<PAGE> 1
As filed with the Securities and Exchange Commission on January 27, 1998.
1933 ACT REGISTRATION NO. 33-12938
1940 ACT REGISTRATION NO. 811-5076
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. _ [ ]
Post-Effective Amendment No. 11 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 12 [X]
</TABLE>
(Check appropriate box or boxes)
------------------
TAX-EXEMPT CALIFORNIA
MONEY MARKET FUND
(Exact name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
222 South Riverside Plaza, Chicago, Illinois 60606
(Address of Principal Executive Office) (Zip Code)
</TABLE>
Registrant's Telephone Number, including Area Code: (312) 537-7000
<TABLE>
<C> <C>
Philip J. Collora, Vice President and Secretary With a copy to:
Tax-Exempt California Money Market Fund
222 South Riverside Plaza Cathy G. O'Kelly
Chicago, Illinois 60606 David A. Sturms
(Name and Address of Agent for Service) Vedder, Price, Kaufman & Kammholz
222 N. LaSalle Street
Chicago, Illinois 60601
</TABLE>
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on February 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
================================================================================
<PAGE> 2
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART A
OF FORM N-1A AND PROSPECTUS
<TABLE>
<CAPTION>
ITEM NUMBER
OF FORM N-1A LOCATION IN PROSPECTUS
<S> <C> <C>
1. Cover Page.............................. Cover Page
2. Synopsis................................ Summary; Summary of Expenses
3. Condensed Financial Information......... Financial Highlights; Performance
4. General Description of Registrant....... Capital Structure; Investment Objective,
Policies and Risk Factors
5. Management of the Fund.................. Investment Manager and Shareholder Services
5A. Management's Discussion of Fund
Performance............................. Inapplicable
6. Capital Stock and Other Securities...... Investment Objective, Policies and Risk
Factors; Dividends and Taxes; Purchase of
Shares; Capital Structure
7. Purchase of Securities Being Offered.... Purchase of Shares; Investment Manager and
Shareholder Services; Net Asset Value;
Special Features
8. Redemption or Repurchase................ Redemption of Shares
9. Pending Legal Proceedings............... Inapplicable
</TABLE>
<PAGE> 3
TAX-EXEMPT CALIFORNIA MONEY MARKET
FUND
222 South Riverside Plaza
Chicago, Illinois 60606
1-800-231-8568
TABLE OF CONTENTS
- ------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Summary 1
- ------------------------------------------------
Summary of Expenses 2
- ------------------------------------------------
Financial Highlights 2
- ------------------------------------------------
Investment Objective, Policies and Risk
Factors 3
- ------------------------------------------------
Municipal Securities and
Investment Techniques 4
- ------------------------------------------------
Net Asset Value 7
- ------------------------------------------------
Purchase of Shares 7
- ------------------------------------------------
Redemption of Shares 8
- ------------------------------------------------
Dividends and Taxes 11
- ------------------------------------------------
Investment Manager and Shareholder Services 12
- ------------------------------------------------
Special Features 13
- ------------------------------------------------
Performance 14
- ------------------------------------------------
Capital Structure 14
- ------------------------------------------------
</TABLE>
This prospectus contains information
about the Fund that a prospective
investor should know before investing
and should be retained for future
reference. A Statement of Additional
Information dated February 1, 1998,
has been filed with the Securities and
Exchange Commission and is
incorporated herein by reference. It
is available upon request without
charge from the Fund at the address or
telephone number on this cover or the
firm from which this prospectus was
received.
THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TAX-EXEMPT
CALIFORNIA
MONEY MARKET
FUND
PROSPECTUS February 1, 1998
TAX-EXEMPT CALIFORNIA MONEY MARKET
FUND 222 South Riverside Plaza,
Chicago, Illinois 60606
1-800-231-8568.
The objective of the Fund is maximum
current income that is exempt from
federal and State of California
income taxes to the extent consistent
with stability of capital. The Fund
pursues its objective primarily
through a professionally managed,
diversified portfolio of short-term
high quality California Municipal
Securities. The Fund currently is
available for sale only in
California.
AN INVESTMENT IN THE FUND IS NEITHER
INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY,
AND IS NOT A DEPOSIT OR OBLIGATION
OF, OR GUARANTEED OR ENDORSED, BY ANY
BANK. THERE CAN BE NO ASSURANCE THAT
THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER
SHARE. THE FUND MAY INVEST A
SIGNIFICANT PERCENTAGE OF ITS ASSETS
IN THE SECURITIES OF A SINGLE ISSUER,
AND THEREFORE, AN INVESTMENT IN THE
FUND MAY BE SUBJECT TO MORE RISK THAN
AN INVESTMENT IN OTHER TYPES OF MONEY
MARKET FUNDS.
<PAGE> 4
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606, TELEPHONE 1-800-231-8568
SUMMARY
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS. Tax-Exempt California Money
Market Fund (the "Fund") is registered as an open-end, diversified management
investment company. The Fund invests in a portfolio of short-term high quality
municipal obligations issued by or on behalf of the State of California, its
political subdivisions, authorities and corporations, and territories and
possessions of the United States and their political subdivisions, agencies and
instrumentalities the interest from which is, in the opinion of bond counsel to
the issuer, exempt from federal and State of California income taxes. The Fund
seeks maximum current income that is exempt from federal and State of California
income taxes to the extent consistent with stability of capital. Since the Fund
is concentrated in securities issued by the state of California or entities
within the state and may invest a significant percentage of its assets in the
securities of a single issuer, an investment in the Fund may be subject to more
risk than an investment in other types of money market funds. The Fund seeks to
maintain a net asset value of $1.00 per share. There is no assurance that the
objective of the Fund will be achieved or that the Fund will be able to maintain
a net asset value of $1.00 per share. See "Investment Objectives, Policies and
Risk Factors."
INVESTMENT MANAGER AND SERVICES. Scudder Kemper Investments, Inc. ("Scudder
Kemper") is the investment manager for the Fund and provides the Fund with
continuous professional investment supervision. Scudder Kemper is paid a monthly
investment management fee on a graduated basis of 1/12 of the following annual
fee: .22% of the first $500 million of average daily net assets, .20% of the
next $500 million, .175% of the next $1 billion, .16% of the next $1 billion and
.15% of average daily net assets over $3 billion. Kemper Distributors, Inc.
("KDI"), an affiliate of Scudder Kemper, is the primary administrator,
distributor and principal underwriter of the Fund and, as such, provides
information and services for existing and potential shareholders and acts as
agent of the Fund in the sale of its shares. KDI receives a distribution
services fee, payable monthly, at an annual rate of .33% of average daily net
assets of the Fund. As distributor, KDI normally pays financial services firms
that provide cash management and other services for their customers at an annual
rate ranging from .15% to .33% of average daily net assets of those accounts
that they maintain and service. See "Investment Manager and Shareholder
Services."
PURCHASES AND REDEMPTIONS. Shares of the Fund are available at net asset value
through selected financial services firms. The minimum initial investment is
$1,000 and the minimum subsequent investment is $100. See "Purchase of Shares."
Shares may be redeemed at the net asset value next determined after receipt by
the Fund's Shareholder Service Agent of a request to redeem in proper form.
Shares may be redeemed by written request or by using one of the Fund's
expedited redemption procedures. See "Redemption of Shares."
DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are
automatically reinvested in additional shares, unless the shareholder makes a
different election. See "Dividends and Taxes."
GENERAL INFORMATION AND CAPITAL. The Fund is organized as a business trust under
the laws of Massachusetts and may issue an unlimited number of shares of
beneficial interest. Shares are fully paid and nonassessable when issued, are
transferable without restriction and have no preemptive or conversion rights.
The Fund is not required to hold annual shareholder meetings; but will hold
special meetings as required or deemed desirable for such purposes as electing
trustees, changing fundamental policies or approving an investment management
agreement. See "Capital Structure."
1
<PAGE> 5
SUMMARY OF EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES............................ None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average
net assets)
Management Fees............................................. .22%
12b-1 Fees.................................................. .33%
Other Expenses.............................................. .23%
----
Total Operating Expenses.................................... .78%
====
</TABLE>
EXAMPLE
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses
on a $1,000 investment, assuming $8 $25 $43 $97
(1) 5% annual return and
(2) redemption at the end of each time period:
</TABLE>
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. Investment dealers and other firms may independently charge
shareholders additional fees; please see their materials for details. As a
result of the accrual of 12b-1 fees, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers. The Example assumes a 5% annual rate
of return pursuant to requirements of the Securities and Exchange Commission.
This hypothetical rate of return is not intended to be representative of past or
future performance of the Fund. THE EXAMPLE SHOULD NOT BE CONSIDERED TO BE A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The table below shows financial information for the Fund expressed in terms of
one share outstanding throughout the period. The information in the table is
covered by the report of the Fund's independent auditors. The report is
contained in the Fund's Registration Statement and is available from the Fund.
The financial statements contained in the Fund's 1997 Annual Report to
Shareholders are incorporated herein by reference and may be obtained by writing
or calling the Fund.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996 1995 1994 1993 1992 1991 1990
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
- ----------------------------------------------------------------------------------------------------------------------
Net investment income and dividends
declared .03 .03 .03 .02 .02 .02 .04 .05
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 2.91% 2.93 3.23 1.97 1.88 2.64 4.02 5.16
- ----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .78% .72 .75 .71 .69 .69 .66 .64
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 2.78% 2.88 3.16 1.94 1.87 2.62 3.99 5.03
- ----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands) $117,432 118,884 105,292 101,148 122,560 128,822 150,522 224,854
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
JUNE 2,
SEPTEMBER 30, 1987 TO
YEAR ENDED SEPTEMBER 30,
1989 1988 1987
-----------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period 1.00 1.00 1.00
- ----------------------------------------------------------------------
Net investment income and dividends
declared .05 .04 .01
- ----------------------------------------------------------------------
Net asset value, end of period 1.00 1.00 1.00
- ----------------------------------------------------------------------
TOTAL RETURN 5.69 4.58 1.25
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .66 .67 .58
- ----------------------------------------------------------------------
Net investment income 5.54 4.48 3.82
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of period (in
thousands) 236,506 128,958 46,347
- ----------------------------------------------------------------------
</TABLE>
2
<PAGE> 6
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
The investment objective of the Fund is maximum current income that is exempt
from federal and State of California income taxes to the extent consistent with
stability of capital. The Fund pursues its objective primarily through a
professionally managed, diversified portfolio of short-term high quality
municipal obligations, the income from which is exempt from federal and State of
California income taxes. The Fund is a money market mutual fund that has been
designed to provide investors with professional management of short-term
investment dollars. The Fund pools individual and institutional investors' money
which it uses to buy tax-exempt money market instruments. Because the Fund
combines its shareholders' money, it can buy and sell large blocks of
securities, which reduces transaction costs and maximizes yields. The Fund is
managed by investment professionals who analyze market trends to take advantage
of changing conditions. Its investments are subject to price fluctuations
resulting from rising or declining interest rates and are subject to the ability
of the issuers of such investments to make payment at maturity. Because of their
short maturities, liquidity and high quality, money market instruments, such as
those in which the Fund invests, are generally considered to be among the safest
available. There can be no assurance that the Fund will achieve its objective or
that it will maintain a net asset value of $1.00 per share.
Under normal market conditions, the Fund attempts to invest 100%, and will
invest at least 80%, of its total assets in tax-exempt debt obligations issued
by or on behalf of the State of California and other states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities ("Municipal Securities")
and will invest at least 65% of its total assets in tax-exempt obligations of
the State of California and its political subdivisions ("California Municipal
Securities"). In compliance with the position of the staff of the Securities and
Exchange Commission, the Fund does not consider "private activity" bonds as
described in "Dividends and Taxes" as Municipal Securities for purposes of the
80% limitation. This is a fundamental policy so long as the staff maintains its
position, after which it would become non-fundamental. Dividends to the extent
of interest income received on California Municipal Securities will be exempt
from both federal and State of California income tax provided at least 50% of
the Fund's total assets are invested in California Municipal Securities. Such
dividend income may be subject to local taxes. See "Dividends and Taxes." The
Fund's assets will consist of Municipal Securities, temporary investments, as
described below, and cash.
The Fund will invest only in Municipal Securities that at the time of purchase:
(a) are rated within the two highest ratings of municipal securities (Aaa or Aa)
assigned by Moody's Investors Service, Inc. ("Moody's") or (AAA or AA) assigned
by Standard & Poor's Corporation ("S&P"); (b) are guaranteed or insured by the
U.S. Government as to the payment of principal and interest; (c) are fully
collateralized by an escrow of U.S. Government securities; (d) have at the time
of purchase Moody's short-term municipal securities rating of MIG-2 or higher or
a municipal commercial paper rating of P-2 or higher, or S&P's municipal
commercial paper rating of A-2 or higher; (e) are unrated, if longer term
municipal securities of that issuer are rated within the two highest rating
categories by Moody's or S&P; or (f) are determined by the investment manager to
be at least equal in quality to one or more of the above ratings. In addition,
the Fund limits its investment to securities that meet the quality and
diversification requirements of Rule 2a-7 under the Investment Company Act of
1940 ("1940 Act"). See "Net Asset Value."
The investment objective of the Fund and the investment policies set forth in
the three preceding paragraphs are fundamental and may not be changed without
the affirmative vote of a majority of the outstanding shares of the Fund, as
defined below.
From time to time, a significant portion of the Fund's securities is supported
by credit and liquidity enhancements from third party banks and other financial
institutions, and as a result, changes in the credit quality of these
institutions could cause losses to the Fund and affect its share price.
From time to time, as a defensive measure or when acceptable short-term
Municipal Securities are not available, the Fund may invest in taxable
"temporary investments" that include: obligations of the U.S. Government, its
3
<PAGE> 7
agencies or instrumentalities; debt securities rated within the two highest
grades by Moody's or S&P; commercial paper rated in the two highest grades by
either of such rating services; certificates of deposit of domestic banks with
assets of $1 billion or more; and any of the foregoing temporary investments
subject to repurchase agreements. Under a repurchase agreement the Fund acquires
ownership of a security from a broker-dealer or bank that agrees to repurchase
the security at a mutually agreed upon time and price (which price is higher
than the purchase price), thereby determining the yield during the Fund's
holding period. Repurchase agreements with broker-dealer firms will be limited
to obligations of the U.S. Government, its agencies or instrumentalities.
Maturity of the securities subject to repurchase may exceed one year. Interest
income from temporary investments is taxable to shareholders as ordinary income.
Although the Fund is permitted to invest in taxable securities, it is the Fund's
primary intention to generate income dividends that are not subject to federal
or State of California income taxes. See "Dividends and Taxes." For a
description of the ratings, see "Appendix--Ratings of Investments" in the
Statement of Additional Information.
The Fund may also engage in "reverse repurchase agreements," that are repurchase
agreements in which the Fund, as the seller of securities, agrees to repurchase
them at an agreed upon time and price. Reverse repurchase agreements will only
be used by the Fund to raise cash on a temporary basis to meet redemptions when
it would like to retain the Municipal Securities in its portfolio and it expects
to be able to repurchase them in a short time with funds from maturing
investments and from net sales of Fund shares. Use of reverse repurchase
agreements, because of the lower transaction costs involved, is often preferable
to a regular sale and later repurchase of the securities.
The Fund may borrow money, including through reverse repurchase agreements, for
temporary purposes, but not for the purpose of purchase of investments, in an
amount up to one-third of the value of the Fund's total assets and may pledge up
to 10% of the Fund's net assets to secure borrowings. The Fund will not purchase
illiquid securities, including repurchase agreements maturing in more than seven
days, if, as a result thereof, more than 10% of the Fund's total assets valued
at the time of the transaction would be invested in such securities. Up to 25%
of the total assets of the Fund may be invested at any time in debt obligations
of a single issuer or of issuers in a single industry, although the Fund may
invest without limitation in Municipal Securities the income on which may be
derived from projects of a single type.
The Fund must meet the diversification requirements of Rule 2a-7 under the 1940
Act. Rule 2a-7 provides that a single state money fund shall not, as to 75% of
its assets, invest more than 5% of its assets in the securities of an individual
issuer, provided that the fund may not invest more than 5% of its assets in the
securities of an individual issuer unless the securities are First Tier
Securities (as defined in Rule 2a-7). This allows the Fund, as to 25% of its
assets, to invest more than 5% of its assets in the securities of an individual
issuer. Since the Fund is concentrated in securities issued by the state of
California or entities within the state and may invest a significant percentage
of its assets in the securities of a single issuer, an investment in the Fund
may be subject to more risk than an investment in other types of money market
funds. See "Investment Restrictions" in the Statement of Additional Information.
The Fund has adopted certain investment restrictions that are presented in the
Statement of Additional Information and that, together with the investment
objective and fundamental policies of the Fund, cannot be changed without
approval by holders of a majority of its outstanding voting shares. As defined
in the 1940 Act, this means the lesser of the vote of (a) 67% of the shares of
the Fund present at a meeting where more than 50% of the outstanding shares are
present in person or by proxy; or (b) more than 50% of the outstanding shares of
the Fund.
MUNICIPAL SECURITIES AND INVESTMENT TECHNIQUES
The two principal classifications of Municipal Securities consist of "general
obligation" and "revenue" issues. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue
4
<PAGE> 8
source such as the user of the facility being financed. Industrial development
bonds held by the Fund are in most cases revenue bonds and are not payable from
the unrestricted revenues of the issuer. Among other types of instruments, the
Fund may purchase tax-exempt commercial paper, warrants and short-term municipal
notes such as tax anticipation notes, bond anticipation notes, revenue
anticipation notes, construction loan notes and other forms of short-term loans.
Such notes are issued with a short-term maturity in anticipation of the receipt
of tax payments, the proceeds of bond placements or other revenues. A more
detailed discussion of Municipal Securities and the Moody's and S&P ratings
outlined above under "Investment Objective, Policies and Risk Factors" is
contained in the Statement of Additional Information.
The Fund may purchase securities which provide for the right to resell them to
an issuer, bank or dealer at an agreed upon price or yield within a specified
period prior to the maturity date of such securities. Such a right to resell is
referred to as a "Standby Commitment." Securities may cost more with Standby
Commitments than without them. Standby Commitments will be entered into solely
to facilitate portfolio liquidity. A Standby Commitment may be exercised before
the maturity date of the related Municipal Security if the Fund's investment
manager revises its evaluation of the creditworthiness of the underlying
security or of the entity issuing the Standby Commitment. The Fund's policy is
to enter into Standby Commitments only with issuers, banks or dealers which are
determined by the Fund's investment manager to present minimal credit risks. If
an issuer, bank or dealer should default on its obligation to repurchase an
underlying security, the Fund might be unable to recover all or a portion of any
loss sustained from having to sell the security elsewhere. For purposes of
valuing the Fund's securities at amortized cost, the maturity of Municipal
Securities will not be considered shortened by any Standby Commitment to which
such security is subject.
The Fund may invest in certain Municipal Securities having rates of interest
that are adjusted periodically or that "float" continuously according to
formulae intended to minimize fluctuations in values of the instruments
("Variable Rate Notes"). The interest rate on Variable Rate Notes ordinarily is
determined by reference to or is a percentage of a bank's prime rate, the 90 day
U.S. Treasury bill rate, the rate of return on commercial paper or bank
certificates of deposit, or some similar objective standard. Generally, the
changes in the interest rate on Variable Rate Notes reduce the fluctuation in
the market value of such notes. Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or capital depreciation is less
than for fixed rate obligations. Variable Rate Loan Participations are similar
to Variable Rate Notes except they are made available through a commercial bank
which arranges the tax-exempt loan. Variable Rate Notes and Variable Rate Loan
Participations typically are bought and sold among institutional investors. The
Fund currently intends to invest a substantial portion of its assets in Variable
Rate Notes and Variable Rate Loan Participations. Variable Rate Demand Notes
have a demand feature which entitles the purchaser to resell the securities at
par value. The rate of return on Variable Rate Demand Notes also varies
according to some objective standard, such as an index of short-term tax-exempt
rates. Variable rate instruments with a demand feature enable the Fund to
purchase instruments with a stated maturity in excess of one year. The Fund
determines the maturity of variable rate instruments in accordance with Rule
2a-7, which allows the Fund to consider certain of such instruments as having
maturities shorter than the maturity date on the face of the instrument.
The Fund may purchase high quality Certificates of Participation in trusts that
hold Municipal Securities. A Certificate of Participation gives the Fund an
undivided interest in the Municipal Security in the proportion that the Fund's
interest bears to the total principal amount of the Municipal Security. These
Certificates of Participation may be variable rate or fixed rate with remaining
maturities of one year or less. A Certificate of Participation may be backed by
an irrevocable letter of credit or guarantee of a financial institution that
satisfies rating agencies as to the credit quality of the Municipal Security
supporting the payment of principal and interest on the Certificate of
Participation. Payments of principal and interest would be dependent upon the
underlying Municipal Security and may be guaranteed under a letter of credit to
the extent of such credit. The quality rating by a rating service of an issue of
Certificates of Participation is based primarily upon the rating of the
Municipal Security held by the trust and the credit rating of the issuer of any
letter of credit and of any other guarantor providing credit support to the
issue. The Fund's investment manager considers these factors as well as others,
5
<PAGE> 9
such as any quality ratings issued by the rating services identified above, in
reviewing the credit risk presented by a Certificate of Participation and in
determining whether the Certificate of Participation is appropriate for
investment by the Fund. The Fund's investment manager anticipates that, for most
publicly offered Certificates of Participation, there will be a liquid secondary
market or there may be demand features enabling the Fund to readily sell its
Certificates of Participation prior to maturity to the issuer or a third party.
As to those instruments with demand features, the Fund intends to exercise its
right to demand payment from the issuer of the demand feature only upon a
default under the terms of the Municipal Security, as needed to provide
liquidity to meet redemptions, or to maintain a high quality investment
portfolio.
The Fund may purchase and sell Municipal Securities on a when-issued or delayed
delivery basis. A when-issued or delayed delivery transaction arises when
securities are bought or sold for future payment and delivery to secure what is
considered to be an advantageous price and yield to the Fund at the time it
enters into the transaction. In determining the maturity of portfolio securities
purchased on a when-issued or delayed delivery basis, the Fund will consider
them purchased on the date when it commits itself to the purchase.
A security purchased on a when-issued basis, like all securities held in the
Fund's portfolio, is subject to changes in market value based upon changes in
the level of interest rates and investors' perceptions of the creditworthiness
of the issuer. Generally such securities will appreciate in value when interest
rates decline and depreciate in value when interest rates rise. Therefore if, in
order to achieve higher interest income, the Fund remains substantially fully
invested at the same time that it has purchased securities on a when-issued
basis, there will be a greater possibility that the net asset value of the
Fund's shares will vary from $1.00 per share, since the value of a when-issued
security is subject to market fluctuation and no interest accrues to the
purchaser prior to settlement of the transaction. See "Net Asset Value."
The Fund will only make commitments to purchase Municipal Securities on a
when-issued or delayed delivery basis with the intention of actually acquiring
the securities, but the Fund reserves the right to sell these securities before
the settlement date if deemed advisable. The sale of securities may result in
the realization of gains that are not exempt from federal or State of California
income tax.
Yields on Municipal Securities are dependent on a variety of factors, including
the general conditions of the money market and the municipal bond market, and
the size, maturity and rating of the particular offering. The ratings of Moody's
and S&P represent their opinions as to the quality of the Municipal Securities
which they undertake to rate. It should be emphasized, however, that ratings are
general and are not absolute standards of quality. Consequently, Municipal
Securities with the same maturity, coupon and rating may have different yields.
Investors should be aware that certain California constitutional amendments,
legislative measures, executive orders, civil actions and voter initiatives, as
well as the general financial condition of the State, could result in certain
adverse consequences for owners of California Municipal Securities. For
instance, amendments in recent years to the California Constitution and statutes
that limit the taxing and spending authority of California governmental entities
may impair the ability of the issuers of some California Municipal Securities to
maintain debt service on their obligations. Other measures affecting the taxing
or spending authority of California or its political subdivisions may be
approved or enacted in the future. Some of the significant financial
considerations relating to the Fund's investments in California Municipal
Securities are summarized in the Statement of Additional Information.
In seeking to achieve its investment objective, the Fund may invest all or any
part of its assets in Municipal Securities that are industrial development
bonds. Moreover, although the Fund does not currently intend to do so on a
regular basis, it may invest more than 25% of its assets in Municipal Securities
which are repayable out of revenue streams generated from economically related
projects or facilities, if such investment is deemed necessary or appropriate by
the Fund's investment manager. To the extent that the Fund's assets are
concentrated in Municipal Securities payable from revenues on economically
related projects and facilities, the Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if the Fund's
assets were not so concentrated.
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<PAGE> 10
NET ASSET VALUE
Fund shares are sold at their net asset value next determined after an order and
payment are received in the form described under "Purchase of Shares." The net
asset value of a Fund share is calculated by dividing the total assets of the
Fund less its liabilities by the total number of shares outstanding. The net
asset value per share of the Fund is determined on each day the New York Stock
Exchange is open for trading, at 11:00 a.m., 3:00 p.m. and 8:00 p.m. Chicago
time, and on each other day on which there is a sufficient degree of trading in
the Fund's investments that its net asset value might be affected, except that
the net asset value will not be computed on a day on which no orders to purchase
shares were received and no shares were tendered for redemption. Orders received
by dealers or other financial services firms prior to the 8:00 p.m.
determination of net asset value for the Fund and received by Kemper
Distributors, Inc. ("KDI"), the primary administrator, distributor and principal
underwriter for the Funds, prior to the close of its business day can be
confirmed at the 8:00 p.m. determination of net assets value for that day. Such
transactions are settled by payment of Federal Funds in accordance with
procedures established by KDI. The Fund seeks to maintain a net asset value of
$1.00 per share.
The Fund values its portfolio instruments at amortized cost in accordance with
Rule 2a-7 under the 1940 Act, which means that they are valued at their
acquisition cost, as adjusted for amortization of premium or accretion of
discount, rather than at current market value. Calculations are made to compare
the value of the Fund's investments, valued at amortized cost, with market-based
values. Market-based valuations are obtained by using actual quotations provided
by market makers, estimates of market value, or values obtained from yield data
relating to classes of money market instruments published by reputable sources
at the mean between the bid and asked prices for the instruments. If a deviation
of 1/2 of 1% or more were to occur between the net asset value per share
calculated by reference to market-based values and the Fund's $1.00 per share
net asset value, or if there were any other deviation that the Board of Trustees
of the Fund believed would result in a material dilution to shareholders or
purchasers, the Board of Trustees would promptly consider what action, if any,
should be initiated. In order to value its investments at amortized cost, the
Fund purchases only securities with a maturity of 397 days or less and maintains
a dollar-weighted average portfolio maturity of 90 days or less. In addition,
the Fund limits its portfolio investments to securities that meet the quality
and diversification requirements of Rule 2a-7.
PURCHASE OF SHARES
Fund shares are sold at their net asset value with no sales charge through
selected financial services firms, such as broker-dealers and banks ("firms").
The minimum initial investment is $1,000 and the minimum subsequent investment
is $100. Under an automatic investment plan, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion. Firms offering Fund shares may set higher minimums for
accounts they service and may change such minimums at their discretion.
The Fund seeks to be as fully invested as possible at all times in order to
achieve maximum income. Since the Fund will be investing in instruments that
normally require immediate payment in Federal Funds (monies credited to a bank's
account with its regional Federal Reserve Bank), the Fund has adopted procedures
for the convenience of its shareholders and to ensure that it receives
investable funds. Orders for the purchase of shares received by wire transfer in
the form of Federal Funds will be effected at the next determined net asset
value. Shares purchased by wire will receive (i) that day's dividend if effected
at or prior to the 11:00 a.m. Chicago time net asset value determination, (ii)
the dividend for the next calendar day if effected at the 3:00 p.m. or 8:00 p.m.
Chicago time net asset value determination provided such payment is received by
3:00 p.m. Chicago time; or (iii) the dividend for the next business day if
effected at the 8:00 p.m. Chicago time net asset value calculations and payment
is received after 3:00 p.m. Chicago time on such date. Confirmed share purchases
that are effective at the 8:00 p.m. Chicago net asset value determination for
the Fund will receive dividends upon receipt of payment for such transactions in
the form of Federal funds in accordance with the time provisions immediately
above. Orders for purchase accompanied by a check or other negotiable bank draft
drawn on a domestic bank will be
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<PAGE> 11
accepted and effected as of 3:00 p.m. Chicago time on the next business day
following receipt and such shares will receive the dividend for the business day
following the day the purchase is effected. If an order is accompanied by a
check drawn on a foreign bank, funds must normally be collected on such check
before shares will be purchased. See "Purchase and Redemption of Shares" in the
Statement of Additional Information.
If payment is wired in Federal Funds, the payment should be directed to State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110,
the sub-custodian for the Fund. If payment is to be wired, call the firm from
which you received this prospectus for proper instructions.
CLIENTS OF FIRMS. Firms provide varying arrangements for their clients with
respect to the purchase and redemption of Fund shares and the confirmation
thereof. Such firms are responsible for the prompt transmission of purchase and
redemption orders. Some firms may establish higher minimum investment
requirements than set forth above. A firm may arrange with its clients for other
investment or administrative services. Such firms may independently establish
and charge additional amounts to their clients for such services, which charges
would reduce the clients' yield or return. Firms may also hold Fund shares in
nominee or street name as agent for and on behalf of their clients. In such
instances, the Fund's transfer agent will have no information with respect to or
control over the accounts of specific shareholders. Such shareholders may obtain
access to their accounts and information about their accounts only from their
firm. Certain of these firms may receive compensation from the Fund through the
Shareholder Service Agent for recordkeeping and other expenses relating to these
nominee accounts. In addition, certain privileges with respect to the purchase
and redemption of shares (such as check writing redemptions) or the reinvestment
of dividends may not be available through such firms or may only be available
subject to conditions and limitations. Some firms may participate in a program
allowing them access to their clients' accounts for servicing including, without
limitation, transfers of registration and dividend payee changes; and may
perform functions such as generation of confirmation statements and disbursement
of cash dividends. Such firms, including affiliates of the Fund's principal
underwriter, may receive compensation from the Fund through the Shareholder
Service Agent for these services. The prospectus should be read in connection
with such firm's material regarding its fees and services.
OTHER INFORMATION. The Fund reserves the right to withdraw all or any part of
the offering made by this prospectus or to reject purchase orders. All orders to
purchase shares are subject to acceptance by the Fund and are not binding until
confirmed or accepted in writing. Any purchase that would result in total
account balances for a single shareholder in excess of $3 million is subject to
prior approval by the Fund. Share certificates are issued only on request to the
Fund and may not be available for certain types of accounts. A $10 service fee
will be charged when a check for purchase of Fund shares is returned because of
insufficient or uncollected funds or a stop payment order.
Shareholders should direct their inquiries to the firm from which they received
this prospectus or to Kemper Service Company, the Fund's Shareholder Service
Agent, 811 Main Street, Kansas City, Missouri 64105-2005.
REDEMPTION OF SHARES
GENERAL. Upon receipt by the Shareholder Service Agent of a request in the form
described below, shares will be redeemed by the Fund at the next determined net
asset value. If processed at 3:00 p.m. or 8:00 p.m. Chicago time, the
shareholder will receive that day's dividend. A shareholder may use either the
regular or expedited redemption procedures. Shareholders who redeem all their
shares of the Fund will receive the net asset value of such shares and all
declared but unpaid dividends on such shares.
If shares of the Fund to be redeemed were purchased by check or through certain
Automated Clearing House ("ACH") transactions, the Fund may delay transmittal of
redemption proceeds until it has determined that collected funds have been
received for the purchase of such shares, which will be up to 10 days from
receipt by the Fund of the purchase amount. Shareholders may not use expedited
redemption procedures (wire transfer or Redemption Check) until the shares being
redeemed have been owned for at least 10 days, and shareholders may not use such
procedures to redeem shares held in certificated form. There is no delay when
shares being redeemed were purchased by wiring Federal Funds.
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<PAGE> 12
If shares being redeemed were acquired from an exchange of shares of a mutual
fund that were offered subject to a contingent deferred sales charge as
described in the prospectus for that other fund, the redemption of such shares
by the Fund may be subject to a contingent deferred sales charge as explained in
such prospectus.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions, ACH transactions and exchange transactions for individual
and institutional accounts and pre-authorized telephone redemption transactions
for certain institutional accounts. Shareholders may choose these privileges on
the account application or by contacting the Shareholder Service Agent for
appropriate instructions. Please note that the telephone exchange privilege is
automatic unless the shareholder refuses it on the account application. The Fund
or its agents may be liable for any losses, expenses or costs arising out of any
fraudulent or unauthorized telephone requests pursuant to these privileges
unless the Fund and its agents reasonably believe, based upon reasonable
verification procedures, that the telephone instructions are genuine. THE
SHAREHOLDER WILL BEAR THE RISK OF LOSS, including loss resulting from fraudulent
or unauthorized transactions, so long as reasonable verification procedures are
followed. Verification procedures include recording instructions, requiring
certain identifying information before acting upon instructions and sending
written confirmations.
Because of the high cost of maintaining small accounts, the Fund reserves the
right to redeem an account that falls below the minimum investment level,
currently $1,000. A shareholder will be notified in writing and will be allowed
60 days to make additional purchases to bring the account value up to the
minimum investment level before the Fund redeems the shareholder account.
Firms provide varying arrangements for their clients to redeem Fund shares. Such
firms may independently establish and charge additional amounts to their clients
for such services.
REGULAR REDEMPTIONS. Shareholders should contact the firm through which shares
were purchased for redemption instructions. However, when shares are held for
the account of a shareholder by the Fund's transfer agent, the shareholder may
redeem them by sending a written request with signatures guaranteed to Kemper
Service Company, P.O. Box 419153, Kansas City, Missouri 64141-6153. When
certificates for shares have been issued, they must be mailed to or deposited
with the Shareholder Service Agent, along with a duly endorsed stock power and
accompanied by a written request for redemption. Redemption requests and a stock
power must be endorsed by the account holder with signatures guaranteed by a
commercial bank, trust company, savings and loan association, federal savings
bank, member firm of a national securities exchange or other eligible financial
institution. The redemption request and stock power must be signed exactly as
the account is registered, including any special capacity of the registered
owner. Additional documentation may be requested, and a signature guarantee is
normally required, from institutional and fiduciary account holders, such as
corporations, custodians (e.g., under the Uniform Transfers to Minors Act),
executors, administrators, trustees or guardians.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption are $50,000 or less and
the proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders may exercise this
special privilege of redeeming shares by telephone request or written request
without signature guarantee subject to the same conditions as individual account
holders, and subject to the limitations on liability described under "General"
above, provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Shares purchased by check
or through certain ACH transactions may not be redeemed under this privilege of
redeeming shares by telephone request until such shares have been owned for at
least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege
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<PAGE> 13
although investors can still redeem by mail. The Fund reserves the right to
terminate or modify this privilege at any time.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of the Fund can be redeemed and proceeds sent by a federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to 11:00 a.m. Chicago time will result in
shares being redeemed that day and normally the proceeds will be sent to the
designated account that day. Once authorization is on file, the Shareholder
Service Agent will honor requests by telephone at 1-800-231-8568 or in writing,
subject to the limitations on liability described under "General" above. The
Fund is not responsible for the efficiency of the federal wire system or the
account holder's financial services firm or bank. The Fund currently does not
charge the account holder for wire transfers. The account holder is responsible
for any charges imposed by the account holder's firm or bank.There is a $1,000
wire redemption minimum. To change the designated account to receive wire
redemption proceeds, send a written request to the Shareholder Service Agent
with signatures guaranteed as described above, or contact the firm through which
shares of the Fund were purchased. Shares purchased by check or through certain
ACH transactions may not be redeemed by wire transfer until the shares have been
owned for at least 10 days. Account holders may not use this privilege to redeem
shares held in certificated form. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use the
expedited wire transfer redemption privilege. The Fund reserves the right to
terminate or modify this privilege at any time.
EXPEDITED REDEMPTIONS BY DRAFT. Upon request, shareholders will be provided
with drafts to be drawn on the Fund ("Redemption Checks"). These Redemption
Checks may be made payable to the order of any person for not more than $5
million. Shareholders should not write Redemption Checks in an amount less than
$250 since a $10 service fee will be charged as described below. When a
Redemption Check is presented for payment, a sufficient number of full and
fractional shares in the shareholder's account will be redeemed as of the next
determined net asset value to cover the amount of the Redemption Check. This
will enable the shareholder to continue earning dividends until the Fund
receives the Redemption Check. A shareholder wishing to use this method of
redemption must complete and file an Account Information Form which is available
from the Fund or firms through which shares were purchased. Redemption Checks
should not be used to close an account since the account normally includes
accrued but unpaid dividends. The Fund reserves the right to terminate or modify
this privilege at any time. This privilege may not be available through some
firms that distribute shares of the Fund. In addition, firms may impose minimum
balance requirements in order to obtain this feature. Firms may also impose fees
to investors for this privilege or establish variations of minimum check amounts
if approved by the Fund.
Unless one signer is authorized on the Account Information Form, Redemption
Checks must be signed by all account owners. Any change in the signature
authorization must be made by written notice to the Shareholder Service Agent.
Shares purchased by check or through certain ACH transactions may not be
redeemed by Redemption Check until the shares have been owned for at least 10
days. Shareholders may not use this procedure to redeem shares held in
certificated form. The Fund reserves the right to terminate or modify this
privilege at any time.
The Fund may refuse to honor Redemption Checks whenever the right of redemption
has been suspended or postponed, or whenever the account is otherwise impaired.
A $10 service fee will be charged when a Redemption Check is presented to redeem
Fund shares in excess of the value of a Fund account or in an amount less than
$250; when a Redemption Check is presented that would require redemption of
shares that were purchased by check or certain ACH transactions within 10 days;
or when "stop payment" of a Redemption Check is requested. Firms may charge
different service fees.
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DIVIDENDS AND TAXES
DIVIDENDS. Dividends are declared daily and paid monthly. Shareholders may
select one of the following ways to receive dividends:
1. REINVEST DIVIDENDS at net asset value into additional shares of the Fund.
Dividends are normally reinvested on the 15th day of each month if a business
day, otherwise on the next business day. Dividends will be reinvested unless the
shareholder elects to receive them in cash.
2. RECEIVE DIVIDENDS IN CASH if so requested. Checks will be mailed monthly to
the shareholder or any person designated by the shareholder.
The Fund reinvests dividend checks (and future dividends) in shares of the Fund
if checks are returned as undeliverable. Dividends and other distributions in
the aggregate amount of $10 or less are automatically reinvested in shares of
the Fund unless the shareholder requests that such policy not be applied to the
shareholder's account.
TAXES. The Fund intends to continue to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code (the "Code") and, if so
qualified, will not be liable for federal income taxes to the extent its
earnings are distributed. The Fund also intends to meet the requirements of the
Code applicable to regulated investment companies distributing tax-exempt
interest dividends and, therefore, dividends representing net interest received
on Municipal Securities will not be includable by shareholders in their gross
income for federal income tax purposes, except to the extent such interest is
subject to the alternative minimum tax as discussed hereinafter. Dividends
representing taxable net investment income (such as net interest income from
temporary investments in obligations of the U.S. Government) and net short-term
capital gains, if any, are taxable to shareholders as ordinary income whether
received in cash or additional shares.
Dividends declared in October, November or December to shareholders of record as
of a date in one of those months and paid during the following January are
treated as paid on December 31 of the calendar year in which declared for
federal income tax purposes. The Fund may adjust its schedule for dividend
reinvestment for the month of December to assist it in complying with reporting
and minimum distribution requirements contained in the Code.
Net interest on certain "private activity bonds" issued on or after August 8,
1986 is treated as an item of tax preference and may, therefore, be subject to
both the individual and corporate alternative minimum tax. To the extent
provided by regulations to be issued by the Secretary of the Treasury,
exempt-interest dividends from the Fund are to be treated as interest on private
activity bonds in proportion to the interest the Fund receives from private
activity bonds, reduced by allowable deductions. For the 1997 calendar year, 3%
of the net interest income of the Fund was derived from "private activity
bonds."
Exempt-interest dividends, except to the extent of interest from "private
activity bonds," are not treated as a tax preference item. For a corporate
shareholder, however, such dividends will be included in determining such
corporate shareholder's "adjusted current earnings." Seventy-five percent of the
excess, if any, of "adjusted current earnings" over the corporate shareholder's
other alternative minimum taxable income with certain adjustments will be a tax
preference item. Corporate shareholders are advised to consult their tax
advisers with respect to alternative minimum tax consequences.
Shareholders will be required to disclose on their federal income tax returns
the amount of tax-exempt interest earned during the year, including
exempt-interest dividends received from the Fund.
Individuals whose modified income exceeds a base amount will be subject to
federal income tax on up to 85% of their Social Security benefits. Modified
income includes adjusted gross income, tax-exempt interest, including
exempt-interest dividends from the Fund, and 50% of Social Security benefits.
Individuals are advised to consult their tax advisers with respect to the
taxation of Social Security benefits.
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<PAGE> 15
Dividends to the extent of interest income received on California state and
local government issues, will be exempt from State of California income taxes
provided at least 50% of the Fund's total assets are invested in such issues at
the close of each quarter in the taxable year. The tax exemption for federal and
California income tax purposes of dividends from the Fund does not necessarily
result in exemptions under the income or other tax laws of any state or local
taxing authority. The laws of the several states and local taxing authorities
vary with respect to the taxation of such income, and shareholders of the Fund
are advised to consult their own tax advisers in that regard and as to the
status of their accounts under state and local tax laws.
The Fund is required by law to withhold 31% of taxable dividends paid to certain
shareholders who do not furnish a correct taxpayer identification number (in the
case of individuals, a social security number) and in certain other
circumstances.
Shareholders normally will receive monthly confirmations of dividends and of
purchase and redemption transactions. Tax information will be provided annually.
Shareholders are encouraged to retain copies of their account confirmation
statements or year-end statements for tax reporting purposes. However, those who
have incomplete records may obtain historical account transaction information at
a reasonable fee.
INVESTMENT MANAGER AND SHAREHOLDER SERVICES
INVESTMENT MANAGER. Scudder Kemper Investments, Inc.("Scudder Kemper"), 345 Park
Avenue, New York, New York, is the investment manager of the Fund and provides
the Fund with continuous professional investment supervision. Scudder Kemper is
one of the largest investment managers in the country with more than $200
billion under management and has been engaged in the management of investment
funds for more than seventy years. Zurich Insurance Company, a leading
internationally recognized provider of insurance and financial services in
property/casualty and life insurance, reinsurance and structured financial
solutions as well as asset management, owns approximately 70% of Scudder Kemper,
with the balance owned by Scudder Kemper's officers and employees.
Responsibility for overall management of the Fund rests with its Board of
Trustees and officers. Professional investment supervision is provided by
Scudder Kemper. The investment management agreement provides that Scudder Kemper
shall act as the Fund's investment adviser, manage its investments and provide
it with various services and facilities. For the services and facilities
furnished, the Fund pays a monthly investment management fee on a graduated
basis of 1/12 of the following annual fee of .22% of the first $500 million of
average daily net assets, .20% of the next $500 million, .175% of the next $1
billion, .16% of the next $1 billion and .15% of average daily net assets over
$3 billion.
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation ("SFAC"), a
subsidiary of Scudder Kemper, is responsible for determining the daily net asset
value per share of the Fund and maintaining all accounting records related
hereto. Currently, SFAC receives no fee for its services to the Fund however,
subject to Board approval, at some time in the future, SFAC may seek payment for
its services under this agreement.
DISTRIBUTOR. Pursuant to an administration, shareholder services and
distribution agreement ("distribution agreement"), Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60603, an affiliate of
Scudder Kemper, serves as distributor, administrator and principal underwriter
of the Fund to provide information and administrative and distribution services
for existing and potential shareholders. The distribution agreement provides
that KDI shall act as agent for the Fund for the sale of its shares and shall
appoint various financial services firms ("firms"), such as broker-dealers and
banks, to provide cash management services for their customers or clients
through the Fund. The firms are to provide such office space and equipment,
telephone facilities, personnel and sales literature distribution as is
necessary or appropriate for providing information and services to the firm's
clients. For its services under the distribution agreement, the Fund pays KDI an
annual
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<PAGE> 16
distribution services fee, payable monthly, of .33% of average daily net assets
of the Fund. The fee is accrued daily as an expense of the Fund.
KDI has related administration services and selling group agreements with
various broker-dealer firms to provide cash management and other services for
Fund shareholders. KDI also has services agreements with banking firms to
provide such services, except for certain underwriting or distribution services
which the banks may be prohibited from providing under the Glass-Steagall Act,
for their clients who wish to invest in the Fund. If the Glass-Steagall Act
should prevent banking firms from acting in any capacity or providing any of the
described services, management will consider what action, if any, is
appropriate. Management does not believe that termination of a relationship with
a bank would result in any material adverse consequences to the Fund. Banks or
other financial services firms may be subject to various state laws regarding
the services described above and may be required to register as dealers pursuant
to state law. KDI normally pays the firms at an annual rate ranging from .15% to
.33% of average daily net assets of those accounts that they maintain and
service. In addition, KDI may, from time to time, from its own resources pay
certain firms additional amounts for such services including, without
limitation, fixed dollar amounts based upon a percentage of net assets or
increased net assets in those portfolio accounts that said firms maintain and
service. KDI may elect to keep a portion of the total distribution services fee
to compensate itself for functions performed for the Fund or to pay for sales
materials or other promotional activities. Since the distribution agreement
provides for fees that are used by KDI to pay for distribution and
administration services, the agreement along with the related administration
services and selling group agreements and the plan contained therein are
approved and reviewed in accordance with Rule 12b-1 under the 1940 Act, which
regulates the manner in which an investment company may, directly or indirectly,
bear the expenses of distributing its shares.
Since the fee payable to KDI under the distribution agreement is based upon a
percentage of the average daily net assets of the Fund and not upon the actual
expenditures of KDI, the expenses of KDI (which may include overhead expense)
may be more or less than the fees received by it under the distribution
agreement. For example, during the fiscal year ended September 30, 1997, KDI
incurred expenses under the distribution agreement of approximately $212,000,
while it received an aggregate fee under the distribution agreement of $190,000.
If the distribution agreement is terminated in accordance with its terms, the
obligation of the Fund to make payments to KDI pursuant to the distribution
agreement will cease and the Fund will not be required to make any payments past
the termination date. Thus, there is no legal obligation for the Fund to pay any
excess expenses incurred by KDI over its fees under the distribution agreement
if, for any reason, the distribution agreement is terminated in accordance with
its terms. Any cumulative expenses incurred by KDI in excess of fees received
may or may not be recovered through future fees under the distribution
agreement.
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of the Fund. They attend to the collection of principal and income, and payment
for and collection of proceeds of securities bought and sold by the Fund. IFTC
also is the Fund's transfer and dividend-paying agent. Pursuant to a services
agreement with IFTC, Kemper Service Company, 811 Main Street, Kansas City,
Missouri 64105, an affiliate of Scudder Kemper, serves as Shareholder Service
Agent of the Fund and as such, performs all of IFTC's duties as transfer agent
and dividend-paying agent. For a description of custodian, transfer agent and
shareholder service agent fees, see "Investment Manager and Services" in the
Statement of Additional Information.
SPECIAL FEATURES
Certain firms that offer shares of the Fund also provide special redemption
features through charge or debit cards and checks that redeem Fund shares.
Various firms have different charges for their services. Shareholders should
obtain information from their firm with respect to any special redemption
features, applicable charges, minimum balance requirements and any special rules
of the cash management program being offered.
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<PAGE> 17
Information about the following special features is contained in the Statement
of Additional Information; and further information may be obtained without
charge from KDI: Exchange Privilege; Systematic Exchange Privilege; Systematic
Withdrawal Program and Electronic Funds Transfer Programs.
PERFORMANCE
The Fund may advertise several types of performance information including
"yield," "effective yield," and "tax equivalent yield." Each of these figures is
based upon historical earnings and is not representative of the future
performance of the Fund. The yield of the Fund refers to the net investment
income generated by a hypothetical investment in the Fund over a specific
seven-day period. This net investment income is then annualized, which means
that the net investment income generated during the seven-day period is assumed
to be generated each week over an annual period and is shown as a percentage of
the investment. The effective yield is calculated similarly, but the net
investment income earned by the investment is assumed to be compounded weekly
when annualized. The effective yield will be slightly higher than the yield due
to this compounding effect. Tax equivalent yield is the yield that a taxable
investment must generate in order to equal the Fund's yield for an investor in a
stated federal and State of California income tax bracket (normally assumed to
be the maximum tax rate). Tax equivalent yield is based upon, and will be higher
than, the portion of the Fund's yield that is tax-exempt.
The Fund's performance may be compared to that of other money market mutual
funds or mutual fund indexes as reported by independent mutual fund reporting
services such as Lipper Analytical Services, Inc. ("Lipper"). The Fund's
performance and its relative size also may be compared to other money market
mutual funds as reported by IBC Financial Data, Inc.'s or Money Market
Insight(R), reporting services on money market funds. Investors may want to
compare the Fund's performance on an after-tax basis to various certificate of
deposit indexes or to that of various bank products as reported by BANK RATE
MONITORTM, a financial reporting service that weekly publishes average rates of
bank and thrift institution money market deposit accounts and interest bearing
checking accounts. The performance of the Fund also may be compared on an after
tax basis to that of U.S. Treasury bills and notes. Certain of these alternative
investments may offer fixed rates of return and guaranteed principal and may be
insured. In addition, investors may want to compare the Fund's performance to
the Consumer Price Index either directly or by calculating its "real rate of
return," which is adjusted for the effects of inflation.
Information may be quoted from publications such as MORNINGSTAR, INC., THE WALL
STREET JOURNAL, MONEY MAGAZINE, FORBES, BARRON'S, FORTUNE, THE CHICAGO TRIBUNE,
USA TODAY, INSTITUTIONAL INVESTOR and REGISTERED REPRESENTATIVE. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund.
The Fund's yield will fluctuate. Shares of the Fund are not insured. Additional
information concerning the Fund's performance appears in the Statement of
Additional Information.
CAPITAL STRUCTURE
The Fund is an open-end diversified management investment company, organized as
a business trust under the laws of Massachusetts on February 25, 1987. The Fund
may issue an unlimited number of shares of beneficial interest in one or more
series or "Portfolios," all having no par value. While only shares of a single
Portfolio are presently being offered, the Board of Trustees may authorize the
issuance of additional Portfolios if deemed desirable, each with its own
investment objective, policies and restrictions. Since the Fund may offer
multiple Portfolios, it is known as a "series company." Shares of a Portfolio
have equal noncumulative voting rights and equal rights with respect to
dividends, assets and liquidation of such Portfolio. Shares are fully paid and
nonassessable when issued, are transferable without restriction and have no
preemptive or conversion rights. The Fund is not required to hold annual
shareholders' meetings and does not intend to do so. However, it will hold
14
<PAGE> 18
special meetings as required or deemed desirable for such purposes as electing
trustees, changing fundamental policies or approving an investment management
agreement. Subject to the Agreement and Declaration of Trust of the Fund,
shareholders may remove trustees. If shares of more than one Portfolio are
outstanding, shareholders will vote by Portfolio and not in the aggregate except
when voting in the aggregate is required under the 1940 Act, such as for the
election of trustees.
15
<PAGE> 19
TECM 2/98 [LOGO]printed on recycled paper
TAX-EXEMPT
CALIFORNIA
MONEY MARKET
FUND
PROSPECTUS
FEBRUARY 1, 1998
<PAGE> 20
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART B
OF FORM N-1A AND STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM NUMBER LOCATION IN STATEMENT OF
OF FORM N-1A ADDITIONAL INFORMATION
---------------------------------------------
<S> <C> <C>
10. Cover Page............................... Cover Page
11. Table of Contents........................ Table of Contents
12. General Information and History.......... Inapplicable
13. Investment Objectives and Policies....... Municipal Securities; Investment
Restrictions;
Appendix--Ratings of Investments
14. Management of the Fund................... Investment Manager and Shareholder Services;
Officers and Trustees
15. Control Persons and Principal Holders of
Securities............................... Officers and Trustees
16. Investment Advisory and Other Services... Investment Manager and Shareholder Services
17. Brokerage Allocation and Other
Practices................................ Portfolio Transactions
18. Capital Stock and Other Securities....... Dividends, Net Asset Value and Taxes;
Shareholder Rights
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Purchase and Redemption of Shares
20. Tax Status............................... Dividends, Net Asset Value and Taxes
21. Underwriters............................. Investment Manager and Shareholder Services
22. Calculations of Performance Data......... Performance
23. Financial Statements..................... Financial Statements
</TABLE>
<PAGE> 21
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 1998
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
1-800-231-8568
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus of Tax-Exempt California Money Market Fund
(the "Fund") dated February 1, 1998. The prospectus may be obtained without
charge from the Fund.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Municipal Securities........................................ B-2
Investment Restrictions..................................... B-4
Investment Manager and Shareholder Services................. B-5
Portfolio Transactions...................................... B-7
Purchase and Redemption of Shares........................... B-9
Dividends, Net Asset Value and Taxes........................ B-9
Performance................................................. B-11
Officers and Trustees....................................... B-14
Special Features............................................ B-16
Shareholder Rights.......................................... B-18
Appendix--Ratings of Investments............................ B-19
</TABLE>
The financial statements appearing in the Fund's 1997 Annual Report to
Shareholders are incorporated herein by reference. The Fund's Annual Report to
Shareholders accompanies this Statement of Additional Information.
TECM 33 2/98 (LOGO)printed on recycled paper
B-1
<PAGE> 22
MUNICIPAL SECURITIES
Municipal Securities that the Fund may purchase include, without limitation,
debt obligations issued to obtain funds for various public purposes, including
the construction of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, public utilities, schools,
streets, and water and sewer works. Other public purposes for which Municipal
Securities may be issued include refunding outstanding obligations, obtaining
funds for general operating expenses and obtaining funds to loan to other public
institutions and facilities.
Municipal Securities, such as industrial development bonds, are issued by or on
behalf of public authorities to obtain funds for purposes including privately
operated airports, housing, conventions, trade shows, ports, sports, parking or
pollution control facilities or for facilities for water, gas, electricity or
sewage and solid waste disposal. Such obligations, which may include lease
arrangements, are included within the term Municipal Securities if the interest
paid thereon qualifies as exempt from federal income tax. Other types of
industrial development bonds, the proceeds of which are used for the
construction, equipment, repair or improvement of privately operated industrial
or commercial facilities, may constitute Municipal Securities, although the
current federal tax laws place substantial limitations on the size of such
issues.
Municipal Securities generally are classified as "general obligation" or
"revenue." General obligation notes are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest.
Revenue notes are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source. Industrial development bonds
which are Municipal Securities are in most cases revenue bonds and generally do
not constitute the pledge of the credit of the issuer of such bonds.
Examples of Municipal Securities which are issued with original maturities of
one year or less are short-term tax anticipation notes, bond anticipation notes,
revenue anticipation notes, construction loan notes, pre-refunded municipal
bonds, warrants and tax-free commercial paper.
Tax anticipation notes typically are sold to finance working capital needs of
municipalities in anticipation of receiving property taxes on a future date.
Bond anticipation notes are sold on an interim basis in anticipation of a
municipality issuing a longer term bond in the future. Revenue anticipation
notes are issued in expectation of receipt of other types of revenue such as
those available under the Federal Revenue Sharing Program. Construction loan
notes are instruments insured by the Federal Housing Administration with
permanent financing by "Fannie Mae" (the Federal National Mortgage Association)
or "Ginnie Mae" (the Government National Mortgage Association) at the end of the
project construction period. Pre-refunded municipal bonds are bonds that are not
yet refundable, but for which securities have been placed in escrow to refund an
original municipal bond issue when it becomes refundable. Tax-free commercial
paper is an unsecured promissory obligation issued or guaranteed by a municipal
issuer. The Fund may purchase other Municipal Securities similar to the
foregoing that are or may become available, including securities issued to
pre-refund other outstanding obligations of municipal issuers.
The federal bankruptcy statutes relating to the adjustments of debts of
political subdivisions and authorities of states of the United States provide
that, in certain circumstances, such subdivisions or authorities may be
authorized to initiate bankruptcy proceedings without prior notice to or consent
of creditors, which proceedings could result in material and adverse changes in
the rights of holders of obligations issued by such subdivisions or authorities.
Litigation challenging the validity under state constitutions of present systems
of financing public education has been initiated or adjudicated in a number of
states, and legislation has been introduced to effect changes in public school
finances in some states. In other instances there has been litigation
challenging the issuance of pollution control revenue bonds or the validity of
their issuance under state or federal law, which litigation ultimately could
affect the validity of those Municipal Securities or the tax-free nature of the
interest thereon.
B-2
<PAGE> 23
The following information as to certain California risk factors is given to
investors because the Fund concentrates its investments in California state and
local municipal securities. Such information constitutes only a summary, does
not purport to be a complete description and is based upon information from
official statements relating to securities offerings of California issuers.
In recent years, California voters have approved a number of changes to the
State constitution that have limited the ability of State and local issuers to
raise revenues and adjust appropriations.
In 1978, California voters approved Proposition 13 which added Article XIII A to
the California Constitution. Article XIII A changed the definition of assessed
property value and placed restrictions on a taxing entity's ability to increase
real property taxes. In 1979, voters also approved Proposition 4, the so-called
Gann Initiative, which added Article XIII B to the California Constitution. The
purpose of Article XIII B was to limit the annual appropriations of the State
and any local government unit to the level of appropriations for the prior year,
as adjusted for changes in cost of living, population and services required.
Article XIII B also specified that debt service obligations incurred prior to
January 1, 1979 were excluded from the appropriations limits.
In the general elections of 1986, 1988, 1990 and 1996, California voters
approved various measures that amended Article XIII A and XIII B. Propositions
58 and 60 clarified the definitions of "purchased property" and "change of
ownership" found in Article XIII A and added Article XIII C and XIII D to the
state constitution. Propositions 58 and 60 clarified the definitions of
"purchased property" and "change of ownership" found in Article XIII A.
Proposition 98, in addition to guaranteeing a percent of State funding for
public schools, modified Article XIII B to permit excess State revenues to be
transferred to public schools and community colleges rather than returned to
taxpayers. Proposition 111 amended Article XIII B to ease restrictions on
certain expenditure categories in calculating the annual appropriation ceiling.
Article XIII C and XIII D place additional requirements on revenue raising
abilities of local government units. Finally, on November 5, 1996, California
voters approved Proposition 218, called the "Right to Vote on Taxes Act." This
constitutional amendment restricts local governments' ability to raise or extend
taxes without voter consent, places restrictions on the ability to charge
certain fees and assessments, and makes it easier for voters to use the
initiative process to reduce or repeal existing taxes.
Future voter initiatives, if proposed and adopted, could further modify Articles
XIII A, XIII B, XIII C and XIII D and place increased pressures on the ability
of State and local entities to raise revenue and increase appropriations.
California's economy is the largest among the 50 states and one of the largest
in the world. This diversified economy has major components in agriculture,
manufacturing, high technology, trade, entertainment, tourism, construction and
services. Total State gross domestic product of about $1.0 trillion in 1996 was
larger than all but six nations in the world.
After suffering a severe recession in the early 1990s, California's economy has
experienced a steady recovery since 1994. This expansion has helped create a
larger number of jobs that now exceed the number lost during the recession. The
strongest growth has been in export-related industries, business services,
electronics, entertainment and tourism. Current employment and personal income
growth rates exceed the national average. A recent economic forecast by the UCLA
Business Forecasting Project predicts that California's employment growth rate
will continue to outpace the nation through the year 2000.
The strengthening economy has had a generally positive impact on State finances.
The State has achieved five consecutive years of operating surplus. The State's
improved cash position allowed it to repay the $4.0 billion Revenue Anticipation
Warrants on April 25, 1996, and restore the State to a normal cash flow
borrowing cycle. The State's estimated ending General Fund balance for FY96-97
is $859 million (modified accrual basis).
California's economic and financial improvement prompted the three major rating
agencies to raise the State's general obligation bond rating in 1996. In October
1997, Fitch Investors Service raised the State's rating to AA-. The current
ratings are A1/A+/A-.
B-3
<PAGE> 24
Recent State budgets have included large cuts in local government transfer
payments. These reductions may cause deterioration in local issuer financial
performance and result in reduced bond ratings for some local government
issuers.
On December 6, 1994, Orange County, California filed for bankruptcy protection
under Chapter 9 of the United States Bankruptcy Code. A Plan of Adjustment was
confirmed and successfully implemented in June 1996.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions which cannot be changed
without approval by holders of a majority of its outstanding voting shares. As
defined in the Investment Company Act of 1940, this means the lesser of the vote
of (a) 67% of the Fund's shares present at a meeting where more than 50% of the
outstanding shares are present in person or by proxy; or (b) more than 50% of
the Fund's shares.
The Fund may not:
(1) Purchase securities or make investments other than in accordance with its
investment objective and policies.
(2) Purchase securities (other than securities of the United States Government,
its agencies or instrumentalities or of a state or its political subdivisions)
if as a result of such purchase more than 25% of the Fund's total assets would
be invested in any one industry.
(3) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the United States Government, its agencies or instrumentalities) if, as a
result, more than 5% of the Fund's total assets would be invested in securities
of that issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to this 5% limitation. For purposes of this
limitation, the Fund will regard the entity which has the primary responsibility
for the payment of interest and principal as the issuer.
(4) Invest more than 10% of its total assets in illiquid securities, including
repurchase agreements maturing in more than seven days.
(5) Invest more than 5% of the Fund's total assets in industrial development
bonds sponsored by companies which with their predecessors have less than three
years' continuous operation.
(6) Make loans to others (except through the purchase of debt obligations or
repurchase agreements in accordance with its investment objective and policies).
(7) Borrow money except from banks for temporary purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed
one-third of the value of the Fund's total assets (including the amount
borrowed) in order to meet redemption requests which otherwise might result in
the untimely disposition of securities; or pledge the Fund's securities or
receivables or transfer or assign or otherwise encumber them in an amount to
exceed 10% of the Fund's net assets to secure borrowings. Reverse repurchase
agreements made by the Portfolio are permitted within the limitations of this
paragraph. The Fund will not purchase securities or make investments while
reverse repurchase agreements or borrowings are outstanding.
(8) Make short sales of securities or purchase securities on margin, except to
obtain such short-term credits as may be necessary for the clearance of
transactions.
(9) Write, purchase or sell puts, calls or combinations thereof, although the
Fund may purchase Municipal Securities subject to Standby Commitments, Variable
Rate Demand Notes or Repurchase Agreements in accordance with its investment
objective and policies.
(10) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(11) Invest for the purpose of exercising control or management of another
issuer.
B-4
<PAGE> 25
(12) Invest in commodities or commodity futures contracts or in real estate
except that the Fund may invest in Municipal Securities secured by real estate
or interests therein and securities of issuers which invest or deal in real
estate.
(13) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in Municipal Securities of issuers which invest
in or sponsor such programs.
(14) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
(15) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of portfolio securities.
(16) Issue senior securities as defined in the Investment Company Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund may
invest more than 25% of its total assets in industrial development bonds. The
Fund did not borrow money as permitted by investment restriction number 7 during
its latest fiscal year, and it has no present intention of borrowing during the
current year.
INVESTMENT MANAGER AND SHAREHOLDER SERVICES
INVESTMENT MANAGER. Scudder Kemper Investments, Inc. ("Scudder Kemper") is the
Fund's investment manager. Scudder Kemper is approximately 70% owned by Zurich
Insurance Company, a leading internationally recognized provider of insurance
and financial services in property/casualty and life insurance, reinsurance and
structured financial solutions as well as asset management. The balance of
Scudder Kemper is owned by Scudder Kemper's officers and employees. Pursuant to
an investment management agreement, Scudder Kemper acts as the Fund's investment
adviser, manages its investments, administers its business affairs, furnishes
office facilities and equipment, provides clerical, and administrative services
and permits any of its officers or employees to serve without compensation as
trustees or officers of the Fund if elected to such positions. The Fund pays the
expenses of its operations, including the fees and expenses of independent
auditors, counsel, custodian and transfer agent and the cost of share
certificates, reports and notices to shareholders, costs of calculating net
asset value and maintaining all accounting records related thereto, brokerage
commissions or transaction costs, taxes, registration fees, the fees and
expenses of qualifying the Fund and its shares for distribution under federal
and state securities laws and membership dues in the Investment Company
Institute or any similar organization.
The agreement provides that Scudder Kemper shall not be liable for any error of
judgment or of law, or for any loss suffered by the Fund in connection with the
matters to which the agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Scudder Kemper in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the agreement.
The investment management agreement continues in effect from year to year so
long as its continuation is approved at least annually by a majority vote of the
trustees who are not parties to such agreement or interested persons of any such
party except in their capacity as trustees of the Fund, cast in person at a
meeting called for such purpose, and by the shareholders or the Board of
Trustees. It may be terminated at any time upon 60 days notice by either party,
or by a majority vote of the outstanding shares, and will terminate
automatically upon assignment.
Pursuant to the terms of an agreement, Scudder, Stevens & Clark, Inc.
("Scudder"), and Zurich Insurance Company ("Zurich"), formed a new global
investment organization by combining Scudder with Zurich Kemper Investments,
Inc. ("ZKI"), a subsidiary of Zurich and the former investment manager to the
Fund and Scudder changed its name to Scudder Kemper Investments, Inc. ("Scudder
Kemper"). As a result of the transaction, Zurich owns approximately 70% of
Scudder Kemper, with the balance owned by Scudder Kemper's officers and
employees.
B-5
<PAGE> 26
Because the transaction between Scudder and Zurich resulted in the assignment of
the Fund's investment management agreement with ZKI, the agreement was deemed to
be automatically terminated upon consummation of the transaction. In
anticipation of the transaction, however, a new investment management agreement
between the Fund and Scudder Kemper was approved by the Fund's Board of Trustees
and shareholders. The new investment management agreement was effective as of
December 31, 1997 and will be in effect for an initial term ending on the same
date as would the previous investment management agreement with ZKI.
The Fund's investment management agreement is on substantially similar terms as
the investment management agreement terminated by the transaction, except that
Scudder Kemper is the new investment adviser to the Fund.
For the services and facilities furnished, the Fund pays a monthly investment
management fee on a graduated basis of 1/12 of the following annual fee: .22% of
the first $500 million of average daily net assets, .20% of the next $500
million, .175% of the next $1 billion, .16% of the next $1 billion and .15% of
average daily net assets over $3 billion. Pursuant to the investment management
agreement, the Fund paid ZKI, the former investment manager, fees of $127,000,
$232,000 and $217,000 for the fiscal years ended September 30, 1997, 1996 and
1995, respectively.
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation ("SFAC"), a
subsidiary of Scudder Kemper, is responsible for determining the daily net asset
value per share of the Fund and maintaining all accounting records related
hereto. Currently, SFAC receives no fee for its services to the Fund however,
subject to Board approval, at some time in the future, SFAC may seek payment for
its services under this agreement.
DISTRIBUTOR. Pursuant to a distribution services agreement ("distribution
agreement"), Kemper Distributors, Inc. ("KDI"), an affiliate of Scudder Kemper,
serves as distributor, administrator and principal underwriter to the Fund to
provide information and services for existing and potential shareholders. The
distribution agreement provides that KDI shall act as agent for the Fund in the
sale of its shares and shall appoint various firms to provide a cash management
service for their customers or clients through the Fund. The firms are to
provide such office space and equipment, telephone facilities, personnel and
sales literature distribution as is necessary or appropriate for providing
information and services to the firms' clients and prospective clients. The Fund
pays for the prospectus and shareholder reports to be set in type and printed
for existing shareholders and KDI pays for the printing and distribution of
copies thereof used in connection with the offering of shares to prospective
investors. KDI pays for supplementary sales literature and advertising. For its
services as distributor, the Fund pays KDI an annual distribution services fee,
payable monthly, of .33% of average daily net assets of the Fund. The
distribution agreement continues in effect from year to year so long as its
continuation is approved at least annually by a majority of the trustees who are
not parties to such agreement or interested persons of the Fund and who have no
direct or indirect financial interest in the agreement or in any agreement
related thereto. The agreement automatically terminates in the event of its
assignment and may be terminated at any time without penalty by the Fund or by
KDI upon 60 days' notice. Termination by the Fund may be by vote of a majority
of the Board of Trustees, or a majority of the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
agreement, or a majority vote of the outstanding shares. The fee payable
pursuant to the distribution agreement may not be increased without shareholder
approval and all material amendments must in any event be approved by the Board
of Trustees in the manner described above with respect to the continuation of
the agreement. If additional Portfolios are authorized by the Board of Trustees,
the provisions concerning the continuation, amendment and termination of the
distribution services agreement will be on a Portfolio by Portfolio basis.
KDI has related administration services and selling group agreements with
various broker-dealer firms to provide cash management and other services for
the Fund shareholders. Such services and assistance may include, but are not
limited to, establishing and maintaining shareholder accounts and records,
processing purchase and redemption transactions, providing automatic investment
in Fund shares of client account balances, answering routine inquiries regarding
the Fund, assisting clients in changing account options, designations and
addresses, and such other services as may be agreed upon from time to time and
as may be permitted by applicable statute, rule
B-6
<PAGE> 27
or regulation. KDI also has services agreements with banking firms to provide
the above listed services, except for certain distribution services which the
banks may be prohibited from providing, for their clients who wish to invest in
the Fund. KDI also may provide some of the above services for the Fund. KDI
normally pays the firms at an annual rate ranging from .15% to .33% of average
net assets of those accounts that they maintain and service. KDI may elect to
keep a portion of the total administration fee to compensate itself for
functions performed for the Fund or to pay for sales materials or other
promotional activities.
Since the distribution agreement provides for fees which are used by KDI to pay
for distribution and administration services, the agreement along with the
related administration services and selling group agreements are approved and
renewed in accordance with Rule 12b-1 under the Investment Company Act of 1940
which regulates the manner in which an investment company may, directly or
indirectly, bear expenses of distributing its shares.
For the fiscal year ended September 30, 1997, the Fund incurred distribution
fees of $190,000. Of such amount, KDI remitted $182,000 to various firms
pursuant to the related services agreements. For the fiscal year ended September
30, 1997, KDI incurred underwriting, distribution and administrative expenses in
the approximate amounts noted: service fees to firms $182,000; advertising and
literature $0; and marketing and sales expenses $30,000; for a total of
$212,000. A portion of the aforesaid marketing, sales and operating expenses
could be considered overhead expense; however, KDI has made no attempt to
differentiate between expenses that are overhead and those that are not.
Certain trustees or officers of the Fund are also directors or officers of
Scudder Kemper and KDI as indicated under "Officers and Trustees."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of the Fund. They attend to the collection of principal and income, and payment
for and collection of proceeds of securities bought and sold by the Fund. IFTC
is the transfer agent of the Fund (see "Purchase of Shares" in the prospectus).
Pursuant to a services agreement with IFTC, Kemper Service Company ("KSvC"), an
affiliate of Scudder Kemper, serves as "Shareholder Service Agent" of the Fund
and, as such, performs all of IFTC's duties as transfer agent and dividend
paying agents. IFTC receives, as transfer agent, and pays to KSvC annual account
fees of a maximum of $13 per account plus out-of-pocket expense reimbursement.
For the fiscal year ended September 30, 1997, IFTC remitted fees in the amount
of $21,000 to KSvC as Shareholder Service Agent.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Fund's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Fund. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
LEGAL COUNSEL. Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street,
Chicago, Illinois 60601, serves as legal counsel to the Fund.
PORTFOLIO TRANSACTIONS
Portfolio transactions are undertaken principally to pursue the Fund's
investment objective in relation to movements in the general level of interest
rates, to invest money obtained from the sale of Fund shares, to reinvest
proceeds from maturing portfolio securities and to meet redemptions of Fund
shares. These transactions may increase or decrease the yield of the Fund
depending upon management's ability to correctly time and execute such
transactions. Since the Fund's assets will be invested in short-term Municipal
Securities, its portfolio will turn over several times a year. However, since
securities with maturities of less than one year are excluded from required
portfolio turnover rate calculations, the Fund's turnover rate for reporting
purposes will be zero.
B-7
<PAGE> 28
Allocation of brokerage is supervised by Scudder Kemper.
The primary objective of Scudder Kemper in placing orders for the purchase and
sale of securities for the Fund is to obtain the most favorable net results
taking into account such factors as price, commission (negotiable in the case of
U.S. national securities exchange transactions) where applicable, size of order,
difficulty of execution and skill required of the executing broker/dealer.
Scudder Kemper seeks to evaluate the overall reasonableness of brokerage
commissions paid (to the extent applicable) through its familiarity with
commissions charged on comparable transactions, as well as by comparing
commissions paid by a Fund to reported commissions paid by others. Scudder
Kemper reviews on a routine basis commission rates, execution and settlement
services performed, making internal and external comparisons.
Each Fund's purchases and sales of fixed-income securities are generally placed
by Scudder Kemper with primary market makers for these securities on a net
basis, without any brokerage commission being paid by a Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is Scudder Kemper's practice to place such orders with
broker/dealers who supply market quotations to Scudder Fund Accounting
Corporation ("SFAC") for appraisal purposes or who supply research, market and
statistical information to the Fund. The term "research, market and statistical
information" includes advice as to the value of securities; the advisability of
investing in, purchasing or selling securities; the availability of securities
or purchasers or sellers of securities; and analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. Scudder Kemper is authorized when placing
portfolio transactions for the Fund to pay a brokerage commission 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. In
effecting transactions in over-the-counter securities, orders are placed with
the principal market makers for the security being traded unless, after
exercising care, it appears that more favorable results are available elsewhere.
In selecting among firms believed to meet the criteria for handling a particular
transaction, Scudder Kemper may give consideration to those firms that have sold
or are selling shares of a Fund managed by Scudder Kemper.
To the maximum extent feasible, it is expected that Scudder Kemper will place
orders for portfolio transactions through Scudder Investor Services, Inc., Two
International Place, Boston, Massachusetts 02110 ("SIS"), a corporation
registered as a broker-dealer and a subsidiary of Scudder Kemper. SIS will place
orders on behalf of the Funds with issuers, underwriters or other brokers and
dealers. SIS will not receive any commission, fee or other remuneration from the
Funds for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to Scudder Kemper, it is the
opinion of Scudder Kemper that such information only supplements its own
research effort since the information must still be analyzed, weighed and
reviewed by Scudder Kemper's staff. Such information may be useful to Scudder
Kemper in providing services to clients other than the Funds and not all such
information is used by Scudder Kemper in connection with the Funds. Conversely,
such information provided to Scudder Kemper by broker/dealers through whom other
clients of Scudder Kemper effect securities transactions may be useful to
Scudder Kemper in providing services to the Fund.
The Trustees for the Fund review from time to time whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
Money market instruments are normally purchased in principal transactions
directly from the issuer or from an underwriter or market maker. There usually
are no brokerage commissions paid by the Fund for such purchases and none have
been paid during the Fund's last three fiscal years. Purchases from underwriters
will include a
B-8
<PAGE> 29
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers will include the spread between the bid
and asked prices.
PURCHASE AND REDEMPTION OF SHARES
Fund shares are sold at their net asset value next determined after an order and
payment are received in the form described in the Fund's prospectus. The minimum
initial investment is $1,000 and the minimum subsequent investment is $100 but
such minimum amounts may be changed at any time. See the prospectus for certain
exceptions to these minimums. The Fund may waive the minimum for purchases by
trustees, directors, officers or employees of the Fund or Scudder Kemper and its
affiliates. An investor wishing to open an account should use the Account
Information Form available from the Fund or financial services firms. Orders for
the purchase of shares that are accompanied by a check drawn on a foreign bank
(other than a check drawn on a Canadian bank in U.S. Dollars) will not be
considered in proper form and will not be processed unless and until the Fund
determines that it has received payment of the proceeds of the check. The time
required for such a determination will vary and cannot be determined in advance.
Upon receipt by the Shareholder Service Agent (see "Purchase of Shares" in the
prospectus) of a request for redemption in proper form, shares will be redeemed
by the Fund at the applicable net asset value as described in the Fund's
prospectus. A shareholder may elect to use either the regular or expedited
redemption procedures.
The Fund may suspend the right of redemption or delay payment more than seven
days (a) during any period when the New York Stock Exchange ("Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of the Fund's investments is
not reasonably practicable or (ii) it is not reasonably practicable for the Fund
to determine the value of its net assets, or (c) for such other periods as the
Securities and Exchange Commission may by order permit for protection of the
Fund's shareholders.
Although it is the Fund's present policy to redeem in cash, if the Board of
Trustees determines that a material adverse effect would be experienced by the
remaining shareholders if payment were made wholly in cash, the Fund will pay
the redemption price in whole or in part by a distribution of portfolio
securities in lieu of cash, in conformity with the applicable rules of the
Securities and Exchange Commission, taking such securities at the same value
used to determine net asset value, and selecting the securities in such manner
as the Board of Trustees may deem fair and equitable. If such a distribution
occurs, shareholders receiving securities and selling them could receive less
than the redemption value of such securities and in addition would incur certain
transaction costs. Such a redemption would not be so liquid as a redemption
entirely in cash. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940 pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets of
the Fund during any 90-day period for any one shareholder of record.
DIVIDENDS, NET ASSET VALUE AND TAXES
DIVIDENDS. Dividends are declared daily and paid monthly. Shareholders will
receive dividends in additional shares unless they elect to receive cash.
Dividends will be reinvested monthly in shares of the Fund normally on the
fifteenth day of each month, if a business day, otherwise on the next business
day. The Fund will pay shareholders who redeem their entire accounts all unpaid
dividends at the time of redemption not later than the next dividend payment
date. Upon written request to the Shareholder Service Agent, a shareholder may
elect to have Fund dividends invested without sales charge in shares of another
Kemper Fund offering this privilege at the net asset value of such other fund.
See "Special Features--Exchange Privilege" for a list of such other Kemper
Funds. To use this privilege of investing Fund dividends in shares of another
Kemper Fund, shareholders must maintain a minimum account value of $1,000 in
this Fund.
B-9
<PAGE> 30
The Fund calculates its dividends based on its daily net investment income. For
this purpose, net investment income consists of (a) accrued interest income plus
or minus amortized original issue discount or premium, (b) plus or minus all
short-term realized gains and losses on investments and (c) minus accrued
expenses. Expenses of the Fund are accrued each day. Since the Fund's
investments are valued at amortized cost, there will be no unrealized gains or
losses on such investments. However, should the net asset value so computed
deviate significantly from market value, the Board of Trustees could decide to
value the investments at market value and then unrealized gains and losses would
be included in net investment income above.
NET ASSET VALUE. As described in the prospectus, the Fund values its portfolio
instruments at amortized cost, which does not take into account unrealized
capital gains or losses. This involves initially valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the effect of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
Calculations are made to compare the value of the Fund's investments valued at
amortized cost with market-based values. Market-based valuations are obtained by
using actual quotations provided by market makers, estimates of market value, or
values obtained from yield data relating to classes of money market instruments
published by reputable sources at the mean between the bid and asked prices for
the instruments. If a deviation of 1/2 of 1% or more were to occur between the
net asset value per share calculated by reference to market-based values and the
Fund's $1.00 per share net asset value, or if there were any other deviation
that the Board of Trustees of the Fund believed would result in a material
dilution to shareholders or purchasers, the Board of Trustees would promptly
consider what action, if any, should be initiated. If the Fund's net asset value
per share (computed using market-based values) declined, or were expected to
decline, below $1.00 (computed using amortized cost), the Board of Trustees of
the Fund might temporarily reduce or suspend dividend payments in an effort to
maintain the net asset value at $1.00 per share. As a result of such reduction
or suspension of dividends or other action by the Board of Trustees, an investor
would receive less income during a given period than if such a reduction or
suspension had not taken place. Such action could result in investors receiving
no dividend for the period during which they hold their shares and receiving,
upon redemption, a price per share lower than that which they paid. On the other
hand, if the Fund's net asset value per share (computed using market-based
values) were to increase, or were anticipated to increase above $1.00 (computed
using amortized cost), the Board of Trustees of the Fund might supplement
dividends in an effort to maintain the net asset value at $1.00 per share.
TAXES. Interest on indebtedness that is incurred to purchase or carry shares of
a mutual fund which distributes exempt-interest dividends during the year is not
deductible for federal income tax purposes. Further, the Fund may not be an
appropriate investment for persons who are "substantial users" of facilities
financed by industrial development bonds held by the Fund or are "related
persons" to such users; such persons should consult their tax advisers before
investing in the Fund.
The "Superfund Act of 1986" (the "Superfund Act") imposes a separate tax on
corporations at a rate of 0.12 percent of the excess of such corporation's
"modified alternative minimum taxable income" over $2 million. A portion of
tax-exempt interest, including exempt-interest dividends from the Fund, may be
includible in modified alternative minimum taxable income. Corporate
shareholders are advised to consult with their tax advisers with respect to the
consequences of the Superfund Act.
To the extent that dividends are derived from earnings on California state and
local government issues, such dividends will be exempt from California income
taxes provided the Fund has complied with the requirement that at least 50% of
its assets at the close of each quarter in the taxable year be invested in
Municipal Securities of California state and local issuers.
B-10
<PAGE> 31
PERFORMANCE
As reflected in the prospectus, the historical performance calculation for the
Fund may be shown in the form of "yield," "effective yield," and "tax-equivalent
yield." These various measures of performance are described below.
The Fund's yield is computed in accordance with a standardized method prescribed
by rules of the Securities and Exchange Commission. Under that method, the yield
quotation is based on a seven-day period and is computed as follows. The first
calculation is net investment income per share, which is accrued interest on
portfolio securities, plus or minus amortized original issue discount or
premium, less accrued expenses. This number is then divided by the price per
share (expected to remain constant at $1.00) at the beginning of the period
("base period return"). The result is then divided by 7 and multiplied by 365
and the resulting yield figure is carried to the nearest one-hundredth of one
percent. Realized capital gains or losses and unrealized appreciation or
depreciation of investments are not included in the calculation. For the
seven-day period ended September 30, 1997, the Fund's yield was 3.17%.
The Fund's effective yield is determined by taking the base period return
(computed as described above) and calculating the effect of assumed compounding.
The formula for the effective yield is: (base period return +1)365/7 - 1. For
the seven-day period ended September 30, 1997, the Fund's effective yield was
3.22%.
The tax-equivalent yield of the Fund is computed by dividing that portion of the
Fund's yield (computed as described above) which is tax-exempt by (one minus the
stated combined State of California and federal income tax rate) and adding the
result to that portion, if any, of the yield of the Fund that is not tax-exempt.
Based upon an assumed combined State of California and federal income tax rate
of 42.9% and the Fund's yield as computed as described above for the seven day
period ended September 30, 1997, the Fund's tax-equivalent yield was 5.55%.
Based upon an assumed federal income tax rate of 37.1% and the Fund's yield
computed as described above for the seven-day period ended September 30, 1997,
the Fund's tax-equivalent yield was 5.04%. For additional information concerning
tax-exempt yields, see "Tax-Exempt versus Taxable Yield" below.
The Fund's yield fluctuates, and the publication of an annualized yield
quotation is not a representation as to what an investment in the Fund will
actually yield for any given future period. Actual yields will depend not only
on changes in interest rates on money market instruments during the period in
which the investment in the Fund is held, but also on such matters as Fund
expenses.
Investors have an extensive choice of money market funds and money market
deposit accounts and the information below may be useful to investors who wish
to compare the past performance of the Fund with that of its competitors. Past
performance is not a guarantee of future results.
As indicated in the prospectus (see "Performance"), the Fund's performance may
be compared to that of other mutual funds tracked by Lipper Analytical Services,
Inc. ("Lipper"). Lipper performance calculations include the reinvestment of all
capital gain and income dividends for the periods covered by the calculations.
The Fund's performance also may be compared to other money market funds as
reported by IBC Financial Data, Inc.'s ("IBC") or Money Market Insight(R)
reporting services on money market funds. As reported by IBC, all investment
results represent yield (annualized results for the period net of management
fees and other expenses) and one-year investment results are effective annual
yields assuming reinvestment of dividends.
The following investment comparisons are based upon information reported by
Lipper and IBC. In the comparison of the Fund's performance versus IBC average
yield for All Taxable Money Market Funds and Lipper performance of Money Market
Instrument Funds, the performance of the Fund has been adjusted on a taxable
equivalent basis assuming a combined California and federal tax rate of 42.9%
(see "Tax-Exempt versus Taxable Yield" below for more information concerning
taxable equivalent performance).
B-11
<PAGE> 32
IBC LIPPER ANALYTICAL SERVICES, INC.
<TABLE>
<CAPTION>
LIPPER
IBC CALIFORNIA
TAX-EXEMPT AVERAGE TAX-EXEMPT TAX-EXEMPT
CALIFORNIA YIELD CALIFORNIA CALIFORNIA MONEY
MONEY TAX-FREE MONEY MONEY MARKET FUNDS
PERIOD MARKET FUND MARKET FUNDS PERIOD MARKET FUND AVERAGE
- ------------------------------------------------------ ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
7 Days Ended 9/29/97 3.15% 3.21% 1 Month Ended 9/30/97 0.24% 0.25%
1 Month Ended 9/30/97 2.91 2.99 11 Months Ended 9/30/97 2.67 2.72
1 Year Ended 9/30/97 2.91 2.96 1 Year Ended 9/30/97 2.91 2.98
</TABLE>
<TABLE>
<CAPTION>
TAX-EXEMPT TAX-EXEMPT
CALIFORNIA CALIFORNIA LIPPER
MONEY IBC MONEY MONEY
MARKET FUND AVERAGE MARKET FUND MARKET
TAXABLE YIELD ALL TAXABLE INSTRUMENT
EQUIVALENT TAXABLE MONEY EQUIVALENT FUNDS
PERIOD BASIS* MARKET FUNDS PERIOD BASIS* AVERAGE
- ------------------------------------------------------ ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
7 Days Ended 9/29/97 5.52% 5.04% 1 Month Ended 9/30/97 0.42% 0.40%
1 Month Ended 9/30/97 5.10 5.02 11 Months Ended 9/30/97 4.68 4.44
1 Year Ended 9/30/97 5.10 5.04 1 Year Ended 9/30/97 5.10 4.86
</TABLE>
- --------------------------------------------------------------------------------
* Source: Scudder Kemper Investments, Inc. (not reported in IBC or Lipper).
The Fund's performance also may be compared on an after-tax basis to various
bank products, including the average rate of bank and thrift institution money
market deposit accounts or interest bearing checking accounts as reported in the
BANK RATE MONITOR National Index(TM) of 100 leading bank and thrift institutions
as published by the BANK RATE MONITOR(TM), N. Palm Beach, Florida 33408. The
rates published by the BANK RATE MONITOR National Index(TM) are averages of the
personal account rates offered on the Wednesday prior to the date of publication
by 100 large banks and thrifts in the top ten Consolidated Standard Metropolitan
Statistical Areas. Account minimums range upward from $2,500 in each institution
and compounding methods vary. Interest bearing checking accounts generally offer
unlimited check writing while money market deposit accounts generally restrict
the number of checks that may be written. If more than one rate is offered, the
lowest rate is used. Rates are determined by the financial institution and are
subject to change at any time specified by the institution. Bank products
represent a taxable alternative income producing product. Bank and thrift
institution deposit accounts may be insured. Shareholder accounts in the Fund
are not insured. Bank passbook savings accounts share some liquidity features
with money market mutual fund accounts but they may not offer all the features
available from a money market mutual fund, such as check writing. Bank passbook
savings accounts normally offer a fixed rate of interest while the yield of the
Fund fluctuates. Bank checking accounts normally do not pay interest but share
some liquidity features with money market mutual fund accounts (e.g., the
ability to write checks against the account). Bank certificates of deposit may
offer fixed or variable rates for a set term. (Normally, a variety of terms are
available.) Withdrawal of these deposits prior to maturity normally will be
subject to a penalty. In contrast, shares of the Fund are redeemable at the net
asset value (normally $1.00 per share) next determined after a request is
received, without charge.
Investors also may want to compare the Fund's performance on an after-tax basis
to that of U.S. Treasury bills or notes because such instruments represent
alternative income producing products. Treasury obligations are issued in
selected denominations. Rates of U.S. Treasury obligations are fixed at the time
of issuance and payment of principal and interest is backed by the full faith
and credit of the U.S. Treasury. The market value of such instruments generally
will fluctuate inversely with interest rates prior to maturity and will equal
par value at maturity. Generally, the value of obligations with shorter
maturities will fluctuate less than those with longer maturities. The Fund's
yield will fluctuate. Also, while the Fund seeks to maintain a net asset value
per share of $1.00, there is no assurance that it will be able to do so.
B-12
<PAGE> 33
Any such comparisons may be useful to investors who wish to compare the Fund's
past performance with that of its competitors. Of course, past performance
cannot be a guarantee of future results.
The Fund's performance also may be compared to the Consumer Price Index, as
published by the U.S. Bureau of Labor Statistics, which is an established
measure of change over time in the prices of goods and services in major
expenditure groups.
TAX-EXEMPT VERSUS TAXABLE YIELD. You may want to determine which
investment--tax-exempt or taxable--will provide you with a higher after-tax
return. To determine the taxable equivalent yield, simply divide the yield from
the tax-exempt investment by [1 minus your marginal tax rate]. The tables below
are provided for your convenience in making this calculation for selected
tax-exempt yields and taxable income levels. These yields are presented for
purposes of illustration only and are not representative of any yield that the
Fund may generate. Both tables are based upon current law as to the 1998 Federal
and 1997 State tax rate schedules.
TAXABLE EQUIVALENT YIELD TABLE FOR PERSONS WHOSE ADJUSTED GROSS INCOME IS UNDER
$124,500
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME YOUR
MARGINAL A TAX-EXEMPT YIELD OF:
FEDERAL TAX 4% 5% 6% 7% 8% 9%
SINGLE JOINT RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$25,350 - $61,400 $42,350 - $102,300 28.0% 5.56 6.94 8.33 9.72 11.11 12.50
- ------------------------------------------------------------------------------------------------------------------------
Over $61,400 Over $102,300 31.0 5.80 7.25 8.70 10.14 11.59 13.04
========================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME COMBINED
CALIFORNIA
AND A TAX-EXEMPT YIELD OF:
FEDERAL TAX 4% 5% 6% 7% 8% 9%
SINGLE JOINT RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ------------------------------------------------------------------------------------------------------------------------
$25,350 - $26,045 $42,350 - $ 52,090 32.3% 5.91 7.39 8.86 10.34 11.82 13.29
- ------------------------------------------------------------------------------------------------------------------------
$26,045 - $32,916 $52,090 - $ 65,832 33.8 6.04 7.55 9.06 10.57 12.08 13.60
- ------------------------------------------------------------------------------------------------------------------------
$32,916 - $61,400 $65,832 - $102,300 34.7 6.13 7.66 9.19 10.72 12.25 13.78
- ------------------------------------------------------------------------------------------------------------------------
Over $61,400 Over $102,300 37.4 6.39 7.99 9.58 11.18 12.78 14.38
========================================================================================================================
</TABLE>
TAXABLE EQUIVALENT YIELD TABLE FOR PERSONS WHOSE ADJUSTED GROSS INCOME IS OVER
$124,500
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME YOUR
MARGINAL A TAX-EXEMPT YIELD OF:
FEDERAL TAX 4% 5% 6% 7% 8% 9%
SINGLE JOINT RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 61,400 - $128,100 $102,300 - $155,950 31.9% 5.87 7.34 8.81 10.28 11.75 13.22
- ------------------------------------------------------------------------------------------------------------------------------
$128,100 - $278,450 $155,950 - $278,450 37.1 6.36 7.95 9.54 11.13 12.72 14.31
- ------------------------------------------------------------------------------------------------------------------------------
Over $278,450 Over $278,450 40.8 6.76 8.45 10.14 11.82 13.51 15.20
==============================================================================================================================
</TABLE>
B-13
<PAGE> 34
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
TAXABLE INCOME COMBINED
CALIFORNIA
AND A TAX-EXEMPT YIELD OF:
FEDERAL TAX 4% 5% 6% 7% 8% 9%
SINGLE JOINT RATE IS EQUIVALENT TO A TAXABLE YIELD OF:
- ---------------------------------------------------------------------------------------------
$ 61,400 - $128,100 $102,300 - $155,950 38.2 6.47 8.09 9.71 11.33 12.94 14.56
- ---------------------------------------------------------------------------------------------
$128,100 - $278,450 $155,950 - $278,450 42.9 7.01 8.76 10.51 12.26 14.01 15.76
- ---------------------------------------------------------------------------------------------
Over $278,450 Over $278,450 46.3 7.59 9.49 11.39 13.28 15.18 17.08
=============================================================================================
</TABLE>
* This table assumes a decrease of $3.00 of itemized deductions for each $100
of adjusted gross income over $124,500. For a married couple with adjusted
gross income between $186,800 and $309,300 (single between $124,500 and
$247,000), add 0.7% to the above Marginal Federal Tax Rate for each personal
and dependency exemption. The taxable equivalent yield is the tax-exempt
yield divided by: 100% minus the adjusted tax rate. For example, if the table
tax rate is 37.1% and you are married with no dependents, the adjusted tax
rate is 38.5% (37.1% + 0.7% + 0.7%). For a tax-exempt yield of 6%, the
taxable equivalent yield is about 9.8% (6% / (100% - 38.5%)).
OFFICERS AND TRUSTEES
The officers and trustees of the Fund, their birthdates, their principal
occupations and their affiliations, if any, with Scudder Kemper, the investment
manager and KDI, the principal underwriter, are as follows:
DAVID W. BELIN (6/20/28), Trustee, 2000 Financial Center, 7th and Walnut, Des
Moines, Iowa; Member, Belin Lamson McCormick Zumbach Flynn, P.C. (attorneys).
LEWIS A. BURNHAM (1/8/33), Trustee, 16410 Avila Boulevard, Tampa, Florida;
Partner, Business Resources Group; formerly, Executive Vice President, Anchor
Glass Container Corporation.
DONALD L. DUNAWAY (3/8/37), Trustee, 7515 Pelican Bay Boulevard, Naples,
Florida; Retired; formerly, Executive Vice President, A. O. Smith Corporation
(diversified manufacturer).
ROBERT B. HOFFMAN (12/11/36), Trustee, 800 North Lindbergh Boulevard, St. Louis,
Missouri; Vice Chairman, Monsanto Company (agricultural, pharmaceutical and
nutritional/food products); prior thereto, Vice President, Head of International
Operations, FMC Corporation (manufacturer of machinery and chemicals).
DONALD R. JONES (1/17/30), Trustee, 182 Old Wick Lane, Inverness, Illinois;
Retired; Director, Motorola, Inc. (manufacturer of electronic equipment and
components); formerly, Executive Vice President and Chief Financial Officer,
Motorola, Inc.
SHIRLEY D. PETERSON (9/3/41), Trustee, 401 Rosemont Avenue, Frederick, Maryland;
President, Hood College, Maryland; prior thereto, Partner, Steptoe & Johnson
(attorneys); prior thereto, Commissioner of Internal Revenue Service; prior
thereto, Assistant Attorney General, U.S. Department of Justice; Director,
Bethlehem Steel Corp.
DANIEL PIERCE (3/18/34), Trustee, 345 Park Avenue, New York, New York; Chairman
of the Board and Managing Director, Scudder Kemper; Director, Fiduciary Trust
Company and Fiduciary Company Incorporated.
WILLIAM P. SOMMERS (7/22/33), Trustee, 333 Ravenswood Avenue, Menlo Park,
California; President and Chief Executive Officer, SRI International (research
and development); prior thereto, Executive Vice President, Iameter (medical
information and educational service provider); prior thereto, Senior Vice
President and Director, Booz, Allen & Hamilton, Inc. (management consulting
firm) (retired); Director, Rohr, Inc., Therapeutic Discovery Corp. and Litton
Industries.
EDMOND D. VILLANI (3/4/47), President and Trustee*, 345 Park Avenue, New York,
New York; President, Chief Executive Officer and Managing Director, Scudder
Kemper.
MARK S. CASADY (9/21/60), President*, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
B-14
<PAGE> 35
JERALD K. HARTMAN (3/1/33), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
THOMAS W. LITTAUER (4/26/55), Vice President*, Two International Place, Boston,
Massachusetts; Managing Director, Scudder Kemper.
ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York;
Senior Vice President, Scudder Kemper.
KATHRYN L. QUIRK (12/3/52), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
LINDA J. WONDRACK (9/12/64), Vice President*, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
PHILIP J. COLLORA (11/15/45), Vice President, Treasurer and Secretary*, 222
South Riverside Plaza, Chicago, Illinois; Attorney, Senior Vice President and
Assistant Secretary, Scudder Kemper.
JOHN R. HEBBLE (6/27/58), Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.
MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper.
FRANK J. RACHWALSKI, JR. (3/26/45), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President, Scudder Kemper.
ROBERT C. PECK, JR. (10/1/46), Vice President, 222 South Riverside Plaza,
Chicago, Illinois; Global Bonds -- Kemper Funds, Scudder Kemper; formerly,
Executive Vice President and Chief Investment Officer with an unaffiliated
investment management firm from 1988 to June 1997.
ELIZABETH C. WERTH (10/1/47), Assistant Secretary*, (30), 222 South Riverside
Plaza, Chicago, Illinois; Scudder Kemper; and Vice President and Director of
State Registrations, KDI.
* Interested persons as defined in the Investment Company Act of 1940.
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Fund. The table below shows amounts paid or
accrued to those trustees who are not designated "interested persons" during the
Fund's 1997 fiscal year except that the information in the last column is for
calendar year 1997.
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION KEMPER FUNDS
NAME OF TRUSTEE FROM FUND PAID TO TRUSTEES**
--------------- ------------ ------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
David W. Belin*........................................... $2,800 $168,100
Lewis A. Burnham.......................................... $1,700 $117,800
Donald L. Dunaway*........................................ $3,000 $162,700
Robert B. Hoffman......................................... $1,700 $109,400
Donald R. Jones........................................... $1,700 $114,200
Shirley D. Peterson....................................... $1,600 $114,000
William P. Sommers........................................ $1,600 $109,400
</TABLE>
* Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with the Kemper Funds. Deferred amounts accrue
interest monthly at a rate equal to the yield of Zurich Money Funds --
Zurich Money Market Fund. Total deferred fees and interest accrued for
latest and prior fiscal years for this Fund are $19,600 for Mr. Belin and
$16,800 for Mr. Dunaway.
** Includes compensation for services as trustee on 25 fund boards with 41
portfolios. Each trustee currently serves as a trustee of 26 Kemper Funds
and 46 fund portfolios.
B-15
<PAGE> 36
As of January 6, 1998, the trustees and officers as a group owned less than 1%
of the then outstanding shares of the Fund and no person owned of record 5% or
more of the outstanding shares of the Fund.
SPECIAL FEATURES
EXCHANGE PRIVILEGE. Subject to the limitations described below, Class A shares
(or the equivalent) of the following Kemper Mutual Funds may be exchanged for
each other at their relative net asset values: Kemper Technology Fund, Kemper
Total Return Fund, Kemper Growth Fund, Kemper Small Capitalization Equity Fund,
Kemper Income and Capital Preservation Fund, Kemper Municipal Bond Fund, Kemper
Diversified Income Fund, Kemper High Yield Series, Kemper U.S. Government
Securities Fund, Kemper International Fund, Kemper State Tax-Free Income Series,
Kemper Adjustable Rate U.S. Government Fund, Kemper Blue Chip Fund, Kemper
Global Income Fund, Kemper Target Equity Fund (series are subject to a limited
offering period), Kemper Intermediate Municipal Bond Fund, Kemper Cash Reserves
Fund, Kemper U.S. Mortgage Fund, Kemper Short-Intermediate Government Fund,
Kemper Value Fund, Inc., Kemper Value Plus Growth Fund, Kemper Horizon Fund,
Kemper Quantitative Equity Fund, Kemper Europe Fund, Kemper Asian Growth Fund,
Kemper Aggressive Growth Fund, and Kemper Global/International Series, Inc.
("Kemper Mutual Funds") and certain "Money Market Funds" (Zurich Money Funds,
Cash Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account
Trust, Investors Municipal Cash Fund and Investors Cash Trust). Shares of Money
Market Funds and Kemper Cash Reserves Fund that were acquired by purchase (not
including shares acquired by dividend reinvestment) are subject to the
applicable sales charge on exchange. In addition, shares of a Kemper Mutual Fund
with a value in excess of $1,000,000, other Kemper Cash Reserves Fund, acquired
by exchange from another Fund may not be exchanged thereafter until they have
been owned for 15 days (the "15 Day Hold Policy"). For purposes of determining
whether the 15 Day Hold Policy applies to a particular exchange, the value of
the shares to be exchanged shall be computed by aggregating the value of shares
being exchanged for all accounts under common control, direction or advice,
including without limitation accounts administered by a financial services firm
offering market timing, asset allocation or similar services. Series of Kemper
Target Equity Fund are available on exchange only during the Offering Period for
such series as described in the prospectus for such series. Cash Equivalent
Fund, Tax-Exempt California Money Market Fund, Cash Account Trust, Investors
Municipal Cash Fund and Investors Cash Trust are available on exchange but only
through a financial services firm having a services agreement with KDI with
respect to such Funds. Exchanges may only be made for funds that are available
for sale in the shareholder's state of residence. Currently, Tax-Exempt
California Money Market Fund is available for sale only in California and the
portfolios of Investors Municipal Cash Fund are available for sale only in
certain states.
The total value of shares being exchanged must at least equal the minimum
investment requirement of the Kemper fund into which they are being exchanged.
Exchanges are made based on relative dollar values of the shares involved in the
exchange. There is no service fee for an exchange; however, financial services
firms may charge for their services in expediting exchange transactions.
Exchanges will be effected by redemption of shares of the fund held and purchase
of shares of the other fund. For federal income tax purposes, any such exchange
constitutes a sale upon which a gain or loss may be realized, depending upon
whether the value of the shares being exchanged is more or less than the
shareholder's adjusted cost basis. Shareholders interested in exercising the
exchange privilege may obtain an exchange form and prospectuses of the other
funds from firms or KDI. Exchanges also may be authorized by telephone if the
account holder has given authorization. Once the authorization is on file, the
Shareholder Service Agent will honor requests by telephone at 1-800-231-8568,
subject to the limitations on liability described under "Redemption of Shares"
in the prospectus. Any share certificates must be deposited prior to any
exchange of such shares. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the telephone
exchange privilege. The exchange privilege is not a right and may be suspended,
terminated or modified at any time. Except as otherwise permitted by applicable
regulation, 60 days' prior written notice of any termination or material change
will be provided.
B-16
<PAGE> 37
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of the shares of a
Kemper Mutual Fund or Money Market Fund may authorize the automatic exchange of
a specified amount ($100 minimum) of such shares for shares of another such
Kemper Fund. Shareholders interested in the systematic exchange privilege may
obtain the appropriate forms and prospectuses of the other funds from firms or
the Shareholder Service Agent. If selected, exchanges will be made automatically
until the privilege is terminated by the shareholder or the other Kemper Fund.
Exchanges are subject to the terms and conditions described above under
"Exchange Privilege", except that the $1,000 minimum investment requirement for
the Kemper Fund acquired on exchange is not applicable. This privilege may not
be used for the exchange of shares held in certificated form.
SYSTEMATIC WITHDRAWAL PROGRAM. The owner of $5,000 or more of the Fund's shares
may provide for the payment from the owner's account of any requested dollar
amount up to $50,000 to be paid to the owner or a designated payee monthly,
quarterly, semi-annually or annually. The minimum periodic payment is $100.
Shares are redeemed so that the payee will receive payment approximately the
first of the month. Dividend distributions will be automatically reinvested at
net asset value. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested, redemptions for the purpose of making such payments may reduce or
even exhaust the account. The right is reserved to amend the systematic
withdrawal program on thirty days notice. The program may be terminated at any
time by the shareholder or the Fund. Firms provide varying arrangements for
their clients to redeem Fund shares on a periodic basis. Such firms may
independently establish minimums for such services.
ELECTRONIC FUNDS TRANSFER PROGRAMS. For your convenience, the Fund has
established several investment and redemption programs using electronic funds
transfer via the Automated Clearing House (ACH). There is currently no charge by
the Fund for these ACH transactions. To use these features, your financial
institution (your employer's financial institution in the case of payroll
deposit) must be affiliated with an Automated Clearing House (ACH). This ACH
affiliation permits the Shareholder Service Agent to rely upon telephone
instructions from ANY PERSON to electronically transfer money between your bank
account, or employer's payroll bank in the case of Direct Deposit, and your Fund
account, subject to the limitations on liability under "Redemption of Shares" in
the prospectus. Your bank's crediting policies of these transferred funds may
vary. These features may be amended or terminated at any time by the Fund.
Shareholders should contact the Kemper Service Company at 1-800-621-1048 or the
firm through which their account was established for more information. These
programs may not be available through some firms that distribute shares of the
Fund.
B-17
<PAGE> 38
SHAREHOLDER RIGHTS
The Fund generally is not required to hold meetings of its shareholders. Under
the Agreement and Declaration of Trust of the Fund ("Declaration of Trust"),
however, shareholder meetings will be held in connection with the following
matters: (a) the election or removal of trustees if a meeting is called for such
purpose; (b) the adoption of any contract for which shareholder approval is
required by the Investment Company Act of 1940 ("1940 Act"); (c) any termination
of the Fund to the extent and as provided in the Declaration of Trust; (d) any
amendment of the Declaration of Trust (other than amendments changing the name
of the Fund or any Portfolio, establishing a Portfolio, supplying any omission,
curing any ambiguity or curing, correcting or supplementing any defective or
inconsistent provision thereof); (e) as to whether a court action, proceeding or
claim should or should not be brought or maintained derivatively or as a class
action on behalf of the Fund or the shareholders, to the same extent as the
stockholders of a Massachusetts business corporation; and (f) such additional
matters as may be required by law, the Declaration of Trust, the By-laws of the
Fund, or any registration of the Fund with the Securities and Exchange
Commission or any state, or as the trustees may consider necessary or desirable.
The shareholders also would vote upon changes in fundamental investment
objectives, policies or restrictions.
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) the Fund will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy on the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
Trustees may be removed from office by a vote of the holders of a majority of
the outstanding shares at a meeting called for that purpose, which meeting shall
be held upon the written request of the holders of not less than 10% of the
outstanding shares. Upon the written request of ten or more shareholders who
have been such for at least six months and who hold shares constituting at least
1% of the outstanding shares of the Fund stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, the
Fund has undertaken to disseminate appropriate materials at the expense of the
requesting shareholders.
The Declaration of Trust provides that the presence at a shareholder meeting in
person or by proxy of at least 30% of the shares entitled to vote on a matter
shall constitute a quorum. Thus, a meeting of shareholders of the Fund could
take place even if less than a majority of the shareholders were represented on
its scheduled date. Shareholders would in such a case be permitted to take
action which does not require a larger vote than a majority of a quorum, such as
the election of trustees and ratification of the selection of auditors. Some
matters requiring a larger vote under the Declaration of Trust, such as
termination or reorganization of the Fund and certain amendments of the
Declaration of Trust, would not be affected by this provision; nor would matters
which under the 1940 Act require the vote of a "majority of the outstanding
voting securities" as defined in the 1940 Act.
The Declaration of Trust specifically authorizes the Board of Trustees to
terminate the Fund (or any Portfolio) by notice to the shareholders without
shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of the
Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Fund or the trustees. Moreover, the Declaration of Trust provides for
indemnification out of Fund property for all losses and expenses of any
shareholder held personally liable for the obligations of the Fund and the Fund
will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by Scudder Kemper remote
and not material, since it is limited to circumstances in which a disclaimer is
inoperative and the Fund itself is unable to meet its obligations.
B-18
<PAGE> 39
APPENDIX--RATINGS OF INVESTMENTS
The two highest ratings of Moody's Investors Service, Inc. ("Moody's") for
Municipal Securities are Aaa and Aa. Municipal Securities rated Aaa are judged
to be of the "best quality." The rating of Aa is assigned to Municipal
Securities which are of "high quality by all standards," but as to which margins
of protection or other elements make long-term risks appear somewhat larger than
Aaa rated Municipal Securities. The Aaa and Aa rated Municipal Securities
comprise what are generally known as "high grade."
The two highest ratings of Standard & Poor's Corporation ("S&P") for Municipal
Securities are AAA (Prime) and AA (High Grade). Municipal Securities rated AAA
are "obligations of the highest quality." The rating of AA is accorded issues
with investment characteristics "only slightly less marked than those of the
prime quality issues."
Moody's ratings for state and municipal notes and other short-term loans will be
designated Moody's Investment Grade (MIG). This distinction is in recognition of
the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Loans designated MIG-1 are of the
best quality, enjoying strong protection from established cash flows of funds
for their servicing or from established and broad-based access to the market for
refinancing, or both. Loans designated MIG-2 are of high quality, with margins
of protection ample although not so large as in the preceding group.
An S&P municipal and corporate commercial paper rating is a current assessment
of the likelihood of timely payment of debt having an original maturity of no
more than 365 days. Ratings are graded into four categories, ranging from "A"
for the highest quality obligations to "D" for the lowest. Issues assigned this
highest rating are regarded as having the greatest capacity for timely payment.
The designation A-1 indicates that the degree of safety regarding timely payment
is very strong. The designation A-2 indicates the capacity for timely payment is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated "A-1."
The "other debt securities" included in the definition of temporary investments
are corporate (as opposed to municipal) debt obligations rated AAA or AA by S&P
or Aaa or Aa by Moody's. Corporate debt obligations rated AAA by S&P are
"highest grade obligations." Obligations bearing the rating of AA also qualify
as "high grade obligations" and "in the majority of instances differ from AAA
issues only in small degree." The Moody's corporate debt ratings of Aaa and Aa
do not differ materially from those set forth above for Municipal Securities.
The ratings Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's. Among the factors considered by them in assigning ratings
are the following: (a) evaluation of the management of the issuer; (b) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (c) evaluation of
the issuer's products in relation to competition and customer acceptance; (d)
liquidity; (e) amount and quality of long-term debt; (f) trend of earnings over
a period of ten years; (g) financial strength of a parent company and the
relationships which exist with the issuer; and (h) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Relative strength or
weakness of the above factors determines whether the issuer's commercial paper
is rated Prime-1, 2 or 3.
After its purchase by the Fund, an issue of Municipal Securities or a temporary
investment may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. Neither event requires the elimination of
such obligation from the Fund's portfolio, but the Fund's investment adviser
will consider such an event in its determination of whether the Fund should
continue to hold such obligation in its portfolio. To the extent that the
ratings accorded by S&P or Moody's for Municipal Securities or temporary
investments may change as a result of changes in such organizations, or changes
in their rating systems, the Fund will attempt to use comparable ratings as
standards for its investments in Municipal Securities or temporary investments
in accordance with the investment policies contained herein.
B-19
<PAGE> 40
2
Tax-Exempt California Money Market Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
September 30, 1997
(Value in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
<S> <C>
(A)VARIABLE RATE DEMAND SECURITIES
State of California
Health Facilities Financing Authority
3.90% $ 5,000
Pollution Control Financing Authority
Occidental Geothermal, Inc. Project
3.45% 1,400
Pacific Gas and Electric Co.
4.00% 4,500
Southeast Resource Recovery Facilities
4.20% 5,000
Southern California Public Power Authority
3.95% 3,700
- -----------------------------------------------------------
Alameda-Contra Costa
Schools Financing Authority
3.90% 2,170
- -----------------------------------------------------------
Anaheim
Public Improvement Corp.
3.95% 1,400
- -----------------------------------------------------------
Auburn
Union School District
4.10% 1,400
- -----------------------------------------------------------
Fremont
Public Financing Authority
4.05% 1,500
- -----------------------------------------------------------
Irvine
Assessment District
3.80% 10,400
- -----------------------------------------------------------
Kern County
Community College District
4.60% 1,600
Public Facilities Project
3.90% 900
- -----------------------------------------------------------
Los Angeles
Multifamily Housing Revenue
4.00% 1,500
Pension Obligation Bonds
3.95% 1,500
Transportation Commission
3.95% 3,700
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Value
<S> <C>
Monterey County
Peninsula Water Management District
3.80% $ 1,500
Regional Waste Management Authority
4.10% 1,780
- -----------------------------------------------------------
Orange County
Foothill/Eastern Transportation Corridor Agency
3.94% 8,200
Multifamily Housing Revenue
3.95% 1,400
Water District
3.70% 3,500
- -----------------------------------------------------------
Palm Springs
Community Redevelopment Agency
4.05% 1,400
- -----------------------------------------------------------
Riverside County
Eastern Municipal Water District
4.00% 5,000
- -----------------------------------------------------------
Sacramento County
Administrative Center & Courthouse Project
3.85% 2,500
Multifamily Housing Revenue
Briarwood Apartments
4.10% 1,400
Stone Creek Apartments
4.00% 1,500
- -----------------------------------------------------------
San Bernardino
Multifamily Housing Revenue
4.15% 1,400
- -----------------------------------------------------------
Santa Ana
School District
3.90% 1,400
- -----------------------------------------------------------
Santa Clara County
Hospital Facilities Authority
3.40% 2,200
Transit District
3.80% 5,000
- -----------------------------------------------------------
Ventura County
Triunfo Sanitation District
4.10% 1,400
- -----------------------------------------------------------
</TABLE>
<PAGE> 41
3
Tax-Exempt California Money Market Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
<S> <C>
Woodland
Multifamily Mortgage Revenue
3.95% $ 2,020
- -----------------------------------------------------------
TOTAL VARIABLE RATE DEMAND
SECURITIES--74.4%
(average maturity: 5 days) 87,270
- -----------------------------------------------------------
OTHER SECURITIES
State of California
Pollution Control Financing Authority
3.70%-3.75%, 10/10/97-12/10/97 9,500
Public Capital Improvements Financing Authority
3.80%, 12/15/97 1,500
- -----------------------------------------------------------
Los Angeles
Capital Asset Lease Corp.
3.75%-3.80%, 12/9/97-12/11/97 6,000
Wastewater System Revenue
3.50%, 11/10/97 1,500
- -----------------------------------------------------------
Orange County
Transportation Authority
3.80%, 11/7/97 5,000
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Value
<S> <C>
Sacramento
Municipal Utility District
3.65%-3.70%, 11/14/97-12/16/97 $ 5,344
- -----------------------------------------------------------
Puerto Rico
Government Development Bank
3.60%, 11/12/97 1,500
- -----------------------------------------------------------
TOTAL OTHER SECURITIES--25.8%
(average maturity: 52 days) 30,344
- -----------------------------------------------------------
TOTAL INVESTMENTS--100.2%
(average maturity: 17 days) 117,614
- -----------------------------------------------------------
LIABILITIES, LESS
OTHER ASSETS--(.2%) (182)
- -----------------------------------------------------------
NET ASSETS--100% $117,432
===========================================================
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
Interest rates represent annualized yield to date of maturity, except for
variable rate demand securities described in Note (a). For each security, cost
(for financial reporting and federal income tax purposes) and carrying value are
the same. Likewise, carrying value approximates principal amount.
(a) Variable rate demand securities are payable within five business days and
are backed by credit support agreements from banks or insurance
institutions. The rates shown are the current rates at September 30, 1997.
See accompanying Notes to Financial Statements.
<PAGE> 42
4
Tax-Exempt California Money Market Fund
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Tax-Exempt California Money Market Fund as of
September 30, 1997, and the related statements of operations for the year then
ended and changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the fiscal periods since 1993.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
September 30, 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
Tax-Exempt California Money Market Fund at September 30, 1997, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the fiscal periods since 1993, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 18, 1997
<PAGE> 43
5
Tax-Exempt California Money Market Fund
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
September 30, 1997 Year ended September 30, 1997
(in thousands) (in thousands)
- -----------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------
Investments, at amortized cost $117,614
- ----------------------------------------------------------
Receivable for:
Interest 396
- ----------------------------------------------------------
Securities sold 400
- ----------------------------------------------------------
Total assets 118,410
- ----------------------------------------------------------
LIABILITIES AND NET ASSETS
- ----------------------------------------------------------
Cash overdraft 799
- ----------------------------------------------------------
Payable for:
Dividends 12
- ----------------------------------------------------------
Fund shares redeemed 69
- ----------------------------------------------------------
Management fee 15
- ----------------------------------------------------------
Distribution services fee 22
- ----------------------------------------------------------
Custodian and transfer agent fees
and related expenses 4
- ----------------------------------------------------------
Trustees' fees and other 57
- ----------------------------------------------------------
Total liabilities 978
- ----------------------------------------------------------
Net assets applicable to
shares outstanding $117,432
==========================================================
THE PRICING OF SHARES
- ----------------------------------------------------------
Shares outstanding 117,432
- ----------------------------------------------------------
Net asset value and
redemption price per share $1.00
==========================================================
</TABLE>
See accompanying Notes to Financial Statements.
<TABLE>
<S> <C>
INTEREST INCOME $2,052
- ----------------------------------------------------------
EXPENSES:
Management fee 127
- ----------------------------------------------------------
Distribution services fee 190
- ----------------------------------------------------------
Custodian and transfer agent
fees and related expenses 57
- ----------------------------------------------------------
Professional fees 23
- ----------------------------------------------------------
Reports to shareholders 19
- ----------------------------------------------------------
Trustees' fees and other 35
- ----------------------------------------------------------
Total expenses 451
- ----------------------------------------------------------
Net investment income $1,601
==========================================================
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
Years ended September 30, 1997 and 1996
(in thousands)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,601 3,047
- -----------------------------------------------------------
Dividends to shareholders from
net investment income (1,601) (3,047)
- -----------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (DOLLAR
AMOUNTS AND NUMBER OF SHARES
ARE THE SAME):
Shares sold 282,125 370,566
- -----------------------------------------------------------
Shares issued in reinvestment
of dividends 1,583 3,038
- -----------------------------------------------------------
283,708 373,604
Shares redeemed (285,160) (360,012)
- -----------------------------------------------------------
Net increase (decrease) from capital
share transactions and total increase
(decrease) in net assets (1,452) 13,592
- -----------------------------------------------------------
NET ASSETS:
Beginning of period 118,884 105,292
- -----------------------------------------------------------
End of period $ 117,432 118,884
===========================================================
</TABLE>
<PAGE> 44
6
Tax-Exempt California Money Market Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE FUND
Tax-Exempt California Money Market Fund is an open-end management investment
company organized as a business trust under the laws of Massachusetts.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION
Investments are stated at amortized cost, which approximates market value. In
the event that a deviation of 1/2 of 1% or more exists between the Fund's $1.00
per share net asset value, calculated at amortized cost, and the net asset value
calculated by reference to market-based values, or if there is any other
deviation that the Board of Trustees believes would result in a material
dilution to shareholders or purchasers, the Board of Trustees will promptly
consider what action should be initiated.
INVESTMENT TRANSACTIONS AND INTEREST INCOME
Investment transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the accrual basis and
includes amortization of premium on investments.
FUND SHARE VALUATION AND DIVIDENDS TO SHAREHOLDERS
Fund shares are sold and redeemed on a continuous basis at net asset value. On
each day that the New York Stock Exchange is open for trading, the Fund
determines its net asset value per share at 11:00 a.m., 3:00 p.m. and 8:00 p.m.
Chicago time by dividing the total value of the Fund's investments and other
assets, less liabilities, by the number of Fund shares outstanding. The Fund
declares a daily dividend, equal to its net investment income for that day,
payable monthly. Net investment income consists of all interest income, plus
(minus) all realized gains (losses) on portfolio securities, minus all expenses
of the Fund.
FEDERAL INCOME TAXES
The Fund has complied with the special provisions of the Internal Revenue Code
available to investment companies and therefore no federal income tax provision
is required.
3. TRANSACTIONS WITH AFFILIATES
MANAGEMENT AGREEMENT
The Fund has a management agreement with Zurich Kemper Investments, Inc. (ZKI)
and pays a management fee at an annual rate of .22% of the first $500 million of
average daily net assets declining to .15% of average daily net assets in excess
of $3 billion. During the year ended September 30, 1997, the Fund incurred a
management fee of $127,000.
DISTRIBUTION AGREEMENT
The Fund also has an administration, shareholder services and distribution
agreement with Zurich Kemper Distributors Inc. (ZKDI). For distribution
services, the Fund pays ZKDI an annual fee of .33% of average daily net assets
of the Fund. ZKDI has related service agreements with various firms to provide
cash management and other services for Fund shareholders. Under these
agreements, ZKDI pays such firms at an annual rate ranging from .15% to .33% of
the average daily net assets of those accounts that they maintain and service.
During the year ended September 30, 1997, the Fund incurred a distribution
services fee of $190,000, of which ZKDI, pursuant to the related service
agreements, remitted $182,000 to various firms.
SHAREHOLDER SERVICES AGREEMENT
Pursuant to a services agreement with the Fund's transfer agent, Zurich Kemper
Service Company (ZKSvC) is the shareholder service agent of the Fund. Under the
agreement, ZKSvC received
<PAGE> 45
7
Tax-Exempt California Money Market Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
shareholder services fees of $21,000 for the year ended September 30, 1997.
OFFICERS AND TRUSTEES
Certain officers or trustees of the Fund are also officers or directors of ZKI.
During the year ended September 30, 1997, the Fund made no payments to its
officers and incurred trustees' fees of $15,000 to independent trustees.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $1.00 1.00 1.00 1.00 1.00
- -----------------------------------------------------------------------------------------------------------------
Net investment income and dividends declared .03 .03 .03 .02 .02
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of year $1.00 1.00 1.00 1.00 1.00
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN 2.91% 2.93 3.23 1.97 1.88
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses .78% .72 .75 .71 .69
- -----------------------------------------------------------------------------------------------------------------
Net investment income 2.78% 2.88 3.16 1.94 1.87
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets at end of year (in thousands) $117,432 118,884 105,292 101,148 122,560
=================================================================================================================
</TABLE>
FEDERAL TAX STATUS OF 1997 DIVIDENDS
All of the dividends constitute tax-exempt interest which is not taxable for
federal or State of California income tax purposes.
<PAGE> 46
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
PART C.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(i) Financial statements included in Part A of the Registration
Statement:
Financial Highlights.
(ii) Financial Statements included in Part B of the Registration
Statement:
Statement of assets and liabilities--September 30, 1997.
Statement of operations for the year ended September 30, 1997.
Statement of changes in net assets for each of the two years in
the period ended September 30, 1997.
Portfolio of investments--September 30, 1997.
Notes to financial statements.
Schedules II, III, IV and V have been omitted as the required
information is not present.
Schedule I has been omitted as the required information is presented in
the portfolio of investments at September 30, 1997.
(b) Exhibits
<TABLE>
<S> <C>
99.B1. Agreement and Declaration of Trust.*
99.B2. By-Laws.*
99.B3. Inapplicable.
99.B4. Text of Share Certificate.*
99.B5. Investment Management Agreement.
99.B6.(a) Administration, Shareholder Services and Distribution
Agreement.
99.B6.(b) Form of Administration Services and Selling Group
Agreement.*
99.B7. Inapplicable.
99.B8. Custody Agreement.*
99.B9.(a) Agency Agreement.*
99.B9.(b) Supplement to Agency Agreement.*
99.B9.(c) Fund Accounting Agreement.
99.B10. Inapplicable.
99.B11. Report and Consent of Independent Auditors.
99.B12. Inapplicable.
99.B13. Inapplicable.
99.B14. Inapplicable.
99.B15. See Items 6(a) and (b) above.
99.B16. Performance Calculations.*
99.B18. Inapplicable.
99.B24. Powers of Attorney.
27. Financial Data Schedule.
485.(b) Representation of Counsel (Rule 485(b)).
</TABLE>
- ---------------
* Incorporated herein by reference to the Amendment to Registrant's Registration
Statement on Form N-1A identified below:
<TABLE>
<CAPTION>
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. DATE OF FILING
----------- ---------------------------- --------------
<S> <C> <C>
1, 2, 4, 6(b), 8, 9(a), and 16 9 1/22/96
9(b) 10 1/23/97
</TABLE>
C-1
<PAGE> 47
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Inapplicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of January 6, 1998, there were 229 holders of record of the sole series
of shares of Registrant.
ITEM 27. INDEMNIFICATION
Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit 1 hereto, which is incorporated herein by reference) provides in effect
that the Registrant will indemnify its officers and trustees under certain
circumstances. However, in accordance with Section 17(h) and 17(i) of the
Investment Company Act of 1940 and its own terms, said Article of the Agreement
and Declaration of Trust does not protect any person against any liability to
the Registrant or its shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question as to whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
On June 26, 1997, Zurich Insurance Company ("Zurich"), ZKI Holding Corp.
("ZKIH"), Zurich Kemper Investments, Inc. ("ZKI"), Scudder, Stevens & Clark,
Inc. ("Scudder") and the representatives of the beneficial owners of the capital
stock of Scudder ("Scudder Representatives") entered into a transaction
agreement ("Transaction Agreement") pursuant to which Zurich will become the
majority stockholder in Scudder with an approximately 70% interest, and ZKI will
become a wholly-owned subsidiary of, or be combined with, Scudder
("Transaction"). In connection with the trustees evaluation of the Transaction,
Zurich agreed to indemnify the Registrant and the trustees who were not
interested persons of ZKI or Scudder (the "Independent Trustees") for and
against any liability and expenses based upon any action or omission by the
Independent Trustees in connection with their consideration of and action with
respect to the Transaction. In addition, Scudder has agreed to indemnify each
Fund and the Independent Trustees for and against any liability and expenses
based upon any misstatements or omissions by Scudder to the Independent Trustees
in connection with their consideration of the Transaction.
C-2
<PAGE> 48
Item 28 Business or Other Connections of Investment Adviser
Scudder Kemper Investments, Inc. has stockholders and employees who are
denominated officers but do not as such have corporation-wide responsibilities.
Such persons are not considered officers for the purpose of this Item 28.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ---------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.
Director and President, Scudder Capital Asset Corporation
Director and President, Scudder Capital Stock Corporation
Director and President, Scudder Capital Planning Corporation
Director and President, SS&C Investment Corporation
Director and President, SIS Investment Corporation
Director and President, SRV Investment Corporation
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investment, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member Corporate Executive Board, Zunica Insurance Company of Switzerland
Director, ZKI Holding Corporation
Steven Gluckstern Director, Scudder Kemper Investments, Inc.**
Member Corporate Executive Board, Zurich Insurance Company of Switzerland
Director, Zurich Holding Company of America
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc. **
Member Corporate Executive Board, Zurich Insurance Company of Switzerland
Director, Chairman of the Board, Zurich Holding Company of America
Director, ZKI Holding Corporation
Kathryn L. Quirk Director, Chief Legal Officer, Chief Compliance Officer and Secretary,
Scudder Kemper Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services,
Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.
***
Director, Scudder, Stevens & Clark Japan, Inc.###
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada,
Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services
Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc.x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.
Director, Vice President and Secretary, Scudder Defined Contribution
Services, Inc.
Director, Vice President and Secretary, Scudder Capital Asset Corporation
</TABLE>
<PAGE> 49
<TABLE>
<S> <C>
Director, Vice President and Secretary, Scudder Capital Stock Corporation
Director, Vice President and Secretary, Scudder Capital Planning Corporation
Director, Vice President and Secretary, SS&C Investment Corporation
Director, Vice President and Secretary, SIS Investment Corporation
Director, Vice President and Secretary, SRV Investment Corporation
Director, Vice President and Secretary, Scudder Brokerage Services, Inc.
Director, Korea Bond Fund Management Co., Ltd.
Markus Rohrbasser Director, Scudder Kemper Investments, Inc.**
Member Corporate Executive Board, Zurich Insurance Company of Switzerland
President, Director, Chairman of the Board, ZKI Holding Corporation
Cornelia M. Small Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President, Chief Executive Officer, Scudder Kemper Investments,
Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President & Director, Scudder, Stevens & Clark Overseas Corporationo oo
President & Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy
of Luxembourg
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Socjete Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B
34.564
*** Toronto, Ontario, Canada
XXX Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
</TABLE>
<PAGE> 50
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper Funds,
Investors Fund Series and Kemper International Bond Fund.
(b) Information on the officers and directors of Kemper
Distributors, Inc., principal underwriter for the Registrant is set forth
below. The principal business address is 222 South Riverside Plaza, Chicago,
Illinois 60606.
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES OFFICES WITH
NAME WITH UNDERWRITER REGISTRANT
---- ---------------- ----------
<S> <C> <C>
James L. Greenawalt Director, President None
Patrick H. Dudasik Financial Principal, Treasurer
and Chief Financial Officer None
Michael E. Harrington Executive Vice President None
Philip D. Hausken Vice President None
Elizabeth C. Werth Vice President Assistant Secretary
Marc L. Hecht Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
</TABLE>
(c) Not applicable.
<PAGE> 51
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All such accounts, books and other documents are maintained at the offices
of the Registrant, the offices of Registrant's investment adviser, Scudder
Kemper Investments, Inc. and Kemper Distributors, Inc., the Registrant's
principal underwriter, 222 South Riverside Plaza, Chicago, Illinois 60606 or, in
the case of records concerning custodial functions, at the offices of the
custodian, Investors Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue,
Kansas City, Missouri 64105 or, in the case of records concerning transfer
agency functions, at the offices of IFTC and of the Shareholder Service Agent,
Kemper Service Company, 811 Main Street, Kansas City, Missouri 64105.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
C-17
<PAGE> 52
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago and State of Illinois, on the 26th day
of January, 1998.
TAX-EXEMPT CALIFORNIA MONEY MARKET
FUND
by /s/ MARK S. CASADY
-----------------------------------
Mark S. Casady, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on January 26, 1998 on behalf of
the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ MARK S. CASADY President
- -----------------------------------------------------
Mark S. Casady
/s/ DANIEL PIERCE* Chairman and Trustee
- -----------------------------------------------------
Daniel Pierce
/s/ DAVID W. BELIN* Trustee
- -----------------------------------------------------
David W. Belin
/s/ LEWIS A. BURNHAM* Trustee
- -----------------------------------------------------
Lewis A. Burnham
/s/ DONALD L. DUNAWAY* Trustee
- -----------------------------------------------------
Donald L. Dunaway
/s/ ROBERT B. HOFFMAN* Trustee
- -----------------------------------------------------
Robert B. Hoffman
/s/ DONALD R. JONES* Trustee
- -----------------------------------------------------
Donald R. Jones
/s/ SHIRLEY D. PETERSON* Trustee
- -----------------------------------------------------
Shirley D. Peterson
/s/ WILLIAM P. SOMMERS* Trustee
- -----------------------------------------------------
William P. Sommers
/s/ EDMOND D. VILLANI* Trustee
- -----------------------------------------------------
Edmond D. Villani
/s/ PHILIP J. COLLORA Treasurer
- -----------------------------------------------------
Philip J. Collora
* Philip J. Collora signs this document pursuant to
powers of attorney filed herein.
/s/ PHILIP J. COLLORA
- -----------------------------------------------------
Philip J. Collora
</TABLE>
<PAGE> 53
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C> <C>
99.B1. Agreement and Declaration of Trust.*
99.B2. By-Laws.*
99.B3. Inapplicable.
99.B4. Text of Share Certificate.*
99.B5. Investment Management Agreement.
99.B6.(a) Administration, Shareholder Services and Distribution
Agreement.
99.B6.(b) Form of Administration Services and Selling Group
Agreement.*
99.B7. Inapplicable.
99.B8. Custody Agreement.*
99.B9.(a) Agency Agreement.*
99.B9.(b) Supplement to Agency Agreement.*
99.B9.(c) Fund Accounting Agreement.
99.B10. Inapplicable.
99.B11. Report and Consent of Independent Auditors.
99.B12. Inapplicable.
99.B13. Inapplicable.
99.B14. Inapplicable.
99.B15. See Items 6(a) and (b) above.
99.B16. Performance Calculations.*
99.B18. Inapplicable.
99.B24. Powers of Attorney.
27. Financial Data Schedule.
485.(b) Representation of Counsel (Rule 485(b)).
</TABLE>
- ---------------
* Incorporated herein by reference to the Amendment to Registrant's Registration
Statement on Form N-1A identified below:
<TABLE>
<CAPTION>
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. DATE OF FILING
----------- ---------------------------- --------------
<S> <C> <C>
1, 2, 4, 6(b), 8, 9(a), and 16 9 1/22/96
9(b) 10 1/22/97
</TABLE>
<PAGE> 1
EXHIBIT-99.B5
INVESTMENT MANAGEMENT AGREEMENT
Tax-Exempt California Money Market Fund
222 South Riverside Plaza
Chicago, Illinois 60606
December 31, 1997
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Tax-Exempt California Money Market Fund
Ladies and Gentlemen:
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND (the "Trust") has been
established as a Massachusetts business Trust to engage in the
business of an investment company. Pursuant to the Trust's
Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees is authorized to issue the
Trust's shares of beneficial interest (the "Shares"), in separate
series, or funds. The Board of Trustees has authorized Tax-
Exempt California Money Market Fund (the "Fund"). Series may be
abolished and dissolved, and additional series established, from
time to time by action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the
investment manager of the Fund and to provide certain other
services, as more fully set forth below, and you have indicated
that you are willing to act as such investment manager and to
perform such services under the terms and conditions hereinafter
set forth. Accordingly, the Trust on behalf of the Fund agrees
with you as follows:
1. Delivery of Documents. The Trust engages in the business of
investing and reinvesting the assets of the Fund in the manner
and in accordance with the investment objectives, policies and
restrictions specified in the currently effective Prospectus (the
"Prospectus") and Statement of Additional Information (the "SAI")
relating to the Fund included in the Trust's Registration
Statement on Form N-1A, as amended from time to time, (the
"Registration Statement") filed by the Trust under the Investment
Company Act of 1940, as amended, (the "1940 Act") and the
Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you
by the Trust. The Trust has also furnished you with copies
properly certified or authenticated of each of the following
additional documents related to the Trust and the Fund:
<PAGE> 2
(a) The Declaration, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof
(the "By-Laws").
(c) Resolutions of the Trustees of the Trust and the
shareholders of the Fund selecting you as investment manager and
approving the form of this Agreement.
(d) Establishment and Designation of Series of Shares of
Beneficial Interest relating to the Fund, as applicable.
The Trust will furnish you from time to time with copies,
properly certified or authenticated, of all amendments of or
supplements, if any, to the foregoing, including the Prospectus,
the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of
the Fund, you shall provide continuing investment management of
the assets of the Fund in accordance with the investment
objectives, policies and restrictions set forth in the Prospectus
and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating
to regulated investment companies and all rules and regulations
thereunder; and all other applicable federal and state laws and
regulations of which you have knowledge; subject always to
policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable
efforts to manage the Fund so that it will qualify as a regulated
investment company under Subchapter M of the Code and regulations
issued thereunder. The Fund shall have the benefit of the
investment analysis and research, the review of current economic
conditions and trends and the consideration of long-range
investment policy generally available to your investment advisory
clients. In managing the Fund in accordance with the
requirements set forth in this section 2, you shall be entitled
to receive and act upon advice of counsel to the Trust. You shall
also make available to the Trust promptly upon request all of the
Fund's investment records and ledgers as are necessary to assist
the Trust in complying with the requirements of the 1940 Act and
other applicable laws. To the extent required by law, you shall
furnish to regulatory authorities having the requisite authority
any information or reports in connection with the services
provided pursuant to this Agreement which may be requested in
order to ascertain whether the operations of the Trust are being
conducted in a manner consistent with applicable laws and
regulations.
You shall determine the securities, instruments, investments,
currencies, repurchase agreements, futures, options and other
contracts relating to investments to be purchased, sold or
entered into by the Fund and place orders with broker-dealers,
2
<PAGE> 3
foreign currency dealers, futures commission merchants or others
pursuant to your determinations and all in accordance with Fund
policies as expressed in the Registration Statement. You shall
determine what portion of the Fund s portfolio shall be invested
in securities and other assets and what portion, if any, should
be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic
reports on the investment performance of the Fund and on the
performance of your obligations pursuant to this Agreement, and
you shall supply such additional reports and information as the
Trust's officers or Board of Trustees shall reasonably request.
3. Administrative Services. In addition to the portfolio
management services specified above in section 2, you shall
furnish at your expense for the use of the Fund such office space
and facilities in the United States as the Fund may require for
its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative
services on behalf of the Fund necessary for operating as an open
end investment company and not provided by persons not parties to
this Agreement including, but not limited to, preparing reports
to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising,
negotiating contractual arrangements with, to the extent
appropriate, and monitoring the performance of, accounting
agents, custodians, depositories, transfer agents and pricing
agents, accountants, attorneys, printers, underwriters, brokers
and dealers, insurers and other persons in any capacity deemed to
be necessary or desirable to Fund operations; preparing and
making filings with the Securities and Exchange Commission (the
"SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy
materials, post-effective amendments to the Registration
Statement, semi-annual reports on Form N-SAR and notices pursuant
to Rule 24f-2 under the 1940 Act; overseeing the tabulation of
proxies by the Fund's transfer agent; assisting in the
preparation and filing of the Fund's federal, state and local tax
returns; preparing and filing the Fund's federal excise tax
return pursuant to Section 4982 of the Code; providing assistance
with investor and public relations matters; monitoring the
valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund
under applicable federal and state securities laws; maintaining
or causing to be maintained for the Fund all books, records and
reports and any other information required under the 1940 Act, to
the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other
agents of the Fund; assisting in establishing the accounting
policies of the Fund; assisting in the resolution of accounting
issues that may arise with respect to the Fund's operations and
consulting with the Fund's independent accountants, legal counsel
3
<PAGE> 4
and the Fund's other agents as necessary in connection therewith;
establishing and monitoring the Fund's operating expense budgets;
reviewing the Fund's bills; processing the payment of bills that
have been approved by an authorized person; assisting the Fund in
determining the amount of dividends and distributions available
to be paid by the Fund to its shareholders, preparing and
arranging for the printing of dividend notices to shareholders,
and providing the transfer and dividend paying agent, the
custodian, and the accounting agent with such information as is
required for such parties to effect the payment of dividends and
distributions; and otherwise assisting the Trust as it may
reasonably request in the conduct of the Fund's business, subject
to the direction and control of the Trust's Board of Trustees.
Nothing in this Agreement shall be deemed to shift to you or to
diminish the obligations of any agent of the Fund or any other
person not a party to this Agreement which is obligated to
provide services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise
specifically provided in this section 4, you shall pay the
compensation and expenses of all Trustees, officers and executive
employees of the Trust (including the Fund's share of payroll
taxes) who are affiliated persons of you, and you shall make
available, without expense to the Fund, the services of such of
your directors, officers and employees as may duly be elected
officers of the Trust, subject to their individual consent to
serve and to any limitations imposed by law. You shall provide
at your expense the portfolio management services described in
section 2 hereof and the administrative services described in
section 3 hereof.
You shall not be required to pay any expenses of the Fund other
than those specifically allocated to you in this section 4. In
particular, but without limiting the generality of the foregoing,
you shall not be responsible, except to the extent of the
reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose
services may be involved, for the following expenses of the Fund:
organization expenses of the Fund (including out of-pocket
expenses, but not including your overhead or employee costs);
fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses;
maintenance of books and records which are required to be
maintained by the Fund's custodian or other agents of the Trust;
telephone, telex, facsimile, postage and other communications
expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment
company trade organizations; fees and expenses of the Fund's
accounting agent for which the Trust is responsible pursuant to
the terms of the Fund Accounting Services Agreement, custodians,
subcustodians, transfer agents, dividend disbursing agents and
registrars; payment for portfolio pricing or valuation services
4
<PAGE> 5
to pricing agents, accountants, bankers and other specialists, if
any; expenses of preparing share certificates and, except as
provided below in this section 4, other expenses in connection
with the issuance, offering, distribution, sale, redemption or
repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering
or qualifying Shares of the Fund for sale; interest charges, bond
premiums and other insurance expense; freight, insurance and
other charges in connection with the shipment of the Fund's
portfolio securities; the compensation and all expenses
(specifically including travel expenses relating to Trust
business) of Trustees, officers and employees of the Trust who
are not affiliated persons of you; brokerage commissions or other
costs of acquiring or disposing of any portfolio securities of
the Fund; expenses of printing and distributing reports, notices
and dividends to shareholders; expenses of printing and mailing
Prospectuses and SAIs of the Fund and supplements thereto; costs
of stationery; any litigation expenses; indemnification of
Trustees and officers of the Trust; and costs of shareholders
and other meetings.
You shall not be required to pay expenses of any activity which
is primarily intended to result in sales of Shares of the Fund if
and to the extent that (i) such expenses are required to be borne
by a principal underwriter which acts as the distributor of the
Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have
adopted a plan in conformity with Rule 12b-1 under the 1940 Act
providing that the Fund (or some other party) shall assume some
or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by
the principal underwriter pursuant to the underwriting agreement
or are not permitted to be paid by the Fund (or some other party)
pursuant to such a plan.
5. Management Fee. For all services to be rendered, payments
to be made and costs to be assumed by you as provided in sections
2, 3, and 4 hereof, the Trust on behalf of the Fund shall pay you
in United States Dollars on the last day of each month the unpaid
balance of a fee equal to the excess of (a) 1/12 of .22 of 1
percent of the average daily net assets as defined below of the
Fund for such month; provided that, for any calendar month during
which the average of such values exceeds $500,000,000, the fee
payable for that month based on the portion of the average of
such values in excess of $500,000,000 shall be 1/12 of .20 of 1
percent of such portion; provided that, for any calendar month
during which the average of such values exceeds $1,000,000,000,
the fee payable for that month based on the portion of the
average of such values in excess of $1,000,000,000 shall be 1/12
of .175 of 1 percent of such portion; provided that, for any
calendar month during which the average of such values exceeds
5
<PAGE> 6
$2,000,000,000, the fee payable for that month based on the
portion of the average of such values in excess of $2,000,000,000
shall be 1/12 of .16 of 1 percent of such portion; and provided
that, for any calendar month during which the average of such
values exceeds $3,000,000,000, the fee payable for that month
based on the portion of the average of such values in excess of
$3,000,000,000 shall be 1/12 of .15 of 1 percent of such portion;
over (b) any compensation waived by you from time to time (as
more fully described below). You shall be entitled to receive
during any month such interim payments of your fee hereunder as
you shall request, provided that no such payment shall exceed 75
percent of the amount of your fee then accrued on the books of
the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average
of the values placed on the Fund's net assets as of 4:00 p.m.
(New York time) on each day on which the net asset value of the
Fund is determined consistent with the provisions of Rule 22c-1
under the 1940 Act or, if the Fund lawfully determines the value
of its net assets as of some other time on each business day, as
of such time. The value of the net assets of the Fund shall
always be determined pursuant to the applicable provisions of the
Declaration and the Registration Statement. If the determination
of net asset value does not take place for any particular day,
then for the purposes of this section 5, the value of the net
assets of the Fund as last determined shall be deemed to be the
value of its net assets as of 4:00 p.m. (New York time), or as of
such other time as the value of the net assets of the Fund's
portfolio may be lawfully determined on that day. If the Fund
determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that
day shall be deemed to be the sole determination thereof on that
day for the purposes of this section 5.
You may waive all or a portion of your fees provided for
hereunder and such waiver shall be treated as a reduction in
purchase price of your services. You shall be contractually
bound hereunder by the terms of any publicly announced waiver of
your fee, or any limitation of the Fund's expenses, as if such
waiver or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive.
In connection with purchases or sales of portfolio securities and
other investments for the account of the Fund, neither you nor
any of your directors, officers or employees shall act as a
principal or agent or receive any commission. You or your agent
shall arrange for the placing of all orders for the purchase and
sale of portfolio securities and other investments for the Fund s
account with brokers or dealers selected by you in accordance
with Fund policies as expressed in the Registration Statement.
If any occasion should arise in which you give any advice to
clients of yours concerning the Shares of the Fund, you shall act
6
<PAGE> 7
solely as investment counsel for such clients and not in any way
on behalf of the Fund.
Your services to the Fund pursuant to this Agreement are not to
be deemed to be exclusive and it is understood that you may
render investment advice, management and services to others. In
acting under this Agreement, you shall be an independent
contractor and not an agent of the Trust. Whenever the Fund and
one or more other accounts or investment companies advised by you
have available funds for investment, investments suitable and
appropriate for each shall be allocated in accordance with
procedures believed by you to be equitable to each entity.
Similarly, opportunities to sell securities shall be allocated in
a manner believed by you to be equitable. The Fund recognizes
that in some cases this procedure may adversely affect the size
of the position that may be acquired or disposed of for the Fund.
7. Limitation of Liability of Manager. As an inducement to
your undertaking to render services pursuant to this Agreement,
the Trust agrees that you shall not be liable under this
Agreement for any error of judgment or mistake of law or for any
loss suffered by the Fund in connection with the matters to which
this Agreement relates, provided that nothing in this Agreement
shall be deemed to protect or purport to protect you against any
liability to the Trust, the Fund or its shareholders to which you
would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and
duties hereunder.
8. Duration and Termination of This Agreement. This Agreement
shall remain in force until December 1, 1998, and continue in
force from year to year thereafter, but only so long as such
continuance is specifically approved at least annually (a) by the
vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on
such approval, and (b) by the Trustees of the Trust, or by the
vote of a majority of the outstanding voting securities of the
Fund. The aforesaid requirement that continuance of this
Agreement be "specifically approved at least annually" shall be
construed in a manner consistent with the 1940 Act and the rules
and regulations thereunder and any applicable SEC exemptive order
therefrom.
This Agreement may be terminated with respect to the Fund at any
time, without the payment of any penalty, by the vote of a
majority of the outstanding voting securities of the Fund or by
the Trust's Board of Trustees on 60 days' written notice to you,
or by you on 60 days' written notice to the Trust. This
Agreement shall terminate automatically in the event of its
assignment.
7
<PAGE> 8
This Agreement may be terminated with respect to the Fund at any
time without the payment of any penalty by the Board of Trustees
or by vote of a majority of the outstanding voting securities of
the Fund in the event that it shall have been established by a
court of competent jurisdiction that you or any of your officers
or directors has taken any action which results in a breach of
your covenants set forth herein.
9. Amendment of this Agreement. No provision of this Agreement
may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against whom
enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective
until approved in a manner consistent with the 1940 Act and rules
and regulations thereunder and any applicable SEC exemptive order
therefrom.
10. Limitation of Liability for Claims. The Declaration, a copy
of which, together with all amendments thereto, is on file in the
Office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "Tax-Exempt California Money Market Fund"
refers to the Trustees under the Declaration collectively as
Trustees and not as individuals or personally, and that no
shareholder of the Fund, or Trustee, officer, employee or agent
of the Trust, shall be subject to claims against or obligations
of the Trust or of the Fund to any extent whatsoever, but that
the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of
liability as set forth in the Declaration and you agree that the
obligations assumed by the Trust on behalf of the Fund pursuant
to this Agreement shall be limited in all cases to the Fund and
its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund
or any other series of the Trust, or from any Trustee, officer,
employee or agent of the Trust. You understand that the rights
and obligations of each Fund, or series, under the Declaration
are separate and distinct from those of any and all other series.
11. Miscellaneous. The captions in this Agreement are included
for convenience of reference only and in no way define or limit
any of the provisions hereof or otherwise affect their
construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definitions
contained in Section 2(a) of the 1940 Act (particularly the
definitions of "affiliated person," "assignment" and "majority of
the outstanding voting securities"), as from time to time
8
<PAGE> 9
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,
TAX-EXEMPT CALIFORNIA MONEY MARKET
FUND, on behalf of Tax-Exempt
California Money Market Fund
By:
--------------------------------
Vice President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By:
--------------------------------
President
9
<PAGE> 1
EXHIBIT-99.B6
ADMINISTRATION, SHAREHOLDER SERVICES AND
DISTRIBUTION AGREEMENT
AGREEMENT made this 31st day of December, 1997, by and between
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND, a Massachusetts business
trust (the "Fund"), and KEMPER DISTRIBUTORS, INC., a Delaware
corporation ("KDI").
In consideration of the mutual covenants hereinafter contained,
it is hereby agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to act as administrator,
distributor and principal underwriter for the distribution of
shares of beneficial interest (hereinafter called "shares") of
the Fund in jurisdictions wherein shares of the Fund may legally
be offered for sale; provided, however, that the Fund in its
absolute discretion may (a) issue or sell shares directly to
holders of shares of the Fund upon such terms and conditions and
for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase
rights, the payment or reinvestment of dividends or
distributions, or otherwise; or (b) issue or sell shares at net
asset value to the shareholders of any other investment company,
for which KDI shall act as exclusive distributor, who wish to
exchange all or a portion of their investment in shares of such
other investment company for shares of the Fund.
KDI shall appoint various broker-dealers and other financial
services firms ("Firms") to provide a cash management service for
their clients through the Fund. The Firms shall provide such
office space and equipment, telephone facilities, personnel,
literature distribution, advertising and promotion as is
necessary or beneficial for providing information and services to
potential and existing shareholders of the Fund and to assist the
Fund's shareholder service agent in servicing accounts of the
Firm's clients who own Fund shares ("clients"). Such services and
assistance may include, but are not limited to, establishment and
maintenance of shareholder accounts and records, processing
purchase and redemption transactions, automatic investment in
Fund shares of client account cash balances, answering routine
client inquiries regarding the Fund, assistance to clients in
changing dividend options, account designations and addresses,
and such other services as the Fund or KDI may reasonably
request. KDI may also provide some of the above services for the
Fund directly.
KDI accepts such appointment and agrees during the term hereof to
render such services and to assume the obligations herein set
forth for the compensation herein provided. KDI shall for all
<PAGE> 2
purposes herein provided be deemed to be an independent
contractor and, unless otherwise expressly provided or
authorized, shall have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund. It
is understood and agreed that KDI, by separate agreement with the
Fund, may also serve the Fund in other capacities. The services
of KDI to the Fund under this Agreement are not to be deemed
exclusive, and KDI shall be free to render similar services or
other services to others.
In carrying out its duties and responsibilities hereunder, KDI
will, pursuant to separate administration services and selling
group agreements ("services agreements"), appoint various Firms
to provide administrative, distribution and other services
contemplated hereunder directly to or for the benefit of existing
and potential shareholders who may be clients of such Firms. Such
Firms shall at all times be deemed to be independent contractors
retained by KDI and not the Fund. KDI and not the Fund will be
responsible for the payment of compensation to such Firms for
such services.
KDI will use its best efforts with reasonable promptness to sell
such part of the authorized shares of the Fund remaining unissued
as from time to time shall be effectively registered under the
Securities Act of 1933 ("Securities Act"), at prices determined
as hereinafter provided and on terms hereinafter set forth, all
subject to applicable Federal and state laws and regulations and
to the Agreement and Declaration of Trust of the Fund. The price
the Fund shall receive for all shares purchased from the Fund
shall be the net asset value used in determining the public
offering price applicable to the sale of such shares.
2. KDI shall sell shares of the Fund to or through qualified
Firms in such manner, not inconsistent with the provisions hereof
and the then effective registration statement of the Fund under
the Securities Act (and related prospectus), as KDI may determine
from time to time, provided that no Firm or other person shall be
appointed or authorized to act as agent of the Fund without the
prior consent of the Fund. In addition to sales made by it as
agent of the Fund, KDI may, in its discretion, also sell shares
of the Fund as principal to persons with whom it does not have
services agreements.
Shares of the Fund offered for sale or sold by KDI shall be so
offered or sold at a price per share determined in accordance
with the then current prospectus relating to the sale of such
shares except as departure from such prices shall be permitted by
the rules and regulations of the Securities and Exchange
Commission; provided, however, that any public offering price for
shares of the Fund shall be the net asset value per share. The
net asset value per share of the Fund shall be determined in the
manner and at the times set forth in the then current prospectus
- 2 -
<PAGE> 3
of the Fund relating to such shares.
KDI will require each Firm to conform to the provisions hereof
and the Registration Statement (and related prospectus) at the
time in effect under the Securities Act with respect to the
public offering price of the Fund's shares, and neither KDI nor
any such Firms shall withhold the placing of purchase orders so
as to make a profit thereby.
3. The Fund will use its best efforts to keep effectively
registered under the Securities Act for sale as herein
contemplated such shares as KDI shall reasonably request and as
the Securities and Exchange Commission shall permit to be so
registered. Notwithstanding any other provision hereof, the Fund
may terminate, suspend or withdraw the offering of shares
whenever, in its sole discretion, it deems such action to be
desirable.
4. The Fund will execute any and all documents and furnish any
and all information which may be reasonably necessary in
connection with the qualification of its shares for sale
(including the qualification of the Fund as a dealer where
necessary or advisable) in such states as KDI may reasonably
request (it being understood that the Fund shall not be required
without its consent to comply with any requirement which in its
opinion is unduly burdensome). The Fund will furnish to KDI from
time to time such information with respect to the Fund and its
shares as KDI may reasonably request for use in connection with
the sale of shares of the Fund.
5. KDI shall issue and deliver or shall arrange for various
Firms to issue and deliver on behalf of the Fund such
confirmations of sales made by it as agent pursuant to this
Agreement as may be required. At or prior to the time of issuance
of shares, KDI will pay or cause to be paid to the Fund the
amount due the Fund for the sale of such shares. Certificates
shall be issued or shares registered on the transfer books of the
Fund in such names and denominations as KDI may specify.
6. KDI shall order shares of the Fund from the Fund only to the
extent that it shall have received purchase orders therefor. KDI
will not make, or authorize any Firms or others to make, any
short sales of shares of the Fund. KDI, as agent of and for the
account of the Fund, may repurchase the shares of the Fund at
such prices and upon such terms and conditions as shall be
specified in the current prospectus of the Fund. In selling or
reacquiring shares of the Fund for the account of the Fund, KDI
will in all respects conform to the requirements of all state and
Federal laws and the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., relating to such sale or
reacquisition, as the case may be, and will indemnify and save
harmless the Fund from any damage or expense on account of any
- 3 -
<PAGE> 4
wrongful act by KDI or any employee, representative or agent of
KDI. KDI will observe and be bound by all the provisions of the
Agreement and Declaration of Trust of the Fund (and of any
fundamental policies adopted by the Fund pursuant to the
Investment Company Act of 1940, notice of which shall have been
given to KDI) which at the time in any way require, limit,
restrict or prohibit or otherwise regulate any action on the part
of KDI.
7. The Fund shall assume and pay all charges and expenses of
its operations not specifically assumed or otherwise to be
provided by KDI under this Agreement. The Fund will pay or cause
to be paid expenses (including the fees and disbursements of its
own counsel) and all taxes and fees payable to the Federal, state
or other governmental agencies on account of the registration or
qualification of securities issued by the Fund or otherwise. The
Fund will also pay or cause to be paid expenses incident to the
issuance of shares of beneficial interest, such as the cost of
share certificates, issue taxes, and fees of the transfer agent.
KDI will pay all expenses (other than expenses which one or more
Firms may bear pursuant to any agreement with KDI) incident to
the sale and distribution of the shares issued or sold hereunder
including, without limiting the generality of the foregoing, all
expenses of printing and distributing any prospectus and of
preparing, printing and distributing or disseminating any other
literature, advertising and selling aids in connection with the
offering of the shares for sale (except that such expenses need
not include expenses incurred by the Fund in connection with the
preparation, typesetting, printing and distribution of any
registration statement, prospectus or report or other
communication to shareholders in their capacity as such) and
expenses of advertising in connection with such offering.
8. For the services and facilities described herein, the Fund
will pay to KDI at the end of each calendar month a distribution
services fee computed at an annual rate of .33% of the average
daily net assets of the Fund.
For the month and year in which this Agreement becomes effective
or terminates, there shall be an appropriate proration on the
basis of the number of days that the Agreement is in effect
during the month and year, respectively.
The net asset value of each series of shares of the Fund
("Portfolio") shall be calculated in accordance with the
provisions of the Fund's current prospectus. On each day when net
asset value is not calculated, the net asset value of a share of
any Portfolio shall be deemed to be the net asset value of such a
share as of the close of business on the last day on which such
calculation was made for the purpose of the foregoing
computations.
- 4 -
<PAGE> 5
9. KDI shall prepare reports for the Board of Trustees of the
Fund on a quarterly basis showing amounts paid to the various
Firms, the basis for any discretionary payments made to such
Firms and such other information as from time to time shall be
reasonably requested by the Board of Trustees.
This Agreement shall become effective on the date hereof and
shall continue until December 1, 1998 and shall continue from
year to year thereafter with respect to each Portfolio, but only
so long as such continuance is specifically approved for each
Portfolio at least annually by a vote of the Board of Trustees of
the Fund including the trustees who are not interested persons of
the Fund and who have no direct or indirect financial interest in
this Agreement or in any agreement related to this Agreement.
This Agreement may not be amended to increase the amount to be
paid to KDI for services hereunder without the vote of a majority
of the outstanding voting securities of each Portfolio of the
Fund. All material amendments to this Agreement must in any event
be approved by a vote of the Board of Trustees of the Fund
including the trustees who are not interested persons of the Fund
and who have no direct or indirect financial interest in this
Agreement or in any agreement related to this Agreement, cast in
person at a meeting called for such purpose.
10. This Agreement shall automatically terminate in the event of
its assignment and may be terminated at any time without the
payment of any penalty by the Fund or by KDI on sixty (60) days
written notice to the other party. The Fund may effect
termination with respect to any Portfolio by a vote of (i) a
majority of the Board of Trustees, (ii) a majority of the
trustees who are not interested persons of the Fund and who have
no direct or indirect financial interest in this Agreement or in
any agreement related to this Agreement, or (iii) a majority of
the outstanding voting securities of a Portfolio.
The terms "assignment", "interested" and "vote of a majority of
the outstanding voting securities" shall have the meanings set
forth in the Investment Company Act of 1940 and the rules and
regulations thereunder.
Termination of this Agreement shall not affect the right of KDI
to receive payments on any unpaid balance of the compensation
described in Section 8 earned prior to such termination.
11. KDI will not use or distribute or authorize the use,
distribution or dissemination by Firms or others in connection
with the sale of the shares any statements, other than those
contained in the Fund's current prospectus, except such
supplemental literature or advertising as shall be lawful under
Federal and state securities laws and regulations, and will
furnish the Fund with copies of all such material.
- 5 -
<PAGE> 6
12. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the
remainder shall not be thereby affected.
13. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other
party at such address as such other party may designate for the
receipt of such notice.
14. All parties hereto are expressly put on notice of the Fund's
Agreement and Declaration of Trust and all amendments thereto,
all of which are on file with the Secretary of The Commonwealth
of Massachusetts, and the limitation of shareholder and trustee
liability contained therein. This Agreement has been executed by
and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the
Fund hereunder are not binding upon any of the trustees, officers
or shareholders of the Fund individually but are binding upon
only the assets and property of the Fund. With respect to any
claim by KDI for recovery of that portion of the distribution
services fees (or any other liability of the Fund arising
hereunder) allocated to a particular Portfolio, whether in
accordance with the express terms hereof or otherwise, KDI shall
have recourse solely against the assets of that Portfolio to
satisfy such claim and shall have no recourse against the assets
of any other Portfolio for such purpose.
15. This Agreement shall be construed in accordance with
applicable federal law and the laws of The Commonwealth of
Massachusetts.
- 6 -
<PAGE> 7
16. This Agreement is the entire contract between the parties
relating to the subject matter hereof and supersedes all prior
agreements between the parties relating to the subject matter
hereof.
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement
to be executed as of the day and year first above written.
TAX-EXEMPT CALIFORNIA
MONEY MARKET FUND
By: /s/ John E. Neal
-------------------------
Title: Vice President
----------------------
ATTEST:
/s/ Philip J. Collora
---------------------
Title: Secretary
---------------
KEMPER DISTRIBUTORS, INC.
By: /s/ James L. Greenawalt
-------------------------
Title: President
----------------------
ATTEST:
/s/ Charles R. Manzoni
----------------------
Title: Secretary
----------------
- 7 -
<PAGE> 1
EXHIBIT-99.B9(c)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 31st day of December, 1997 between
Tax-Exempt California Money Market Fund (the "Fund"), on behalf
of the Initial Portfolio (hereinafter called the "Portfolio"), a
registered open-end management investment company with its
principal place of business in 222 South Riverside Plaza,
Chicago, Illinois 60606 and Scudder Fund Accounting
Corporation, with its principal place of business in Boston,
Massachusetts (hereinafter called "FUND ACCOUNTING").
WHEREAS, the Portfolio has need to determine its net asset value
which service FUND ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein
made, the Fund and FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of
this Agreement to calculate the net asset value of the
Portfolio as provided in the prospectus of the Portfolio and
in connection therewith shall:
a. Maintain and preserve all accounts, books, financial
records and other documents as are required of the Fund under
Section 31 of the Investment Company Act of 1940 (the "1940 Act")
and Rules 31a-1, 31a-2 and 31a-3 thereunder, applicable federal and
state laws and any other law or administrative rules or procedures
which may be applicable to the Fund on behalf of the Portfolio,
other than those accounts, books and financial records required to
be maintained by the Fund's investment adviser, custodian or
transfer agent and/or books and records maintained by all other
service providers necessary for the Fund to conduct its business as
a registered open-end management investment company. All such
books and records shall be the property of the Fund and shall at
all times during regular business hours be open for inspection by,
and shall be surrendered promptly upon request of, duly authorized
officers of the Fund. All such books and records shall at all
times during regular business hours be open for inspection, upon
request of duly authorized officers of the Fund, by employees or
agents of the Fund and employees and agents of the Securities and
Exchange Commission.
b. Record the current day's trading activity
and such other proper bookkeeping entries as are necessary for
determining that day's net asset value and net income.
<PAGE> 2
c. Render statements or copies of records as from time to
time are reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent
public accountants or by any other auditors employed or engaged
by the Fund or by any regulatory body with jurisdiction over the
Fund.
e. Compute the Portfolio's public offering price and/or
its daily dividend rates and money market yields, if
applicable, in accordance with Section 3 of the Agreement and
notify the Fund and such other persons as the Fund may reasonably
request of the net asset value per share, the public offering price
and/or its daily dividend rates and money market yields.
f. Perform a mark-to-market appraisal in accordance with
procedures by the Board of Trustees pursuant to Rule
2a-7 under the 1940 Act.
Section 2. Valuation of Securities
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time
to time (hereinafter referred to as the "Registration
Statement"); (b) the resolutions of the Board of Trustees of
the Fund at the time in force and applicable, as they may
from time to time be delivered to FUND ACCOUNTING, and (c)
Proper Instructions from such officers of the Fund or other
persons as are from time to time authorized by the Board of
Trustees of the Fund to give instructions with respect to
computation and determination of the net asset value. FUND
ACCOUNTING may use one or more external pricing services,
including broker-dealers, provided that an appropriate
officer of the Fund shall have approved such use in advance.
Section 3. Computation of Net Asset Value, Public Offering
Price, Daily Dividend Rates and Yields
FUND ACCOUNTING shall compute the Portfolio's net asset
value, including net income, in a manner consistent with the
specific provisions of the Registration Statement. Such
computation shall be made as of the time or times specified
in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and
money market yields, if applicable, in accordance with the
methodology set forth in the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Portfolio's books of account and making
the necessary computations FUND ACCOUNTING shall be entitled
to receive, and may rely upon, information furnished it by
means of Proper Instructions, including but not limited to:
2
<PAGE> 3
a. The manner and amount of accrual of expenses to be
recorded on the books of the Portfolio;
b. The source of quotations to be used for such securities
as may not be available through FUND ACCOUNTING's
normal pricing services;
c. The value to be assigned to any asset for which no
price quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary;
e. Transactions in portfolio securities;
f. Transactions in capital shares.
FUND ACCOUNTING shall be entitled to receive, and shall be
entitled to rely upon, as conclusive proof of any fact or
matter required to be ascertained by it hereunder, a
certificate, letter or other instrument signed by an
authorized officer of the Fund or any other person
authorized by the Fund's Board of Trustees.
FUND ACCOUNTING shall be entitled to receive and act upon
advice of Counsel for the Fund at the reasonable expense of
the Portfolio and shall be without liability for any action
taken or thing done in good faith in reliance upon such
advice.
FUND ACCOUNTING shall be entitled to receive, and may rely
upon, information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein means any certificate,
letter or other instrument or telephone call reasonably
believed by FUND ACCOUNTING to be genuine and to have been
properly made or signed by any authorized officer of the
Fund or person certified to FUND ACCOUNTING as being
authorized by the Board of Trustees. The Fund, on behalf of
the Portfolio, shall cause oral instructions to be confirmed
in writing. Proper Instructions may include communications
effected directly between electro-mechanical or electronic
devices as from time to time agreed to by an authorized
officer of the Fund and FUND ACCOUNTING.
The Fund, on behalf of the Portfolio, agrees to furnish to
the appropriate person(s) within FUND ACCOUNTING a copy of
the Registration Statement as in effect from time to time.
FUND ACCOUNTING may conclusively rely on the Fund's most
recently delivered Registration Statement for all purposes
under this Agreement and shall not be liable to the
Portfolio or the Fund in acting in reliance thereon.
3
<PAGE> 4
Section 6. Standard of Care
FUND ACCOUNTING shall exercise reasonable care and diligence
in the performance of its duties hereunder. The Fund agrees
that FUND ACCOUNTING shall not be liable under this
Agreement for any error of judgment or mistake of law made
in good faith and consistent with the foregoing standard of
care, provided that nothing in this Agreement shall be
deemed to protect or purport to protect FUND ACCOUNTING
against any liability to the Fund, the Portfolio or its
shareholders to which FUND ACCOUNTING would otherwise be
subject by reason of willful misfeasance, bad faith or
negligence in the performance of its duties, or by reason of
its reckless disregard of its obligations and duties
hereunder.
Section 7. Compensation and FUND ACCOUNTING Expenses
FUND ACCOUNTING shall be paid as compensation for its
services pursuant to this Agreement such compensation as may
from time to time be agreed upon in writing by the two
parties. FUND ACCOUNTING shall be entitled, if agreed to by
the Fund on behalf of the Portfolio, to recover its
reasonable telephone, courier or delivery service, and all
other reasonable out-of-pocket, expenses as incurred,
including, without limitation, reasonable attorneys' fees
and reasonable fees for pricing services.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until
terminated as hereinafter provided, may be amended at any
time by mutual agreement of the parties hereto and may be
terminated by an instrument in writing delivered or mailed
to the other party. Such termination shall take effect not
sooner than sixty (60) days after the date of delivery or
mailing of such notice of termination. Any termination date
is to be no earlier than four months from the effective date
hereof. Upon termination, FUND ACCOUNTING will turn over to
the Fund or its designee and cease to retain in FUND
ACCOUNTING files, records of the calculations of net asset
value and all other records pertaining to its services
hereunder; provided, however, FUND ACCOUNTING in its
discretion may make and retain copies of any and all such
records and documents which it determines appropriate or for
its protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are
not to be deemed to be exclusive, and it is understood that
FUND ACCOUNTING may perform fund accounting services for
4
<PAGE> 5
others. In acting under this Agreement, FUND ACCOUNTING
shall be an independent contractor and not an agent of the
Fund or the Portfolio.
Section 10. Limitation of Liability for Claims
The Fund's Amended and Restated Declaration of Trust, as
amended to date (the "Declaration"), a copy of which,
together with all amendments thereto, is on file in the
Office of the Secretary of State of the Commonwealth of
Massachusetts, provides that the name "Tax-Exempt California
Money Market Fund" refers to the Trustees under the
Declaration collectively as trustees and not as individuals
or personally, and that no shareholder of the Fund or the
Portfolio, or Trustee, officer, employee or agent of the
Fund shall be subject to claims against or obligations of
the Trust or of the Portfolio to any extent whatsoever, but
that the Trust estate only shall be liable.
FUND ACCOUNTING is expressly put on notice of the limitation
of liability as set forth in the Declaration and FUND
ACCOUNTING agrees that the obligations assumed by the Fund
and/or the Portfolio under this Agreement shall be limited
in all cases to the Portfolio and its assets, and FUND
ACCOUNTING shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the
Fund or the Portfolio or any other series of the Fund, or
from any Trustee, officer, employee or agent of the Fund.
FUND ACCOUNTING understands that the rights and obligations
of the Portfolio under the Declaration are separate and
distinct from those of any and all other series of the Fund.
Section 11. Notices
Any notice shall be sufficiently given when delivered or
mailed to the other party at the address of such party set
forth below or to such other person or at such other address
as such party may from time to time specify in writing to
the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Attn: Vice President
If to the Fund - Portfolio: Tax-Exempt California Money
Market Fund
222 South Riverside Plaza
Chicago, Illinois 60606
Attn: President, Secretary
or Treasurer
5
<PAGE> 6
Section 12. Miscellaneous
This Agreement may not be assigned by FUND ACCOUNTING
without the consent of the Fund as authorized or approved by
resolution of its Board of Trustees.
In connection with the operation of this Agreement, the Fund
and FUND ACCOUNTING may agree from time to time on such
provisions interpretive of or in addition to the provisions
of this Agreement as in their joint opinions may be
consistent with this Agreement. Any such interpretive or
additional provisions shall be in writing, signed by both
parties and annexed hereto, but no such provisions shall be
deemed to be an amendment of this Agreement.
This Agreement shall be governed and construed in accordance
with the laws of the Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
This Agreement constitutes the entire agreement between the
parties concerning the subject matter hereof, and supersedes
any and all prior understandings.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly
authorized and its seal to be hereunder affixed as of the date
first written above.
[SEAL] TAX-EXEMPT CALIFORNIA MONEY
MARKET FUND
on behalf of the Initial Portfolio
By:-------------------------------
President
[SEAL] SCUDDER FUND ACCOUNTING CORPORATION
By:--------------------------------
Vice President
7
<PAGE> 1
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Tax-Exempt California Money Market Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Tax-Exempt California Money Market Fund as of
September 30, 1997, and the related statements of operations for the year then
ended and changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the fiscal periods since 1987.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of September 30, 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
Tax-Exempt California Money Market Fund at September 30, 1997, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the fiscal periods since 1987, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 18, 1997
<PAGE> 2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors and Reports to Shareholders" and to the
use of our report dated November 18, 1997 in the Registration Statement (Form
N-1A) and its incorporation by reference in the related Prospectus and
Statement of Additional Information of Tax-Exempt California Money Market Fund,
filed with the Securities and Exchange Commission in this Post-Effective
Amendment No. 11 to the Registration Statement under the Securities Act of 1933
(File No. 33-12938) and in this Amendment No. 12 to the Registration Statement
under the Investment Company Act of 1940 (File No. 811-5076).
ERNST & YOUNG LLP
Chicago, Illinois
January 16, 1998
<PAGE> 1
EXHIBIT 99.B24
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Tax-Exempt California Money
Market Fund.
Signature Title Date
/s/ Daniel Pierce Trustee 1/26/98
------------------------
Daniel Pierce
<PAGE> 2
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Tax-Exempt California Money
Market Fund.
Signature Title Date
/s/ David Belin Trustee 1/26/98
------------------------
David Belin
<PAGE> 3
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Tax-Exempt California Money
Market Fund.
Signature Title Date
/s/ Lewis A. Burnham Trustee 1/26/98
------------------------
Lewis A. Burnham
<PAGE> 4
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Tax-Exempt California Money
Market Fund.
Signature Title Date
/s/ Donald L. Dunaway Trustee 1/26/98
------------------------
Donald L. Dunaway
<PAGE> 5
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Tax-Exempt California Money
Market Fund.
Signature Title Date
/s/ Robert B. Hoffman Trustee 1/26/98
------------------------
Robert B. Hoffman
<PAGE> 6
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Tax-Exempt California Money
Market Fund.
Signature Title Date
/s/ Donald R. Jones Trustee 1/26/98
------------------------
Donald R. Jones
<PAGE> 7
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Tax-Exempt California Money
Market Fund.
Signature Title Date
/s/ Shirley D. Peterson Trustee 1/26/98
------------------------
Shirley D. Peterson
<PAGE> 8
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Tax-Exempt California Money
Market Fund.
Signature Title Date
/s/ William P. Sommers Trustee 1/26/98
------------------------
William P. Sommers
<PAGE> 9
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Kathryn L.
Quirk, Caroline Pearson, and Philip J. Collora and each of them, any of whom
may act without the joinder of the others, as such person's attorney-in-fact to
sign and file on such person's behalf individually and in the capacity stated
below such registration statements, amendments, post-effective amendments,
exhibits, applications and other documents with the Securities and Exchange
Commission or any other regulatory authority as may be desirable or necessary
in connection with the public offering of shares of Tax-Exempt California Money
Market Fund.
Signature Title Date
/s/ Edmond D. Villani Trustee 1/26/98
------------------------
Edmond D. Villani
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1997
ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000811911
<NAME> TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 117,614
<INVESTMENTS-AT-VALUE> 117,614
<RECEIVABLES> 796
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 118,410
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 978
<TOTAL-LIABILITIES> 978
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 117,432
<SHARES-COMMON-STOCK> 117,432
<SHARES-COMMON-PRIOR> 118,884
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 117,432
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,052
<OTHER-INCOME> 0
<EXPENSES-NET> (451)
<NET-INVESTMENT-INCOME> 1,601
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,601
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,601)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 282,125
<NUMBER-OF-SHARES-REDEEMED> (285,160)
<SHARES-REINVESTED> 1,583
<NET-CHANGE-IN-ASSETS> (1,452)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 127
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 451
<AVERAGE-NET-ASSETS> 57,679
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE> 1
[VEDDER, PRICE, KAUFMAN & KAMMHOLZ LETTERHEAD]
January 26, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Tax-Exempt California Money Market Fund
To The Commission:
We are counsel to the above-referenced investment company (the "Fund")
and as such have participated in the preparation and review of Post-Effective
Amendment No. 11 to the Fund's registration statement being filed pursuant to
Rule 485(b) under the Securities Act of 1933. In accordance with paragraph
(b)(4) of Rule 485 and in reliance upon the oral approval of the staff of the
Commission, acting on behalf of the Commission, under Rule 485(b)(l)(ix) for
certain of the disclosures to be contained in the amendment, we hereby
represent that such amendment does not contain disclosures that would render it
ineligible to become effective pursuant to paragraph (b) thereof.
Very truly yours,
/s/ VEDDER, PRICE, KAUFMAN & KAMMHOLZ
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
