Filed electronically with the Securities and Exchange Commission
on November 19, 1999
File No. 33-12938
File No. 811-5076
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 13
---- / X /
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 14
---- / X /
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
---------------------------------------
(Exact Name of Registrant as Specified in Charter)
222 South Riverside Plaza, Chicago, Illinois
--------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 537-7000
Philip J. Collora, Vice President and Secretary
Scudder Kemper Investments, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606
-----------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/ / Immediately upon filing pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (1)
/ / 75 days after filing pursuant to paragraph (a) (2)
/ / On __________________ pursuant to paragraph (b)
/ X / On February 1, 2000 pursuant to paragraph (a) (1)
/ / On __________________ 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>
February 1, 2000
Prospectus
TAX-EXEMPT CALIFORNIA
MONEY MARKET FUND
As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.
THE FUND AND ITS
PORTFOLIO
2 The Fund's Goal And Strategy
3 The Risks Of Investing In
The Fund
4 Performance
5 How Much Investors Pay
6 Other Policies And Risks
7 Management Team
8 Financial Highlights
YOUR INVESTMENT IN THE FUND
10 Policies You Should Know About
18 Understanding Distributions
And Taxes
Ticker Symbol TXCXX
Tax-Exempt California
Money Market Fund
The Fund's Goal and Strategy
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. It
does this by investing at least 65% of total assets in California municipal
securities. Normally, the fund invests between 80% and 100% of its total assets
in tax-exempt California municipal securities.
The fund may buy many types of municipal securities, including industrial
development bonds, but any security the fund buys has to meet the standards for
money market fund investments (see sidebar).
Working in conjunction with credit analysts, the portfolio managers screen
potential securities and develop a list of those that the fund may buy. The
managers then decide which securities on this list to buy, looking for
attractive yield and weighing considerations such as credit quality, economic
outlook and possible interest rate movements. The managers may adjust the fund's
exposure to interest rate risk, typically seeking to take advantage of possible
rises in interest rates and to preserve yield when interest rates appear likely
to fall.
MONEY FUND RULES
<PAGE>
To be called a money market fund, a mutual fund must operate within strict
federal rules. Designed to help maintain a stable $1.00 share price, these rules
limit money funds to particular types of securities. Some of the rules:
o individual securities must have remaining maturities of no more than 397 days
o the dollar-weighted average maturity of the fund's holdings cannot exceed 90
days
o all securities must be in the top two credit grades for short-term debt
securities and be denominated in U.S. dollars
The Risks Of Investing In The Fund
Money market funds are generally considered to have lower risks than other types
of mutual funds. Even so, there are several risk factors that could reduce the
yield you get from the fund or make it perform less well than other investments.
Although the fund seeks to preserve the value of your investment at $1.00 per
share, this share price isn't guaranteed and you could lose money by investing
in the fund.
As with most money market funds, the most important factor is market interest
rates. The fund's yield tends to reflect current interest rates, which means
that when these rates fall, the fund's yield generally falls as well.
A second factor is credit quality. If a portfolio security declines in credit
quality or goes into default, it could hurt fund performance. The fact that the
fund invests primarily in securities from a single state increases this risk,
because any factors affecting the state or region, such as economic or fiscal
problems, could affect portfolio securities. For example, California residents'
high sensitivity to taxes could make it hard to raise taxes in order to meet
obligations, or the state's economy could be hurt by natural disasters. In
addition, industrial development bonds in which the fund invests are typically
backed by revenues from a given facility and by the credit of a private company,
but are not backed by the taxing power of a municipality.
Other factors that could affect performance include:
o the managers could be incorrect in their analysis of interest rate trends,
credit quality or other matters
o securities that rely on third-party insurers to raise their credit quality
could fall in price or go into default if the financial condition of the insurer
deteriorates
o political or legal actions could change the way the fund's dividends are taxed
Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency.
This fund may appeal to California taxpayers who are in a moderate to high tax
bracket and who are looking for the income, liquidity, and stability that a
money fund is designed to offer.
Performance
The bar chart shows how the fund's total returns have varied from year to year,
which may give some idea of risk. The table shows how the fund's returns over
different periods average out. All figures on this page assume reinvestment of
dividends and distributions. As always, past performance is no guarantee of
future results.
<PAGE>
Annual Total Returns (%) as of 12/31 each year
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best quarter: 0.00%, Q0 1990 YTD return as of 9/30/1999: 0.00%
Worst quarter: -0.00%, Q0 1990
Average Annual Total Returns as of 12/31/1999
1 Year 5 Years 10 Years
To find out the fund's current seven-day yield, call 1-(800) 231-8568.
How Much Investors Pay
This is a no-load fund. It has no sales charges or other shareholder fees. The
fund does have annual operating expenses, and as a shareholder you pay them
indirectly.
Fee Table
Shareholder Fees (%) (paid directly from your investment) None
Annual Operating Expenses (%) (deducted from fund assets)
Management Fee 0.00%
Distribution (12b-1) Fee 0.00
Other Expenses* 0.00
Total Annual Operating Expenses 0.00
* Includes costs of shareholder servicing, custody, accounting services and
similar expenses, which may vary with fund size and other factors.
Based on the costs in the fee table, the example is designed to help you compare
the this fund's expenses to those of other funds. The example assumes you
invested $10,000, earned 5 percent annual returns and reinvested all dividends
and distributions. This is only an example; actual expenses will be different.
Example
1 Year 3 Years 5 Years 10 Years
$0,000 $0,000 $0,000 $0,000
Other Policies And Risks
While the previous pages describe the main points of the fund's strategy and
risks, there are a few other issues to know about:
o As a temporary defensive measure, the fund could shift up to 100% of assets
into investments such as taxable money market securities. This would mean that
the fund was not pursuing its goal.
o The investment advisor establishes a security's credit grade when it buys the
security, using independent ratings or, for unrated securities, its own credit
analysis. When ratings don't agree, a fund may use the higher rating. If a
security's credit quality falls, the advisor will determine whether selling it
would be in the shareholders' best interest.
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
Year 2000 Readiness
<PAGE>
Like all mutual funds, this fund could be affected by the inability of some
computer systems to recognize the year 2000. The advisor has a year 2000
readiness program designed to address this problem, and has researched the
readiness of suppliers and business partners as well as issuers of securities
the fund owns. Still, there's some risk that the year 2000 problem could
materially affect the fund's operations (such as its ability to calculate net
asset value and to handle purchases and redemptions), its investments or
securities markets in general.
This prospectus doesn't tell you about every policy or risk of investing in the
fund.
For more information on these, you may want to request a copy of the Statement
of Additional Information (the back cover has information on how to do this).
Who Manages the Fund
The Investment Advisor
The investment advisor for the fund is Scudder Kemper Investments, Inc., 345
Park Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years of
experience managing mutual funds, and currently has more than $xxx billion in
assets under management.
The fund is managed by a team of investment professionals, who individually
represent different areas of expertise and who together develop investment
strategies and make buy and sell decisions. Supporting the fund managers are
Scudder Kemper's many economists, research analysts, traders, and other
investment specialists, located in offices across the United States and around
the world.
As payment for serving as investment advisor, Scudder Kemper receives a
management fee from the fund. For the 12 months through the most recent fiscal
year end, the actual amount the fund paid in management fees was ______% of
average daily net assets.
The Portfolio Manager
The portfolio managers handle the day-to-day management of the funds. The lead
manager for the fund is Frank Rachwalski Jr.. Mr. Rachwalski began his
investment career when he joined the advisor in 1973.
Financial Highlights
This table is designed to help you understand the fund's financial performance
in recent years. The figures in the first part of the table are for a single
share. The total return figures represent the percentage that an investor in a
particular fund would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by Ernst &
Young LLP, whose report, along with the fund's financial statements, is included
in the annual report (see "Shareholder reports" on the back cover).
Tax-Exempt California Money Market Fund
<TABLE>
<CAPTION>
Years ended September 30, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $00.00 $00.00 $00.00 $00.00 $00.00
Net investment income .00 .00 .00 .00 .00
Distributions from net
investment income .00 .00 .00 .00 .00
<PAGE>
Net asset value, end of period 00.00 00.00 00.00 00.00 00.00
Total return 00.00 00.00 00.00 00.00 00.00
Ratios and supplemental data
Net assets, end of period ($millions) 0,000 0,000 0,000 0,000 0,000
Ratio of operating expenses to
average daily net assets (%) 00 .00 .00 .00 .00
Ratio of investment income to
average daily net assets (%) .00 0.00 0.00 0.00 0.00
</TABLE>
YOUR INVESTMENT IN THE FUND
The following pages describe the main policies associated with buying and
selling shares of the fund. There is also information on dividends and taxes and
other matters that may affect you as a fund shareholder.
Because this fund is available only through an investment provider, such as a
financial institution or workplace retirement plan, you should contact a
representative of your investment provider for instructions on how to buy or
sell fund shares.
Policies You Should Know About
The policies below may affect you as a shareholder. In any case where materials
provided by your investment provider contradict the information given here, you
should follow the information in your provider's materials. Please note that an
investment provider may charge its own fees.
Rule 12b-1 Plan
The fund has adopted a plan under Rule 12b-1 that provides for fees payable as
an expense of the fund that are used by Kemper Distributors, Inc., as principal
underwriter, to pay for distribution and other services. Because 12b-1 fees are
paid out of fund assets on an ongoing basis, they will, over time, increase the
cost of investment and may cost more than other types of sales charges.
Policies about transactions
The fund is open for business each day the New York Stock Exchange is open.
Normally, the fund calculates its share price three times every business day:
o 11 a.m. Central time
o as of the close of regular trading on the Exchange (typically 3 p.m.
Central time, but sometimes earlier, as in the case of scheduled half-day
trading or unscheduled suspensions of trading)
o 8 p.m. Central time
The fund may also be open, and may calculate its share price, on any other day
where both of these cases apply:
o there is enough trading in the fund's investments that its net asset
value might be affected
o the fund has received orders to buy or sell shares
<PAGE>
You can place an order to buy or sell shares at any time. Once your order is
received by Kemper Service Company, and they have determined that it is a "good
order," it will be processed at the next share price calculated.
Because orders placed through investment providers must be forwarded to Kemper
Service Company before they can be processed, you'll need to allow extra time. A
representive of your investment provider should be able to tell you when your
order will be processed.
Wire transactions that arrive by 11 a.m. Central time will receive that day's
dividend. Wire transactions received between 11 a.m. Central time and 3 p.m.
central time will start to accrue dividends the next business day. Investment by
check will be effective at 3 p.m. Central time on the business day following
receipt and will earn dividends the following calendar day.
When selling shares, you'll generally receive the dividend for the day on which
your shares were sold. If we receive a sell request before 11 a.m. Central time
and the request calls for proceeds to be sent out by wire, we will normally wire
you the proceeds on the same day. However, you won't receive that day's
dividend.
When you want to sell more than $50,000 worth of shares, or have the proceeds
sent to someone other than the shareholder of record at the address of record,
you'll usually need to place your order in writing and include a signature
guarantee. The only exception is if you want money wired to a bank account that
is already on file with us; in that case, you don't need a signature guarantee.
Also, you don't need a signature guarantee for an exchange, although we may
require one in certain other circumstances.
A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokerages
and most banks, savings institutions and credit unions. Note that you can't get
a signature guarantee from a notary public.
If you purchased your shares from the fund's transfer agent, you can sell them
by sending a written request (with a signature guarantee) to:
Kemper Funds
Attention: Redemption Department
P.O. Box 419557
Kansas City, MO 64141-6557
Money from shares you sell is normally sent out within one business day of when
your order is received in good order, although it could be delayed for up to
seven days. There are also two circumstances when it could be longer: when you
are selling shares you bought recently by check and that check hasn't cleared
yet (maximum delay: ten days) or when unusual circumstances prompt the SEC to
allow further delays.
Minimum investments are as follows:
o Minimum initial investment: $1,000
o Minimum additional investment: $100
o Minimum investment with an automatic investment plan: $50
Share certificates are available on written request. However, we don't recommend
them unless you want them for a specific purpose, because they can only be sold
by mailing them in, and if they're ever lost they're difficult and expensive to
replace.
<PAGE>
How the funds calculate share price
The fund's share price is its net asset value per share, or NAV. To calculate
NAV, the fund uses the following equation:
Total assets - Total liabilities /
Total number of shares outstanding
= NAV
In valuing securities, we typically use the amortized cost method (the method
used by most money market funds). However, when a market price isn't available,
or when we have reason to believe it doesn't represent market realities, we may
use fair value methods approved by the fund's board. In such a case, the fund's
value for a security is likely to be different from the quoted market price.
Other rights we reserve
You should be aware that we may do any of the following:
o withhold 31 percent of your distributions as federal income tax if you have
been notified by the IRS that you are subject to backup withholding, or if you
fail to provide us with a correct taxpayer ID number or certification that you
are exempt from backup withholding
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been opened, we may
give you 30 days' notice to provide the correct number
o close your account and send you the proceeds if your balance falls below
$1,000; we will give you 60 days' notice so you can either increase your balance
or close your account (this policy doesn't apply to most retirement accounts or
if you have an automatic investment plan)
o pay you for shares you sell by "redeeming in kind," that is,
by giving you marketable securities (which typically will involve brokerage
costs for you to liquidate) rather than cash; in most cases, a fund won't make a
redemption in kind unless your requests over a 90-day period total more than
$250,000 or 1 percent of the fund's assets, whichever is less
o change, add or withdraw various services, fees and account policies
o reject or limit purchases of shares for any reason
o withdraw or suspend any part of the offering made by this prospectus
Understanding Distributions And Taxes
By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.
The fund intends to declare income dividends daily, and pay them monthly. The
fund may make short- or long-term capital gains distributions in November or
December, and may make additional distributions for tax purposes if necessary.
<PAGE>
You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares (at NAV) or all sent to you by
check. Tell us your preference on your application. If you don't indicate a
preference, your dividends and distributions will all be reinvested.
Because each shareholder's tax situation is unique, it's always a good idea to
ask your tax professional about the tax consequences of your investments,
including any state and local tax consequences.
Dividends from the fund are generally tax-free for most shareholders, meaning
that investors can receive them without incurring federal and California state
income tax liability. However, there are a few exceptions:
o a portion of the fund's dividends may be taxable as a ordinary income if it
came from investments in taxable securities
o because the fund can invest up to 20% of net assets in securities whose income
is subject to the federal alternative minimum tax (AMT), you may owe taxes on a
portion of your dividends if you are among those investors who must pay AMT
o income may be subject to local tax and tax from states other than California
The following tables show the usual tax status of transactions in fund shares as
well as that of any taxable distribution from the fund:
Generally taxed at ordinary income rates
o short-term capital gains from selling fund shares
o income dividends you receive from the fund
o short-term capital gains distributions received from the fund
Generally taxed at capital gains rates
o long-term capital gains from selling fund shares
o long-term capital gains distributions received from the fund
The fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.
To Get More Information
Shareholder reports -- These include commentary from the fund's management team
about recent market conditions and the effects of the fund's strategies on its
performance. They also have detailed performance figures, a list of everything
the fund owns and the fund's financial statements. Shareholders get these
reports automatically. To reduce costs, we mail one copy per household. For more
copies, call (800) 231-8568.
Statement of Additional Information (SAI) -- This tells you more about the
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's legally part of
this prospectus). If you'd like to ask for copies of these documents, or if
you're a shareholder and have questions, please contact Kemper Funds or the SEC
(see below). Materials you get from Kemper are free; those from the SEC involve
a copying fee. If you like, you can look over these materials in person at the
SEC's Public Reference Room in Washington, DC.
<PAGE>
SEC
450 Fifth Street, N.W.
Washington, DC 20549-6009
www.sec.gov
Tel (800) SEC-0330
Kemper Funds
811 Main Street
Kansas City, Missouri 64105
www.kemper.com
Tel (800) 231-8568
SEC File Number
Tax-Exempt California
Money Market Fund 811-5706
PRINCIPAL UNDERWRITER
Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048
XXXX-0 (2/1/00) 000000
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
February 1, 2000
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, 2000. The prospectus may be obtained without
charge from the Fund by calling or writing the firm from which the prospectus
was obtained, and is also available, along with other related materials, on the
SEC's Internet web site (http://www.sec.gov).
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS..................................................6
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS..........................8
MUNICIPAL SECURITIES....................................................10
INVESTMENT ADVISER AND SHAREHOLDER SERVICES.............................13
PORTFOLIO TRANSACTIONS..................................................17
PURCHASE AND REDEMPTION OF SHARES.......................................18
DIVIDENDS, NET ASSET VALUE AND TAXES....................................20
PERFORMANCE.............................................................21
OFFICERS AND TRUSTEES...................................................25
SPECIAL FEATURES........................................................27
SHAREHOLDER RIGHTS......................................................28
APPENDIX -- RATINGS OF INVESTMENTS......................................30
The financial statements appearing in the Fund's Annual Report to Shareholders
dated September 30, 1999 are incorporated herein by reference. The Fund's Annual
Report to Shareholders accompanies this Statement of Additional Information.
<PAGE>
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, as amended (the "1940 Act"), 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 has elected to be classified as a diversified series of an open-end
investment company.
<PAGE>
In addition, as a matter of fundamental policy, 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 Fund 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.
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.
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
Descriptions in this Statement of Additional Information of a particular
investment practice or technique in which the Fund may engage or a financial
instrument which the Fund may purchase are meant to describe the spectrum of
investments that Scudder Kemper Investments, Inc. (the "Adviser"), in its
discretion, might, but is not required to, use in managing the Fund's assets.
The Adviser may, in its discretion, at any time, employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund, but, to the extent employed, could, from time to time, have a material
impact on the Fund's performance.
The Fund described in this Statement of Additional Information seeks to maintain
a net asset value of $1.00 per share.
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, Net Asset Value 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, Net Asset Value 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 adviser 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").
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.
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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
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, Net Asset Value and Taxes."
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 must meet the diversification requirements of Rule 2a-7 under the 1940
Act. Rule 2a-7 currently provides that a single state money fund shall not, as
to 75% of its total 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.
Master/Feeder Fund Structure. The Board of Trustees has the discretion to retain
the current distribution arrangements for the Fund while investing in a master
fund in a master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder fund"), instead
of investing directly in a portfolio of securities, invests most or all of its
investment assets in a separate registered investment company (the "master
fund") with substantially the same investment objective and policies as the
feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
<PAGE>
MUNICIPAL SECURITIES
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 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.
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
adviser 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 adviser 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 adviser considers these factors as well as others,
such as any quality ratings issued by the rating services identified above, in
reviewing the credit risk presented by a Certificate of Participation and in
determining whether the Certificate of Participation is appropriate for
investment by the Fund. The Fund's investment adviser 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.
<PAGE>
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
that 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.
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 adviser. 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.
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.
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
<PAGE>
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.
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 brief summary,
does not purport to be a complete description, and is based upon information
from official statements relating to securities offerings of the state of
California and various California issuers. [THIS STATE-SPECIFIC SECTION TO BE
UPDATED BY OUTSIDE COUNSEL]
As described in the Fund's prospectus, the Fund will invest in bonds issued by
the State of California or its political subdivisions. The Fund is therefore
subject to various statutory, political and economic factors unique to the State
of California. Discussed below are some of the more significant factors that
could affect the ability of the bond issuers to repay interest and principal on
California securities owned by the Fund. The information is derived from various
public sources, all of which are available to investors generally, and which the
Fund believes to be accurate.
The State of California's economy continues to improve. As one of the last
states to emerge from the recession, California is now leading the country in
job growth. The State's employment make-up shift from defense and aerospace
industries to technology, multimedia, and trade has lead the State through this
recovery. The unemployment rate is trending down; personal income continues to
increase; deficit borrowing has ceased; and the State is attempting to replenish
its thin reserves.
On an unaudited basis, California finished FY98 with an operating surplus in its
General Fund of approximately $2.2 billion, 4% of General Fund revenues. Some of
this surplus has been added to the State's Special Fund for Economic
Uncertainties (SFEU), bringing the balance of that fund to $1.8 billion as of
June 30, 1998, 3.2% of General Fund revenues. This marks the third year in a row
in which the SFEU had a positive balance and the State did not have to rely on
deficit borrowing.
After much debate and many revisions, the State adopted its FY99 budget on
August 21, 1998, one and a half months late. The favorable financial position of
the State created a budget stalemate over the issue of how to spend the large
surplus. The adopted FY99 budget reflects General Fund revenues totaling $57.0
billion, a 4.2% increase over FY98, and expenditures totaling $57.3 billion, up
7.3% over FY98. The projected short fall in revenues will be covered by a draw
down of the SFEU. The State projects to end FY99 with a SFEU balance of $1.25
billion, 2% of General Fund revenues. Expenditure increases are focused on
education and incarceration spending. Governor Wilson also signed State
legislation which provides for over $1.4 billion in tax cuts. The central
element is the phasing in of a 75% reduction in the State's motor vehicle
license fee; this will eventually amount to $1 billion annual savings for
taxpayers.
California continues to lead the nation in terms of job growth. The State added
377,500 nonfarm jobs in the last twelve months. In September, 1998, the State
added 35,500 jobs, 51% of the 69,000 jobs added nationwide. The growth in jobs
is concentrated in high technology industries, specifically: computer software,
electronics manufacturing, and motion picture production. This growth has
brought the State's unemployment rate down to the 1997 average of 6.3% versus
4.9% for the national average. In September, 1998, the State's unemployment rate
was 5.8%; the national average was 4.5%. Personal income grew by 7% in 1998 over
1997.
California's per capita personal income for 1997 was $26,570, 104% of the
national average. California's per capita income, as a percent of the national
average, declined from 115% in 1985 to a low of 103% in 1994. In 1995 the ratio
increased to 104%, where it remained in 1996 and 1997.
International trade is a strong part of the State's economy. Recent economic
turmoil in Asia has led to decreases in trade with these countries, however,
California has experienced trade increases with Europe and NAFTA countries.
These offsetting
<PAGE>
measures have led to no change in Made-In-California exports during the first
six months of 1998 over the same period in 1997.
California is one of the largest issuers of municipal debt with $25 billion of
debt outstanding. The size of the State and its wealth levels lessen the impact
that debt of that magnitude could have. The State's debt per capita is $773,
122% of the national average. Debt service as a percent of per capita income is
3%, 110% of the national average. In FY97, annual debt service as a percent of
General Fund expenditures was a manageable 4%. California currently has $15.2
billion of authorized but unissued debt for infrastructure needs in schools and
for transportation projects. This backlog reflects the recent proposal for $9.2
billion of bonds that passed in the November 3, 1998 election.
The State's cash flow position has improved dramatically in the last year.
California has ceased its practice of relying on interfund borrowing to offset
cash flow volatility between fiscal years. As of June 30, 1998 the State had no
outstanding loans from internal borrowable resources. This compares to the $1.2
billion that the State had outstanding as of June 30, 1997. Improving financial
conditions allow the State to rely less on this source of temporary cash flow
relief; this is also evidenced by the decrease in borrowing in the note market.
California issued $1.7 billion of Revenue Anticipation Notes in September, 1998
for FY99. This represents a 57% decrease in cash flow borrowing from FY98.
California is benefiting from a strong economy which has lead to improved
finances, specifically an improved cash flow position.
As of December 29, 1998, all outstanding general obligation bonds of the State
of California were rated Aa3 by Moody's and A+ by S&P.
In recent years, California voters have approved a number of changes to the
State constitution that have limited the ability of State and local issuers to
raise revenues and adjust appropriations.
In 1978, California voters approved Proposition 13 which added Article XIII A to
the California Constitution. Article XIII A changed the definition of assessed
property value and placed restrictions on a taxing entity's ability to increase
real property taxes. In 1979, voters also approved Proposition 4, the so-called
Gann Initiative, which added Article XIII B to the California Constitution. The
purpose of Article XIII B was to limit the annual appropriations of the State
and any local government unit to the level of appropriations for the prior year,
as adjusted for changes in cost of living, population and services required.
Article XIII B also specified that debt service obligations incurred prior to
January 1, 1979 were excluded from the appropriations limits.
In the general elections of 1986, 1988, 1990 and 1996, California voters
approved various measures that amended Article XIII A and XIII B and added
Article XIII C and XIII D to the State Constitution. Propositions 58 and 60
clarified the definitions of "purchased property" and "change of ownership"
found in Article XIII A. Proposition 98, in addition to guaranteeing a percent
of State funding for public schools, modified Article XIII B to permit excess
State revenues to be transferred to public schools and community colleges rather
than returned to taxpayers. Proposition 111 amended Article XIII B to ease
restrictions on certain expenditure categories in calculating the annual
appropriation ceiling. Article XIII C and XIII D place additional requirements
on revenue raising abilities of local government units. Finally, on November 5,
1996, California voters approved Proposition 218, called the "Right to Vote on
Taxes Act." This constitutional amendment restricts local governments' ability
to raise or extend taxes without voter consent, places restrictions on the
ability to charge certain fees and assessments, and makes it easier for voters
to use the initiative process to reduce or repeal existing taxes.
Future voter initiatives, if proposed and adopted, could further modify Articles
XIII A, XIII B, XIII C, and XIII D and place increased pressures on the State
and local entities' ability to raise revenue and adjust appropriations.
INVESTMENT ADVISER AND SHAREHOLDER SERVICES
Investment adviser.
Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Fund. This organization, the predecessor
of which is Scudder, Stevens & Clark, Inc., is one of the most experienced
<PAGE>
investment counsel firms in the U. S. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. In 1928 it introduced the first no-load mutual fund to
the public. In 1953 the Adviser introduced Scudder International Fund, Inc., the
first mutual fund available in the U.S. investing internationally in securities
of issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On December 31, 1997, Zurich
Insurance Company ("Zurich") acquired a majority interest in the Adviser, and
Zurich Kemper Investments, Inc., a Zurich subsidiary, became part of the
Adviser. The Adviser's name changed to Scudder Kemper Investments, Inc. On
September 7, 1998, the businesses of Zurich (including Zurich's 70% interest in
Scudder Kemper) and the financial services businesses of B.A.T Industries p.l.c.
("B.A.T") were combined to form a new global insurance and financial services
company known as Zurich Financial Services Group. By way of a dual holding
company structure, former Zurich shareholders initially owned approximately 57%
of Zurich Financial Services Group, with the balance initially owned by former
B.A.T shareholders.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations as well as providing investment advice to over [XX] open and
closed-end mutual funds.
The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Adviser receives published
reports and statistical compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities. The Adviser's international
investment management team travels the world, researching hundreds of companies.
In selecting the securities in which the Fund may invest, the conclusions and
investment decisions of the Adviser with respect to the Funds are based
primarily on the analyses of its own research department.
Certain investments may be appropriate for a fund and also for other clients
advised by the Adviser. Investment decisions for a fund and other clients are
made with a view to achieving their respective investment objectives and after
consideration of such factors as their current holdings, availability of cash
for investment and the size of their investments generally. Frequently, a
particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by a fund. Purchase and sale orders for a fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to that fund.
In certain cases the investments for the Fund are managed by the same
individuals who manage one or more other mutual funds advised by the Adviser
that have similar names, objectives and investment styles as the Fund. You
should be aware that the Fund is likely to differ from these other mutual funds
in size, cash flow pattern and tax matters. Accordingly, the holdings and
performance of the Fund can be expected to vary from those of the other mutual
funds.
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 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.
<PAGE>
The agreement provides that the Adviser 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 the Adviser 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.
The present investment management agreements the "Agreement" approved by the
Trustees on July 21, 1998, became effective September 7, 1998, and was approved
at a shareholder meeting held on December 17, 1998. The Agreement will continue
in effect until September 30, 1999 and from year to year thereafter only if its
continuance is approved annually by the vote of a majority of those Trustees who
are not parties to such Agreement or interested persons of the Adviser or the
Trust, cast in person at a meeting called for the purpose of voting on such
approval, and either by a vote of the Trust's Trustees or of a majority of the
outstanding voting securities of the Fund. The Agreement may be terminated at
any time without payment of penalty by either party on sixty days' written
notice and automatically terminate in the event of its assignment.
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: 0.22%
of the first $500 million of average daily net assets, 0.20% of the next $500
million, 0.175% of the next $1 billion, 0.16% of the next $1 billion and 0.15%
of average daily net assets over $3 billion. Pursuant to the investment
management agreement, the Fund paid the Adviser, including the former investment
adviser, fees of $__________, $306,000 and $127,000 for the fiscal years ended
September 30, 1999, 1998 and 1997, respectively.
<PAGE>
Fund Accounting Agent. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts 02110, a subsidiary of Scudder
Kemper, is responsible for determining the daily net asset value per share of
the 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 the Adviser,
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
has adopted a plan in accordance with Rule 12b-1 of the Investment Company Act
of 1940 (the "12b-1 Plan"). The rule regulates the manner in which an investment
company may, directly or indirectly, bear the expenses of distributing its
shares. 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, and pursuant to the 12b-1 Plan,
the Fund pays KDI an annual distribution services fee, payable monthly, of .33%
of average daily net assets of the Fund. The distribution agreement and the
12b-1 Plan continue 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 distribution 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' written 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 12b-1 Plan 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 12b-1 Plan. If additional Portfolios are authorized by the Board of
Trustees, the provisions concerning the continuation, amendment and termination
of the distribution services agreement and the 12b-1 Plan 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 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.
For the fiscal year ended September 30, 1999, the Fund incurred distribution
fees of $____________. Of such amount, KDI remitted $__________ to various firms
pursuant to the related services agreements. For the fiscal year ended September
30, 1999, KDI incurred underwriting, distribution and administrative expenses in
the approximate amounts noted: service fees to firms $__________; advertising
and literature $_______; and marketing and sales expenses $____________; for a
total of $____________. 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.
For the fiscal year ended September 30, 1998, the Fund incurred distribution
fees of $465,000. Of such amount, KDI remitted $462,000 to various firms
pursuant to the related services agreements. For the fiscal year ended September
30, 1998, KDI incurred underwriting, distribution and administrative expenses in
the approximate amounts noted: service fees to firms $462,000; advertising and
literature $0; and marketing and sales expenses $37,000; for a total of
$499,000. 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.
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
<PAGE>
$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 the
Adviser and KDI as indicated under "Officers and Trustees."
Custodian, Transfer Agent and Shareholder Service Agent. State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, as custodian,
has custody of all securities and cash of the Fund. It attends to the collection
of principal and income, and payment for and collection of proceeds of
securities bought and sold by the Fund. Investors Fiduciary Trust Company
("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 the Adviser, 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 as
follows: annual account fees of a maximum of $13 per account plus out-of-pocket
expense reimbursement. For the fiscal years ended September 30, 1999, 1998 and
1997, IFTC remitted fees in the amount of $__________, $125,000 and $21,000,
respectively, 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
Allocation of brokerage is supervised by the Adviser.
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.
The primary objective of the Adviser 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 where applicable, size of order,
difficulty of execution and skill required of the executing broker/dealer. The
Adviser seeks to evaluate the overall reasonableness of brokerage commissions
paid (to the extent applicable) through its familiarity with commissions charged
on comparable transactions, as well as by comparing commissions paid by a Fund
to reported commissions paid by others. The Adviser reviews on a routine basis
commission rates, execution and settlement services performed, making internal
and external comparisons.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Adviser's practice to place such orders with
broker/dealers who supply 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.
The Adviser is authorized when placing portfolio transactions for the Fund to
pay a brokerage commission in excess of that
<PAGE>
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, the Adviser may give consideration to those firms that have sold or
are selling shares of a fund managed by the Adviser.
To the maximum extent feasible, it is expected that the Adviser will place
orders for portfolio transactions through Scudder Investor Services, Inc.
("SIS"), a corporation registered as a broker-dealer and a subsidiary of the
Adviser. SIS will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. SIS will not receive any commission, fee or other
remuneration from the Fund for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by the
Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Fund and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to the 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 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
Purchase 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. The Fund may waive the minimum for purchases by trustees, directors,
officers or employees of the Fund or the Adviser 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.
Redemption of Shares. Upon receipt by the Fund's Shareholder Service Agent (see
"Redemption 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
<PAGE>
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 1940 Act 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.
Telephone Redemptions. If the proceeds of the redemption are $50,000 or less and
the proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor, guardian and custodial account
holders, provided the trustee, executor, guardian or custodian 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 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
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. Central time will result in
shares being redeemed that day and normally the proceeds will be sent to the
designated account that day. Once authorization is on file, the Shareholder
Service Agent will honor requests by telephone at 1-800-231-8568 or in writing,
subject to the limitations on liability described 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
<PAGE>
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.
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.
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. 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. Central 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 asset value for that day.
Such transactions are settled by payment of Federal Funds in accordance with
procedures established by KDI. Redemption orders received in connection with the
administration of checkwriting programs by certain dealers or other financial
services firms prior to the determination of the Fund's net asset value also may
be processed on a confirmed basis, in accordance with the 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, 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.
<PAGE>
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.
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.
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.
PERFORMANCE
From time to time, the Fund may advertise several types of performance
information for the Portfolio, including "yield" and "effective 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
when annualized. The effective yield will be slightly higher than the yield due
to this compounding effect. The tax equivalent yield is similar to the effective
yield calculated on an after-tax basis.
<PAGE>
The Fund's seven-day yield is computed in accordance with a standardized method
prescribed by rules of the Securities and Exchange Commission. Under that
method, the yield quotation is based on a seven-day period and is computed for
the Fund as follows. The first calculation is net investment income per share,
which is accrued interest on Fund securities, plus or minus amortized discount
or premium, less accrued expenses. This number is then divided by the price per
share (expected to remain constant at $1.00) at the beginning of the period
("base period return"). The result is then divided by 7 and multiplied by 365
and the resulting yield figure is carried to the nearest one-hundredth of one
percent. Realized capital gains or losses and unrealized appreciation or
depreciation of investments are not included in the calculations. For the
seven-day period ended September 30, 1999, the Fund's yield was ________%.
The Fund's effective seven-day yield is determined by taking the base period
return (computed as described above) and calculating the effect of assumed
compounding. The formula for the seven-day effective yield is: (seven-day base
period return +1)365/7 - 1. The Fund may also advertise a thirty-day effective
yield in which case the formula is (thirty-day base period return +1)365/30 - 1.
For the seven-day period ended September 30, 1999, the Fund's effective yield
was _________%.
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, 1999, the Fund's tax-equivalent yield was
_________%. 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, 1999, the Fund's tax-equivalent yield was ________%. 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 cannot be a guarantee of future results.
The Fund may depict the historical performance of the securities in which the
Fund may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments
performance indexes of those investments or economic indicators. The Fund may
also describe the Fund's 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.
Investors also may want to compare the Fund's performance to that of U.S.
Treasury bills or notes because such instruments represent alternative income
producing products. Treasury obligations are issued in selected denominations.
Rates of U.S. Treasury obligations are fixed at the time of issuance and payment
of principal and interest is backed by the full faith and credit of the U.S.
Treasury. The market value of such instruments generally will fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Generally, the values of obligations with shorter maturities will
fluctuate less than those with longer maturities. 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. 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.
<PAGE>
Tax-Exempt versus Taxable Yield. You may want to determine which investment --
tax-exempt or taxable -- will provide you with a higher after-tax return. To
determine the taxable equivalent yield, simply divide the yield from the
tax-exempt investment by [1 minus your marginal tax rate]. The tables below are
provided for your convenience in making this calculation for selected tax-exempt
yields and taxable income levels. These yields are presented for purposes of
illustration only and are not representative of any yield that the Fund may
generate. Both tables are based upon current law as to the 1999 Federal and
State tax rate schedules.
Taxable Equivalent Yield Table for Persons Whose Adjusted Gross Income is Under
$126,500
<TABLE>
<CAPTION>
Taxable Income Your Marginal A Tax-Exempt Yield of:
Federal Tax Rate
----------------
4% 5% 6% 7% 8% 9%
Single Joint Is Equivalent to a Taxable Yield of:
------ ----- ------------------------------------
<S> <C> <C>
$25,350-$61,400 $42,350-$102,300 28.0%
Over $61,400 Over $102,300 31.0
Combined
Marginal
Taxable Income California and A Tax-Exempt Yield of:
Federal Tax Rate
----------------
4% 5% 6% 7% 8% 9%
Single Joint Is Equivalent to a Taxable Yield of:
------ ----- ------------------------------------
$25,350-$26,644 $42,350-$53,288 32.3%
$26,644-33,673 $53,288-$67,346 33.8
$33,673-$61,400 $67,346-$102,300 34.7
Over $61,400 Over $102,300 37.4
Taxable Equivalent Yield Table for Persons Whose Adjusted Gross Income is Over $126,500
Taxable Income Your Marginal A Tax-Exempt Yield of:
Federal Tax Rate
----------------
4% 5% 6% 7% 8% 9%
Single Joint Is Equivalent to a Taxable Yield of:
------ ----- ------------------------------------
$ 61,400-$128,100 $102,300-$155,950 31.9%
$128,100-$278,450 $155,950-$278,450 37.1
Over $278,450 Over $278,450 40.8
<PAGE>
Combined
Marginal
Taxable Income California and A Tax-Exempt Yield of:
Federal Tax Rate
----------------
4% 5% 6% 7% 8% 9%
Single Joint Is Equivalent to a Taxable Yield of:
------ ----- ------------------------------------
$ 61,400-$128,100 $102,300-$155,950 38.2%
$128,100-$278,450 $155,950-$278,450 42.9
Over $278,450 Over $278,450 46.3
</TABLE>
o 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.
o or 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 the Adviser and KDI are listed
below. All persons named as trustees also serve in similar capacities for other
funds advised by the Adviser.
JOHN W. BALLANTINE (2/16/46), Trustee, 1500 North Lake Shore Drive, Chicago,
Illinois; First Chicago NBD Corporation/The First National Bank of Chicago:
1996-1998 Executive Vice President and Chief Risk Management Officer; 1995-1996
Executive Vice President and Head of International Banking; 1992-1995 Executive
Vice President, Chief Credit and Market Risk Officer.
LEWIS A. BURNHAM (1/8/33), Trustee, 16410 Avila Boulevard, Tampa, Florida;
Retired; formerly, Partner, Business Resources Group; formerly, Executive Vice
President, Anchor Glass Container Corporation.
DONALD L. DUNAWAY (3/8/37), Trustee, 7011 Green Tree Drive, Naples, Florida;
Retired; formerly, Executive Vice President, A.O. Smith Corporation (diversified
manufacturer).
ROBERT B. HOFFMAN (12/11/36), Trustee, 1530 North State Parkway, Chicago,
Illinois; Chairman, Harnischfeger Industries, Inc. (machinery for the mining and
paper industries); formerly, Vice Chairman and Chief Financial Officer, Monsanto
Company (agricultural, pharmaceutical and nutritional/food products); formerly,
Vice President, Head of International Operations, FMC Corporation (manufacturer
of machinery and chemicals).
DONALD R. JONES (1/17/30), Trustee, 182 Old Wick Lane, Inverness, Illinois;
Retired; Director, Motorola, Inc. (manufacturer of electronic equipment and
components); formerly, Executive Vice President and Chief Financial Officer,
Motorola, Inc.
THOMAS W. LITTAUER (4/26/55), Trustee and Vice President*, Two International
Place, Boston, Massachusetts; Managing Director, Adviser; formerly, Head of
Broker Dealer Division of an unaffiliated investment management firm during
1997; prior thereto, President of Client Management Services for an unaffiliated
investment management firm from 1991 to 1996.
SHIRLEY D. PETERSON (9/3/41), Trustee, 401 Rosemont Avenue, Frederick, Maryland;
President, Hood College; formerly, Partner, Steptoe & Johnson (attorneys); prior
thereto, Commissioner, Internal Revenue Service; prior thereto, Assistant
Attorney General (Tax), U.S. Department of Justice; Director, Bethlehem Steel
Corp.
CORNELIA M. SMALL (7/28/44), Trustee*, 345 Park Avenue, New York, NY; Managing
Director, Scudder Kemper.
WILLIAM P. SOMMERS (7/22/33), Trustee, 24717 Harbour View Drive, Ponte Vedra
Beach, Florida; Consultant and Director, SRI Consulting; prior thereto,
President and Chief Executive Officer, SRI International (research and
development); prior thereto, Executive Vice President, Iameter (medical
information and educational service provider); prior thereto, Senior Vice
President and Director, Booz, Allen & Hamilton Inc. (management consulting
firm); Director, PSI Inc., Evergreen Solar, Inc. and Litton Industries.
<PAGE>
MARK S. CASADY (9/21/60), President*, 345 Park Avenue, New York, New York;
Managing Director, Adviser.
ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York;
Senior Vice President, Adviser.
KATHRYN L. QUIRK (12/3/52), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Adviser
LINDA J. WONDRACK (9/12/64), Vice President*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser.
PHILIP J. COLLORA (11/15/45), Vice President, Treasurer and Secretary*, 222
South Riverside Plaza, Chicago, Illinois; Senior Vice President, Adviser.
JOHN R. HEBBLE (6/27/58), Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser.
BRENDA LYONS (2/21/63), Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser
CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Adviser.
MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Adviser.
FRANK J. RACHWALSKI, JR. (3/26/45), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Adviser.
ROBERT C. PECK, JR. (10/1/46), Vice President, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Adviser; formerly, Executive Vice
President and Chief Investment Officer with an unaffiliated investment
management firm from 1988 to June 1997.
* 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 fiscal
<PAGE>
year ended September 30, 1999 and the total compensation that Kemper funds paid
to each trustee during calendar year 1998.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation Kemper
Name of Trustee From Fund Funds Paid to Trustees***
- --------------- --------- -------------------------
<S> <C> <C>
John W. Ballantine*
Lewis A. Burnham.......................
Donald L. Dunaway**....................
Robert B. Hoffman......................
Donald R. Jones........................
Shirley D. Peterson....................
William P. Sommers.....................
</TABLE>
* Mr. Ballantine was elected to the Board on __________________.
** Includes deferred fees pursuant to deferred compensation agreements with
the Fund, deferred amounts accrue interest monthly at a rate equal to the
yield of Zurich Money Funds -- Zurich Money Market Fund. Total deferred
fees (including interest thereon) payable from the Fund to Mr. Dunaway are
$____________.
*** Includes compensation for services as trustee on 25 fund boards with 41
portfolios. Each trustee currently serves as a trustee of 27 Kemper Funds
and 47 fund portfolios.
As of December 31, 1999, 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 Funds may be exchanged for each
other at their relative net asset values: Kemper Adjustable Rate U.S. Government
Fund, Kemper Aggressive Growth Fund, Kemper Asian Growth Fund, Kemper Blue Chip
Fund, Kemper California Tax-Free Income Fund, Kemper Cash Reserves Fund, Kemper
Contrarian Fund, Kemper Diversified Income Fund, Kemper Emerging Markets Growth
Fund, Kemper Emerging Markets Income Fund, Kemper New Europe Fund, Kemper
Florida Tax-Free Income Fund, Kemper Global Blue Chip Fund, Kemper Global Income
Fund, Kemper Growth Fund, Kemper High Yield Fund, Kemper High Yield Opportunity,
Kemper Horizon 10+ Portfolio, Kemper Horizon 20+ Portfolio, Kemper Horizon 5
Portfolio, Kemper Income And Capital Preservation Fund, Kemper Intermediate
Municipal Bond, Kemper International Fund, Kemper International Growth and
Income Fund, Kemper Large Company Growth Fund (currently available only to
employees of Scudder Kemper Investments, Inc.; not available in all states),
Kemper Latin America Fund, Kemper Municipal Bond Fund, Kemper New York Tax-Free
Income Fund, Kemper Ohio Tax-Free Income Fund, Kemper Quantitative Equity Fund,
Kemper Research Fund (currently available only to employees of Scudder Kemper
Investments, Inc.; not available in all states), Kemper Retirement Fund --
Kemper Retirement Fund -- Series II, Kemper Retirement Fund -- Series III,
Kemper Retirement Fund -- Series IV, Kemper Retirement Fund -- Series V, Kemper
Retirement Fund -- Series VI, Kemper Retirement Fund -- Series VII, Kemper
Target 2010 Fund, Kemper Short-Intermediate Government Fund, Kemper Small Cap
Value Fund, Kemper Small Cap Value+Growth Fund (currently available only to
employees of Scudder Kemper Investments, Inc.; not available in all states),
Kemper Small Capitalization Equity Fund, Kemper Small Cap Relative Value Fund,
Kemper Technology Fund, Kemper Total Return Fund, Kemper U.S. Government
Securities Fund, Kemper U.S. Growth and Income Fund, Kemper U.S. Mortgage Fund,
Kemper Value+Growth Fund, Kemper Worldwide 2004 Fund, Kemper-Dreman High Return
Equity Fund, Kemper-Dreman Financial Services Fund ("Kemper Funds").). 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 Fund in
excess of $1,000,000 (except Zurich Yieldwise Money Fund and 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"). In
addition, shares of a Kemper fund with a value of $1,000,000 or less (except
Kemper Cash Reserves Fund) acquired by exchange from another Kemper fund, or
from a money market fund, may not be exchanged thereafter until they have been
owned for 15 days, if, in the Adviser's judgment, the exchange activity may have
an adverse effect on the fund. In particular, a pattern of exchanges that
coincides with a "market timing" strategy may be disruptive to the Kemper fund
and therefore may be subject to 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, discretion 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
<PAGE>
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 implement 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.
Systematic Exchange Privilege. The owner of $1,000 or more of the shares of a
Kemper 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.
SHAREHOLDER RIGHTS
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
<PAGE>
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
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.
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.
<PAGE>
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.
<PAGE>
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits.
-------- ---------
<S> <C> <C>
(a) Articles of Incorporation/Declaration of Trust incorporated herein by
reference to Post-Effective Amendment No. 9 to Registrant's Registration
Statement on Form N-1A filed on January 2, 1996.
(b) By-laws incorporated herein by reference to Post-Effective Amendment No. 9
to Registrant's Registration Statement on Form N-1A filed on January 2, 1996.
(c) Text of Share Certificate incorporated herein by reference to Post-Effective
Amendment No. 9 to Registrant's Registration Statement on Form N-1A filed on
January 2, 1996.
(d)(1) Revised Investment Management Agreement dated September 8, 1998 is filed
herein.
(e)(1) Administration, Shareholder Services and Distribution Agreement dated
September 7, 1998 incorporated herein by reference to Post-Effective
Amendment No. 12 to Registrant's Registration Statement on Form N-1A filed
on December 3, 1998.
(f) Inapplicable
(g)(1) Custodian Contract between Registrant and State Street Bank and Trust
Company dated May 3, 1999 is filed herein.
(h)(1)(a) Agency Agreement incorporated herein by reference to Post-Effective
Amendment No. 9 to Registrant's Registration Statement on Form N-1A filed on
January 2, 1996.
(h)(1)(b) Supplement to Agency Agreement incorporated herein by reference to
Post-Effective Amendment No. 10 to Registrant's Registration Statement on
Form N-1A filed on January 2, 1997.
(h)(2) Fund Accounting Services Agreement dated December 31, 1997 incorporated
herein by reference to Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A filed on December 3, 1998.
(i) Legal Opinion and Consent of Counsel to be filed by amendment.
(j) Report and Consent of Auditors to be filed by amendment.
(k) Inapplicable
(l) Inapplicable
(m) Amended and Restated Rule 12b-1 Plan dated August 1, 1998 incorporated
herein by reference to Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A filed on December 3, 1998.
<PAGE>
(n) Inapplicable
(o) Inapplicable
</TABLE>
Item 24. Persons Controlled by or under Common Control with Fund.
- -------- --------------------------------------------------------
None
Item 25. Indemnification.
- -------- ----------------
Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit 1 hereto, which is incorporated herein by reference) provides in effect
that the Registrant will indemnify its officers and trustees under certain
circumstances. However, in accordance with Section 17(h) and 17(i) of the
Investment Company Act of 1940 and its own terms, said Article of the Agreement
and Declaration of Trust does not protect any person against any liability to
the Registrant or its shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question as to whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
On June 26, 1997, Zurich Insurance Company ("Zurich"), ZKI Holding
Corp. ("ZKIH"), Zurich Kemper Investments, Inc. ("ZKI"), Scudder, Stevens &
Clark, Inc. ("Scudder") and the representatives of the beneficial owners of the
capital stock of Scudder ("Scudder Representatives") entered into a transaction
agreement ("Transaction Agreement") pursuant to which Zurich became the majority
stockholder in Scudder with an approximately 70% interest, and ZKI was combined
with Scudder ("Transaction"). In connection with the trustees' evaluation of the
Transaction, Zurich agreed to indemnify the Registrant and the trustees who were
not interested persons of ZKI or Scudder (the "Independent Trustees") for and
against any liability and expenses based upon any action or omission by the
Independent Trustees in connection with their consideration of and action with
respect to the Transaction. In addition, Scudder has agreed to indemnify the
Registrant and the Independent Trustees for and against any liability and
expenses based upon any misstatements or omissions by Scudder to the Independent
Trustees in connection with their consideration of the Transaction.
Item 26. Business and 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 26.
<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**
<PAGE>
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, ZKI Holding Corporation xx
Steven Gluckstern Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Zurich Holding Company of America o
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Director, Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
<PAGE>
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
</TABLE>
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg,
R.C. Luxembourg B 34.564
*** Toronto, Ontario, Canada
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman,
British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
Item 27. Principal Underwriters.
- -------- -----------------------
(a)
Kemper Distributors, Inc. acts as principal underwriter of the Registrant's
shares and acts as principal underwriter of the Kemper Funds.
(b)
Information on the officers and directors of Kemper Distributors, Inc.,
principal underwriter for the Registrant is set forth below. The principal
business address is 222 South Riverside Plaza, Chicago, Illinois 60606.
<TABLE>
<CAPTION>
(1) (2) (3)
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
<S> <C> <C>
James L. Greenawalt President None
Thomas W. Littauer Director, Chief Executive Officer Trustee, Vice President, Chairman of
the Board of Trustees
Kathryn L. Quirk Director, Secretary, Chief Legal Vice President
Officer and Vice President
James J. McGovern Chief Financial Officer and Vice None
President
Linda J. Wondrack Vice President and Chief Compliance Vice President
Officer
Paula Gaccione Vice President None
Michael E. Harrington Vice President None
<PAGE>
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
Robert A. Rudell Vice President None
William M. Thomas Vice President None
Elizabeth C. Werth Vice President None
Todd N. Gierke Assistant Treasurer None
Philip J. Collora Assistant Secretary Vice President and Secretary
Paul J. Elmlinger Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
Mark S. Casady Director, Vice Chairman President
Stephen R. Beckwith Director None
</TABLE>
(c) Not applicable
Item 28. Location of Accounts and Records
- -------- --------------------------------
Accounts, books and other documents are maintained at the offices of
the Registrant, the offices of Registrant's investment adviser, Scudder Kemper
Investments, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, at the
offices of the Registrant's principal underwriter, Kemper Distributors, Inc.,
222 South Riverside Plaza, Chicago, Illinois 60606 or, in the case of records
concerning custodial functions, at the offices of the custodian, Investors
Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri
64105 or, in the case of records concerning transfer agency functions, at the
offices of IFTC and of the shareholder service agent, Kemper Service Company,
811 Main Street, Kansas City, Missouri 64105.
Item 29. Management Services.
- -------- --------------------
Inapplicable.
Item 30. Undertakings.
- -------- -------------
Inapplicable.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement, pursuant to
Rule 485(a) under the Securities Act of 1933, and has duly caused this amendment
to its 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
19th day of November, 1999.
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
amendment to its Registration Statement has been signed below on November 19,
1999, on behalf of the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
November 19, 1999
- --------------------------------------
Thomas W. Littauer Chairman and Trustee
/s/ John W. Ballantine
- --------------------------------------
John W. Ballantine* Trustee November 19, 1999
/s/ Lewis A. Burnham November 19, 1999
- --------------------------------------
Lewis A. Burnham* Trustee
/s/ Donald L. Dunaway November 19, 1999
- --------------------------------------
Donald L. Dunaway* Trustee
/s/ Robert B. Hoffman November 19, 1999
- --------------------------------------
Robert B. Hoffman* Trustee
/s/ Donald R. Jones November 19, 1999
- --------------------------------------
Donald R. Jones* Trustee
/s/ Shirley D. Peterson November 19, 1999
- --------------------------------------
Shirley D. Peterson* Trustee
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ William P. Sommers November 19, 1999
- --------------------------------------
William P. Sommers* Trustee
/s/ John R. Hebble November 19, 1999
- --------------------------------------
John R. Hebble Treasurer (Principal Financial and
Accounting Officer)
</TABLE>
*By: /s/ Philip J. Collora
---------------------
Philip J. Collora**
** Philip J. Collora signs this document
pursuant to powers of attorney
contained in Post-Effective Amendment
No. 11 to the Registration Statement,
filed January 27, 1998 and filed
herein.
<PAGE>
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints Caroline Pearson, Maureen E. Kane, and Philip J. Collora and any of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement of Tax-Exempt
California Money Market Fund, a Massachusetts business trust, on Form N-1A under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, and any or all amendments thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully as all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
DATED: November 19, 1999
/s/ John W. Ballantine
John W. Ballantine
Trustee
<PAGE>
File No. 33-12938
File No. 811-5076
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 13
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 14
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
<PAGE>
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
EXHIBIT INDEX
Exhibit (d)(1)
Exhibit (g)(1)
Exhibit 23(d)(1)
INVESTMENT MANAGEMENT AGREEMENT
Tax-Exempt California Money Market Fund
222 South Riverside Plaza
Chicago, Illinois 60606
September 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
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:
(a) The Declaration, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof (the "By-
Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders
of the Fund selecting you as investment manager and approving
the form of this Agreement.
(d) Establishment and Designation of Series of Shares of
Beneficial Interest relating to the Fund, as applicable.
The Trust will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing,
including the Prospectus, the SAI and the Registration Statement.
<PAGE>
2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 2, you shall
be entitled to receive and act upon advice of counsel to the Trust. You shall
also make available to the Trust promptly upon request all of the Fund's
investment records and ledgers as are necessary to assist the Trust in complying
with the requirements of the 1940 Act and other applicable laws. To the extent
required by law, you shall furnish to regulatory authorities having the
requisite authority any information or reports in connection with the services
provided pursuant to this Agreement which may be requested in order to ascertain
whether the operations of the Trust are being conducted in a manner consistent
with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Fund necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing the accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith;
<PAGE>
establishing and monitoring the Fund's operating expense budgets; reviewing the
Fund's bills; processing the payment of bills that have been approved by an
authorized person; assisting the Fund in determining the amount of dividends and
distributions available to be paid by the Fund to its shareholders, preparing
and arranging for the printing of dividend notices to shareholders, and
providing the transfer and dividend paying agent, the custodian, and the
accounting agent with such information as is required for such parties to effect
the payment of dividends and distributions; and otherwise assisting the Trust as
it may reasonably request in the conduct of the Fund's business, subject to the
direction and control of the Trust's Board of Trustees. Nothing in this
Agreement shall be deemed to shift to you or to diminish the obligations of any
agent of the Fund or any other person not a party to this Agreement which is
obligated to provide services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
3
<PAGE>
5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Trust
on behalf of the Fund shall pay you in United States Dollars on the last day of
each month the unpaid balance of a fee equal to the excess of (a)1/12 of .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
$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
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.
4
<PAGE>
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 September 30, 1999, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Trustees who are not parties
to this Agreement or interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Trustees of the Trust, or by the vote of a majority of the outstanding
voting securities of the Fund. The aforesaid requirement that continuance of
this Agreement be "specifically approved at least annually" shall be construed
in a manner consistent with the 1940 Act and the rules and regulations
thereunder and any applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time, without
the payment of any penalty, by the vote of a majority of the outstanding voting
securities of the Fund or by the Trust's Board of Trustees on 60 days' written
notice to you, or by you on 60 days' written notice to the Trust. This Agreement
shall terminate automatically in the event of its assignment.
This Agreement may be terminated with respect to the Fund at any time without
the payment of any penalty by the Board of Trustees or by vote of a majority of
the outstanding voting securities of the Fund in the event that it shall have
been established by a court of competent jurisdiction that you or any of your
officers or directors has taken any action which results in a breach of your
covenants set forth herein.
9. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
10. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "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.
5
<PAGE>
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND,
on behalf of
Tax-Exempt California Money Market Fund
By: /s/Mark S. Casady
------------------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/S. R. Beckwith
------------------------------------
Treasurer
6
Exhibit 23 (g)(1)
CUSTODIAN CONTRACT
between
Tax Exempt California Money Market Fund
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
1. Employment of Custodian and Property to be Held By It.......................................1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States......................................2
2.1 Holding Securities.....................................................................2
2.2 Delivery of Securities.................................................................2
2.3 Registration of Securities.............................................................4
2.4 Bank Accounts..........................................................................4
2.5 Availability of Federal Funds..........................................................5
2.6 Collection of Income...................................................................5
2.7 Payment of Fund Monies.................................................................6
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased...................................................................7
2.9 Appointment of Agents..................................................................7
2.10 Deposit of Securities in U.S. Securities System......................................7
2.11 Fund Assets Held in the Custodian's
Direct Paper System....................................................................8
2.12 Segregated Account.....................................................................9
2.13 Ownership Certificates for Tax Purposes ...............................................9
2.14 Proxies................................................................................9
2.15 Communications Relating to Fund Securities............................................10
3. Duties of the Custodian with Respect to Property
of the Fund Held Outside the United States.....................................................10
3.1 Appointment of Foreign Sub-Custodians.................................................10
3.2 Assets to be Held.....................................................................10
3.3 Foreign Securities Depositories.......................................................10
3.4 Agreements with Foreign Banking Institutions..........................................11
3.5 Access of Independent Accountants of the Fund........................................11
3.6 Reports by Custodian..................................................................11
3.7 Transactions in Foreign Custody Account...............................................11
3.8 Liability of Foreign Sub-Custodians...................................................12
3.9 Liability of Custodian................................................................12
3.10 Reimbursement for Advances............................................................12
3.11 Monitoring Responsibilities...........................................................13
3.12 Branches of U.S. Banks................................................................13
3.13 Tax Law...............................................................................13
<PAGE>
TABLE OF CONTENTS
-----------------
Page
4. Payments for Sales or Repurchases or Redemptions
of Shares .....................................................................................13
5. Proper Instructions............................................................................14
6. Actions Permitted without Express Authority....................................................14
7. Evidence of Authority..........................................................................15
8. Duties of Custodian with Respect to the Books of
Account and Calculations of Net Asset Value and Net Income.....................................15
9. Records........................................................................................15
10. Opinion of Fund's Independent Accountants......................................................16
11. Reports to Fund by Independent Public Accountants..............................................16
12. Compensation of Custodian......................................................................16
13. Responsibility of Custodian....................................................................16
14. Effective Period, Termination and Amendment....................................................17
15. Successor Custodian............................................................................18
16. Interpretive and Additional Provisions........................................................ 19
17. Massachusetts Law to Apply.....................................................................19
18. Prior Contracts................................................................................19
19. Shareholder Communications Election............................................................19
</TABLE>
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between Tax - Exempt California Money Market Fund, a
business trust organized and existing under the laws of The Commonwealth of
Massachusetts and having its principal place of business at 222 South Riverside
Plaza, Chicago, Illinois 60606 (the "Fund"), and State Street Bank and Trust
Company, a Massachusetts trust company having its principal place of business at
225 Franklin Street, Boston, Massachusetts 02110 (the "Custodian"),
WITNESSETH:
THAT, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto do hereby agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of its assets,
including securities which it desires to be held in places within the United
States of America ("domestic securities") and securities it desires to be held
outside the United States of America ("foreign securities") pursuant to the
provisions of the Fund's declaration of trust (the "Declaration of Trust"). The
Fund agrees to deliver to the Custodian all securities and cash owned by it and
all payments of income, payments of principal or capital distributions received
by it with respect to all securities owned by the Fund from time to time, and
the cash consideration received by it for such new or treasury shares of
beneficial interest of the Fund ("Shares") as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of the Fund held
or received by the Fund and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (as such term is defined in
Article 5 of this Contract), the Custodian shall from time to time employ one or
more sub-custodians located in the United States of America, including any state
or political subdivision thereof and any territory over which its political
sovereignty extends (the "United States" or "U.S."), but only in accordance with
an applicable vote by the board of trustees of the Fund (the "Board of
Trustees") and provided that the Custodian shall have no more or less
responsibility or liability to the Fund on account of any actions or omissions
of any sub-custodian so employed than any such sub-custodian has to the
Custodian. The Custodian may employ as sub-custodians for the Fund's foreign
securities the foreign banking institutions and foreign securities depositories
designated in Schedule A hereto but only in accordance with the provisions of
Article 3.
<PAGE>
2. Duties of the Custodian with Respect to Property of the Fund Held By
--------------------------------------------------------------------
the Custodian in the United States
----------------------------------
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of the Fund all non-cash property to be held by it in
the United States including all domestic securities owned by the Fund
other than (a) securities which are maintained in a "U.S. Securities
System" (as such term is defined in Section 2.10 of this Contract) and
(b) commercial paper of an issuer for which State Street Bank and Trust
Company acts as issuing and paying agent ("Direct Paper") which is
deposited and/or maintained in the Custodian's Direct Paper System
pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by the Fund and held by the Custodian or in a
U.S. Securities System account of the Custodian, which account shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for its customers ("U.S. Securities
System Account") or in the Custodian's Direct Paper book-entry system
account, which account shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise for its
customers ("Direct Paper System Account") only upon receipt of Proper
Instructions from the Fund, which may be continuing instructions when
deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Fund;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.9 or into the name or nominee
name of any sub-custodian appointed pursuant to Article 1; or
for exchange for a different number of bonds, certificates or
other evidence representing the same
2
<PAGE>
aggregate face amount or number of units; provided that, in
any such case, the new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the account of the Fund,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom;
provided that, in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Fund, but only against receipt of adequate collateral
as agreed upon from time to time by the Custodian and the
Fund, which may be in the form of cash or obligations issued
by the United States government, its agencies or
instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's U.S.
Securities System Account, the Custodian will not be held
liable or responsible for the delivery of securities owned by
the Fund prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures
Commission Merchant registered under the
3
<PAGE>
Commodity Exchange Act, relating to compliance with the rules
of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Fund;
14) Upon receipt of instructions from the transfer agent for the
Fund (the "Transfer Agent"), for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the Fund's currently effective prospectus and statement of
additional information (the "Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption;
and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund, a
certified copy of a resolution of the Board of Trustees or of
the executive committee thereof signed by an officer of the
Fund and certified by the Fund's Secretary or Assistant
Secretary specifying the securities of the Fund to be
delivered, setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of
such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment of a nominee
to be used in common with other registered investment companies having
the same investment adviser as the Fund, or in the name or nominee name
of any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to Article 1. All
securities accepted by the Custodian on behalf of the Fund under the
terms of this Contract shall be in "street name" or other good delivery
form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize reasonable
efforts only to (i) timely collect income due the Fund on such
securities and (ii) notify the Fund of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund,
subject only to draft or order by the Custodian acting pursuant to the
terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund in a
bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940, as amended. Funds held by the
Custodian for the Fund may be deposited by it to its credit as
Custodian in the banking department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank
4
<PAGE>
or trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940, as amended (the "Investment Company
Act") and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of the
Fund be approved by vote of a majority of the Board of Trustees. Such
funds shall be deposited by the Custodian in its capacity as Custodian
and shall be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon agreement between the Fund and the
Custodian, the Custodian shall, upon the receipt of Proper Instructions
from the Fund, make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in
the amount of checks received in payment for Shares of the Fund which
are deposited into the Fund's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to United States-registered securities held hereunder to
which the Fund shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to domestic bearer securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to the Fund's account. Without limiting the generality of
the foregoing, the Custodian shall detach and present for payment all
coupons and other income items requiring presentation as and when they
become due and shall collect interest when due on securities held
hereunder. Collection of income due the Fund on domestic securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund; the Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data in its possession as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian
of the income to which the Fund is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund, which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out monies of the Fund in the
following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Fund but only (a) against the delivery of such securities
or evidence of title to such options, futures contracts or
options on futures contracts to the Custodian (or any bank,
banking firm or trust company doing business in the United
States or abroad which is qualified under the Investment
Company Act to act as a custodian and has been designated by
the Custodian as its agent for this purpose) registered in the
name of the Fund or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
U.S. Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a
5
<PAGE>
purchase involving the Direct Paper System, in accordance with
the conditions set forth in Section 2.11; (d) in the case of
repurchase agreements entered into between the Fund and the
Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either
in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the Custodian
along with written evidence of the agreement by the Custodian
to repurchase such securities from the Fund or (e) for
transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund
as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the Fund
as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for
the account of the Fund: interest, taxes, management fees,
accounting fees, transfer agent fees, legal fees and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Fund
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund, a certified
copy of a resolution of the Board of Trustees or of the
executive committee thereof signed by an officer of the Fund
and certified by the Fund's Secretary or an Assistant
Secretary, specifying the amount of such payment, setting
forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of the Fund is made by the Custodian in advance of receipt of
the securities purchased in the absence of specific written
instructions from the
6
<PAGE>
Fund to so pay in advance, the Custodian shall be absolutely liable to
the Fund for such securities to the same extent as if the securities
had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act to
act as a custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct; provided,
however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Securities in U.S. Securities Systems. The Custodian may
deposit and/or maintain domestic securities owned by the Fund in a
clearing agency registered with the Securities and Exchange Commission
(the "SEC") under Section 17A of the Exchange Act, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies (a "U.S.
Securities System") in accordance with applicable Federal Reserve Board
and SEC rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep domestic securities of the Fund in a
U.S. Securities System provided that such securities are
represented in a U.S. Securities System Account;
2) The records of the Custodian with respect to securities of the
Fund which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Fund;
3) The Custodian shall pay for domestic securities purchased for
the account of the Fund upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the U.S. Securities System Account and (ii) the
making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Fund; the
Custodian shall transfer securities sold for the account of
the Fund upon (i) receipt of advice from the U.S. Securities
System that payment for such securities has been transferred
to the U.S. Securities System Account and (ii) the making of
an entry on the records of the Custodian to reflect such
transfer and payment for the account of the Fund. Copies of
all advices from the U.S. Securities System of transfers of
securities for the account of the Fund shall identify the
Fund, be maintained for the Fund by the Custodian and be
provided to the Fund at its request. Upon request, the
Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund in the form of a written
advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the
U.S. Securities System for the account of the Fund;
7
<PAGE>
4) The Custodian shall provide the Fund with any report obtained
by the Custodian on the U.S. Securities System's accounting
system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities
System;
5) The Custodian shall have received from the Fund the initial or
annual certificate, as the case may be, required by Article 14
hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage
to the Fund resulting from use of the U.S. Securities System
by reason of any negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or their
employees or from failure of the Custodian or any such agent
to enforce effectively such rights as it may have against the
U.S. Securities System; at the election of the Fund, it shall
be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the U.S. Securities System
or any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent
that the Fund has not been made whole for any such loss or
damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by the Fund in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund;
2) The Custodian may keep securities of the Fund in the Direct
Paper System only if such securities are represented in the
Direct Paper System Account which shall not include any assets
of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the records
of the Custodian to reflect such payment and transfer of
securities to the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon the
making of an entry on the records of the Custodian to reflect
such transfer and receipt of payment for the account of the
Fund;
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of a
written advice or notice, of Direct Paper on
8
<PAGE>
the next business day following such transfer and shall
furnish to the Fund copies of daily transaction sheets
reflecting each day's transaction in the Direct Paper System
for the account of the Fund; and
6) Upon the reasonable request of the Fund, the Custodian shall
provide the Fund with any report on the Direct Paper System's
system of internal accounting controls which had been prepared
as of the time of such request.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund establish and maintain a segregated account
or accounts for and on behalf of the Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in a U.S. Securities System Account by the
Custodian pursuant to Section 2.10 hereof (i) in accordance with the
provisions of any agreement among the Fund, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the
NASD (or any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities exchange
(or the Commodity Futures Trading Commission or any registered Contract
Market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash or government securities in
connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold by the
Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the SEC relating to the maintenance
of segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of this clause
(iv), upon receipt of, in addition to Proper Instructions from the
Fund, a certified copy of a resolution of the Board of Trustees or of
the executive committee thereof signed by an officer of the Fund and
certified by the Fund's Secretary or an Assistant Secretary, setting
forth the purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of the Fund held by it and
in connection with transfers of such securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.
9
<PAGE>
2.15 Communications Relating to Fund Securities. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls
and maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund and the maturity of futures contracts purchased or
sold by the Fund) received by the Custodian from issuers of the
securities being held for the Fund. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund all written
information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents)
making the tender or exchange offer. If the Fund desires to take action
with respect to any tender offer, exchange offer or any other similar
transaction, the Fund shall notify the Custodian at least three (3)
business days prior to the date on which the Custodian is to take such
action.
3. Duties of the Custodian with Respect to Property of the Fund Held
-----------------------------------------------------------------
Outside of the United States
----------------------------
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Fund's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto (the "foreign sub-custodians"). Upon
receipt of Proper Instructions, together with a certified resolution of
the Board of Trustees, the Custodian and the Fund may agree to amend
Schedule A hereto from time to time to designate additional foreign
banking institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
foreign sub-custodians for maintaining custody of the Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Fund's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Funds shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.4 hereof.
10
<PAGE>
3.4 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that (a) the assets of the
Fund will not be subject to any right, charge, security interest, lien
or claim of any kind in favor of the foreign banking institution or its
creditors or agent, except a claim of payment for their safe custody or
administration; (b) beneficial ownership of the assets of the Fund will
be freely transferable without the payment of money or value other than
for custody or administration; (c) adequate records will be maintained
identifying the assets as belonging to the Custodian on behalf of its
customers; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Fund held by the foreign sub-custodian
will be subject only to the instructions of the Custodian or its
agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use reasonable efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Fund held by foreign sub-custodians,
including but not limited to an identification of entities having
possession of Fund securities and other assets and advices or
notifications of any transfers of securities to or from each custodial
account maintained by a foreign banking institution for the Custodian
on behalf of its customers indicating, as to securities acquired for
the Fund the identity of the entity having physical possession of such
securities.
3.7 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.7, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the
Fund and delivery of securities maintained for the account of the Fund
may be effected in accordance with the customary established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or
to a dealer therefor (or an agent for such purchaser or dealer) against
a receipt with the expectation of receiving later payment for such
securities from such purchaser or dealer.
11
<PAGE>
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by Section 3.12 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this Section 3.9, in delegating custody duties to State
Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.10 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of the Fund
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any
property at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of
the Fund's assets to the extent necessary to obtain reimbursement.
12
<PAGE>
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund (during the month of June) information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the SEC is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the local currency
equivalent thereof) or that its shareholders' equity has declined below
$200 million (in each case computed in accordance with generally
accepted U.S. accounting principles).
3.12 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
Fund assets are maintained in a foreign branch of a banking institution
which is a "bank" as defined by Section 2(a)(5) of the Investment
Company Act meeting the qualification set forth in Section 26(a) of
said Act. The appointment of any such branch as a sub-custodian shall
be governed by Article 1 of this Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained in
an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
3.13 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States. It shall
be the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares
----------------------------------------------------------
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent and deposit into the account of the Fund such payments as are
received for Shares of the Fund issued or sold from time to time by the Fund.
The Custodian will provide timely notification to the Fund and the Transfer
Agent of any receipt by it of payments for Shares of the Fund.
13
<PAGE>
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees pursuant thereto, the Custodian shall, upon receipt of instructions
from the Transfer Agent, make funds available for payment to holders of Shares
who have delivered to the Transfer Agent a request for redemption or repurchase
of their Shares. In connection with the redemption or repurchase of Shares, the
Custodian is authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares, the
Custodian shall honor checks drawn on the Custodian by a holder of Shares, which
checks have been furnished by the Fund to the holder of Shares, when presented
to the Custodian in accordance with such procedures and controls as are mutually
agreed upon from time to time between the Fund and the Custodian.
5. Proper Instructions
-------------------
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. If given pursuant to procedures to be agreed upon by the
Custodian and the Fund, Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices. For purposes of this
Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three - party agreement which requires a segregated
asset account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
14
<PAGE>
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Fund except as otherwise directed by the Board of
Trustees.
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees as conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action by the
Board of Trustees pursuant to the Declaration of Trust as described in such
vote, and such vote may be considered as in full force and effect until receipt
by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
------------------------------------------------------------
Calculation of Net Asset Value and Net Income
---------------------------------------------
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees to keep the books of
account of the Fund and/or compute the net asset value per share of the
outstanding Shares of the Fund or, if directed in writing to do so by the Fund,
shall itself keep such books of account and/or compute such net asset value per
share. If so directed, the Custodian shall also calculate daily the net income
of the Fund as described in the Prospectus and shall advise the Fund and the
Transfer Agent daily of the total amount of such net income and, if instructed
in writing by an officer of the Fund to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various components.
The calculations of the net asset value per share and the daily income of the
Fund shall be made at the time or times described from time to time in the
Prospectus.
9. Records
-------
The Custodian shall with respect to the Fund create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company
Act, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder. All such records shall be the property of the Fund and shall at all
times during the regular business hours of the Custodian be open for inspection
by duly authorized officers, employees or agents of the Fund and employees and
agents of the SEC. The Custodian shall, at the Fund's request, supply the Fund
with a tabulation of securities owned by the Fund and held by the Custodian and
shall, when requested to do so by the Fund and for such compensation as shall be
agreed upon between the Fund and the Custodian, include certificate numbers in
such tabulations.
15
<PAGE>
10. Opinion of Fund's Independent Accountants
-----------------------------------------
The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-1A and N-SAR or other
annual reports to the SEC and with respect to any other SEC requirements.
11. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports shall be of
sufficient scope and in sufficient detail, as may reasonably be required by the
Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
12. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian as agreed upon from time to time between the
Fund and the Custodian.
13. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
16
<PAGE>
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Section 3.9)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by Section 3.12 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to the Custodian.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, the purchase or sale of foreign exchange or of
contracts for foreign exchange, and assumed settlement), or in the event that
the Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the applicable Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of the Fund's assets
to the extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of the date of its execution,
shall continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties hereto
and may be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect not
sooner than thirty (30) days after the date of such delivery or mailing;
provided, however that the Custodian shall not with respect to the Fund act
under Section 2.10 hereof in the absence of receipt of an initial certificate of
the Secretary or an Assistant Secretary that the Board of Trustees has approved
the initial use of a particular Securities System by the Fund, as required by
Rule 17f-4 under the Investment Company Act and that the Custodian shall not
with respect to the Fund act under Section 2.11 hereof in the absence of receipt
of an initial certificate of the Secretary or an Assistant Secretary that the
Board of Trustees has approved the initial use of the Direct Paper System by the
Fund; provided further, however, that the Fund shall not amend or terminate this
17
<PAGE>
Contract in contravention of any applicable federal or state regulations, or any
provision of the Declaration of Trust, and further provided, that the Fund may
at any time by action of the Board of Trustees (i) substitute another bank or
trust company for the Custodian by giving notice as described above to the
Custodian or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
15. Successor Custodian
-------------------
If a successor custodian shall be appointed by the Board of Trustees,
the Custodian shall, upon termination, deliver to such successor custodian at
the offices of the Custodian, duly endorsed and in the form for transfer, all
securities of the Fund then held by it hereunder and shall transfer to an
account of the successor custodian all of the securities of the Fund held in a
Securities System. If no such successor custodian shall be appointed, the
Custodian shall, in like manner, upon receipt of a certified copy of a vote of
the Board of Trustees, deliver at the offices of the Custodian and transfer such
securities, funds and other properties in accordance with such vote. In the
event that no written order designating a successor custodian or certified copy
of a vote of the Board of Trustees shall have been delivered to the Custodian on
or before the date when such termination shall become effective, then the
Custodian shall have the right to deliver to a bank or trust company, which is a
"bank" as defined in the Investment Company Act, doing business in Boston,
Massachusetts, or New York, New York, of its own selection, having an aggregate
capital, surplus, and undivided profits, as shown by its last published report,
of not less than $25,000,000, all securities, funds and other properties held by
the Custodian and all instruments held by the Custodian relative thereto and all
other property held by it under this Contract on behalf of the Fund and to
transfer to an account of such successor custodian all of the securities of the
Fund held in any Securities System. Thereafter, such bank or trust company shall
be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
18
<PAGE>
16. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and
the Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Declaration of Trust. No interpretive or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Contract.
17. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
18. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody of
the assets of the Fund.
19. Shareholder Communications Election
-----------------------------------
SEC Rule 14b-2 requires banks which hold securities for the account of
customers to respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly objected to disclosure of
this information. In order to comply with the rule, the Custodian needs the Fund
to indicate whether it authorizes the Custodian to provide the Fund's name,
address, and share position to requesting companies whose securities the Fund
owns. If the Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes" or
does not check either "yes" or "no" below, the Custodian is required by the rule
to treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consents or objects by checking one of
the alternatives below.
19
<PAGE>
YES [ ] The Custodian is authorized to release the Fund's
name, address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's
name, address, and share positions.
20
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of May 3, 1999.
ATTEST TAX EXEMPT CALIFORNIA MONEY MARKET
FUND
/s/Maureen Kane By: /s/Philip J. Collora
- ------------------------------ ------------------------------
Name: Maureen Kane Name: Philip J. Collora
Ass't Sec. Title: Vice President
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/Marc L. Parsons By: /s/Ronald E. Logue
- ------------------------------ ------------------------------
Marc L. Parsons Ronald E. Logue
Associate Counsel Vice Chairman
21
