees, or by the affirmative vote of the holders of a majority of the Shares
of the Trust Series outstanding and entitled to vote, at any meeting of
Shareholders. Upon the termination of the Trust or any Series,
(i) the Trust or any Series shall carry on no business except for
the purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the affairs of the Trust
or Series and all of the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust or Series shall have been
wound up, including the power to fulfill or discharge the contract of the
Trust or Series, collect its assets, sell, convey, assign, exchange,
transfer or otherwise dispose of all or any part of the remaining Trust
Property or property of the Series to one or more persons at public or
private sale for consideration which may consist in whole or in part of
cash, securities or other property of any kind, discharge or pay its
liabilities, and do all other acts appropriate to liquidate its business;
and
(iii) after paying or adequately providing for the payment of all
liabilities, and upon receipt of such release indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the
-26-
<PAGE>
remaining Trust Property or property of the Series, in cash or in kind or
partly each, among the Shareholders of the Trust or Series according to
their respective rights.
(b) After termination of the Trust or any Series and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination, and the Trustees shall thereupon be discharged from
all further liabilities and duties hereunder, and the rights and interests of
all Shareholders of the Trust or Series shall thereupon cease.
Section 8.3. Amendment Procedure. (a) This Declaration may be amended by a
vote of the holders of a majority of the Shares outstanding and entitled to
vote. Amendments shall be effective upon the taking of action as provided in
this section or at such later time as shall be specified in the applicable vote
or instrument. The Trustees may also amend this Declaration without the vote or
consent of Shareholders if they deem it necessary to conform this Declaration to
the requirements of applicable federal or state laws or regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code (including those provisions of such Code relating to the retention
of the exemption from federal income tax with respect to dividends paid by the
Trust out of interest income received on Municipal Bonds), but the Trustees
shall not be liable for failing so to do. The Trustees may also amend this
Declaration without the vote or consent of Shareholders if they deem it
necessary or desirable to change the name of the Trust or to make any other
changes in the Declaration which do not materially adversely affect the rights
of Shareholders hereunder.
(b) No amendment may be made under this Section 8.3 which would change any
rights with respect to any Shares of the Trust or Series by reducing the amount
payable thereon upon liquidation of the Trust or Series or by diminishing or
eliminating any voting rights pertaining thereto, except with the vote or
consent of the holders of two-thirds of the Shares of the Trust or Series
outstanding and entitled to vote. Nothing contained in this Declaration shall
permit the amendment of this Declaration to impair the exemption from personal
liability of the Shareholders, Trustees, officers, employees and agents of the
Trust or to permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
-27-
<PAGE>
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
Section 8.4. Merger, Consolidation and Sale of Assets. The Trust or any
Series thereof may merge or consolidate with any other corporation, association,
trust or other organization or may sell, lease or exchange all or substantially
all of the Trust Property or the property of any Series, including its good
will, upon such terms and conditions and for such consideration when and as
authorized at any meeting of Shareholders of the Trust or Series called for the
purpose by the affirmative vote of the holders of a majority of the Shares of
the Trust or Series.
Section 8.5. Incorporation. With the approval of the holders of a majority
of the Shares of the Trust or any Series outstanding and entitled to vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction or any other trust, partnership,
association or other organization to take over all of the Trust Property or the
property of any Series or to carry on any business in which the Trust or the
Series shall directly or indirectly have any interest, and to sell, convey and
transfer the Trust Property or the property of any Series to any such
corporation, trust, association or organization in exchange for the Shares or
securities thereof or otherwise, and to lend money to, subscribe for the Shares
or securities of, and enter into any contracts with any such corporation, trust,
partnership, association or organization, or any corporation, partnership,
trust, association or organization in which the Trust or the Series holds or is
about to acquire shares or any other interest. The Trustees may also cause a
merger or consolidation between the Trust or any Series or any successor thereto
and any such corporation, trust, partnership, association or other organization
if and to the extent permitted by law, as provided under the law then in effect.
Nothing contained herein shall be construed as requiring approval of
Shareholders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to such
organization or entities.
ARTICLE IX
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report, which may be included
-28-
<PAGE>
in the Trust's prospectus or statement of additional information, or the
transactions of the Trust, including financial statements which shall at least
annually be certified by independent public accountants.
ARTICLE X
MISCELLANEOUS
Section 10.1. Filing. This Declaration and any amendment hereto shall be
filed in the office of the Secretary of the Commonwealth of Massachusetts and in
such other places as may be required under the laws of Massachusetts and may
also be filed or recorded in such other places as the Trustees deem appropriate.
Unless the amendment is embodied in an instrument signed by a majority of the
Trustees, each amendment filed shall be accompanied by a certificate signed and
acknowledged by a Trustee stating that such action was duly taken in a manner
provided herein. A restated Declaration, integrating into a single instrument
all of the provisions of the Declaration which are then in effect and operative,
may be executed from time to time by a majority of the Trustees and shall, upon
filing with the Secretary of the Commonwealth of Massachusetts, be conclusive
evidence of all amendments contained therein and may hereafter be referred to in
lieu of the original Declaration and the various amendments thereto. The
restated Declaration may include any amendment which the Trustees are empowered
to adopt, whether or not such amendment has been adopted prior to the execution
of the restated Declaration.
Section 10.2. Governing Law. This Declaration is executed by the Trustees
and delivered in the Commonwealth of Massachusetts and with reference to the
internal laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the internal laws of said State without regard to the choice of law
rules thereof.
Section 10.3. Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
Section 10.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing,
-29-
<PAGE>
(c) the form of any vote passed at a meeting of Trustees or Shareholders, (d)
the fact that the number of Trustees or Shareholders present at any meeting or
executing any written instrument satisfies the requirements of this Declaration,
(e) the form of any By-laws adopted by or the identity of any officers elected
by the Trustees, or (f) the existence of any fact or facts which in any manner
relate to the affairs of the Trust, shall be conclusive evidence as to the
matters so certified in favor of any Person dealing with the Trustees and the
successors.
Section 10.5. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration are severable, and if the Trustees
shall determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken nor omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
-30-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this instrument this 8th
day of December, 1987.
/s/ Peter B. Freeman
----------------------------------------,
as Trustee and not individually.
THE COMMONWEALTH OF MASSACHUSETTS
County of Suffolk December 8, 1987
Then personally appeared the above-named Peter B. Freeman, who
acknowledged the foregoing instrument to be his free act and deed.
Before me,
/s/ [ILLEGIBLE]
-----------------------------------------
Notary Public
My commission expires: November 25, 1994
-31-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this instrument this 8th
day of December, 1987.
/s/ David S. Lee
----------------------------------------,
as Trustee and not individually.
THE COMMONWEALTH OF MASSACHUSETTS
County of Suffolk December 8, 1987
Then personally appeared the above-named David S. Lee, who acknowledged
the foregoing instrument to be his free act and deed.
Before me,
/s/ [ILLEGIBLE]
-----------------------------------------
Notary Public
My commission expires: November 25, 1994
-31-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this instrument this 8th
day of December, 1987.
/s/ George S. Johnston
----------------------------------------,
as Trustee and not individually.
THE COMMONWEALTH OF MASSACHUSETTS
County of Suffolk December 8, 1987
Then personally appeared the above-named George S. Johnston, who
acknowledged the foregoing instrument to be his free act and deed.
Before me,
/s/ [ILLEGIBLE]
-----------------------------------------
Notary Public
My commission expires: November 25, 1994
-31-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this instrument this 8th
day of December, 1987.
/s/ August R. Meyer
----------------------------------------,
as Trustee and not individually.
THE COMMONWEALTH OF MASSACHUSETTS
County of Suffolk December 8, 1987
Then personally appeared the above-named August R. Meyer, who acknowledged
the foregoing instrument to be his free act and deed.
Before me,
/s/ [ILLEGIBLE]
-----------------------------------------
Notary Public
My commission expires: November 25, 1994
-31-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this instrument this 8th
day of December, 1987.
/s/ Wesley W. Marple, Jr.
----------------------------------------,
as Trustee and not individually.
THE COMMONWEALTH OF MASSACHUSETTS
County of Suffolk December 8, 1987
Then personally appeared the above-named Wesley W. Marple, Jr., who
acknowledged the foregoing instrument to be his free act and deed.
Before me,
/s/ [ILLEGIBLE]
-----------------------------------------
Notary Public
My commission expires: November 25, 1994
-31-
Exhibit 1(b)
FILED CITY CLERK'S OFFICE
[ILLEGIBLE] APR 1 1987
CORPORATION DIVISION CITY OF BOSTON
SCUDDER CALIFORNIA TAX FREE FUND
Establishment and Designation of Series
of Beneficial Interest, without Par Value
The undersigned, being a majority of the Trustees of Scudder California
Tax Free Fund, a Massachusetts business trust (the "Trust") acting pursuant to
Section 5.11 of the Declaration of Trust dated May 3, 1983, as amended (the
"Declaration of Trust"), hereby divide the shares of beneficial interest of the
Trust into two separate series (each individually a "Fund" or collectively the
"Funds"), each Fund hereby created having the following special and relative
rights:
1. The Funds shall be designated as follows:
Scudder California Tax Free Fund
Scudder California Tax Free Money Fund
2. Each Fund shall be authorized to hold cash and invest in securities and
instruments and use investment techniques as described in the Trust's
registration statement under the Securities Act of 1933, as amended from time to
time. Each share of beneficial interest of each Fund ("share") shall be
redeemable as provided in the Declaration of Trust, shall be entitled to one
vote (or fraction thereof in respect of a fractional share) on matters on which
shares of that Fund shall be entitled to vote and shall represent a pro rata
beneficial interest in the assets allocated to that Fund. The proceeds of sales
of shares of a Fund, together with any income and gain thereon, less any
diminution or expenses thereof, shall irrevocably belong to that Fund, unless
otherwise required by law. Each share of a Fund shall be entitled to receive its
pro rata share of net assets of that Fund upon liquidation of that Fund.
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to that Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule.
4. The shares of the Trust outstanding on the date hereof are hereby
classified as shares of the Fund designated in Paragraph 1 above as Scudder
California Tax Free Fund.
5. The assets and liabilities of the Trust existing on the date hereof
shall, except as provided below, be allocated to the Fund designated in
Paragraph 1 above as Scudder California Tax Free Fund and, hereafter, the assets
and liabilities of the Trust shall be allocated among the Funds as set forth in
<PAGE>
Section 5.11 of the Declaration of Trust, except as provided below.
(a) Costs incurred in connection with the organization, registration
and public offering of shares of Scudder California Tax Free Money
Fund shall be amortized by such Fund over the lesser of the life of
the Fund or the five year period beginning with the month the Fund
commences operations.
(b) The liabilities, expenses, costs, charges or reserves of the
Trust which are not readily identifiable as belonging to any
particular Fund shall be allocated among the Funds on the basis of
their relative average daily net assets.
(c) The Trustees may from time to time in particular cases make
specific allocations of assets or liabilities among the Funds.
6. The Trustees (including any successor Trustees) shall have the right at
any time and from time to time to reallocate assets and expenses or to change
the designation of any Fund now or hereafter created, or to otherwise change the
special and relative rights of any such Fund provided that such change shall not
adversely affect the rights of shareholders of a Fund.
/s/ David S. Lee
-----------------------------------
David S. Lee
/s/ Peter B. Freeman
-----------------------------------
Peter B. Freeman
/s/ George S. Johnson
-----------------------------------
George S. Johnson
/s/ Wesley W. Marple, Jr.
-----------------------------------
Wesley W. Marple, Jr.
/s/ August R. Meyer
-----------------------------------
August R. Meyer
-2-
EXHIBIT 1(c)
SCUDDER CALIFORNIA TAX FREE TRUST
Certificate of Amendment
The undersigned, being at least a majority of the duly elected and
qualified Trustees of Scudder California Tax Free Trust, a business trust
organized under the laws of The Commonwealth of Massachusetts pursuant to a
Declaration of Trust dated December 8, 1987, as amended, do hereby certify that
the Shareholders of said Trust, by the favorable vote on December 11, 1990 of a
majority of the shares outstanding and entitled to vote, adopted amendments to
the Declaration of Trust striking out Section 1.2 subsections (k), (m) and (r),
Sections 5.1, 5.9 and 5.13, Section 6.6 and Section 7.1 and inserting in lieu
thereof the following:
Article I, Section 1.2, subsections (k), (m) and (r):
(k) "Series" individually or collectively means the two or more Series as may be
established and designated from time to time by the Trustees pursuant to Section
5.11 hereof. Unless the context otherwise requires, the term "Series" shall
include Classes into which shares of the Trust, or of a Series, may be divided
from time to time.
(m) "Shares" means the equal proportionate units of interest into which the
beneficial interest in the Trust shall be divided from time to time, including
the Shares of any and all Series and Classes which may be established by the
Trustees and includes fractions of Shares as well as whole Shares. "Outstanding
Shares" means those shares shown from time to time on the books of the Trust or
its Transfer Agent as then issued and outstanding, but shall not include Shares
which have been redeemed or repurchased by the Trust and which are at the time
held in the Treasury of the Trust.
(r) "Class" means the two or more Classes as may be established and designated
from time to time by the Trustees pursuant to Section 5.13 hereof.
Article V, Sections 5.1, 5.9 and 5.13:
Section 5.1. Beneficial Interest. The interest of the beneficiaries hereunder
shall be divided into transferable Shares of beneficial interest, all of one
class, except as provided in Section 5.11 and Section 5.13 hereof, par value
$.01 per share. The number of Shares of beneficial interest authorized hereunder
is unlimited. All Shares issued hereunder including, without limitation, Shares
issued in connection with a dividend in Shares or a split of Shares, shall be
fully paid and non-assessable.
Section 5.9. Voting Powers. The Shareholders shall have power to vote only (i)
for the election of Trustees as provided in Section 2.12; (ii) for the removal
of Trustees as provided in Section 2.13; (iii) with respect to any investment
advisory or management contract entered into pursuant to Section 3.2; (iv) with
respect to termination of the Trust as provided in Section 8.2; (v) with respect
to any amendment of this Declaration to the extent and as provided in Section
8.3; (vi) with respect to any merger, consolidation or sale of assets as
provided in Section 8.4; (vii) with respect to incorporation of the Trust, or
any Series to the extent and as provided in Section 8.5; (viii) to the same
extent as the stockholders of Massachusetts business corporation as to whether
or not a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or any
Series or Class thereof or the Shareholders (provided, however, that a
Shareholder of a particular Series or Class shall not be entitled to a
derivative or class action on behalf of any other Series or Class (or
Shareholder of any other Series or Class) of the Trust); (ix) with respect to
any plan adopted pursuant to Rule 12b-1 (or any successor rule) under the 1940
Act; and (x) with respect to such additional matters relating to the Trust as
may be required by this Declaration, the By-laws or any registration of the
Trust as an investment company under the 1940 Act with the Commission (or any
successor agency) or as the Trustees may consider necessary or desirable. Each
whole Share shall be entitled to one vote as to any matter on which it is
entitled to vote and each fractional Share shall be entitled to a proportionate
fractional vote, except that the Trustees may, in conjunction with the
establishment of any Series or Class of Shares, establish or reserve the right
to establish conditions under which the several Series
1
<PAGE>
or Classes shall have separate voting rights or, if a Series or Class would not,
in the sole judgment of the Trustees, be materially affected by a proposal, no
voting rights. There shall be no cumulative voting in the election of Trustees.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required by law, this Declaration or the By-laws to be
taken by Shareholders. The By-laws may include further provisions for
Shareholders' votes and meetings and related matters.
Section 5.13. Class Designation. The Trustees, in their discretion, may
authorize the division of the Shares of the Trust, or, if any Series be
established, the Shares of any Series, into two or more Classes, and the
different Classes shall be established and designated, and the variations in the
relative rights and preferences as between the different Classes shall be fixed
and determined, by the Trustees; provided, that all Shares of the Trust or of
any Series shall be identical to all other Shares of the Trust or the same
Series, as the case may be, except that there may be variations between
different classes as to allocation of expenses, right of redemption, special and
relative rights as to dividends and on liquidation, conversion rights, and
conditions under which the several Classes shall have separate voting rights.
All references to Shares in this Declaration shall be deemed to be Shares of any
or all Classes as the context may require.
If the Trustees shall divide the Shares of the Trust or any Series into two or
more Classes, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust, or any Series of the Trust,
shall apply equally to each Class of Shares of the Trust or of any Series of the
Trust, except as the context requires otherwise.
(b) The number of Shares of each Class that may be issued shall be unlimited.
The Trustees may classify or reclassify any unissued Shares of the Trust or any
Series or any Shares previously issued and reacquired of any Class of the Trust
or of any Series into one or more Classes that may be established and designated
from time to time. The Trustees may hold as treasury Shares (of the same or some
other Class), reissue for such consideration and on such terms as they may
determine, or cancel any Shares of any Class reacquired by the Trust at their
discretion from time to time.
(c) Liabilities, expenses, costs, charges and reserves related to the
distribution of, and other identified expenses that should properly be allocated
to, the Shares of a particular Class may be charged to and borne solely by such
Class and the bearing of expenses solely by a Class of Shares may be
appropriately reflected (in a manner determined by the Trustees) and cause
differences in the net asset value attributable to, and the dividend, redemption
and liquidation rights of, the Shares of different Classes. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Classes for all purposes.
(d) The establishment and designation of any Class of Shares shall be effective
upon the execution of a majority of the then Trustees of an instrument setting
forth such establishment and designation and the relative rights and preferences
of such Class, or as otherwise provided in such instrument. The Trustees may, by
an instrument executed by a majority of their number, abolish any Class and the
establishment and designation thereof. Each instrument referred to in this
paragraph shall have the status of an amendment to this Declaration.
Article VI, Section 6.6:
Section 6.6. Redemption of Shareholder's Interest. The Trust shall have the
right at any time without prior notice to the shareholder to redeem Shares of
any shareholder for their then current net asset value per Share if at such time
the shareholder owns Shares having an aggregate net asset value of less than an
amount set from time to time by the Trustees subject to such terms and
conditions as the Trustees may approve, and subject to the Trust's giving
general notice to all shareholders of its intention to avail itself of such
right, either by publication in the Trust's registration statement, if any, or
by such other means as the Trustees may determine.
Article VII, Section 7.1:
Section 7.1. Net Asset Value. The value of the assets of the Trust or any Series
of the Trust shall be determined by appraisal of the securities of the Trust or
allocated to such Series, such appraisal to be on the basis of the amortized
cost of such securities in the case of money market securities, market value in
the case of other securities, or by such other method as shall be deemed to
reflect the fair value thereof, determined in good faith by or under the
direction of the Trustees. From the total value of said assets, there shall be
deducted all indebtedness, interest, taxes, payable or accrued, including
estimated taxes on unrealized book profits, expenses and management charges
accrued to the appraisal date, net income determined and declared as a
distribution and all other items in the nature of liabilities attributable to
the Trust or such Series or Class thereof which shall be deemed appropriate. The
net asset value of a Share shall be determined by dividing
2
<PAGE>
the net asset value of the Class, or, if no Class has been established, of the
Series, or, if no Series has been established, of the Trust, by the number of
Shares of that Class, or Series, or of the Trust, as applicable, outstanding.
The net asset value of Shares of the Trust or any Class or Series of the Trust
shall be determined pursuant to the procedure and methods prescribed or approved
by the Trustees in their discretion and as set forth in the most recent
Registration Statement of the Trust as filed with the Securities and Exchange
Commission pursuant to the requirements of the Securities Act of 1933, as
amended, the Investment Company Act of 1940, as amended, and the Rules
thereunder. The net asset value of the Shares shall be determined at least once
on each business day, as of the close of trading on the New York Stock Exchange
or as of such other time or times as the Trustees shall determine. The power and
duty to make the daily calculations may be delegated by the Trustees to the
Investment Adviser, the Custodian, the Transfer Agent or such other Person as
the Trustees may determine by resolution or by approving a contract which
delegates such duty to another Person. The Trustees may suspend the daily
determination of net asset value to the extent permitted by the 1940 Act.
This Certificate may be executed in several counterparts, each of which shall be
deemed an original, but all taken together shall constitute one certificate.
IN WITNESS WHEREOF, the undersigned have this day signed this Certificate.
DATE: December 11, 1990
/s/ Henry P. Becton, Jr.
-------------------------------------
Henry P. Becton, Jr.
/s/ Dawn-Marie Driscoll
-------------------------------------
Dawn-Marie Driscoll
/s/ Peter B. Freeman
-------------------------------------
Peter B. Freeman
/s/ David S. Lee
-------------------------------------
David S. Lee
/s/ Daniel Pierce
-------------------------------------
Daniel Pierce
3
EXHIBIT 2(a)(1)
BY-LAWS OF
SCUDDER CALIFORNIA TAX FREE FUND
May 3, 1983
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - DEFINITIONS 1
ARTICLE II - OFFICES 1
Section 1. Principal Office 1
Section 2. Other Offices 1
ARTICLE III - SHAREHOLDERS 2
Section 1. Meetings 2
Section 2. Notice of Meetings 2
Section 3. Record Date for Meetings
and Other Purposes 2
Section 4. Proxies 3
Section 5. Inspection of Records 4
Section 6. Action without Meeting 4
ARTICLE IV. - TRUSTEES 4
Section 1. Meetings of the Trustees 4
Section 2. Meeting, Quorum and Manner of Acting 5
ARTICLE V - COMMITTEES 6
Section 1. Executive and Other Committees 6
Section 2. Meeting, Quorum and Manner of Acting 7
ARTICLE VI - OFFICERS 7
Section 1. General Provisions 7
Section 2. Term of Office and Qualifications 8
Section 3. Removal 8
Section 4. Powers and Duties of the President 8
Section 5. Powers and Duties of Vice Presidents 9
Section 6. Powers and Duties of the Treasurer 9
Section 7. Powers and Duties of the Secretary 10
Section 8. Powers and Duties of Assistant
Treasurers 10
Section 9. Powers and Duties of Assistant
Secretaries 10
Section 10. Compensation of Officers and Trustees
and Members of Advisory Board 11
ARTICLE VII - FISCAL YEAR 11
ARTICLE VIII - SEAL 11
ARTICLE IX - WAIVERS OF NOTICE 12
ARTICLE X - CUSTODY OF SECURITIES 12
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TABLE OF CONTENTS (continued)
Page
Section 1. Employment of A Custodian 12
Section 2. Action Upon Termination of
Custodian Agreement 12
Section 3. Provisions of Custodian Contract 13
Section 4. Central Certificate System 14
Section 5. Acceptance of Receipts in Lieu of
Certificate 15
ARTICLE XI - AMENDMENTS 15
ARTICLE XII - MISCELLANEOUS 16
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BY-LAWS
OF
SCUDDER CALIFORNIA TAX FREE FUND
ARTICLE I
DEFINITIONS
The terms "Commission", "Custodian", "Declaration", "Distributor",
"Investment Adviser", "Municipal Bonds", "1940 Act", "Shareholder", "Shares",
"Transfer Agent", "Trust", "Trust Property", "Trustees", and "vote of a majority
of the Shares outstanding and entitled to vote", have the respective meanings
given them in the Declaration of Trust of Scudder Califorina Tax Free Fund dated
May 3, 1983 as amended from time to time.
ARTICLE II
OFFICES
Section 1. Principal Office. Until changed by the Trustees, the principal
office of the Trust in the Commonwealth of Massachusetts shall be in the City of
Boston, County of Suffolk.
Section 2. Other Offices. The Trust may have offices in such other places
without as well as within the Commonwealth as the Trustees may from time to time
determine.
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ARTICLE III
SHAREHOLDERS
Section 1. Meetings. Meetings of the Shareholders shall be held as
provided in the Declaration at such place within or without the Commonwealth of
Massahusetts as the Trustees shall designate. The holders of a majority of
outstanding Shares present in person or by proxy shall constitute a quorum at
any meeting of the Shareholders.
Section 2. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder at his address as recorded on the register
of the Trust mailed at least (10) days and not more than sixty (60) days before
the meeting. Only the business stated in the notice of the meeting shall be
considered at such meeting. Any adjourned meeting may be held as adjourned
without further notice. No notice need be given to any Shareholder who shall
have failed to inform the Trust of his current address or if a written waiver of
notice, executed before or after the meeting by the Shareholder or his attorney
thereunto authorized, is filed with the records of the meeting.
Section 3. Record Date for Meetings and Other Purposes. For the purpose of
determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding thirty (30) days, as the Trustees may
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determine; or without closing the transfer books the Trustees may fix a date not
more than sixty (60) days prior to the date of any meeting of Shareholders or
distribution or other action as a record date for the determinations of the
persons to be treated as Shareholders of record for such purposes, except for
dividend payments which shall be governed by the Declaration.
Section 4. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Proxies may be solicited in the name of one or more Trustees or one or more of
the officers of the Trust. Only Shareholders of record shall be entitled to
vote. Each whole share shall be entitled to one vote as to any matter on which
it is entitled by the Declaration to Vote, and each fractional Share shall be
entitled to a proportionate fractional vote. When any Share is held jointly by
several persons, any one of them may vote at any meeting in person or by proxy
in respect of such Share, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in respect
of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the challenger.
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If the holder of any such share is a minor or a person of unsound mind, and
subject to guardianship or the legal control of any other person as regards the
charge or management of such Share, he may vote by his guardian or such other
person appointed or having such control, and such vote may be given in person or
by proxy.
Section 5. Inspection of Records. The records of the Trust shall be open
to inspection by Shareholders to the same extent as is permitted shareholders of
a Massachusetts business corporation.
Section 6. Action without Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consents shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the President, or by
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any one of the Trustees, at the time being in office. Notice of the time and
place of each meeting other than regular or stated meetings shall be given by
the Secretary or an Assistant Secretary or by the officer or Trustee calling the
meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be telegraphed, cabled, or wirelessed to each Trustee at his
business address, or personally delivered to him at least one day before the
meeting. Such notice may, however, be waived by any Trustee. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. A notice or waiver of notice need not
specify the purpose of any meeting. The Trustees may meet by means of a
telephone conference circuit or similar communications equipment by means of
which all persons participating in the meeting shall be deemed to have been held
at a place designated by the Trustees at the meeting. Participation in a
telephone conference meeting shall constitute presence in person at such
meeting. Any action required or permitted to be taken at any meeting of the
Trustees may be taken by the Trustees without a meeting if all the Trustees
consent to the action in writing and the written consents are filed with the
records of the Trustees' meetings. Such consents shall be treated as a vote for
all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees shall
be present in person at any regular or special
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meeting of the Trustees in order to constitute a quorum for the transaction of
business at such meeting and (except as otherwise required by law, the
Declaration or these By-Laws) the act of a majority of the Trustees present at
any such meeting, at which a quorum is present, shall be the act of the
Trustees. In the absence of a quorum, a majority of the Trustees present may
adjourn the meeting from time to time until a quorum shall be present. Notice of
an adjourned meeting need not be given.
ARTICLE V
COMMITTEES
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) to hold office at the pleasure
of the Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers which by law, the Declaration or these By-Laws they are prohibited from
delegating. The Trustees may also elect from their own number other Committees
from time to time, the number composing such Committees, the powers conferred
upon the same (subject to the same limitations as with respect to the Executive
Committee) and the term of membership on such Committees to be determined by the
Trustees.
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The Trustees may designate a chairman of any such Committee. In the absence of
such designation the Committee may elect its own Chairman.
Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committee, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (5) authorize the members of a Committee to meet by means
of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the Office of the Trust.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Vice Presidents, one or more
Assistant Secretaries, and one or more Assistant Treasurers. The
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Trustees may delegate to any officer or committee the power to appoint any
subordinate officers or agents.
Section 2. Term of Office and Qualifications. Except as otherwise provided
by law, the Declaration or these By-Laws, the President, the Treasurer and the
Secretary shall each hold office until his successor shall have been duly
elected and qualified, and all other officers shall hold office at the pleasure
of the Trustees. The Secretary and Treasurer may be the same person. A Vice
President and the Treasurer or a Vice President and the Secretary may be the
same person, but the offices of Vice President, Secretary and Treasurer shall
not be held by the same person. The President shall hold no other office. Except
as above provided, any two offices may be held by the same person. Any officer
may be but none need be a Trustee or Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer without cause, by a vote of a majority of the
Trustees then in office. Any officer or agent appointed by an officer or
committee may be removed with or without cause by such appointing officer or
committee.
Section 4. Powers and Duties of the President. The President may call
meetings of the Trustees and of any Committee thereof when he deems it necessary
and shall preside at all meetings of the Shareholders. Subject to the control of
the Trustees and to the control of any Committees of the Trustees, within their
respective spheres, as provided by the Trustees, he shall at all times exercise
a general supervision and direction
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over the affairs of the Trust. He shall have the power to employ attorneys and
counsel for the Trust and to employ such subordinate officers, agents, clerks
and employees as he may find necessary to transact the business of the Trust. He
shall also have the power to grant, issue, execute or sign such powers of
attorney, proxies or other documents as may be deemed advisable or necessary in
furtherance of the interests of the Trust. The President shall have such other
powers and duties, as from time to time may be conferred upon or assigned to him
by the Trustees.
Section 5. Powers and Duties of Vice Presidents. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees and the President.
Section 6. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. He shall deliver all
funds of the Trust which may come into his hands to such Custodian as the
Trustees may employ pursuant to Article X of these By-Laws. He shall render a
statement of condition of the finances of the Trust to the Trustees as often as
they shall require the same and he shall in general perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the Trustees. The Treasurer shall give a bond for the
faithful
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discharge of his duties, if required so to do by the Trustees, in such sum and
with such surety or sureties as the Trustees shall require.
Section 7. Powers and Duties of the Secretary. The Secretary shall keep
the minutes of all meetings of the Trustees and of the Shareholders in proper
books provided for that purpose; he shall have custody of the seal of the Trust;
he shall have charge of the Share transfer books, lists and records unless the
same are in the charge of the Transfer Agent. He shall attend to the giving and
serving of all notices by the Trust in accordance with the provisions of these
By-Laws and as required by law; and subject to these By-Laws, he shall in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Trustees.
Section 8. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from time
to time may be assigned to him by the Trustees. Each Assistant Treasurer shall
give a bond for the faithful discharge of his duties, if required so to do by
the Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
Section 9. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant
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Secretary shall perform such other duties as from time to time may be assigned
to him by the Trustees.
Section 10. Compensation of Officers and Trustees and Members of the
Advisory Board. Subject to any applicable provisions of the Declaration, the
compensation of the officers and Trustees and members of the Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any Committee or officer upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of April in each
year and shall end on the thirty-first day of March in each year, provided,
however, that the Trustees may from time to time change the fiscal year.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.
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ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration or these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been telegraphed, cabled or wirelessed for the purposes of these By-Laws when it
has been delivered to a representative of any telegraph, cable or wireless
company with instructions that it be telegraphed, cabled or wirelessed.
ARTICLE X
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian) all funds, securities and similar investments included in the
Trust Property. The Custodian (and any sub-custodian) shall be a bank having not
less than $2,000,000 aggregate capital, surplus and undivided profits and shall
be appointed from time to time by the Trustees, who shall fix its remuneration.
Section 2. Action Upon Termination of Custodian Agreement. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the trustees shall promptly appoint a successor custodian, but in the
event that no successor custodian can be found who has the required
qualifications and is
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willing to serve, the Trustees shall call as promptly as possible a special
meeting of the Shareholders to determine whether the Trust shall function
without a custodian or shall be liquidated. If so directed by vote of the
holders of a majority of the outstanding voting securities, the Custodian shall
deliver and pay over all Trust Property held by it as specified in such vote.
Section 3. Provisions of Custodian Contract. The following provisions
shall apply to the employment of a Custodian and to any contract entered into
with the Custodian so employed:
The Trustees shall cause to be delivered to the Custodian all securities
included in the Trust Property or to which the Trust may become entitled,
and shall order the same to be delivered by the Custodian only in
completion of a sale, exchange, transfer, pledge, loan of portfolio
securities to another person, or other disposition thereof, all as the
Trustees may generally or from time to time require or approve or to a
successor Custodian; and the Trustees shall cause all funds included in
the Trust Property or to which it may become entitled to be paid to the
Custodian, and shall order the same disbursed only for investment against
delivery of the securities acquired, or the return of cash held as
collateral for loans of portfolio securities, or in payment of expenses,
including management compensation, and liabilities of the Trust, including
distributions to shareholders, or to a successor Custodian.
Notwithstanding anything to the contrary in these By-Laws, upon receipt of
proper instructions, which may be standing instructions, the
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custodian may deliver funds in the following cases. In connection with
repurchase agreements, the Custodian shall transmit, prior to receipt on
behalf of the Fund of any securities or other property, funds from the
Fund's custodian account to a special custodian approved by the Trustees
of the Fund, which funds shall be used to pay for securities to be
purchased by the Fund subject to the Fund's obligation to sell and the
seller's obligation to repurchase such securities. In such case, the
securities shall be held in the custody of the special custodian. In
connection with the Trust's purchase or sale of financial futures
contracts, the Custodian shall transmit, prior to receipt on behalf of the
Fund of any securities or other property, funds from the Trust's custodian
account in order to furnish to and maintain funds with brokers as margin
to guarantee the performance of the Trust's futures obligations in
accordance with the applicable requirements of commodities exchanges and
brokers.
Section 4. Central Certificate System. Subject to such rules, regulations
and orders as the Commission may adopt, the Trustees may direct the Custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, or such other person as may be permitted by the
Commission, or otherwise
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in accordance with the 1940 Act, pursuant to which system all securities of any
particular class or series of any issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of such securities, provided that all such deposits shall be
subject to withdrawal only upon the order of the Trust.
Section 5. Acceptance of Receipts in Lieu of Certificates. Subject to such
rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
ARTICLE XI
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or new
By-Laws may be adopted by (a) vote of a majority of the Shares outstanding and
entitled to vote or (b) by the Trustees, provided, however, that no By-Law may
be amended, adopted or repealed by the Trustees if such amendment, adoption or
repeal requires, pursuant to law, the Declaration or these By-Laws, a vote of
the Shareholders.
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ARTICLE XII
MISCELLANEOUS
(A) Except as hereinafter provided, no officer or Trustee of the Trust and
no partner, officer, director or shareholder of the Investment Adviser of the
Trust (as that term is defined in the Investment Company Act of 1940) or of the
underwriter of the Trust, and no Investment Adviser or underwriter of the Trust,
shall take long or short positions in the securities issued by the Trust.
(1) The foregoing provisions shall not prevent the underwriter from
purchasing Shares from the Trust if such purchases are limited (except for
reasonable allowances for clerical errors, delays and errors of
transmission and cancellation of orders) to purchase for the purpose of
filling orders for such Shares received by the underwriter, and provided
that orders to purchase from the Trust are entered with the Trust or the
Custodian promptly upon receipt by the underwriter of purchase orders for
such Shares, unless the underwriter is otherwise instructed by its
customer.
(2) The foregoing provision shall not prevent the underwriter from
purchasing Shares of the Trust as agent for the account of the Trust.
(3) The foregoing provisions shall not prevent the purchase from the
Trust or from the underwriter of Shares issued by the Trust, by any
officer, or Trustee of the Trust
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or by any partner, officer, director or shareholder of the Investment
Adviser of the Trust or of the underwriter of the Trust at the price
available to the public generally at the moment of such purchase, or as
described in the then currently effective Prospectus of the Trust.
(4) The foregoing shall not prevent the Investment Adviser, or any
affiliate thereof, of the Trust from purchasing Shares prior to the
effectiveness of the first registration statement relating to the Shares
under the Securities Act of 1933.
(B) The Trust shall not lend assets of the Trust to any officer or Trustee
of the Trust, or to any partner, officer, director or shareholder of, or person
financially interested in, the Investment Adviser of the Trust, or the
underwriter of the Trust, or to the Investment Adviser of the Trust or to the
underwriter of the Trust.
(C) The Trust shall not impose any restrictions upon the transfer of the
Shares of the Trust except as provided in the Declaration, but this requirement
shall not prevent the charging of customary transfer agent fees.
(D) The Trust shall not permit any officer or Trustee of the Trust, or any
partner, officer or director of the Investment Adviser or underwriter of the
Trust to deal for or on behalf of the Trust with himself as principal or agent,
or with any partnership, association or corporation in which he has a financial
interest; provided that the foregoing provisions shall not pre-
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vent (a) officers and Trustees of the Trust or partners, officers or directors
of the Investment Adviser or underwriter of the Trust from buying, holding or
selling shares in the Trust, or from being partners, officers or directors or
otherwise financially interested in the Investment Adviser or underwriter of the
Trust; (b) purchases or sales of securities or other property by the Trust from
or to an affiliated person or to the Investment Advisers or underwriters of the
Trust if such transaction is exempt from the applicable provisions of the 1940
Act; (c) purchases of investments for the portfolio of the Trust or sales of
investments owned by the Trust through a security dealer who is, or one or more
of whose partners, shareholders, officers or directors is, an officer or Trustee
of the Trust, or a partner, officer or director of the Investment Adviser or
underwriter of the Trust, if such transactions are handled in the capacity of
broker only and commissions charged do not exceed customary brokerage charges
for such services; (d) employment of legal counsel, registrar, Transfer Agent,
dividend disbursing agent or Custodian who is, or has a partner, shareholder,
officer, or director who is, an officer or Trustee of the Trust, or a partner,
officer or director of the Investment Adviser or underwriter of the Trust, if
only customary fees are charged for services to the Trust; (e) sharing
statistical research, legal and management expenses and office hire and expenses
with any other investment company in which an officer or Trustee of the Trust,
or a partner, officer or director of the Investment Adviser or underwriter
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of the Trust, is an officer or director or otherwise financially interested.
END OF BY-LAWS
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EXHIBIT 5(a)
Scudder California Tax Free Trust
175 Federal Street
Boston, Massachusetts 02110
December 12, 1990
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, NY 10154
Investment Management Agreement
Scudder California Tax Free Fund
Dear Sirs:
Scudder California Tax Free Trust (the "Trust") has been established as a
Massachusetts business trust to engage in the business of an investment company.
Pursuant to the Trust's Declaration of Trust, the Board of Trustees has divided
the Trust's shares of beneficial interest, par value $.01 per share, (the
"Shares") into separate series, or funds, including Scudder California Tax Free
Fund (the "Fund"). Series may be abolished and dissolved, and additional series
established, from time to time by action of the Trustees.
That Trust, on behalf of the Fund, has selected you to act as the sole
investment manager of the Fund and to provide certain other services, as more
fully set forth below, and you have indicated that you are willing to act as
such investment manager and to perform such services under the terms and
conditions hereinafter set forth. Accordingly, the Trust on behalf of the Fund
agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of investing
and reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to the Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement") filed
by the Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the Fund:
(a) Declaration of Trust of the Trust dated December 8, 1987, as amended
to date (the "Declaration").
(b) By-Laws of the Trust as in effect on the date hereof (the
"By-Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders of the
Fund selecting you as investment manager and approving the form of
this Agreement.
(d) Establishment and Designation of Series of Shares of Beneficial
Interest dated April 1, 1987, as amended, relating to the Fund.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Name of Trust and Fund. The Trust and the Fund may use any name derived
from the name "Scudder, Stevens & Clark", if the Trust elects to do so, only for
so long as this Agreement, any other investment management agreement between you
and the Trust with respect to the Fund or any extension, renewal or amendment
hereof or thereof remains in effect, including any similar agreement with any
organization which shall have succeeded to your business as investment manager.
At such time as such an agreement shall no longer be in effect, the Trust and
the Fund shall each (to the extent the Trust has the legal power to cause it to
be done) cease to use such a name or any other name indicating that it is
managed by or otherwise connected with you or any organization which shall have
so succeeded to your business.
3. Portfolio Management Services. As manager of the assets of the Fund,
you shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules
<PAGE>
and regulations thereunder; and all other applicable federal and state laws and
regulations of which you have knowledge; subject always to policies and
instructions adopted by the Trust's Board of Trustees. In connection therewith,
you shall use reasonable efforts to manage the Fund so that it will qualify as a
regulated investment company under Subchapter M of the Code and regulations
issued thereunder. The Fund shall have the benefit of the investment analysis
and research, the review of current economic conditions and trends and the
consideration of long-range investment policy generally available to your
investment advisory clients. In managing the Fund in accordance with the
requirements set forth in this section 3, you shall be entitled to receive and
act upon advice of counsel to the Trust or counsel to you. You shall also make
available to the Trust promptly upon request all of the Fund's investment
records and ledgers as are necessary to assist the Trust to comply with the
requirements of the 1940 Act and other applicable laws. To the extent required
by law, you shall furnish to regulatory authorities having the requisite
authority any information or reports in connection with the services provided
pursuant to this Agreement which may be requested in order to ascertain whether
the operations of the Trust are being conducted in a manner consistent with
applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
4. Administrative Services. In addition to the portfolio management
services specified above in section 3, you shall furnish at your expense for the
use of the Fund such office space and facilities in the United States as the
Fund may require for its reasonable needs, and you (or one or more of your
affiliates designated by you) shall render to the Trust administrative services
on behalf of the Fund necessary for operating as an open-end investment company
and not provided by persons not parties to this Agreement including, but not
limited to, preparing reports to and meeting materials for the Trust's Board of
Trustees and reports and notices to Fund shareholders; supervising, negotiating
contractual arrangements with, to the extent appropriate, and monitoring the
performance of, custodians, depositories, transfer and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities, the calculation of net asset
value and the calculation and payment of distributions to Fund shareholders;
monitoring the registration of Shares of the Fund under applicable federal and
state securities laws; maintaining or causing to be maintained for the Fund all
books, records and reports and any other information required under the 1940
Act, to the extent that such books, records and reports and other information
are not maintained by the Fund's custodian or other agents of the Fund;
assisting in establishing the accounting policies of the Fund; assisting in the
resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith; establishing
and monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining the amount of dividends and distributions
available to be paid by the Fund to its shareholders, preparing and arranging
for the printing of dividend notices to shareholders, and providing the transfer
and dividend paying agent and the custodian with such information as is required
for such parties to effect the payment of dividends and distributions; and
otherwise assisting the Trust as it may reasonably request in the conduct of the
Fund's business, subject to the direction and control of the Trust's Board of
Trustees. Nothing in this Agreement shall be deemed to shift to you or to
diminish the obligations of any agent of the Fund or any other person not a
party to this Agreement which is obligated to provide services to the Fund.
2
<PAGE>
5. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 5, you shall pay the compensation and expenses of all
Trustees, officers and executive employees of the Trust (including the Fund's
share of payroll taxes) who are affiliated persons of you, and you shall make
available, without expense to the Fund, the services of such of your directors,
officers and employees as may duly be elected officers of the Trust, subject to
their individual consent to serve and to any limitations imposed by law. You
shall provide at your expense the portfolio management services described in
section 3 hereof and the administrative services described in section 4 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 5. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund; organization expenses of the
Fund (including out-of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's custodians, subcustodians,
transfer agents, dividend disbursing agents and registrars; payment for
portfolio pricing or valuation services to pricing agents, accountants, bankers
and other specialists, if any; expenses of preparing share certificates and,
except as provided below in this section 5, other expenses in connection with
the issuance, offering, distribution, sale, redemption or repurchase of
securities issued by the Fund; expenses relating to investor and public
relations; expenses and fees of registering or qualifying Shares of the Fund for
sale; interest charges, bond premiums and other insurance expense; freight,
insurance and other charges in connection with the shipment of the Fund's
portfolio securities; the compensation and all expenses (specifically including
travel expenses relating to Trust business) of Trustees, officers and employees
of the Trust who are not affiliated persons of you; brokerage commissions or
other costs of acquiring or disposing of any portfolio securities of the Fund;
expenses of printing and distributing reports, notices and dividends to
shareholders; expenses of printing and mailing Prospectuses and SAIs of the Fund
and supplements thereto; costs of stationery; any litigation expenses;
indemnification of Trustees and officers of the Trust; costs of shareholders'
and other meetings; and travel expenses (or an appropriate portion thereof) of
Trustees and officers of the Trust who are directors, officers or employees of
you to the extent that such expenses relate to attendance at meetings of the
Board of Trustees of the Trust or any committees thereof or advisors thereto
held outside of Boston, Massachusetts or New York, New York.
You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of the Fund if and to the extent
that (i) such expenses are required to be borne by a principal underwriter which
acts as the distributor of the Fund's Shares pursuant to an underwriting
agreement which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan in
conformity with Rule 12b-1 under the 1940 Act providing that the Fund (or some
other party) shall assume some or all of such expenses. You shall be required
to pay such of the foregoing sales expenses as are not required to be paid by
the principal underwriter pursuant to the underwriting agreement or are not
permitted to be paid by the Fund (or some other party) pursuant to such a plan.
6. Management Fee. For all services to be rendered, payments to be made
and costs to be assumed by you as provided in sections 3, 4 and 5 hereof, the
Trust on behalf of the Fund shall pay you on the last day of each month the
unpaid balance of a fee equal to the excess of (a) 1/12 of .625 of 1% of the
average daily net assets as defined below of the Fund for such month provided
that, for any calendar month during which the average of such values exceeds
$200,000,000, the fee payable for that month based on the portion of the average
of such values in excess of $200,000,000 shall be 1/12 of .60 of 1% of such
portion over (b) the greater of (i) the amount by which the Fund's expenses
exceed the lowest applicable expense limitation (as more fully described below)
or (ii) any compensation waived by you from time to time (as more fully
described below). You shall be entitled to receive during any month such interim
payments of your fee hereunder as you shall request, provided that no such
payment shall exceed 75% of the amount of your fee then accrued on the books of
the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of the
values placed on the Fund's net assets as of 4:00 p.m. (New York time) on each
day on which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the
3
<PAGE>
Registration Statement. If the determination of net asset value does not take
place for any particular day, then for the purposes of this section 6, the value
of the net assets of the Fund as last determined shall be deemed to be the value
of its net assets as of 4:00 p.m. (New York time), or as of such other time as
the value of the net assets of the Fund's portfolio may be lawfully determined
on that day. If the Fund determines the value of the net assets of its portfolio
more than once on any day, then the last such determination thereof on that day
shall be deemed to be the sole determination thereof on that day for the
purposes of this section 6.
You agree that your gross compensation for any fiscal year shall not be
greater than an amount which, when added to the other expenses of the Fund,
shall cause the aggregate expenses of the Fund to equal the maximum expenses
under the lowest applicable expense limitation established pursuant to the
statutes or regulations of any jurisdiction in which the Shares of the Fund may
be qualified for offer and sale. Except to the extent that such amount has been
reflected in reduced payments to you, you shall refund to the Fund the amount of
any payment received in excess of the limitation pursuant to this section 6 as
promptly as practicable after the end of such fiscal year, provided that you
shall not be required to pay the Fund an amount greater than the fee paid to you
in respect of such year pursuant to this Agreement. As used in this section 6,
"expenses" shall mean those expenses included in the applicable expense
limitation having the broadest specifications thereof, and "expense limitation"
means a limit on the maximum annual expenses which may be incurred by an
investment company determined (i) by multiplying a fixed percentage by the
average, or by multiplying more than one such percentage by different specified
amounts of the average, of the values of an investment company's net assets for
a fiscal year or (ii) by multiplying a fixed percentage by an investment
company's net investment income for a fiscal year. The words "lowest applicable
expense limitation" shall be construed to result in the largest reduction of
your compensation for any fiscal year of the Fund; provided, however, that
nothing in this Agreement shall limit your fees if not required by an applicable
statute or regulation referred to above in this section 6.
You may waive all or a portion of your fees provided for hereunder and
such waiver shall be treated as a reduction in purchase price of your services.
You shall be contractually bound hereunder by the terms of any publicly
announced waiver of your fee, or any limitation of the Fund's expenses, as if
such waiver or limitation were fully set forth herein.
7. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed
to be exclusive and it is understood that you may render investment advice,
management and services to others. In acting under this Agreement, you shall be
an independent contractor and not an agent of the Trust.
8. Limitation of Liability of Manager. As an inducement to your
undertaking to render services pursuant to this Agreement, the Trust agrees that
you shall not be liable under this Agreement for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates, provided that nothing in this Agreement
shall be deemed to protect or purport to protect you against any liability to
the Trust, the Fund or its shareholders to which you would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties, or by reason of your reckless disregard of your
obligations and duties hereunder. Any person, even though also employed by you,
who may be or become an employee of and paid by the Fund shall be deemed, when
acting within the scope of his or her employment by the Fund, to be acting in
such employment solely for the Fund and not as your employee or agent.
9. Duration and Termination of This Agreement. This Agreement shall remain
in force until September 30, 1992, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Trustees who are not parties
to this Agreement or interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval and (b) by
the Trustees of the Trust, or by the vote of a majority of the outstanding
voting securities of the Fund. The aforesaid requirement that continuance of
this Agreement be "specifically approved at least annually" shall be construed
in a manner consistent with the 1940 Act and the rules and regulations
thereunder.
4
<PAGE>
This Agreement may be terminated with respect to the Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities of the Fund or by the Trust's Board of Trustees on 60 days'
written notice to you, or by you on 60 days' written notice to the Trust. This
Agreement shall terminate automatically in the event of its assignment.
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved by the vote of a majority of the outstanding voting
securities of the Fund and by the Trust's Board of Trustees, including a
majority of the Trustees who are not parties to this Agreement or interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval.
11. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Scudder California
Tax Free Trust" refers to the Trustees under the Declaration collectively as
trustees and not as individuals or personally, and that no shareholder of the
Fund, or Trustee, officer, employee or agent of the Trust, shall be subject to
claims against or obligations of the Trust or of the Fund to any extent
whatsoever, but that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as
set forth in the Declaration and you agree that the obligations assumed by the
Trust on behalf of the Fund pursuant to this Agreement shall be limited in all
cases to the Fund and its assets, and you shall not seek satisfaction of any
such obligation from the shareholders or any shareholder of the Fund or any
other series of the Trust, or from any Trustee, officer, employee or agent of
the Trust. You understand that the rights and obligations of each Fund, or
series, under the Declaration are separate and distinct from those of any and
all other series.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definitions
contained in Section 2(a) of the 1940 Act (particularly the definitions of
"affiliated person," "assignment" and "majority of the outstanding voting
securities"), as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the SEC by any rule, regulation or
order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
Scudder California Tax Free Trust
(on behalf of Scudder California Tax Free Fund)
By /s/ [ILLEGIBLE]
-----------------------------------
President
The foregoing Agreement is hereby accepted as of the date thereof.
SCUDDER, STEVENS & CLARK, INC.
By /s/ [ILLEGIBLE]
-----------------------------------
Managing Director
5
EXHIBIT 5(b)
Scudder California Tax Free Trust
175 Federal Street
Boston, Massachusetts 02110
December 12, 1990
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, NY 10154
Investment Management Agreement
Scudder California Tax Free Money Fund
Dear Sirs:
Scudder California Tax Free Trust (the "Trust") has been established as a
Massachusetts business trust to engage in the business of an investment company.
Pursuant to the Trust's Declaration of Trust, the Board of Trustees has divided
the Trust's shares of beneficial interest, par value $.01 per share, (the
"Shares") into separate series, or funds, including Scudder California Tax Free
Money Fund (the "Fund"). Series may be abolished and dissolved, and additional
series established, from time to time by action of the Trustees.
That Trust, on behalf of the Fund, has selected you to act as the sole
investment manager of the Fund and to provide certain other services, as more
fully set forth below, and you have indicated that you are willing to act as
such investment manager and to perform such services under the terms and
conditions hereinafter set forth. Accordingly, the Trust on behalf of the Fund
agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of investing
and reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus"') and Statement of Additional Information
(the "SAI") relating to the Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement")
filed by the Trust under the Investment Company Act of 1940, as amended, (the
"1940 Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the Fund:
(a) Declaration of Trust of the Trust dated December 8, 1987, as amended
to date (the "Declaration").
(b) By-Laws of the Trust as in effect on the date hereof (the
"By-Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders of the
Fund selecting you as investment manager and approving the form of
this Agreement.
(d) Establishment and Designation of Series of Shares of Beneficial
Interest dated April 1, 1987, as amended, relating to the Fund.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Name of Trust and Fund. The Trust and the Fund may use any name derived
from the name "Scudder, Stevens & Clark", if the Trust elects to do so, only for
so long as this Agreement, any other investment management agreement between you
and the Trust with respect to the Fund or any extension, renewal or amendment
hereof or thereof remains in effect, including any similar agreement with any
organization which shall have succeeded to your business as investment manager.
At such time as such an agreement shall no longer be in effect, the Trust and
the Fund shall each (to the extent the Trust has the legal power to cause it to
be done) cease to use such a name or any other name indicating that it is
managed by or otherwise connected with you or any organization which shall have
so succeeded to your business.
3. Portfolio Management Services. As manager of the assets of the Fund,
you shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules
<PAGE>
and regulations thereunder; and all other applicable federal and state laws and
regulations of which you have knowledge; subject always to policies and
instructions adopted by the Trust's Board of Trustees. In connection therewith,
you shall use reasonable efforts to manage the Fund so that it will qualify as a
regulated investment company under Subchapter M of the Code and regulations
issued thereunder. The Fund shall have the benefit of the investment analysis
and research, the review of current economic conditions and trends and the
consideration of long-range investment policy generally available to your
investment advisory clients. In managing the Fund in accordance with the
requirements set forth in this section 3, you shall be entitled to receive and
act upon advice of counsel to the Trust or counsel to you. You shall also make
available to the Trust promptly upon request all of the Fund's investment
records and ledgers as are necessary to assist the Trust to comply with the
requirements of the 1940 Act and other applicable laws. To the extent required
by law, you shall furnish to regulatory authorities having the requisite
authority any information or reports in connection with the services provided
pursuant to this Agreement which may be requested in order to ascertain whether
the operations of the Trust are being conducted in a manner consistent with
applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
4. Administrative Services. In addition to the portfolio management
services specified above in section 3, you shall furnish at your expense for the
use of the Fund such office space and facilities in the United States as the
Fund may require for its reasonable needs, and you (or one or more of your
affiliates designated by you) shall render to the Trust administrative services
on behalf of the Fund necessary for operating as an open-end investment company
and not provided by persons not parties to this Agreement including, but not
limited to, preparing reports to and meeting materials for the Trust's Board of
Trustees and reports and notices to Fund shareholders; supervising, negotiating
contractual arrangements with, to the extent appropriate, and monitoring the
performance of, custodians, depositories, transfer and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities, the calculation of net asset
value and the calculation and payment of distributions to Fund shareholders;
monitoring the registration of Shares of the Fund under applicable federal and
state securities laws; maintaining or causing to be maintained for the Fund all
books, records and reports and any other information required under the 1940
Act, to the extent that such books, records and reports and other information
are not maintained by the Fund's custodian or other agents of the Fund;
assisting in establishing the accounting policies of the Fund; assisting in the
resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith: establishing
and monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining the amount of dividends and distributions
available be paid by the Fund to its shareholders, preparing and arranging for
the printing of dividend notices to shareholders, and providing the transfer and
dividend paying agent and the custodian with such information as is required for
such parties to effect the payment of dividends and distributions; and otherwise
assisting the Trust as it may reasonably request in the conduct of the Fund's
business, subject to the direction and control of the Trust's Board of Trustees.
Nothing in this Agreement shall be deemed to shift to you or to diminish the
obligations of any agent of the Fund or any other person not a party to this
Agreement which is obligated to provide services to the Fund.
2
<PAGE>
5. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 5, you shall pay the compensation and expenses of all
Trustees, officers and executive employees of the Trust (including the Fund's
share of payroll taxes) who are affiliated persons of you, and you shall make
available, without expense to the Fund, the services of such of your directors,
officers and employees as may duly be elected officers of the Trust, subject to
their individual consent to serve and to any limitations imposed by law. You
shall provide at your expense the portfolio management services described in
section 3 hereof and the administrative services described in section 4 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 5. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out-of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's custodians, subcustodians,
transfer agents, dividend disbursing agents and registrars; payment for
portfolio pricing or valuation services to pricing agents, accountants, bankers
and other specialists, if any; expenses of preparing share certificates and,
except as provided below in this section 5, other expenses in connection with
the issuance, offering, distribution, sale, redemption or repurchase of
securities issued by the Fund; expenses relating to investor and public
relations; expenses and fees of registering or qualifying Shares of the Fund for
sale; interest charges, bond premiums and other insurance expense; freight,
insurance and other charges in connection with the shipment of the Fund's
portfolio securities; the compensation and all expenses (specifically including
travel expenses relating to Trust business) of Trustees, officers and employees
of the Trust who are not affiliated persons of you; brokerage commissions or
other costs of acquiring or disposing of any portfolio securities of the Fund;
expenses of printing and distributing reports, notices and dividends to
shareholders; expenses of printing and mailing Prospectuses and SAIs of the Fund
and supplements thereto; costs of stationery; any litigation expenses;
indemnification of Trustees and officers of the Trust; costs of shareholders'
and other meetings; and travel expenses (or an appropriate portion thereof) of
Trustees and officers of the Trust who are directors, officers or employees of
you to the extent that such expenses relate to attendance at meetings of the
Board of Trustees of the Trust or any committees thereof or advisors thereto
held outside of Boston, Massachusetts or New York, New York.
You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of the Fund if and to the extent
that (i) such expenses are required to be borne by a principal underwriter which
acts as the distributor of the Fund's Shares pursuant to an underwriting
agreement which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan in
conformity with Rule 12b-1 under the 1940 Act providing that the Fund (or some
other party) shall assumed some or all of such expenses. You shall be required
to pay such of the foregoing sales expenses as are not required to be paid by
the principal underwriter pursuant to the underwriting agreement or are not
permitted to be paid by the Fund (or some other party) pursuant to such a plan.
6. Management Fee. For all services to be rendered, payments to be made
and costs to be assumed by you as provided in sections 3, 4 and 5 hereof, the
Trust on behalf of the Fund shall pay you on the last day of each month the
unpaid balance of a fee equal to the excess of (a) 1/12 of .50 of 1% of the
average daily net assets as defined below of the Fund for such month over (b)
the greater of (i) the amount by which the Fund's expenses exceed the lowest
applicable expense limitation (as more fully described below) or (ii) any
compensation waived by you from time to time (as more fully described below).
You shall be entitled to receive during any month such interim payments of your
fee hereunder as you shall request, provided that no such payment shall exceed
75% of the amount of your fee then accrued on the books of the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of the
values placed on the Fund's net assets as of 4:00 p.m. (New York time) on each
day on which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 6, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the
3
<PAGE>
net assets of the Fund's portfolio may be lawfully determined on that day. If
the Fund determines the value of the net assets of its portfolio more than once
on any day, then the last such determination thereof on that day shall be deemed
to be the sole determination thereof on that day for the purposes of this
section 6.
You agree that your gross compensation for any fiscal year shall not be
greater than an amount which, when added to the other expenses of the Fund,
shall cause the aggregate expenses of the Fund to equal the maximum expenses
under the lowest applicable expense limitation established pursuant to the
statutes or regulations of any jurisdiction in which the Shares of the Fund may
be qualified for offer and sale. Except to the extent that such amount has been
reflected in reduced payments to you, you shall refund to the Fund the amount of
any payment received in excess of the limitation pursuant to this section 6 as
promptly as practicable after the end of such fiscal year, provided that you
shall not be required to pay the Fund an amount greater than the fee paid to you
in respect of such year pursuant to this Agreement. As used in this section 6,
"expenses" shall mean those expenses included in the applicable expense
limitation having the broadest specifications thereof, and "expense limitation"
means a limit on the maximum annual expenses which may be incurred by an
investment company determined (i) by multiplying a fixed percentage by the
average, or by multiplying more than one such percentage by different specified
amounts of the average, of the values of an investment company's net assets for
a fiscal year or (ii) by multiplying a fixed percentage by an investment
company's net investment income for a fiscal year. The words "lowest applicable
expense limitation" shall be construed to result in the largest reduction of
your compensation for any fiscal year of the Fund; provided, however, that
nothing in this Agreement shall limit your fees if not required by an applicable
statute or regulation referred to above in this section 6.
You may waive all or a portion of your fees provided for hereunder and
such waiver shall be treated as a reduction in purchase price of your services.
You shall be contractually bound hereunder by the terms of any publicly
announced waiver of your fee, or any limitation of the Fund's expenses, as if
such waiver or limitation were fully set forth herein.
7. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund polices as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed
to be exclusive and it is understood that you may render investment advice,
management and services to others. In acting under this Agreement, you shall be
an independent contractor and not an agent of the Trust.
8. Limitation of Liability of Manager. As an inducement to your
undertaking to render services pursuant to this Agreement, the Trust agrees that
you shall not be liable under this Agreement for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates, provided that nothing in this Agreement
shall be deemed to protect or purport to protect you against any liability to
the Trust, the Fund or its shareholders to which you would otherwise be subject
by reason of willful misfeasance. bad faith or gross negligence in the
performance of your duties, or by reason of your reckless disregard of your
obligations and duties hereunder. Any person, even though also employed by you,
who may be or become an employee of and paid by the Fund shall be deemed, when
acting within the scope of his or her employment by the Fund, to be acting in
such employment solely for the Fund and not as your employee or agent.
9. Duration and Termination of This Agreement. This Agreement shall remain
in force until September 30, 1992, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Trustees who are not parties
to this Agreement or interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval and (b) by
the Trustees of the Trust, or by the vote of a majority of the outstanding
voting securities of the Fund. The aforesaid requirement that continuance of
this Agreement be "specifically approved at least annually" shall be construed
in a manner consistent with the 1940 Act and the rules and regulations
thereunder.
This Agreement may be terminated with respect to the Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities of the Fund or by the Trust's Board of
4
<PAGE>
Trustees on 60 days' written notice to you, or by you on 60 days' written notice
to the Trust. This Agreement shall terminate automatically in the event of its
assignment.
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved by the vote of a majority of the outstanding voting
securities of the Fund and by the Trust's Board of Trustees, including a
majority of the Trustees who are not parties to this Agreement or interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval.
11. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Scudder California
Tax Free Trust" refers to the Trustees under the Declaration collectively as
trustees and not as individuals or personally, and that no shareholder of the
Fund, or Trustee, officer, employee or agent of the Trust, shall be subject to
claims against or obligations of the Trust or of the Fund to any extent
whatsoever, but that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as
set forth in the Declaration and you agree that the obligations assumed by the
Trust on behalf of the Fund pursuant to this Agreement shall be limited in all
cases to the Fund and its assets, and you shall not seek satisfaction of any
such obligation from the shareholders or any shareholder of the Fund or any
other series of the Trust, or from any Trustee, officer, employee or agent of
the Trust. You understand that the rights and obligations of each Fund, or
series, under the Declaration are separate and distinct from those of any and
all other series.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definitions
contained in Section 2(a) of the 1940 Act (particularly the definitions of
"affiliated person," "assignment" and "majority of the outstanding voting
securities"), as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the SEC by any rule, regulation or
order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
Scudder California Tax Free Trust
(on behalf of Scudder California Tax Free Money Fund)
By /s/ [ILLEGIBLE]
-----------------------------------------
President
The foregoing Agreement is hereby accepted as of the date thereof.
SCUDDER, STEVENS & CLARK, INC.
By /s/ [ILLEGIBLE]
-----------------------------------------
Managing Director
5
Exhibit 6(a)
SCUDDER CALIFORNIA TAX FREE FUND
175 Federal Street
Boston, Massachusetts 02110
June 1, 1987
Scudder Fund Distributors, Inc.
175 Federal Street
Boston, Massachusetts 02110
Underwriting Agreement
Dear Sirs:
Scudder California Tax Free Fund (hereinafter called the "Fund") is a
business trust organized under the laws of Massachusetts and is engaged in the
business of an investment company. The authorized capital of the Fund consists
of shares of beneficial interest, without par value ("Shares") currently
divided into two series ("Portfolios"). The Shares may be divided into
additional Portfolios and portfolios may be terminated from time to time by
action of the Trustees. The Fund has selected you to act as principal
underwriter (as such term is defined in Section 2(a)(29) of the Investment
Company Act of 1940, as amended (the 1940 Act")) of the Shares of the
Portfolios now or hereafter designated by the Trustees and you are willing to
act as such principal underwriter and to perform the duties and functions of
underwriter in the manner and on the terms and conditions hereinafter set forth.
Accordingly, the Fund hereby agrees with you as follows:
<PAGE>
1. Delivery of Documents. The Fund has furnished you with copies, properly
certified or authenticated of each of the following:
(a) Declaration of Trust of the Fund, dated May 3, 1983.
(b) Establishment and Designation of Series of Shares of Beneficial
Interest, Without Par Value, dated April 1, 1987.
(c) By-Laws of the Fund as in effect on the date hereof.
(d) Resolutions of the Board of Trustees of the Fund selecting you as
principal underwriter and approving this form of Agreement.
The Fund will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
The Fund will furnish you promptly with properly certified or
authenticated copies of any registration statement filed by it with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "1933 Act"), or the 1940 Act, together with any financial statements and
exhibits included therein, and all amendments or supplements thereto hereafter
filed.
2. Registration and Sale of Additional Shares. The Fund will from time to
time use its best efforts to register under the 1933 Act such number of Shares
not already so registered as
-2-
<PAGE>
you may reasonably be expected to sell on behalf of the Fund. You and the Fund
will cooperate in taking such action as may be necessary from time to time to
qualify Shares so registered for sale by you or the Fund in any states mutually
agreeable to you and the Fund, and to maintain such qualification. This
Agreement relates to the issue and sale of Shares that are duly authorized and
registered and available for sale by the Fund, including redeemed or repurchased
Shares if and to the extent that they may be legally sold and if, but only if,
the Fund sees fit to sell them.
3. Sale of Shares. Subject to the provisions of paragraphs 5 and 7 hereof
and to such minimum purchase requirements as may from time to time be currently
indicated in the Fund's prospectus or statement of additional information, you
are authorized to sell as agent on behalf of the Fund Shares authorized for
issue and registered under the 1933 Act. You may also purchase as principal
Shares for resale to the public. Such sales will be made by you on behalf of the
Fund by accepting unconditional orders to purchase Shares placed with you by
investors and such purchases will be made by you only after acceptance by you of
such orders. The sales price to the public of Shares shall be the public
offering price as defined in paragraph 6 hereof.
4. Solicitation of Orders. You will use your best efforts (but only in
states in which you may lawfully do so) to obtain from investors unconditional
orders for Shares authorized for issue by the Fund and registered under the 1933
Act, provided
-3-
<PAGE>
that you may in your discretion refuse to accept orders for Shares from any
particular applicant.
5. Sale of Shares by the Fund. Unless you are otherwise notified by the
Fund, any right granted to you to accept orders for Shares or to make sales on
behalf of the Fund or to purchase Shares for resale will not apply to (i) Shares
issued in connection with the merger or consolidation of any other investment
company with the Fund or its acquisition, by purchase or otherwise, of all or
substantially all of the assets of any investment company or substantially all
the outstanding shares of any such company, and (ii) to Shares that may be
offered by the Fund to shareholders of the Fund by virtue of their being such
shareholders.
6. Public Offering Price. All Shares sold to investors by you will be sold
at the public offering price. The public offering price for all accepted
subscriptions will be the net asset value per Share, determined in the manner
provided in the Fund's registration statements as from time to time in effect
under the 1933 Act and the 1940 Act, next after the order is accepted by you.
7. Suspension of Sales. If and whenever the determination of net asset
value is suspended and until such suspension is terminated, no further orders
for Shares shall be accepted by you except unconditional orders placed with you
before you had knowledge of the suspension. In addition, the Fund reserves the
right to suspend sales and your authority to accept orders
-4-
<PAGE>
for Shares on behalf of the Fund if, in the judgment of a majority of the Board
of Trustees or a majority of the Executive Committee of such Board, if such body
exists, it is in the b-est interests of the Fund to do so, such suspension to
continue for such period as may be determined by such majority; and in that
event, no Shares will be sold by you on behalf of the Fund while such suspension
remains in effect except for Shares necessary to cover unconditional orders
accepted by you before you had knowledge of the suspension.
8. Portfolio Securities. Portfolio securities of any Portfolio of the Fund
may be bought or sold by or through you and you may participate directly or
indirectly in brokerage commissions or "spread" in respect of transactions in
portfolio securities of any Portfolio of the Fund; provided, however, that all
sums of money received by you as a result of such purchases and sales or as a
result of such participation must, after reimbursement of your actual expenses
in connection with such activity, be paid over by you to or for the benefit of
the Fund.
9. Expenses. (a) The Fund will pay (or will enter into arrangements
providing that others than you will pay) all fees and expenses:
(1) in connection with the preparation, setting in type and
filing of any registration statement (including a
prospectus and statement of additional information)
under the 1933 Act or the 1940 Act, or both, and any
amendments or supplements thereto that may be made from
time to time;
-5-
<PAGE>
(2) in connection with the registration and qualification of
Shares for sale in the various jurisdictions in which
the Fund shall determine it advisable to qualify such
Shares for sale (including registering the Fund as a
broker or dealer or any officer of the Fund or other
person as agent or salesman of the Fund in any such
jurisdictions);
(3) of preparing, setting in type, printing and mailing any
notice, proxy statement, report, prospectus or other
communication to shareholders of the Fund in their
capacity as such;
(4) of preparing, setting in type, printing and mailing
prospectuses annually, and any supplements thereto, to
existing shareholders;
(5) in connection with the issue and transfer of Shares
resulting from the acceptance by you of orders to
purchase Shares placed with you by investors, including
the expenses of printing and mailing confirmations of
such purchase orders and the expenses of printing and
mailing a prospectus included with the confirmation of
such orders;
(6) of any issue taxes or any initial transfer taxes;
(7) of WATS (or equivalent) telephone lines other than the
portion allocated to you in this paragraph 9;
(8) of wiring funds in payment of Share purchases or in
satisfaction of redemption or repurchase requests,
unless such expenses are paid for by the investor or
shareholder who initiates the transaction;
(9) of the cost of printing and postage or business reply
envelopes sent to Fund share-holders;
(10) of one or more CRT terminals connected with the computer
facilities of the transfer agent other than the portion
allocated to you in this paragraph 9;
-6-
<PAGE>
(11) permitted to be paid or assumed by the Fund pursuant to
a plan ("12b-1 Plan"), if any, adopted by the Fund in
conformity with the requirements of Rule 12b-l under the
1940 Act ("Rule 12b-1") or any successor rule,
notwithstanding any other provision to the contrary
herein;
(12) of the expense of setting in type, printing and postage
of the periodic newsletter to shareholders other than
the portion allocated to you in this paragraph 9; and
(13) of the salaries and overhead of persons employed by you
as shareholder representatives other than the portion
allocated to you in this paragraph 9.
(b) You shall pay or arrange for the payment of all fees and
expenses:
(1) of printing and distributing any prospectuses or reports
prepared for your use in connection with the offering of
Shares to the public;
(2) of preparing, setting in type, printing and mailing any
other literature used by you in connection with the
offering of Shares to the public;
(3) of advertising in connection with the offering of Shares
to the public;
(4) incurred in connection with your registration as a
broker or dealer or the registration or qualification of
your officers, directors, agents or representatives
under Federal and state laws;
(5) of that portion of WATS (or equivalent) telephone lines,
allocated to you on the basis of use by investors (but
not shareholders) who request information or
prospectuses;
(6) of that portion of the expense of setting in type,
printing and postage of the periodic newsletter to
shareholders attributable to promotional material
included in such newsletter at your request concerning
investment
-7-
<PAGE>
companies other than the Fund or concerning the Fund to
the extent you are required to assume the expense
thereof pursuant to paragraph 9(b)(8), except such
material which is limited to information, such as
listings of other investment companies and their
investment objectives, given in connection with the
exchange privilege as from time to time described in the
Fund's prospectus;
(7) of that portion of the salaries and overhead of persons
employed by you as shareholder representatives
attributable to the time spent by such persons in
responding to requests from investors, but not
shareholders, for information about the Fund; and
(8) of any activity which is primarily intended to result in
the sale of Shares, unless a 12b-1 Plan shall be in
effect which provides that the Fund shall bear some or
all of such expenses, in which case the Fund shall bear
such expenses in accordance with such Plan;
(9) of that portion of one or more CRT terminals connected
with the computer facilities of the transfer agent
attributable to your use of such terminal(s) to gain
access to such of the transfer agent's records as also
serve as your records.
Expenses which are to be allocated between you and the Fund shall be
allocated pursuant to reasonable procedures or formulae mutually agreed upon
from time to time, which procedures or formulae shall to the extent practicable
reflect studies of relevant empirical data.
10. Conformity with Law. You agree that in selling Shares you will duly
conform in all respects with the laws of the United States and any state in
which Shares may be offered for sale by you pursuant to this Agreement and to
the rules and regulations of the National Association of Securities Dealers,
Inc., of which you are a member.
-8-
<PAGE>
11. Independent Contractor. You shall be an independent contractor and
neither you nor any of your officers or employees is or shall be an employee of
the Fund in the performance or your duties hereunder. You shall be responsible
for your own conduct and the employment, control and conduct of your agents and
employees and for injury to such agents or employees or to others through your
agents or employees. You assume full responsibility for your agents and
employees under applicable statutes and agree to pay all employee taxes
thereunder.
12. Indemnification. You agree to indemnify and hold harmless the Fund and
each of its Trustees and officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act, against any and all losses,
claims, damages, liabilities or litigation (including legal and other expenses)
to which the Fund or such Trustees, officers, or controlling person may become
subject under such Act, under any other statute, at common law or otherwise,
arising out of the acquisition of any Shares by any person which (i) may be
based upon any wrongful act by you or any of your employees or representatives,
or (ii) may be based upon any untrue statement or alleged untrue statement of a
material fact contained in a registration statement (including a prospectus or
statement of additional information) covering Shares or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
therein not misleading if such
-9-
<PAGE>
statement or omission was made in reliance upon information furnished to the
Fund by you, or (iii) may be incurred or arise by reason of your acting as the
Fund's agent instead of purchasing and reselling Shares as principal in
distributing the Shares to the public, provided, however, that in no case (i) is
your indemnity in favor of a Trustee or officer or any other person deemed to
protect such Trustee or officer or other person against any liability to which
any such person would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance of his duties or by reason of
his reckless disregard of obligations and duties under this Agreement or (ii)
are you to be liable under your indemnity agreement contained in this paragraph
with respect to any claim made against the Fund or any person indemnified unless
the Fund or such person, as the case may be, shall have notified you in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon the Fund or
upon such person (or after the Fund or such person shall have received notice of
such service on any designated agent), but failure to notify you of any such
claim shall not relieve you from any liability which you may have to the Fund or
any person against whom such action is brought otherwise than on account of your
indemnity agreement contained in this paragraph. You shall be entitled to
participate, at your own expense, in the defense, or, if you so elect, to assume
the defense of any suit brought to enforce
-10-
<PAGE>
any such liability, but if you elect to assume the defense, such defense shall
be conducted by counsel chosen by you and satisfactory to the Fund, to its
officers and/or Trustees, or to any controlling person or persons, defendant or
defendants in the suit. In the event that you elect to assume the defense of any
such suit and retain such counsel, the Fund, such officers and Trustees or
controlling person or persons, defendant or defendants in the suit shall bear
the fees and expenses or any additional counsel retained by them, but, in case
you do not elect to assume the defense of any such suit, you will reimburse the
Fund, such officers and Trustees or controlling person or persons, defendant or
defendants in such suit for the reasonable fees and expenses of any counsel
retained by them. You agree promptly to notify the Fund of the commencement of
any litigation or proceedings against it in connection with the issue and sale
of any Shares.
The Fund agrees to indemnify and hold harmless you and each of your
directors and officers and each person, if any, who controls you within the
meaning of Section 15 of the 1933 Act, against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses) to which
you or such directors, officers or controlling person may become subject under
such Act, under any other statute, at common law or otherwise, arising out of
the acquisition of any Shares by any person which (i) may be based upon any
wrongful act by the Fund or any of its employees or representatives, or (ii) may
be
-11-
<PAGE>
based upon any untrue statement or alleged untrue statement of a material fact
contained in a registration statement (including a prospectus or statement of
additional information) covering Shares or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon information
furnished to you by the Fund; provided, however, that in no case (i) is the
Fund's indemnity in favor of a director or officer or any other person deemed to
protect such director or officer or other person against any liability to which
any such person would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii) is the
Fund to be liable under its indemnity agreement contained in this paragraph with
respect to any claims made against you or any such director, officer or
controlling person unless you or such director, officer or controlling person,
as the case may be, shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon you or upon such director,
officer or controlling person (or after you or such director, officer or
controlling person shall have received notice of such service on any designated
agent), but failure to notify
-12-
<PAGE>
the Fund of any such claim shall not relieve it from any liability which it may
have to the person against whom such action is brought otherwise than on account
of its indemnity agreement contained in this paragraph. The Fund will be
entitled to participate at its own expense in the defense, or, if it so elects,
to assume the defense of any suit brought to enforce any such liability, but if
the Fund elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to you, your directors, officers or
controlling person or persons, defendant or defendants in the suit. In the event
that the Fund elects to assume the defense of any such suit and retain such
counsel, you, your directors, officers or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them, but, in case the Fund does not elect to
assume the defense of any such suit, it will reimburse you or such directors,
officers or controlling person or persons, defendant or defendants in the suit,
for the reasonable fees and expenses of any counsel retained by them. The Fund
agrees promptly to notify you of the commencement of any litigation or
proceedings against it or any of its officers or Trustees in connection with the
issuance or sale of any Shares.
13. Authorized Representations. The Fund is not authorized to give any
information or to make any representations on behalf of you other than the
information and representations
-13-
<PAGE>
contained in a registration statement (including a prospectus or statement of
additional information) covering Shares, as such registration statement and
prospectus may be amended or supplemented from time to time.
You are not authorized to give any information or to make any
representations on behalf of the Fund or in connection with the sale of Shares
other than the information and representations contained in a registration
statement, (including a prospectus or statement of additional information)
covering Shares, as such registration statement may be amended or supplemented
from time to time. No person other than you is authorized to act as principal
underwriter (as such term is defined in the 1940 Act) for the Fund.
14. Duration and Termination of this Agreement. This Agreement shall
become effective upon the date first written above and will remain in effect for
a period of two years from the date hereof and from year to year thereafter, but
only so long as such continuance is specifically approved at least annually by
the vote of a majority of the Trustees who are not interested persons of you or
of the Fund, cast in person at a meeting called for the purpose of voting on
such approval, and by vote of the Board of Trustees or of a majority of the
outstanding voting securities of the Fund. This Agreement may, 60 days written
notice, be terminated at any time without the payment of any penalty, by the
Board of Trustees of the Fund, by a vote of a majority of the outstanding voting
securities of
-14-
<PAGE>
the Fund, or by you. This Agreement will automatically terminate in the event of
its assignment. In interpreting the provisions of this paragraph 14, the
definitions contained in Section 2(a) of the 1940 Act (particularly the
definitions of "interested person," "assignment" and "majority of the
outstanding voting securities"), as modified by any applicable order of the
Securities and Exchange Commission, shall be applied.
15. Amendment of this Agreement. No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought. If the Fund should at any time deem it
necessary or advisable in the best interests of the Fund that any amendment of
this Agreement be made in order to comply with the recommendations or
requirements of the Securities and Exchange Commission or other governmental
authority or to obtain any advantage under state or federal tax laws and should
notify you of the form of such amendment, and the reasons therefor, and if you
should decline to assent to such amendment, the Fund may terminate this
Agreement forthwith. If you should at any time request that a change be made in
the Fund's Declaration of Trust or By-laws or in its methods of doing business,
in order to comply with any requirements of federal law or regulations of the
Securities and Exchange Commission or of a national securities association of
which you are or may be
-15-
<PAGE>
a member relating to the sale of shares of the Fund, and the Fund should not
make such necessary change within a reasonable time, you may terminate this
Agreement forthwith.
16. Termination of Prior Agreements. This Agreement upon its effectiveness
terminates and supersedes all prior underwriting contracts between the parties.
17. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
The name "Scudder California Tax Free Fund" is the designation of the
Trustees for the time being under a Declaration of Trust dated May 3, 1983, as
amended from time to time, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims against the
Fund as neither the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Fund. No
Portfolio of the Fund shall be liable for claims against any other Portfolio of
the Fund.
You acknowledge that the Fund may, at any time such action is deemed
desirable, suspend or terminate sales of Shares of a Portfolio and that upon
your receipt of notice of such action by the Fund you will, for such period as
determined by the
-16-
<PAGE>
Fund, accept no further orders for Shares of that Portfolio except unconditional
orders placed with you before you had knowledge of such action. You acknowledge
further that the Fund may from time to time set upper and lower limits on the
number of Shares of a Portfolio for which a purchaser may subscribe and may
limit sales of Shares of a Portfolio to their existing shareholders.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Fund, whereupon this letter shall become a binding contract.
Very truly yours,
SCUDDER CALIFORNIA TAX FREE FUND
By: /s/ David S. Lee
---------------------------------
The foregoing Agreement is hereby accepted as of the date thereof.
SCUDDER FUND DISTRIBUTORS, INC.
By: /s/ Daniel Pierce
---------------------------------
-7-
CUSTODIAN CONTRACT
This Contract between Scudder California Tax Free Fund (the "Fund"), a
Massachusetts business trust created under a Declaration of Trust dated May 3,
1983 as the same may be amended from time to time, (the "Declaration of Trust")
and State Street Bank and Trust Company (the "Custodian"),
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
I. Employment of Custodian and Property to be Held by It; Application of
Contract
The Fund hereby employs the Custodian as the Custodian of its assets
pursuant to the provisions of the Declaration of Trust and the By-Laws of the
Fund. The Fund agrees to deliver to the Custodian all securities and cash owned
by it, and all payments of income, payments of principal or capital
distributions received by it with respect to all securities owned by the Fund
from time to time, and the cash consideration received by it for such new or
treasury shares of beneficial interest, without par value, ("Shares") of all
series whenever created (each a "Portfolio") of the Fund as may be issued or
sold from time to time. The Custodian shall not be responsible for any property
of the Fund held or received by the Fund and not delivered to the Custodian.
The Custodian may from time to time employ one or more sub-custodians, but
only in accordance with an applicable vote by the Trustees of the Fund, and
provided that the Custodian shall have
<PAGE>
no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian.
The Fund may from time to time employ a special custodian in connection
with certain repurchase agreements entered into by the Fund, with the terms of
such employment to be governed by a special custodian agreement between the Fund
and the special custodian. However, the Fund agrees not to employ any such
special custodian until the Fund and the Custodian have entered into a master
repurchase agreement or other agreement which sets forth the terms governing the
relationship, including the method of transfer of securities and cash, between
the Custodian and such special custodian.
State Street acknowledges that additional Portfolios may be established
and that Portfolios may be terminated, from time to time by action of the
trustees of the Fund. If the context requires and unless otherwise specifically
provided herein, the term "Fund" as used in this Contract shall mean in addition
each subsequently created separate Portfolio.
II. Duties of the Custodian with Respect to Property of the Fund Held by the
Custodian
A. Holding Securities. The Custodian shall hold and physically segregate in a
separate account for the Fund all non-cash property of the Fund, including
all securities owned by the Fund, except that securities which are
maintained pursuant to Section L of Article II hereof in a clearing agency
which
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<PAGE>
acts as a securities depository or in a book-entry system authorized by
the U.S. Department of the Treasury, collectively referred to herein as
"Securities Systems", shall be identified as belonging to the Fund.
B. Delivery of Securities. The Custodian shall release and deliver securities
owned by the Fund held by the Custodian or in a Securities Systems account
of the Custodian only upon receipt of proper instructions, which may be
continuing instructions when deemed appropriate by the parties, and only
in the following cases:
1) Upon sale of such securities for the account of the Fund and receipt
of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section L hereof;
4) To the depository agent in connection with tender or other similar
offers for portfolio securities of the Fund;
5) To the Issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
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<PAGE>
6) To the Issuer thereof, or its agent, for transfer into the name of
the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section K of Article II hereof or into the name or
nominee name of any sub-custodian appointed pursuant to Article I
hereof; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate face
amount or number of units; provided that, in any such case, the new
securities are to be delivered to the Custodian;
7) To the broker selling the same for examination in accordance with
the "street delivery" custom; provided that the Custodian shall
adopt such procedures, as the Fund from time to time shall approve,
to ensure their prompt return to the Custodian by the broker in the
event the broker elects not to accept them;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the Issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
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<PAGE>
9) In the case of warrants, rights or similar securities, for the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or temporary
securities for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
10) For delivery in connection with any loans of securities made by the
Fund, but only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund, which may be in the
form of cash or obligations issued by the United States government,
its agencies or instrumentalities;
11) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against
receipt of amounts borrowed;
12) Upon receipt of instructions from the transfer agent for the Fund
(the "Transfer Agent"), for delivery to the Transfer Agent or to
holders of shares in connection with distributions in kind, as may
be described from time to time in the Fund's currently effective
prospectus, in satisfaction of requests by holders of Shares for
repurchase or redemption; and
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<PAGE>
13) For any other proper corporate purposes, but only upon receipt of,
in addition to proper instructions, a certified copy of a resolution
of the Trustees or of the Executive Committee signed by an officer
of the Fund and certified by the Secretary or an Assistant
Secretary, specifying the securities to be delivered, setting forth
the purpose for which such delivery is to be made, declaring such
purposes to be proper corporate purposes, and naming the person or
persons to whom delivery of such securities shall be made.
C. Registration of Securities. Securities held by the Custodian (other than
bearer securities) shall be registered in the name of the Fund or in the
name of any nominee of the Fund or of any nominee of the Custodian which
nominee shall be assigned exclusively to the Fund, unless the Fund has
authorized in writing the appointment of a nominee to be used in common
with other registered investment companies having the same investment
adviser as the Fund, or in the name or nominee name of any agent appointed
pursuant to Section K of Article II hereof or in the name or nominee name
of any sub-custodian or special custodian appointed pursuant to Article I
hereof. All securities accepted by the Custodian on behalf of the Fund
under the terms of this Contract shall be in "street" or other good
delivery form.
D. Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the name of the Fund, sub-
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<PAGE>
ject only to draft or order by the Custodian acting pursuant to the terms
of this Contract, and shall hold in such account or accounts, subject to
the provisions hereof, all cash received by it from or for the account of
the Fund, other than cash maintained by the Fund in a bank account
established and used in accordance with Rule 17f-3 under the Investment
Company Act of 1940, as amended. Funds held by the Custodian for the Fund
may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as
it may in its discretion deem necessary or desirable; provided, however,
that every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940, as amended, and that
each such bank or trust company and the funds to be deposited with each
such bank or trust company shall be approved by vote of a majority of the
Trustees of the Fund. Such funds shall be deposited by the Custodian in
its capacity as Custodian and shall be withdrawable by the Custodian only
in that capacity.
E. Payments for Shares. The Custodian shall receive from the distributor of
the Fund's Shares or from the Transfer Agent and deposit into the Fund's
account such payments as are received for Shares of the Fund issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund and the Transfer Agent of any receipt by it of
payments for Shares of the Fund.
-7-
<PAGE>
F. Investment and Availability of Federal Funds. Upon mutual agreement
between the Fund and the Custodian, the Custodian shall, upon the receipt
of proper instructions, which may be continuing instructions when deemed
appropriate by the parties,
1) invest in such instruments as may be set forth in such instructions
on the same day as received all federal funds received after a time
agreed upon between the Custodian and the Fund; and
2) make federal funds available to the Fund as of specified times
agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of the Fund which
are deposited into the Fund's account.
G. Collection of Income. The Custodian shall collect on a timely basis all
income and other payments with respect to registered securities held
hereunder to which the Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis all
income and other payments with respect to bearer securities if, on the
date of payment by the Issuer, such securities are held by the Custodian
or agent thereof and shall credit such income, as collected, to the Fund's
custodian account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and other
income items requiring presentation as and when they become due and shall
collect interest when due on securities held hereunder.
-8-
<PAGE>
H. Payment of Fund Moneys. Upon receipt of proper instructions, which may be
continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out moneys of the Fund in the following cases only:
1) Upon the purchase of securities for the account of the Fund but only
(a) against the delivery of such securities to the Custodian (or any
bank, banking firm or trust company doing business in the United
States or abroad which is qualified under the Investment Company Act
of 1940, as amended, or is permitted by a rule under such Act, to
act as a custodian and has been designated by the Custodian as its
agent for this purpose) or sub-custodian or special custodian
registered in the name of the Fund or in the name of a nominee of
the Custodian referred to in Section C of Article II hereof or in
proper form for transfer; (b) in the case of a purchase effected
through a Securities System, in accordance with the conditions set
forth in Section L of Article II hereof or (c) in the case of
repurchase agreements entered into between the Fund and the
Custodian, or another bank, (i) against delivery of the securities
either in certificate form or through an entry crediting the
Custodian's, sub-custodian's or special custodian's account at the
Federal Reserve Bank with such securities or
-9-
<PAGE>
(ii) against delivery of the receipt evidencing purchase by the Fund
of securities owned by the Custodian or other bank along with
written evidence of the agreement by the Custodian or other bank to
repurchase such securities from the Fund;
2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section B of Article II hereof;
3) For the redemption or repurchase of Shares issued by the Fund as set
forth in Section J of Article II hereof;
4) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account
of the Fund: interest, taxes, management, accounting, transfer agent
and legal fees, and operating expenses of the Fund whether or not
such expenses are to be in whole or part capitalized or treated as
deferred expenses;
5) For the payment of any dividends declared pursuant to the governing
documents of the Fund;
6) For any other proper purposes, but only upon receipt of, in addition
to proper instructions, a certified copy of a resolution of the
Trustees or of the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or an Assistant
Secretary, specifying the amount of such
-10-
<PAGE>
payment, setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
I. Liability for Payment in Advance of Receipt of Securities Purchased. In
any and every case where payment for purchase of securities for the
account of the Fund is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions from
the Fund to so pay in advance, the Custodian shall be absolutely liable to
the Fund for such securities to the same extent as if the securities had
been received by the Custodian, except that in the case of repurchase
agreements entered into by the Fund with a bank which is a member of the
Federal Reserve System, the Custodian may transfer funds to the account of
such bank prior to the receipt of written evidence that the securities
subject to such repurchase agreement have been transferred by book-entry
into a segregated non-proprietary account of the Custodian maintained with
the Federal Reserve Bank of Boston or of the safe-keeping receipt,
provided that such securities have in fact been so transferred by
book-entry.
J. Payments for Repurchases or Redemptions of Shares of the Fund. From such
funds as may be available for the purpose but subject to the limitations
of the Declaration of Trust and any applicable votes of the Trustees of
the Fund pursuant
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<PAGE>
thereto, the Custodian shall, upon receipt of instructions from the
Transfer Agent, make funds available for payment to holders of Shares who
have delivered to the Transfer Agent a request for redemption or
repurchase of their Shares. In connection with the redemption or
repurchase of Shares of the Fund, the Custodian is authorized upon receipt
of instructions from the Transfer Agent to wire funds to or through a
commercial bank designated by the redeeming shareholders. In connection
with the redemption or repurchase of Shares of the Fund, the Custodian
shall honor checks drawn on the Custodian by a holder of Shares, which
checks have been furnished by the Fund to the holder of Shares, when
presented to the Custodian in accordance with such procedures and controls
as are mutually agreed upon from time to time between the Fund and the
Custodian.
K. Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such of
the provisions of this Article II as the Custodian may from time to time
direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of any of its responsibilities or liabilities
hereunder.
L. Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain securities owned by the Fund in a clearing agency
registered with the Securities and Exchange
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<PAGE>
Commission under Section 17A of the Securities Exchange Act of 1934, which
acts as a securities depository, or in the book-entry system authorized by
the U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities Systems" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Fund in a Securities System
provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian, or otherwise for customers.
2) The records of the Custodian with respect to securities of the Fund
which are maintained in a Securities System shall identify by
book-entry those securities belonging to the Fund.
3) The Custodian shall pay for securities purchased for the account of
the Fund upon (i) receipt of advice from the Securities System that
such securities have been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect such
payment and transfer for the account of the Fund. The Custodian
shall
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<PAGE>
transfer securities sold for the account of the Fund upon (i)
receipt of advice from the Securities System that payment for such
securities has been transferred to the Account, and (ii) the making
of an entry on the records of the Custodian to reflect such transfer
and payment for the account of the Fund. Copies of all advices from
the Securities System of transfers of securities for the account of
the Fund shall identify the Fund, be maintained for the Fund by the
Custodian and be provided to the Fund at its request. The Custodian
shall furnish the Fund confirmation of each transfer to or from the
account of the Fund in the form of a written advice or notice and
shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System for the
account of the Fund on the next business day.
4) The Custodian shall provide the Fund with any report obtained by the
Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the Securities System.
5) The Custodian shall have received the initial or annual certificate,
as the case may be, required by Article IX hereof.
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<PAGE>
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from any failure of
the Custodian or any such agent to enforce effectively such rights
as it may have against the Securities System; at the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the Securities System or
any other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the Fund has not
been made whole for any such loss or damage.
M. Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to securities of the Fund held by it and in connection with
transfers of securities.
N. Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Fund or a
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<PAGE>
nominee of the Fund, all proxies, without indication of the manner in
which such proxies are to be voted, and shall promptly deliver to the Fund
such proxies, all proxy soliciting materials and all notices relating to
such securities.
0. Communications Relating to Fund Portfolio Securities. The Custodian shall
transmit promptly to the Fund all written information (including, without
limitation, pendency of calls and maturities of securities and expirations
of rights in connection therewith) received by the Custodian from issuers
of the securities being held for the Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Fund all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or his
agents) making the tender or exchange offer. If the Fund desires to take
action with respect to any tender offer, exchange offer or any other
similar transaction, the Fund shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
P. Proper Instructions. "Proper instructions" as used throughout this Article
II means a writing signed or initialled by one or more person or persons
as the Trustees shall have from time to time authorized. Each such writing
shall set forth the specific transaction or type of transaction involved,
including a specific statement of the purpose for which such action is
requested. Oral instructions will be considered proper instructions if the
Custodian reasonably
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<PAGE>
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Fund shall
cause all oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Trustees of the Fund accompanied by a detailed
description of procedures approved by the Trustees, "proper instructions"
may include communications effected directly between electro-mechanical or
electronic devices provided that the Trustees and the Custodian are
satisfied that such procedures afford adequate safeguards for the Fund's
assets.
Q. Actions Permitted without Express Authority. The Custodian may in its
discretion, without express authority from the Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
contract, provided that all such payments shall be accounted for to
the Fund;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the secur-
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<PAGE>
ities and property of the Fund except as otherwise directed by the
Trustees of the Fund.
R. Evidence of Authority. The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other instrument or
paper believed by it to be genuine and to have been properly executed by
or on behalf of the Fund. The Custodian may receive and accept a certified
copy of a vote of the Trustees of the Fund as conclusive evidence (a) of
the authority of any person to act in accordance with such vote or (b) of
any determination or of any action by the Trustees pursuant to the
Declaration of Trust as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.
III. Duties of Custodian with Respect to Books of Account and Calculation of
Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Trustees of the Fund to keep the books of
account of the Fund and/or compute the net asset value per share of the
outstanding shares of the Fund or, if directed in writing to do so by the Fund,
shall itself keep such books of account and/or compute such net asset value per
share. The Custodian shall also upon request calculate the net income of the
Fund and, if instructed in writing by an officer of the Fund to do so, shall
advise the Transfer Agent periodically of the division of such net income among
its various components. The calculations of the net asset value per share and
the income
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of the Fund shall be made at the time or times described from time to time in
the Fund's currently effective prospectus.
IV. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, as amended,
with particular attention to Section 31 thereof and Rules 31a-l and 31a-2
thereunder, applicable federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the Fund. All such
records shall be the property of the Fund and shall at all times during the
regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities owned by the Fund and
held by the Custodian and shall, when requested to do so by the Fund and for
such compensation as shall be agreed upon between the Fund and the Custodian,
include certificate numbers in such tabulations.
V. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of
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the Fund's Form N-1, and Form N-1R or other annual reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
VI. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, which shall be of sufficient scope and in sufficient detail, as
may reasonably be required by the Fund, to provide reasonable assurance that any
material inadequacies would be disclosed, shall state in detail material
inadequacies disclosed by such examination, and, if there are no such
inadequacies, shall so state.
VII. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund and the Custodian.
VIII. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice,
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request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties. The Custodian shall
be held to the exercise of reasonable care in carrying out the provisions of
this Contract, but shall be kept indemnified by and shall be without liability
to the Fund for any action taken or omitted by it in good faith without
negligence. It shall be entitled to rely on and may act upon advice of counsel
(who may be counsel for the Fund) on all matters, and shall be without liability
for any action reasonably taken or omitted pursuant to such advice.
Notwithstanding the foregoing, the responsibility of the Custodian with respect
to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Fund.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
IX. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the
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other party, such termination to take effect not sooner than thirty (30) days
after the date of such delivery or mailing; provided, however that the Custodian
shall not act under Section L of Article II hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary that the
Trustees of the Fund have approved the initial use of a particular Securities
System and the receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Trustees have reviewed the use by the Fund of such Securities
System, as required in each case by Rule 17f-4 under the Investment Company Act
of 1940, as amended; provided further, however, that the Fund shall not amend or
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Declaration of Trust or the Fund's By-Laws,
and further provided, that the Fund may at any time by action of its Trustees
(i) substitute another bank or trust company for the Custodian by giving notice
as described above to the Custodian, or (ii) immediately terminate this Contract
in the event of the appointment of a conservator or receiver for the Custodian
by the Federal Deposit Insurance Corporation or Commissioner of Banks for the
Commonwealth of Massachusetts or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
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<PAGE>
X. Successor Custodian
If a successor custodian shall be appointed by the Trustees of the Fund,
the Custodian shall, upon termination, deliver to such successor custodian at
the office of the Custodian, duly endorsed and in the form for transfer, all
securities then held by it hereunder.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Trustees of the
Fund, deliver at the office of the Custodian such securities, funds and other
properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Trustees shall have been delivered to the
Custodian on or before the date when such termination shall become effective,
then the Custodian shall have the right to deliver to a bank or trust company,
which is a "bank" as defined in the Investment Company Act of 1940, as amended,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of term-
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<PAGE>
ination hereof owing to failure of the Fund to procure the certified copy of
vote referred to or of the Trustees to appoint a successor custodian, the
Custodian shall be entitled to fair compensation for its services during such
period as the Custodian retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and effect.
XI. Special Provisions Concerning Repurchase Agreements.
Notwithstanding anything to the contrary in this Agreement, upon receipt
of proper instructions, which may be standing instructions, in connection with
repurchase agreements, the Custodian shall transmit, prior to receipt on behalf
of the Fund of any securities or other property, funds from the Fund's custodian
account to a special custodian approved by the Trustees of the Fund, which funds
shall be used to pay for securities to be purchased by the Fund subject to the
Fund's obligation to sell and the seller's obligation to repurchase such
securities. In such a case, the securities shall be held in the custody of the
special custodian.
XII. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provi-
-24-
<PAGE>
sions shall contravene any applicable federal or state regulations or any
provision of the Declaration of Trust or the By-Laws of the Fund. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
XIII. Trustees
All references to actions of or by Trustees herein shall require action by
such Trustees acting as a board or formally constituted group and not
individually.
XIV. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts.
The name "Scudder California Tax Free Fund" is the designation of the
Trustees for the time being under a Declaration of Trust dated May 3, 1983 and
all persons dealing with the Fund must look solely to the property of the Fund
for the enforcement of any claims against the Fund as neither the Trustees,
officers, agents or shareholders assume any personal liability for obligations
entered into on behalf of the Fund.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly
-25-
<PAGE>
authorized representative and its seal to be hereunder affixed as of the 14th
day of June, 1983.
SEAL SCUDDER CALIFORNIA TAX FREE FUND
By /s/ David S. Lee
--------------------------------------
[Title] President
SEAL STATE STREET BANK AND TRUST COMPANY
By /s/ [ILLEGIBLE]
--------------------------------------
[Title] Vice President
-26-
Exhibit 8(a)(2)
[LOGO] State Street
STATE STREET BANK AND TRUST COMPANY
Custodian Fee Schedule
SCUDDER, STEVENS & CLARK FUNDS
(See Attachment "A")
Effective October 1, 1986
- --------------------------------------------------------------------------------
I. Administration
Custody, Portfolio and Fund Accounting Service - Maintain custody of
fund assets. Settle portfolio purchases and sales. Report buy and
sell fails. Determine and collect portfolio income. Make cash
disbursements and report cash transactions. Maintain investment
ledgers, provide selected portfolio transactions, position and
income reports. Maintain general ledger and capital stock accounts.
Prepare daily trial balance. Calculate net asset value daily.
Provide selected general ledger reports. Securities yield or market
value quotations will be provided to State Street by the fund.
The administration fee shown below is an annual charge, billed and
payable monthly, based on average monthly net assets.
ANNUAL FEES PER PORTFOLIO
Custody, Portfolio
Fund Net Assets and Fund Accounting
--------------- -------------------
First $20 Million 1/10 of 1%
Next $80 Million 1/ 25 of 1%
Excess 1/100 of 1%
Minimum Monthly charges As stated in attachment "A"
and $2,000 for all new funds
II. Portfolio Trades - For each line item processed
State Street Bank Repos $ 7.00
DTC or Fed Book Entry $12.00
New York Physical Settlements $25.00
All other trades $16.00
<PAGE>
X. Automated Pricing
Monthly Base Fee $175.00*
Monthly Quote Charge -
- Municipal Bonds via Muller Data $ 21.00
- Municipal Bonds via Kenny Information
Systems $ 16.00
- Government, Corporate and Convertible
Bonds via Merrill Lynch $ 11.00
- Corporate and Government Funds via
Muller Data $ 11.00
- Options, Futures and Private Placements $ 6.00
- Foreign Equities and Bonds via Extel Ltd. $ 6.00
- Listed Equities, OTC Equities, and Bonds $ 6.00
- Corporate, Municipal, Convertible and
Government Bonds, Adjustable Pate Preferred
Stocks via IDSI $ 6.00
For billing purposes, the monthly quote charge will be based on the
average number of positions in the portfolio.
XI. Special Services
Fees for activities of a non-recurring nature such as fund
consolidations or reorganizations, extraordinary security shipments
and the preparation of special reports will be subject to
negotiation. Fees for tax accounting/recordkeeping for options,
financial futures, and other special items will be negotiated
separately.
* Does not apply to Variable Life Series
<PAGE>
III. Options
Option charge for each option written or
closing contract, per issue, per broker $ 25.00
Option expiration charge, per issue, per broker $ 15.00
Option exercised charge, per issue, per broker $ 15.00
IV. Interest Rate Futures
Transactions -- no security movement $ 8.00
V. Coupon Bonds
Monitoring for calls and processing coupons --
for each coupon issue held -- monthly charge $ 5.00
VI. Holdings Charge
For each issue maintained -- monthly charge $ 5.00
VII. Principal Reduction Payments
Per paydown $ 3.00
VIII. Dividend Charges (For items held at the Request
of Traders over record date in street form) $ 50.00
IX. Earnings Credit
A balance credit equal to 75% of the 90 day CD rate in effect the
last business day of each month will be applied to the Custodian
Demand Deposit Account balance of each fund, net of check redemption
service overdrafts, on a pro-rated basis against the fund's
custodian fee, excluding out-of-pocket expenses. The balance credit
will be cumulative and carried forward each month. Any excess credit
remaining at year-end (December 31) will not be carried forward.
<PAGE>
XII. Out-of-Pocket Expenses
A billing for the recovery of applicable out-of-pocket expenses will
be made as of the end of each month. Out-of-pocket expenses include,
but are not limited to the following:
Telephone
Wire Charges ($4.70 per wire in and $4.55 out)
Postage and Insurance
Courier Service
Duplicating
Legal Fees
Supplies Related to Fund Records
Rush Transfer -- $8.00 Each
Transfer Fees
Sub-custodian Charges
Price Waterhouse Audit Letter
Federal Reserve Fee for Return Check items over $2,500
$4.25
GNMA Transfer - $15 each
XIII. Payment
The above fees will be charged against the fund's custodial checking
account five (5) days after the invoice is mailed the fund's
offices.
SCUDDER, STEVENS & CLARK FUNDS STATE STREET BANK & TRUST CO.
By /s/ David S. Lee By /s/ [ILLEGIBLE]
------------------------------ ------------------------------
Title President Title Vice President
Date October 7, 1986 Date October 7, 1986
<PAGE>
ATTACHMENT "A"
[LOGO] State Street
Fund No. Fund Name Monthly Minimum
- -------- --------- ---------------
7201 Scudder Income $1,000
7202 Scudder Growth & Income 1,000
7203 Scudder Capital Growth 1,000
7217 Scudder Government Mortgage Securities 2,000
7208 Scudder Cash Investment Trust 1,500
7209 Scudder Managed Muni Bond 1,500
7211 Scudder Government Money 1,500
7290 Scudder California Tax Free 1,500
7291 Scudder New York Tax Free 1,500
7241 Scudder Global 2,500
7232 Scudder Target General 1986 1,000
7233 Scudder Target General 1987 1,000
7234 Scudder Target General 1990 1,000
7240 Scudder Target General 1994 1,000
7237 Scudder Target Government 1986 1,000
7238 Scudder Target Government 1987 1,000
7239 Scudder Target Government 1990 1,000
7260 Scudder Tax Free Target 1987 1,000
7261 Scudder Tax Free Target 1990 1,000
7262 Scudder Tax Free Target 1993 1,000
7251 Scudder Tax Free Target 1996 1,000
7264 Scudder U.S. Government Zero Coupon 1990 1,000
7265 Scudder U.S. Government Zero Coupon 1995 1,000
7266 Scudder U.S. Government Zero Coupon 2000 1,000
7267 Scudder U.S. Government Zero Coupon 2005 1,000
7268 Scudder U.S Government Zero Coupon 2010 1,000
7213 Scudder Variable Life Money Market 1,000
7214 Scudder Variable Life Equity 1,000
7215 Scudder Variable Life Diversified 1,000
7216 Scudder Variable Life Bond 1,000
7210 Scudder Tax Free Money Fund 1,500
7253 Scudder Variable Life Zero Coupon 1990 1,000
7254 Scudder Variable Life Zero Coupon 1995 1,000
7255 Scudder Variable Life Zero Coupon 2000 1,000
7256 Scudder Variable Life Zero Coupon 2005 1,000
7257 Scudder Variable Life Zero Coupon 2010 1,000
<PAGE>
ATTACHMENT "B"
to Custodian Fee Schedule
Dated October 1, 1986
Fund No. Fund Name Monthly Minimum
- -------- --------- ---------------
7295 Scudder Equity Income $1,000
7292 Scudder High Yield Tax Free 1,500
7225 Scudder California Tax Free Money 1,500
7224 Scudder New York Tax Free Money 1,500
7206 Scudder Variable Life International 1,500
7223 Scudder Mass Tax Free 1,500
7226 Scudder Ohio Tax Free 1,500
7227 Scudder Penn Tax Free 1,500
SCUDDER, STEVENS & CLARK FUNDS STATE STREET BANK & TRUST CO.
By /s/ David S. Lee By /s/ [ILLEGIBLE]
------------------------------ ------------------------------
Title President Title Vice President
Date June 26, 1987 Date 4/8/88
Exhibit 8(a)(3)
SCUDDER CALIFORNIA TAX FREE FUND
Custodian Contract
Amendment No. 1
The Scudder California Tax Free Fund (the "Fund") and State Street Bank
and Trust Company (the "Custodian") hereby agree to amend the Custodian Contract
entered into on June 14, 1983 pursuant to Article IX therein, as follows:
1. Page 5, Article II, Section B. By inserting the following new
Paragraphs 12 and 13 as follows and by renumbering the existing Paragraphs 12
and 13 as Paragraphs 14 and 15, respectively:
"12) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian, and a futures commission merchant
registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or
any Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by the
Fund;"
2. Page 9, Article II, Section H, Paragraph 1, line 1. By inserting after
"securities" the following: ", futures contracts or options on futures
contracts".
3. Page 9, Article II, Section H, Paragraph 1, line 3. By inserting after
"securities" the following: ", or evidence of title to futures contracts or
options on futures contracts,".
4. Page 9, Article II, Section H, Paragraph 1, line 18. By inserting after
"another bank" the following: "or a broker-dealer which is a member of the
NASD,".
5. Page 10, Article II, Section H. By adding a new Paragraph 6 as follows
and by renumbering the current Paragraph 6 as Paragraph 7:
<PAGE>
"6) For payment of the amount of dividends received in respect of
securities sold short;"
6. Page 15, Article II. By adding the following new Section M. as follows
and by renumbering the current Sections M., N., O., P. and Q. as Sections N.,
O., P., Q. and R., respectively:
"M. Segregated Account. The Custodian shall upon receipt of proper
instructions, which may be standing instructions, establish and
maintain a segregated account or accounts for and on behalf of the
Fund, into which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by the
Custodian pursuant to Section L hereof, (i) in accordance with the
provisions of any agreement among the Fund, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the
NASD (or any futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the rules of
The Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission or
any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Fund, (ii) for purposes of segregating cash
or government securities in connection with options purchased, sold
or written by the Fund or commodity futures contracts or options
thereon purchased or sold by the Fund, (iii) for the purposes of
compliance by the Fund with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases
of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in
the case of clause (iv), upon receipt of, in addition to proper
instructions, a certified copy of a resolution of the Trustees or of
the Executive Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary, setting forth
the purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes."
7. Page 16, Article II, Section O, line 5. By inserting after "connection
therewith" the following: "and notices of exercise of call and put options
written by the Fund and the maturity of futures contracts purchased or sold by
the Fund)".
-2-
<PAGE>
8. Page 20, Article VI, line 5. By inserting after "safeguarding
securities," the following: "futures contracts and options on futures
contracts,".
This Amendment shall become effective as of its date of execution.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 16th day of April, 1986.
SCUDDER CALIFORNIA TAX FREE FUND
(SEAL)
By /s/ David S. Lee
-----------------------------------
Title: President
STATE STREET BANK AND TRUST COMPANY
(SEAL)
By [ILLEGIBLE]
-----------------------------------
Title: Vice President
-3-
Exhibit 8(b)
SUBCUSTODIAN AGREEMENT
Between
STATE STREET BANK AND TRUST COMPANY
and
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
<PAGE>
SUBCUSTODIAN AGREEMENT
The undersigned custodian (the "Custodian") for the investment company
identified below (the "Fund") hereby appoints on the following terms and
conditions Morgan Guaranty Trust Company of New York as subcustodian (the
"Subcustodian") for it and the Subcustodian hereby accepts such appointment on
the following terms and conditions as of the date set forth below.
1. Qualification. The Custodian and the Subcustodian each represent to the
other and to the Fund that it is a bank qualified to act as a custodian for a
registered investment company under the Investment Company Act of 1940, as
amended (the "1940 Act").
2. Subcustody. The Subcustodian agrees to hold in a separate account,
segregated at all times from all other accounts maintained by the Subcustodian,
all securities and rights thereto of the Fund ("Fund Securities") deposited from
time to time by the Custodian with the Subcustodian. The Subcustodian will
accept, hold or dispose of and take such other actions with respect to Fund
Securities in addition to those specified in Section 3 in accordance with the
Instructions of the Custodian given in the manner set forth in Section 4.
Registered Fund Securities may be held in the name of the Subcustodian's
nominee.
<PAGE>
3. Subcustodian's Acts Without Instructions. Except as otherwise
instructed pursuant to Section 4, the Subcustodian will (i) present all Fund
Securities requiring presentation for any payment thereon, (ii) distribute to
the Custodian cash received thereupon, (iii) collect and distribute to the
Custodian interest and any dividends and distributions on Fund Securities, (iv)
execute any necessary declarations or certificates of ownership under any tax
law now or hereafter in effect, (v) forward to the Custodian all confirmations,
notices, proxies or proxy soliciting materials relating to the Fund Securities
received by it (and the Custodian agrees to forward same to the Fund), (vi)
report to the Custodian any missed payment or other default upon any Fund
Securities known to it as Subcustodian hereunder and (vii) make no free delivery
of Fund Securities to anyone other than the Custodian. Promptly after the
Subcustodian is furnished with any report of its independent public accountants
on an examination of its internal accounting controls and procedures for
safeguarding securities held in its custody for the account of others, the
Subcustodian will furnish a copy thereof to the Custodian. Payment by the
Subcustodian (for Fund Securities may be made only against receipt of such
securities.
4. Instructions, Other Communications. Any officer of the Custodian
designated from time to time by letter to the Subcustodian, signed by the
President or any Vice President and any Assistant Vice President, Assistant
Secretary or Assistant Treasurer of the Custodian, as an officer of the
Custodian
2
<PAGE>
authorized to give Instructions to the Subcustodian with respect to Fund
Securities (an "Authorized Officer") shall be authorized to instruct the
Subcustodian as to the acceptance, holding, voting, presentation, disposition or
any other action with respect to Fund Securities from time to time by telephone
(if recorded) or in writing signed by such Authorized Officer and delivered by
hand, mail, telecopier, tested telex, tested computer printout or such other
reasonable method as the Custodian and Subcustodian shall agree is designed to
prevent unauthorized officer's instructions. The Subcustodian will promptly
transmit to the Custodian all receipts, confirmations or other transactional
evidence received by it in respect of Fund Securities as to which the
Subcustodian has received any Instructions. Instructions to the Subcustodian
shall be given to Morgan Guaranty Trust Company of New York, 15 Broad Street
(16th Floor), New York, New York 1OO15, Attention: Corporate Trust and
Securities Department; Phone (212) 483-4140. Communications to the Custodian and
the Fund shall be made at the addresses set forth below.
5. The Subcustodian. The Subcustodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Agreement and shall not
be liable for any action taken or omitted to be taken if done without negligence
or willful misconduct. The Subcustodian will indemnify, defend and save harmless
the Custodian for any loss or liability incurred by the Custodian arising out of
or in connection with the Subcustodian's negligence or willful misconduct.
3
<PAGE>
6. The Fund. The name Scudder California Tax Free Fund is the designation
of the Trustees of the Fund for the time being under a Declaration of Trust
dated May 3, 1983, as amended, and all persons dealing with the Fund must look
solely to the Fund property for the enforcement of any claims against the Fund,
as neither the Trustees, officers, agents or shareholders assume any personal
liability or obligations entered into on behalf of the Fund.
7. Miscellaneous. This Agreement (i) shall be governed by and construed in
accordance with the laws of the State of New York, (ii) may be executed in
counterparts each of which shall deemed an original but all of which shall
constitute the same instrument, (iii) may be amended by the parties hereto in
writing and (iv) may be terminated by either party hereto upon 10 days' written
notice to the other (and the Subcustodian shall cause any Fund Securities held
by it upon such termination to be made available to the Custodian or its order).
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date set forth below.
Dated: November 25, 1985 STATE STREET BANK AND TRUST COMPANY
By: /s/ [illegible]
-------------------------------
Vice President
P.O. Box 351, Mutual Funds
Boston, Massachusetts 02101
As Custodian for SCUDDER CALIFORNIA
TAX FREE FUND
175 Federal Street
Boston, Massachusetts 02110
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ William Griffin
-------------------------------
Title: WILLIAM H. GRIFFIN
Vice President
5
Exhibit 8(c)
Scudder California Tax Free Trust
SUBCUSTODIAN AGREEMENT
between
IRVING TRUST COMPANY
and
STREET BANK AND TRUST COMPANY
<PAGE>
Sub-Custodian Agreement
State Street Bank and Trust Company, a Massachusetts trust company, having
its principal place of business at 225 Franklin Street, Boston, Massachusetts,
02110 (hereinafter called the "Custodian"), hereby appoints Irving Trust
Company, a New York banking corporation, having its principal place of business
at One Wall Street, New York, New York 10015, (hereinafter called the
"Sub-Custodian") to serve as Sub-Custodian and to hold such securities as the
Custodian may designate on behalf of and upon the instructions of the
appropriate entity listed on Exhibit A attached hereto (each a "Fund" and
collectively, the "Funds") for which the Custodian is custodian, subject to the
terms and conditions set forth herein.
1. Representation by Sub-Custodian.
The Sub-Custodian hereby represents that it is qualified to act as
custodian for a registered investment company under the Investment Company Act
of 1940, as amended, and that it has aggregate capital, surplus and undivided
profits, as shown by it last published report, of not less than $25,000,000.
2. Custodian Services.
The Sub-Custodian shall hold in an account in the name of the Custodian,
as custodian for the Funds, securities registered in the name of the
Sub-Custodian's nominee (the "Account") and owned by each such Fund. Such
securities shall be designated by
<PAGE>
the Custodian upon instructions of the appropriate Fund and shall consist of
bonds of any issue that (a) are tax exempt, (b) incorporate a daily adjustable
interest rate that is convertible to interest rates determinable on a variable
or a fixed rate basis, (c) entitle the owners of such securities to have such
securities purchased on on a daily basis or at certain other specified times and
(d) require the services of a custodian to establish a book-entry system similar
to that set forth in the Relevant Master Custody Agreement (as hereinafter
defined in paragraph 13 hereof). Such securities may be commingled with other
securities of the same issue or with other securities held in a fiduciary or
custodial capacity but shall be physically segregated from all securities held
in the Sub-Custodian's individual capacity or for its account. Subject to
paragraph 13 hereof, the Sub-Custodian shall release and deliver such securities
only upon receipt of instructions from the Custodian.
The Sub-Custodian shall collect on a timely basis, and credit to each
Fund's Sub-Custodial account, all income and other payments with respect to
securities held under this Agreement to which such Fund is entitled by law and
shall notify the Custodian of any income or other payments that are not
collected within a reasonable time after they become payable. Payments of income
are to be made by wire advice to the account of each Fund so specified on
Exhibit A.
The Sub-Custodian shall at no time supervise the investment of, or advise
or make any recommendations for the sale, purchase or other disposition of
securities held under this Agreement.
-2-
<PAGE>
All purchase and sale transactions shall be carried out by the Sub-Custodian
only as the Custodian may instruct pursuant to paragraph 3 hereof.
3. Instructions.
Subject to paragraph 13 hereof, instructions furnished by the Custodian to
the Sub-Custodian with respect to securities held by the Sub-Custodian under
this Agreement shall be signed by such officer or officers of the Custodian as
are authorized from time to time by the Custodian; provided, however, that the
Sub-Custodian is authorized to accept and act upon orders from the Custodian,
whether given orally, by telephone or otherwise, which the Sub-Custodian
reasonably believes to be given by an authorized person. The Custodian shall
confirm such orders in writing. The Sub-Custodian shall use the same care with
respect to the receiving, safekeeping, handling and delivering of securities
held under this Agreement as it uses in respect of its own similar securities,
but it need not maintain any special insurance for the benefit of the Custodian
or the Funds. The Sub-Custodian shall not be liable for any action taken or
thing done by it in carrying out the terms and provisions of this Agreement or
the Relevant Master Custody Agreement if done in good faith and without
negligence or misconduct on the Sub-Custodian's part. The Custodian shall not be
liable for any action taken or thing done by it in carrying out the terms and
provisions of this Agreement if done in good faith and without negligence or
misconduct on the Custodian's part. The
-3-
<PAGE>
Sub-Custodian shall have no authority to select any broker or similar agent used
to effect the purchase and sale of securities.
4. Ownership Certificates for Tax Purposes and Indemnification.
The Sub-Custodian shall execute, as Custodian (as defined in Section 13
hereof), any necessary declarations or certificates of ownership required under
any tax law now or hereafter in effect.
The Custodian agrees to indemnify the Sub-Custodian against and hold it
harmless from, any liabilities, and any related out-of-pocket expenses, which it
may incur in connection with this Agreement, other than any liabilities and
expenses arising out of the Sub-Custodian's bad faith, wilful misconduct or
negligence. The Sub-Custodian agrees to indemnify the Custodian against, and to
hold it harmless from, any liabilities, and any related out-of-pocket expenses,
which it may incur in connection with this Agreement which arise out of the
Sub-Custodian's bad faith, negligence or wilful misconduct. The indemnification
provided hereunder by the Custodian and the Sub-Custodian shall not extend to
any special or consequential damages arising out of the performance of this
Agreement.
At the election of the Custodian, it shall be entitled to be subrogated to
the rights of the Sub-Custodian with respect to any claim against any person the
Sub-Custodian may have as a consequence of any such loss, expense or damage, if,
and to the extent the Custodian has not been made whole for any such loss,
expense or damage.
-4-
<PAGE>
5. Reports by Sub-Custodian's Independent Public Accountants.
The Sub-Custodian shall provide the Custodian, upon request, with any
quarterly or annual reports prepared in the normal course of business of the
Sub-Custodian by the Sub-Custodian's independent public accountants on the
accounting system, internal accounting controls and procedures for safeguarding
securities relating to the services provided by the Sub-Custodian under this
Agreement.
6. Access to Records.
The Sub-Custodian will not refuse any reasonable request for inspection
and audit on its books and records by an agent of a Fund or Custodian.
7. Cooperation.
The Sub-Custodian shall cooperate with each Fund and Custodian and their
respective independent public accountants in connection with annual and other
audits of the books and records of Custodian or the Fund.
8. Compensation of Sub-Custodian.
The Sub-Custodian shall be entitled to reasonable compensation for its
services and expenses as Sub-Custodian, as agreed upon in writing from time to
time by and between the Sub-Custodian and the Custodian.
-5-
<PAGE>
9. Effective Period, Termination and Amendment.
This Agreement shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto, and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however, that the Agreement shall not be amended or terminated in contravention
of any applicable federal or state regulations, or any provision of the
custodial agreements entered into between the Custodian and the separate Funds,
and further, provided that the Custodian may immediately terminate this
Agreement in the event of the appointment of a conservator or receiver for the
Sub-Custodian by the Federal Deposit Insurance Corporation or upon the happening
of a like event at the direction of an appropriate regulatory agency or court of
competent jurisdiction.
Upon termination of this Agreement, the Sub-Custodian shall promptly
deliver to the Custodian in person or by registered mail all property then held
by the Sub-Custodian under this Agreement.
10. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Sub-Custodian and
the Custodian may from time to time agree in writing on such provisions
interpretive of or in addition to the provisions of this Agreement as may in
their joint opinion be
-6-
<PAGE>
consistent with the general tenor of this Agreement, which shall be annexed
hereto, provided that no such interpretive or additional provisions shall
contravene any applicable federal or state regulations or any provision of the
custodian agreements entered into between the Custodian and the separate Funds.
No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Agreement.
11. New York Law to Apply.
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the State of New York.
12. Communications Received by the Sub-Custodian.
The Sub-Custodian shall promptly transmit to the Custodian all
communications it receives concerning the securities it holds under this
Agreement and shall furnish statements of account in such manner and frequency
as the Sub-Custodian and the Custodian shall agree.
All communications required or permitted to be given under this Agreement
shall be in writing (including telex or telegraph) unless expressly provided
otherwise, and addressed as follows:
(a) If to the Sub-Custodian: Irving Trust Company
One Wall Street
New York, New York 10015
Attn: Corporate Trust Dept.
-7-
<PAGE>
(b) If to the Custodian: State Street Bank & Trust Company
Mutual Fund Services
P.O. Box 1713
Boston, MA 02105
Attention:
13. Acknowledgement and Consent to Relevant Master Custody Agreement.
The Custodian acknowledges that each of the entities named on Exhibit B
hereto (as such Exhibit may be amended from time to time by notice from the
Sub-Custodian to the Custodian) has been appointed remarketing agent (each a
"Remarketing Agent" ) for certain series of securities held in custody pursuant
to this Agreement and that such Remarketing Agent and Irving Trust Company, as
custodian, (the "Master Custodian") have entered into a Master Custody Agreement
identified in such Exhibit as such Master Custody Agreement may be amended or
supplemented from time to time (each, a "Relevant Master Custody Agreement") for
the benefit of the owners of such series of securities held in custody pursuant
to this Agreement to promote the transfer of such series of securities
remarketed by such Remarketing Agent through a book-entry system maintained by
the Master Custodian. The Sub-Custodian will provide, upon request of the
Custodian, copies of each Relevant Master Custody Agreement for each series of
securities held in custody hereunder. The Custodian consents in all respects to
be bound by the terms thereof and to the extent that there is a conflict between
the terms of the Relevant Master Custody Agreement and this Agreement, the terms
of this Agreement shall govern:
-8-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed this 30th day of November, 1987.
ATTEST: IRVING TRUST COMPANY
/s/ [ILLEGIBLE] BY: /s/ [ILLEGIBLE]
- ------------------------------- -------------------------------
Title:
ATTEST: STATE STREET BANK AND TRUST COMPANY
/s/ [ILLEGIBLE] BY: /s/ [ILLEGIBLE]
- ------------------------------- -------------------------------
Assistant Secretary Vice President
-9-
<PAGE>
EXHIBIT A
to the SUBCUSTODIAN AGREEMENT
with
IRVING TRUST
Wire instructions containing Account Location, Name and Fund Number for
receipt of funds pursuant to Section 2 of this Agreement are as follows:
ABA Routing Number: 0110-000-28
STATE ST BOS/ (insert appropriate fund name and number identified
below)
Name of Fund Fund Number
- ------------ -----------
Each of the above Funds has furnished the Custodian with appropriate
resolutions authorizing the Custodian to enter into and act in accordance
with the terms of this Agreement. Such resolutions also expressly
acknowledge and consent to the provisions of Section 13 of this Agreement.
IRVING TRUST COMPANY
By:______________________
Title:
STATE STREET BANK AND TRUST COMPANY
By:______________________
Vice President
DATE:______________________
<PAGE>
Exhibit B
Date of Relevant
Name of Master Custody
Remarketing Agreement with
Agent Irving Trust Company
- ----------- --------------------
Dillon, Read & Co., Inc. As of December 1, 1987
Ehrlich Bober & Co., Inc. As of August 1, 1984*
First Boston Corporation As of December 1, 1987
Goldman, Sachs & Co. As of December 1, 1987
John Nuveen & Co. Incorporated As of December 1, 1987
Merrill Lynch, Pierce,
Fenner & Smith Incorporated As of December 1, 1987
Morgan Stanley & Co. Incorporated As of December 23, 1987
Shearson Lehman Brothers Inc. As of December 1, 1987
Smith Barney, Harris Upham & Co. As of December 1, 1987
* As amended and supplemented through December 14, 1987
Exhibit 8(d)
Scudder California Tax Free Trust
SUBCUSTODIAN AGREEMENT
between
CHEMICAL BANK
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
Sub-Custodian Agreement
State Street Bank and Trust Company, a Massachusetts trust company, having
its principal place of business at 225 Franklin Street, Boston, Massachusetts,
02110 (hereinafter called the "Custodian"), hereby appoints Chemical Bank, a New
York banking corporation, having its principal place of business at 277 Park
Avenue, New York, New York 10172, (hereinafter called the "Sub-Custodian") to
serve as Sub-Custodian and to hold such securities as the Custodian may
designate on behalf of and upon the instructions of the appropriate entity
listed on Exhibit A attached hereto (each a "Fund" and collectively, the
"Funds") for which the Custodian is custodian, subject to the terms and
conditions set forth herein.
1. Representation by Sub-Custodian.
The Sub-Custodian hereby represents that it is qualified to act as
custodian for a registered investment company under the Investment Company Act
at 1940, as amended, and that it has aggregate capital, surplus and undivided
profits, as shown by its last published report, of not less than $25,000,000.
2. Custodian Services.
The Sub-Custodian shall hold in an account in the name of the Custodian,
as custodian for the Funds, securities registered in the name of the
Sub-Custodian's nominee (the "Account") and owned by each such Fund. Such
securities shall be designated by
<PAGE>
the Custodian upon instructions of the appropriate Fund and shall consist of
bonds or notes of any issue that (a) are tax exempt, (b) incorporate an
adjustable interest rate that is convertible to interest rates determinable on a
variable or a fixed rate basis, (c) entitle the owners of such securities to
have such securities purchased at specified times and (d) require the services
of a custodian to establish a book-entry system similar to that set forth in the
Relevant Master Custody Agreement (as hereinafter defined in paragraph 13
hereof). Such securities may be commingled with other securities of the same
issue or with other securities held in a fiduciary or custodial capacity but
shall be physically segregated from all securities held in the Sub-Custodian's
individual capacity or for its account. Subject to paragraph 13 hereof, the Sub-
Custodian shall release and deliver such securities only upon receipt of
instructions from the Custodian.
The Sub-Custodian shall collect on a timely basis, and credit to each
Fund's Sub-Custodial account, all income and other payments with respect to
securities held under this Agreement to which such Fund is entitled as owner of
the securities and shall notify the Custodian of any income or other payments
that are not collected within a reasonable time after they become payable.
Payments of income are to be made by wire advice to the account of each Fund so
specified on Exhibit A.
The Sub-Custodian shall at no time supervise the investment of, or advise
or make any recommendations for the sale, purchase or other disposition of
securities held under this Agreement.
-2-
<PAGE>
All purchase and sale transactions shall be carried out by the Sub-Custodian
only as the Custodian may instruct pursuant to paragraph 3 hereof.
3. Instructions.
Subject to paragraph 13 hereof, instructions furnished by the Custodian to
the Sub-Custodian with respect to securities held by the Sub-Custodian under
this Agreement shall be signed by such officer or officers of the Custodian as
are authorized from time to time by the Custodian; provided, however, that the
Sub-Custodian is authorized to accept and act upon orders from the Custodian,
whether given orally, by telephone or otherwise, which the Sub-Custodian
reasonably believes to be given by an authorized person. The Custodian shall
confirm such orders in writing. The Sub-Custodian shall use the same care with
respect to the receiving, safekeeping, handling and delivering of securities
held under this Agreement as it uses in respect of its own similar securities,
but it need not maintain any special insurance for the benefit of the Custodian
or the Funds. The Sub-Custodian shall not be liable for any action taken or
thing done by it in carrying out the terms and provisions of this Agreement or
the Relevant Master Custody Agreement if done in good faith and without
negligence or misconduct on the Sub-Custodian's part. The Custodian shall not be
liable for any action taken or thing done by it in carrying out the terms and
provisions of this Agreement if done in good faith and without negligence or
misconduct on the Custodian's part. The
-3-
<PAGE>
Sub-Custodian shall have no authority to select any broker or similar agent used
to effect the purchase and sale of securities.
4. Ownership Certificates for Tax Purposes and Indemnification.
The Sub-Custodian shall execute, as Custodian (as defined in Section 13
hereof), any necessary declarations or certificates of ownership required under
any tax law now or hereafter in effect.
The Custodian agrees to indemnify the Sub-Custodian against, and hold it
harmless from, any liabilities, and any related out-of-pocket expenses, which it
may incur in connection with this Agreement, other than any liabilities and
expenses arising out of the Sub-Custodian's bad faith, wilful misconduct or
negligence. The Sub-Custodian agrees to indemnify the Custodian against, and to
hold it harmless from, any liabilities, and any related out-of-pocket expenses,
which it may incur in connection with this Agreement which arise out of the Sub-
Custodian's bad faith, negligence or wilful misconduct. The indemnification
provided hereunder by the Custodian and the Sub-Custodian shall not extend to
any special or consequential damages arising out of the performance of this
Agreement.
At the election of the Custodian, it shall be entitled to be subrogated to
the rights of the Sub-Custodian with respect to any claim against any person the
Sub-Custodian may have as a consequence of any such loss, expense or damage, if,
and to the extent the Custodian has not been made whole for any such loss,
expense or damage.
-4-
<PAGE>
5. Reports by Sub-Custodian's Independent Public Accountants.
The Sub-Custodian shall provide the Custodian, upon request, with any
quarterly or annual reports prepared in the normal course of business of the
Sub-Custodian by the Sub-Custodian's independent public accountants on the
accounting system, internal accounting controls and procedures for safeguarding
securities relating to the services provided by the Sub-Custodian under this
Agreement.
6. Access to Records.
The Sub-Custodian will not refuse any reasonable request for inspection
and audit on its books and records by an agent of a Fund or Custodian.
7. Cooperation.
The Sub-Custodian shall cooperate with each Fund and Custodian and their
respective independent public accountants in connection with annual and other
audits of the books and records of Custodian or the Fund.
8. Compensation of Sub-Custodian.
The Sub-Custodian shall be entitled to reasonable compensation for its
services and expenses as Sub-Custodian, as agreed upon in writing from time to
time by and between the Sub-Custodian and the Custodian.
-5-
<PAGE>
9. Effective Period, Termination and Amendment.
This Agreement shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto, and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however, that the Agreement shall not be amended or terminated in contravention
of any applicable federal or state regulations, or any provision of the
custodial agreements entered into between the Custodian and the separate Funds,
and further, provided that the Custodian may immediately terminate this
Agreement in the event of the appointment of a conservator or receiver for the
Sub-Custodian by the Federal Deposit Insurance Corporation or upon the happening
of a like event at the direction of an appropriate regulatory agency or court
of competent jurisdiction.
Upon termination of this Agreement, the Sub-Custodian shall promptly
deliver to the Custodian in person in New York or by registered mail all
property by delivery of appropriate certificates then held by the Sub-Custodian
under this Agreement.
10. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Sub-Custodian and
the Custodian may from time to time agree in writing on such provisions
interpretive of or in addition to the provisions of this Agreement as may in
their joint opinion be
-6-
<PAGE>
consistent with the general tenor of this Agreement, which shall be annexed
hereto, provided that no such interpretive or additional provisions shall
contravene any applicable federal or state regulations or any provision of the
custodian agreements entered into between the Custodian and the separate Funds.
No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Agreement.
11. New York Law to Apply.
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the State of New York.
12. Communications Received by the Sub-Custodian.
The Sub-Custodian shall promptly transmit to the Custodian all
communications it receives concerning the securities it holds under this
Agreement and shall furnish statements of account in such manner and frequency
as the Sub-Custodian and the Custodian shall agree.
All communications required or permitted to be given under this Agreement
shall be in writing (including telex or telegraph) unless expressly provided
otherwise, and addressed as follows:
(a) If to the Sub-Custodian: Chemical Bank
55 Water Street
Room 540
New York, New York 10172
Attn: Special Handling/
Tender Unit
-7-
<PAGE>
(b) If to the Custodian: State Street Bank and Trust Company
Mutual Fund Services
P.O. Box 1713
Boston, MA 02105
Attention:
13. Acknowledgement and Consent to Relevant Master Custody Agreement.
The Custodian acknowledges that each of the entities named on Exhibit B
hereto (as such Exhibit may be amended from time to time by notice from the Sub-
Custodian to the Custodian) has been appointed remarketing agent (each a
"Remarketing Agent") for certain series of securities held in custody pursuant
to this Agreement and that such Remarketing Agent and Chemical Bank, as
custodian, (the "Master Custodian") have entered into a Master Custody Agreement
identified in such Exhibit as such Master Custody Agreement may be amended or
supplemented from time to time (each, a "Relevant Master Custody Agreement") for
the benefit of the owners of such series of securities held in custody pursuant
to this Agreement to promote the transfer of such series of securities
remarketed by such Remarketing Agent through a book-entry system maintained by
the Master Custodian. The Sub-Custodian will provide, upon request of the
Custodian, copies of each Relevant Master Custody Agreement for each series of
securities held in custody hereunder. The Custodian consents in all respects to
be bound by the terms thereof and to the extent that there is a conflict between
the terms of the Relevant Master Custody Agreement and this Agreement, the terms
of this Agreement shall govern.
-8-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed this ____ day of _____, 198__.
ATTEST: CHEMICAL BANK
/s/ [SIGNATURE ILLEGIBLE]
- ------------------------------- -------------------------------
Title: VICE PRESIDENT
ATTEST: STATE STREET BANK AND TRUST COMPANY
/s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE]
- ------------------------------- -------------------------------
Assistant Secretary Vice President
-9-
<PAGE>
EXHIBIT A
Wire instructions containing Account Location, Name and Fund Number for
receipt of funds pursuant to Section 2 of this Agreement are as follows:
ABA Routing Number: 0110-000-28
STATE ST BOS/ (insert appropriate fund name and number
identified below)
Name of Fund Fund Number
------------ -----------
Each of the above Funds has furnished the Custodian with appropriate
resolutions authorizing the Custodian to enter into and act in accordance with
the terms of this Agreement. Such resolutions also expressly acknowledge and
consent to the provisions of Section 13 of this Agreement.
ATTEST: CHEMICAL BANK
By:
- ------------------------------- ----------------------------
Title: VICE PRESIDENT
ATTEST: STATE STREET BANK AND TRUST COMPANY
By:
- ------------------------------- ----------------------------
Assistant Secretary Vice President
DATE: -------------------------
-10-
<PAGE>
EXHIBIT B
Date of Relevant
Name of Master Custody
Remarketing Agreement with
Agent Chemical Bank
----------- ----------------
-11-
Exhibit 8(e)
Scudder California Tax-Free Trust
SUBCUSTODIAN AGREEMENT
between
SECURITY PACIFIC NATIONAL TRUST COMPANY (NEW YORK)
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
Sub-Custodian Agreement
State Street Bank and Trust Company, a Massachusetts trust company, having
its principal place of business at 225 Franklin Street, Boston, Massachusetts,
02110 (hereinafter called the "Custodian"), hereby appoints Security Pacific
National Trust Company (New York), a National banking association, having its
principal corporate trust offices at Two Rector Street, New York, New York
10006, (hereinafter called the "Sub-Custodian") to serve as Sub-Custodian and to
hold such securities as the Custodian may designate on behalf of and upon the
instructions of the appropriate entity listed on Exhibit A attached hereto (each
a "Fund" and collectively, the "Funds") for which the Custodian is custodian,
subject to the terms and conditions set forth herein.
1. Representation by Sub-Custodian.
The Sub-Custodian hereby represents that it is qualified to act as
custodian for a registered investment company under the Investment Company Act
of 1940, as amended, and that it has aggregate capital, surplus and undivided
profits, as shown by its last published report, of not less than $25,000,000.
2. Custodian Services.
The Sub-Custodian shall hold in an account in the name of the Custodian,
as custodian for the Funds, securities registered in the name of the
Sub-Custodian's nominee (the "Account") and owned by each such Fund. Such
securities shall be designated by
<PAGE>
the Custodian upon instructions of the appropriate Fund and shall consist of
bonds of any issue that (a) are tax exempt, (b) incorporate a daily adjustable
interest rate that is convertible to interest rates determinable on a variable
or a fixed rate basis, (c) entitle the owners of such securities to have such
securities purchased on on a daily basis or at certain other specified times and
(d) require the services of a custodian to establish a book-entry system similar
to that set forth in the Relevant Master Custody Agreement (as hereinafter
defined in paragraph 13 hereof). Such securities may be commingled with other
securities of the same issue or with other securities held in a fiduciary or
custodial capacity but shall be physically segregated from all securities held
in the Sub-Custodian's individual capacity or for its account. Subject to
paragraph 13 hereof, the Sub-Custodian shall release and deliver such securities
only upon receipt of instructions from the Custodian.
The Sub-Custodian shall collect on a timely basis, and credit to each
Fund's Sub-Custodial account, all income and other payments with respect to
securities held under this Agreement to which such Fund is entitled by law and
shall notify the Custodian of any income or other payments that are not
collected within a reasonable time after they become payable. Payments of income
are to be made by wire advice to the account of each Fund so specified on
Exhibit A.
The Sub-Custodian shall at no time supervise the investment of, or advise
or make any recommendations for the sale, purchase or other disposition of
securities held under this Agreement.
-2-
<PAGE>
All purchase and sale transactions shall be carried out by the Sub-Custodian
only as the Custodian may instruct pursuant to paragraph 3 hereof.
3. Instructions.
Subject to paragraph 13 hereof, instructions furnished by the Custodian to
the Sub-Custodian with respect to securities held by the Sub-Custodian under
this Agreement shall be signed by such officer or officers of the Custodian as
are authorized from time to time by the Custodian; provided, however, that the
Sub-Custodian is authorized to accept and act upon orders from the Custodian,
whether given orally, by telephone or otherwise, which the Sub-Custodian
reasonably believes to be given by an authorized person. The Custodian shall
promptly confirm such orders in writing. The Sub-Custodian shall use the same
care with respect to the receiving, safekeeping, handling and delivering of
securities held under this Agreement as it uses in respect of its own similar
securities, but it need not maintain any special insurance for the benefit of
the Custodian or the Funds. The Sub-Custodian shall not be liable for any action
taken or thing done by it in carrying out the terms and provisions of this
Agreement or the Relevant Master Custody Agreement if done in good faith and
without negligence or wilful misconduct on the Sub-Custodian's part. The
Custodian shall not be liable for any action taken or thing done by it in
carrying out the terms and provisions of this Agreement if done in good faith
and without negligence or wilful misconduct on the
-3-
<PAGE>
part. The Sub-Custodian shall have no authority to select any broker or similar
agent used to effect the purchase and sale of securities.
4. Ownership Certificates for Tax Purposes and Indemnification.
The Sub-Custodian shall execute, as Custodian (as defined in Section 13
hereof), any necessary declarations or certificates of ownership required under
any tax law now or hereafter in effect.
The Custodian agrees to indemnify the Sub-Custodian against, and hold it
harmless from, any liabilities, and any related out-of-pocket expenses, which it
may incur in connection with this Agreement, other than any liabilities and
expenses arising out of the Sub-Custodian's bad faith, wilful misconduct or
negligence. The Sub-Custodian agrees to indemnify the Custodian against, and to
hold it harmless from, any liabilities, and any related out-of-pocket expenses,
which it may incur in connection with this Agreement which arise out of the
Sub-Custodian's bad faith, negligence or wilful misconduct. The indemnification
provided hereunder by the Custodian and the Sub-Custodian shall not extend to
any special or consequential damages arising out of the performance of this
Agreement.
Without limiting or impairing any rights the Sub-Custodian may have
hereunder, at the election of the Custodian, it shall be entitled to be
subrogated to the rights of the Sub-Custodian with respect to any claim against
any person the Sub-Custodian may have as a consequence of any such loss, expense
or damage, if, and to the extent the Custodian has not been made whole for any
such loss, expense or damage.
-4-
<PAGE>
5. Reports by Sub-Custodian's Independent Public Accountants.
The Sub-Custodian shall provide the Custodian, upon request, with any
quarterly or annual reports prepared in the normal course of business of the
Sub-Custodian by the Sub-Custodian's independent public accountants on the
accounting system, internal accounting controls and procedures for safeguarding
securities relating to the services provided by the Sub-Custodian under this
Agreement.
6. Access to Records.
The Sub-Custodian will not refuse any reasonable request for inspection
and audit on its books and records by an agent of a Fund or Custodian.
7. Cooperation.
The Sub-Custodian shall cooperate with each Fund and Custodian and their
respective independent public accountants in connection with annual and other
audits of the books and records of Custodian or the Fund.
8. Compensation of Sub-Custodian.
The Sub-Custodian shall be entitled to reasonable compensation for its
services and expenses as Sub-Custodian, as agreed upon in writing from time to
time by and between the Sub-Custodian and the Custodian.
-5-
<PAGE>
9. Effective Period, Termination and Amendment.
This Agreement shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto, and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however, that the Agreement shall not be amended or terminated in contravention
of any applicable federal or state regulations, or any provision of the
custodial agreements entered into between the Custodian and the separate Funds,
and further, provided that the Custodian may immediately terminate this
Agreement in the event of the appointment of a conservator or receiver for the
Sub-Custodian by the Federal Deposit Insurance Corporation or upon the happening
of a like event at the direction of an appropriate regulatory agency or court
of competent jurisdiction.
Upon termination of this Agreement, the Sub-Custodian shall promptly
deliver to the Custodian in person or by registered mail all property then held
by the Sub-Custodian under this Agreement.
10. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Sub-Custodian and
the Custodian may from time to time agree in writing on such provisions
interpretive of or in addition to the provisions of this Agreement as may in
their joint opinion be
-6-
<PAGE>
consistent with the general tenor of this Agreement, which shall be annexed
hereto, provided that no such interpretive or additional provisions shall
contravene any applicable federal or state regulations or any provision of the
custodial agreements entered into between the Custodian and the separate Funds.
No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Agreement.
11. New York Law to Apply.
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the State of New York.
12. Communications Received by the Sub-Custodian.
The Sub-Custodian shall promptly transmit to the Custodian all
communications it receives concerning the securities it holds under this
Agreement and shall furnish statements of account in such manner and frequency
as the Sub-Custodian and the Custodian shall agree.
All communications required or permitted to be given under this Agreement
shall be in writing (including telex or telegraph) unless expressly provided
otherwise, and addressed as follows:
(a) If to the Sub-Custodian: Security Pacific National
Trust (New York)
2 Rector Street, 9th Floor
New York, New York 10006
Attn: Corporate Trust Division
Telecopier Number: 212-978-5060
-7-
<PAGE>
(b) If to the Custodian: State Street Bank & Trust Company
Mutual Fund Services
P.O. Box 1713
Boston, MA 02105
Attention: Fund Manager
13. Acknowledgement and Consent to Relevant Master Custody Agreement.
The Custodian acknowledges that each of the entities named on Exhibit B
hereto (as such Exhibit may be amended from time to time by notice from the
Sub-Custodian to the Custodian) has been appointed remarketing agent (each a
"Remarketing Agent") for certain series of securities held in custody pursuant
to this Agreement and that such Remarketing Agent and Security Pacific National
Trust Company (New York), as custodian, (the "Master Custodian") have entered
into a Master Custody Agreement identified in such Exhibit as such Master
Custody Agreement may be amended or supplemented from time to time (each, a
"Relevant Master Custody Agreement") for the benefit of the owners of such
series of securities held in custody pursuant to this Agreement to promote the
transfer of such series of securities remarketed by such Remarketing Agent
through a book-entry system maintained by the Master Custodian. The
Sub-Custodian will provide, upon request of the Custodian, copies of each
Relevant Master Custody Agreement for each series of securities held in custody
hereunder. The Custodian consents after appropriate review in all respects to be
bound by the terms thereof and to the extent that there is a conflict between
the terms of the Relevant Master Custody Agreement and this Agreement, the terms
of this Agreement shall govern:
-8-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed this 18th day of February, 1988.
ATTEST: SECURITY PACIFIC NATIONAL TRUST
COMPANY (NEW YORK)
(as Sub-Custodian)
/s/ Paul F. Anatrella /s/ [SIGNATURE ILLEGIBLE]
- ------------------------------- -------------------------------
Paul F. Anatrella Title: ASSISTANT VICE PRESIDENT
Assistant Secretary
ATTEST: STATE STREET BANK AND TRUST COMPANY
(as Custodian)
/s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE]
- ------------------------------- -------------------------------
Assistant Secretary Vice President
-9-
<PAGE>
EXHIBIT A
to the SUBCUSTODIAN AGREEMENT
with
SECURITY PACIFIC NATIONAL TRUST COMPANY (NEW YORK)
dated February 18, 1988
Wire instructions containing Account Locations, Name and Fund Number for
receipt of funds pursuant to Section 2 of this Agreement are as follows:
ABA Routing Number: 0110-000-28
STATE ST BOS/ (insert appropriate fund name and number identified below):
Name of Fund Fund Number
------------ -----------
AARP Insured Tax Free Income Trust
AARP Insured Tax Free General Bond Fund 7275
AARP Insured Tax Free Short Term Fund 7274
Scudder California Tax-Free Trust
Scudder California Tax-Free Fund 7290
Scudder California Tax-Free Money Fund 7225
Scudder Municipal Trust
Scudder High Yield Tax Free Fund 7292
Scudder Managed Municipal Bond Fund 7209
Scudder State Tax-Free Trust
Scudder Massachusetts Tax Free Fund 7223
Scudder New York Tax Free Fund 7291
Scudder New York Tax Free Money Fund 7224
Scudder Ohio Tax Free Fund 7226
Scudder Pennsylvania Tax Free Fund 7227
Scudder Tax Free Money Fund 7210
Scudder Tax Free Target Fund
Series 1990 7261
Series 1993 7262
Series 1996 7251
Scudder Treasurers Trust
Treasurers Auction Rate Preferred Portfolio 7287
Treasurers Dividend Income Portfolio 7288
Treasurers Liquidity Plus Portfolio 7285
Treasurers Money Portfolio 7283
Treasurers Tax Exempt Liquidity Plus Portfolio 7286
Treasurers Tax Exempt Money Portfolio 7284
-10-
<PAGE>
EXHIBIT B
Date of Relevant
Master Custody
Name of Agreement with
Remarketing Security Pacific National Trust
Agent Company (New York)
----------- -------------------------------
GOLDMAN, SACHS & CO. December 28, 1987
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TRANSFER AGENCY AND SERVICE AGREEMENT
between
SCUDDER CALIFORNIA TAX FREE TRUST
and
SCUDDER SERVICE CORPORATION
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of October 2, 1989, by and between SCUDDER CALIFORNIA
TAX FREE TRUST, a Massachusetts business trust, having its principal office and
place of business at 175 Federal Street, Boston, Massachusetts 02110 (the
"Company") and SCUDDER SERVICE CORPORATION, a Massachusetts corporation, having
its principal office and place of business at 160 Federal Street, Boston,
Massachusetts 02110 (the "Agent").
WHEREAS, the Company desires to appoint the Agent as a transfer agent,
dividend disbursing agent and agent in connection with certain other activities
and the Agent desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1. Terms of Appointment: Duties of the Agent.
1.01. Subject to the terms and conditions set forth in this Agreement, the
Company hereby employs and appoints the Agent to act as, and the Agent agrees to
act as, transfer agent for the Company's authorized and issued shares of
beneficial interest ("Shares"), dividend disbursing agent and agent in
connection with any accumulation, open-account or similar plans provided to the
shareholders of the Company ("Shareholders") and set out in a currently
effective prospectus ("Prospectus") or currently effective statement of
additional information ("Statement of Additional Information") of the Company,
including without limitation any periodic investment plan or periodic withdrawal
program. If the Company offers two or more series of Shares as of the date
hereof, the term "Company shall be deemed to apply to each series of Shares,
unless the context otherwise requires.
1.02. The Agent agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Company and the Agent, the Agent shall:
(i) Receive for acceptance orders for the purchase of Shares
and promptly deliver payment and appropriate
documentation thereof to the duly authorized custodian
of the Company (the "Custodian").
(ii) Pursuant to orders for the purchase of Shares, record
the purchase of the appropriate number of Shares in the
Shareholder's account and, if requested by the
Shareholder, and if the Trustees of the Company have
authorized the issuance of stock certificates, issue a
certificate for the appropriate number of Shares;
<PAGE>
(iii) Pursuant to instructions provided by Shareholders,
reinvest income dividends and capital gain
distributions;
(iv) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation thereof to the Custodian;
(v) Provide an appropriate response to Shareholders with
respect to all correspondence and rejected trades;
(vi) At the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any
redemption, pay over or cause to be paid over in the
appropriate manner such monies as instructed by the
redeeming Shareholders;
(vii) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(viii) Prepare and transmit payments for dividends and
distributions declared by the Company;
(ix) Report abandoned property to the various states as
authorized by the Company in accordance with policies
and principles agreed upon by the Company and Agent;
(x) Maintain records of account for and advise the Company
and its Shareholders as to the foregoing;
(xi) Record the issuance of Shares of the Company and
maintain an accurate control book with respect to Shares
pursuant to SEC Rule 17Ad-l0(e) under the Securities
Exchange Act of 1934. The Agent shall also provide the
Company on a regular basis with the total number of
Shares which are issued and outstanding and shall have
no obligation, when recording the issuance of Shares, to
monitor the issuance of such Shares or to take
cognizance of any laws relating to the issue or sale of
such Shares, which functions shall be the sole
responsibility of the Company;
(xii) Respond to all telephone inquiries from shareholders or
their authorized representatives regarding the status of
Shareholder accounts;
(xiii) Respond to correspondence from Shareholders or their
authorized representatives regarding the status of
Shareholder accounts or information related to
Shareholder accounts; and
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<PAGE>
(xiv) perform all Shareholder account maintenance updates.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Agent shall: (i) perform the
customary services of a transfer agent, dividend disbursing agent and, as
relevant, agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program). The detailed definition, frequency, limitations and
associated costs (if any) set out in the attached fee schedule, include but are
not limited to: maintaining all Shareholder accounts, preparing Shareholder
meeting lists, mailing proxy statements and proxies, receiving and tabulating
proxies, mailing shareholder reports and prospectuses to current Shareholders,
and withholding all applicable taxes (including but not limited to all
withholding taxes imposed under the U.S. Internal Revenue Code and Treasury
regulations promulgated thereunder, and applicable state and local laws to the
extent consistent with good industry practice), preparing and filing U.S.
Treasury Department Forms 1099, Form 941 when applicable and other appropriate
forms required with respect to dividends, distributions and taxes withheld on
Shareholder accounts by federal authorities for all registered Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders, and providing shareholder account information, (ii) provide
daily and monthly a written report and access to information which will enable
the Company to monitor the total number of Shares sold and the aggregate public
offering price thereof in each State by the Company, added by sales in each
State of the registered Shareholder or dealer branch office, as defined by the
Company, and (iii) if directed by the Company, (A) each confirmation of the
purchase which establishes a new account will be accompanied by a Prospectus and
any amendment or supplement thereto, and (B) a Prospectus, and any amendment or
supplement thereto, will be mailed to each Shareholder at the time a
confirmation of the first purchase by such Shareholder, subsequent to the
effective date of a Prospectus or any amendment or supplement thereto, is mailed
to such Shareholders.
(c) In addition, the Company shall (i) identify to the Agent in
writing those transactions and assets to be treated as exempt from blue sky
reporting to the Company for each state and (ii) approve those transactions to
be included for each state on the blue sky system prior to activation and
thereafter monitor the daily activity for each state. The responsibility of the
Agent for the Company's blue sky State registration status is solely limited to
the initial establishment of transactions subject to blue sky compliance by the
Company and the reporting of such transactions as provided above.
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<PAGE>
(d) The Agent shall utilize a system to identify all share
transactions which involve purchase and redemption orders that are processed at
a time other than the time of the computation of net asset value per share next
computed after receipt of such orders, and shall compute the net effect upon the
Company of such transactions so identified on a daily and cumulative basis.
(e) The Agent shall supply to the Company from time to time, as
mutually agreed upon, reports summarizing the transactions identified pursuant
to paragraph (d) above, and the daily and cumulative net effects of such
transactions, and shall advise the Company at the end of each month of the net
cumulative effect at such time. The Agent shall promptly advise the Company if
at any time the cumulative net effect exceeds a dollar amount equivalent to 1/2
of 1 cent per outstanding Share.
(f) The Agent shall make appropriate arrangements with banking
institutions in connection with effecting timely redemptions of shares by the
Write-a-Check redemption feature described in the Company's Prospectus and
Statement of Additional Information.
1.03. The Agent's offices, personnel and computer and other equipment
shall be adequate to perform the services contemplated by this Agreement for the
Company and for other investment companies advised by Scudder, Stevens & Clark,
Inc. and its affiliates. The Agent shall notify the Company in the event that it
proposes to provide such services for any investment companies or other entities
other than those managed by Scudder, Stevens & Clark, Inc. and its affiliates.
Article 2. Fees and Expenses
2.01. For the performance by the Agent pursuant to this Agreement, the
Company agrees to pay the Agent an annual maintenance fee for each Shareholder
account as set out in a fee schedule agreed to by both parties in writing. Such
fees and out-of-pocket expenses and advances identified under Section 2.02 below
may be changed from time to time subject to mutual written agreement between the
Company and the Agent, as approved by a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) of the
Company.
2.02. In addition to the fee paid under Section 2.01 above, the Company
agrees to reimburse the Agent for out-of-pocket expenses or advances incurred by
the Agent for the items set out in the fee schedule agreed to by both parties in
writing. In addition, any other expenses incurred by the Agent at the request or
with the consent of the Company will be reimbursed by the Company.
2.03. The Company agrees to pay all fees and reimbursable expenses
promptly, the terms, method and procedures for which are detailed on the fee
schedule agreed to by both parties in writing. Postage for mailing of dividends,
proxy statements, Company reports and other mailings to all Shareholders
accounts shall be advanced to
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<PAGE>
the Agent by the Company at least two (2) days prior to the mailing date of such
materials.
2.04. The Company may engage accounting firms or other consultants to
evaluate the fees paid by the Company and quality of services rendered by the
Servicing Company hereunder, and such firms or other consultants shall be
provided access by the Servicing Company to such information as may be
reasonably required in connection with such engagement. The Servicing Company
will give due consideration and regard to the recommendations to the Company in
connection with such engagement, but shall not be bound thereby.
Article 3. Representations and Warranties of the Agent.
The Agent represents and warrants to the Company that:
3.01. It is a corporation duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
3.02. It has the legal power and authority to carry on its business in The
Commonwealth of Massachusetts.
3.03. It is empowered under applicable laws and by its charter and by-laws
to enter into and perform this Agreement.
3.04. All requisite proceedings have been taken to authorize it to enter
into and perform this Agreement.
3.05. It is duly registered as a transfer agent under Section 17A of the
Securities Exchange Act of 1934, as amended.
3.06. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
Article 4. Representations and Warranties of the Company.
The Company represents and warrants to the Agent that:
4.01. It is a business trust duly organized and existing and in good
standing under the laws of Massachusetts.
4.02. It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
4.03. All proceedings required by said Declaration of Trust and By-Laws
have been taken to authorize it to enter into and perform this Agreement.
4.04. It is an investment company registered under the Investment Company
Act of 1940, as amended.
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<PAGE>
4.05. A registration statement under the Securities Act of 1933 is
currently effective (or will be effective prior to commencement by the Agent of
performance of services hereunder) and will remain effective, and appropriate
state securities law filings have been made and/or will continue to be made,
with respect to all Shares of the Company being offered for sale.
Article 5. Indemnification
5.01. To the extent that the Agent acts in good faith and without
negligence or willful misconduct, the Agent shall not be responsible for, and
the Company shall indemnify and hold the Agent harmless from and against, any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liabilities arising out of or attributable to:
(a) All actions of the Agent or its agents or subcontractors
required to be taken and correctly executed pursuant to this Agreement.
(b) The Company's lack of good faith, negligence or willful
misconduct or which arise out of the breach of any representation or warranty of
the Company hereunder.
(c) The reasonable reliance on or use by the Agent or its agents or
subcontractors of information, records and documents or services which are
received or relied upon by the Agent or its agents or subcontractors and
furnished to it or performed by or on behalf of the Company.
(d) The reasonable reliance on, or the carrying out by the Agent or
its agents or subcontractors of, any written instructions or requests of the
Company.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations, or the securities laws or
regulations of any state that such Shares be registered in such state, or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state, unless such violation is the result of the Agent's negligent or willful
failure to comply with the provisions of Section 1.02(b) of this Agreement.
5.02. The Agent shall indemnify and hold the Company harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liabilities arising out of or attributable to the Agent's refusal
or failure to comply with the terms of this Agreement (whether as a result of
the acts or omissions of the Agent or of its agents or subcontractors) or
arising out of the lack of good faith, negligence or willful misconduct of the
Agent, or its agents or subcontractors, or arising out of the breach of any
representation or warranty of the Agent hereunder.
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<PAGE>
5.03. At any time the Agent may apply to any officer of the Company for
instructions, and may consult with outside legal counsel with respect to any
matter arising in connection with the services to be performed by the Agent
under this Agreement, and the Agent and its agents or subcontractors shall not
be liable and shall be indemnified by the Company for any action reasonably
taken or omitted by it in reliance upon such instructions or upon the opinion of
such counsel. The Agent, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or documents furnished by or on behalf of
the Company, reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records or
documents provided to the Agent or its agents or subcontractors by
machine-readable input, telex, CRT data entry or other similar means
authorized by the Company, and shall not be held to have notice of any change of
authority of any person, until receipt by the Agent of written notice thereof
from the Company. The Agent, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the officers of
the Company, and the proper countersignature of any formal transfer agent or
registrar, or of a co-transfer agent or co-registrar.
5.04. In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable to the other for
any damages resulting from such failure to perform or otherwise from such
causes.
5.05. Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement, but each shall
be liable for general damages resulting from breach of this Agreement. For the
purposes of this Agreement, the term "general damages" shall include but shall
not be limited to:
(a) All costs of correcting errors made by the Agent or its agents
or subcontractors in Company shareholder accounts, including
the expense of computer time, computer programming and
personnel;
(b) Amounts which the Company is liable to pay to a person (or his
representative) who has purchased or redeemed, or caused to be
repurchased, Shares at a price which is higher, in the case of
a purchase, or lower, in the case of a redemption or
repurchase, than correct net asset value per Share, but only
to the extent that the price at which such Shares were
purchased, redeemed or repurchased was incorrect as a result
of either (i) one or more errors caused by the Agent or its
agents or subcontractors in processing shareholder accounts of
the Company or (ii) the posting by the Agent of the purchase,
redemption or repurchase of Shares subsequent to the time such
purchase, redemption or repurchase
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<PAGE>
should have been posted pursuant to laws and regulations
applicable to open-end investment companies, if the delay is
caused by the Agent, its agents or subcontractors;
(c) The value of dividends and distributions which were not
credited on Shares because of the failure of the Agent or its
agrees or subcontractors to timely post the purchase of such
Shares;
(d) The value of dividends and distributions which were
incorrectly credited on Shares because of the failure of the
Agent or its agents or subcontractors to timely post the
redemption or repurchase of such Shares;
(e) The value of dividends and distributions, some portion of
which was incorrectly credited, or was not credited, on Shares
because of the application by the Agent or its agents or
subcontractor of an incorrect dividend or distribution factor
or otherwise;
(f) Penalties and interest which the Company is required to pay
because of the failure of the Agent or its agents or
subcontractors to comply with the information reporting and
withholding (including backup withholding) requirements of the
Internal Revenue Code of 1986, as amended, and applicable
Treasury regulations thereunder, applicable to Company
Shareholder accounts; and
(g) Interest in accordance with the laws of The Commonwealth of
Massachusetts on any damages from the date of the breach of
this Agreement.
5.06. In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim or loss for which either
party may be required to indemnify the other, the party seeking indemnification
shall promptly notify the other party of such assertion or loss, and shall keep
the other party advised with respect to all developments concerning such claim.
The party who may be required to indemnify shall have the option to participate
at its expense with the party seeking indemnification in the defense of such
claim. The party seeking indemnification shall in no case confess any claim or
make any compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.
5.07. Losses incurred by the Company arising from the Agent effecting a
share transaction at a trade (pricing) date prior to the processing date shall
be governed by a separate agreement between the Agent and the Company
The obligations of the parties hereto under this Article 5 shall survive
the termination of this Agreement.
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<PAGE>
Article 6. Covenants of the Company and the Agent.
6.01. The Company shall promptly furnish to the Agent the following:
(a) A certified copy of the resolution of the Board of Trustees of
the Company authorizing the appointment of the Agent and the execution and
delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Company
and all amendments thereto.
6.02. The Agent hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Company for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account, of such certificates,
forms and devices.
6.03. The Agent shall at all times maintain insurance coverage which is
reasonable and customary in light of its duties hereunder and its other
obligations and activities.
6.04. The Agent shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
(the "Act") and the Rules thereunder, the Agent agrees that all such records
prepared or maintained by the Agent relating to the services to be performed by
the Agent hereunder and those records that the Company and the Agent agree from
time to time to be the records of the Company are the property of the Company
and will be preserved, maintained and made available in accordance with such
Section and Rules, and will be surrendered promptly to the Company on and in
accordance with its request. Records surrendered hereunder shall be in machine
readable form, except to the extent that the Agent has maintained such a record
only in paper form.
6.05. The Agent and the Company agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential and shall not be voluntarily disclosed to any other person,
except as may be required by law.
6.06. In case of any requests or demands for the inspection of the
Shareholders records of the Company, the Agent will endeavor to notify the
Company and to secure instructions from an authorized officer of the Company as
to such inspection. The Agent reserves the right, however, to exhibit the
Shareholders records to any person whenever it is reasonably advised by its
counsel that it may be held liable for the failure to exhibit the Shareholders
records to such person.
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<PAGE>
6.07. The Agent agrees to maintain or provide for redundant facilities or
a compatible configuration and to maintain or provide for backup of the
Company's master and input files and to store such files in a secure
off-premises location so that in the event of a power failure or other
interruption of whatever cause at the location of such files the Company's
records are maintained intact and transactions can be processed at another
location.
6.08. The Agent acknowledges that the Company, as a registered investment
company under the Act, is subject to the provisions of the Act and the rules and
regulations thereunder, and that the offer and sale of the Company's Shares are
subject to the provisions of federal and state laws and regulations applicable
to the offer and sale of securities. The Company acknowledges that the Agent is
not responsible for the Company's compliance with such laws and regulations. If
the Company advises the Agent that a procedure of the Agent related to the
discharge of its obligations hereunder has or may have the effect of causing the
Company to violate any of such laws or regulations, the Agent shall use its best
efforts to develop a virtually agreeable alternative procedure which does not
have such effect.
Article 7. Termination of Agreement.
7.01. This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
7.02. Should the Company exercise its right to terminate, all reasonable
out-of-pocket expenses of the Agent associated with the movement of records and
materials required by this Agreement will be borne by the Company. Additionally,
the Agent reserves the right to charge for any other reasonable expenses
associated with such termination.
Article 8. Additional Series.
8.01. In the event that the Company establishes one or more series of
Shares with respect to which it desires to have the Agent render services as
transfer agent under the terms hereof, it shall so notify the Agent in writing,
and unless the Agent objects in writing to providing such services, the term
"Company" hereunder, unless the context otherwise requires, shall be deemed to
include each such series of Shares. All recordkeeping and reporting shall be
done separately for each series. Unless the Company and the Agent agree to an
amended fee schedule, the fee schedule attached hereto shall apply to each
series separately.
Article 9. Assignment.
9.01. Except as provided in Section 9.03 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
<PAGE>
9.02. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
9.03. The Agent may, with notice to and consent on the part of the
Company, which consent shall not be unreasonably withheld, subcontract for the
performance of certain services under this Agreement to qualified service
providers, which shall be registered as transfer agents under Section 17A of the
Securities Exchange Act of 1934 if such registration is required; provided,
however, that the Agent shall be as fully responsible to the Company for the
acts and omissions of any subcontractor as it is for its own acts and omissions.
Article 10. Amendment.
10.01. This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors or Trustees of each party.
Article 11. Massachusetts Law to Apply.
11.01. This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
Article 12. Form N-SAR.
12.01. The Agent shall maintain such records as shall enable the Company
to fulfill the requirements of Form N-SAR or any successor report which must be
filed with the Securities and Exchange Commission.
Article 13. Merger of Agreement.
13.01. This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written.
Article 14. Counterparts.
14.01. This Agreement may be executed by the parties hereto in any number
of counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
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<PAGE>
Article 15. Limitation of Liability of the Trustees and the Shareholders
It is understood and expressly stipulated that none of the Trustees,
officers, agents or shareholders of the Company shall be personally liable
hereunder. The name of the Company is the designation of the Trustees for the
time being under the Company's Declaration of Trust, as the same is stated or
may hereafter be amended, and all persons dealing with the trust must look
solely to the property of the trust for the enforcement of any claims against
the trust as neither the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the trust. No
series of the Company, if any, shall be liable for the obligations of any other
series.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
ATTEST: SCUDDER CALIFORNIA TAX FREE TRUST
/s/ Marilyn J. Hayes BY: /s/ David S. Lee
- -------------------------- -------------------------------------
Title: President
ATTEST: SCUDDER SERVICE CORPORATION
/s/ Marilyn J. Hayes BY: /s/ Daniel Pierce
- -------------------------- -------------------------------------
Title: Vice President
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Exhibit 9(a)(2)
SCUDDER SERVICE CORPORATION
FEE INFORMATION FOR SERVICES PROVIDED UNDER
TRANSFER AGENCY AND SERVICE AGREEMENT
Scudder Family of Funds
Annual maintenance fee for each account
1/12th of the annual maintenance fee shall be charged and payable each month. It
will be charged for any account which at any time during the month had a share
balance in the fund. The minimum monthly charge to any portfolio is $1,000.
Monthly Market Funds* $28.90
Monthly Income Funds 25.00
Quarterly Distribution Funds 20.40
Annual Distribution Funds 17.55
Other fees
New Account Set Up $ 3.15 each
Disaster Recovery 0.25 per year
Closed Accounts 1.20 per year
TIN Certificates 0.15 each
TIN Maintenance 0.25 each
Check Writing:
Set Up 5.00 per account
Retail Check Clearance 0.96 per check
Corporate Check Clearance 0.46 per check
Payroll Deduction Processing System (PDPS):
Annual Base Fee 240,000.00
Annual Maintenance:
IRA 6.00 per account
403B 7.00 per account
401K 8.00 per account
Out of pocket expenses shall be reimbursed by the fund to Scudder Service
Corporation or paid directly by the fund. Such expenses include but are not
limited to the following:
Telephone (portion allocable to servicing accounts)
Postage, overnight service or similar services
Stationery and envelopes
Shareholder Statements - printing and postage
Checks - stock supply, printing and postage
Data circuits
Lease and maintenance of S.A.I.L. and Easy Access
Forms
Microfilm and microfiche
Expenses incurred at the specific direction of the fund
Payment
The above will be billed within the first five (5) business days of each month
and will be paid by wire within five (5) business days of receipt.
On behalf of the Funds listed in
Attachment A: Scudder Service Corporation:
By /s/ David S. Lee By /s/ Daniel Pierce
--------------------------- ------------------------------------
Date October 2, 1989 Date October 2, 1989
* SCIT per account change is $25.78
Coopers
&Lybrand
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
To the Trustees of Scudder California Tax Free Trust and the Shareholders of
Scudder California Tax Free Money Fund and Scudder California Tax Free Fund:
We consent to the incorporation by reference in Post-Effective Amendment No. 16
to the Registration Statement of Scudder California Tax Free Trust on Form N-1A
of our report dated May 16, 1997 on our audits of the financial statements and
financial highlights of Scudder California Tax Free Fund and Scudder California
Tax Free Money Fund, which report is included in the Annual Report to
Shareholders for the year ended March 31, 1997 which is included in the
Post-Effective Amendment to the Registration Statement.
We also consent to the reference to our Firm under the caption "Experts".
/s/Coopers & Lybrand L.L.P.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
July 15, 1997
EXHIBIT 16
SCUDDER CALIFORNIA TAX FREE MONEY FUND
For 3/31/89
-----------
Net income available for distribution = $10,683.27
Shares outstanding = 63,404,591
$10,683.27 = .0001684937 (divided per share)
- --------------
63,404,591
date dividend per share
---- ------------------
3/25 .000168822
3/26 .000168822
3/27 .000168758
3/28 .000169238
3/29 .000168613
3/30 .000167859
3/31 .000167344
----------
.001179456
(.0001179456/7) 36,500 = 6.15 = 7 - DAY CURRENT YIELD
<PAGE>
EXHIBIT 16
Scudder California Tax Free Fund
- --------------------------------
YIELD = 2[(a-b/c*d + 1)(6) - 1]
WHERE: a = dividends and interest earned during the period.
b = expenses accrued for the period.
c = average daily number of shares outstanding during the period.
d = maximum offering price per share on the last day of the period.
Scudder California Tax Free Fund
- --------------------------------
1,012,346.83 - 130,442.12
-------------------------
2[(l6,489,128.43 x 10.26 + 1)(6) - 1] = 6.3375%
<PAGE>
CALIFORNIA TAX FREE FUND
REINVESTMENT SERIES, ADJUSTED NAV AND PERFORMANCE
<TABLE>
<CAPTION>
REINVESTMENT ADJUSTED MONTHLY QTRLY YEAR TO 5 5 YEARS
DATE NAV PRICE AMOUNT SHARES, # SERIES NAV RETURN RETURN DATE ANNUAL YEARS ANNUALIZE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7/22/83 10.00 1.000000 10.000000
783 10.02 10.02 0.006696000 0.000668 1.000668 10.026696 0.2670
883 9.82 9.00 0.050245605 0.005127 1.005799 9.876944 -1.4935
983 9.94 9.92 0.061694586 0.006219 1.012054 10.059817 1.8515 0.5982
1083 9.70 9.70 0.050985533 0.006081 1.018208 9.876621 -1.8211 -1.4968
1183 9.56 9.54 0.063272158 0.006632 1.024961 9.798631 -0.7896 -0.7929
1283 9.60 9.60 0.068324688 0.007117 1.032256 9.909660 1.1331 -1.4926
184 9.77 9.78 0.063578811 0.006501 1.038967 10.150706 2.4324 2.7751
284 9.64 9.64 0.067405302 0.006992 1.046232 10.005672 -0.6407 2.9294
384 9.61 9.61 0.068466871 0.007125 1.053685 10.125917 0.3990 2.1823
484 9.58 9.57 0.063748548 0.006661 1.060704 10.161548 0.3519 0.1068
584 8.71 8.82 0.066688510 0.007561 1.068724 9.308590 -8.3940 -7.7048
684 8.90 8.91 0.066249146 0.007435 1.076671 9.582370 2.9412 -5.3679
784 9.23 9.23 0.062629688 0.006785 1.083976 10.005103 4.4116 -1.5396 -0.2154
884 9.27 9.29 0.075231572 0.008098 1.092755 10.129836 1.2467 8.8225 2.5604
984 9.08 9.11 0.063401115 0.006960 1.100360 9.991266 -1.3679 4.2672 -0.6814
1084 9.14 9.13 0.070553907 0.007728 1.108863 10.135007 1.4387 1.2984 2.6161
1184 9.23 9.24 0.074201529 0.008030 1.117768 10.316995 1.7956 1.8476 5.2902
1284 9.42 9.42 0.069142562 0.007340 1.125972 10.606656 2.8076 6.1593 7.0335
185 9.99 9.92 0.067780159 0.006833 1.133665 11.325317 6.7756 11.7445 11.5717
285 9.62 9.59 0.066051815 0.006888 1.141474 10.980976 -3.0405 6.4358 8.8770
385 9.54 9.55 0.056507395 0.005917 1.148228 10.954092 -0.2448 3.2756 8.1788
485 9.81 9.81 0.060035017 0.006120 1.155255 11.333048 3.4595 0.0683 11.5288
585 10.12 10.13 0.069708359 0.006881 1.163204 11.771628 3.8699 7.2002 26.4590
685 10.18 10.19 0.059997011 0.005888 1.170053 11.911141 1.1852 8.7369 24.3027
785 10.18 10.18 0.060637955 0.005957 1.177023 11.982090 0.5957 5.7270 19.7598
885 10.02 10.00 0.065308377 0.006531 1.184710 11.870790 -0.9289 0.8424 17.1864
985 9.82 9.80 0.055798124 0.005694 1.191455 11.700087 -1.4380 -1.7719 17.1032
1085 10.06 10.12 0.059561661 0.005886 1.198467 12.056581 3.0469 0.6217 10.9598
1185 10.3 10.30 0.059670133 0.005793 1.205410 12.415726 2.9788 4.5906 20.3425
1285 10.35 10.39 0.060447963 0.005818 1.212423 12.548580 1.0701 7.2520 18.3085
186 10.70 10.74 0.063946051 0.005954 1.219642 13.050169 3.9972 8.2410 15.2301
286 10.99 10.97 0.058868442 0.005366 1.226187 13.475795 3.2615 8.5381 22.7195
386 10.95 10.99 0.055490917 0.005049 1.232378 13.494542 0.1391 7.5384 23.1918
486 10.87 10.88 0.059919123 0.005507 1.239165 13.469727 -0.1839 3.2150 18.8535
586CAP 10.74 10.42 0.296000000 0.028407 1.274366 13.686693 1.6108
586 10.74 10.42 0.062068805 0.005957 1.281957 13.768220 0.5957 2.1700 16.9611
686 10.40 10.38 0.056371468 0.005431 1.288919 13.404760 -2.6399 -0.4823 12.5397
786 10.42 10.44 0.059126498 0.005663 1.296219 13.506601 0.7597 -1.3158 12.7232
886 10.84 10.88 0.062397331 0.005735 1.303653 14.131597 4.6273 2.6392 19.0451
986 10.76 10.77 0.058628766 0.005444 1.310750 14.103665 -0.1977 5.2139 20.5432
1086 10.93 10.93 0.063952040 0.005851 1.318419 14.410318 2.1743 6.6909 19.5224
1186 11.08 11.08 0.055628845 0.005021 1.325038 14.681423 1.8813 3.8906 18.2486
1286 11.01 11.01 0.061727657 0.005607 1.332467 14.670462 -0.0747 4.0188 16.9093
187 11.25 11.24 0.058946412 0.005244 1.339455 15.068868 2.7157 4.5700 15.4680
287 11.28 11.28 0.057594002 0.005106 1.346294 15.186197 0.7786 3.4382 12.6924
387 11.18 11.12 0.056883665 0.005115 1.353181 15.128563 -0.3795 3.1226 12.1088
487 10.30 10.32 0.059127653 0.005729 1.360934 14.017619 -7.3434 -6.9763 4.0676
587CAP 10.13 9.89 0.261000000 0.026471 1.396959 14.151199 0.9529
587 10.13 9.89 0.058611163 0.005926 1.405230 14.235063 0.5926 -6.2631 3.3907
687 10.01 10.02 0.055659949 0.005555 1.413044 14.144572 -0.6357 -6.5042 5.5190
787 10.10 10.09 0.050488550 0.005797 1.421235 14.354475 1.4840 2.4031 6.2775
887 10.00 10.07 0.054126712 0.005375 1.428874 14.403053 0.3304 1.1001 1.9209
987 9.65 9.61 0.058750004 0.006114 1.437611 13.072944 -3.6805 -1.9204 -1.6359
1087 9.37 9.41 0.061570438 0.006543 1.447017 13.558551 -2.2662 -5.5448 -5.9108
1187 9.68 9.09 0.055645903 0.005743 1.455327 14.007564 3.9017 -2.1904 -4.0450
1287 9.86 9.86 0.055501715 0.005629 1.463519 14.430296 2.4329 4.0175 -1.6371
188 10.23 10.23 0.058152985 0.005685 1.471838 15.056906 4.3423 11.0510 -0.0794
288 10.27 10.27 0.057385120 0.005588 1.480062 15.200241 0.9520 7.8983 0.0925
388 9.99 9.99 0.057382481 0.005744 1.488564 14.870754 -2.1676 3.0523 -1.7041
488 10.01 10.01 0.056954013 0.005690 1.497033 14.985305 0.7703 -0.4755 6.9034
588 9.88 9.88 0.056928122 0.005762 1.505659 14.875913 -0.7300 -2.1337 4.5019
688 10.04 10.04 0.056357151 0.005613 1.514111 15.201674 2.1898 2.2253 7.4736
788 10.02 10.02 0.057149308 0.005704 1.522747 15.257922 0.3700 1.8192 6.2930 52.1730 8.7596
888 10.02 10.02 0.057060451 0.005695 1.531410 15.344010 0.5695 3.1521 6.3306 55.3599 9.2114
988 10.16 10.16 0.057742977 0.005683 1.540122 15.647630 1.9735 2.9337 12.7925 55.5459 9.2375
1088 10.37 10.37 0.057435016 0.005539 1.548652 16.059520 2.6322 5.2537 18.4457 62.6014 10.2110
1188 10.20 10.20 0.057605767 0.005640 1.557398 15.885461 -1.0838 3.3233 12.7623 62.1192 10.1455
1288 10.31 10.31 0.057832690 0.005609 1.566134 16.146843 1.6434 3.1903 11.8954 62.9404 10.2569
189 10.49 10.49 0.056879110 0.005422 1.574626 16.517827 2.2976 2.8538 2.2976 9.7027 62.7259 10.2278
289 10.33 10.33 0.054602051 0.005286 1.582949 16.351865 -1.0047 2.9360 1.2697 7.5764 62.1297 10.1470
389 10.26 10.26 0.054991649 0.005360 1.591433 16.320108 -0.1453 1.1226 1.1226 9.8001 61.2507 10.0273
</TABLE>
AGGREGATE ANNUALIZED BEGIN
INCEPTION INCEPTION YEARS $1,000
- ----------------------------------------------------
$1,000
0.2670 13.6542 0.0208 $1,003
-1.2306 -11.2000 0.1042 $988
0.5982 3.2321 0.1075 $1,006
-1.2338 -4.4806 0.2700 $988
-2.0137 -5.5822 0.3542 $980
-0.9034 -2.0530 0.4375 $991
1.5071 2.9137 0.5208 $1,015
0.8567 1.4221 0.6041 $1,009
1.2592 1.8368 0.6875 $1,013
1.6155 2.1009 0.7708 $1,016
-6.9141 -8.0462 0.8541 $931
-4.1763 -4.4486 0.9375 $958
0.0510 0.0500 1.0208 $1,001
1.2984 1.1752 1.1041 $1,013
-0.0873 -0.0736 1.1875 $999
1.3501 1.0609 1.2708 $1,014
3.1700 2.3314 1.3541 $1,032
6.0666 4.1824 1.4374 $1,061
13.2532 8.5279 1.5208 $1,133
9.8098 6.0073 1.6041 $1,098
9.5409 5.5489 1.6874 $1,095
13.3305 7.3226 1.7708 $1,133
17.7163 9.1957 1.8541 $1,177
19.1114 9.4469 1.9374 $1,191
19.8209 9.3612 2.0207 $1,198
18.7079 8.4920 2.1041 $1,187
17.0009 7.4418 2.1874 $1,170
20.5658 8.5850 2.2707 $1,206
24.1573 9.6274 2.3541 $1,242
25.4858 9.7617 2.4374 $1,255
30.5017 11.1389 2.5207 $1,305
34.7579 12.1375 2.6041 $1,348
34.9454 11.7977 2.6874 $1,349
34.6973 11.3494 2.7707 $1,347
36.8669 11.6236 2.8541 $1,369
37.6822 11.8562 2.8541 $1,377
34.0476 10.4903 2.9374 $1,340
35.0660 10.4630 3.0207 $1,351
41.3160 11.7856 3.1040 $1,413
41.0366 11.3913 3.1874 $1,410
44.1032 11.0105 3.2707 $1,441
46.8142 12.1300 3.3540 $1,468
46.7046 11.7949 3.4374 $1,467
50.6887 12.3521 3.5207 $1,507
51.8620 12.2913 3.6040 $1,519
51.2856 11.8621 3.6874 $1,513
40.1762 9.3701 3.7707 $1,402
41.5120 9.4275 3.8540 $1,415
42.3506 9.5954 3.8540 $1,424
41.4457 9.2060 3.9373 $1,414
43.5447 9.4070 4.0207 $1,435
44.0305 9.2974 4.1040 $1,440
38.7294 8.1315 4.1873 $1,387
35.5855 7.3887 4.2707 $1,356
40.8756 8.1892 4.3540 $1,409
44.3030 8.6162 4.4373 $1,443
50.5691 9.4754 4.5207 $1,506
52.0024 9.5213 4.6040 $1,520
48.7075 8.8343 4.6873 $1,487
49.8530 8.8484 4.7706 $1,499
48.7591 8.5262 4.8540 $1,488
52.0167 8.8530 4.9373 $1,520
52.5792 8.7798 5.0206 $1,526
53.4401 8.7514 5.1040 $1,534
56.4764 9.0140 5.1873 $1,565
60.5952 9.4042 5.2706 $1,606
58.8546 9.0291 5.3540 $1,589
61.4684 9.2120 5.4373 $1,615
65.1783 9.5166 5.5206 $1,652
63.5186 9.1717 5.6039 $1,635
63.2811 9.0036 5.6873 $1,633
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Scudder
California Tax Free Annual Report for the fiscal year ended 3/31/97 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> SCUDDER CALIFORNIA TAX FREE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 280,748,950
<INVESTMENTS-AT-VALUE> 285,766,257
<RECEIVABLES> 5,185,957
<ASSETS-OTHER> 40,703
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 290,992,917
<PAYABLE-FOR-SECURITIES> 1,572,808
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 844,068
<TOTAL-LIABILITIES> 2,416,876
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 292,722,229
<SHARES-COMMON-STOCK> 27,774,183
<SHARES-COMMON-PRIOR> 28,232,177
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9,163,495)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,017,307
<NET-ASSETS> 288,576,041
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,803,173
<OTHER-INCOME> 0
<EXPENSES-NET> 2,285,758
<NET-INVESTMENT-INCOME> 14,517,415
<REALIZED-GAINS-CURRENT> 3,388,395
<APPREC-INCREASE-CURRENT> (2,601,367)
<NET-CHANGE-FROM-OPS> 15,304,443
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (14,517,415)
<DISTRIBUTIONS-OF-GAINS> (140,246)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,110,618
<NUMBER-OF-SHARES-REDEEMED> (5,428,908)
<SHARES-REINVESTED> 860,296
<NET-CHANGE-IN-ASSETS> (4,048,803)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (11,995,644)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,800,657
<INTEREST-EXPENSE> 1,001
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 291,762,451
<PER-SHARE-NAV-BEGIN> 10.36
<PER-SHARE-NII> (0.52)
<PER-SHARE-GAIN-APPREC> (0.04)
<PER-SHARE-DIVIDEND> 0.52
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.39
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
