Investors
Municipal
Cash Fund
PROSPECTUS August 1, 1999
INVESTORS MUNICIPAL CASH FUND
222 South Riverside Plaza, Chicago, Illinois 60606
Investors Florida Municipal Cash Fund
Investors Michigan Municipal Cash Fund
Investors New Jersey Municipal Cash Fund
Investors Pennsylvania Municipal Cash Fund
Tax-Exempt New York Money Market Fund
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
Table of Contents
- --------------------------------------------------
Investment Approach 1
- --------------------------------------------------
Principal Risk Factors 1
- --------------------------------------------------
About the Funds 2
- --------------------------------------------------
Investors Florida Municipal Cash Fund 2
- --------------------------------------------------
Investors Michigan Municipal Cash Fund 6
- --------------------------------------------------
Investors New Jersey Municipal Cash Fund 9
- --------------------------------------------------
Investors Pennsylvania Municipal Cash Fund 13
- --------------------------------------------------
Tax-Exempt New York Money Market Fund 16
- --------------------------------------------------
Investment Adviser 20
- --------------------------------------------------
About Your Investment 21
- --------------------------------------------------
Transaction Information 21
- --------------------------------------------------
Buying Shares 23
- --------------------------------------------------
Selling and Exchanging Shares 23
- --------------------------------------------------
Distributions 24
- --------------------------------------------------
Taxes 24
- --------------------------------------------------
Financial Highlights 25
- --------------------------------------------------
<PAGE>
This page
intentionally
left blank.
<PAGE>
INVESTORS MUNICIPAL CASH FUND
INVESTMENT APPROACH
The funds described in this prospectus seek to provide, to the extent consistent
with the stability of capital, maximum current income exempt from federal income
taxes and, in the case of certain funds, from income taxes of a particular
state. Each fund has its own investment objective, investment strategy and risk
profile.
Under normal market conditions, each fund will maintain at least 80% of its
investments in obligations issued by or on behalf of states, territories or
possessions of the U.S. and the District of Columbia, and their political
subdivisions, agencies and instrumentalities, the income from which is exempt
from federal income taxes. These are generally referred to as "municipal
securities."
Municipal securities are debt obligations issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass transportation,
schools, streets and water and sewer works. Other public purposes for which
municipal securities may be issued include:
o to refund outstanding obligations
o to obtain funds for general operating expenses
o to obtain funds to loan to other public institutions and facilities.
The two general classifications of municipal securities are "general obligation"
and "revenue" bonds. 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 or other specific revenue source. Industrial development
bonds which are municipal securities are in most cases revenue bonds and
generally do not constitute the pledge of the credit of the issuer of such
bonds. Each of the funds may invest all or any part of its assets in municipal
securities that are industrial development bonds.
PRINCIPAL RISK FACTORS
An investment in the funds is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although each fund seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in a fund.
As with most money market funds, the major factor affecting the funds'
performance is short-term interest rates. If short-term interest rates fall, the
funds' yields are also likely to fall. Moreover, the investment manager's
strategy or choice of specific investments may not perform as expected. These
funds may have lower returns than other funds that invest in longer-term or
lower-quality securities. It is also possible that securities in the funds'
investment portfolio could be downgraded in credit rating or go into default.
<PAGE>
Municipal Securities. The municipal securities market is narrower and less
liquid, with fewer investors, issuers and market makers, than the taxable
securities market. The more limited marketability of municipal securities may
make it more difficult in certain circumstances to dispose of large investments
advantageously. In addition, certain municipal securities might lose tax-exempt
status in the event of a change in the applicable tax laws.
Industrial Development Bonds. Industrial development bonds may involve more risk
than general obligation bonds because they are generally secured by the revenues
of the facility being financed rather than the taxing power of the municipality.
State Investing Risk. Because each fund focuses its investments in the municipal
securities of a particular state, adverse economic, political or regulatory
occurrences in that state will have a greater impact on investment returns than
would be the case for a money market fund investing nationally.
Non-diversified. Because each fund is classified as "non-diversified," each fund
may invest a relatively high percentage of its assets in a limited number of
issuers. Accordingly, the fund's investment returns are more likely to be
impacted by changes in the market value and returns of any one portfolio
holding.
ABOUT THE FUNDS
INVESTORS FLORIDA MUNICIPAL CASH FUND
Investment objective
The fund seeks to provide maximum current income, that is exempt from federal
income tax, to the extent consistent with stability of capital. The fund's
investment objective and fundamental policies may not be changed without a vote
of shareholders.
Main investment strategies
The fund is managed to maintain a net asset value of $1.00 per share. The fund
pursues its objective primarily through a professionally managed,
non-diversified portfolio of short-term high quality municipal obligations
(securities generally rated in the two highest categories by a nationally
recognized rating service) issued by or on behalf of the State of Florida, its
political subdivisions, authorities and corporations, and territories and
possessions of the United States and their political subdivisions, agencies and
instrumentalities, and other securities that are, in the opinion of bond counsel
to the issuer, exempt from the Florida intangibles tax and the interest from
which is exempt from federal income taxes.
Though the fund generally seeks investments exempt from the Florida intangibles
tax, there is no assurance that an exemption from the Florida intangibles tax
will be available.
Under normal market conditions, the fund will maintain at least 80% of its net
assets in municipal securities, the income from which is exempt from federal
income taxes.
Under normal market conditions, as a nonfundamental policy, the fund will
maintain at least 65% of its total assets in Florida municipal securities. The
fund will invest only in municipal securities that at the time of purchase meet
at least one of the following criteria:
o rated high quality by a nationally recognized statistical rating
organization;
o if unrated, are determined to be, in the discretion of the Board of
Trustees or its delegate, at least equal in quality to one or more of the
above ratings; or
o fully collateralized by an escrow of U.S. Government securities.
2
<PAGE>
The fund may invest in floating and variable rate instruments (obligations that
do not bear interest at fixed rates). Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or depreciation is less than
for fixed-rate obligations.
Securities are selected based on the investment managers' perception of monetary
conditions, the available supply of appropriate investments, and the investment
managers' projections for short-term interest rate movements. Sales of portfolio
holdings are typically made to implement an investment strategy or meet
shareholder redemptions. Issues with short maturities are generally held until
maturity.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Risk management strategies
From time to time, as a temporary defensive measure, including during periods
when acceptable short-term municipal securities are not available, the fund may
invest in taxable "temporary investments" that include:
o obligations of the U.S. Government, its agencies or instrumentalities;
o debt securities rated high quality by any nationally recognized statistical
rating organization;
o commercial paper rated high quality by any nationally recognized
statistical rating organization;
o certificates of deposit of domestic banks with assets of $1 billion or
more; and
o any of the above temporary investments subject to repurchase agreements.
Interest income from temporary investments is taxable to shareholders as
ordinary income; therefore, the fund may not achieve its investment objective
when the fund takes temporary defensive measures.
Main risks
The fund's principal risks are short-term interest rate risk, credit risk, state
investing risk, non-diversification risk, municipal securities risk, industrial
development bonds and portfolio management. You will find a discussion of these
risks at the front of this prospectus.
Florida specific risk. Florida is characterized by rapid growth, substantial
capital needs, a manageable debt burden, a diversifying but still somewhat
narrow economic base and good financial operations. The State continues to
experience rapid population growth which places an increasing burden on the
public services provided by the State. Technology-based manufacturing, business
and financial services have joined tourism and agriculture as leading elements
of Florida's continued economic growth. Florida's overall financial position
remains healthy. Florida relies on the sales tax as the major revenue source.
Florida has increased its funding of capital projects through more frequent debt
issuance rather than the historical pay-as-you-go method.
3
<PAGE>
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed. Of course, past performance
is not necessarily an indication of future performance.
Total return for year ended December 31
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- --------------------------------------------------------------------------------
2.64
1998
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 0.71% (the second quarter of 1998) and the fund's lowest
return for a calendar quarter was 0.63% (the fourth quarter of 1998).
The fund's year-to-date total return as of June 30, 1999 was 1.09%. Total
returns would have been lower had certain expenses not been capped.
Average Annual Total Returns
For periods ended Investors Florida
December 31, 1998 Municipal Cash Fund
- ----------------- -------------------
One Year 2.64%
Since Fund Inception* 2.73%
- -----------
* Inception date for the fund is May 22, 1997.
7-Day Yield
December 31, 1998 3.59%
4
<PAGE>
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
<S> <C>
Shareholder Fees (fees paid directly from your investment):
-----------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as % of offering price) NONE
-----------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as % of redemption proceeds) NONE
-----------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested dividends/distribution NONE
-----------------------------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, if applicable) NONE
-----------------------------------------------------------------------------------------------
Exchange fee NONE
-----------------------------------------------------------------------------------------------
Annual fund operating expenses (expenses that are deducted from fund assets):
-----------------------------------------------------------------------------------------------
Management fee 0.22%
-----------------------------------------------------------------------------------------------
Distribution (12b-1) fees 0.50%
-----------------------------------------------------------------------------------------------
Other expenses 0.37%
-----------------------------------------------------------------------------------------------
Total annual fund operating expenses 1.09%
-----------------------------------------------------------------------------------------------
Expense reimbursement 0.19%*
-----------------------------------------------------------------------------------------------
Net expenses 0.90%*
-----------------------------------------------------------------------------------------------
</TABLE>
* By contract, total fund expenses will be capped at 0.90% through July 31,
2000.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "Total annual fund operating expenses" remaining the same each year except
the first year. The first year of your investment will take into account the
fund's "Net expenses" as shown above. The expenses would be the same whether you
sold your shares at the end of each period or continued to hold them. Actual
fund expenses and return vary from year to year, and may be higher or lower than
those shown.
- ------------------------------------------------------
One Year $ 92
- ------------------------------------------------------
Three Years $ 328
- ------------------------------------------------------
Five Years $ 584
- ------------------------------------------------------
Ten Years $ 1,322
- ------------------------------------------------------
5
<PAGE>
INVESTORS MICHIGAN MUNICIPAL CASH FUND
Investment objective
The fund seeks to provide maximum current income, that is exempt from federal
and Michigan income taxes, to the extent consistent with stability of capital.
The fund's investment objective and fundamental policies may not be changed
without a vote of shareholders.
Main investment strategies
The fund is managed to maintain a net asset value of $1.00 per share. The fund
pursues its objective primarily through a professionally managed,
non-diversified portfolio of short-term high quality municipal obligations
(securities generally rated in the two highest categories by a nationally
recognized rating service) issued by or on behalf of the State of Michigan, its
political subdivisions, authorities and corporations, and territories and
possessions of the United States and their political subdivisions, agencies and
instrumentalities, the interest from which is, in the opinion of bond counsel to
the issuer, exempt from federal and Michigan income taxes.
Under normal market conditions, the fund will maintain at least 80% of its net
assets in municipal securities, the income from which is exempt from federal
income taxes.
Under normal market conditions, as a nonfundamental policy, the fund will
maintain at least 65% of its total assets in Michigan municipal securities. The
fund will invest only in municipal securities that at the time of purchase meet
at least one of the following criteria:
o rated high quality by a nationally recognized statistical rating
organization;
o if unrated, are determined to be, in the discretion of the Board of
Trustees or its delegate, at least equal in quality to one or more of the
above ratings; or
o fully collateralized by an escrow of U.S. Government securities.
The fund may invest in floating and variable rate instruments (obligations that
do not bear interest at fixed rates). Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or depreciation is less than
for fixed-rate obligations.
Securities are selected based on the investment managers' perception of monetary
conditions, the available supply of appropriate investments, and the investment
managers' projections for short-term interest rate movements. Sales of portfolio
holdings are typically made to implement an investment strategy or meet
shareholder redemptions. Issues with short maturities are generally held until
maturity.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
6
<PAGE>
Risk management strategies
From time to time, as a temporary defensive measure, including during periods
when acceptable short-term municipal securities are not available, the fund may
invest in taxable "temporary investments" that include:
o obligations of the U.S. Government, its agencies or instrumentalities;
o debt securities rated high quality by any nationally recognized statistical
rating organization;
o commercial paper rated high quality by any nationally recognized
statistical rating organization;
o certificates of deposit of domestic banks with assets of $1 billion or
more; and
o any of the above temporary investments subject to repurchase agreements.
Interest income from temporary investments is taxable to shareholders as
ordinary income; therefore, the fund may not achieve its investment objective
when the fund takes temporary defensive measures.
Main risks
The fund's principal risks are short-term interest rate risks, credit risk,
state investing risk, non-diversification risk, municipal securities risk,
industrial development bonds and portfolio management. You will find a
discussion of these risks at the front of this prospectus.
Michigan specific risk. Michigan's economic performance relies heavily on
national economic trends. Its economy is highly industrialized with an economic
base concentrated in the manufacturing sector. This concentration has generally
caused the State's economy to be more volatile than that of states with more
diversified industries, although its long-term growth has kept pace with the
nation due to gains in other sectors. The most recent economic recession had a
milder effect on the State compared to the recession of the 1980s. The
restructuring of the State's manufacturing industry following the recession of
the 1980s improved the industry's overall competitive position. In addition, the
rebound in the automotive industry during the past several years has improved
the State's current economic and financial position, which are currently at
record levels of achievement. Michigan's future economic growth will likely come
from growth in its service sector.
Past performance
As the fund did not commence operations until April 6, 1998, it does not have a
full calendar year of performance to report as of the date of this prospectus.
7-Day Yield
December 31, 1998 2.86%
Of course, past performance is not necessarily an indication of future
performance.
7
<PAGE>
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
<S> <C>
Shareholder Fees (fees paid directly from your investment):
-----------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as % of offering price) NONE
-----------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as % of redemption proceeds) NONE
-----------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested dividends/distribution NONE
-----------------------------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, if applicable) NONE
-----------------------------------------------------------------------------------------------
Exchange fee NONE
-----------------------------------------------------------------------------------------------
Annual fund operating expenses (expenses that are deducted from fund assets):
-----------------------------------------------------------------------------------------------
Management fee 0.22%
-----------------------------------------------------------------------------------------------
Distribution (12b-1) fees 0.35%
-----------------------------------------------------------------------------------------------
Other expenses 0.30%
-----------------------------------------------------------------------------------------------
Total annual fund operating expenses 0.87%
-----------------------------------------------------------------------------------------------
Expense reimbursement 0.12%*
-----------------------------------------------------------------------------------------------
Net expenses 0.75%*
-----------------------------------------------------------------------------------------------
</TABLE>
* By contract, total fund expenses will be capped at 0.75% through July 31,
2000.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "Total annual fund operating expenses" remaining the same each year except
the first year. The first year of your investment will take into account the
fund's "Net expenses" as shown above. The expenses would be the same whether you
sold your shares at the end of each period or continued to hold them. Actual
fund expenses and return vary from year to year, and may be higher or lower than
those shown.
- ------------------------------------------------------
One Year $ 77
- ------------------------------------------------------
Three Years $ 266
- ------------------------------------------------------
Five Years $ 471
- ------------------------------------------------------
Ten Years $ 1,067
- ------------------------------------------------------
8
<PAGE>
INVESTORS NEW JERSEY MUNICIPAL CASH FUND
Investment objective
The fund seeks to provide maximum current income, that is exempt from federal
and New Jersey income taxes, to the extent consistent with stability of capital.
The fund's investment objective and fundamental policies may not be changed
without a vote of shareholders.
Main investment strategies
The fund is managed to maintain a net asset value of $1.00 per share. The fund
pursues its objective primarily through a professionally managed,
non-diversified portfolio of short-term high quality municipal obligations
(securities generally rated in the two highest categories by a nationally
recognized rating service) issued by or on behalf of the State of New Jersey,
its political subdivisions, authorities and corporations, and territories and
possessions of the United States and their political subdivisions, agencies and
instrumentalities, the interest from which is, in the opinion of bond counsel to
the issuer, exempt from federal and New Jersey income taxes.
Under normal market conditions, the fund will maintain at least 80% of its net
assets in municipal securities, the income from which is exempt from federal
income taxes.
Under normal market conditions, as a nonfundamental policy, the fund will
maintain at least 65% of its total assets in New Jersey municipal securities.
The fund will invest only in municipal securities that at the time of purchase
meet at least one of the following criteria:
o rated high quality by a nationally recognized statistical rating
organization;
o if unrated, are determined to be, in the discretion of the Board of
Trustees or its delegate, at least equal in quality to one or more of the
above ratings; or
o fully collateralized by an escrow of U.S. Government securities.
The fund may invest in floating and variable rate instruments (obligations that
do not bear interest at fixed rates). Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or depreciation is less than
for fixed-rate obligations.
Securities are selected based on the investment managers' perception of monetary
conditions, the available supply of appropriate investments, and the investment
managers' projections for short-term interest rate movements. Sales of portfolio
holdings are typically made to implement an investment strategy or meet
shareholder redemptions. Issues with short maturities are generally held until
maturity.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
9
<PAGE>
Risk management strategies
From time to time, as a temporary defensive measure, including during periods
when acceptable short-term municipal securities are not available, the fund may
invest in taxable "temporary investments" that include:
o obligations of the U.S. Government, its agencies or instrumentalities;
o debt securities rated high quality by any nationally recognized statistical
rating organization;
o commercial paper rated high quality by any nationally recognized
statistical rating organization;
o certificates of deposit of domestic banks with assets of $1 billion or
more; and
o any of the above temporary investments subject to repurchase agreements.
Interest income from temporary investments is taxable to shareholders as
ordinary income; therefore, the fund may not achieve its investment objective
when the fund takes temporary defensive measures.
Main risks
The fund's principal risks are short-term interest rate risk, credit risk, state
investing risk, non-diversification risk, municipal securities risk, industrial
development bonds and portfolio management. You will find a discussion of these
risks at the front of this prospectus.
New Jersey specific risk. New Jersey is the ninth most populous state in the
nation. The state's economic base is diversified, consisting of a variety of
manufacturing, construction and service industries, supplemented by rural areas
with selective rural agriculture. New Jersey is experiencing strong economic
growth and increasing reserve balances. The services and construction sectors
have been adding jobs. Job creation has led to strong personal income tax
receipts which have resulted in a series of operating surpluses and a Growing
Rainy Day Fund. Per capital income in 1997 was $32,654, the second highest of
the United States and about 128% of the national average. The distribution of
employment in New Jersey mirrors that of the nation. Along with the rest of the
Northeast, New Jersey climbed out of the recession more slowly than the rest of
the nation. Since 1992, the unemployment rate in New Jersey has exceeded the
national average; the unemployment rate for New Jersey for April, 1999, was
4.5%, slightly higher than that of the U.S. as a whole.
10
<PAGE>
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed. Of course, past performance
is not necessarily an indication of future performance.
Total return for year ended December 31
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- --------------------------------------------------------------------------------
2.40
1998
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 0.67% (the second quarter of 1998) and the fund's lowest
return for a calendar quarter was 0.57% (the fourth quarter of 1998).
The fund's year-to-date total return as of June 30, 1999 was 1.00%. Total
returns would have been lower had certain expenses not been capped.
Average Annual Total Returns
For periods ended December 31, 1998 Investors New Jersey Municipal Cash Fund
- ----------------------------------- ----------------------------------------
One Year 2.40%
Since Inception* 2.50%
- -----------
* Inception date for the fund is May 23, 1997.
7-Day Yield
December 31, 1998 2.89%
11
<PAGE>
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
<S> <C>
Shareholder Fees (fees paid directly from your investment):
-----------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as % of offering price) NONE
-----------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as % of redemption proceeds) NONE
-----------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested dividends/distribution NONE
-----------------------------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, if applicable) NONE
-----------------------------------------------------------------------------------------------
Exchange fee NONE
-----------------------------------------------------------------------------------------------
Annual fund operating expenses (expenses that are deducted from fund assets):
-----------------------------------------------------------------------------------------------
Management fee 0.22%
-----------------------------------------------------------------------------------------------
Distribution (12b-1) fees 0.50%
-----------------------------------------------------------------------------------------------
Other expenses 0.40%
-----------------------------------------------------------------------------------------------
Total annual fund operating expenses 1.12%
-----------------------------------------------------------------------------------------------
Expense reimbursement 0.22%*
-----------------------------------------------------------------------------------------------
Net expenses 0.90%*
-----------------------------------------------------------------------------------------------
</TABLE>
* By contract, total fund expenses will be capped at 0.90% through July 31,
2000.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "Total annual fund operating expenses" remaining the same each year except
the first year. The first year of your investment will take into account the
fund's "Net expenses" as shown above. The expenses would be the same whether you
sold your shares at the end of each period or continued to hold them. Actual
fund expenses and return vary from year to year, and may be higher or lower than
those shown.
- ------------------------------------------------------
One Year $ 92
- ------------------------------------------------------
Three Years $ 335
- ------------------------------------------------------
Five Years $ 598
- ------------------------------------------------------
Ten Years $ 1,356
- ------------------------------------------------------
12
<PAGE>
INVESTORS PENNSYLVANIA MUNICIPAL CASH FUND
Investment objective
The fund seeks to provide maximum current income, that is exempt from federal
and Pennsylvania income taxes, to the extent consistent with stability of
capital. Except as otherwise noted, the fund's investment objective and other
policies may be changed by the fund's Board of Trustees, without a vote of
shareholders.
Main investment strategies
The fund is managed to maintain a net asset value of $1.00 per share. The fund
pursues its objective primarily through a professionally managed,
non-diversified portfolio of short-term high quality municipal obligations
(securities generally rated in the two highest categories by a nationally
recognized rating service) issued by or on behalf of the Commonwealth of
Pennsylvania, its political subdivisions, authorities and corporations, and
territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities, the interest from which is, in the
opinion of bond counsel to the issuer, exempt from federal and Pennsylvania
income taxes.
Under normal market conditions, the fund will maintain at least 80% of its net
assets in municipal securities, the income from which is exempt from federal
income taxes.
Under normal market conditions, the fund will maintain at least 65% of its total
assets in Pennsylvania municipal securities. The fund will invest only in
municipal securities that at the time of purchase meet at least one of the
following criteria:
o rated high quality by a nationally recognized statistical rating
organization;
o if unrated, are determined to be, in the discretion of the Board of
Trustees or its delegate, at least equal in quality to one or more of the
above ratings; or
o fully collateralized by an escrow of U.S. Government securities.
The fund may invest in floating and variable rate instruments (obligations that
do not bear interest at fixed rates). Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or depreciation is less than
for fixed-rate obligations.
Securities are selected based on the investment managers' perception of monetary
conditions, the available supply of appropriate investments, and the investment
managers' projections for short-term interest rate movements. Sales of portfolio
holdings are typically made to implement an investment strategy or meet
shareholder redemptions. Issues with short maturities are generally held until
maturity.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
Risk management strategies
From time to time, as a temporary defensive measure, including during periods
when acceptable short-term municipal securities are not available, the fund may
invest in taxable "temporary investments" that include:
o obligations of the U.S. Government, its agencies or instrumentalities;
o debt securities rated high quality by any nationally recognized statistical
rating organization;
o commercial paper rated high quality by any nationally recognized
statistical rating organization;
o certificates of deposit of domestic banks with assets of $1 billion or
more; and
o any of the above temporary investments subject to repurchase agreements.
Interest income from temporary investments is taxable to shareholders as
ordinary income; therefore, the fund may not achieve its investment objective
when the fund takes temporary defensive measures. Income based on federal
obligations is non-taxable for Pennsylvania income tax purposes.
13
<PAGE>
Main risks
The fund's principal risks are short-term interest rate risk, credit risk, state
investing risk, non-diversification risk, municipal securities risk, industrial
development bonds and portfolio management. You will find a discussion of these
risks at the front of this prospectus.
Pennsylvania specific risk. While Pennsylvania is among the leading states in
manufacturing and mining, it is transforming into more of a services and
high-tech economy evidenced by its growing reputation as a health and education
center. Following the recession of the early 1990's, Pennsylvania's economy had
become more reflective of the nation's. Service industries became a larger
portion of total employment. The steel industry had undergone a successful
restructuring. The economy, while continuing to experience some growth, has not
seen the levels of growth that most states have experienced during this recent
expansion. The replacement of highly paid manufacturing jobs for those in the
services and trade sectors will impede income growth. Relative cost advantages
which are available to businesses in the Commonwealth compared to its
neighboring states, as well as the restructuring and modernization of
manufacturing plants, should aid in boosting the economy.
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed. Of course, past performance
is not necessarily an indication of future performance.
Total return for year ended December 31
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- --------------------------------------------------------------------------------
2.63
1998
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 0.72% (the second quarter of 1998) and the fund's lowest
return for a calendar quarter was 0.61% (the fourth quarter of 1998).
The fund's year-to-date total return as of June 30, 1999 was 1.11%. Total
returns would have been lower had certain expenses not been capped.
14
<PAGE>
Average Annual Total Returns
For periods ended Investors Pennsylvania
December 31, 1998 Municipal Cash Fund
----------------- -------------------
One Year 2.63%
Since Inception* 2.73%
- -----------
* Inception date for the fund is May 21, 1997.
7-Day Yield
December 31, 1998 2.90%
Fee and expense information
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
<S> <C>
Shareholder Fees (fees paid directly from your investment):
-----------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as % of offering price) NONE
-----------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as % of redemption proceeds) NONE
-----------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested dividends/distribution NONE
-----------------------------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, if applicable) NONE
-----------------------------------------------------------------------------------------------
Exchange fee NONE
-----------------------------------------------------------------------------------------------
Annual fund operating expenses (expenses that are deducted from fund assets):
-----------------------------------------------------------------------------------------------
Management fee 0.22%
-----------------------------------------------------------------------------------------------
Distribution (12b-1) fees 0.50%
-----------------------------------------------------------------------------------------------
Other expenses 0.40%
-----------------------------------------------------------------------------------------------
Total annual fund operating expenses 1.12%
-----------------------------------------------------------------------------------------------
Expense reimbursement 0.22%*
-----------------------------------------------------------------------------------------------
Net expenses 0.90%*
-----------------------------------------------------------------------------------------------
</TABLE>
* By contract, total fund expenses will be capped at 0.90% through July 31,
2000.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "Total annual fund operating expenses" remaining the same each year except
the first year. The first year of your investment will take into account the
fund's "Net expenses" as shown above. The expenses would be the same whether you
sold your shares at the end of each period or continued to hold them. Actual
fund expenses and return vary from year to year, and may be higher or lower than
those shown.
- ------------------------------------------------------
One Year $ 92
- ------------------------------------------------------
Three Years $ 335
- ------------------------------------------------------
Five Years $ 598
- ------------------------------------------------------
Ten Years $ 1,356
- ------------------------------------------------------
15
<PAGE>
TAX-EXEMPT NEW YORK MONEY MARKET FUND
Investment objective
The fund seeks to provide maximum current income that is exempt from federal,
New York State and New York City income taxes, to the extent consistent with
stability of capital. The fund's investment objective and fundamental policies
may not be changed without a vote of shareholders.
Main investment strategies
The fund is managed to maintain a net asset value of $1.00 per share. The fund
pursues its objective primarily through a professionally managed,
non-diversified portfolio of short-term high quality municipal obligations
issued by or on behalf of the State of New York, its political subdivisions,
authorities and corporations, and territories and possessions of the United
States and their political subdivisions, agencies and instrumentalities, the
interest from which is, in the opinion of bond counsel to the issuer, exempt
from federal, New York State and New York City income taxes.
Under normal market conditions, the fund will maintain at least 80% of its net
assets in municipal securities, the income from which is exempt from federal
income taxes. The fund does not consider bonds whose interest may be subject to
the alternative minimum tax as municipal securities for purposes of this
limitation.
Under normal market conditions, as a nonfundamental policy, the fund will
maintain at least 65% of its total assets in New York municipal securities. The
fund will invest only in municipal securities that at the time of purchase meet
at least one of the following criteria:
o are rated within the two highest ratings of municipal securities by either
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P");
o are guaranteed or insured by the U.S. government as to the payment of
principal and interest;
o are fully collateralized by an escrow of U.S. Government securities;
o have at the time of purchase a Moody's short-term municipal securities
rating of MIG-2 or higher or a municipal commercial paper rating of P-2 or
higher, or S&P's municipal commercial paper rating of A-2 or higher;
o 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
o are determined to be, in the discretion of the Board of Trustees or its
delegate, at least equal in quality to one or more of the above categories.
The fund may invest in floating and variable rate instruments (obligations that
do not bear interest at fixed rates). Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or depreciation is less than
for fixed-rate obligations.
Securities are selected based on the investment managers' perception of monetary
conditions, the available supply of appropriate investments, and the investment
managers' projections for short-term interest rate movements. Sales of portfolio
holdings are typically made to implement an investment strategy or meet
shareholder redemptions. Issues with short maturities are generally held until
maturity.
Of course, there can be no guarantee that by following these investment
strategies, the fund will achieve its objective.
16
<PAGE>
Risk management strategies
From time to time, as a temporary defensive measure, including during periods
when acceptable short-term municipal securities are not available, the fund may
invest in taxable "temporary investments" that include:
o obligations of the U.S. Government, its agencies or instrumentalities;
o debt securities rated within the two highest grades by either Moody's or
S&P;
o commercial paper within the two highest grades by either Moody's or S&P;
o certificates of deposit of domestic banks with assets of $1 billion or
more; and
o any of the above temporary investments subject to repurchase agreements.
Interest income from temporary investments is taxable to shareholders as
ordinary income; therefore, the fund may not achieve its investment objective
when the fund takes temporary defensive measures.
Main risks
The fund's principal risks are short-term interest rate risk, credit risk, state
investing risk, non-diversification risk, municipal securities risk, industrial
development bonds and portfolio management. You will find a discussion of these
risks at the front of this prospectus.
New York specific risk. New York is the third most populous state in the nation;
New York City accounts for about 40% of the State's population. After a boom in
the mid-1980's, New York and the rest of the Northeast fell into a recession a
year before the national recession officially began. Along with the rest of the
Northeast, New York climbed out of the recession more slowly than the rest of
the nation. New York ranks fourth in the nation in personal income. In 1997, New
York's per capita personal income was $30,752, which is about 120% of the
national average. Employment distribution throughout industry sectors is similar
to that of the nation except for a higher concentration in the finance,
insurance and real estate sectors and a lower concentration in the manufacturing
sector. Historically, unemployment is more cyclical in New York than for the
United States as a whole. Since 1991, New York's unemployment rate has exceeded
the U.S. average.
17
<PAGE>
Past performance
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed from year to year. Of
course, past performance is not necessarily an indication of future performance.
Total returns for years ended December 31
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
- --------------------------------------------------------------------------------
3.76 2.19 1.63 2.04 3.12 3.01 2.92 2.63
1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's highest return for a
calendar quarter was 1.04% (the second quarter of 1991) and the fund's lowest
return for a calendar quarter was 0.37% (the first quarter of 1994).
The fund's year-to-date total return as of June 30, 1999 was 1.09%. Total
returns would have been lower had certain expenses not been capped.
Average Annual Total Returns
For periods ended Tax-Exempt New York
December 31, 1998 Money Market Fund
----------------- -----------------
One Year 2.63%
Five Years 2.74%
Since Inception* 2.68%
- -----------
* Inception date for the fund is December 13, 1990.
7-Day Yield
December 31, 1998 2.81%
18
<PAGE>
Fee and expense information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the fund
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
<S> <C>
Shareholder Fees (fees paid directly from your investment):
-----------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as % of offering price) NONE
-----------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as % of redemption proceeds) NONE
-----------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested dividends/distribution NONE
-----------------------------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, if applicable) NONE
-----------------------------------------------------------------------------------------------
Exchange fee NONE
-----------------------------------------------------------------------------------------------
Annual fund operating expenses (expenses that are deducted from fund assets):
-----------------------------------------------------------------------------------------------
Management fee 0.22%
-----------------------------------------------------------------------------------------------
Distribution (12b-1) fees 0.50%
-----------------------------------------------------------------------------------------------
Other expenses 0.26%
-----------------------------------------------------------------------------------------------
Total annual fund operating expenses 0.98%
-----------------------------------------------------------------------------------------------
Expense reimbursement 0.18%*
-----------------------------------------------------------------------------------------------
Net expenses 0.80%*
-----------------------------------------------------------------------------------------------
</TABLE>
* By contract, total fund expenses will be capped at 0.80% through July 31,
2000.
Example
This example is to help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "Total annual fund operating expenses" remaining the same each year except
the first year. The first year of your investment will take into account the
fund's "Net expenses" as shown above. The expenses would be the same whether you
sold your shares at the end of each period or continued to hold them. Actual
fund expenses and return vary from year to year, and may be higher or lower than
those shown.
- ------------------------------------------------------
One Year $ 82
- ------------------------------------------------------
Three Years $ 295
- ------------------------------------------------------
Five Years $ 526
- ------------------------------------------------------
Ten Years $ 1,194
- ------------------------------------------------------
19
<PAGE>
INVESTMENT ADVISER
Each fund retains the investment management firm of Scudder Kemper Investments,
Inc., the ("Adviser"), 345 Park Avenue, New York, New York, to manage each
fund's daily investment and business affairs subject to the policies established
by each fund's Board. The Adviser actively manages each fund's investments.
Professional management can be an important advantage for investors who do not
have the time or expertise to invest directly in individual securities. Scudder
Kemper Investments, Inc. is one of the largest and most experienced investment
management organizations worldwide managing more than $280 billion in assets
globally for mutual fund investors, retirement and pension plans, institutional
and corporate clients, and private family and individual accounts.
The funds pay the Adviser a (graduated) monthly investment management fee on a
combined asset basis. Fees paid for each fund's most recently completed fiscal
year are shown below:
Investors Florida Municipal Cash Fund. The Adviser, the fund's Principal
Underwriter, Kemper Distributors, Inc., the fund's Shareholder Service Agent,
Kemper Service Company, and the fund's Accounting Agent, Scudder Fund Accounting
Corporation, have contractually agreed to maintain the total annualized expenses
of the fund at no more than 0.90% of the average daily net assets of the fund
through July 31, 2000. The Adviser received an investment management fee of
0.22% of the fund's average daily net assets on an annual basis for the fiscal
year ended March 31, 1999, reflecting the effect of expense limitations then in
effect.
Investors Michigan Municipal Cash Fund. The Adviser, the fund's Principal
Underwriter, Kemper Distributors, Inc., the fund's Shareholder Service Agent,
Kemper Service Company, and the fund's Accounting Agent, Scudder Fund Accounting
Corporation, have contractually agreed to maintain the total annualized expenses
of the fund at no more than 0.75% of the average daily net assets of the fund
through July 31, 2000. The Adviser received an investment management fee of
0.22% of the fund's average daily net assets on an annual basis for the fiscal
year ended March 31, 1999, reflecting the effect of expense limitations then in
effect.
Investors New Jersey Municipal Cash Fund. The Adviser, the fund's Principal
Underwriter, Kemper Distributors, Inc., the fund's Shareholder Service Agent,
Kemper Service Company, and the fund's Accounting Agent, Scudder Fund Accounting
Corporation, have contractually agreed to maintain the total annualized expenses
of the fund at no more than 0.90% of the average daily net assets of the fund
through July 31, 2000. The Adviser received an investment management fee of
0.22% of the fund's average daily net assets on an annual basis for the fiscal
year ended March 31, 1999, reflecting the effect of expense limitations then in
effect.
Investors Pennsylvania Municipal Cash Fund. The Adviser, the fund's Principal
Underwriter, Kemper Distributors, Inc., the fund's Shareholder Service Agent,
Kemper Service Company, and the fund's Accounting Agent, Scudder Fund Accounting
Corporation, have contractually agreed to maintain the total annualized expenses
of the fund at no more than 0.90% of the average daily net assets of the fund
through July 31, 2000. The Adviser received an investment management fee of
0.22% of the fund's average daily net assets on an annual basis for the fiscal
year ended March 31, 1999, reflecting the effect of expense limitations then in
effect.
Tax-Exempt New York Money Market Fund. The Adviser, the fund's Principal
Underwriter, Kemper Distributors, Inc., the fund's Shareholder Service Agent,
Kemper Service Company, and the fund's Accounting Agent, Scudder Fund Accounting
Corporation, have contractually agreed to maintain the total annualized expenses
of the fund at no more than 0.80% of the average daily net assets of the fund
through July 31, 2000. The Adviser received an investment management fee of
0.22% of the fund's average daily net assets on an annual basis for the fiscal
year ended March 31, 1999, reflecting the effect of expense limitations then in
effect.
20
<PAGE>
Fund management
The following investment professionals are associated with each fund as
indicated:
<TABLE>
<CAPTION>
Name & Title Joined the Fund Background
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frank J. Rachwalski, Jr. 1998 Mr. Rachwalski joined the Adviser in 1973 as a money market
Lead Manager specialist and began his investment career at that time. He
has been responsible for the trading and portfolio
management of money market portfolios since 1974.
Jerri I. Cohen 1998 Ms. Cohen joined the Adviser in 1981 as an accountant and
Manager began her investment career in 1992 as a money market trader.
Elizabeth Meyer 1998 Ms. Meyer joined the Adviser in 1986 in the investment trust
Manager department. She began her investment career in 1992 as a
performance analyst and became a money market trader in 1994.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Year 2000 readiness
Like all mutual funds, these funds could be affected by the inability of some
computer systems to recognize the year 2000. Scudder Kemper has a year 2000
readiness program designed to address this problem, and is also researching the
readiness of suppliers and business partners as well as issuers of securities
the funds own. Still, there's some risk that the year 2000 problem could
materially affect a fund's operations (such as its ability to calculate net
asset value and process purchases and redemptions), its investments, or
securities markets in general.
ABOUT YOUR INVESTMENT
TRANSACTION INFORMATION
Share price
Scudder Fund Accounting Corporation determines the net asset value per share of
the funds on each day the New York Stock Exchange is open for trading, at 11:00
a.m. and 3:00 p.m. Central time.
Each fund seeks to maintain a net asset value of $1.00 per share and values its
portfolio instruments at amortized cost. Calculations are made to compare the
value of the fund's investments, valued at amortized cost, with market-based
values. In order to value its investments at amortized cost, the fund purchases
only securities with a maturity of 397 days or less and maintains a
dollar-weighted average portfolio maturity of 90 days or less. In addition, the
fund limits its portfolio investments to securities that meet the quality and
diversification requirements of federal law.
The net asset value per share is the value of one shares and is determined by
dividing the value of the fund's total assets, less liabilities, by the number
of shares outstanding.
Processing time
Payment for shares you sell will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request.
If you have share certificates, these must accompany your order in proper form
for transfer. When you place an order to sell shares for which a fund may not
yet have received good payment (i.e., purchases by check or certain Automated
Clearing House Transactions), the fund may delay transmittal of the proceeds
until it has determined that collected funds have been received for the purchase
of such shares. This may be up to 10 days from receipt by a fund of the purchase
amount. If shares being redeemed were acquired from an exchange of shares of a
mutual fund that were offered subject to a contingent deferred sales charge the
redemption of such shares by the fund may be subject to a contingent deferred
sales charge as explained in the prospectus for the other fund.
21
<PAGE>
Signature guarantees
A signature guarantee is required unless you sell shares worth $50,000 or less
and the proceeds are payable to the shareholder of record at the address of
record. You can obtain a guarantee from most brokerage houses and financial
institutions, although not from a notary public. The funds will normally send
you the proceeds within one business day following your request, but may take up
to seven business days (or longer in the case of shares recently purchased by
check).
Purchase restrictions
The funds and their principal underwriter reserve the right to withdraw all or
any part of the offering made by this prospectus and to reject purchase orders.
Also, from time to time, each fund may temporarily suspend the offering of its
shares or a class of its shares to new investors. During the period of such
suspension, persons who are already shareholders normally are permitted to
continue to purchase additional shares and to have dividends reinvested.
Any purchases that would result in total account balances for a single
shareholder in excess of $3 million is subject to prior approval by the funds.
Minimum balances
The minimum initial investment is $1,000 and the minimum subsequent investment
is $100 but such minimum amounts may be changed at any time in management's
discretion. Under an automatic investment plan, the minimum initial and
subsequent investment is $50. Firms offering a fund's shares may set higher
minimums for accounts they service and may change such minimums at their
discretion. Because of the high cost of maintaining small accounts, the funds
reserve the right to redeem an account with a balance below $1,000. Thus, a
shareholder who makes only the minimum initial investment and then redeems any
portion thereof might have the account redeemed. A shareholder will be notified
in writing and will be allowed 60 days to make additional purchases to bring the
account value up to the minimum investment level before the fund redeems that
shareholder account.
Third party transactions
If you buy and sell shares of a fund through a member of the National
Association of Securities Dealers, Inc. (other than the funds' distributor),
that member may charge a fee for that service. This prospectus should be read in
connection with such firms' material regarding their fees and services.
Redemption-in-kind
The funds reserve the right to honor any request for redemption or repurchase
order by "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, the fund won't make a redemption in kind unless your
requests over a 90-day period, total more than $250,000 or 1% of the fund's
assets, whichever is less.
Rule 12b-1 plan
Each fund has adopted a plan under Rule 12b-1 that provides for fees payable as
an expense of the fund that are used by the principal underwriter to pay for
distribution and services for that fund. Under the Rule 12b-1 plan, the fund
pays an annual distribution services fee, payable monthly, of 0.50% of the
fund's average daily net assets (except Investors Michigan Municipal Cash Fund,
which pays 0.35%). 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.
22
<PAGE>
BUYING SHARES
Shares of a fund may be purchased at net asset value, with no sales charge
through selected financial services firms, such as broker-dealers and banks.
Each fund seeks to be as fully invested as possible at all times in order to
achieve maximum income. Since the funds will be investing in instruments that
normally require immediate payment in Federal Funds (monies credited to a bank's
account with its regional Federal Reserve Bank), each fund has adopted
procedures for the convenience of its shareholders and to ensure that it
receives investable funds.
Orders for purchase of shares received by wire transfer in the form of Federal
Funds will be effected at the next determined net asset value. Shares purchased
by wire will receive that day's dividend if effected at or prior to the 11:00
a.m. Central time net asset value determination, otherwise such shares will
receive the dividend for the next calendar day if effected at 3:00 p.m. Central
time. Orders for purchase accompanied by a check or other negotiable bank draft
will be accepted and effected as of 3:00 p.m. Central time on the next business
day following receipt and such shares will receive the dividend for the next
calendar day following the day when the purchase is effected. If an order is
accompanied by a check drawn on a foreign bank, funds must normally be collected
on such check before shares will be purchased.
If payment is to be wired, call the firm from which you received this prospectus
for proper instructions.
SELLING AND EXCHANGING SHARES
Upon receipt by the shareholder service agent, Kemper Service Company, of a
request in the form described below, shares will be redeemed at the next
determined net asset value. If processed at 3:00 p.m. Central time, the
shareholder will receive that day's dividend. Requests received by the
shareholder service agent for expedited wire redemptions prior to 11:00 a.m.
Central time will result in shares being redeemed that day and normally proceeds
will be sent to the designated account that day. A shareholder may use either
the regular or expedited redemption procedures. Shareholders who redeem all
their shares of a fund will receive the net asset value of such shares and all
declared but unpaid dividends on such shares.
Shareholders should contact the financial services firm through which shares
were purchased for redemption instructions. Any shareholder may request that a
fund redeem his or her shares. When shares are held for the account of a
shareholder by the funds' transfer agent, the shareholder may redeem them by
sending a written request with signatures guaranteed to Kemper Service Company,
811 Main Street, Kansas City, Missouri 64105.
An exchange of shares entails the sale of fund shares and subsequent purchase of
shares of a Kemper Fund.
Shareholders may obtain additional information about other ways to redeem
shares, such as telephone redemptions, expedited wire transfer redemptions and
redemptions by draft, by contacting their financial services firm.
Share certificates
When certificates for shares have been issued, they must be mailed to or
deposited with the Shareholder Service Agent, along with a duly endorsed stock
power and accompanied by a written request for redemption. Redemption requests
and a stock power must be endorsed by the account holder with signatures
guaranteed. The redemption request and stock power must be signed exactly as the
account is registered including any special capacity of the registered owner.
Additional documentation may be requested, and a signature guarantee is normally
required, from institutional and fiduciary account holders, such as
corporations, custodians (e.g., under the Uniform Transfers to Minors Act),
executors, administrators, trustees or guardians.
23
<PAGE>
DISTRIBUTIONS
The funds' dividends are declared daily and distributed monthly to shareholders.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such month and paid during the following January
will be treated by shareholders for federal income tax purposes as if received
on December 31 of the calendar year declared.
A shareholder may choose to receive distributions in cash or have them
reinvested in additional shares of a fund. If an investment is in the form of a
retirement plan, all dividends and capital gains distributions must be
reinvested into the shareholders' account.
Dividends will be reinvested unless the shareholder elects to receive them in
cash. The tax status of dividends is the same whether they are reinvested or
paid in cash.
TAXES
Generally, income dividends which represent interest received from municipal
securities are not taxable to shareholders. Dividends representing taxable net
investment income, if any, and net short-term capital gains, if any, are taxable
to shareholders as ordinary income. Long-term capital gains distributions, if
any, are taxable to shareholders as long-term capital gains, regardless of the
length of time shareholders have owned shares. Short and long-term capital gain
attributable to exempt New Jersey obligations will not be taxable to New Jersey
shareholders. Capital gain attributable to redemption of shares of the New
Jersey Fund also will not be taxable to New Jersey shareholders under the New
Jersey Gross Income Tax. Each of the funds may invest in bonds whose net
interest may be subject to the alternative minimum tax. Each fund, other than
the New York Fund, may invest without limit in such bonds. The tax exemption of
fund dividends for federal income tax and particular state or local tax purposes
does not necessarily result in exemption under the income or other tax laws of
any other state or local taxing authority. The laws of several states and local
taxing authorities vary with respect to the taxation of interest income and
investments, and shareholders are advised to consult their own tax advisers as
to the status of their accounts under state and local tax laws. The funds may
not be an appropriate investment for qualified retirement plans and Individual
Retirement Accounts.
Each fund sends detailed tax information about the amount and type of its
distributions by January 31 of the following year.
Each fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Any such withheld amounts may be credited against the
shareholder's U.S. federal income tax liability.
To qualify as an investment exempt from the Florida state intangibles tax,
Investors Florida Municipal Cash Fund generally must consist of at least 90% of
net assets exempt from the Florida state intangibles tax on the last business
day of the calendar year.
24
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables are intended to help you understand the funds' financial
performance for the past several years. The total return figures show what an
investor in a fund would have earned assuming reinvestment of all dividends and
distributions. This information has been audited by Ernst & Young LLP, whose
report, along with the funds' financial statements, is included in the annual
report, which is available upon request (see back cover).
<TABLE>
<CAPTION>
INVESTORS FLORIDA MUNICIPAL CASH FUND
Year ended May 22, 1997
March 31, to March 31,
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .02 .02
- ---------------------------------------------------------------------------------------------------------------------
Less dividends declared .02 .02
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------
Total Return (not annualized) 2.50% 2.41
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets after Expense Waiver (annualized):
Expenses .85% .90
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 2.36% 2.74
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets before Expense Waiver (annualized):
Expenses 1.09% .99
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 2.12% 2.65
- ---------------------------------------------------------------------------------------------------------------------
Supplemental Data:
Net assets at end of period (in thousands) $20,454 7,611
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INVESTORS MICHIGAN MUNICIPAL CASH FUND
April 6, 1998
to March 31,
1999
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of period $1.00
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .02
- ---------------------------------------------------------------------------------------------------------------------
Less dividends declared .02
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00
- ---------------------------------------------------------------------------------------------------------------------
Total Return (not annualized) 2.41%
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets after Expense Waiver (annualized):
Expenses .75%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 2.62%
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets before Expense Waiver (annualized):
Expenses .87%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 2.50%
- ---------------------------------------------------------------------------------------------------------------------
Supplemental Data:
Net assets at end of period (in thousands) $35,625
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Total returns would have been lower had certain expenses not been capped.
25
<PAGE>
<TABLE>
<CAPTION>
INVESTORS NEW JERSEY MUNICIPAL CASH FUND
Year ended May 23, 1997
March 31, to March 31,
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .02 .02
- ---------------------------------------------------------------------------------------------------------------------
Less dividends declared .02 .02
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------
Total Return (not annualized) 2.26% 2.22
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets after Expense Waiver (annualized):
Expenses .90% .90
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 2.13% 2.55
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets before Expense Waiver (annualized):
Expenses 1.12% 1.12
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 1.91% 2.33
- ---------------------------------------------------------------------------------------------------------------------
Supplemental Data:
Net assets at end of period (in thousands) $15,330 4,665
- ---------------------------------------------------------------------------------------------------------------------
INVESTORS PENNSYLVANIA MUNICIPAL CASH FUND
Year ended May 21, 1997
March 31, to March 31,
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .02 .02
- ---------------------------------------------------------------------------------------------------------------------
Less dividends declared .02 .02
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------
Total Return (not annualized) 2.50% 2.42
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets after Expense Waiver (annualized):
Expenses .90% .90
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 2.40% 2.76
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets before Expense Waiver (annualized):
Expenses 1.12% 1.11
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 2.18% 2.55
- ---------------------------------------------------------------------------------------------------------------------
Supplemental Data:
Net assets at end of period (in thousands) $6,003 3,195
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Total returns would have been lower had certain expenses not been capped.
26
<PAGE>
<TABLE>
<CAPTION>
TAX-EXEMPT NEW YORK MONEY MARKET FUND
Year ended March 31,
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .02 .03 .03 .03 .02
- ---------------------------------------------------------------------------------------------------------------------
Less dividends declared .02 .03 .03 .03 .02
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------
Total Return 2.50% 2.90 3.03 3.03 2.40
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets after Expense Waiver:
Expenses .80% .80 .44 .80 .80
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 2.41% 2.83 2.96 2.95 2.44
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets before Expense Waiver:
Expenses .98% .98 .96 1.14 1.15
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 2.23% 2.65 2.44 2.61 2.09
- ---------------------------------------------------------------------------------------------------------------------
Supplemental Data:
Net assets at end of year (in thousands) $184,497 104,198 60,575 18,527 14,090
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Total returns would have been lower had certain expenses not been capped.
27
<PAGE>
Additional information about the funds may be found in the Statement of
Additional Information and in shareholder reports. Shareholder inquiries may be
made by calling the toll-free telephone number listed below. The Statement of
Additional Information contains more detailed information on each fund's
investments and operations. The semiannual and annual shareholder reports
contain a discussion of the market conditions and the investment strategies that
significantly affected the funds' performance during the last fiscal year, as
well as a listing of portfolio holdings and financial statements. These and
other fund documents may be obtained without charge from your financial advisor,
from the Shareholder Service Agent at 1-800-231-8568, or from the Securities and
Exchange Commission Web site (http://www.sec.gov). You can also visit or write
the SEC and obtain copies for a fee: Public Reference Section, Securities and
Exchange Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549 (1-800-SEC-0330).
The Statement of Additional Information dated August 1, 1999 is incorporated by
reference into this prospectus (is legally a part of this prospectus).
Investment Company Act file numbers:
Investors Municipal Cash Fund 811-6108
28
<PAGE>
INVESTORS MUNICIPAL CASH FUND
Investors Florida Municipal Cash Fund ("Florida Fund")
Investors Michigan Municipal Cash Fund ("Michigan Fund")
Investors New Jersey Municipal Cash Fund ("New Jersey Fund")
Investors Pennsylvania Municipal Cash Fund ("Pennsylvania Fund")
Tax-Exempt New York Money Market Fund ("New York Fund")
Collectively (the "Funds")
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-231-8568
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1999
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus of Investors Municipal Cash Fund (the
"Trust") dated August 1, 1999. The prospectus may be obtained without charge
from the Trust, and is also available along with other related materials on the
SEC's Internet web site (http://www.sec.gov).
------------
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVES AND POLICIES...........................................2
MUNICIPAL SECURITIES.........................................................5
STATE SPECIFIC RISK FACTORS..................................................9
INVESTMENT RESTRICTIONS.....................................................16
INVESTMENT ADVISER AND SHAREHOLDER SERVICES.................................19
PORTFOLIO TRANSACTIONS......................................................23
PURCHASE AND REDEMPTION OF SHARES...........................................24
DIVIDENDS, TAXES AND NET ASSET VALUE........................................28
PERFORMANCE.................................................................31
OFFICERS AND TRUSTEES.......................................................37
SPECIAL FEATURES............................................................39
SHAREHOLDER RIGHTS..........................................................41
<PAGE>
The financial statements appearing in the Trust's Annual Report to Shareholders
dated March 31, 1999 are incorporated herein by reference. The Trust's Annual
Report accompanies this Statement of Additional Information and may be obtained
without charge by calling 1-800-231-8568.
printed on recycled paper
2
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Descriptions in this Statement of Additional Information of a particular
investment practice or technique in which a Fund may engage or a financial
instrument which a Fund may purchase are meant to describe the spectrum of
investments that Scudder Kemper Investments, Inc. (the "Adviser" or "Scudder
Kemper"), in its discretion, might, but is not required to, use in managing a
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 a Fund, but, to the extent employed, could, from time to time,
have a material impact on the Fund's performance.
Investors Municipal Cash Fund (the "Trust") is a registered open-end,
non-diversified management investment company that offers a choice of five
investment portfolios ("Funds"). Each Fund seeks to provide, to the extent
consistent with stability of capital, maximum current income that is exempt from
federal income taxes and, in the case of certain Funds, the income taxes of a
particular state. The Trust may offer additional Funds in the future.
Each Fund is a money market mutual fund that has been designed to provide
investors with professional management of short-term investment dollars. Each
Fund pools individual and institutional investors' money which it uses to buy
tax-exempt money market instruments. Because the Funds combine their respective
shareholders' money, they can buy and sell large blocks of securities, which
reduces transaction costs and increases yields. The Funds are managed by
investment professionals who analyze market trends to take advantage of changing
conditions. 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 ratings, high quality money market instruments, such
as those in which the Funds invest, are generally considered among the safest
available. There can be no assurance that a Fund will achieve its objective or
that it will maintain a net asset value of $1.00 per share.
As a fundamental investment policy, each Fund will under normal market
conditions maintain at least 80% of its investments in obligations issued by or
on behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities, the income from which is exempt from federal income taxes
("Municipal Securities"). In addition, each Fund will, under normal market
conditions, maintain at least 80% of its net assets in municipal securities, the
income from which is exempt from federal income taxes. Each of the Funds may
invest in bonds whose net interest may be subject to the alternative minimum
tax. In compliance with the position of the staff of the Securities and Exchange
Commission ("SEC"), the New York Fund does not consider such bonds as Municipal
Securities for purposes of the 80% limitation. This is a fundamental policy for
the New York Fund so long as the SEC staff maintains its position, after which
it would become non-fundamental. Each Fund's assets will consist of Municipal
Securities and temporary investments as described below and cash.
The New York 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 a Moody's short-term municipal securities rating of MIG-2
or higher or a municipal commercial paper rating of P-2 or higher, or S&P's
municipal commercial paper rating of A-2 or higher; (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 Board of Trustees or
its delegate to be at least equal in quality to one or more of the above
categories.
3
<PAGE>
The Florida, Michigan, New Jersey and Pennsylvania Funds will invest only in
Municipal Securities that at the time of purchase: (a) are rated high quality by
Moody's, S&P, Duff Phelps, Inc., Fitch Investor's Services, Inc. or any other
nationally recognized statistical rating organization ("NRSRO") as determined by
the SEC; (b) are unrated, if in the discretion of the Board of Trustees or its
delegate the Municipal Securities are determined to be at least equal in quality
to one or more of the ratings in subparagraph (a) immediately above; or (c) are
fully collateralized by an escrow of U.S. Government securities.
Rather than invest in securities directly, each Fund may in the future seek to
achieve its investment objective by pooling its assets with assets of other
mutual funds managed by Scudder Kemper or its affiliates for investment in
another investment company having the same investment objective and
substantially the same investment policies and restrictions. The purpose of such
an arrangement is to achieve greater operational efficiencies and to reduce
costs. It is expected that any such investment company will be managed by
Scudder Kemper in substantially the same manner as the Fund pooling its assets.
Shareholders of a Fund will be given at least 30 days prior notice of any such
investment, although they will not be entitled to vote on the action. Such
investment would be made only if the trustees determine it to be in the best
interests of a Fund and its shareholders.
The Funds limit their portfolio investments to securities that meet the
diversification and quality requirements of Rule 2a-7 under the Investment
Company Act of 1940 (the "1940 Act"). From time to time, a significant portion
of a 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 a Fund and affect
its share price.
A Fund will not purchase illiquid securities, including repurchase agreements
maturing in more than seven days, if, as a result thereof, more than 10% of a
Fund's net assets value at the time of the transaction would be invested in such
securities.
From time to time, as a defensive measure, including during periods when
acceptable short-term Municipal Securities are not available, each 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 for the New York Fund; debt securities
rated high quality by any NRSRO for the Florida, Michigan, New Jersey and
Pennsylvania Funds; commercial paper rated in the two highest grades by either
Moody's or S&P for the New York Fund; commercial paper rated high quality by any
NRSRO for the Florida, Michigan, New Jersey and Pennsylvania Funds; 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 a Fund acquires ownership of a security from a
broker-dealer or bank that agrees to repurchase the security at a mutually
agreed upon time and price (which price is higher than the purchase price),
thereby determining the yield during the Fund's holding period. 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 a Fund is
permitted to invest in taxable securities it is each Fund's primary intention to
generate income dividends that are not subject to federal income taxes and, in
the case of certain Funds, the income taxes of a particular state.
The Funds may not borrow money except as a temporary measure for extraordinary
or emergency purposes, and then only in an amount up to one-third of the value
of its total assets, in order to meet redemption requests without immediately
selling any portfolio securities. Any such borrowings under this provision will
not be collateralized. A Fund will not borrow for leverage purposes. A Fund will
not purchase illiquid securities, including repurchase agreements maturing in
more than seven days, if, as a result thereof, more than 10% of a Fund's net
assets valued at the time of the transaction would be invested in such
securities. Up to 25% of the total assets of a Fund may be invested at any time
in debt obligations of a single issuer or of issuers in a single industry, and a
Fund may invest without limitation in Municipal Securities the income on which
may be derived from projects of a single type.
4
<PAGE>
Although the Trust has registered as a "non-diversified" investment company,
each Fund must meet the diversification requirements of Rule 2a-7 under the 1940
Act. Rule 2a-7 generally provides that a single state money fund shall not, as
to 75% of its assets, invest more than 5% of its assets in the securities of an
individual issuer, provided that the fund may not invest more than 5% of its
assets in the securities of an individual issuer unless the securities are First
Tier Securities (as defined in Rule 2a-7). This allows each Fund, as to 25% of
its assets, to invest more than 5% of its assets in the securities of an
individual issuer. Since each Fund is concentrated in securities issued by a
particular state or entities within that state and may invest a significant
percentage of its assets in the securities of a single issuer, an investment in
a Fund may be subject to more risk than an investment in other types of money
market funds.
FLORIDA FUND. The objective of the Florida Fund is to provide maximum current
income that is exempt from federal income tax to the extent consistent with
stability of capital. The Florida Fund pursues its objective, primarily through
a professionally managed, non-diversified portfolio of short-term high quality
municipal obligations issued by or on behalf of the State of Florida, its
political subdivisions, authorities and corporations, and territories and
possessions of the United States and their political subdivisions, agencies and
instrumentalities and other securities that are, in the opinion of bond counsel
to the issuer, exempt from the Florida intangibles tax and the interest from
which is exempt from federal income taxes ("Florida Municipal Securities").
Dividends representing interest income received by the Florida Fund on Florida
Municipal Securities will be exempt from federal income taxes. Dividend income
may be subject to state and local taxes. Florida currently has no income tax for
individuals. Since the investment manager believes that exemption from the
Florida intangibles tax is likely to be available, the Florida Fund generally
will seek investments enabling shares of the Florida Fund to be exempt from the
intangibles tax. However, there is no assurance that an exemption from the
Florida intangibles tax will be available. Florida Municipal Securities may at
times have lower yields than other tax-exempt securities. As a temporary
defensive position, to the extent Florida Municipal Securities are at any time
unavailable or unattractive for investment by the Florida Fund, it will invest
in other debt securities the interest from which is exempt from federal income
taxes. Under normal market conditions, as a non-fundamental policy, the Florida
Fund will maintain at least 65% of its total assets in Florida Municipal
Securities.
MICHIGAN FUND. The objective of the Michigan Fund is to provide maximum current
income that is exempt from federal and Michigan income taxes to the extent
consistent with stability of capital. The Michigan Fund pursues its objective
primarily through a professionally managed, non-diversified portfolio of
short-term high quality municipal obligations issued by or on behalf of the
state of Michigan, its political subdivisions, authorities and corporations, and
territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities the interest from which is, in the
opinion of bond counsel to the issuer, exempt from federal and Michigan income
taxes ("Michigan Municipal Securities"). Dividends representing interest income
received by the Michigan Fund on Michigan Municipal Securities will be exempt
from federal and Michigan income taxes. Such dividend income may be subject to
other state and local taxes. To the extent that Michigan Municipal Securities
are at any time unavailable or unattractive for investment by the Michigan Fund,
it will invest temporarily in other debt securities the interest from which is
exempt from federal income taxes. Under normal market conditions, as a
non-fundamental policy, the Michigan Fund will maintain at least 65% of its
total assets in Michigan Municipal Securities.
NEW JERSEY FUND. The objective of the New Jersey Fund is to provide maximum
current income that is exempt from federal and New Jersey income taxes to the
extent consistent with stability of capital. The New Jersey Fund pursues its
objective primarily through a professionally managed, non-diversified portfolio
of short-term high quality municipal obligations issued by or on behalf of New
Jersey, its political subdivisions, authorities and corporations, and
territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities the interest from which is, in the
opinion of bond counsel to the issuer, exempt from federal and New Jersey income
taxes ("New Jersey Municipal Securities"). Dividends representing interest
income received by the New Jersey Fund on New Jersey Municipal Securities will
be exempt from federal and New Jersey income taxes. Such dividend income may be
subject to other state and local taxes. To the extent that New Jersey Municipal
Securities are at any time unavailable or unattractive for investment by the New
Jersey Fund, it will invest temporarily in other debt securities the interest
from which is exempt from federal income taxes. Under normal market
5
<PAGE>
conditions, as a non-fundamental policy, the New Jersey Fund will maintain at
least 65% of its total assets in New Jersey Municipal Securities.
NEW YORK FUND. The objective of the New York Fund is to provide maximum current
income that is exempt from federal, New York State and New York City income
taxes to the extent consistent with stability of capital. The New York Fund
pursues its objective primarily through a professionally managed,
non-diversified portfolio of short-term high quality municipal obligations
issued by or on behalf of New York State, its political subdivisions,
authorities and corporations, and territories and possessions of the United
States and their political subdivisions, agencies and instrumentalities the
interest from which is, in the opinion of bond counsel to the issuer, exempt
from federal, New York State and New York City income taxes ("New York Municipal
Securities"). Dividends representing net interest income received by the New
York Fund on New York Municipal Securities will be exempt from federal, New York
State and New York City personal income taxes. Such dividend income may be
subject to other state and local taxes. To the extent New York Municipal
Securities are at any time unavailable or unattractive for investment by the New
York Fund, it will invest in other debt securities the interest from which is
exempt from Federal income taxes. Under normal market conditions, as a
non-fundamental policy, the New York Fund will maintain at least 65% of its
total assets in New York Municipal Securities.
PENNSYLVANIA FUND. The objective of the Pennsylvania Fund is to provide maximum
current income that is exempt from federal and Pennsylvania income taxes to the
extent consistent with stability of capital. The Pennsylvania Fund pursues its
objective primarily through a professionally managed, non-diversified portfolio
of short-term high quality municipal obligations issued by or on behalf of the
Commonwealth of Pennsylvania, its political subdivisions, authorities and
corporations, and territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities the interest from which
is in the opinion of bond counsel to the issuer, exempt from federal and
Pennsylvania income taxes ("Pennsylvania Municipal Securities"). Dividends
representing interest income received by the Pennsylvania Fund on Pennsylvania
Municipal Securities will be exempt from federal and Pennsylvania income taxes
and (for residents of Philadelphia) from Philadelphia School District Income Tax
and (for residents of Pittsburgh) from the intangibles tax for the City and
School District of Pittsburgh. Such dividend income may be subject to other
state and local taxes. To the extent that Pennsylvania Municipal Securities are
at any time unavailable or unattractive for investment by the Pennsylvania Fund,
it will invest temporarily in other debt securities the interest from which is
exempt from federal income taxes. Under normal market conditions, as a
non-fundamental policy, the Pennsylvania Fund will maintain at least 65% of its
total assets in Pennsylvania Municipal Securities.
MUNICIPAL SECURITIES
Municipal Securities that a 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 taxes. Other types of
industrial development bonds, the proceeds of which are used for the
construction, equipment, repair or improvement of privately operated industrial
or commercial facilities, may constitute Municipal Securities, although the
current federal tax laws place substantial limitations on the size of such
issues.
Municipal Securities generally are classified as "general obligation" or
"revenue." General obligation notes are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest.
Revenue notes are payable only from the revenues derived from a particular
facility or class of
6
<PAGE>
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Industrial development bonds which are Municipal
Securities are in most cases revenue bonds and generally do not constitute the
pledge of the credit of the issuer of such bonds.
Examples of Municipal Securities which are issued with original maturities of
one year or less are short-term tax anticipation notes, bond anticipation notes,
revenue anticipation notes, construction loan notes, pre-refunded municipal
bonds, warrants and tax-free commercial paper.
Tax anticipation notes typically are sold to finance working capital needs of
municipalities in anticipation of receiving property taxes on a future date.
Bond anticipation notes are sold on an interim basis in anticipation of a
municipality issuing a longer term bond in the future. Revenue anticipation
notes are issued in expectation of receipt of other types of revenue such as
those available under the Federal Revenue Sharing Program. Construction loan
notes are instruments insured by the Federal Housing Administration with
permanent financing by "Fannie Mae" (the Federal National Mortgage Association)
or "Ginnie Mae" (the Government National Mortgage Association) at the end of the
project construction period. Pre-refunded municipal bonds are bonds which are
not yet refundable, but for which securities have been placed in escrow to
refund an original municipal bond issue when it becomes refundable. Tax-free
commercial paper is an unsecured promissory obligation issued or guaranteed by a
municipal issuer. Each 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 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 a Fund
are in most cases revenue bonds and are not payable from the unrestricted
revenues of the issuer. Among other types of instruments, a 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, warrants 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.
Each 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 Adviser
revises its evaluation of the creditworthiness of the underlying security or of
the entity issuing the Standby Commitment. Each Fund's policy is to enter into
Standby Commitments only with issuers, banks or dealers which are determined by
the Adviser to present minimal credit risks. If an issuer, bank or dealer should
default on its obligation to repurchase an underlying security, a Fund might be
unable to recover all or a portion of any loss sustained from having to sell the
security elsewhere.
7
<PAGE>
Each 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. Each Fund currently intends to invest a
substantial portion of its assets in Variable Rate Notes. Variable Rate Demand
Notes have a demand feature which entitles the purchaser to resell the
securities at amortized cost. 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 a Fund
to purchase instruments with a stated maturity in excess of one year. Each Fund
determines the maturity of variable rate instruments in accordance with Rule
2a-7, which allows a Fund to consider certain of such instruments as having
maturities shorter than the maturity date on the face of the instrument.
Each Fund may purchase high quality Certificates of Participation in trusts that
hold Municipal Securities. A Certificate of Participation gives a Fund an
undivided interest in the Municipal Security in the proportion that the Fund's
interest bears to the total principal amount of the Municipal Security. 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 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 a
Fund. It is anticipated by the Adviser that, for most publicly offered
Certificates of Participation, there will be a liquid secondary market or there
may be demand features enabling a Fund to readily sell its Certificates of
Participation prior to maturity to the issuer or a third party. As to those
instruments with demand features, a 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. While a Fund
may invest without limit in Certificates of Participation, it is currently
anticipated that such investments will not exceed 25% of a Fund's assets.
Each 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 a 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, a 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 a
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, a Fund remains substantially fully
invested at the same time that it has purchased securities on a when-issued
basis, there will be a greater possibility that the net asset value of a 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.
8
<PAGE>
Each 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 each 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 income taxes, and in
the case of certain Funds, income taxes of a state.
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 NRSROs
("Nationally Recognized Statistical Rating Organization") represent their
opinions as to the quality of the Municipal Securities which they undertake to
rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, Municipal Securities with the same
maturity, coupon and rating may have different yields.
In seeking to achieve its investment objective, a Fund may invest all or any
part of its assets in Municipal Securities that are industrial development
bonds. Moreover, although a 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 Adviser. To the extent that a Fund's assets are concentrated in Municipal
Securities payable from revenues on economically related projects and
facilities, a 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.
Repurchase Agreements. The Funds may enter into repurchase agreements with any
member bank of the Federal Reserve System or any domestic broker/dealer which is
recognized as a reporting Government securities dealer if the creditworthiness
of the bank or broker/dealer has been determined by the Adviser to be at least
as high as that of other obligations the Funds may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's, S&P or Fitch.
A repurchase agreement provides a means for a Fund to earn taxable income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities kept at least equal to the repurchase
price on a daily basis. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price on the date of repurchase. In either case, the income
to a Fund (which is taxable) is unrelated to the interest rate on the Obligation
itself. Obligations will be held by the custodian or in the Federal Reserve Book
Entry system.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from
a Fund to the seller of the Obligation subject to the repurchase agreement and
is therefore subject to that Fund's investment restriction applicable to loans.
It is not clear whether a court would consider the Obligation purchased by a
Fund subject to a repurchase agreement as being owned by that Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, a Fund may encounter delay and incur costs before being able to sell
the security. Delays may involve loss of interest or decline in price of the
Obligation. If the court characterized the transaction as a loan and a Fund has
not perfected an interest in the Obligation, that Fund may be required to return
the Obligation to the seller's estate and be treated as an unsecured creditor of
the seller. As an unsecured creditor, a Fund is at risk of losing some or all of
the principal and income involved in the transaction. As with any unsecured debt
obligation purchased for each Fund, the Adviser seeks to minimize the risk of
loss through repurchase agreements by analyzing the creditworthiness of the
obligor, in this case the seller of the Obligation. Apart from the risk of
bankruptcy or insolvency proceedings, there is also the risk that the seller may
fail to repurchase the Obligation, in which case the Fund may incur a loss if
the proceeds to the Fund of the sale to a third party are less than the
repurchase price. However, if the market value of the Obligation subject to
9
<PAGE>
the repurchase agreement becomes less than the repurchase price (including
interest), each Fund will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is possible
that a Fund will be unsuccessful in seeking to enforce the seller's contractual
obligation to deliver additional securities.
STATE SPECIFIC RISK FACTORS
The following information as to certain risk factors is given to investors
because each Fund concentrates its investments in either Florida, Michigan, New
Jersey, New York or Pennsylvania Municipal Securities (as defined in the
prospectus). Such information constitutes only a summary, does not purport to be
a complete description and is based upon information from official statements
relating to securities offerings of Florida, Michigan, New Jersey, New York and
Pennsylvania issuers and other sources of economic data.
Florida Fund. The State of Florida has grown dramatically since 1980 and as of
April 1, 1997 ranked fourth nationally with an estimated population of 14.7
million. Florida is experiencing strong revenue growth. For fiscal year 1998-99,
the estimated General Revenue plus Working Capital and Budget Stabilization
funds (see below) totaled $19,481.8 million, a 5.2% increase over 1997-98. The
$17,779.5 million in estimated revenues represents a 5.0% increase over the
analogous figure in 1997-98. Receipts, as of March 31, 1999, exceeded 1998's
collections through March 1998 by $598.7 million. The Fiscal Year 1999 revenue
growth is driven by the State's sales tax collections. The six percent tax
accounts for close to 75% of total revenues through March 31, 1999. A March 31
estimate shows an expected year-end surplus of $573.8 million. When this is
combined with the Budget Stabilization Fund balance of $786.9 million, Florida's
total reserves are $1,360.7 million, or 7.5% of current year appropriations.
Florida voters approved a constitutional amendment in November of 1994 which
places a limit on the rate of growth in state revenues, limiting such growth to
no more than the growth rate in Florida personal income. In any year, the
revenue limit is determined by multiplying the average annual growth rate in
Florida personal income over the previous five years by the maximum amount of
revenue permitted under the limitation in the previous year. State revenues
collected for any fiscal year in excess of the limitation are to be transferred
to the Budget Stabilization Fund until such time that the fund reaches its
maximum (10% of general revenue collections in the previous fiscal year) and
then are to be refunded to taxpayers as provided by general law. The
Legislature, by a two-thirds vote of the membership of each house, may increase
the allowable state revenue for any fiscal year. State revenue for this purpose,
is defined, with certain Constitutional limitations, as taxes, licenses, fees,
and charges for services imposed by the Legislature on individuals, businesses
or agencies outside of state government. The Florida Constitution requires that
in the event there is a transfer of responsibility for the funding of
governmental functions between the state and other levels of government, an
adjustment to the revenue limitation is to be made by general law to reflect the
fiscal impact of this shift.
Florida's job market continues to reflect strong performance. The state's March
1999 unemployment rate was 4.1 percent, 0.3 percentage points lower than the
year ago rate of 4.4 percent. Out of a civilian labor force of 7,411,000, there
were 307,000 jobless Floridians. Florida's unemployment rate was one of the
lowest since October 1973 when it was 3.4 percent. The U.S. unemployment rate
was 4.2 percent in March 1999, just above Florida's rate.
Florida's total nonagricultural employment rose in March 1999 to 6,900,800, an
increase of 259,900 jobs, or 3.9 percent from a year ago. All major
nonagricultural industries posted increases in employment from the prior year.
Based on the most recent comparative State data, Florida maintained its number
one ranking in year to year percentage job growth and ranked third in the nation
in the number of jobs added to nonagricultural payrolls, as compared to the 10
most populous states. Services industry employment, Florida's largest industry,
grew by 5.6 percent over the year and added the highest number of new jobs
(+132,900). Trade gained the second highest number of new jobs since a year ago
(+46,300). The State is gradually becoming less dependent on employment related
to construction, agriculture and manufacturing, and more dependent on employment
related to trade and services. Presently, services constitute 34.9% and trade
25.6% of the State's total non-farm jobs.
10
<PAGE>
Fueled by low interest rates, construction had the fastest growth rate at 5.8
percent and added 20,000 jobs over the year. This is the first time that
construction has achieved the rank of the fastest growing industry over the year
in the last several years. Similarly, finance, insurance, and real estate and
government also experienced year to year increases of 19,100 jobs and 16,400
jobs, respectively. Eighty seven percent of the gains in government came from
local government and most of these gains were related to education. The apparel
and textiles industries lost 1,500 jobs due to tariffs and foreign competition.
With a strong national economy, Florida continues to experience economic growth.
This is primarily due to favorable conditions such as increases in personal
income and expenditures, low overall price levels, low interest rates, and high
consumer confidence. Florida currently remains as one of the nation's strongest
job markets.
Tourism is one of Florida's most important industries. According to Visit
Florida (formerly the Florida Tourism Commission), about 47 million people
visited the State in 1997. Tourists effectively represent additional residents,
spending their dollars predominantly at eating and drinking establishments,
hotels and motels, and amusement and recreation parks. Their expenditures
generate additional business activity and State tax revenues. The State's
tourist industry over the years has become more sophisticated, attracting
visitors year-round, thus to a degree, reducing its seasonality.
Florida has had substantial population increases over the past few years and
these are expected to continue. It is anticipated that corresponding increases
in State revenues will be necessary during the next decade to meet increased
burdens on the various public and social services provided by the State. Florida
has also experienced a diversifying economic base as technology related
industry, healthcare and financial services have grown into leading elements of
Florida's economy, complementing the State's previous reliance primarily on
agriculture and tourism. With the increasing costs and capital needs related to
its growing population, Florida's ability to meet its expenses will be dependent
in part upon the State's continued ability to foster business and economic
growth. Florida has also increased its funding of capital projects through more
frequent debt issuance rather than its historical pay-as-you go method.
Florida has a moderate debt burden. As of June 30, 1998 full faith and credit
bonds totaled $8.7 billion and revenue bonds totaled $5 billion for a total debt
of $13.7 billion. Full faith and credit debt per capita was $577. In Fiscal Year
1998, debt service as a percent of Governmental Fund expenditures was only 2.0%.
In recent years debt issuance for the State has been increasing. The State
brought a new indenture to the market in late Fiscal Year 1998, the Florida
Lottery Bonds. These bonds will finance capital improvements for Florida
schools.
As of mid December 1998, the State's general obligation debt was rated Aa2 by
Moody's Investors Service, Inc. ("Moody's") and AA+ by Standard & Poor's
Corporation ("S&P").
Michigan Fund. The State entered its eighth fiscal year of economic expansion
last October. Job growth has been strong. Personal income tax receipts continue
to increase year over year, and the General Revenue Fund and School Aid Fund's
operating surpluses are bolstering the State's reserves. The Budget
Stabilization Fund has increased from $988 million in FY95 to $1.0 billion at
the end of FY98, 5.7% of the combined General Revenue Fund and School Aid Fund.
The State's principal operating funds are its General Revenue Fund (GRF) and its
School Aid Fund (SAF). These funds are funded by various State taxes. The income
tax, sales tax, and corporate tax accounted for 81% of the $17.6 billion FY98
budget. Particular strength in income tax collections led the State to finish
FY98 with an operating surplus of $55 million, 0.3% of the combined GRF and SAF.
Due to strong income tax collections, Michigan anticipates finishing FY99 with a
balanced operating fund. As of October, 1998, income tax collections were $263.6
million ahead of FY97 collections, an increase of 6%.
The strong performance of the GRF and SAF over the last five years resulted in
an increasing balance in the Budget Stabilization Fund (BSF). Through a
combination of effective financial management and the strong economy, the BSF
has grown to its current level of $1.0 billion, 5.7% of the combined GRF and
11
<PAGE>
SAF, after nearing depletion in FY92. The State maintains the BSF, which acts as
a Rainy Day Fund, for the General Fund and the School Aid Fund. The BSF is
funded during years of significant economic expansion. The BSF may be used to
contribute to operating cash flow during periods of budgetary shortfalls.
Michigan's direct debt burden is low. General obligation (G.O.) debt outstanding
as of September 30, 1998 was $874 million. This figure represents a debt per
capita of $89. However, Michigan has a sizable amount of special obligation
(S.O.) debt. As of September 30, 1998, the State had $2.9 billion in S.O. debt
outstanding. When the G.O. debt and the S.O. debt are added together, the
State's debt burden increases but is still less than the national averages. The
combined debt per capita is $380.3. Debt per capita as a percent of per capita
income is 1.45%, and annual debt service only accounted for 1.2% of FY98
Government Fund expenditures.
Michigan finished its seventh year of economic expansion in 1998, adding over
82,000 jobs, a 1.7% increase in employment. Nonmanufacturing employment grew by
2.2% in 1998 with construction, services and wholesale trade leading the way,
Michigan continues to have a large manufacturing presence with 21.4% of its work
force in the manufacturing sector. The percentage of workers in the service
sector continues to increase. It currently represents 27.5% of the work force.
The State's average unemployment rate was 3.9% in 1998; the national average was
4.5%. The State's expanding economy and job growth have caused per capita income
to increase to $25,824 in 1998.
Michigan experienced strong economic growth in the past seven years, and is
continuing to achieve this growth in FY99. The State has transferred this
prosperity into positive financial results. Repeated operating surpluses have
increased the Budget Stabilization Fund to a level never before attained. The
State has a below average debt burden. Wealth levels have been at or above the
national average over the last four years, and the unemployment rate has fallen
below the national average for the first time in over seventeen years.
As of April 26, 1999, the State's general obligation bonds are rated Aa1 by
Moody's, AA+ by S&P and AA+ by Fitch IBCA.
Year 2000 Compliance. On October 1, 1997, the State created the Year 2000
Project office to provide guidance, coordinate oversight for applications
software, manage Year 2000 funds, provide monitoring support, quality assurance
and other matters. As of March 31, 1999 the State had validated and tested 97%
of the critical computer applications. The State is currently on schedule to
meet its objectives for Year 2000 compliance. The State currently believes that
it will continue to meet the objectives and time frames set forth for the Year
2000 Project. There can, however, be no assurance that such completion will be
done in a timely manner.
New Jersey Fund. New Jersey is the ninth largest state in population and the
fifth smallest in land area. With an average of 1,077 persons per square mile,
it is the most densely populated of all the states. The State's economic base is
diversified, consisting of a variety of manufacturing, construction and service
industries, supplemented by rural areas with selective commercial agriculture.
The State of New Jersey is experiencing strong economic growth and increasing
reserve balances. The services and construction sectors have been adding jobs.
Job creation has led to strong personal income tax receipts which have resulted
in a series of operating surpluses and a growing Rainy Day Fund. Led by growth
in personal income taxes and sales tax receipts, New Jersey estimates finishing
Fiscal Year 2000 with an operating surplus of $750 million, 4.0% of revenues.
The surplus will be split between the Rainy Day Fund, with a balance of $634
million, and an unreserved General Fund balance of $113 million.
The State operates on a fiscal year beginning July 1 and ending June 30. The
State closed recent fiscal years with surpluses in the general fund (the fund
into which all State revenues not otherwise restricted by statute are deposited
and from which the appropriations are made) of $442 million in 1996, $281
million in 1997 and $228 million in 1998. It is estimated that Fiscal Year 1999
ended with a surplus of $311 million.
12
<PAGE>
The State's Fiscal Year 2000 revenue projections are based on moderate overall
economic growth. Total general fund and available revenues are projected to be
$19.1 billion. Of this amount 39.8% is recommended for State Aid to Local
Governments, 28.2% is recommended for Grants-in-Aid, 25.3% is recommended for
Direct State Services, 2.7% is recommended for Debt Service on State general
obligation bonds and 4% is recommended for Capital Construction. Of these
appropriations, the largest recommended State Aid appropriation in the amount of
$6,030.3 million is provided for local elementary and secondary education
programs. The second largest portion of recommended appropriation in Fiscal Year
2000 is for Grants-in-Aid, totaling $5,391.0 million, which represents payments
to individuals or public or private agencies for benefits to which a recipient
is entitled to by law, or for the provision of services on behalf of the State.
Of this amount the largest amount recommended is for programs administered by
the Department of Human Services. The third largest portion of recommended
appropriations in Fiscal Year 2000 is applied to Direct State Services which
supports the operations of State government's departments, the Executive Office,
several commissions, the State Legislature and the Judiciary. This amount totals
$4,858.5 million for Fiscal Year 2000, of which the largest amounts are
recommended for programs administered by the Department of Human Services and
the Department of Law and Public Safety.
In addition to payments from bond proceeds, capital construction can also be
funded by appropriation of current revenues on a pay-as-you-go basis. In Fiscal
Year 2000, the amount recommended for this purpose is $771.4 million, of which
$477.8 million is for transportation projects and debt service and is being
credited to the Transportation Trust Fund Account of the General Fund. In
addition, $98.0 million is for open space preservation, $72.2 million is for
hazardous substance remediation and underground tank remediation and $15.0
million is for shore protection. All appropriations for capital projects and all
proposals for State bond authorization are subject to the review and
recommendation of the New Jersey Commission on Capital Budgeting and Planning.
In Fiscal Year 1992 the State initiated a program under which it issued tax and
revenue anticipation notes to aid in providing effective cash flow management to
fund balances which occur in the collection and disbursement of the General Fund
and Property Tax Relief Fund revenues. There are $700 million of tax and revenue
anticipation notes outstanding which notes matured on June 15, 1999. Such tax
and revenue anticipation notes do not constitute a general obligation of the
State or a debt or liability within the meaning of the State constitution. Such
notes constitute special obligations of the State payable solely from moneys on
deposit in the General Fund and the Property Tax Relief Fund and legally
available for such payment.
The State finances certain capital projects through the sale of the general
obligation bonds of the State. These bonds are backed by the full faith and
credit of the State. Certain state tax revenues and certain other fees are
pledged to meet the principal payments, interest payments, redemption premium
payments, if any, required to fully pay the bonds. As of June 30, 1998, the
State's outstanding general obligation bonded indebtedness totaled $3.6 billion.
The recommended appropriation for the debt service obligation on outstanding
projected indebtedness is $518.7 million for Fiscal Year 2000.
New jobs in service industries are leading the growth in New Jersey's labor
force. The services sector accounts for approximately 30% of total
non-agricultural employment in the State. New Jersey also has an above average
concentration of employment in the transportation and public utilities sector.
This sector accounts for approximately 7% of the non-agricultural work force.
The strong economy has led to growth in construction jobs, too. The State's
unemployment rate has been declining from its high of 8.4% in 1992 to a May,
1999, rate of 4.7%. The national rate for May, 1999, was 4.2%
The State has implemented a plan to address the Y2K problem. As of December 31,
1998, the testing, validation and implementation of 75 percent of all centrally
maintained State systems is complete. The total estimated cost to the State to
achieve year 2000 compliance is $120 million of which approximately $66 million
of expenditures has been incurred as of December 31, 1998.
At any given time, there are various numbers of claims and cases pending against
the State, State Agencies and employees, seeking recovery of monetary damages
that are primarily paid out of the fund created pursuant to the New Jersey
Claims Act. The State does not formally estimate its reserve representing a
13
<PAGE>
potential exposure for these claims and cases. The State is unable to estimate
its exposure for these claims and cases.
The State routinely receives notices of claims seeking substantial sums of
money. The majority of those claims have historically proven to be of
substantially less value than the amount originally claimed. Under the New
Jersey Tort Claims Act, any tort litigation against the State must be preceded
by a notice of claim, which affords the State the opportunity for a six month
investigation prior to the filing of any suit against it.
In addition, at any given time, there are various numbers of contracts and other
claims against the State, among other parties, arising from the alleged disposal
of hazardous waste. Claimants in such matters are seeking recovery of monetary
damages or other relief which, if granted, would require the expenditure of
funds. The State is unable to estimate its exposure for these claims.
The State is a party in numerous legal proceedings pertaining to matters
incidental to the performance of routine governmental operations. Such
litigation includes, but is not limited to, the following: claims regarding
violations of numerous laws allegedly resulting from the existence of chromium
contamination in the State owned Liberty State Park in Jersey City; challenges
to the constitutionality of annual A-901 hazardous and solid waste licensure
renewal fees collected by the Department of Environmental Protection; claims on
behalf of 17 rural school districts seeking sufficient funds to allow the school
districts to spend at the average of wealthy suburban school districts, to
implement additional programs such as full-day kindergarten, half-day pre-school
programs for three and four year olds, technology, alternative school,
accountability and school-to-work and college transition programs, and to
upgrade school facilities; claims alleging that the State's system of funding
for their schools is violative of the constitutional rights of equal protection
and a thorough and efficient education; claims by insurers licensed or admitted
to write property and casualty insurance in the State alleging that their
assessments are being used to retire debt of the Market Transition Fund; a
purported class action consisting of prisoners with serious mental disorders who
are confined within the facilities of the Department of Corrections alleging
cruel and unusual punishment, violation of the Americans with Disabilities Act
of 1990, discrimination against members of the class, sex discrimination and
violation of due process; cases involving spousal impoverishment provisions of
the Medicare Catastrophic Coverage Act; challenges by 19 New Jersey hospitals to
Medicaid hospital reimbursement since 1995; several cases filed in opposition to
a road and tunnel project in Atlantic City; claims on behalf of providers of
Medicare Part B services to Qualified Medicare Beneficiaries seeking
reimbursement for Medicare co-insurance and deductibles not paid by the State
Medicaid program from 1988 to February 10, 1995; relief sought to have the
Camden County solid waste procurement process halted to clarify bid
specifications; a case involving the award of a contract for the design,
construction, operation and maintenance of the State's enhanced motor vehicle
inspection system; a claim seeking damages in declaratory and injunctive relief
overturning, on State constitutional grounds, the "family cap" provisions of the
State Work First New Jersey Act; and challenges by various hospitals to the $10
per adjusted hospital admission charges imposed by State statute.
As of February 9, 1999, the State's general obligation ratings were rated Aa1 by
Moody's and AA+ by S&P. New Jersey's strong economic growth during the past
seven years and its growing reserves support its strong credit rating. The
State's combined debt burden is above average but is mitigated by New Jersey's
high wealth levels. Although these ratings indicate that the State is in
relatively good economic health, there can be no assurance that this will
continue or that particular bond issues may not be adversely affected by changes
in the State or local economic or political conditions.
New York Fund. This summary information is not intended to be a complete
description and is principally derived from the Annual Information Statement of
the State of New York as supplemented and contained in official statements
relating to issues of New York Municipal Securities that were available prior to
the date of this Statement of Additional Information. The accuracy and
completeness of the information contained in those official statements have not
been independently verified.
In the calendar years 1987 through 1997, the State's rate of economic growth was
somewhat slower than that of the nation. In particular, during the 1990-91
recession and post-recession period, the economy of
14
<PAGE>
the State, and that of the rest of the Northeast, was more heavily damaged than
that of the nation as a whole and has been slower to recover.
State per capita personal income has historically been significantly higher than
the national average, although the ratio has varied substantially. Because New
York City is a regional employment center for a multi-state region, State
personal income measured on a residence basis understates the relative
importance of the State to the national economy and the size of the base to
which State taxation applies.
The 1998-99 State Financial Plan projected a closing balance in the General Fund
of $1.42 billion comprised of a reserve of $761 million available for future
needs, a balance of $400 million in the Tax Stabilization Reserve Fund ("TSRF"),
a balance of $158 million in the Community Projects Fund ("CPF") and a balance
of $100 million in the Contingency Reserve Fund ("CRF"). The TSRF can be used in
the event of an unanticipated General Fund cash operating deficit, as provided
under the State Constitution and State Finance Law. The CPF is used to finance
various legislative and executive initiatives. The CRF provides resources to
help finance any extraordinary litigation costs during the fiscal year.
The Third Quarterly Update of the 1998-99 Financial Plan, released on January
27, 1999, projected a year-end available cash surplus of $1.79 billion in the
General Fund, an increase of $749 million over the surplus estimate in the
Mid-Year Update. Strong growth in receipts as well as lower-than expected
disbursements during the first nine months of the fiscal year account for the
higher surplus estimate. As of February 9, 1999, this amount was projected to be
reduced by the transfer of $1.04 billion to the tax refund reserve. The
projected remaining closing balance of $799 million in the General Fund is
comprised of $473 million in the TSRF, $226 million in the CPF, and $100 million
in the CRF.
The Governor presented his 1999-2000 Executive Budget to the Legislature on
January 27, 1999. The 1999-2000 Financial Plan projects General Fund
disbursements and transfers to other funds of $37.10 billion, an increase of
$482 million over projected spending for the current year. Grants to local
governments constitute approximately 67 percent of all General Fund spending,
and include payments to local governments, non-profit providers and individuals.
Disbursements in this category are projected to decrease $87 million (0.4
percent) to $24.81 billion in 1999-2000, in part due to a $175 million decline
in proposed spending for legislative initiatives.
The State is projected to close the 1999-2000 fiscal year with a General Fund
balance of $2.36 billion. The balance is comprised of $1.79 billion in tax
reduction reserves, $473 million in the TSRF and $100 million in the CFR. The
entire $226 million balance in the Community Projects Fund is expected to be
used in 1999-2000, with $80 million spent to pay for existing projects and the
remaining balance of $146 million, against which there are currently no
appropriations as a result of the Governor's 1998 vetoes, used to fund other
expenditures in 1999-2000.
The State currently projects spending to grow by $1.09 billion (2.9 percent) in
2000-01 and an additional $1.8 billion (4.7 percent) in 2001-02. General Fund
spending increases at a higher rate in 2001-02 than in 2000-01, driven primarily
by higher growth rates for Medicaid, welfare, Children and Families Services,
and Mental Retardation, as well as the loss of federal money that offsets
General Fund spending.
Over the long-term, uncertainties with regard to the economy present the largest
potential risk to future budget balance in New York State. For example, a
downturn in the financial markets or the wider economy is possible, a risk that
is heightened by the lengthy expansion currently underway. The securities
industry is more important to the New York economy than the national economy,
potentially amplifying the impact of an economic downturn. A large change in
stock market performance during the forecast horizon could result in wage and
unemployment levels that are significantly different from those embodied in the
forecast. Merging and downsizing by firms, as a consequence of deregulation or
continued foreign competition, may also have more significant adverse effects on
employment than expected. Finally, a "forecast error" of one percentage point in
the estimated growth of receipts could cumulatively raise or lower results by
over $1 billion by 2002.
15
<PAGE>
Many complex political, social and economic forces influence the State's economy
and finances, which may in turn affect the State's Financial Plan. These forces
may affect the State unpredictably from fiscal year to fiscal year and are
influenced by governments, institutions, and organizations that are not subject
to the State's control. The State Financial Plan is also necessarily based upon
forecasts of national and State economic activity. Economic forecasts have
frequently failed to predict accurately the timing and magnitude of changes in
the national and the State economies. The Division of Budget believes that its
projections of receipts and disbursements relating to the current State
Financial Plan, and the assumptions on which they are based, are reasonable. The
projections assume no changes in federal tax law, which could substantially
alter the current receipts forecast. In addition, these projections do not
include funding for new collective bargaining agreements after the current
contracts expire on April 1, 1999. Actual results, however, could differ
materially and adversely from their projections, and those projections may be
changed materially and adversely from time to time.
The proposed 1998-99 through 2003-04 Capital Program and Financing Plan was
released with the Executive Budget on January 27, 1999. The recommended
five-year Capital Program and Financing Plan reflects debt reduction initiatives
that would reduce future State-supported debt issuances by significantly
increasing the share of the Plan financed with pay-as-you-go resources. Compared
to the last year of the July 1998 update to the Plan, outstanding
State-supported debt would be reduced by $4.7 billion (from $41.9 billion to
$37.2 billion).
As described therein, efforts to reduce debt, unanticipated delays in the
advancement of certain projects and revisions to estimated proceeds needs will
modestly reduce projected borrowings in 1998-99. The State's 1998-99 borrowing
plan now projects issuances of $331 million in general obligation bonds
(including $154 million for purposes of redeeming outstanding BANs) and $154
million in general obligation commercial paper. The State has issued $179
million in Certificates of Participation to finance equipment purchases
(including costs of issuance, reserve funds, and other costs) during the 1998-99
fiscal year. Of this amount, it is anticipated that approximately $83 million
will be used to finance agency equipment acquisitions, and $96 million to
address Statewide technology issues related to Year 2000 compliance.
Approximately $228 million for information technology related to welfare reform,
originally anticipated to be issued during the 1998-99 fiscal year, is now
expected to be delayed until 1999-2000.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.85 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1998-99.
As of March 5, 1999, general obligation bonds of the State of New York were
rated A and A2 by S&P and Moody's, respectively.
Pennsylvania Fund. The Commonwealth of Pennsylvania experienced stronger
economic growth in 1997 and 1998 after a slow down in growth in 1996.
Pennsylvania is expecting to finish FY99 with its seventh consecutive General
Fund operating surplus.
The Commonwealth is experiencing strong revenue growth. As of April 1999,
General Fund revenues are ahead of year-to-date estimates by $547 million, 3.4%
of revenues. Sales and use tax collections are contributing the majority of the
increase in revenues. As of April 1999, sales and use tax collections exceeded
estimates by 4.6% or $239.3 million. Given the revenue collections, the
Governor's office is anticipating finishing FY99 with a $630 million General
Fund operating surplus. Nearly $245 million, 37.7%, of the surplus will be
transferred to the Commonwealth's Rainy Day Fund. By the end of FY99, the Rainy
Day Fund should be valued at $983 million.
Job growth in the service and trade sectors led the Commonwealth from 44th in
the nation to 17th in terms of employment growth in 1997. Pennsylvania's average
unemployment rate in 1998 was 4.6%, the national average was 4.5% in 1998. The
seasonally adjusted unemployment rate at the end of March 1999, was 4.4% versus
the national average of 4.2% in March. Pennsylvania's per capita income in 1998
was $26,792, 101.4% of the national average.
16
<PAGE>
Pennsylvania has a low debt burden. In 1997, per capita debt was $420, 63% of
the Moody's average. In 1997, total G.O. debt was 1.7% of per capita income, 61%
of the Moody's average.
Since the Commonwealth annually issues a comparable amount to its scheduled
amortization, any incremental increase will have a minor impact on the
Commonwealth's outstanding debt.
Pennsylvania is still in the midst of various lawsuits challenging school
funding. The suits are challenging the issue of equitable funding for school
districts in rural and urban schools. According to the Commonwealth, this
lawsuit has been in the courts for some time and will not be resolved in the
near future.
The Commonwealth is benefiting from a favorable economy which has lead to
improved finances.
All outstanding general obligation bonds of the Commonwealth of Pennsylvania
were rated AA by S&P and Aa3 by Moody's.
INVESTMENT RESTRICTIONS
Each 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 ("1940 Act"), this means the
lesser of the vote of (a) 67% of a 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 a Fund's shares. In addition, each Fund limits its portfolio
investments to securities that meet the quality, maturity and diversification
requirements of Rule 2a-7 under the 1940 Act.
The New York Fund may not, as a fundamental policy:
(1) 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.
(2) 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, as to 50% of the value of the
Fund's total assets, the Fund may invest up to 25% of its total assets in
the securities of any one issuer. For purposes of this limitation, the Fund
will regard as the issuer the entity that has the primary responsibility
for the payment of interest and principal.
(3) Make loans to others (except through the purchase of debt obligations or
repurchase agreements in accordance with its investment objective and
policies).
(4) Borrow money except as a temporary measure for extraordinary or emergency
purposes and then only in an amount up to one-third of the value of its
total assets, in order to meet redemption requests without immediately
selling any money market instruments. (Any such borrowings under this
section will not be collateralized.) If, for any reason, the current value
of the Fund's total assets falls below an amount equal to three times the
amount of its indebtedness from money borrowed, the Fund will, within three
days (not including Sundays and holidays), reduce its indebtedness to the
extent necessary. The Fund will not borrow for leverage purposes and will
not purchase securities or make investments while borrowings are
outstanding.
(5) 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.
(6) 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.
17
<PAGE>
(7) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its 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.
(8) Invest for the purpose of exercising control or management of another
issuer.
(9) Invest in commodities or commodity futures contracts or in real estate (or
real estate limited partnerships) except that the Fund may invest in
Municipal Securities secured by real estate or interests therein and
securities of issuers that invest or deal in real estate.
(10) Invest in interests in oil, gas or other mineral exploration or development
programs or leases, although it may invest in Municipal Securities of
issuers that invest in or sponsor such programs or leases.
(11) 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.
(12) Issue senior securities as defined in the 1940 Act.
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.
As a matter of fundamental policy the Pennsylvania Fund may not:
(1) borrow money, except as permitted under the 1940 Act, as amended, and as
interpreted or modified by regulatory authority having jurisdiction, from
time to time;
(2) issue senior securities, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time;
(3) concentrate its investments in a particular industry, as that term is used
in the 1940 Act, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(4) engage in the business of underwriting securities issued by others, except
to the extent that a Fund may be deemed to be an underwriter in connection
with the disposition of portfolio securities;
(5) purchase or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages or investments secured by
real estate or interests therein, except that the Fund reserves freedom of
action to hold and to sell real estate acquired as a result of the Fund's
ownership of securities;
(6) purchase physical commodities or contracts relating to physical
commodities;
(7) make loans except as permitted under the 1940 Act, as amended, and as
interpreted or modified by regulatory authority having jurisdiction, from
time to time.
The following policies are non-fundamental, which may be changed by the Board of
Trustees without shareholder approval. As a matter of non-fundamental policy the
Pennsylvania Fund may not:
(i) 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, as to
50% of the value of the Fund's total assets, the Fund may invest up to 25%
of its total assets in the securities of any one issuer, and except that
all or substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment objective
and substantially similar
18
<PAGE>
investment policies as the Fund. For purposes of this limitation, the Fund
will regard as the issuer the entity that has the primary responsibility
for the payment of interest and principal;
(ii) 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;
(iii) invest in real estate limited partnerships.
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 Florida, Michigan and New Jersey Funds each may not, as a fundamental
policy:
(1) 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, except that all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund.
(2) Purchase securities 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, as to 50% of the value of the
Fund's total assets, the Fund may invest up to 25% of its total assets in
the securities of any one issuer, and except that all or substantially all
of the assets of the Fund may be invested in another registered investment
company having the same investment objective and substantially similar
investment policies as the Fund. For purposes of this limitation, the Fund
will regard as the issuer the entity that has the primary responsibility
for the payment of interest and principal.
(3) Make loans to others (except through the purchase of debt obligations or
repurchase agreements in accordance with its investment objective and
policies).
(4) Borrow money except as a temporary measure for extraordinary or emergency
purposes and then only in an amount up to one-third of the value of its
total assets, in order to meet redemption requests without immediately
selling any money market instruments. (Any such borrowings under this
section will not be collateralized.) If, for any reason, the current value
of the Fund's total assets falls below an amount equal to three times the
amount of its indebtedness from money borrowed, the Fund will, within three
days (not including Sundays and holidays), reduce its indebtedness to the
extent necessary. The Fund will not borrow for leverage purposes and will
not purchase securities or make investments while borrowings are
outstanding.
(5) 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.
(6) Invest in commodities or commodity futures contracts or in real estate (or
real estate limited partnerships) except that the Fund may invest in
Municipal Securities secured by real estate or interests therein and
securities of issuers that invest or deal in real estate.
(7) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities, and except that
all or substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment objective
and substantially similar investment policies as the Fund.
(8) Issue senior securities as defined in the 1940 Act.
19
<PAGE>
The Florida, Michigan and New Jersey Funds each have adopted the following
non-fundamental restrictions, which may be changed by the Board of Trustees
without shareholder approval. The Florida, Michigan and New Jersey Funds each
may not:
(i) 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.
(ii) Invest for the purpose of exercising control or management of another
issuer.
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.
Although the Trust has registered as a "non-diversified" investment company,
each Fund must meet the diversification requirements of Rule 2a-7 under the 1940
Act. Rule 2a-7 generally provides that a single state money fund shall not, as
to 75% of its assets, invest more than 5% of its assets in the securities of an
individual issuer, provided that the fund may not invest more than 5% of its
assets in the securities of an individual issuer unless the securities are First
Tier Securities (as defined in Rule 2a-7).
INVESTMENT ADVISER AND SHAREHOLDER SERVICES
Investment Adviser. Scudder Kemper Investments, Inc. 345 Park Avenue, New York,
New York, is the investment adviser for each Fund. Scudder Kemper is
approximately 70% owned by Zurich Insurance Company, a leading internationally
recognized provider of insurance and financial services in property/casualty and
life insurance, reinsurance and structured financial solutions as well as asset
management. The balance of Scudder Kemper is owned by Scudder Kemper's officers
and employees. Responsibility for overall management of each Fund rests with the
Trust's Board of Trustees and officers. Pursuant to an investment management
agreement, Scudder Kemper acts as each Fund's Adviser, manages its investments,
administers its business affairs, furnishes office facilities and equipment,
provides clerical and administrative services, provides shareholder and
information services and permits any of its officers or employees to serve
without compensation as trustees or officers of the Trust if elected to such
positions. The Trust pays the expenses of its operations, including the fees and
expenses of independent auditors, counsel, custodian and transfer agent and the
cost of share certificates, reports and notices to shareholders, costs of
calculating net asset value and maintaining all accounting records related
thereto, brokerage commissions or transaction costs, taxes, registration fees,
the fees and expenses of qualifying the Trust and its shares for distribution
under federal and state securities laws and membership dues in the Investment
Company Institute or any similar organization.
The agreement provides that Scudder Kemper shall not be liable for any error of
judgment or of law, or for any loss suffered by the Trust in connection with the
matters to which the agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Scudder Kemper in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the agreement.
In certain cases the investments for the Funds 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 Funds. You
should be aware that the Funds are likely to differ from these other mutual
funds in size, cash flow pattern and tax matters. Accordingly, the holdings and
performance of the Funds can be expected to vary from those of the other mutual
funds.
On December 31, 1997, pursuant to the terms of an agreement, Scudder, Stevens &
Clark, Inc. ("Scudder"), and Zurich Insurance Company ("Zurich"), formed a new
global investment organization by combining Scudder with Zurich Kemper
Investments, Inc. ("ZKI") and Zurich Kemper Value Advisors, Inc. ("ZKVA"),
former subsidiaries of Zurich. ZKI was the former investment adviser for each
Fund. Upon completion of the transaction, Scudder changed its name to Scudder
Kemper Investments, Inc. As a result
20
<PAGE>
of the transaction, Zurich owns approximately 70% of Scudder Kemper, with the
balance owned by Scudder Kemper's officers and employees.
On September 7, 1998, the businesses of Zurich (including Zurich's 70% interest
in the Adviser) 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.
Upon consummation of this transaction, each Fund's then current investment
management agreement with the Adviser was deemed to have been assigned and,
therefore, terminated. The Board approved a new investment management agreement
(the "Agreement") with the Adviser, which is substantially identical to the
prior investment management agreement, except for the dates of execution and
termination. The Agreement became effective on September 7, 1998, upon the
termination of the then current investment management agreement, and was
approved at a shareholder meeting held on December 17, 1998.
The Agreement, dated September 7, 1998, was approved by the trustees of the
Trust on August 11, 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 Trust. 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.
If additional Funds become subject to the Agreement, the provisions concerning
continuation, amendment and termination shall be on a Fund by Fund basis and the
management fee and the expense limitations shall be computed based upon the
average daily net assets of all Funds subject to the agreement and shall be
allocated among such Funds based upon the relative net assets of such Funds.
Additional Funds may be subject to a different agreement.
For the services and facilities furnished, the Funds pay a monthly investment
management fee, on a graduated basis of 1/12 of the following annual rates.
Combined Average
Daily Net Assets All Funds
- ---------------- ---------
$0-$500 million .22 %
$500-$1 billion .20 %
$1 billion-$2 billion .175%
$2 billion-$3 billion .16 %
Over $3 billion .15 %
21
<PAGE>
The table below shows the total gross advisory fees paid by each Fund for the
past three years.
Fund 1999 1998 1997
- ---- ---- ---- ----
Florida* $ 20,000 $ 9,000 N.A.
Michigan* $ 72,000 N.A. N.A.
New Jersey* $ 19,000 $ 8,000 N.A.
New York $ 296,000 $ 181,000 80,000
Pennsylvania* $ 9,000 $ 5,000 N.A.
The table below shows the net advisory fees paid by each Fund for the past three
years (after the effect of expense caps).
Fund 1999 1998 1997
- ---- ---- ---- ----
Florida* $ 0 $ 5,000 N.A.
Michigan* $ 33,000 N.A. N.A.
New Jersey* $ 0 $ 0 N.A.
New York $ 57,000 $ 32,000 0
Pennsylvania* $ 0 $ 0 N.A.
Scudder Kemper and certain affiliates have agreed to contractually limit total
operating expenses of the Funds to the extent described in the prospectus.
The table below shows the total operating expenses of the Funds absorbed for the
past three years under expense limitations then in effect.
Fund 1999 1998 1997
- ---- ---- ---- ----
Florida* $ 22,000 $ 4,000 N.A.
Michigan* $ 39,000 N.A. N.A.
New Jersey* $ 19,000 $ 8,000 N.A.
New York $ 239,000 $ 149,000 191,000
Pennsylvania* $ 9,000 $ 5,000 N.A.
* The Florida, New Jersey and Pennsylvania Funds commenced operations on May
22, 1997, May 23, 1997 and May 21, 1997, respectively, and the Michigan
Fund commenced operations on April 6, 1998.
Certain trustees or officers of the Trust are also directors or officers of
Scudder Kemper Investments, Inc. and Kemper Distributors, Inc. as indicated
under "Officers and Trustees."
Fund Accounting Agent. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts 02110, a subsidiary of Scudder
Kemper, is responsible for determining the daily net asset value per share of
the Funds and maintaining all accounting records related hereto. Currently, SFAC
receives no fee for its services to the Fund; however, subject to Board
approval, at some time in the future, SFAC may seek payment for its services
under this agreement.
Distributor. Pursuant to an administration, shareholder services and
distribution agreement ("distribution agreement"), dated September 7, 1998,
Kemper Distributors, Inc. ("KDI"or the "Distributor"), 222 South Riverside
Plaza, Chicago, Illinois 60606, and affiliate of the Adviser, serves as
distributor, administrator and principal underwriter to the Funds to provide
information and services for existing and potential shareholders. The
distribution agreement provides that KDI shall act as agent for each Fund in the
sale of Fund shares and shall appoint various firms to provide a cash management
service for their customers or clients through a 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
22
<PAGE>
services to the firms' clients and prospective clients. The Trust has adopted a
plan for each of the Funds in accordance with Rule 12b-1 of the Investment
Company Act of 1940 (the "12b-1 Plans"). The Rule regulates the manner in which
an investment company may, directly or indirectly, bear the expenses of
distributing its shares. The Trust 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
continuous 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 Plans, the Trust pays KDI an annual distribution
services fee, payable monthly, of 0.50% of average daily net assets of each Fund
(except Michigan Fund which pays 0.35%). The fee is accrued daily as an expense
of each Fund.
The distribution agreement and the 12b-1 Plans 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 agreements or interested persons of the
Trust and who have no direct or indirect financial interest in the agreements or
in any agreements related thereto. The distribution agreement automatically
terminate in the event of its assignment and may be terminated at any time
without penalty by the Trust or by KDI upon 60 days' written notice. Termination
by the Trust may be by vote of a majority of the Board of Trustees, or a
majority of the Trustees who are not interested persons of the Trust and who
have no direct or indirect financial interest in the agreements, or a majority
vote of the outstanding shares of the Fund subject thereto. The fee payable
pursuant to the 12b-1 Plans for each Fund may not be increased without approval
of the shareholders of that Fund and all material amendments must in any event
be approved by the Board of Trustees in the manner described above with respect
to the continuation of the agreement. The provisions concerning the
continuation, amendment and termination of the 12b-1 Plan are on a Fund by Fund
basis.
KDI has related administration services and selling group agreements with
various broker-dealer firms to provide cash management and other services for
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 a 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 that the banks may be prohibited from providing,
for their clients who wish to invest in a Fund. KDI also may provide some of the
above services for a Fund. KDI normally pays the firms at a maximum annual rate
of 0.50% of average net assets (except the Michigan Fund which pays 0.35%) 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
a Fund or to pay for sales materials or other promotional activities.
During the fiscal year ended March 31, 1999, the Florida, Michigan, New Jersey,
New York and Pennsylvania Funds incurred a distribution services fee of $45,000,
$114,000, $44,000, $674,000 and $20,000, respectively. During the fiscal year
ended March 31, 1998, the Florida, New Jersey, New York and Pennsylvania Funds
incurred a distribution services fee of $21,000, $18,000, $411,000 and $12,000,
respectively.
During the fiscal year ended March 31, 1999, pursuant to the related services
agreements for the Florida, Michigan, New Jersey, New York and Pennsylvania
Funds, KDI remitted distribution services fees of $44,000, $112,000, $44,000 and
$666,000, $12,000, respectively, to various firms. During the fiscal year ended
March 31, 1998, pursuant to the related services agreements for the Florida, New
Jersey, New York and Pennsylvania Funds, KDI remitted distribution services fees
of $15,000, $15,000, $411,000 and $4,000, respectively, to various firms.
During the fiscal year ended March 31, 1999, KDI incurred underwriting,
distribution and administrative expenses for the Florida, Michigan, New Jersey,
New York and Pennsylvania Funds as follows: service fees to firms $44,000,
$112,000, $44,000, $666,000 and $12,000, respectively, and marketing and sales
expenses $5,000, $4,000, $4,000, $47,000 and $2,000, respectively, for totals of
$49,000, $116,000, $48,000, $713,000 and $14,000, respectively. A portion of the
aforesaid marketing and sales expenses could be considered overhead expense.
23
<PAGE>
During the fiscal year ended March 31, 1998, KDI incurred underwriting,
distribution and administrative expenses for the Florida, New Jersey, New York
and Pennsylvania Funds as follows: service fees to firms $15,000, $15,000,
$411,000 and $4,000, respectively, and marketing and sales expenses $2,000,
$1,000, $30,000 and $1,000, respectively, for totals of $17,000, $16,000,
$441,000 and $5,000, respectively. A portion of the aforesaid marketing and
sales expenses could be considered overhead expense.
Custodian, Transfer Agent And Shareholder Service Agent. State Street Bank and
Trust Company ("State Street"), 225 Franklin Street, Boston, Massachusetts
02110, as custodian, has custody of all securities and cash of the Trust. State
Street attends to the collection of principal and income, and payment for and
collection of proceeds of securities bought and sold by the Trust. Investors
Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri
64105, is the transfer agent of the Trust. Pursuant to a services agreement with
IFTC, Kemper Service Company ("KSvC"), 811 Main Street, Kansas City, Missouri
64105, an affiliate of Scudder Kemper, serves as "Shareholder Service Agent" of
the Trust and, as such, performs all of IFTC's duties as transfer agent and
dividend paying agent. IFTC receives, as transfer agent, and pays to KSvC annual
account fees of a maximum of $13 per year per account plus out-of-pocket expense
reimbursement. During the fiscal year ended March 31, 1999 and 1998, IFTC
remitted shareholder service fees in the amount of $226,000 and $94,000,
respectively, to KSvC as Shareholder Service Agent.
Independent Auditors and Reports To Shareholders. The Trust's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Trust's annual financial statements, review certain
regulatory reports and the Trust's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Trust. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
Legal Counsel. Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street,
Chicago, Illinois 60601, serves as legal counsel to the Fund.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase and sale
of securities for a Fund' is to obtain the most favorable net results, taking
into account such factors as price, commission where applicable, size of order,
difficulty of execution and skill required of the executing broker/dealer. The
Adviser seeks to evaluate the overall reasonableness of brokerage commissions
paid (to the extent applicable) through the familiarity of Scudder Investor
Services, Inc. ("SIS") with commissions charged on comparable transactions, as
well as by comparing commissions paid by a Fund to reported commissions paid by
others. The Adviser routinely reviews commission rates, execution and settlement
services performed and makes internal and external comparisons.
The Funds' purchases and sales of fixed-income securities are generally placed
by the Adviser with primary market makers for these securities on a net basis,
without any brokerage commission being paid by a Fund. Trading does, however,
involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Adviser's practice to place such orders with
broker/dealers who supply brokerage and research services to the Adviser or a
Fund. The term "research services" includes advice as to the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or purchasers or
24
<PAGE>
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, if
applicable, for a Fund to pay a brokerage commission in excess of that which
another broker might charge for executing the same transaction on account of
execution services and the receipt of research services. The Adviser has
negotiated arrangements, which are not applicable to most fixed-income
transactions, with certain broker/dealers pursuant to which a broker/dealer will
provide research services to the Adviser or a Fund in exchange for the direction
by the Adviser of brokerage transactions to the broker/dealer. These
arrangements regarding receipt of research services generally apply to equity
security transactions. The Adviser may place orders with a broker/dealer on the
basis that the broker/dealer has or has not sold shares of a Fund. In effecting
transactions in over-the-counter securities, orders are placed with the
principal market makers for the security being traded unless, after exercising
care, it appears that more favorable results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will place
orders for portfolio transactions through SIS, a corporation registered as a
broker-dealer and a subsidiary of the Adviser. SIS will place orders on behalf
of the Funds with issuers, underwriters or other brokers and dealers. SIS will
not receive any commission, fee or other remuneration from the Funds for this
service.
Although certain research services from broker/dealers may be useful to a Fund
and to the Adviser, it is the opinion of the Adviser that such information only
supplements the Adviser's 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 a Fund, and
not all such information is used by the Adviser in connection with a 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 a Fund.
The Trustees review, from time to time, whether the recapture for the benefit of
the Funds of some portion of the brokerage commissions or similar fees paid by
the Funds on portfolio transactions is legally permissible and advisable.
Each Fund's average portfolio turnover rate is the ratio of the lesser of sales
or purchases to the monthly average value of the portfolio securities owned
during the year, excluding all securities with maturities or expiration dates at
the time of acquisition of one year or less. A higher rate involves greater
brokerage transaction expenses to a Fund and may result in the realization of
net capital gains, which would be taxable to shareholders when distributed.
Purchases and sales are made for a Fund's portfolio whenever necessary, in
management's opinion, to meet a Fund's objective.
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 Trust for such purchases. During the
last three fiscal years the Trust paid no portfolio brokerage commissions.
Purchases from underwriters will include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market makers
will include the spread between the bid and asked prices.
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 prospectus. Shares are sold
with no sales charge through selected financial services firms, such as
broker-dealers and banks ("firms"). The minimum initial investment is $1,000 and
the minimum subsequent investment is $100 but such minimum amounts may be
changed at any time in management's discretion. The Trust may waive the minimum
for purchases by trustees, directors, officers or employees of a Fund or Scudder
Kemper and its affiliates. An investor wishing to open an account should use the
Account Information Form available from the Trust 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
25
<PAGE>
on a Canadian bank in U.S. Dollars) will not be considered in proper form and
will not be processed unless and until the Trust determines that it has received
payment of the proceeds of the check. The time required for such a determination
will vary and cannot be determined in advance.
Under an automatic investment plan, the minimum initial and subsequent
investment is $50. Firms offering a Fund's shares may set higher minimums for
accounts they service and may change such minimums at their discretion.
Each Fund seeks to be as fully invested as possible at all times in order to
achieve maximum income. Since the Funds will be investing in instruments that
normally require immediate payment in Federal Funds (monies credited to a bank's
account with its regional Federal Reserve Bank), each Fund has adopted
procedures for the convenience of its shareholders and to ensure that it
receives investable funds. Orders for purchase of shares received by wire
transfer in the form of Federal Funds will be effected at the next determined
net asset value. Shares purchased by wire will receive that day's dividend if
effected at or prior to the 11:00 a.m. Central time net asset value
determination, otherwise such shares will receive the dividend for the next
calendar day if effected at 3:00 p.m. Central time. Orders for purchase
accompanied by a check or other negotiable bank draft will be accepted and
effected as of 3:00 p.m. Central time on the next business day following receipt
and such shares will receive the dividend for the next calendar day following
the day when the purchase is effected.
If payment is to be wired, call the firm from which you received this prospectus
for proper instructions.
Clients of Firms. Firms provide varying arrangements for their clients with
respect to the purchase and redemption of Fund shares and the confirmation
thereof. Such firms are responsible for the prompt transmission of purchase and
redemption orders. Some firms may establish higher minimum investment
requirements than set forth above. A firm may arrange with its clients for other
investment or administrative services. Such firms may independently establish
and charge additional amounts to their clients for such services, which charges
would reduce the clients' yield or return. Firms may also hold Fund shares in
nominee or street name as agent for and on behalf of their clients. In such
instances, the Trust's transfer agent will have no information with respect to
or control over the accounts of specific shareholders. Such shareholders may
obtain access to their accounts and information about their accounts only from
their firm. Certain of these firms may receive compensation from the Trust's
Shareholder Service Agent for recordkeeping and other expenses relating to these
nominee accounts. In addition, certain privileges with respect to the purchase
and redemption of shares (such as check writing redemptions) or the reinvestment
of dividends may not be available through such firms or may only be available
subject to conditions and limitations. Some firms may participate in a program
allowing them access to their clients' accounts for servicing including, without
limitation, transfers of registration and dividend payee changes; and may
perform functions such as generation of confirmation statements and disbursement
of cash dividends. The prospectus should be read in connection with such firm's
material regarding its fees and services.
Other Information. The Trust reserves the right to withdraw all or any part of
the offering made by this prospectus or to reject purchase orders without prior
notice. All orders to purchase shares are subject to acceptance by the Trust and
are not binding until confirmed or accepted in writing. Any purchase that would
result in total account balances for a single shareholder in excess of $3
million is subject to prior approval by the Trust. Share certificates are issued
only on request to the Trust and may not be available for certain types of
accounts. A $10 service fee will be charged when a check for purchase of Fund
shares is returned because of insufficient or uncollected funds or a stop
payment order.
Shareholders should direct their inquiries to Kemper Service Company ("KSvC"),
the Trust's "Shareholder Service Agent," 811 Main Street, Kansas City, Missouri
64105-2005.
Redemption of Shares
General. Upon receipt by the Shareholder Service Agent of a request in the form
described below, shares of a Fund will be redeemed by the Trust at the next
determined net asset value. If processed at 3:00 p.m. Central time, the
shareholder will receive that day's dividend. A shareholder may use either the
regular or expedited
26
<PAGE>
redemption procedures. Shareholders who redeem all their shares of a Fund will
receive the net asset value of such shares and all declared but unpaid dividends
on such shares.
If shares of a Fund to be redeemed were purchased by check or through certain
Automated Clearing House ("ACH") transactions, the Fund may delay transmittal of
redemption proceeds until it has determined that collected funds have been
received for the purchase of such shares, which will be up to 10 days from
receipt by the Fund of the purchase amount. Shareholders may not use ACH or
Redemption Checks (defined below) until the shares being redeemed have been
owned for at least 10 days and shareholders may not use such procedures to
redeem shares held in certificated form. There is no delay when shares being
redeemed were purchased by wiring Federal Funds.
If shares being redeemed were acquired from an exchange of shares of a mutual
fund that were offered subject to a contingent deferred sales charge, the
redemption of such shares by the Trust may be subject to a contingent deferred
sales charge as described in the prospectus for that other fund.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions, ACH transactions and exchange transactions for individual
and institutional accounts and pre-authorized telephone redemption transactions
for certain institutional accounts. Shareholders may choose these privileges on
the account application or by contacting the Shareholder Service Agent for
appropriate instructions. Please note that the telephone exchange privilege is
automatic unless the shareholder refuses it on the account application. The
Trust or its agents may be liable for any losses, expenses or costs arising out
of fraudulent or unauthorized telephone requests pursuant to these privileges,
unless the Trust or its agents reasonably believe, based upon reasonable
verification procedures, that the telephone instructions are genuine. The
shareholder will bear the risk of loss, resulting from fraudulent or
unauthorized transactions, as long as the reasonable verification procedures are
followed. The verification procedures include recording instructions, requiring
certain identifying information before acting upon instructions and sending
written confirmations.
Because of the high cost of maintaining small accounts, the Trust reserves the
right to redeem an account that falls below the minimum investment level. Thus,
a shareholder who makes only the minimum initial investment and then redeems any
portion thereof might have the account redeemed. A shareholder will be notified
in writing and will be allowed 60 days to make additional purchases to bring the
account value up to the minimum investment level before the Trust redeems the
shareholder account.
Financial services firms provide varying arrangements for their clients to
redeem Fund shares. Such firms may independently establish and charge amounts to
their clients for such services.
The Trust may suspend the right of redemption or delay payment more than seven
days (a) during any period when the New York Stock Exchange ("Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of a Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for a Fund
to determine the value of its net assets, or (c) for such other periods as the
Securities and Exchange Commission may by order permit for the protection of
each Fund's shareholders.
Regular Redemptions. When shares are held for the account of a shareholder by
the Trust's Shareholder Service Agent, the shareholder may redeem them by
sending a written request with signatures guaranteed to Kemper Service Company,
P.O. Box 419153, Kansas City, Missouri 64141-6153. When certificates for shares
have been issued, they must be mailed to or deposited with the Shareholder
Service Agent, along with a duly endorsed stock power and accompanied by a
written request for redemption. Redemption requests and a stock power must be
endorsed by the account holder with signatures guaranteed by a commercial bank,
trust company, savings and loan association, federal savings bank, member firm
of a national securities exchange or other eligible financial institution. The
redemption request and stock power must be signed exactly as the account is
registered including any special capacity of the registered owner. Additional
documentation may be requested, and a signature guarantee is normally required,
from institutional and fiduciary account holders, such as corporations,
custodians (e.g., under the Uniform Transfers to Minors Act), executors,
administrators, trustees or guardians.
27
<PAGE>
Telephone Redemptions. If the proceeds of the redemption are $50,000 or less and
the proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor, guardian and custodian account
holders, provided the trustee, executor guardian or custodian is named in the
account registration. Other institutional account holders may exercise this
special privilege of redeeming shares by telephone request or written request
without signature guarantee subject to the same conditions as individual account
holders and subject to the limitations on liability described under "General"
above, provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-231-8568. 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 Trust reserves the right to terminate or modify this privilege at any time.
Expedited Wire Transfer Redemptions. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares can be redeemed and proceeds sent by a federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to 11:00 a.m. Central time will result in shares
being redeemed that day and normally the proceeds will be sent to the designated
account that day. Once authorization is on file, the Shareholder Service Agent
will honor requests by telephone at 1-800-231-8568 or in writing, subject to the
limitations on liability described under "General" above. The Trust is not
responsible for the efficiency of the federal wire system or the account
holder's financial services firm or bank. The Trust 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 Trust were purchased. Shares purchased by check or through certain
ACH transactions may not be redeemed by wire transfer until the shares have been
owned for at least 10 days. Account holders may not use this procedure to redeem
shares held in 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 Trust reserves the right to
terminate or modify this privilege at any time.
Redemptions By Draft. Upon request, shareholders will be provided with drafts to
be drawn on the Trust ("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 Trust receives the Redemption Check. A
shareholder wishing to use this method of redemption must complete and file an
Account Application which is available from the Trust 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 Trust
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
Trust. In addition, firms may impose minimum balance requirements in order to
offer this feature. Firms may also impose fees to investors for this privilege
or establish variations of minimum check amounts if approved by the Trust.
Unless one signer is authorized on the Account Application, Redemption Checks
must be signed by all account holders. Any change in the signature authorization
must be made by written notice to the Shareholder Service Agent. Shares
purchased by check or through certain ACH transactions may not be redeemed by
Redemption Check until the shares have been on the Trust's books for at least 10
days. Shareholders may not use this
28
<PAGE>
procedure to redeem shares held in certificated form. The Trust reserves the
right to terminate or modify this privilege at any time.
The Trust may refuse to honor Redemption Checks whenever the right of redemption
has been suspended or postponed, or whenever the account is otherwise impaired.
A $10 service fee will be charged when a Redemption Check is presented to redeem
Fund shares in excess of the value of a Fund account or in an amount less than
$250; when a Redemption Check is presented that would require redemption of
shares that were purchased by check or certain ACH transactions within 10 days;
or when "stop payment" of a Redemption Check is requested.
Redemption-in-Kind
Although it is the Trust's present policy to redeem in cash, if the Board of
Trustees determines that a material adverse effect would be experienced by the
remaining shareholders if payment were made wholly in cash, the Trust will pay
the redemption price in part by a distribution of portfolio securities in lieu
of cash, in conformity with the applicable rules of the Securities and Exchange
Commission, taking such securities at the same value used to determine net asset
value, and selecting the securities in such manner as the Board of Trustees may
deem fair and equitable. If such a distribution occurs, shareholders receiving
securities and selling them could receive less than the redemption value of such
securities and in addition would incur certain transaction costs. Such a
redemption would not be as liquid as a redemption entirely in cash. The Trust
has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which
each Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net assets of a Fund during any 90-day period for any one
shareholder of record.
DIVIDENDS, TAXES AND NET ASSET VALUE
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 additional shares of a Fund normally on
the next to last business day of the month. The Trust 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 on the reinvestment date.
See "Special Features -- Exchange Privilege". To use this privilege of investing
Fund dividends in shares of a Kemper Fund, shareholders must maintain a minimum
account value of $1,000 in this Fund.
Each 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 a Fund are accrued each day. Since a 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.
Shareholders will receive monthly confirmation of dividends and of purchase and
redemption transactions. Shareholders may select one of the following ways to
receive dividends:
1. Reinvest Dividends at net asset value into additional shares of a
Fund. Dividends are normally reinvested on the next to last
business day of the month. Dividends will be reinvested unless the
shareholder elects to receive them in cash.
2. Receive Dividends in Cash if so requested. Checks will be mailed
monthly, within five business days of the reinvestment date, to
the shareholder or any person designated by the shareholder. At
the option of shareholders, dividends may be sent of federal funds
wire.
29
<PAGE>
A Fund reinvests dividend checks (and future dividends) in shares of the Fund if
checks are returned as undeliverable. Dividends and other distributions of a
Fund in the aggregate amount of $10 or less are automatically reinvested in
shares of the Fund unless the shareholder requests that such policy not be
applied to the shareholder's account.
Taxes. The Funds intend to qualify as regulated investment companies under
Subchapter M of the Internal Revenue Code (the "Code") and, if so qualified,
will not be subject to federal income taxes to the extent its earnings are
distributed. Each Fund also intends to meet the requirements of the Code
applicable to regulated investment companies distributing tax-exempt interest
dividends and, therefore, dividends representing net interest received on
Municipal Securities will not be includable by shareholders in their gross
income for federal income tax purposes, except to the extent such interest is
subject to the alternative minimum tax as discussed hereinafter. Dividends
representing taxable net investment income (such as net interest income from
temporary investments in obligations of the U.S.
Government) and net short-term capital gains, if any, are taxable to
shareholders as ordinary income.
If for any taxable year a Fund does not qualify for the special federal income
tax treatment afforded regulated investment companies all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions, would be taxable to shareholders to the extent of current
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.
Dividends declared in October, November or December to shareholders of record as
of a date in one of those months and paid during the following January are
treated as paid on December 31 of the calendar year in which declared for
federal income tax purposes. Each Fund may adjust its schedule for dividend
reinvestment for the month of December to assist it in complying with reporting
and minimum distribution requirements contained in the Code.
Net interest on certain "private activity bonds" issued on or after August 8,
1986 is treated as an item of tax preference and may, therefore, be subject to
both the individual and corporate alternative minimum tax. To the extent
provided by regulations to be issued by the Secretary of the Treasury,
exempt-interest dividends from a Fund are to be treated as interest on private
activity bonds in proportion to the interest a Fund receives from private
activity bonds, reduced by allowable deductions. For the 1998 calendar year 14%,
13%, 23%, 17% and 30% of the net interest income for the Florida, Michigan, New
Jersey, New York and Pennsylvania Funds, respectively, was derived from "private
activity bonds."
Exempt-interest dividends, except to the extent of interest from "private
activity bonds," are not treated as a tax preference item. For a corporate
shareholder, however, such dividends will be included in determining such
corporate shareholder's "adjusted current earnings." Seventy-five percent of the
excess, if any, of "adjusted current earnings" over the corporate shareholder's
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 a Fund.
Individuals whose modified income exceeds a base amount will be subject to
federal income tax on up to 85% of their Social Security benefits. Modified
income includes adjusted gross income, tax-exempt interest, including
exempt-interest dividends from a Fund, and 50% of Social Security benefits.
Florida Fund. The State of Florida does not impose a personal income tax. Thus
dividends paid by the Florida Fund to individual shareholders who are Florida
residents will not be subject to state income tax. Florida does, however, impose
an annual intangibles tax on intangible assets (securities and other
intangibles) in excess of $20,000 ($40,000 if filing jointly) owned by Florida
residents on the first day of each calendar year. Florida recently lowered the
tax rate on intangible assets. Effective January 1, 2000 the intangible tax rate
is $1.00 per $1,000 of taxable value on the first day of each year on intangible
assets valued at between $20,000 and $100,000 ($40,000 and $200,000,
respectively, if filing jointly) and $2.00 per $1,000 of intangible
30
<PAGE>
assets over $100,000 of value ($200,000 if filing jointly). U.S. Government
securities and Florida Municipal Securities are exempt from the intangibles tax.
The value of the shares of the Florida Fund are also exempt from the intangibles
tax if on December 31 of any year at least 90% of the net assets of Florida
Fund's portfolio consists of exempt securities. If less than 90% of the
portfolio consists of any assets which are not so exempt on the last business
day of the calendar year, only the value of that portion of the shares of the
Florida Fund which relate to securities issued by the U.S. government and its
possessions and territories will be exempt from the Florida intangibles tax. The
remaining value of such shares will be fully subject to the intangible tax, even
if the value relates, in part, to Florida tax exempt securities.
The Florida Fund will endeavor to hold at year-end at least 90% of net assets
which are exempt from Florida's intangible tax. However, there is no assurance
that an exemption from the Florida intangibles tax will be available. Whether
the Florida Fund can hold the required amount of assets exempt from the
intangibles tax at year end will depend upon a number of factors, including the
transaction costs involved in achieving such a goal and the availability of
permitted investments which will accomplish that goal.
Michigan Fund. Dividends paid by the Michigan Fund derived from interest income
from obligations of Michigan, its political or governmental subdivisions or
obligations of the U.S., its agencies, instrumentalities or possessions will be
exempt from the Michigan personal income tax and Michigan Single Business Tax
provided that at least 50% of the total assets of the Michigan Fund are invested
in such issues at the end of each quarter.
New Jersey Fund. Dividends paid by the New Jersey Fund will be exempt from New
Jersey Gross Income Tax to the extent that the dividends are derived from
interest on obligations of the state or its political subdivisions or
authorities or on obligations issued by certain other government authorities or
from capital gains from the disposition of such obligations, as long as the New
Jersey Fund meets certain investment and filing requirements necessary to
establish and maintain its status as a "Qualified Investment Fund" in New
Jersey, such as the requirement that, in general, 80% of the Fund's assets must
be comprised of New Jersey municipal obligations at the end of each calendar
quarter. It is the New Jersey Fund's intention to satisfy these requirements and
maintain Qualified Investment Fund status. Capital gains, if any, on redemption
of shares will also be exempt from New Jersey Gross Income Tax. Dividends paid
by the New Jersey Fund derived from interest on non-exempt assets will be
subject to New Jersey Gross Income Tax. Dividends paid by the New Jersey Fund
will be taxable to corporate shareholders subject to the New Jersey corporation
business (franchise) tax.
New York Fund. Dividends paid by the New York Fund representing net interest
received on New York Municipal Securities will be exempt from New York State and
New York City income taxes. Dividends paid by the New York Fund will be taxable
to corporate shareholders that are subject to New York State and New York City
corporate franchise tax.
Pennsylvania Fund. Dividends paid by the Pennsylvania Fund will be exempt from
Pennsylvania income tax to the extent that the dividends are derived from
interest on obligations of Pennsylvania, any public authority, commissions,
board or other state agency, any political subdivision of the state or its
public authority, and certain obligations of the U.S. or its territories
(including Puerto Rico, Guam and the Virgin Islands). Dividends paid by the
Pennsylvania Fund representing interest income on Pennsylvania Municipal
Securities are also generally exempt from the Philadelphia School District
Income Tax for residents of Philadelphia and from the intangibles tax for the
City and School District of Pittsburgh for residents of Pittsburgh. Shareholders
of the Pennsylvania Fund who are subject to the Pennsylvania property tax in
their county of residence will be exempt from county personal property tax to
the extent that the portfolio of the Pennsylvania Fund consists of such exempt
obligations on the annual assessment date of January 1.
General. The tax exemption for federal income tax purposes of dividends from a
Fund does not necessarily result in exemption under the income or other tax laws
of any state or local taxing authority. The laws of the several states and local
taxing authorities vary with respect to the taxation of such income, and
shareholders of a 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.
31
<PAGE>
Each Fund is required by law to withhold 31% of taxable dividends paid to
certain shareholders who do not furnish a correct taxpayer identification number
(in the case of individuals, a social security number) and in certain other
circumstances.
Shareholders normally will receive monthly confirmations of dividends and of
purchase and redemption transactions. Firms may provide varying arrangements
with their clients with respect to confirmations. Tax information will be
provided annually. Shareholders are encouraged to retain copies of their account
confirmation statements or year-end statements for tax reporting purposes.
However, those who have incomplete records may obtain historical account
transaction information at a reasonable fee.
Interest on indebtedness which is incurred to purchase or carry shares of a
mutual fund which distributes exempt-interest dividends during the year is not
deductible for Federal income tax purposes. Further, a Fund may not be an
appropriate investment for persons who are "substantial users" of facilities
financed by industrial development bonds held by a Fund or are "related persons"
to such users; such persons should consult their tax advisers before investing
in a 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 a Fund, may be
includable in modified alternative minimum taxable income. Corporate
shareholders are advised to consult their tax advisers with respect to the
consequences of the Superfund Act.
Net Asset Value. As described in the prospectus, each Fund values its portfolio
instruments at amortized cost, which does not take into account unrealized
capital gains or losses. This involves initially valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the 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 a Fund would receive if it sold the instrument.
Calculations are made to compare the value of a Fund's investments valued at
amortized cost with market values. Market valuations are obtained by using
actual quotations provided by market makers, estimates of market value, or
values obtained from yield data relating to classes of money market instruments
published by reputable sources at the mean between the bid and asked prices for
the instruments. If a deviation of 1/2 of 1% or more were to occur between the
net asset value per share calculated by reference to market values and a Fund's
$1.00 per share net asset value, or if there were any other deviation that the
Board of Trustees of the Trust believed would result in a material dilution to
shareholders or purchasers, the Board of Trustees would promptly consider what
action, if any, should be initiated. If a Fund's net asset value per share
(computed using market values) declined, or were expected to decline, below
$1.00 (computed using amortized cost), the Board of Trustees of the Trust might
temporarily reduce or suspend dividend payments in an effort to maintain the net
asset value at $1.00 per share. As a result of such reduction or suspension of
dividends or other action by the Board of Trustees, an investor would receive
less income during a given period than if such a reduction or suspension had not
taken place. Such action could result in investors receiving no 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 a Fund's
net asset value per share (computed using market values) were to increase, or
were anticipated to increase above $1.00 (computed using amortized cost), the
Board of Trustees of the Trust might supplement dividends in an effort to
maintain the net asset value at $1.00 per share.
PERFORMANCE
Scudder Kemper has agreed to absorb certain operating expenses of each Fund to
the extent described in the prospectus. Without this expense absorption, the
performance results noted herein would have been lower.
From time to time, a Fund may advertise several types of performance information
including "yield," "effective yield," and "tax equivalent yield." Each of these
figures is based upon historical earnings and is not representative of the
future performance of a Fund. The yield of a Fund refers to the net investment
32
<PAGE>
income generated by a hypothetical investment in the Fund over a specific
seven-day period. This net investment income is then annualized, which means
that the net investment income generated during the seven-day period is assumed
to be generated each week over an annual period and is shown as a percentage of
the investment. The effective yield is calculated similarly, but the net
investment income earned by the investment is assumed to be compounded weekly
when annualized. The effective yield will be slightly higher than the yield due
to this compounding effect. Tax equivalent yield is the yield that a taxable
investment must generate in order to equal the Fund's yield for an investor in a
stated federal and, if applicable, state and local income tax bracket (normally
assumed to be the maximum tax rate). Tax equivalent yield is based upon, and
will be higher than, the portion of a Fund's yield that is tax-exempt.
The performance of a Fund may be compared to that of other money market mutual
funds or mutual fund indexes as reported by independent mutual fund reporting
services such as Lipper, Inc. A Fund's performance and its relative size may be
compared to other money market mutual funds as reported by IBC Financial Data,
Inc., a reporting service on money market funds. Investors may want to compare a
Fund's performance on an after-tax basis to that of various bank products as
reported by BANK RATE MONITOR(TM), a financial reporting service that weekly
publishes average rates of bank and thrift institution money market deposit
accounts and interest bearing checking accounts or various certificate of
deposit indexes. The performance of a Fund also may be compared to that of U.S.
Treasury bills and notes. Certain of these alternative investments may offer
fixed rates of return and guaranteed principal and may be insured. In addition,
investors may want to compare a Fund's performance to the Consumer Price Index
either directly or by calculating its "real rate of return," which is adjusted
for the effects of inflation.
Information may be quoted from publications such as Morningstar, Inc., The Wall
Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago Tribune,
USA Today, Institutional Investor and Registered Representative. A Fund may
depict the historical performance of the securities in which it may invest over
periods reflecting a variety of market or economic conditions either alone or in
comparison with alternative investments, performance indexes of those
investments or economic indicators. A Fund may also describe its portfolio
holdings and depict its size or relative size compared to other mutual funds,
the number and make-up of its shareholder base and other descriptive factors
concerning the Fund.
A Fund's yield will fluctuate. Shares of a Fund are not insured.
Each Fund's yield is computed in accordance with a standardized method
prescribed by rules of the Securities and Exchange Commission. Under that
method, the yield quotation is based on a seven-day period and is computed as
follows. The first calculation is net investment income per share, which is
accrued interest on fund securities, plus or minus amortized original issue
discount or premium, less accrued expenses. This number is then divided by the
price per share (expected to remain constant at $1.00) at the beginning of the
period ("base period return"). The result is then divided by 7 and multiplied by
365 and the resulting yield figure is carried to the nearest one-hundredth of
one percent. Realized capital gains or losses and unrealized appreciation or
depreciation of investments are not included in the calculation. For the seven
day period ended March 31, 1999, the Florida Fund's yield was 2.15%, the
Michigan Fund's yield was 2.35%, the New Jersey Fund's yield was 1.87%, the New
York Fund's yield was 2.11% and the Pennsylvania Fund's yield was 2.19 %.
Each Fund's effective yield is determined by taking the base period return
(computed as described above) and calculating the effect of assumed compounding.
The formula for the effective yield is: (base period return +1)^365/7 - 1. For
the seven day period ended March 31, 1999, the Florida Fund's effective yield
was 2.18%, the Michigan Fund's effective yield was 2.38%, the New Jersey Fund's
effective yield was 1.88%, the New York Fund's effective yield was 2.13% and the
Pennsylvania Fund's effective yield was 2.21%.
The tax equivalent yield of a Fund is computed by dividing that portion of a
Fund's yield (computed as described above) which is tax-exempt by (one minus the
stated federal and, if applicable, state and local income tax rate) and adding
the result to that portion, if any, of the yield of a Fund that is not
tax-exempt. Based upon a marginal federal income tax rate of 37.1% for the
Florida Fund, a combined federal and Michigan State marginal income tax rate of
39.9% for the Michigan Fund, a combined federal and New Jersey State marginal
income tax rate of 41.1% for the New Jersey Fund, a combined federal, New York
33
<PAGE>
State and New York City marginal income tax rate of 43.5% for the New York Fund,
and a combined federal and Pennsylvania State marginal income tax rate of 38.9%
for the Pennsylvania Fund, and a yield computed as described above for the seven
day period ended March 31, 1999, the Florida Fund's tax equivalent yield was
3.42%, the Michigan Fund's tax equivalent yield was 3.96%, the New Jersey Fund's
tax equivalent yield was 3.19%, the New York Fund's tax equivalent yield was
3.77% and the Pennsylvania Fund's tax equivalent yield was 3.62%.
Based upon a marginal federal income tax rate of 39.6% for the seven day period
ended March 31, 1999, the Florida Fund's taxable equivalent yield was 3.56%, the
Michigan Fund's tax equivalent yield was 3.94%, the New Jersey Fund's tax
equivalent yield was 3.11%, the New York Fund's tax equivalent yield was 3.53%
and the Pennsylvania Fund's tax-equivalent yield was 3.66%. For additional
information concerning tax-exempt yields, see "Tax-Exempt versus Taxable Yield"
below.
Each Fund's yield fluctuates, and the publication of an annualized yield
quotation is not a representation as to what an investment in a Fund will
actually yield for any given future period. Actual yields will depend not only
on changes in interest rates on money market instruments during the period in
which the investment in a Fund is held, but also on such matters as Fund
expenses.
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 a Fund with that of its competitors. Past
performance cannot be a guarantee of future results.
A Fund's performance also may be compared on an after-tax basis to various bank
products, including the average rate of bank and thrift institution money market
deposit accounts or interest bearing checking accounts as reported in the BANK
RATE MONITOR National Index(TM) of 100 leading bank and thrift institutions as
published by BANK RATE MONITOR(TM), N. Palm Beach, Florida 33408. The rates
published by the BANK RATE MONITOR National Index(TM) are averages of the
personal account rates offered on the Wednesday prior to the date of publication
by 100 of the leading bank and thrift institutions in the ten largest
Consolidated Standard Metropolitan Statistical Areas. Account minimums range
upward from $2,000 in each institution and compounding methods vary. Interest
bearing checking accounts generally offer unlimited check writing while money
market deposit accounts generally restrict the number of checks that may be
written. If more than one rate is offered, the lowest rate is used. Rates are
determined by the financial institution and are subject to change at any time.
Bank products represent a taxable alternative income producing product. Bank and
thrift institution deposit accounts may be insured. Shareholder accounts in a
Fund are not insured. Bank passbook savings accounts share some liquidity
features with money market mutual fund accounts but they may not offer all the
features available from a money market mutual fund, such as check writing. Bank
passbook savings accounts normally offer a fixed rate of interest while the
yield of a Fund fluctuates. Bank checking accounts normally do not pay interest
but share some liquidity features with money market mutual fund accounts (e.g.,
the ability to write checks against the account). Bank certificates of deposit
may offer fixed or variable rates for a set term. (Normally, a variety of terms
are available.) Withdrawal of these deposits prior to maturity normally will be
subject to a penalty. In contrast, shares of a Fund are redeemable at the net
asset value (normally $1.00 per share) next determined after a request is
received, without charge.
Investors also may want to compare a Fund's performance on an after-tax basis to
that of U.S. Treasury bills or notes because such instruments represent
alternative income producing products. Treasury obligations are issued in
selected denominations. Rates of U.S. Treasury obligations are fixed at the time
of issuance and payment of principal and interest is backed by the full faith
and credit of the U.S. Treasury. The market value of such instruments generally
will fluctuate inversely with interest rates prior to maturity and will equal
par value at maturity. Generally, the value of obligations with shorter
maturities will fluctuate less than those with longer maturities. A Fund's yield
will fluctuate. Also, while each Fund seeks to maintain a net asset value per
share of $1.00, there is no assurance that it will be able to do so. Any such
comparisons may be useful to investors who wish to compare a Fund's past
performance with that of its competitors. Of course, past performance cannot be
a guarantee of future results.
34
<PAGE>
A Fund's performance also may be compared to the Consumer Price Index, as
published by the U.S. Bureau of Labor Statistics, which is an established
measure of change over time in the prices of goods and services in major
expenditure groups.
Tax-Exempt Versus Taxable Yield. You may want to determine which investment --
tax-exempt or taxable -- will provide you with a higher after-tax return. To
determine the taxable equivalent yield, simply divide the yield from the
tax-exempt investment by the sum of [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 a
Fund may generate. Both tables are based upon current law as to the 1999 federal
and 1998 state tax rates and brackets. The federal tax rate should be used for
the Florida Fund since Florida has no applicable state personal income tax.
35
<PAGE>
Taxable Equivalent Yield Table For Persons Whose Adjusted Gross Income
Is Under $126,600
<TABLE>
<CAPTION>
Single Joint Your A Tax-Exempt Yield of:
Marginal 2% 3% 4% 5% 6% 7%
Taxable Income Federal Tax Rate Is Equivalent to a Taxable Yield of:
- -------------- ---------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$25,750-$62,450 $43,050-$104,050 28.0% 2.78 4.17 5.56 6.94 8.33 9.72
Over $62,450 Over $104,050 31.0 2.90 4.35 5.80 7.25 8.70 10.14
Single Joint Combined A Tax-Exempt Yield of:
Michigan 2% 3% 4% 5% 6% 7%
Taxable Income and Federal Tax Rate Is Equivalent to a Taxable Yield of:
- -------------- -------------------- ------------------------------------
$25,750-$62,450 $43,050-$104,050 31.2% 2.91 4.36 5.81 7.27 8.72 10.17
Over $62,450 Over $104,050 34.0 3.03 4.55 6.06 7.58 9.09 10.61
Single Joint Combined A Tax-Exempt Yield of:
New Jersey and 2% 3% 4% 5% 6% 7%
Taxable Income Federal Tax Rate Is Equivalent to a Taxable Yield of:
- -------------- ---------------- ------------------------------------
$25,750-$35,000 $43,050-$50,000 29.3% 2.83 4.24 5.66 7.07 8.49 9.90
$50,000-$70,000 29.8 2.85 4.27 5.70 7.12 8.55 9.97
$35,000-$40,000 $70,000-$80,000 30.5 2.88 4.32 5.76 7.19 8.63 10.07
$40,000-$62,450 $80,000-$104,050 32.0 2.94 4.41 5.88 7.35 8.82 10.29
$62,450-$75,000 $104,050-$150,000 34.8 3.07 4.60 6.13 7.67 9.20 10.74
Over $75,000 Over $150,000 35.4 3.10 4.64 6.19 7.74 9.29 10.84
Single Joint Combined N.Y. City, A Tax-Exempt Yield of:
N.Y. State and 2% 3% 4% 5% 6% 7%
Taxable Income Federal Tax Rate** Is Equivalent to a Taxable Yield of:
- -------------- ------------------ ------------------------------------
$25,750-$62,450 $43,050-$104,050 36.1% 3.13 4.69 6.26 7.82 9.39 10.95
Over $62,450 Over $104,050 38.8 3.27 4.9 6.54 8.17 9.80 11.44
Single Joint Combined A Tax-Exempt Yield of:
Pennsylvania and 2% 3% 4% 5% 6% 7%
Taxable Income Federal Tax Rate Is Equivalent to a Taxable Yield of:
- -------------- ---------------- ------------------------------------
$25,750-$62,450 $43,050-$104,050 30.0% 2.86 4.29 5.71 7.14 8.57 10.00
Over $62,450 Over $104,050 32.9 2.98 4.47 5.96 7.45 8.94 10.43
Taxable Equivalent Yield Table For Persons Whose Adjusted Gross Income Is Over $126,600
Single Joint Your A Tax-Exempt Yield of:
Marginal 2% 3% 4% 5% 6% 7%
Taxable Income Federal Tax Rate Is Equivalent to a Taxable Yield of:
- -------------- ---------------- ------------------------------------
$62,450-$130,250 $104,050-$158,550 31.9% 2.94 4.41 5.87 7.34 8.81 10.28
$130,250-$283,150 $158,550-$283,150 37.1 3.18 4.77 6.36 7.95 9.54 11.13
Over $283,150 Over $283,150 40.8 3.38 5.07 6.76 8.45 10.14 11.82
36
<PAGE>
Single Joint Combined A Tax-Exempt Yield of:
Michigan and 2% 3% 4% 5% 6% 7%
Taxable Income Federal Tax Rate Is Equivalent to a Taxable Yield of:
- -------------- ---------------- ------------------------------------
$62,450-$130,250 $104,050-$158,550 34.9% 3.07 4.61 6.14 7.68 9.22 10.75
$130,250-$283,150 $158,550-$283,150 39.9 3.33 4.99 6.66 8.32 9.98 11.65
Over $283,150 Over $283,150 43.4 3.53 5.30 7.07 8.83 10.60 12.37
Single Joint Combined A Tax-Exempt Yield of:
New Jersey and 2% 3% 4% 5% 6% 7%
Taxable Income Federal Tax Rate Is Equivalent to a Taxable Yield of:
- -------------- ---------------- ------------------------------------
$62,450-$75,000 $104,050-$150,000 35.7% 3.11 4.67 6.22 7.78 9.33 10.89
$75,000-$130,250 $150,000-$158,550 36.2 3.13 4.70 6.27 7.84 9.40 10.97
$130,250-$283,150 $158,550-$283,150 41.1 3.40 5.09 6.79 8.49 10.19 11.88
Over $283,150 Over $283,150 44.6 3.61 5.42 7.22 9.03 10.83 12.64
Single Joint Combined N.Y. City, A Tax-Exempt Yield of:
N.Y. State and 2% 3% 4% 5% 6% 7%
Taxable Income Federal Tax Rate Is Equivalent to a Taxable Yield of:
- -------------- ---------------- ------------------------------------
$62,450-$130,250 $104,050-$158,550 39.6% 3.31 4.97 6.62 8.28 9.93 11.59
$130,250-$283,150 $158,550-$283,150 44.2 3.58 5.38 7.17 8.96 10.75 12.54
Over $283,150 Over $283,150 47.5 3.81 5.71 7.62 9.52 11.43 13.33
Single Joint Combined A Tax-Exempt Yield of:
Pennsylvania 2% 3% 4% 5% 6% 7%
Taxable Income Federal Tax Rate Is Equivalent to a Taxable Yield of:
- -------------- ---------------- ------------------------------------
$62,450-$130,250 $104,050-$158,550 33.8% 3.02 4.53 6.04 7.55 9.06 10.57
$130,250-$283,150 $158,550-$283,150 38.9 3.27 4.91 6.55 8.18 9.82 11.46
Over $283,150 Over $283,150 42.5 3.48 5.22 6.96 8.7 10.43 12.17
</TABLE>
* This table assumes a decrease of $3.00 of itemized deductions for each $100
of adjusted gross income over $126,600. For a married couple with adjusted
gross income between $189,950 and $312,450 (single between $126,600 and
$249,100), add 0.7% to the above Marginal Federal Tax Rate for each
personal and dependency exemption. The taxable equivalent yield is the
tax-exempt yield divided by: 100% minus the adjusted tax rate. For example,
if the table tax rate is 37.1% and you are married with no dependents, the
adjusted tax rate is 38.5% (37.1% + 0.7% + 0.7%). For a tax-exempt yield of
6%, the taxable equivalent yield is about 9.8% (6% / (100%-38.5%)).
** The tables do not reflect the impact of the New York State Tax Table
Benefit Recapture that is intended to eliminate the benefit of the
graduated rate structure and applies to taxable income between $100,000 and
$150,000.
37
<PAGE>
OFFICERS AND TRUSTEES
The officers and trustees of the Trust, their birthdates, their principal
occupations and their affiliations, if any, with Scudder Kemper and KDI, are
listed below. All persons named as trustees also serve in similar capacities for
other funds advised by Scudder Kemper.
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), Vice President and Trustee*, Two International
Place, Boston, Massachusetts; Managing Director, Scudder Kemper; formerly, Head
of Broker Dealer Division of an unaffiliated investment management firm during
1997; prior thereto, President of Client Management Services of an unaffiliated
investment management firm from 1991 to 1996.
SHIRLEY D. PETERSON (9/3/41), Trustee, 401 Rosemont Avenue, Frederick, Maryland;
President, Hood College; formerly, partner, Steptoe & Johnson (attorneys); prior
thereto, Commissioner, Internal Revenue Service; prior thereto, Assistant
Attorney General (Tax), U.S. Department of Justice; Director Bethlehem Steel
Corp.
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.
MARK S. CASADY (9/21/60), President*, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
PHILIP J. COLLORA (11/15/45), Vice President and Secretary*, 222 South Riverside
Plaza, Chicago, Illinois; Senior Vice President, Scudder Kemper.
38
<PAGE>
ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper.
ROBERT C. PECK, JR. (10/1/46), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Scudder Kemper; formerly, Executive Vice
President and Chief Investment Officer with an unaffiliated investment
management firm from 1988 to June 1997.
KATHRYN L. QUIRK (12/3/52), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Scudder Kemper.
FRANK J. RACHWALSKI, JR. (3/26/45), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Scudder Kemper.
LINDA J. WONDRACK (9/12/64), Vice President*, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
JOHN R. HEBBLE (6/27/58), Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Scudder Kemper.
BRENDA LYONS (2/21/63), Assistant Treasurer*, Two International Place, Boston,
Massachusetts Senior Vice President, Scudder Kemper.
CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Senior Vice President, Scudder Kemper; formerly,
Associate, Dechert Price & Rhoads (law firm), from 1989 to 1997.
MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper; formerly, Assistant Vice
President of an unaffiliated investment management firm; prior thereto,
Associate Staff Attorney of an unaffiliated investment management firm;
Associate, Peabody & Arnold (law firm).
* Interested persons as defined in the Investment Company Act of 1940.
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Funds. The table below shows amounts paid or
accrued to those trustees who are not designated "interested persons" during the
Trust's fiscal year ended March 31, 1999. The information in the last column
indicates the total amounts paid or accrued for the calendar year 1998 for all
Scudder Kemper Funds.
Total Compensation
Scudder Kemper Funds
Name Of Trustee Compensation Paid
- --------------- From the Trust To Trustees(1)
-------------- --------------
John W. Ballantine(2) 0 0
Lewis A. Burnham $1,800 $126,100
Donald L. Dunaway(3) $1,900 $135,000
Robert B. Hoffman $1,700 $116,100
Donald R. Jones $1,700 $129,600
Shirley D. Peterson $1,600 $108,800
William P. Sommers $1,600 $108,800
(1) Includes compensation for service on the Boards of 25 Scudder Kemper funds
with 43 fund portfolios. Each trustee currently serves as a trustee of 26
Scudder Kemper Funds and 48 fund portfolios.
(2) John W. Ballantine became a Trustee on May 18, 1999.
39
<PAGE>
(3) Pursuant to deferred compensation agreements with the Scudder Kemper Funds
deferred amounts accrue interest monthly at a rate approximate to the yield
of Zurich Money Funds-Zurich Money Market Fund. Total deferred amounts
(including interest thereon) payable from the Funds for all prior fiscal
years for the New York Fund are $4,300 for Mr. Dunaway.
On July 1, 1999, the trustees and officers as a group owned less than 1% of the
then outstanding shares of each Fund. As of July 1, 1999, no shareholder owned
of record more than 5% of the outstanding shares of the Funds except as shown
below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fund Name and Address Percentage
---- ---------------- ----------
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Florida Prudential Securities Inc. 18.62%
1 New York Plaza
New York, NY 10004
- -------------------------------------------------------------------------------------------------------------
Florida Hank Asher 8.73%
- -------------------------------------------------------------------------------------------------------------
Michigan Scudder Kemper Investments, Inc. 20.46%
(Accounting Control)
345 Park Avenue
New York, NY 10154
- -------------------------------------------------------------------------------------------------------------
Michigan Roney & Co. 77.33%
IMMCF Money Market
Omnibus Account
1 Griswold
Detroit, MI 48226
- -------------------------------------------------------------------------------------------------------------
New Jersey Prudential Securities Inc. 26.05%
1 New York Plaza
New York, NY 10004
- -------------------------------------------------------------------------------------------------------------
New Jersey Bank of New York Clearing Corp. 8.24%
Omnibus Account
111 E. Kilboune Avenue
Milwaukee, WI 53202
- -------------------------------------------------------------------------------------------------------------
New York National Investor Services Corp. 35.79%
55 Water Street
New York, NY 10041
- -------------------------------------------------------------------------------------------------------------
New York Prudential Securities Inc. 11.46%
1 New York Plaza
New York, NY 10004
- -------------------------------------------------------------------------------------------------------------
New York Southwest Securities, Inc. 8.28%
Omnibus Account
1201 Elm Street
Dallas, TX 75270
- -------------------------------------------------------------------------------------------------------------
Pennsylvania Prudential Securities Inc. 7.70
1 New York Plaza
New York, NY 10004
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SPECIAL FEATURES
Exchange Privilege. Subject to the limitations described below, Class A Shares
(or the equivalent) of the following Kemper Mutual Funds may be exchanged for
each other at their relative net asset values: Kemper Technology Fund, Kemper
Total Return Fund, Kemper Growth Fund, Kemper Small Capitalization Equity Fund,
Kemper Income and Capital Preservation Fund, Kemper Municipal Bond Fund, Kemper
Strategic Income Fund, Kemper High Yield Series, Kemper High Yield Fund II,
Kemper U.S. Government Securities Fund, Kemper International Fund, Kemper State
Tax-Free Income Series,
40
<PAGE>
Kemper Short-Term U.S. Government Fund, Kemper Blue Chip Fund, Kemper Global
Income Fund, Kemper Target Equity Fund (series are subject to a limited offering
period), Kemper Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund,
Kemper U.S. Mortgage Fund, Kemper Value Series, Inc., Kemper Value+Growth Fund,
Kemper Horizon Fund, Kemper Europe Fund, Kemper Asian Growth Fund, Kemper
Aggressive Growth Fund, Kemper Global/International Series, Inc., Kemper U.S.
Growth and Income Fund, Kemper-Dreman Financial Services Fund, Kemper Value
Fund, Kemper Classic Growth Fund and Kemper Global Discovery Fund ("Kemper
Mutual Funds") and certain "Money Market Funds" (Zurich Money Funds, Zurich
YieldWise Funds, Cash Equivalent Fund, Tax-Exempt California Money Market Fund,
Cash Account Trust, Investors Municipal Cash Fund and Investors Cash Trust).
Shares of Money Market Funds and Kemper Cash Reserves Fund that were acquired by
purchase (not including shares acquired by dividend reinvestment) are subject to
the applicable sales charge on exchange. In addition, shares of a Kemper Mutual
Fund with a value in excess of $1,000,000, other than 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, direction or advice, including without
limitation accounts administered by a financial services firm offering market
timing, asset allocation or similar services. Series of Kemper Target Equity
Fund will be available on exchange only during the Offering Period for such
series as described in the prospectus for such series. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Investors Municipal
Cash Fund and Investors Cash Trust are available on exchange but only through a
financial services firm having a services agreement with KDI with respect to
such funds. Exchanges may only be made for funds that are available for sale in
the shareholder's state of residence. Currently, Tax-Exempt California Money
Market Fund is available for sale only in California and the Funds of Investors
Municipal Cash Fund are available for sale only in the following states and
federal district:
<TABLE>
<CAPTION>
Florida Fund Michigan Fund New Jersey Fund New York Fund Pennsylvania Fund
- ------------ ------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C>
Alabama California California California California
California District of Columbia Connecticut Connecticut Connecticut
District of Columbia Florida Delaware District of Columbia Delaware
Florida Georgia District of Columbia Florida District of Columbia
Georgia Illinois Florida Georgia Florida
Illinois Indiana Georgia Indiana Georgia
Indiana Michigan Illinois Illinois Illinois
Missouri Missouri Indiana Missouri Indiana
New Jersey New Jersey Maryland New Jersey Maryland
Ohio Ohio Massachusetts New York Michigan
Pennsylvania Pennsylvania Missouri Ohio Missouri
Virginia Virginia New Jersey Pennsylvania New Jersey
New York Texas Ohio
Ohio Virginia Pennsylvania
Pennsylvania Vermont
Virginia Virginia
West Virginia West Virginia
</TABLE>
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.
41
<PAGE>
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 shareholder has given authorization.
Once the 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 in the prospectus. Any share certificates must be
deposited prior to any exchange of such shares. During periods when it is
difficult to contact the Shareholder Service Agent by telephone, it may be
difficult to use the telephone exchange privilege. The exchange privilege is not
a right and may be suspended, terminated or modified at any time. Except as
otherwise permitted by applicable regulation, 60 days' prior written notice of
any termination or material change will be provided.
Systematic Withdrawal Program. The owner of $5,000 or more of a 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 the owner's 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 30 days' notice. The program may be terminated at any time
by the shareholder or the Trust. 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 Trust has
established several investment and redemption programs using electronic funds
transfer via the Automated Clearing House (ACH). There is currently no charge by
the Trust for these programs. 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 electronically transfer money between your bank
account, or employer's payroll bank in the case of Direct Deposit, and your Fund
account. Your bank's crediting policies of these transferred funds may vary.
These features may be amended or terminated at any time by the Trust.
Shareholders should contact KSvC 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 Fund shares.
SHAREHOLDER RIGHTS
The Trust is an open-end, non-diversified management investment company, which
was organized under the name "Tax-Exempt New York Money Market Fund" as a
business trust under the laws of Massachusetts on March 2, 1990 with a single
investment portfolio. On May 21, 1997 the Trust changed its name from
"Tax-Exempt New York Money Market Fund" to "Investors Municipal Cash Fund."
The Trust may issue an unlimited number of shares of beneficial interest in one
or more series or "Funds," all having no par value, which may be divided by the
Board of Trustees into classes of shares, subject to compliance with the
Securities and Exchange Commission regulations permitting the creation of
separate classes of shares. Currently, the Trust has five Funds. None of the
Funds' shares are divided into classes. The Board of Trustees may authorize the
issuance of additional Funds if deemed desirable, each with its own investment
objective, policies and restrictions. Since the Trust offers multiple Funds, it
is known as a "series company." Shares of a Fund have equal noncumulative voting
rights and equal rights with respect to dividends, assets and liquidation of
such Fund subject to any preferences, rights or privileges of any classes of
shares within the Fund. Generally each class of shares issued by a particular
Fund would differ as to the allocation of certain expenses of the Fund such as
distribution and administrative expenses, permitting, among other things,
different levels of services or methods of distribution among various classes.
Shares are fully paid and nonassessable when issued, are transferable without
restriction and have no preemptive or conversion rights. The Trust is not
required to hold annual shareholders' meetings, and does not intend to do so.
However, it will hold shareholder meetings as required or deemed desirable in
connection with the following matters: (a) the election or removal of trustees
if a meeting is called for such purpose; (b) the adoption of any contract for
which shareholder approval is required by the 1940 Act; (c) any termination of
42
<PAGE>
a 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 Trust, establishing a fund, supplying any omission, curing any ambiguity
or curing, correcting or supplementing any defective or inconsistent provision
thereof); and (e) such additional matters as may be required by law, the
Declaration of Trust, the By-laws of the Trust, or any registration of the Trust
with the Securities and Exchange Commission or any state, or as the trustees may
consider necessary or desirable. The shareholders also would vote upon changes
in fundamental investment objectives, policies or restrictions. Subject to the
Agreement and Declaration of Trust of the Trust, shareholders may remove
trustees. Shareholders will vote by Fund and not in the aggregate or by class
except when voting in the aggregate is required under the 1940 Act, such as for
the election of trustees, or when the Board of Trustees determines that voting
by class is appropriate.
The Florida, Michigan, New Jersey and Pennsylvania Funds each may in the future
seek to achieve its investment objective by pooling its assets with assets of
other mutual funds for investment in another investment company having the same
investment objective and substantially the same investment policies and
restrictions as such Fund. The purpose of such an arrangement is to achieve
greater operational efficiencies and to reduce costs. It is expected that any
such investment company would be managed by Scudder Kemper in substantially the
same manner as the corresponding Fund. Shareholders of a Fund will be given at
least 30 days' prior notice of any such investment, although they will not be
entitled to vote on the action. Such investment would be made only if the
Trustees determine it to be in the best interests of the respective Fund and its
shareholders.
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 Trust will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy 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 Trust stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, the
Trust has undertaken to disseminate appropriate materials at the expense of the
requesting shareholders.
The Declaration of Trust provides that the presence at a shareholder meeting in
person or by proxy of at least 30% of the shares entitled to vote on a matter
shall constitute a quorum. Thus, a meeting of shareholders of the Trust could
take place even if less than a majority of the shareholders were represented on
its scheduled date. Shareholders would in such a case be permitted to take
action which does not require a larger vote than a majority of a quorum, such as
the election of trustees and ratification of the selection of auditors. Some
matters requiring a larger vote under the Declaration of Trust, such as
termination or reorganization of the Trust and certain amendments of the
Declaration of Trust, would not be affected by this provision; nor would matters
which under the 1940 Act require the vote of a "majority of the outstanding
voting securities" as defined in the 1940 Act.
The Declaration of Trust specifically authorizes the Board of Trustees to
terminate the Trust (or any Fund or class) by notice to the shareholders without
shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of the
Trust. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Trust or the trustees. Moreover, the Declaration of Trust provides for
indemnification out of Trust property for all losses and expenses of any
shareholder held personally liable for the obligations of the Trust and the
Trust will be
43
<PAGE>
covered by insurance which the trustees consider adequate to cover foreseeable
tort claims. Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is considered by Scudder Kemper remote and not
material, since it is limited to circumstances in which a disclaimer is
inoperative and the Trust itself is unable to meet its obligations.
44
