<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1996.
1933 ACT REGISTRATION NO. 2-63522
1940 ACT REGISTRATION NO. 811-2899
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. _ [ ]
Post-Effective Amendment No. 23 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 23 [X]
</TABLE>
(Check appropriate box or boxes)
------------------
CASH EQUIVALENT FUND
(Exact name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
222 South Riverside Plaza, Chicago, Illinois 60606
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 537-7000
Philip J. Collora, Vice President and Secretary With a copy to:
Cash Equivalent Fund Cathy G. O'Kelly
222 South Riverside Plaza David A. Sturms
Chicago, Illinois 60606 Vedder, Price, Kaufman & Kammholz
(Name and Address of Agent for Service) 222 North LaSalle Street
Chicago, Illinois 60601
</TABLE>
Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Rule 24f-2 Notice for Registrant's fiscal year ended July 31, 1996
was filed on or about September 26, 1996.
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on November 29, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE* REGISTRATION FEE
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest, without par
value:
Money Market.................................. 818,698,200 $1.00 $0 $0
Government Securities......................... 190,969,614 $1.00 $0 $0
Tax Exempt.................................... 178,296,824 $1.00 $0 $0
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*The fee is calculated in accordance with Rule 24e-2
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO GOVERNMENT SECURITIES PORTFOLIO TAX-EXEMPT PORTFOLIO
<S> <C> <C>
b(2) 12,463,082,668 b(2) 5,978,553,493 b(2) 3,951,903,340
b(3) 11,644,384,468 b(3) 5,787,583,879 b(3) 3,773,606,516
b(4) 818,698,200 b(4) 190,969,614 b(4) 178,296,824
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CASH EQUIVALENT FUND
CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART A
OF FORM N-1A AND PROSPECTUS
<TABLE>
<CAPTION>
ITEM NUMBER
OF FORM N-1A LOCATION IN PROSPECTUS
<S> <C> <C>
1. Cover Page............................. Cover Page
2. Synopsis............................... Summary; Summary of Expenses
3. Condensed Financial Information........ Financial Highlights;
Performance
4. General Description of Registrant...... Investment Objectives, Policies and Risk
Factors; Capital Structure
5. Management of the Fund................. Investment Manager and Shareholder Services
5A. Management's Discussion of Fund
Performance............................ Inapplicable
6. Capital Stock and Other Securities..... Purchase of Shares; Dividends and Taxes;
Capital Structure
7. Purchase of Securities Being Offered... Purchase of Shares; Net Asset Value;
Investment Manager and Shareholder Services;
Special Features
8. Redemption or Repurchase............... Redemption of Shares; Special Features
9. Pending Legal Proceedings.............. Inapplicable
</TABLE>
<PAGE> 3
CASH EQUIVALENT FUND
222 South Riverside Plaza
Chicago, Illinois 60606
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
- ------------------------------------------
Summary 1
- ------------------------------------------
Summary of Expenses 2
- ------------------------------------------
Financial Highlights 2
- ------------------------------------------
Investment Objectives, Policies
and Risk Factors 3
- ------------------------------------------
Net Asset Value 8
- ------------------------------------------
Purchase of Shares 9
- ------------------------------------------
Redemption of Shares 10
- ------------------------------------------
Special Features 13
- ------------------------------------------
Dividends and Taxes 13
- ------------------------------------------
Investment Manager and Shareholder
Services 15
- ------------------------------------------
Performance 17
- ------------------------------------------
Capital Structure 17
- ------------------------------------------
</TABLE>
This prospectus contains information
about the Fund that a prospective
investor should know before
investing and should be retained for
future reference. A Statement of
Additional Information dated
November 29, 1996, has been filed
with the Securities and Exchange
Commission and is incorporated
herein by reference. It is available
upon request without charge from the
Fund at the address or telephone
number on this cover or the firm
from which this prospectus was
received.
PRINTED IN U.S.A.
CEF 1-11/96
CASH
EQUIVALENT
FUND
PROSPECTUS November 29, 1996
CASH EQUIVALENT FUND
222 South Riverside Plaza, Chicago,
Illinois 60606 1-800-231-8568.
The Fund offers a choice of
investment portfolios and is
designed for investors who seek
maximum current income to the extent
consistent with stability of
capital. The Fund currently offers
the Money Market Portfolio, the
Government Securities Portfolio and
the Tax-Exempt Portfolio. Each
Portfolio invests exclusively in
high quality money market
instruments.
AN INVESTMENT IN THE FUND IS NEITHER
INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY,
AND IS NOT A DEPOSIT OR OBLIGATION
OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK. THERE CAN BE NO ASSURANCE
THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 4
CASH EQUIVALENT FUND
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606, TELEPHONE 1-800-231-8568
SUMMARY
INVESTMENT OBJECTIVES. Cash Equivalent Fund (the "Fund") is an open-end,
diversified, management investment company. The Fund currently offers a choice
of three investment portfolios ("Portfolios"). Each Portfolio invests in a
portfolio of high quality short-term money market instruments consistent with
its specific objective. The Money Market Portfolio seeks maximum current income
to the extent consistent with stability of capital from a portfolio primarily of
commercial paper and bank obligations. The Government Securities Portfolio seeks
maximum current income to the extent consistent with stability of capital from a
portfolio of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. The Tax-Exempt Portfolio seeks maximum current
income that is exempt from federal income taxes to the extent consistent with
stability of capital from a portfolio of municipal securities. Each Portfolio
may use a variety of investment techniques, including the purchase of repurchase
agreements and variable rate securities. Each Portfolio seeks to maintain a net
asset value of $1.00 per share. There is no assurance that the objective of any
Portfolio will be achieved or that any Portfolio will be able to maintain a net
asset value of $1.00 per share. See "Investment Objectives, Policies and Risk
Factors."
INVESTMENT MANAGER AND SERVICES. Zurich Kemper Investments, Inc. ("ZKI") is the
investment manager for the Fund and provides the Fund with continuous
professional investment supervision. With respect to the Money Market and
Government Securities Portfolios, ZKI is paid an annual investment management
fee, payable monthly, on a graduated basis ranging from .22% of the first $500
million of combined average daily net assets of such Portfolios to .15% of
combined average daily net assets of such Portfolios over $3 billion. With
respect to the Tax-Exempt Portfolio, ZKI is paid an annual investment management
fee, payable monthly, on a graduated basis ranging from .22% of the first $500
million of average daily net assets of such Portfolio to .15% of average daily
net assets of such Portfolio over $3 billion. Kemper Distributors, Inc. ("KDI"),
an affiliate of ZKI, is primary administrator, distributor and principal
underwriter of the Fund and, as such, provides information and services for
existing and potential shareholders and acts as agent of the Fund in the sale of
its shares. As distributor, KDI receives an annual fee, payable monthly, of .38%
of average daily net assets of the Money Market and Government Securities
Portfolios and .33% of average daily net assets of the Tax-Exempt Portfolio. KDI
pays financial services firms that provide cash management and other services
for their customers through the Fund a fee ranging from .15% to .40% annually of
average daily net assets of those accounts in the Fund that they maintain and
service. See "Investment Manager and Shareholder Services."
PURCHASES AND REDEMPTIONS. Shares of each Portfolio are available at net asset
value through selected financial services firms. The minimum initial investment
for each Portfolio is $1,000 and the minimum subsequent investment is $100. See
"Purchase of Shares." Shares may be redeemed at the net asset value next
determined after receipt by the Fund's Shareholder Service Agent of a request to
redeem in proper form. Shares may be redeemed by written request or by using one
of the Fund's expedited redemption procedures. See "Redemption of Shares."
DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are
automatically reinvested in additional shares of the same Portfolio, unless the
shareholder makes a different election. See "Dividends and Taxes."
GENERAL INFORMATION AND CAPITAL. The Fund is organized as a business trust
under the laws of Massachusetts and may issue an unlimited number of shares of
beneficial interest. Shares are fully paid and nonassessable when issued, are
transferable without restriction and have no preemptive or conversion rights.
The Fund is not required to hold annual shareholder meetings; but it will hold
special meetings as required or deemed desirable for such purposes as electing
trustees, changing fundamental policies or approving an investment management
agreement. See "Capital Structure."
1
<PAGE> 5
SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES ...........................................None
<TABLE>
<CAPTION>
Money Government
ANNUAL FUND OPERATING EXPENSES Market Securities Tax-Exempt
(as a percentage of average net assets) Portfolio Portfolio Portfolio
--------- ---------- ----------
<S> <C> <C> <C>
Management Fees............................................... .17% .17% .21%
12b-1 Fees.................................................... .38% .38% .33%
Other Expenses................................................ .34% .24% .16%
--- --- ---
Total Operating Expenses...................................... .89% .79% .70%
====== ========= =========
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment,
assuming (1) 5% annual return and Money Market $9 $28 $49 $110
(2) redemption at the end of Government Securities $8 $25 $44 $ 98
each time period: Tax-Exempt $7 $22 $39 $ 87
</TABLE>
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. Investment dealers and other firms may independently charge
shareholders additional fees; please see their materials for details. As a
result of the accrual of 12b-1 fees, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers. The Example assumes a 5% annual rate
of return pursuant to requirements of the Securities and Exchange Commission.
This hypothetical rate of return is not intended to be representative of past or
future performance of any Portfolio of the Fund. THE EXAMPLE SHOULD NOT BE
CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESSER THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The tables below show financial information for each Portfolio expressed in
terms of one share outstanding throughout the period. The information in the
tables is covered by the report of the Fund's independent auditors. The report
is contained in the Fund's Registration Statement and is available from the
Fund. The financial statements contained in the Fund's 1996 Annual Report to
Shareholders are incorporated herein by reference and may be obtained by writing
or calling the Fund.
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
Year ended July 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <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 1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment
income and
dividends declared .05 .05 .03 .03 .04 .07 .08 .08 .06 .06
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of year $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 4.94% 4.95 2.82 2.60 4.09 6.76 8.11 8.60 6.64 5.72
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE
NET ASSETS:
Expenses .89% .87 .88 .85 .82 .84 .83 .88 .84 .81
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment
income 4.86% 4.84 2.78 2.57 4.01 6.57 7.87 8.31 6.45 5.58
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of
year
(in thousands) $2,774,595 3,593,294 3,387,245 3,616,636 3,916,708 3,719,927 4,040,918 6,716,008 5,800,688 5,547,447
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 6
GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
Year ended July 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <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 1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment
income and dividends
declared .05 .05 .03 .03 .04 .06 .08 .08 .06 .06
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of year $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 5.00% 4.96 2.82 2.60 4.12 6.62 8.18 8.72 6.68 5.81
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE
NET ASSETS:
Expenses .79% .81 .81 .78 .75 .72 .69 .70 .71 .68
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment
income 4.90% 4.87 2.72 2.57 4.06 6.38 7.90 8.53 6.48 5.69
- --------------------
SUPPLEMENTAL DATA:
Net assets at end of
year
(in thousands) $1,594,128 1,785,098 1,538,011 2,825,357 3,000,890 3,239,272 2,779,707 2,986,780 1,343,340 1,015,641
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TAX-EXEMPT PORTFOLIO
<TABLE>
<CAPTION>
Ten
months
ended Year ended
Year ended July 31, July 31, September 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment
income and
dividends declared .03 .03 .02 .02 .03 .05 .05 .06 .04 .04
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3.11% 3.21 2.05 2.12 3.29 4.75 5.55 5.96 3.85 3.93
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE
NET ASSETS:
Expenses .70% .68 .68 .64 .64 .64 .63 .63 .62 .62
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment
income 3.08% 3.15 2.02 2.09 3.21 4.65 5.44 5.82 4.53 3.86
- ------------------
SUPPLEMENTAL DATA:
Net assets at end
of period (in
thousands) $931,564 1,109,861 1,136,901 1,417,307 1,289,560 1,129,368 1,195,736 2,164,784 1,747,703 1,726,884
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: Ratios have been determined on an annualized basis. Total return is not
annualized.
The Money Market Portfolio's total return for the year ended July 31, 1995
includes the effect of a capital contribution from the investment manager.
Without the capital contribution, the total return would have been 4.28%.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The Fund is a money market mutual fund designed to provide its shareholders with
professional management of short-term investment dollars. It is designed for
investors who seek maximum current income consistent with stability of capital.
The Fund pools individual and institutional investors' money which it uses to
buy high quality money market instruments. The Fund is a series investment
company that is able to provide investors with a choice of separate investment
portfolios ("Portfolios"). It currently offers three investment Portfolios: the
Money Market Portfolio, the Government Securities Portfolio and the Tax-Exempt
Portfolio. Because each Portfolio combines its shareholders' money, it can buy
and sell large blocks of securities, which reduces transaction costs and
maximizes yields. The Fund is managed by investment professionals who analyze
market trends to take advantage of changing conditions and who seek to minimize
risk by diversifying each Portfolio's investments. A Portfolio's 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. However, because of their short maturities, liquidity and
3
<PAGE> 7
high quality ratings, high quality money market instruments, such as those in
which the Fund invests, are generally considered to be among the safest
available. Thus, the Fund is designed for investors who want to avoid the
fluctuations of principal commonly associated with equity and long-term bond
investments. There can be no guarantee that a Portfolio will achieve its
objective or that it will maintain a net asset value of $1.00 per share. The net
asset value of $1.00 per share has, however, been maintained for each Portfolio
since its inception.
MONEY MARKET PORTFOLIO. The Money Market Portfolio seeks maximum current income
consistent with stability of capital. The Portfolio pursues its objective by
investing exclusively in the following types of U.S. Dollar denominated money
market instruments that mature in 12 months or less:
1. Obligations of, or guaranteed by, the U.S. or Canadian Governments, their
agencies or instrumentalities.
2. Bank certificates of deposit, time deposits or bankers' acceptances limited
to domestic banks (including their foreign branches) and Canadian chartered
banks having total assets in excess of $1 billion.
3. Certificates of deposit and time deposits of domestic savings and loan
associations having total assets in excess of $1 billion.
4. Bank certificates of deposit, time deposits or bankers' acceptances of U.S.
branches of foreign banks having total assets in excess of $10 billion.
5. Commercial paper rated Prime-1 or Prime-2 by Moody's Investors Service, Inc.
("Moody's") or A-1 or A-2 by Standard & Poor's Corporation ("S&P"), or
commercial paper or notes issued by companies with an unsecured debt issue
outstanding currently rated A or higher by Moody's or S&P where the obligation
is on the same or a higher level of priority as the rated issue, and investments
in other corporate obligations such as publicly traded bonds, debentures and
notes rated A or higher by Moody's or S&P. For a description of these ratings,
see "Appendix--Ratings of Investments" in the Statement of Additional
Information.
6. Commercial paper secured by a letter of credit issued by a domestic or
Canadian chartered bank having total assets in excess of $1 billion and rated
Prime-1 by Moody's.
7. Repurchase agreements of obligations that are suitable for investment under
the categories set forth above. Repurchase agreements are discussed below.
In addition, the Portfolio limits its investments to securities that meet the
quality and diversification requirements of Rule 2a-7 under the Investment
Company Act of 1940 (the "1940 Act"). See "Net Asset Value."
To the extent the Money Market Portfolio purchases Eurodollar certificates of
deposit issued by London branches of U.S. banks, or commercial paper issued by
foreign entities, consideration will be given to their marketability and
possible restrictions on international currency transactions and to regulations
imposed by the domicile country of the foreign issuer. Eurodollar certificates
of deposit may not be subject to the same regulatory requirements as
certificates of deposit issued by U.S. banks and associated income may be
subject to the imposition of foreign taxes.
The Money Market Portfolio may invest in commercial paper issued by major
corporations under the Securities Act of 1933 in reliance on the exemption from
registration afforded by Section 3(a)(3) thereof. Such commercial paper may be
issued only to finance current transactions and must mature in nine months or
less. Trading of such commercial paper is conducted primarily by institutional
investors through investment dealers and individual investor participation in
the commercial paper market is very limited.
4
<PAGE> 8
The Portfolio also may invest in commercial paper issued in reliance on the
so-called "private placement" exemption from registration which is afforded by
Section 4(2) of the Securities Act of 1933 ("Section 4(2) paper"). Section 4(2)
paper is restricted as to disposition under the federal securities laws, and
generally is sold to institutional investors such as the Portfolio that agree
that they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors like the
Portfolio through or with the assistance of the issuer or investment dealers who
make a market in the Section 4(2) paper, thus providing liquidity. The Fund's
investment manager considers the legally restricted but readily saleable Section
4(2) paper to be liquid; however, pursuant to procedures approved by the Board
of Trustees of the Fund, if a particular investment in Section 4(2) paper is not
determined to be liquid, that investment will be included within the 10%
limitation on illiquid securities discussed under "The Fund" below. The Fund's
investment manager monitors the liquidity of the Portfolio's investments in
Section 4(2) paper on a continuous basis.
The Money Market Portfolio may concentrate more than 25% of its assets in bank
certificates of deposit or banker's acceptances of United States banks in
accordance with its investment objective and policies. Accordingly, the
Portfolio may be more adversely affected by changes in market or economic
conditions and other circumstances affecting the banking industry than it would
be if the Portfolio's assets were not so concentrated.
GOVERNMENT SECURITIES PORTFOLIO. The Government Securities Portfolio seeks
maximum current income consistent with stability of capital. The Portfolio
pursues its objective by investing exclusively in U.S. Treasury bills, notes,
bonds and other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements of such obligations. All
securities purchased mature within 12 months or less. In addition, the Portfolio
limits its investments to securities that meet the quality and diversification
requirements of Rule 2a-7 under the 1940 Act. See "Net Asset Value." Some
securities issued by U.S. Government agencies or instrumentalities are supported
only by the credit of the agency or instrumentality, such as those issued by the
Federal Home Loan Bank, and others have an additional line of credit with the
U.S. Treasury, such as those issued by the Federal National Mortgage
Association, Farm Credit System and Student Loan Marketing Association.
Short-term U.S. Government obligations generally are considered to be the safest
short-term investment. The U.S. Government guarantee of the securities owned by
the Portfolio, however, does not guarantee the net asset value of its shares
which the Fund seeks to maintain at $1.00 per share. Also, with respect to
securities supported only by the credit of the issuing agency or instrumentality
or by an additional line of credit with the U.S. Treasury, there is no guarantee
that the U.S. Government will provide support to such agencies or
instrumentalities and such securities may involve risk of loss of principal and
interest. Repurchase agreements are discussed below.
TAX-EXEMPT PORTFOLIO. The Tax-Exempt Portfolio seeks maximum current income that
is exempt from federal income taxes to the extent consistent with stability of
capital. The Portfolio pursues its objective primarily through a professionally
managed, diversified portfolio of short-term high quality tax-exempt municipal
obligations. Under normal market conditions at least 80% of the Portfolio's
total assets will, as a fundamental policy, be invested in obligations issued by
or on behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities, the income from which is exempt from federal income tax
("Municipal Securities").
Dividends representing net interest income received by the Tax-Exempt Portfolio
on Municipal Securities will be exempt from federal income tax when distributed
to the Portfolio's shareholders. Such dividend income may be subject to state
and local taxes. See "Dividends and Taxes--Tax-Exempt Portfolio." The
5
<PAGE> 9
Portfolio's assets will consist of Municipal Securities, temporary investments
as described below and cash. The Portfolio considers short-term Municipal
Securities to be those that mature in one year or less.
The Tax-Exempt Portfolio will invest only in Municipal Securities which at the
time of purchase: (a) are rated within the two highest-ratings for Municipal
Securities (Aaa or Aa) assigned by Moody's or (AAA or AA) assigned by S&P; (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 acceptable to the Fund's investment manager; (d) have at the time of
purchase Moody's short-term Municipal Securities rating of MIG-2 or higher or a
municipal commercial paper rating of P-2 or higher, or S&P's municipal
commercial paper rating of A-2 or higher; (e) are unrated, if longer term
Municipal Securities of that issuer are rated within the two highest rating
categories by Moody's or S&P; or (f) are determined to be at least equal in
quality to one or more of the above ratings in the discretion of the Fund's
investment manager. In addition, the Portfolio limits its investment to
securities that meet the quality and diversification requirements of Rule 2a-7
under the 1940 Act. See "Net Asset Value."
Municipal Securities generally are classified as "general obligation" or
"revenue" issues. General obligation bonds are secured by the issuer's pledge of
its full credit and taxing power for the payment of principal and interest.
Revenue bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Industrial development bonds held by the Fund are in
most cases revenue bonds and are not payable from the unrestricted revenues of
the issuer. Among other types of instruments, the Portfolio may purchase
tax-exempt commercial paper, warrants and short-term municipal notes such as tax
anticipation notes, bond anticipation notes, revenue anticipation notes,
construction loan notes and other forms of short-term loans. Such notes are
issued with a short-term maturity in anticipation of the receipt of tax
payments, the proceeds of bond placements or other revenues. A more detailed
discussion of Municipal Securities and the Moody's and S&P ratings outlined
above is contained in the Statement of Additional Information. As indicated
above and under "Dividends and Taxes--Tax-Exempt Portfolio," the Portfolio may
invest in short-term "private activity" bonds.
The Tax-Exempt Portfolio may purchase high quality Certificates of Participation
in trusts that hold Municipal Securities. A Certificate of Participation gives
the Portfolio an undivided interest in the Municipal Security in the proportion
that the Portfolio's interest bears to the total principal amount of the
Municipal Security. These Certificates of Participation may be variable rate or
fixed rate with remaining maturities of one year or less. A Certificate of
Participation may be backed by an irrevocable letter of credit or guarantee of a
financial institution that satisfies rating agencies as to the credit quality of
the Municipal Security supporting the payment of principal and interest on the
Certificate of Participation. Payments of principal and interest would be
dependent upon the underlying Municipal Security and may be guaranteed under a
letter of credit to the extent of such credit. The quality rating by a rating
service of an issue of Certificates of Participation is based primarily upon the
rating of the Municipal Security held by the trust and the credit rating of the
issuer of any letter of credit and of any other guarantor providing credit
support to the issue. The Fund's investment manager considers these factors as
well as others, such as any quality ratings issued by the rating services
identified above, in reviewing the credit risk presented by a Certificate of
Participation and in determining whether the Certificate of Participation is
appropriate for investment by the Portfolio. It is anticipated by the Fund's
investment manager that, for most publicly offered Certificates of
Participation, there will be a liquid secondary market or there may be demand
features enabling the Portfolio to readily sell its Certificates of
Participation prior to maturity to the issuer or a third party. As to those
instruments with demand features, the Portfolio 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.
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<PAGE> 10
The Tax-Exempt Portfolio may purchase securities that provide for the right to
resell them to an issuer, bank or dealer at an agreed upon price or yield within
a specified period prior to the maturity date of such securities. Such a right
to resell is referred to as a "Standby Commitment." Securities may cost more
with Standby Commitments than without them. Standby Commitments will be entered
into solely to facilitate portfolio liquidity. A Standby Commitment may be
exercised before the maturity date of the related Municipal Security if the
Fund's investment manager revises its evaluation of the creditworthiness of the
underlying security or of the entity issuing the Standby Commitment. The
Portfolio's policy is to enter into Standby Commitments only with issuers, banks
or dealers that are determined by the Fund's investment manager to present
minimal credit risks. If an issuer, bank or dealer should default on its
obligation to repurchase an underlying security, the Portfolio might be unable
to recover all or a portion of any loss sustained from having to sell the
security elsewhere. For purposes of valuing the Portfolio's securities at
amortized cost, the stated maturity of Municipal Securities subject to Standby
Commitments is not changed.
The Tax-Exempt Portfolio may purchase and sell Municipal Securities on a
when-issued or delayed delivery basis. A when-issued or delayed delivery
transaction arises when securities are bought or sold for future payment and
delivery to secure what is considered to be an advantageous price and yield to
the Portfolio at the time it enters into the transaction. In determining the
maturity of portfolio securities purchased on a when-issued or delayed delivery
basis, the Portfolio will consider them to have been purchased on the date when
it committed itself to the purchase.
A security purchased on a when-issued basis, like all securities held by the
Tax-Exempt 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 decrease in value when interest rates
rise. Therefore if, in order to achieve higher interest income, the Portfolio
remains substantially fully invested at the same time that it has purchased
securities on a when-issued basis, there will be a greater possibility that the
market value of the Portfolio's assets will vary from $1.00 per share, since the
value of a when-issued security is subject to market fluctuation and no interest
accrues to the purchaser prior to settlement of the transaction. See "Net Asset
Value."
The Portfolio will only make commitments to purchase Municipal Securities on a
when-issued or delayed delivery basis with the intention of actually acquiring
the securities, but the Portfolio reserves the right to sell these securities
before the settlement date if deemed advisable. The sale of these securities may
result in the realization of gains that are not exempt from federal income tax.
In seeking to achieve its investment objective, the Tax-Exempt Portfolio may
invest all or any part of its assets in Municipal Securities that are industrial
development bonds. Moreover, although the Portfolio does not currently intend to
do so on a regular basis, it may invest more than 25% of its assets in Municipal
Securities that are repayable out of revenue streams generated from economically
related projects or facilities, if such investment is deemed necessary or
appropriate by the Portfolio's investment manager. To the extent that the
Portfolio's assets are concentrated in Municipal Securities payable from
revenues on economically related projects and facilities, the Portfolio will be
subject to the risks presented by such projects to a greater extent than it
would be if the Portfolio's assets were not so concentrated.
From time to time, as a defensive measure or when acceptable short-term
Municipal Securities are not available, the Tax-Exempt Portfolio may invest in
taxable "temporary investments" which include: obligations of the U.S.
Government, its agencies or instrumentalities; debt securities rated within the
two highest grades by Moody's or S&P; commercial paper rated in the two highest
grades by either of such rating services; certificates of deposit of domestic
banks with assets of $1 billion or more; and any of the foregoing temporary
investments subject to repurchase agreements. Repurchase agreements are
discussed below. Interest income from temporary investments is taxable to
shareholders as ordinary income. Although
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<PAGE> 11
the Portfolio is permitted to invest in taxable securities, it is the
Portfolio's primary intention to generate income dividends that are not subject
to federal income taxes. See "Dividends and Taxes." For a description of the
ratings, see "Appendix -- Ratings of Investments" in the Statement of Additional
Information.
THE FUND. Each Portfolio may invest in repurchase agreements, which are
instruments under which a Portfolio 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 Portfolio's holding period. Maturity of
the securities subject to repurchase may exceed one year. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, a Portfolio
might have expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities and loss of
income. A Portfolio will not purchase illiquid securities, including time
deposits and repurchase agreements maturing in more than seven days if, as a
result thereof, more than 10% of such Portfolio's net assets valued at the time
of the transaction would be invested in such securities.
Each Portfolio may invest in instruments having rates of interest that are
adjusted periodically or that "float" continuously according to formulae
intended to minimize fluctuation in values of the instruments ("Variable Rate
Securities"). The interest rate of Variable Rate Securities ordinarily is
determined by reference to or is a percentage of an objective standard such as a
bank's prime rate, the 90-day U.S. Treasury bill rate, or the rate of return on
commercial paper or bank certificates of deposit. Generally, the changes in the
interest rate on Variable Rate Securities reduce the fluctuation in the market
value of such securities. Accordingly, as interest rates decrease or increase,
the potential for capital appreciation or depreciation is less than for
fixed-rate obligations. Some Variable Rate Securities ("Variable Rate Demand
Securities") have a demand feature entitling the purchaser to resell the
securities at an amount approximately equal to amortized cost or the principal
amount thereof plus accrued interest. As is the case for other Variable Rate
Securities, the interest rate on Variable Rate Demand Securities varies
according to some objective standard intended to minimize fluctuation in the
values of the instruments. Each Portfolio determines the maturity of Variable
Rate Securities in accordance with Rule 2a-7, which allows the Portfolio to
consider certain of such instruments as having maturities shorter than the
maturity date on the face of the instrument.
A Portfolio 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 except that the Tax-Exempt Portfolio may pledge up to 10%
of its net assets to secure such borrowings. No Portfolio will borrow for
leverage purposes.
The Fund has adopted for each Portfolio certain investment restrictions that are
presented in the Statement of Additional Information and that, together with the
investment objective and policies of such Portfolio (limited in regard to the
Tax-Exempt Portfolio to the policies in the first and third paragraphs under
"Tax-Exempt Portfolio" above), cannot be changed without approval by holders of
a majority of its outstanding voting shares. As defined in the 1940 Act, this
means with respect to a Portfolio the lesser of the vote of (a) 67% of the
shares of such Portfolio present at a meeting where more than 50% of the
outstanding shares of the Portfolio are present in person or by proxy or (b)
more than 50% of the outstanding shares of the Portfolio.
NET ASSET VALUE
The net asset value per share of each Portfolio is calculated by dividing the
total assets of such Portfolio less its liabilities by the total number of its
shares outstanding. The net asset value per share of each Portfolio is
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<PAGE> 12
determined on each day the New York Stock Exchange is open for trading, at 11:00
a.m., 1:00 p.m. and 3:00 p.m. Chicago time for the Money Market and Government
Securities Portfolios and at 11:00 a.m. and 3:00 p.m. Chicago time for the
Tax-Exempt Portfolio. Fund shares are sold at the net asset value next
determined after an order and payment are received in the form described under
"Purchase of Shares." Each Portfolio seeks to maintain its net asset value at
$1.00 per share.
Each Portfolio values its portfolio instruments at amortized cost in accordance
with Rule 2a-7 under the 1940 Act, which means that they are valued at their
acquisition cost (as adjusted for amortization of premium or accretion of
discount) rather than at current market value. Calculations are made to compare
the value of each Portfolio's investments valued at amortized cost with
market-based values. Market-based valuations are obtained by using actual
quotations provided by market makers, estimates of market value, or values
obtained from yield data relating to classes of money market instruments
published by reputable sources at the mean between the bid and asked prices for
the instruments. If a deviation of 1/2 of 1% or more were to occur between a
Portfolio's net asset value per share calculated by reference to market-based
values and the Portfolio's $1.00 per share net asset value, or if there were any
other deviation that the Board of Trustees believed would result in a material
dilution to shareholders or purchasers, the Board of Trustees would promptly
consider what action, if any, should be initiated. In order to value its
investments at amortized cost, the Portfolios purchase only securities with a
maturity of one year or less and maintain a dollar-weighted average portfolio
maturity of 90 days or less. In addition, the Portfolios limit their portfolio
investments to securities that meet the quality and diversification requirements
of Rule 2a-7.
PURCHASE OF SHARES
Shares of each Portfolio of the Fund are sold at net asset value through
approximately 135 selected financial services firms, such as broker-dealers and
banks ("firms"). Investors must indicate the Portfolio in which they wish to
invest. The Fund has established a minimum initial investment for each Portfolio
of $1,000 and $100 for subsequent investments, but these minimums may be changed
at any time in management's discretion. Firms offering Fund shares may set
higher minimums for accounts they service and may change such minimums at their
discretion.
The Fund seeks to have its Portfolios as fully invested as possible at all times
in order to achieve maximum income. Since each Portfolio will be investing in
instruments that normally require immediate payment in Federal Funds (monies
credited to a bank's account with its regional Federal Reserve Bank), the Fund
has adopted procedures for the convenience of its shareholders and to ensure
that each Portfolio receives investable funds. Orders for purchase of shares of
a Portfolio 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 1:00 p.m. Chicago
time net asset value determination for the Money Market and the Government
Securities Portfolios and at or prior to the 11:00 a.m. Chicago time net asset
value determination for the Tax-Exempt Portfolio, otherwise such shares will
receive the dividend for the next business day. Orders for purchase accompanied
by a check or other negotiable bank draft will be accepted and effected as of
3:00 p.m. Chicago time on the next business day following receipt and such
shares will receive the dividend for the business day following the day the
purchase is effected. If an order is accompanied by a check drawn on a foreign
bank, funds must normally be collected on such check before shares will be
purchased. See "Purchase and Redemption of Shares" in the Statement of
Additional Information.
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<PAGE> 13
If payment is wired in Federal Funds, the payment should be directed to State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110,
the sub-custodian for the Fund. If payment is to be wired, call the firm from
which you received this prospectus for proper instructions.
CLIENTS OF FIRMS. Firms provide varying arrangements for their clients with
respect to the purchase and redemption of Fund shares and the confirmation
thereof and may arrange with their clients for other investment or
administrative services. 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. Such firms may independently
establish and charge additional amounts to their clients for their services,
which charges would reduce their clients' yield or return. Firms may also hold
Fund shares in nominee or street name as agent for and on behalf of their
clients. In such instances, the Fund's transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Fund'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 certain conditions or 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 Fund reserves the right to withdraw all or any part of
the offering made by this prospectus or to reject purchase orders. The Fund also
reserves the right at any time to waive or increase the minimum investment
requirements. All orders to purchase shares of a Portfolio are subject to
acceptance by the Fund and are not binding until confirmed or accepted in
writing. Any purchase which would result in total account balances for a single
shareholder in excess of $3 million is subject to prior approval by the Fund.
Share certificates are issued only on request to the Fund and may not be
available for certain types of accounts. A $10 service fee will be charged when
a check for the purchase of shares is returned because of insufficient or
uncollected funds or a stop payment order. Firms may charge different service
fees.
Shareholders should direct their inquiries to the firm from which they received
this prospectus or to Kemper Service Company, the Fund's Shareholder Service
Agent, 811 Main Street, Kansas City, Missouri 64105-2005.
REDEMPTION OF SHARES
GENERAL. Upon receipt by the Shareholder Service Agent of a request in the form
described below, shares of a Portfolio will be redeemed by the Fund at the next
determined net asset value. If processed at 3 p.m. Chicago time, the shareholder
will receive that day's dividend. A shareholder may use either the regular or
expedited redemption procedures. Shareholders who redeem all their shares of a
Portfolio will receive the net asset value of such shares and all declared but
unpaid dividends on such shares.
If shares of a Portfolio to be redeemed were purchased by check or through
certain Automated Clearing House ("ACH") transactions, the Fund may delay
transmittal of redemption proceeds until it has determined that collected funds
have been received for the purchase of such shares, which will be up to 10 days
from receipt by the Fund of the purchase amount. Shareholders may not use
expedited redemption procedures (wire transfer or Redemption Check) until the
shares being redeemed have been owned for at
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<PAGE> 14
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 as
described in the prospectus for that other fund, the redemption of such shares
by the Fund may be subject to a contingent deferred sales charge as explained in
such prospectus.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions, ACH transactions and exchange transactions for individual
and institutional accounts and pre-authorized telephone redemption transactions
for certain institutional accounts. Shareholders may choose these privileges on
the account application or by contacting the Shareholder Service Agent for
appropriate instructions. Please note that the telephone exchange privilege is
automatic unless the shareholder refuses it on the account application. The Fund
or its agents may be liable for any losses, expenses or costs arising out of
fraudulent or unauthorized telephone requests pursuant to these privileges,
unless the Fund or its agents reasonably believe, based upon reasonable
verification procedures, that the telephonic instructions are genuine. The
SHAREHOLDER WILL BEAR THE RISK OF LOSS, including 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 Fund reserves the
right to redeem an account that falls below the minimum investment level,
currently $1,000. A shareholder will be notified in writing and will be allowed
60 days to make additional purchases to bring the account value up to the
minimum investment level before the Fund redeems the shareholder account.
Firms provide varying arrangements for their clients to redeem Fund shares. Such
firms may independently establish minimums and maximums and charge additional
amounts to their clients for such services.
REGULAR REDEMPTIONS. Shareholders should contact the firm through which shares
were purchased for redemption instructions. However, when shares are held for
the account of a shareholder by the Fund's transfer agent, the shareholder may
redeem them by sending a written request with signatures guaranteed to the
Shareholder Service Agent, P.O. Box 419153, Kansas City, Missouri 64141-6153.
When certificates for shares have been issued, they must be mailed to or
deposited with the Shareholder Service Agent, along with a duly endorsed stock
power and accompanied by a written request for redemption. Redemption requests
and a stock power must be endorsed by the account holder with signatures
guaranteed by a commercial bank, trust company, savings and loan association,
federal savings bank, member firm of a national securities exchange or other
eligible financial institution. The redemption request and stock power must be
signed exactly as the account is registered including any special capacity of
the registered owner. Additional documentation may be requested, and a signature
guarantee is normally required, from institutional and fiduciary account
holders, such as corporations, custodians (e.g., under the Uniform Transfers to
Minors Act), executors, administrators, trustees, or guardians.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption are $50,000 or less and
the proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors) provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts
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<PAGE> 15
and transfers to minors may exercise this special privilege of redeeming shares
by telephone request or written request without signature guarantee subject to
the same conditions as individual account holders and subject to the limitations
on liability described under "General" above, provided that this privilege has
been pre-authorized by the institutional account holder or guardian account
holder by written instruction to the Shareholder Service Agent with signatures
guaranteed. Shares purchased by check or through certain ACH transactions may
not be redeemed under this privilege of redeeming shares by telephone request
until such shares have been owned for at least 10 days. This privilege of
redeeming shares by telephone request or by written request without a signature
guarantee may not be used to redeem shares held in certificated form and may not
be used if the shareholder's account has had an address change within 30 days of
the redemption request. During periods when it is difficult to contact the
Shareholder Service Agent by telephone, it may be difficult to use the telephone
redemption privilege, although investors can still redeem by mail. The Fund
reserves the right to terminate or modify this privilege at any time.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares can be redeemed and proceeds sent by a federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to 11:00 a.m. Chicago time will result in shares
being redeemed that day and normally the proceeds will be sent to the designated
account that day. Once authorization is on file, the Shareholder Service Agent
will honor requests by telephone or in writing, subject to the limitations on
liability described under "General" above. The Fund is not responsible for the
efficiency of the federal wire system or the account holder's financial services
firm or bank. The Fund currently does not charge the account holder for wire
transfers. The account holder is responsible for any charges imposed by the
account holder's firm or bank. There is a $1,000 wire redemption minimum. To
change the designated account to receive wire redemption proceeds, contact the
firm through which shares of the Fund were purchased or send a written request
to the Shareholder Service Agent with signatures guaranteed as described above.
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 Fund reserves the right to terminate or modify this
privilege at any time.
EXPEDITED REDEMPTIONS BY DRAFT. Upon request, shareholders will be provided with
drafts to be drawn on the Fund ("Redemption Checks"). These Redemption Checks
may be made payable to the order of any person for not more than $5 million.
Shareholders should not write Redemption Checks in an amount less than $250
since a $10 service fee will be charged as described below. When a Redemption
Check is presented for payment, a sufficient number of full and fractional
shares in the shareholder's account will be redeemed as of the next determined
net asset value to cover the amount of the Redemption Check. This will enable
the shareholder to continue earning dividends until the Fund receives the
Redemption Check. A shareholder wishing to use this method of redemption must
complete and file an Account Information Form which is available from the Fund
or firms through which shares were purchased. Redemption Checks should not be
used to close an account since the account normally includes accrued but unpaid
dividends. The Fund reserves the right to terminate or modify this privilege at
any time. This privilege may not be available through some firms that distribute
shares of the Fund. In addition, firms may impose minimum balance requirements
in order to obtain this feature. Firms may also impose fees to investors for
this privilege or, if approved by the Fund, establish variations of minimum
check amounts.
Unless one signer is authorized on the Account Information Form, 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
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<PAGE> 16
redeemed by Redemption Check until the shares have been on the Fund's books for
at least 10 days. Shareholders may not use this procedure to redeem shares held
in certificated form. The Fund reserves the right to terminate or modify this
privilege at any time.
The Fund may refuse to honor Redemption Checks whenever the right of redemption
has been suspended or postponed, or whenever the account is otherwise impaired.
A $10 service fee will be charged when a Redemption Check is presented to redeem
Fund shares in excess of the value of a Fund account or in an amount less than
$250; when a Redemption Check is presented that would require redemption of
shares that were purchased by check or certain ACH transactions within 10 days;
or when "stop payment" of a Redemption Check is requested. Firms may charge
different service fees.
SPECIAL FEATURES
Certain firms that offer shares of the Fund also provide special redemption
features through charge or debit cards, Automatic Teller Machines and checks
that redeem Fund shares. Various firms have different charges for their
services. Shareholders should obtain information from their firm with respect to
any special redemption features, applicable charges, minimum balance
requirements and special rules of the cash management program being offered.
Information about Tax Sheltered Retirement Programs, Systematic Withdrawal
Programs, the Exchange Privilege and Electronic Funds Transfer Programs is
contained in the Statement of Additional Information; and further information
may be obtained without charge from KDI.
DIVIDENDS AND TAXES
Dividends are declared daily and paid monthly. Shareholders may select one of
the following ways to receive dividends.
1. REINVEST DIVIDENDS at net asset value into additional shares of the same
Portfolio. Dividends are normally reinvested on the 15th of each month if a
business day, otherwise on the next business day. Dividends will be reinvested
unless the shareholder elects to receive them in cash.
2. RECEIVE DIVIDENDS IN CASH, if so requested. Checks will be mailed monthly to
the shareholder or any person designated by the shareholder.
The Fund reinvests dividend checks (and future dividends) in shares of the Fund
if checks are returned as undeliverable. Dividends and other distributions in
the aggregate amount of $10 or less are automatically reinvested in shares of
the Fund unless the shareholder requests that such policy not be applied to the
shareholder's account.
TAXABLE PORTFOLIOS. The Money Market Portfolio and the Government Securities
Portfolio each intend to continue to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code (the "Code") and, if so
qualified, will not be subject to federal income taxes to the extent its
earnings are distributed. Dividends derived from interest and short-term capital
gains are taxable as ordinary income whether received in cash or reinvested in
additional shares. Dividends from these Portfolios do not qualify for the
dividends received deduction available to corporate shareholders.
TAX-EXEMPT PORTFOLIO. The Tax-Exempt Portfolio intends to continue to qualify
under the Code as a regulated investment company and, if so qualified, will not
be liable for federal income taxes to the extent its earnings are distributed.
This Portfolio also intends to meet the requirements of the Code applicable to
regulated investment companies distributing tax-exempt interest dividends and,
accordingly, dividends representing net interest received on Municipal
Securities will not be includable by shareholders in their
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<PAGE> 17
gross income for federal income tax purposes, except to the extent such interest
is subject to the alternative minimum tax as discussed below. Dividends
representing taxable net investment income (such as net interest income from
temporary investments in obligations of the U.S. Government) and net short-term
capital gains, if any, are taxable to shareholders as ordinary income.
Net interest on certain "private activity bonds" issued on or after August 8,
1986 is treated as an item of tax preference and may, therefore, be subject to
both the individual and corporate alternative minimum tax. To the extent
provided by regulations to be issued by the Secretary of the Treasury,
exempt-interest dividends from the Tax-Exempt Portfolio are to be treated as
interest on private activity bonds in proportion to the interest income the
Portfolio receives from private activity bonds, reduced by allowable deductions.
For the 1995 calendar year, 19% of the net interest income of the Tax-Exempt
Portfolio was derived from "private activity bonds."
Exempt-interest dividends, except to the extent of interest from "private
activity bonds," are not treated as a tax preference item. For a corporate
shareholder, however, such dividends will be included in determining such
corporate shareholder's "adjusted current earnings." Seventy-five percent of the
excess, if any, of "adjusted current earnings" over the corporate shareholder's
other alternative minimum taxable income with certain adjustments will be a tax
preference item. Corporate shareholders are advised to consult their tax
advisers with respect to alternative minimum tax consequences.
Shareholders will be required to disclose on their federal income tax returns
the amount of tax-exempt interest earned during the year, including
exempt-interest dividends received from the Tax-Exempt Portfolio.
Individuals whose modified income exceeds a base amount will be subject to
federal income tax on up to 85% of their Social Security benefits. Modified
income includes adjusted gross income, tax-exempt interest, including
exempt-interest dividends from the Tax-Exempt Portfolio and 50% of Social
Security benefits. Individuals are advised to consult their tax advisers with
respect to the taxation of Social Security benefits.
The tax exemption of dividends from the Tax-Exempt Portfolio for federal income
tax purposes does not necessarily result in exemption under the income or other
tax laws of any state or local taxing authority. The laws of the several states
and local taxing authorities vary with respect to the taxation of such income
and shareholders of the Portfolio are advised to consult their own tax adviser
as to the status of their accounts under state and local tax laws.
THE FUND. Dividends declared in October, November or December to shareholders of
record as of a date in one of those months and paid during the following January
are treated as paid on December 31 of the calendar year in which declared for
federal income tax purposes. The Fund may adjust its schedule for dividend
reinvestment for the month of December to assist it in complying with reporting
and minimum distribution requirements contained in the Code.
Each Portfolio is required by law to withhold 31% of taxable dividends paid to
certain shareholders who do not furnish a correct taxpayer identification number
(in the case of individuals a social security number) and in certain other
circumstances. Trustees of qualified retirement plans and 403(b)(7) accounts are
required by law to withhold 20% of the taxable portion of any distribution that
is eligible to be "rolled over." The 20% withholding requirement does not apply
to distributions from Individual Retirement Accounts (IRAs) or any part of a
distribution that is transferred directly to another qualified retirement plan,
403(b)(7) account, or IRA. Shareholders should consult their tax advisers
regarding the 20% withholding requirement.
Shareholders normally will receive monthly confirmations of dividends and of
purchase and redemption transactions except that confirmations of dividend
reinvestment for IRAs and other fiduciary accounts for
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<PAGE> 18
which Investors Fiduciary Trust Company serves as trustee will be sent
quarterly. Firms may provide varying arrangements with their clients with
respect to confirmations (see "Purchase of Shares -- Clients of Firms"). Tax
information will be provided annually. Shareholders are encouraged to retain
copies of their account confirmation statements or year-end statements for tax
reporting purposes. However, those who have incomplete records may obtain
historical account transaction information at a reasonable fee.
INVESTMENT MANAGER AND SHAREHOLDER SERVICES
INVESTMENT MANAGER. Zurich Kemper Investments, Inc. ("ZKI"), 222 South Riverside
Plaza, Chicago, Illinois 60606, is the investment manager of the Fund and
provides the Fund with continuous professional investment supervision. ZKI is
one of the largest investment managers in the country and has been engaged in
the management of investment funds for more than forty-eight years. ZKI and its
affiliates provide investment advice and manage investment portfolios for the
Kemper Funds, affiliated insurance companies, and other corporate, pension,
profit-sharing and individual accounts representing approximately $76 billion
under management, including $10 billion in money market fund assets. ZKI acts as
investment manager for 30 open-end and seven closed-end investment companies,
with 77 separate investment portfolios, representing more than 2.5 million
shareholder accounts. ZKI is an indirect subsidiary of Zurich Insurance Company,
an internationally recognized company providing services in life and non-life
insurance, reinsurance and asset management.
Responsibility for overall management of the Fund rests with its Board of
Trustees and officers. Professional investment supervision is provided by ZKI.
The investment management agreement provides that ZKI shall act as the Fund's
investment adviser, manage its investments and provide the Fund with various
services and facilities. For the services and facilities furnished to the Money
Market and Government Securities Portfolios, the Fund pays ZKI an annual
investment management fee, payable monthly, on a graduated basis ranging from
.22% of the first $500 million of combined average daily net assets of such
Portfolios to .15% of combined average daily net assets of such Portfolios over
$3 billion. For the services and facilities furnished to the Tax-Exempt
Portfolio, the Fund pays ZKI an annual investment management fee, payable
monthly, on a graduated basis ranging from .22% of the first $500 million of
average daily net assets of such Portfolio to .15% of average daily net assets
of such Portfolio over $3 billion.
DISTRIBUTOR AND ADMINISTRATOR. Pursuant to an administration, shareholder
services and distribution agreement and an underwriting agreement (collectively
"distribution agreement"), Kemper Distributors, Inc. ("KDI"), 222 South
Riverside, Chicago, Illinois 60606, an affiliate of ZKI, serves as primary
administrator, distributor and principal underwriter to the Fund to provide
information and services for existing and potential shareholders. The
distribution agreement provides that KDI shall appoint various financial
services firms, such as broker-dealers or banks, to provide cash management
services for their customers or clients through the Fund. The firms are to
provide such office space and equipment, telephone facilities, personnel and
literature distribution as is necessary or appropriate for providing information
and services to the firms' clients. For its services under the distribution
agreement, KDI receives annual fees, payable monthly, of .38% of average daily
net assets from the Money Market and Government Securities Portfolios and .33%
of average daily net assets from the Tax-Exempt Portfolio. Expenditures by KDI
on behalf of the Portfolios need not be made on the same basis that such fees
are allocated. The fees are accrued daily as an expense of the Portfolios. As
principal underwriter for the Fund, KDI acts as agent of the Fund in the sale of
its shares.
KDI has related services agreements with various broker-dealer firms to provide
cash management and other services for Fund shareholders. KDI also has services
agreements with banking firms to provide such
15
<PAGE> 19
services, except for certain underwriting or distribution services that the
banks may be prohibited from providing under the Glass-Steagall Act, for their
clients who wish to invest in the Fund. If the Glass-Steagall Act should prevent
banking firms from acting in any capacity or providing any of the described
services, management will consider what action, if any, is appropriate.
Management does not believe that termination of a relationship with a bank would
result in any material adverse consequences to the Fund. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. KDI normally pays such firms at annual rates ranging from .15% to
.40% of average daily net assets of those accounts in the Money Market and
Government Securities Portfolios that they maintain and service and ranging from
.15% to .33% of average daily net assets of those accounts in the Tax-Exempt
Portfolio that they maintain and service. KDI may in its discretion pay certain
firms additional amounts. KDI may elect to keep a portion of the total
distribution fee to compensate itself for functions performed for the Fund or to
pay for sales materials or other promotional activities. Since the distribution
agreement provides for fees that are used by KDI to pay for distribution and
administration services, the distribution agreement along with the related
services agreement and the plan contained therein are approved and reviewed in
accordance with Rule 12b-1 under the 1940 Act, which regulates the manner in
which an investment company may, directly or indirectly, bear the expenses of
distributing its shares.
Since the fees payable to KDI under the distribution agreement are based upon
percentages of the average daily net assets of the Portfolios as provided above
and not upon the actual expenditures of KDI, the expenses of KDI, which may
include overhead expense, may be more or less than the fees received by it under
the distribution agreement. For example, during the fiscal year ended July 31,
1996, KDI incurred expenses under the distribution agreement of approximately
$23,566,000 while it received from the Money Market Portfolio, the Government
Securities Portfolio and the Tax-Exempt Portfolio, $12,127,000, $6,631,000 and
$3,418,000, respectively, for an aggregate fee under the distribution agreement
of $22,176,000. If the distribution agreement is terminated in accordance with
its terms, the obligation of the Fund to make payments to KDI pursuant to the
distribution agreement will cease and the Fund will not be required to make any
payments past the termination date. Thus, there is no legal obligation for the
Fund to pay any expenses incurred by KDI in excess of its fees under the
distribution agreement, if for any reason the distribution agreement is
terminated in accordance with its terms. Future fees under the distribution
agreement may or may not be sufficient to reimburse KDI for its cumulative
expenses incurred.
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of the Fund. They attend to the collection of principal and income, and payment
for and collection of proceeds of securities bought and sold by the Fund. IFTC
also is the Fund's transfer and dividend-paying agent. Pursuant to a services
agreement with IFTC, Kemper Service Company, 811 Main Street, Kansas City,
Missouri 64105, an affiliate of ZKI, serves as Shareholder Service Agent of the
Fund.
PERFORMANCE
The Fund may advertise several types of performance information for a Portfolio,
including "yield," "effective yield" and, for the Tax-Exempt Portfolio only,
"tax equivalent yield." Each of these figures is based upon historical earnings
and is not representative of the future performance of a Portfolio. The yield of
a Portfolio refers to the net investment income generated by a hypothetical
investment in the Portfolio 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
16
<PAGE> 20
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 Tax-Exempt Portfolio's yield for an investor in a stated federal
income tax bracket (normally assumed to be the maximum tax rate). Tax equivalent
yield is based upon, and will be higher than, the portion of the Tax-Exempt
Portfolio's yield that is tax-exempt.
The performance of a Portfolio may be compared to that of other money market
mutual funds or mutual fund indexes as reported by independent mutual fund
reporting services such as Lipper Analytical Services, Inc. A Portfolio's
performance and its relative size also may be compared to other money market
mutual funds as reported by IBC Financial Data, Inc.'s or Money Market
Insight(R), reporting services on money market funds. Investors may want to
compare a Portfolio's performance 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 Portfolio 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 Portfolio's performance to the Consumer Price Index either
directly or by calculating its "real rate of return," which is adjusted for the
effects of inflation.
Information may be quoted from publications such as MORNINGSTAR, INC., THE WALL
STREET JOURNAL, MONEY MAGAZINE, FORBES, BARRON'S, FORTUNE, THE CHICAGO TRIBUNE,
USA TODAY, INSTITUTIONAL INVESTOR and REGISTERED REPRESENTATIVE. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund.
Each Portfolio's yield will fluctuate. Shares of the Fund are not insured.
Additional information concerning each Portfolio's performance appears in the
Statement of Additional Information.
CAPITAL STRUCTURE
The Fund is an open-end, diversified, management investment company, organized
as a business trust under the laws of Massachusetts on August 9, 1985. Effective
November 29, 1985, the Money Market and Government Securities Portfolios
pursuant to a reorganization succeeded to the assets and liabilities of the two
Portfolios of Cash Equivalent Fund, Inc., a Maryland corporation organized on
February 2, 1979. The Money Market and Government Securities Portfolios
commenced operations on March 16, 1979 and December 1, 1981, respectively.
Effective October 14, 1988, the Tax-Exempt Portfolio succeeded to the assets and
liabilities of Tax-Exempt Money Market Fund, a Massachusetts business trust
organized October 25, 1985. Effective January 31, 1986, Tax-Exempt Money Market
Fund succeeded to the assets and liabilities of Tax-Exempt Money Market Fund,
Inc., a Maryland corporation that was organized January 27, 1982 and commenced
operations on July 9, 1982. The Fund may issue an unlimited number of shares of
beneficial interest in one or more series ("Portfolios"), all having no par
value. While only shares of the three previously described Portfolios are
presently being offered, the Board of Trustees may authorize the issuance of
additional Portfolios if deemed desirable. Since the Fund offers multiple
Portfolios, it is known as a "series company." Shares of each Portfolio have
equal noncumulative voting rights and equal rights with respect to dividends,
assets and liquidation of such Portfolio. Shares are fully paid and
nonassessable when issued, are transferable without restriction and have no
preemptive or conversion rights. The Fund is
17
<PAGE> 21
not required to hold annual shareholders' meetings and does not intend to do so.
However, it will hold special meetings as required or deemed desirable for such
purposes as electing trustees, changing fundamental policies or approving an
investment management agreement. Subject to the Agreement and Declaration of
Trust of the Fund, shareholders may remove trustees. Shareholders will vote by
Portfolio and not in the aggregate except when voting in the aggregate is
required under the 1940 Act, such as for the election of trustees.
18
<PAGE> 22
Cash Equivalent
Fund
Prospectus
November 29, 1996
CEF PRO 11/96 [LOGO PRINTED ON RECYCLED PAPER]
<PAGE> 23
CASH EQUIVALENT FUND
CROSS-REFERENCE SHEET
BETWEEN ITEMS ENUMERATED IN PART B
OF FORM N-1A AND STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM NUMBER LOCATION IN STATEMENT OF
OF FORM N-1A ADDITIONAL INFORMATION
---------------------------------------------
<S> <C> <C>
10. Cover Page............................... Cover Page
11. Table of Contents........................ Table of Contents
12. General Information and History.......... Inapplicable
13. Investment Objectives and Policies....... Investment Restrictions; Municipal
Securities; Appendix--Ratings of Investments
14. Management of the Fund................... Investment Manager and Shareholder Services;
Officers and Trustees
15. Control Persons and Principal Holders of
Securities............................... Officers and Trustees
16. Investment Advisory and Other Services... Investment Manager and Shareholder Services;
Officers and Trustees
17. Brokerage Allocation and Other
Practices................................ Portfolio Transactions
18. Capital Stock and Other Securities....... Shareholder Rights
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Purchase and Redemption of Shares; Dividends
Net Asset Value, and Taxes
20. Tax Status............................... Dividends, Net Asset Value and Taxes
21. Underwriters............................. Investment Manager and Shareholder Services
22. Calculation of Performance Data.......... Performance
23. Financial Statements..................... Financial Statements
</TABLE>
<PAGE> 24
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 29, 1996
CASH EQUIVALENT FUND
222 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
1-800-231-8568
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus of Cash Equivalent Fund (the "Fund") dated
November 29, 1996. The prospectus may be obtained without charge from the Fund.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Restrictions....................................... B-1
Municipal Securities.......................................... B-3
Investment Manager and Shareholder Services................... B-4
Portfolio Transactions........................................ B-8
Purchase and Redemption of Shares............................. B-8
Dividends, Net Asset Value and Taxes.......................... B-9
Performance................................................... B-10
Officers and Trustees......................................... B-15
Special Features.............................................. B-16
Shareholder Rights............................................ B-18
Appendix--Ratings of Investments.............................. B-20
</TABLE>
The financial statements appearing in the Fund's 1996 Annual Report to
Shareholders are incorporated herein by reference. The Fund's Annual Report
accompanies this Statement of Additional Information.
CEF-33 11/96 [LOGO PRINTED ON RECYCLED PAPER]
<PAGE> 25
INVESTMENT RESTRICTIONS
The Fund has adopted for the Money Market Portfolio, the Government Securities
Portfolio and the Tax-Exempt Portfolio certain investment restrictions which,
together with the investment objective and policies of each Portfolio, cannot be
changed for a Portfolio without approval by holders of a majority of its
outstanding voting shares. As defined in the Investment Company Act of 1940,
this means the lesser of the vote of (a) 67% of the shares of the Portfolio
present at a meeting where more than 50% of the outstanding shares are present
in person or by proxy or (b) more than 50% of the outstanding shares of the
Portfolio.
THE MONEY MARKET PORTFOLIO AND THE GOVERNMENT SECURITIES PORTFOLIO individually
may not:
(1) Purchase securities or make investments other than in accordance with its
investment objective and policies.
(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 value of the Portfolio's assets would be invested in
securities of that issuer.
(3) Purchase, in the aggregate with all other Portfolios, more than 10% of any
class of securities of any issuer. All debt securities and all preferred stocks
are each considered as one class.
(4) Invest more than 5% of the Portfolio's total assets in securities of issuers
(other than obligations of, or guaranteed by, the United States Government, its
agencies or instrumentalities) which with their predecessors have a record of
less than three years continuous operation.
(5) Enter into repurchase agreements if, as a result thereof, more than 10% of
the Portfolio's total assets valued at the time of the transaction would be
subject to repurchase agreements maturing in more than seven days.
(6) Make loans to others (except through the purchase of debt obligations or
repurchase agreements in accordance with its investment objective and policies).
(7) Borrow money except 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 Portfolio's total
assets falls below an amount equal to three times the amount of its indebtedness
from money borrowed, the Portfolio will, within three business days, reduce its
indebtedness to the extent necessary. The Portfolio will not borrow for leverage
purposes.
(8) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions.
(9) Write, purchase or sell puts, calls or combinations thereof.
(10) Concentrate more than 25% of the value of the Portfolio's assets in any one
industry; provided, however, that the Portfolio reserves freedom of action to
invest up to 100% of its assets in certificates of deposit or bankers'
acceptances or U.S. Government securities in accordance with its investment
objective and policies.
B-1
<PAGE> 26
(11) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(12) Invest more than 5% of the Portfolio's total assets in securities
restricted as to disposition under the federal securities laws (except
commercial paper issued under Section 4(2) of the Securities Act of 1933).
(13) Invest for the purpose of exercising control or management of another
issuer.
(14) Invest in commodities or commodity futures contracts or in real estate,
although it may invest in securities which are secured by real estate and
securities of issuers which invest or deal in real estate.
(15) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in the securities of issuers which invest in or
sponsor such programs.
(16) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
(17) Underwrite securities issued by others except to the extent the Portfolio
may be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities.
(18) Issue senior securities as defined in the Investment Company Act of 1940.
THE TAX-EXEMPT PORTFOLIO may not:
(1) Purchase securities or make investments other than in accordance with its
investment objective and policies.
(2) Purchase securities (other than securities of the U.S. Government, its
agencies or instrumentalities) if as a result of such purchase more than 25% of
the Portfolio's total assets would be invested in any industry or in any one
state, nor may it enter into a repurchase agreement if more than 10% of its
assets would be subject to repurchase agreements maturing in more than seven
days.
(3) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities) if as a result more
than 5% of the value of the Portfolio's assets would be invested in the
securities of such issuer. For purposes of this limitation, the Portfolio will
regard the entity which has the primary responsibility for the payment of
interest and principal as the issuer.
(4) Invest more than 5% of the Portfolio's total assets in industrial
development bonds sponsored by companies which with their predecessors have less
than three years' continuous operation.
(5) Make loans to others (except through the purchase of debt obligations or
repurchase agreements in accordance with its investment objective and policies).
(6) Borrow money except from banks for temporary purposes (but not for the
purpose of purchase of investments) and then only in an amount not to exceed
one-third of the value of the Portfolio's total assets (including the amount
borrowed) in order to meet redemption requests which otherwise might result in
the untimely disposition of securities; or pledge the Portfolio's securities or
receivables or transfer or assign or otherwise encumber them in an amount to
exceed 10% of the Portfolio's net assets to secure borrowings. Reverse
repurchase agreements made by the Portfolio are permitted within the limitations
of this paragraph. The Portfolio will not purchase securities or make
investments while reverse repurchase agreements or borrowings are outstanding.
(7) 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.
B-2
<PAGE> 27
(8) Write, purchase or sell puts, calls or combinations thereof, although the
Portfolio may purchase Municipal Securities subject to Standby Commitments,
Variable Rate Demand Notes or Repurchase Agreements in accordance with its
investment objective and policies.
(9) Purchase or retain the securities of any issuer if any of the officers,
trustees or directors of the Fund or its investment adviser owns beneficially
more than 1/2 of 1% of the securities of such issuer and together own more than
5% of the securities of such issuer.
(10) Invest more than 5% of the Portfolio's total assets in securities
restricted as to disposition under the federal securities laws.
(11) Invest for the purpose of exercising control or management of another
issuer.
(12) Invest in commodities or commodity futures contracts or in real estate
except that the Portfolio may invest in Municipal Securities secured by real
estate or interests therein.
(13) Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in Municipal Securities of issuers which invest
in or sponsor such programs.
(14) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
(15) Underwrite securities issued by others except to the extent the Portfolio
may be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities.
(16) Issue senior securities as defined in the Investment Company Act of 1940.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The
Portfolios did not borrow money as permitted by investment restriction number 7
(Money Market and Government Securities Portfolios) and number 6 (Tax-Exempt
Portfolio), in the latest fiscal year of the Fund, and they have no present
intention of borrowing during the coming year. In any event, borrowings would
only be made as permitted by such restrictions. The Tax-Exempt Portfolio may
invest more than 25% of its total assets in industrial development bonds.
MUNICIPAL SECURITIES
Municipal Securities that the Tax-Exempt Portfolio may purchase include, without
limitation, debt obligations issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, public
utilities, schools, streets, and water and sewer works. Other public purposes
for which Municipal Securities may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses and obtaining funds
to loan to other public institutions and facilities.
Municipal Securities, such as industrial development bonds, are issued by or on
behalf of public authorities to obtain funds for purposes including privately
operated airports, housing, conventions, trade shows, ports, sports, parking or
pollution control facilities or for facilities for water, gas, electricity or
sewage and solid waste disposal. Such obligations, which may include lease
arrangements, are included within the term Municipal Securities if the interest
paid thereon qualifies as exempt from federal income tax. Other types of
industrial development bonds, the proceeds of which are used for the
construction, equipment, repair or improvement of privately operated industrial
or commercial facilities, may constitute Municipal Securities, although current
federal tax laws place substantial limitations on the size of such issues.
B-3
<PAGE> 28
Municipal Securities generally are classified as "general obligation" or
"revenue." General obligation notes are secured by the issuer's pledge of its
full credit and taxing power for the payment of principal and interest. Revenue
notes are payable only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise or
other specific revenue source. Industrial development bonds which are Municipal
Securities are in most cases revenue bonds and generally do not constitute the
pledge of the credit of the issuer of such bonds.
Examples of Municipal Securities that are issued with original maturities of one
year or less are short-term tax anticipation notes, bond anticipation notes,
revenue anticipation notes, construction loan notes, pre-refunded municipal
bonds, warrants and tax-free commercial paper.
Tax anticipation notes typically are sold to finance working capital needs of
municipalities in anticipation of receiving property taxes on a future date.
Bond anticipation notes are sold on an interim basis in anticipation of a
municipality issuing a longer term bond in the future. Revenue anticipation
notes are issued in expectation of receipt of other types of revenue such as
those available under the Federal Revenue Sharing Program. Construction loan
notes are instruments insured by the Federal Housing Administration with
permanent financing by "Fannie Mae" (the Federal National Mortgage Association)
or "Ginnie Mae" (the Government National Mortgage Association) at the end of the
project construction period. Pre-refunded municipal bonds are bonds that are not
yet refundable, but for which securities have been placed in escrow to refund an
original municipal bond issue when it becomes refundable. Tax-free commercial
paper is an unsecured promissory obligation issued or guaranteed by a municipal
issuer. The Tax-Exempt Portfolio 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 adverse changes in the
rights of holders of obligations issued by such subdivisions or authorities.
Litigation challenging the validity under state constitutions of present systems
of financing public education has been initiated or adjudicated in a number of
states, and legislation has been introduced to effect changes in public school
finances in some states. In other instances there has been litigation
challenging the issuance of pollution control revenue bonds or the validity of
their issuance under state or federal law which ultimately could affect the
validity of those Municipal Securities or the tax-free nature of the interest
thereon.
INVESTMENT MANAGER AND SHAREHOLDER SERVICES
INVESTMENT MANAGER. Zurich Kemper Investments, Inc. ("ZKI") is the Fund's
investment manager. ZKI is wholly owned by ZKI Holding Corp. ZKI Holding Corp.
is a more than 90% owned subsidiary of Zurich Holding Company of America, Inc.,
which is a wholly owned subsidiary of Zurich Insurance Company, an
internationally recognized company providing services in life and non-life
insurance, reinsurance and asset management. There is one investment management
agreement for the Money Market Portfolio and the Government Securities Portfolio
and a separate investment management agreement for the Tax-Exempt Portfolio.
These agreements are substantially the same except that the graduated fee
schedule under a particular agreement is applied only to the Portfolio or
Portfolios subject to that agreement and the expense limitations contained in
the agreements are different. Pursuant to the investment management agreements,
B-4
<PAGE> 29
ZKI acts as the Fund's investment adviser, manages its investments, administers
its business affairs, furnishes office facilities and equipment, provides
clerical, bookkeeping and administrative services and permits any of its
officers or employees to serve without compensation as trustees or officers of
the Fund if elected to such positions. The Fund pays the expenses of its
operations, including the fees and expenses of independent auditors, counsel,
custodian and transfer agent and the cost of share certificates, reports and
notices to shareholders, costs of calculating net asset value, brokerage
commissions or transaction costs, taxes, registration fees, the fees and
expenses of qualifying the Fund and its shares for distribution under federal
and state securities laws and membership dues in the Investment Company
Institute or any similar organization. The Fund's expenses generally are
allocated among the Portfolios on the basis of relative net assets at the time
of allocation, except that expenses directly attributable to a particular
Portfolio are charged to that Portfolio.
The investment management agreements provide that ZKI shall not be liable for
any error of judgment or of law, or for any loss suffered by the Fund in
connection with the matters to which the agreements relate, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
ZKI in the performance of its obligations and duties, or by reason of its
reckless disregard of its obligations and duties under the agreements.
Each of the investment management agreements continues in effect from year to
year for each Portfolio subject thereto so long as its continuation is approved
at least annually by a majority vote of the trustees who are not parties to such
agreement or interested persons of any such party except in their capacity as
trustees of the Fund, cast in person at a meeting called for such purpose, and
by the shareholders of each Portfolio subject thereto or the Board of Trustees.
If continuation is not approved for a Portfolio, an investment management
agreement nevertheless may continue in effect for any Portfolio for which it is
approved and ZKI may continue to serve as investment manager for the Portfolio
for which it is not approved to the extent permitted by the Investment Company
Act of 1940. Each agreement may be terminated at any time upon 60 days notice by
either party, or by a majority vote of the outstanding shares of a Portfolio
subject thereto with respect to that Portfolio, and will terminate automatically
upon assignment. Additional Portfolios may be subject to different agreements.
For the services and facilities furnished to the Money Market and Government
Securities Portfolios, such Portfolios pay an annual investment management fee,
payable monthly, on a graduated basis of .22% of the first $500 million of
combined average daily net assets of such Portfolios, .20% of the next $500
million, .175% of the next $1 billion, .16% of the next $1 billion and .15% of
combined average daily net assets of such Portfolios over $3 billion. ZKI has
agreed to reimburse the Money Market and Government Securities Portfolios should
all operating expenses of the Money Market and Government Securities Portfolios,
including the investment management fee of ZKI but excluding taxes, interest,
the distribution fee of KDI, extraordinary expenses (as determined by the Board
of Trustees) and brokerage commissions or transaction costs, exceed .90% of the
first $500 million, .80% of the next $500 million, .75% of the next $1 billion
and .70% of average daily net assets of the Money Market and Government
Securities Portfolios in excess of $2 billion on an annual basis. The investment
management fee and the expense limitation for the Money Market and Government
Securities Portfolios are computed based on average daily net assets of such
Portfolios and are allocated among such Portfolios based upon the relative net
assets of each.
For the services and facilities furnished to the Tax-Exempt Portfolio, such
Portfolio pays an annual investment management fee, payable monthly, on a
graduated basis of .22% of the first $500 million of average daily net assets,
.20% of the next $500 million, .175% of the next $1 billion, .16% on the next $1
billion and .15% of average daily net assets of such Portfolio over $3 billion.
ZKI has agreed to reimburse
B-5
<PAGE> 30
the Tax-Exempt Portfolio should all operating expenses of such Portfolio,
including the compensation of ZKI but excluding taxes, interest, extraordinary
expenses and brokerage commissions or transaction costs exceed 1 1/2% of the
first $30 million of average daily net assets and 1% of average daily net assets
of the Tax-Exempt Portfolio over $30 million on an annual basis.
For its services as investment adviser and manager and for facilities furnished
the Fund during the fiscal year ended July 31, 1996, the Fund incurred
investment management fees aggregating $5,401,000 for the Money Market
Portfolio, $2,953,000 for the Government Securities Portfolio and $2,163,000 for
the Tax-Exempt Portfolio. The Fund incurred investment management fees
aggregating $5,833,000 for the Money Market Portfolio, $2,704,000 for the
Government Securities Portfolio and $2,245,000 for the Tax-Exempt Portfolio for
the 1995 fiscal year and $5,895,000 for the Money Market Portfolio, $3,535,000
for the Government Securities Portfolio and $2,659,000 for the Tax-Exempt
Portfolio for the 1994 fiscal year.
DISTRIBUTOR AND ADMINISTRATOR. Pursuant to an administration, shareholder
services and distribution agreement and an underwriting agreement (collectively
"distribution agreement"), KDI serves as primary administrator, distributor and
principal underwriter to the Fund to provide information and services for
existing and potential shareholders. The distribution agreement provides that
KDI shall appoint various firms to provide a cash management service for their
customers or clients through the Fund. The firms are to provide such office
space and equipment, telephone facilities, personnel and literature distribution
as is necessary or appropriate for providing information and services to the
firms' clients. The distribution agreement continues in effect from year to year
so long as such continuance is approved at least annually by a vote of the Board
of Trustees of the Fund, including the Trustees who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
agreement. The agreement automatically terminates in the event of its assignment
and may be terminated at any time without penalty by the Fund or by KDI upon six
months' notice. Termination by the Fund may be by vote of a majority of the
Board of Trustees, or a majority of the Trustees who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
agreement, or a "majority of the outstanding voting securities" of the Fund as
defined under the Investment Company Act of 1940. The distribution agreement may
not be amended to increase the fee to be paid by the Fund without approval by a
majority of the outstanding voting securities of the 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
Portfolios of the Fund will vote separately with respect to the distribution
agreement. For its services, the Fund pays KDI an annual distribution fee,
payable monthly, of .38% of average daily net assets with respect to the Money
Market and Government Securities Portfolios and .33% of average daily net assets
with respect to the Tax-Exempt Portfolio.
KDI is the principal underwriter for shares of the Fund and acts as agent of the
Fund in the sale of its shares. The Fund pays the cost for the prospectus and
shareholder reports to be set in type and printed for existing shareholders, and
KDI pays for the printing and distribution of copies thereof used in connection
with the offering of shares to prospective investors. KDI also pays for
supplementary sales literature and advertising costs.
KDI has related services agreements with various broker-dealer firms to provide
cash management and other services for the Fund shareholders. Such services and
assistance may include, but may not be limited to, establishment and maintenance
of shareholder accounts and records, processing purchase and redemption
transactions, providing automatic investment in Fund shares of client account
balances, answering routine inquiries regarding the Fund, assisting clients in
changing account options, designations and addresses, and such other services as
may be agreed upon from time to time and as may be permitted by applicable
statute,
B-6
<PAGE> 31
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 the Fund. KDI also may provide some of the above services for the Fund. KDI
normally pays such firms at an annual rate ranging from .15% to .40% of average
net assets of those accounts in the Money Market and Government Securities
Portfolios that they maintain and service and ranging from .15% to .33% of
average daily net assets of those accounts in the Tax-Exempt Portfolio that they
maintain and service. KDI in its discretion may pay certain firms additional
amounts. KDI may elect to keep a portion of the total distribution fee to
compensate itself for functions performed for the Fund or to pay for sales
materials or other promotional activities.
The distribution agreement and the related services agreements constitute the
Rule 12b-1 plan of the Fund. Rule 12b-1 under the Investment Company Act of 1940
regulates the manner in which an investment company may, directly or indirectly,
bear the expenses of distributing its shares.
For the fiscal year ended July 31, 1996, the Fund incurred distribution fees in
the Money Market Portfolio, the Government Securities Portfolio and the
Tax-Exempt Portfolio of $12,127,000, $6,631,000 and $3,418,000, respectively,
for a total amount of $22,176,000. KDI remitted $12,423,000, $6,807,000 and
$3,319,000, respectively, to various firms, pursuant to the related services
agreements. For the fiscal year ended July 31, 1996, KDI incurred expenses for
underwriting, distribution and administration in the approximate amounts noted:
fees to firms $22,549,000; advertising and literature $23,000; prospectus
printing $22,000 and marketing and sales expenses $972,000 for a total of
$23,566,000. A portion of the aforesaid marketing, sales and operating expenses
could be considered overhead expense; however, KDI has made no attempt to
differentiate between expenses that are overhead and those that are not.
Certain officers or trustees of the Fund are also directors or officers of ZKI
and KDI as indicated under "Officers and Trustees."
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. Investors Fiduciary
Trust Company ("IFTC"), 127 West 10th Street, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of the Fund. They attend to the collection of principal and income, and payment
for and collection of proceeds of securities bought and sold by the Fund.
Pursuant to a services agreement with IFTC, Kemper Service Company ("KSvC"), an
affiliate of ZKI, serves as "Shareholder Service Agent" 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
account plus out-of-pocket expense reimbursement. During the fiscal year ended
July 31, 1996, IFTC remitted shareholder service fees in the amount of
$9,612,000 to KSvC as Shareholder Service Agent.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Fund's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Fund. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.
B-7
<PAGE> 32
PORTFOLIO TRANSACTIONS
Portfolio transactions are undertaken principally to pursue the objective of
each Portfolio in relation to movements in the general level of interest rates,
to invest money obtained from the sale of Fund shares, to reinvest proceeds from
maturing portfolio securities and to meet redemptions of Fund shares. This may
increase or decrease the yield of a Portfolio depending upon management's
ability to correctly time and execute such transactions. Since a Portfolio's
assets will be invested in securities with short maturities, its portfolio will
turn over several times a year. Since securities with maturities of less than
one year are excluded from required portfolio turnover rate calculations, each
Portfolio's portfolio turnover rate for reporting purposes will be zero.
ZKI and its affiliates furnish investment management services for the Kemper
Funds and other clients including affiliated insurance companies. These entities
may share some common research and trading facilities. At times investment
decisions may be made to purchase or sell the same investment security for a
Portfolio and for one or more of the other clients of ZKI or its affiliates.
When two or more of such clients are simultaneously engaged in the purchase or
sale of the same security through the same trading facility, the transactions
are allocated as to amount and price in a manner considered equitable to each.
ZKI, in effecting purchases and sales of portfolio securities for the account of
each Portfolio, will implement the Fund's policy of seeking the best execution
of orders. Consistent with this policy, orders for portfolio transactions are
placed with broker-dealer firms giving consideration to the quality, quantity
and nature of the firm's professional services, which include execution,
financial responsibility, responsiveness, clearance procedures, wire service
quotations and statistical and other research information provided to the Fund
and ZKI and its affiliates . Subject to seeking best execution of an order,
brokerage is allocated on the basis of all services provided. Any research
benefits derived are available for all clients of ZKI and its affiliates. The
Fund expects that purchases and sales of portfolio securities usually will be
principal transactions. Portfolio securities will normally be purchased directly
from the issuer or from an underwriter or market maker for the securities. There
are normally no brokerage commissions paid by the Fund for such purchases and
none were paid by any Portfolio during the Fund's last three fiscal years.
Purchases from underwriters include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market makers
include the spread between the bid and asked prices.
PURCHASE AND REDEMPTION OF SHARES
Shares of a Portfolio are sold at their net asset value next determined after an
order and payment are received in the form described in the Fund's prospectus.
The minimum initial investment is $1,000 and the minimum subsequent investment
is $100 but such minimum amounts may be changed at any time. The Fund may waive
the minimum for purchases by trustees, directors, officers or employees of the
Fund or ZKI and its affiliates. An investor wishing to open an account should
use the Account Information Form available from the Fund or financial services
firms. Orders for the purchase of shares that are accompanied by a check drawn
on a foreign bank (other than a check drawn on a Canadian bank in U.S. Dollars)
will not be considered in proper form and will not be processed unless and until
the Fund determines that it has received payment of the proceeds of the check.
The time required for such a determination will vary and cannot be determined in
advance.
Upon receipt by the Fund's Shareholder Service Agent (see "Purchase of Shares"
in the prospectus) of a request for redemption in proper form, shares will be
redeemed by the Fund at the applicable net asset value
B-8
<PAGE> 33
as described in the Fund's prospectus. A shareholder may elect to use either the
regular or expedited redemption procedures.
The Fund may suspend the right of redemption or delay payment more than seven
days (a) during any period when the New York Stock Exchange ("Exchange") is
closed other than customary weekend and holiday closings or during any period in
which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of a Portfolio's investments
is not reasonably practicable, or (ii) it is not reasonably practicable for the
Portfolio to determine the value of its net assets, or (c) for such other
periods as the Securities and Exchange Commission may by order permit for the
protection of the Fund's shareholders.
Although it is the Fund's present policy to redeem in cash, if the Board of
Trustees determines that a material adverse effect would be experienced by the
remaining shareholders if payment were made wholly in cash, the Fund will pay
the redemption price in whole or in part by a distribution of portfolio
securities in lieu of cash, in conformity with the applicable rules of the
Securities and Exchange Commission, taking such securities at the same value
used to determine net asset value, and selecting the securities in such manner
as the Board of Trustees may deem fair and equitable. If such a distribution
occurred, shareholders receiving securities and selling them could receive less
than the redemption value of such securities and in addition could incur certain
transaction costs. Such a redemption would not be so liquid as a redemption
entirely in cash. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940 pursuant to which the Fund is obligated to redeem
shares of a Portfolio solely in cash up to the lesser of $250,000 or 1% of the
net assets of the Portfolio during any 90-day period for any one shareholder of
record.
DIVIDENDS, NET ASSET VALUE AND TAXES
DIVIDENDS. Dividends are declared daily and paid monthly. Shareholders will
receive dividends in additional shares unless they elect to receive cash.
Dividends will be reinvested monthly in shares of the Portfolio at the net asset
value normally on the fifteenth day of each month if a business day, otherwise
on the next business day. The Fund will pay shareholders who redeem their entire
accounts all unpaid dividends at the time of the 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 Mutual Fund offering this privilege at the
net asset value of such other fund. See "Special Features--Exchange Privilege"
for a list of such other Kemper Mutual Funds. To use this privilege of investing
Fund dividends in shares of another Kemper Mutual Fund, shareholders must
maintain a minimum account value of $1,000 in this Fund.
Each Portfolio calculates its dividends based on its daily net investment
income. For this purpose, the net investment income of the Portfolio consists of
(a) accrued interest income plus or minus amortized discount or premium
(excluding market discount for the Tax-Exempt Portfolio), (b) plus or minus all
short-term realized gains and losses on investments and (c) minus accrued
expenses allocated to the Portfolio. Expenses of the Fund are accrued each day.
While each Portfolio's investments are valued at amortized cost, there will be
no unrealized gains or losses on such investments. However, should the net asset
value of a Portfolio 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.
B-9
<PAGE> 34
NET ASSET VALUE. As described in the prospectus, each Portfolio values its
portfolio instruments at amortized cost, which does not take into account
unrealized capital gains or losses. This involves initially valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Portfolio
would receive if it sold the instrument. Calculations are made to compare the
value of a Portfolio'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 Portfolio's $1.00 per share net
asset value, or if there were any other deviation which the Board of Trustees of
the Fund believed would result in a material dilution to shareholders or
purchasers, the Board of Trustees would promptly consider what action, if any,
should be initiated. If a Portfolio'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 Fund might temporarily
reduce or suspend dividend payments in an effort to maintain the net asset value
at $1.00 per share. As a result of such reduction or suspension of dividends or
other action by the Board of Trustees, an investor would receive less income
during a given period than if such a reduction or suspension had not taken
place. Such action could result in investors receiving no dividend for the
period during which they hold their shares and receiving, upon redemption, a
price per share lower than that which they paid. On the other hand, if a
Portfolio'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 Fund might supplement dividends in an effort
to maintain the net asset value at $1.00 per share.
TAXES. Interest on indebtedness that is incurred to purchase or carry shares of
a mutual fund portfolio which distributes exempt-interest dividends during the
year is not deductible for federal income tax purposes. Further, the Tax-Exempt
Portfolio may not be an appropriate investment for persons who are "substantial
users" of facilities financed by industrial development bonds held by the
Tax-Exempt Portfolio or are "related persons" to such users; such persons should
consult their tax advisers before investing in the Tax-Exempt Portfolio.
The "Superfund Act of 1986" (the "Superfund Act") imposes a separate tax on
corporations at a rate of 0.12 percent of the excess of such corporation's
"modified alternative minimum taxable income" over $2 million. A portion of
tax-exempt interest, including exempt-interest dividends from the Tax-Exempt
Portfolio, may be includible in modified alternative minimum taxable income.
Corporate shareholders are advised to consult their tax advisers with respect to
the consequences of the Superfund Act.
PERFORMANCE
As reflected in the prospectus, the historical performance calculation for a
Portfolio may be shown in the form of "yield," "effective yield" and, for the
Tax-Exempt Portfolio only, "tax equivalent yield." These various measures of
performance are described below.
Each Portfolio'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 for
each Portfolio as follows. The first calculation is net investment income per
share, which is accrued interest on portfolio securities, plus or minus
amortized discount or premium
B-10
<PAGE> 35
(excluding market discount for the Tax-Exempt Portfolio), 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 July 31, 1996, the
Money Market Portfolio's yield was 4.64%, the Government Securities Portfolio's
yield was 4.69%, and the Tax-Exempt Portfolio's yield was 2.99%.
Each Portfolio'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 July 31, 1996, the Money Market Portfolio's effective
yield was 4.75%, the Government Securities Portfolio's effective yield was
4.79%, and the Tax-Exempt Portfolio's effective yield was 3.03%.
The tax equivalent yield of the Tax-Exempt Portfolio is computed by dividing
that portion of the Portfolio's yield (computed as described above) that is
tax-exempt by (one minus the stated federal income tax rate) and adding the
product to that portion, if any, of the yield of the Portfolio that is not
tax-exempt. Based upon a marginal federal income tax rate of 37.1% and the
Tax-Exempt Portfolio's yield computed as described above for the seven-day
period ended July 31, 1996, the Tax-Exempt Portfolio's tax-equivalent yield was
4.82%. For additional information concerning tax-exempt yields, see "Tax-Exempt
versus Taxable Yield" below.
Each Portfolio's yield fluctuates, and the publication of an annualized yield
quotation is not a representation as to what an investment in the Portfolio will
actually yield for any given future period. Actual yields will depend not only
on changes in interest rates on money market instruments during the period in
which the investment in the Portfolio is held, but also on such matters as
Portfolio expenses.
Investors have an extensive choice of money market funds and money market
deposit accounts and the information below may be useful to investors who wish
to compare the past performance of the Money Market Portfolio, the Government
Securities Portfolio and the Tax-Exempt Portfolio with that of their
competitors. Past performance cannot be a guarantee of future results.
As indicated in the prospectus (see "Performance"), the performance of the
Fund's Portfolios may be compared to that of other money market mutual funds
tracked by Lipper Analytical Services, Inc. ("Lipper"). Lipper performance
calculations include the reinvestment of all capital gain and income dividends
for the periods covered by the calculations. A Portfolio's performance also may
be compared to other money market funds reported by IBC Financial Data, Inc.'s,
or Money Market Insight(R), reporting services on money market funds. As
reported by IBC, all investment results represent yield (annualized results for
the period net of management fees and expenses) and one year investment results
are effective annual yields assuming reinvestment of dividends.
B-11
<PAGE> 36
IBC and Lipper reported the following results for the Money Market Portfolio and
the Government Securities Portfolio.
<TABLE>
<CAPTION>
IBC LIPPER ANALYTICAL SERVICES, INC.
Kemper Money
Money Average Yield Kemper Market
Market All Taxable Money Instrument
Portfolio Money Market Market Funds
Period ended 7/31/96 Yield Funds Period ended 7/31/96 Portfolio Average
- ---------------------- ---------- --------------- ---------------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
7 days*............... 4.63% 4.82% 1 month............... .43% .40%
1 month............... 4.62 4.81 3 months.............. 1.27 1.17
1 year................ 4.94 5.12 1 year................ 5.34 4.97
</TABLE>
<TABLE>
<CAPTION>
U.S.
Kemper Government
Government Average Yield Kemper Money
Securities U.S. Government Government Market
Portfolio & Agencies Securities Funds
Period ended 7/31/96 Yield Money Funds Period ended 7/31/96 Portfolio Average
- ---------------------- ---------- --------------- ---------------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
7 days*............... 4.68% 4.65% 1 month............... .43% .39%
1 month............... 4.69 4.64 3 months.............. 1.27 1.16
1 year................ 5.00 4.95 1 year................ 5.35 4.91
</TABLE>
The following investment comparisons are based upon information reported by
Lipper and IBC. In the comparison of the Tax-Exempt Portfolio's performance
versus the comparison yields, the performance of that Portfolio has been
adjusted on a taxable equivalent basis assuming a marginal federal tax rate of
37.1% (see "Tax-Exempt versus Taxable Yield" below for more information
concerning taxable equivalent performance).
<TABLE>
<CAPTION>
LIPPER ANALYTICAL SERVICES, INC.
IBC Tax-Exempt
Kemper Average Yield Money
Tax-Exempt All Tax-Free Kemper Market
Portfolio Money Market Tax-Exempt Funds
Period ended 7/31/96 Yield Funds Period ended 7/31/96 Portfolio Average
- ---------------------- ---------- --------------- ---------------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
7 days**.............. 2.96% 2.98% 1 month............... .26% .22%
1 month............... 2.71 2.67 3 months.............. .82 .72
1 year................ 3.11 3.12 1 year................ 3.44 3.06
</TABLE>
<TABLE>
<CAPTION>
Tax-Exempt Tax-Exempt Money
Portfolio Average Portfolio Market
Taxable Yield All Taxable Instrument
Equivalent Taxable Money Equivalent Funds
Period ended 7/31/96 Basis*** Market Funds Period ended 7/31/96 Basis*** Average
- ---------------------- ---------- --------------- ---------------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
7 days................ 4.71% 4.82% 1 month............... .41% .40%
1 month............... 4.31 4.81 3 months.............. 1.30 1.17
1 year................ 4.94 5.12 1 year................ 5.47 4.97
</TABLE>
- ---------------
* Period ended 7/30/96
** Period ended 7/29/96
*** Source: Zurich Kemper Investments, Inc. (not reported by IBC or Lipper).
BANK RATE MONITORTM, a financial reporting service which each week publishes
average rates of bank and thrift institution money market deposit accounts and
interest bearing checking accounts, reported the
B-12
<PAGE> 37
following results for the BANK RATE MONITOR National IndexTM, which is compared
to the seven day average yield of the Money Market Portfolio and the Government
Securities Portfolio:
<TABLE>
<CAPTION>
BANK RATE MONITOR
National IndexTM
Interest Cash Equivalent
Money Market Bearing Fund
Deposit Checking Money Market Government
Date Accounts Accounts Portfolio Securities Portfolio
-------------------- ------------ ------------ ------------ --------------------
<S> <C> <C> <C> <C>
July 24, 1996....... 2.69% 1.41% 4.61% 4.69%
</TABLE>
The rates published by the BANK RATE MONITOR National IndexTM 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 Metropolitan Statistical Areas. Account minimums range
upward from $2,000 in each institution and compounding methods vary. Interest
bearing checking accounts generally offer unlimited checking while money market
deposit accounts generally restrict the number of checks that may be written. If
more than one rate is offered, the lowest rate is used. Rates are determined by
the financial institution and are subject to change at any time specified by the
institution. Bank products represent a taxable alternative income producing
product. Bank and thrift institution account deposits may be insured.
Shareholder accounts in the Fund are not insured. Bank passbook savings accounts
compete with money market mutual fund products with respect to certain liquidity
features but may not offer all of the features available from a money market
mutual fund, such as checkwriting. Bank passbook savings accounts normally offer
a fixed rate of interest, while the yield of each Portfolio of the Fund
fluctuates. Bank checking accounts normally do not pay interest but compete with
money market mutual fund products with respect to certain liquidity features
(e.g., the ability to write checks against the account). Bank certificates of
deposit may offer fixed or variable rates for a set term. (Normally, a variety
of terms are available.) Withdrawal of these deposits prior to maturity will
normally be subject to a penalty. In contrast, shares of a Portfolio are
redeemable at the net asset value next determined (normally, $1.00 per share)
after a request is received, without charge.
Investors may also want to compare a Portfolio's performance to that of U.S.
Treasury bills or notes because such instruments represent alternative income
producing products. Treasury obligations are issued in selected denominations.
Rates of U.S. Treasury obligations are fixed at the time of issuance and payment
of principal and interest is backed by the full faith and credit of the U.S.
Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Generally, the values of obligations with shorter maturities will
fluctuate less than those with longer maturities. A Portfolio's yield will
fluctuate. Also, while each Portfolio seeks to maintain a net asset value per
share of $1.00, there is no assurance that it will be able to do so.
TAX-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 tax equivalent yield, simply divide the yield from the
tax-exempt investment by the sum of [1 minus your marginal tax rate]. The table
below is 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
B-13
<PAGE> 38
of any yield that the Tax-Exempt Portfolio may generate. Both tables are based
upon current law as to the 1996 federal tax rate schedules.
TAXABLE EQUIVALENT YIELD TABLE FOR PERSONS WHOSE ADJUSTED GROSS INCOME IS UNDER
$117,950
<TABLE>
<CAPTION>
YOUR A TAX-EXEMPT YIELD OF:
TAXABLE INCOME MARGINAL 3% 4% 5% 6% 7%
FEDERAL TAX
2%
RATE
SINGLE JOINT IS EQUIVALENT TO A TAXABLE YIELD OF:
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$24,000-$58,150 $40,100-$96,900 28.0% 2.78 4.17 5.56 6.94 8.33 9.72
- ----------------------------------------------------------------------------------------------------------------------
Over $58,150 Over $96,900 31.0 2.90 4.35 5.80 7.25 8.70 10.14
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
TAXABLE EQUIVALENT YIELD TABLE FOR PERSONS WHOSE ADJUSTED GROSS INCOME IS OVER
$117,950*
<TABLE>
<CAPTION>
YOUR A TAX-EXEMPT YIELD OF:
TAXABLE INCOME MARGINAL 3% 4% 5% 6% 7%
FEDERAL TAX
2%
RATE
SINGLE JOINT IS EQUIVALENT TO A TAXABLE YIELD OF:
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$58,150-$121,300 $96,900-$147,700 31.9% 2.94 4.41 5.87 7.34 8.81 10.28
- ---------------------------------------------------------------------------------------------------------------------------
$121,300-$263,750 $147,700-$263,750 37.1 3.18 4.77 6.36 7.95 9.54 11.13
- ---------------------------------------------------------------------------------------------------------------------------
Over $263,750 Over $263,750 40.8 3.38 5.07 6.76 8.45 10.14 11.82
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This table assumes a decrease of $3.00 of itemized deductions for each $100 of
adjusted gross income over $117,950. For a married couple with adjusted gross
income between $176,950 and $299,450 (single between $117,950 and $240,450),
add 0.7% to the above Marginal Federal Tax Rate for each personal and
dependency exemption. The taxable equivalent yield is the tax-exempt yield
divided by: 100% minus the adjusted tax rate. For example, if the table tax
rate is 37.1% and you are married with no dependents, the adjusted tax rate is
38.5% (37.1% + 0.7% + 0.7%). For a tax-exempt yield of 6%, the taxable
equivalent yield is about 9.8% (6% / (100% - 38.5%)).
OFFICERS AND TRUSTEES
The officers and trustees of the Fund, their birthdates, their principal
occupations and their affiliations, if any, with ZKI, the investment manager and
KDI, the principal underwriter, are as follows (the number following each
persons title is the number of investment companies managed by ZKI and its
affiliates, for which he or she holds similar positions):
DAVID W. BELIN (6/20/28), Trustee (24), 2000 Financial Center, 7th and Walnut,
Des Moines, Iowa; Member, Belin Harris Lamson McCormick, P.C. (attorneys).
LEWIS A. BURNHAM (1/8/33), Trustee (24), 16410 Avila Boulevard, Tampa, Florida;
Director, Management Consulting Services, McNulty & Company; formerly, Executive
Vice President, Anchor Glass Container Corporation.
DONALD L. DUNAWAY (3/8/37), Trustee (24), 7515 Pelican Bay Boulevard, #903,
Naples, Florida; Retired; formerly, Executive Vice President, A. O. Smith
Corporation (diversified manufacturer).
ROBERT B. HOFFMAN (12/11/36), Trustee (24), 800 North Lindbergh Boulevard, St.
Louis, Missouri; Senior Vice President and Chief Financial Officer, Monsanto
Company (chemical products); formerly, Vice President, FMC Corporation
(manufacturer of machinery and chemicals); prior thereto, Director, Executive
Vice President and Chief Financial Officer, Staley Continental, Inc. (food
products).
B-14
<PAGE> 39
DONALD R. JONES (1/17/30), Trustee (24), 1776 Beaver Pond Road, Inverness,
Illinois; Retired; Director, Motorola, Inc. (manufacturer of electronic
equipment and components); formerly, Executive Vice President and Chief
Financial Officer, Motorola, Inc.
DOMINIQUE P. MORAX (10/02/48), Trustee* (37), 222 S. Riverside Plaza, Chicago,
Illinois; Member, Extended Corporate Executive Board, Zurich Insurance Company,
Director, ZKI.
SHIRLEY D. PETERSON (9/3/41), Trustee (24), 401 Rosemont Avenue, Frederick,
Maryland; President, Hood College, Maryland; prior thereto, Partner, Steptoe &
Johnson (attorneys); prior thereto, Commissioner, Internal Revenue Service;
prior thereto, Assistant Attorney General, U.S. Department of Justice.
WILLIAM P. SOMMERS (7/22/33), Trustee (24), 333 Ravenswood Avenue, Menlo Park,
California; President and Chief Executive Officer, SRI International (research
and development); formerly, Executive Vice President, Iameter (medical
information and educational service provider); prior thereto, Senior Vice
President and Director, Booz, Allen & Hamilton, Inc. (management consulting
firm) (retired); Director, Rohr, Inc., Therapeutic Discovery Corp. and Litton
Industries.
STEPHEN B. TIMBERS (8/8/44), President and Trustee* (37), 222 South Riverside
Plaza, Chicago, Illinois; President, Chief Executive Officer, Chief Investment
Officer and Director; ZKI; Director, KDI and LTV Corporation.
JOHN E. NEAL (3/9/50), Vice President* (37), 222 South Riverside Plaza, Chicago,
Illinois; President, Kemper Funds Group, a unit of ZKI; Director, ZKI and KDI.
CHARLES R. MANZONI, JR. (1/23/47), Vice President* (37), 222 South Riverside
Plaza, Chicago, Illinois; Executive Vice President, Secretary and General
Counsel of ZKI; formerly, Partner, Gardner, Carton & Douglas (attorneys).
J. PATRICK BEIMFORD, Jr., (5/25/50), Vice President* (23), 222 South Riverside
Plaza, Chicago, Illinois; Executive Vice President and Chief Investment
Officer--Fixed Income Investments, ZKI.
FRANK J. RACHWALSKI, Jr., (3/26/45), Vice President* (9), 222 South Riverside
Plaza, Chicago, Illinois; Senior Vice President, ZKI.
JOHN W. STUEBE (1/7/49), Vice President* (2), 222 South Riverside Plaza,
Chicago, Illinois; First Vice President, ZKI.
JEROME L. DUFFY (6/29/36), Treasurer* (37), 222 South Riverside Plaza, Chicago,
Illinois; Senior Vice President, ZKI.
PHILIP J. COLLORA (11/15/45), Vice President and Secretary* (37), 222 South
Riverside Plaza, Chicago, Illinois; Attorney, Senior Vice President and
Assistant Secretary, ZKI.
ELIZABETH C. WERTH (10/1/47), Assistant Secretary* (29), 222 South Riverside
Plaza, Chicago, Illinois; Vice President, ZKI; Vice President and Director of
State Registrations, KDI.
* Interested persons as defined in the Investment Company Act of 1940.
The trustees and officers who are "interested persons" as designated above
receive no compensation from the Fund. The table below shows amounts paid or
accrued to those trustees who are not designated
B-15
<PAGE> 40
"interested persons" during the Fund's 1996 fiscal year except that the
information in the last column is for calendar year 1995.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM FUND AND
KEMPER FUND
AGGREGATE COMPENSATION COMPLEX
NAME OF TRUSTEE FROM FUND PAID TO TRUSTEES**
- ------------------------------------------------------- ---------------------- ------------------
<S> <C> <C>
David W. Belin*........................................ $ 14,700 $149,700
Lewis A. Burnham....................................... 8,200 111,000
Donald L. Dunaway*..................................... 13,400 151,000
Robert B. Hoffman...................................... 8,100 105,500
Donald R. Jones........................................ 8,300 110,700
Shirley D. Peterson***................................. 6,600 44,500
William P. Sommers..................................... 8,000 100,700
</TABLE>
- ---------------
* Includes deferred fees and interest thereon pursuant to deferred
compensation agreements with Kemper funds. Deferred amounts accrue interest
monthly at a rate equal to the yield of Kemper Money Funds--Kemper Money
Market Fund. Total deferred amounts and interest accrued through July 31,
1996 are $149,500 for Mr. Belin and $106,800 for Mr. Dunaway.
** Includes compensation for service on the boards of twenty-three Kemper funds
with 40 fund portfolios. Each trustee currently serves as a trustee of 24
Kemper funds and 41 fund portfolios.
*** Appointed trustee of certain Kemper fund boards on June 15, 1995.
On November 8, 1996, the officers and trustees of the Fund, as a group, owned
less than 1% of the then outstanding shares of each Portfolio and the following
persons owned of record 5% or more of the outstanding shares of the Portfolios
of the Fund: Chicago Corporation, 208 S. LaSalle St., Chicago, IL 60604 (13.76%
of the Money Market Portfolio and 7.05% of the Government Securities Portfolio);
Roney & Co., 1 Griswold, Detroit, MI 48226 (17.26% of the Money Market
Portfolio, 38.75% of the Government Securities Portfolio and 9.13% of the
Tax-Exempt Portfolio); Hilliard Lyons, 4th Ave. & Muhammed Ali Blvd.,
Louisville, KY 40202 (27.04% of the Money Market Portfolio and 16.61% of the
Tax-Exempt Portfolio); D.A. Davidson & Co., P.O. Box 5015, Great Falls, MT 59403
(15.12% of the Money Market Portfolio).
SPECIAL FEATURES
EXCHANGE PRIVILEGE. Subject to the limitations described below, Class A Shares
(or the equivalent) of the following Kemper Mutual Funds may be exchanged for
each other at their relative net asset values: Kemper Technology Fund, Kemper
Total Return Fund, Kemper Growth Fund, Kemper Small Capitalization Equity Fund,
Kemper Income and Capital Preservation Fund, Kemper Municipal Bond Fund, Kemper
Diversified Income Fund, Kemper High Yield Fund, Kemper U.S. Government
Securities Fund, Kemper International Fund, Kemper State Tax-Free Income Series,
Kemper Adjustable Rate U.S. Government Fund, Kemper Blue Chip Fund, Kemper
Global Income Fund, Kemper Target Equity Fund (series are subject to a limited
offering period), Kemper Intermediate Municipal Bond Fund, Kemper Cash Reserves
Fund, Kemper U.S. Mortgage Fund, Kemper Short-Intermediate Government Fund,
Kemper-Dreman Fund, Inc., Kemper Value+Growth Fund, Kemper Quantitative Equity
Fund, Kemper Horizon Fund, Kemper Europe Fund and Kemper Asian Growth Fund
("Kemper Mutual Funds") and certain "Money Market Funds" (Kemper Money Funds,
Cash Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account
Trust, Tax-Exempt New York Money Market 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 a Money Market Fund and
Kemper Cash
B-16
<PAGE> 41
Reserves Fund, acquired by exchange from another Fund may not be exchanged
thereafter until they have been owned for 15 days (the "15 Day Hold Policy").
For purposes of determining whether the 15 Day Hold Policy applies to a
particular exchange, the value of the shares to be exchanged shall be computed
by aggregating the value of shares being exchanged for all accounts under common
control, direction or advice, including without limitation accounts administered
by a financial services firm offering market timing, asset allocation or similar
services. Series of Kemper Target Equity Fund 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, Tax-Exempt New York Money Market 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 eligible for sale in the shareholder's state of
residence. Currently, Tax-Exempt California Money Market Fund is available for
sale only in California and Tax-Exempt New York Money Market Fund is available
for sale only in New York, Connecticut, New Jersey and Pennsylvania.
The total value of shares being exchanged must at least equal the minimum
investment requirement of the Kemper fund into which they are being exchanged.
Exchanges are made based on relative dollar values of the shares involved in the
exchange. There is no service fee for an exchange; however, financial services
firms may charge for their services in expediting exchange transactions.
Exchanges will be effected by redemption of shares of the fund held and purchase
of shares of the other fund. For federal income tax purposes, any such exchange
constitutes a sale upon which a gain or loss may be realized, depending upon
whether the value of the shares being exchanged is more or less than the
shareholder's adjusted cost basis. Shareholders interested in exercising the
exchange privilege may obtain an exchange form and prospectuses of the other
funds from financial services 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. An owner of $5,000 or more of a Portfolio's
shares may provide for the payment from the owner's account of any requested
dollar amount to be paid to the owner or the owner's designated payee monthly,
quarterly, semi-annually or annually. The $5,000 minimum account size is not
applicable to Individual Retirement Accounts. Dividend distributions will be
reinvested automatically 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 program may be amended
on thirty days notice by the Fund and may be terminated at any time by the
shareholder or the Fund. Firms provide varying arrangements for their clients to
redeem Fund shares on a periodic basis. Such firms may independently establish
minimums for such services.
TAX-SHELTERED RETIREMENT PROGRAMS. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish your account in any
of the following types of retirement plans:
- - Individual Retirement Accounts (IRAs) with Investors Fiduciary Trust Company
as custodian. This includes Simplified Employee Pension Plan (SEP) IRA
accounts and prototype documents.
B-17
<PAGE> 42
- - 403(b) Custodial Accounts with IFTC as custodian. This type of plan is
available to employees of most non-profit organizations.
- - Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum contribution per participant is the lesser of 25% of
compensation or $30,000.
Brochures describing the above plans as well as providing model defined benefit
plans, target benefit plans, 457 plans, 401(k) plans and materials for
establishing them are available from the Shareholder Service Agent upon request.
The brochures for plans with IFTC as custodian describe the current fees payable
to IFTC for its services as custodian. Investors should consult with their own
tax advisers before establishing a retirement plan.
ELECTRONIC FUNDS TRANSFER PROGRAMS. For your convenience, the Fund has
established several investment and redemption programs using electronic funds
transfer via the Automated Clearing House (ACH). There is currently no charge by
the Fund for these 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 Fund.
Shareholders should contact Kemper Service Company at 1-800-231-8568 or the
financial services firm through which their account was established for more
information. These programs may not be available through some firms that
distribute shares of the Fund.
SHAREHOLDER RIGHTS
The Fund generally is not required to hold meetings of its shareholders. Under
the Agreement and Declaration of Trust of the Fund ("Declaration of Trust"),
however, shareholder meetings will be held in connection with the following
matters: (a) the election or removal of trustees if a meeting is called for such
purpose; (b) the adoption of any contract for which shareholder approval is
required by the Investment Company Act of 1940 ("1940 Act"); (c) any termination
of the Fund to the extent and as provided in the Declaration of Trust; (d) any
amendment of the Declaration of Trust (other than amendments changing the name
of the Fund or any Portfolio, establishing a Portfolio, supplying any omission,
curing any ambiguity or curing, correcting or supplementing any defective or
inconsistent provision thereof); (e) as to whether a court action, proceeding or
claim should or should not be brought or maintained derivatively or as a class
action on behalf of the Fund or the shareholders, to the same extent as the
stockholders of a Massachusetts business corporation; and (f) such additional
matters as may be required by law, the Declaration of Trust, the By-laws of the
Fund, or any registration of the Fund with the Securities and Exchange
Commission or any state, or as the trustees may consider necessary or desirable.
The shareholders also would vote upon changes in fundamental investment
objectives, policies or restrictions.
Each trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing trustees and until the election and qualification of his
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) the Fund will hold a
shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
B-18
<PAGE> 43
Trustees may be removed from office by a vote of the holders of a majority of
the outstanding shares at a meeting called for that purpose, which meeting shall
be held upon the written request of the holders of not less than 10% of the
outstanding shares. Upon the written request of ten or more shareholders who
have been such for at least six months and who hold shares constituting at least
1% of the outstanding shares of the Fund stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, the
Fund has undertaken to disseminate appropriate materials at the expense of the
requesting shareholders.
The Declaration of Trust provides that the presence at a shareholder meeting in
person or by proxy of at least 30% of the shares entitled to vote on a matter
shall constitute a quorum. Thus, a meeting of shareholders of the Fund could
take place even if less than a majority of the shareholders were represented on
its scheduled date. Shareholders would in such a case be permitted to take
action which does not require a larger vote than a majority of a quorum, such as
the election of trustees and ratification of the selection of auditors. Some
matters requiring a larger vote under the Declaration of Trust, such as
termination or reorganization of the Fund and certain amendments of the
Declaration of Trust, would not be affected by this provision; nor would matters
which under the 1940 Act require the vote of a "majority of the outstanding
voting securities" as defined in the 1940 Act.
The Declaration of Trust specifically authorizes the Board of Trustees to
terminate the Fund (or any Portfolio) by notice to the shareholders without
shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of the
Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Fund or the trustees. Moreover, the Declaration of Trust provides for
indemnification out of Fund property for all losses and expenses of any
shareholder held personally liable for the obligations of the Fund and the Fund
will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered by ZKI remote and not
material, since it is limited to circumstances in which a disclaimer is
inoperative and the Fund itself is unable to meet its obligations.
B-19
<PAGE> 44
APPENDIX--RATINGS OF INVESTMENTS
COMMERCIAL PAPER RATINGS
A-1, A-2 AND PRIME-1, PRIME-2 COMMERCIAL PAPER RATINGS
Commercial paper rated by Standard & Poor's Corporation has the following
characteristics: Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. The reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determine whether the
issuer's commercial paper is rated A-1, A-2 or A-3.
The ratings Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investors Service, Inc. Among the factors considered by them
in assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations. Relative
strength or weakness of the above factors determines whether the issuer's
commercial paper is rated Prime-1, 2 or 3.
MIG-1 AND MIG-2 MUNICIPAL NOTES
Moody's Investors Service, Inc.'s ratings for state and municipal notes and
other short-term loans will be designated Moody's Investment Grade (MIG). This
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short- term borrowing, while various factors of the
first importance in bond risk are of lesser importance in the short run. Loans
designated MIG-1 are of the best quality, enjoying strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both. Loans designated
MIG-2 are of high quality, with margins of protection ample although not so
large as in the preceding group.
STANDARD & POOR'S CORPORATION BOND RATINGS, CORPORATE BONDS
AAA. This is the highest rating assigned by Standard & Poor's Corporation to a
debt obligation and indicates an extremely strong capacity to pay principal and
interest.
AA. Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A. Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
B-20
<PAGE> 45
MOODY'S INVESTORS SERVICE, INC. BOND RATINGS
AAA. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
B-21
<PAGE> 46
Cash Equivalent Fund 2
-----------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
Investments at July 31, 1996
(Value in thousands)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE OBLIGATIONS Value
<S> <C>
BANKING--2.5%
---------------------------------------------------------
Sumitomo Bank Capital Markets, Inc.
5.52% - 5.53%, 8/5/96 - 8/19/96 $ 49,916
---------------------------------------------------------
(a)Wells Fargo & Co.
5.58%, 9/18/96 20,002
---------------------------------------------------------
69,918
BUSINESS LOANS--24.2%
---------------------------------------------------------
Astro Capital Corp.
5.50% - 5.53%, 8/30/96 - 9/10/96 34,830
---------------------------------------------------------
Broadway Capital Corp.
5.47%, 8/1/96 10,000
---------------------------------------------------------
CSW Credit, Inc.
5.46%, 8/28/96 14,939
---------------------------------------------------------
CXC Incorporated
5.42%, 8/12/96 24,959
---------------------------------------------------------
Clipper Receivables Corp.
5.40%, 8/23/96 24,918
---------------------------------------------------------
(a)Emprise I Corporation
5.70%, 9/23/96 25,000
---------------------------------------------------------
Enterprise Funding Corp.
5.35% - 5.45%, 8/1/96 - 8/15/96 49,963
---------------------------------------------------------
(a)Finova Capital Corporation
5.58%, 8/15/96 35,000
---------------------------------------------------------
First Brands Commercial Inc.
5.45%, 8/12/96 14,975
---------------------------------------------------------
(a)Heller Financial, Inc.
5.61% - 5.66%, 8/1/96 - 10/1/96 35,007
---------------------------------------------------------
Jet Funding Corporation
5.54%, 9/30/96 39,637
---------------------------------------------------------
Madison Funding Corp.
5.44%, 8/20/96 24,928
---------------------------------------------------------
Monte Rosa Capital Corp.
5.41%, 8/12/96 24,959
---------------------------------------------------------
National Fleet Funding Corp.
5.44% - 5.49%, 8/21/96 - 8/23/96 34,892
---------------------------------------------------------
Orix America, Inc.
5.31% - 5.50%, 8/1/96 - 9/4/96 52,415
---------------------------------------------------------
Prudential Funding Corp.
5.38%, 8/12/96 24,959
---------------------------------------------------------
Receivables Capital Corp.
5.44%, 8/12/96 9,983
---------------------------------------------------------
(a)Sanwa Business Credit Corp.
5.55% - 5.57%, 8/5/96 - 8/16/96 50,000
---------------------------------------------------------
<CAPTION>
Value
<S> <C>
Sony Capital Corp.
5.43%, 8/6/96 $ 19,985
---------------------------------------------------------
Stellar Capital Corporation
5.43% - 5.47%, 8/7/96 - 9/12/96 44,851
---------------------------------------------------------
Windmill Funding Corp.
5.40% - 5.44%, 8/15/96 - 8/28/96 49,847
---------------------------------------------------------
Working Capital Management Co., L.P.
5.48%, 8/13/96 24,955
---------------------------------------------------------
671,002
CAPITAL AND EQUIPMENT LENDING--3.4%
---------------------------------------------------------
Deere (John) Capital Corporation
5.42%, 8/22/96 24,922
---------------------------------------------------------
Golden Manager's Acceptance Corp.
5.40%, 8/21/96 34,895
---------------------------------------------------------
IBM Credit Corp.
5.98%, 5/29/97 24,952
---------------------------------------------------------
SRD Finance Inc.
5.44%, 8/8/96 9,989
---------------------------------------------------------
94,758
COMMUNICATIONS AND MEDIA--.9%
---------------------------------------------------------
Electronic Data Systems Corp.
5.35%, 8/2/96 24,996
---------------------------------------------------------
CONSUMER LENDING--10.1%
---------------------------------------------------------
American Express Credit Corp.
5.36%, 8/14/96 24,952
---------------------------------------------------------
(a)American Honda Finance Corporation
5.55%, 8/12/96 25,000
---------------------------------------------------------
(a)Chrysler Financial Corporation
5.88%, 8/15/96 10,006
---------------------------------------------------------
Countrywide Funding Corporation
5.43%, 8/27/96 24,903
---------------------------------------------------------
Ford Motor Credit Company
(a) 5.33%, 8/5/96 11,000
5.39%, 8/27/96 24,903
---------------------------------------------------------
(b)GMAC Mortgage Corporation of Pennsylvania
5.68%, 8/30/96 29,863
---------------------------------------------------------
(a)Household Finance Corp.
5.47%, 8/28/96 25,000
---------------------------------------------------------
Mitsubishi Motors Credit of America, Inc.
5.47% - 5.48%, 8/1/96 - 8/5/96 34,994
---------------------------------------------------------
New Center Asset Trust
5.41%, 8/26/96 24,907
---------------------------------------------------------
</TABLE>
<PAGE> 47
Cash Equivalent Fund 3
--------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
Investments at July 31, 1996
(Value in thousands)
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
(a)PHH Corporation Value
<S> <C>
5.37%, 8/26/96 $ 9,997
---------------------------------------------------------
Sears Roebuck Acceptance Corp.
5.42%, 9/12/96 34,780
---------------------------------------------------------
280,305
CONSUMER PRODUCTS AND SERVICES--.9%
---------------------------------------------------------
Coca-Cola Enterprises Inc.
5.45%, 8/6/96 24,981
---------------------------------------------------------
DIVERSIFIED FINANCE--8.4%
---------------------------------------------------------
APEX Funding Corp.
5.66%, 10/31/96 9,859
---------------------------------------------------------
Associates Corporation of North America
5.44%, 8/26/96 49,813
---------------------------------------------------------
Dynamic Funding Corporation
5.50% - 5.59%, 8/5/96 - 8/9/96 39,960
---------------------------------------------------------
General Electric Capital Corp.
5.41%, 8/19/96 49,866
---------------------------------------------------------
Norwest Financial, Inc.
5.41%, 8/14/96 24,951
---------------------------------------------------------
Old Line Funding Corp.
5.40% - 5.43%, 8/20/96 - 9/4/96 34,878
---------------------------------------------------------
STRAIT Capital Corporation
5.43%, 9/3/96 24,876
---------------------------------------------------------
234,203
FINANCIAL SERVICES--7.2%
---------------------------------------------------------
(a)Bear Stearns Companies Inc.
5.52% - 5.53%, 8/6/96 - 8/19/96 30,000
---------------------------------------------------------
(a)CS First Boston, Inc.
5.51%, 8/14/96 10,000
---------------------------------------------------------
(a)Goldman, Sachs & Co.
5.47%, 8/25/96 35,000
---------------------------------------------------------
(a)(b)Lehman Brothers Holdings Inc.
5.59%, 8/21/96 40,000
---------------------------------------------------------
Morgan Stanley Group Inc.
5.40%, 8/13/96 24,955
---------------------------------------------------------
Nomura Holding America Inc.
5.47%, 8/5/96 24,985
---------------------------------------------------------
Salomon Inc.
6.00% - 6.42%, 1/17/97 - 4/21/97 33,879
---------------------------------------------------------
198,819
HEALTH CARE AND PRODUCTS--1.2%
---------------------------------------------------------
American Home Food Products Inc.
5.45%, 8/15/96 34,927
---------------------------------------------------------
<CAPTION>
Value
<S> <C>
MANUFACTURING AND INDUSTRIAL--2.2%
---------------------------------------------------------
IBM Corporation
5.26%, 2/28/97 $ 9,986
---------------------------------------------------------
Whirlpool Corporation
5.47%, 8/22/96 49,842
---------------------------------------------------------
59,828
UTILITIES--6.3%
---------------------------------------------------------
AES Shady Point, Inc.
5.50%, 9/4/96 14,923
---------------------------------------------------------
Brazos River Authority, Texas
5.43%, 8/8/96 50,000
---------------------------------------------------------
GTE Corporation
5.41% - 5.46%, 8/7/96 - 8/30/96 49,869
---------------------------------------------------------
Gulf Coast Waste Authority, Texas
5.43%, 9/9/96 34,000
---------------------------------------------------------
Nynex Corporation
5.41%, 8/8/96 24,974
---------------------------------------------------------
173,766
---------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--67.3%
(average maturity: 28 days) 1,867,503
---------------------------------------------------------
BANK OBLIGATIONS
CERTIFICATES OF DEPOSIT
(a)FCC National Bank
5.36%, 8/1/96 14,998
---------------------------------------------------------
(a)First National Bank of Boston
5.36%, 8/1/96 14,994
---------------------------------------------------------
Harris Trust & Savings Bank
6.10%, 6/17/97 9,995
---------------------------------------------------------
(a)Key Bank of Maine
5.44%, 8/14/96 19,992
---------------------------------------------------------
MBNA America Bank N.A.
5.41% - 5.42%, 8/21/96 - 9/12/96 50,000
---------------------------------------------------------
(a)Mercantile Bankshares Corporation
5.61%, 8/19/96 15,005
---------------------------------------------------------
NationsBank N.A.
5.72%, 4/30/97 14,994
---------------------------------------------------------
(a)PNC Bank N.A.
5.40% - 5.41% 8/5/96 - 8/20/96 49,987
---------------------------------------------------------
TOTAL BANK OBLIGATIONS--6.9%
(average maturity: 52 days) 189,965
---------------------------------------------------------
</TABLE>
<PAGE> 48
Cash Equivalent Fund 4
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
Investments at July 31, 1996
(Value in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(c)REPURCHASE AGREEMENTS Value
<S> <C>
(Dated 6/96 and 7/96, collateralized by
Federal Home Loan Mortgage Corporation,
Federal National Mortgage Association,
Government National Mortgage Association and
U.S. Treasury securities)
- ---------------------------------------------------------
Chase Securities, Inc.
(held at The Chase Manhattan Bank, N.A.)
5.41%, 8/14/96 - 8/23/96 $ 100,000
- ---------------------------------------------------------
Goldman, Sachs & Co.
(held at The Bank of New York)
5.40% - 5.65%, 8/1/96 - 9/11/96 315,000
- ---------------------------------------------------------
Lehman Government Securities Inc.
(held at The Chase Manhattan Bank, N.A.)
5.36% - 5.42%, 8/6/96 - 9/10/96 225,000
- ---------------------------------------------------------
Salomon Brothers Inc.
(held at The Bank of New York)
5.40%, 9/13/96 25,000
- ---------------------------------------------------------
<CAPTION>
Value
<S> <C>
TOTAL REPURCHASE AGREEMENTS--24.0%
(average maturity: 25 days) $ 665,000
- ---------------------------------------------------------
U.S. TREASURY NOTES--1.6%
(average maturity: 183 days)
5.06%, 1/31/97 45,522
- ---------------------------------------------------------
TOTAL INVESTMENTS--99.8%
(average maturity: 31 days) 2,767,990
- ---------------------------------------------------------
CASH AND OTHER ASSETS,
LESS LIABILITIES--.2% 6,605
- ---------------------------------------------------------
NET ASSETS--100% $2,774,595
- ---------------------------------------------------------
</TABLE>
See accompanying Notes to Portfolios of Investments.
<PAGE> 49
Cash Equivalent Fund 5
-----------------------------------------------------------------------------
GOVERNMENT SECURITIES PORTFOLIO
Investments at July 31, 1996
(Value in thousands)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
<S> <C>
U.S. TREASURY NOTES--4.6%
(average maturity: 183 days)
5.08%, 1/31/97 $ 73,839
---------------------------------------------------------
SHORT-TERM NOTES
(Issued or guaranteed by U.S. Government
agencies or instrumentalities)
---------------------------------------------------------
(a)Agency for International Development
Government of Israel
5.75%, 8/6/96 5,663
---------------------------------------------------------
(a)Export-Import Bank of the United States
Cathay Pacific Airways Limited
5.69%, 8/13/96 20,101
KA Leasing, Ltd.
5.69%, 8/15/96 17,287
Kuwait Investment Authority
5.80%, 8/15/96 35,508
VARIG Brazilian Airlines
5.69%, 8/15/96 21,953
---------------------------------------------------------
Federal Farm Credit Banks
5.81%, 8/1/96 32,200
---------------------------------------------------------
Federal Home Loan Bank
(a) 5.43%, 8/2/96 25,605
5.36%, 10/11/96 9,897
---------------------------------------------------------
Federal Home Loan Bank
Downey Savings & Loan
5.58%, 11/14/96 5,413
---------------------------------------------------------
(a)Federal National Mortgage Association
5.59% - 5.85%, 8/1/96 - 8/6/96 86,979
---------------------------------------------------------
(a)Overseas Private Investment Corporation
International Paper Company
5.69%, 8/15/96 14,500
Omolon
5.64%, 8/6/96 19,500
---------------------------------------------------------
Student Loan Marketing Association
(a) 5.53% - 5.87%, 8/6/96 - 6/30/97 221,185
6.10%, 6/30/97 16,929
---------------------------------------------------------
Tennessee Valley Authority
5.18%, 1/15/97 3,011
---------------------------------------------------------
TOTAL SHORT-TERM NOTES--33.6%
(average maturity: 36 days) 535,731
---------------------------------------------------------
<CAPTION>
Value
<S> <C>
(c)REPURCHASE AGREEMENTS
(Dated 6/96 and 7/96, collateralized by
Federal Home Loan Mortgage Corporation,
Federal National Mortgage Association,
Government National Mortgage Association and
U.S. Treasury securities)
---------------------------------------------------------
Bear, Stearns & Co. Inc.
5.39% - 5.40%, 8/5/96 - 8/19/96 $ 90,000
---------------------------------------------------------
CS First Boston Inc.
(held at The Chase Manhattan Bank, N.A.)
5.35% - 5.80%, 8/1/96 - 8/5/96 62,500
---------------------------------------------------------
Chase Securities, Inc.
(held at The Chase Manhattan Bank, N.A.)
5.37% - 5.39%, 8/5/96 - 8/7/96 164,000
---------------------------------------------------------
Donaldson, Lufkin & Jenrette Securities
Corporation
(held at The Chase Manhattan Bank, N.A.)
5.75%, 8/1/96 70,000
---------------------------------------------------------
Goldman, Sachs & Co.
(held at The Bank of New York)
5.40% - 5.42%, 9/4/96 - 9/18/96 147,000
---------------------------------------------------------
Lehman Government Securities Inc.
(held at The Chase Manhattan Bank, N.A.)
5.39% - 5.42%, 8/14/96 - 9/4/96 153,500
---------------------------------------------------------
Nikko Securities Co. International, Inc.
(held at The Bank of New York)
5.35% - 5.37%, 8/14/96 - 8/19/96 100,000
---------------------------------------------------------
Nomura Securities International, Inc.
(held at The Bank of New York)
5.40% - 5.41%, 8/14/96 - 8/19/96 125,000
---------------------------------------------------------
Salomon Brothers Inc.
(held at The Bank of New York)
5.43%, 8/7/96 70,000
---------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS--61.6%
(average maturity: 14 days) 982,000
---------------------------------------------------------
TOTAL INVESTMENTS--99.8%
(average maturity: 30 days) 1,591,570
---------------------------------------------------------
CASH AND OTHER ASSETS,
LESS LIABILITIES--.2% 2,558
---------------------------------------------------------
NET ASSETS--100% $1,594,128
---------------------------------------------------------
</TABLE>
<PAGE> 50
Cash Equivalent Fund 6
- --------------------------------------------------------------------------------
TAX-EXEMPT PORTFOLIO
Investments at July 31, 1996
(Value in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(a)VARIABLE RATE DEMAND SECURITIES Value
<S> <C>
ALABAMA
- ---------------------------------------------------------
Birmingham
Special Care Facilities Financing Authority
4.05% $ 3,960
ALASKA
- ---------------------------------------------------------
Industrial Development and Export Authority
4.20% 1,200
ARIZONA
- ---------------------------------------------------------
Health Facilities Authority
3.65% 12,000
CALIFORNIA
- ---------------------------------------------------------
Los Angeles
Harbor Improvement Corporation
3.70% 12,500
DELAWARE
- ---------------------------------------------------------
New Castle County
General Motors Corporation
3.70% 3,775
DISTRICT OF COLUMBIA
- ---------------------------------------------------------
General Obligation
3.75% 13,300
- ---------------------------------------------------------
National Children's Center, Inc.
3.65% 6,100
GEORGIA
- ---------------------------------------------------------
DeKalb County
Pollution Control Revenue
3.80% 5,000
- ---------------------------------------------------------
Fulton County
Development Authority
3.70% 7,515
- ---------------------------------------------------------
Wayne County
Solid Waste Management Authority
4.45% 4,400
ILLINOIS
- ---------------------------------------------------------
Alsip
Industrial Development Revenue
3.70% 3,750
- ---------------------------------------------------------
Chicago
O'Hare International Airport
Special Facility Revenue
3.65% 7,800
- ---------------------------------------------------------
<CAPTION>
Value
<S> <C>
Development Finance Authority
4.04% $ 15,800
- ---------------------------------------------------------
Havana
Industrial Development Revenue
3.90% 3,000
- ---------------------------------------------------------
Health Facilities Authority
3.70% 10,000
- ---------------------------------------------------------
Rockford
Industrial Project Revenue
3.89% 6,300
- ---------------------------------------------------------
Student Loan Revenue
3.75% 8,000
INDIANA
- ---------------------------------------------------------
Fort Wayne
Hospital Authority
3.60% 3,515
- ---------------------------------------------------------
Health Facility Financing Authority
3.86% 21,490
- ---------------------------------------------------------
Ossian
Economic Development
3.75% 5,000
- ---------------------------------------------------------
Rockport
Pollution Control Revenue
3.65% 10,000
- ---------------------------------------------------------
Seymour
Economic Development Revenue
4.25% 3,600
IOWA
- ---------------------------------------------------------
Higher Education Loan Authority
4.10% 9,700
KANSAS
- ---------------------------------------------------------
Kansas City
Pollution Control Revenue
3.80% 20,835
KENTUCKY
- ---------------------------------------------------------
Boone County
Industrial Development Revenue
3.90% 4,700
Pollution Control Revenue
3.55% 8,000
- ---------------------------------------------------------
Bowling Green
Industrial Building Revenue
4.25% 2,400
- ---------------------------------------------------------
</TABLE>
<PAGE> 51
Cash Equivalent Fund 7
- --------------------------------------------------------------------------------
TAX-EXEMPT PORTFOLIO
Investments at July 31, 1996
(Value in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shelbyville Value
<S> <C>
Industrial Building Revenue
4.25% $ 3,500
MARYLAND
- ---------------------------------------------------------
Baltimore County
Multi-Family Housing Revenue
3.85% 10,994
MONTANA
- ---------------------------------------------------------
Forsyth
Pollution Control Revenue
3.85% 4,500
NEVADA
- ---------------------------------------------------------
Department of Business and Industry
3.85% 5,000
NEW YORK
- ---------------------------------------------------------
New York City
General Obligation
3.68% 22,400
NORTH CAROLINA
- ---------------------------------------------------------
Lenoir County
Pollution Control Financing Authority
3.90% 6,000
OREGON
- ---------------------------------------------------------
Economic Development Revenue
3.85% 4,500
PENNSYLVANIA
- ---------------------------------------------------------
Delaware County
Redevelopment Authority
4.60% 13,000
- ---------------------------------------------------------
Delaware Valley
Regional Finance Authority
3.70% 18,200
- ---------------------------------------------------------
Lehigh County
Industrial Development Authority
3.55% 10,300
SOUTH CAROLINA
- ---------------------------------------------------------
Richland County
Hospital Revenue
4.10% 5,300
- ---------------------------------------------------------
<CAPTION>
Value
<S> <C>
TENNESSEE
- ---------------------------------------------------------
Clarksville
Public Building Authority
3.65% $ 7,300
- ---------------------------------------------------------
Nashville and Davidson County
Multi-Family Housing Revenue
4.20% 5,000
- ---------------------------------------------------------
Smyrna Housing Association
Multi-Family Housing Revenue
4.20% 3,000
TEXAS
- ---------------------------------------------------------
Calhoun County
Industrial Development Authority
3.75% 21,500
UTAH
- ---------------------------------------------------------
Ogden City
Industrial Development Revenue
4.10% 3,750
VERMONT
- ---------------------------------------------------------
Economic Development Authority
4.15% 5,000
VIRGINIA
- ---------------------------------------------------------
Louisa County
Industrial Development Authority
3.65% 21,900
WASHINGTON
- ---------------------------------------------------------
Port Angeles
Industrial Development Corporation
4.25% 7,400
WISCONSIN
- ---------------------------------------------------------
Eau Claire
Solid Waste Disposal Revenue
3.75% 9,000
- ---------------------------------------------------------
TOTAL VARIABLE RATE
DEMAND SECURITIES--43.1%
(average maturity: 6 days) 401,184
- ---------------------------------------------------------
OTHER SECURITIES
ALASKA
- ---------------------------------------------------------
Valdez
Marine Terminal Revenue
3.40% - 3.80%, 8/8/96 - 9/11/96 19,700
- ---------------------------------------------------------
</TABLE>
<PAGE> 52
Cash Equivalent Fund 8
- --------------------------------------------------------------------------------
TAX-EXEMPT PORTFOLIO
Investments at July 31, 1996
(Value in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ARIZONA Value
<S> <C>
- ---------------------------------------------------------
Salt River Project
Agricultural Improvement and Power District
3.40% - 3.70%, 8/9/96 - 9/20/96 $ 33,900
CALIFORNIA
- ---------------------------------------------------------
Revenue Anticipation Warrants
3.97%, 6/30/97 9,041
COLORADO
- ---------------------------------------------------------
Denver City and County
Airport System Revenue
3.75% - 3.95%, 8/8/96 - 8/13/96 39,505
- ---------------------------------------------------------
Platte River Power Authority
3.65%, 8/8/96 5,700
FLORIDA
- ---------------------------------------------------------
Orlando
Waste Water System Revenue
3.50%, 8/21/96 4,065
- ---------------------------------------------------------
Pinellas County
Educational Facilities Authority
3.50%, 8/12/96 7,700
- ---------------------------------------------------------
Sarasota County
Public Hospital District
3.85%, 8/13/96 5,850
- ---------------------------------------------------------
Sunshine State Governmental Financing
Commission
3.40% - 3.65%, 8/21/96 - 9/26/96 23,350
GEORGIA
- ---------------------------------------------------------
Municipal Electric Authority
3.60% - 3.75%, 8/15/96 - 9/11/96 23,650
- ---------------------------------------------------------
Municipal Gas Authority
3.70%, 8/13/96 7,115
ILLINOIS
- ---------------------------------------------------------
Chicago
General Obligation
3.60%, 9/10/96 2,500
- ---------------------------------------------------------
Development Finance Authority
3.50%, 8/21/96 7,300
- ---------------------------------------------------------
Educational Facilities Authority
3.30% - 3.60%, 8/12/96 - 9/27/96 21,509
- ---------------------------------------------------------
<CAPTION>
Value
INDIANA
<S> <C>
- ---------------------------------------------------------
Bond Bank
Advance Funding Program Notes
3.50%, 1/9/97 11,035
- ---------------------------------------------------------
Jasper County
Pollution Control Revenue
3.45%, 8/20/96 2,400
- ---------------------------------------------------------
Sullivan
Pollution Control Revenue
3.50%, 8/14/96 9,790
KANSAS
- ---------------------------------------------------------
Burlington
Pollution Control and Improvement Revenue
3.75%, 9/11/96 18,700
KENTUCKY
- ---------------------------------------------------------
Danville
Multi-City Lease Revenue
3.75%, 9/11/96 10,755
- ---------------------------------------------------------
Pendleton County
Multi-County Lease Revenue
3.75%, 9/11/96 24,040
MARYLAND
- ---------------------------------------------------------
Anne-Arundel County
Port Facilities Revenue
3.65%, 9/20/96 6,000
MICHIGAN
- ---------------------------------------------------------
Strategic Fund
3.65%, 9/12/96 10,000
MINNESOTA
- ---------------------------------------------------------
University of Minnesota
3.60%, 9/25/96 8,000
MISSISSIPPI
- ---------------------------------------------------------
Claiborne County
Pollution Control Revenue
3.75%, 9/11/96 8,375
NEBRASKA
- ---------------------------------------------------------
Public Power District
3.60%, 9/25/96 4,000
NEW HAMPSHIRE
- ---------------------------------------------------------
Business Finance Authority
3.60% - 3.70%, 8/14/96 - 8/21/96 16,500
- ---------------------------------------------------------
</TABLE>
<PAGE> 53
Cash Equivalent Fund 9
- --------------------------------------------------------------------------------
TAX-EXEMPT PORTFOLIO
Investments at July 31, 1996
(Value in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK Value
<S> <C>
- ---------------------------------------------------------
Nassau County
Revenue Anticipation Notes
3.40%, 3/5/97 $ 10,020
- ---------------------------------------------------------
New York City
Municipal Water Finance Authority
3.60%, 9/20/96 4,800
- ---------------------------------------------------------
State Dormitory Authority
3.65%, 8/14/96 - 9/11/96 11,400
NORTH CAROLINA
- ---------------------------------------------------------
Municipal Power Agency
3.40% - 3.50%, 8/12/96 - 8/19/96 22,800
OHIO
- ---------------------------------------------------------
Air Quality Development Authority
3.60%, 9/19/96 3,450
PENNSYLVANIA
- ---------------------------------------------------------
Philadelphia School District
Tax and Revenue Anticipation Notes
4.00%, 6/30/97 11,049
TEXAS
- ---------------------------------------------------------
Austin
Combined Utility Systems
3.40% - 3.45%, 8/20/96 - 8/21/96 6,850
- ---------------------------------------------------------
Brazoria County
Brazos River Harbor Navigation District
3.65% - 3.75%, 8/8/96 - 9/25/96 17,500
- ---------------------------------------------------------
Houston
Water and Sewer System
3.45%, 8/20/96 8,500
- ---------------------------------------------------------
Lower Colorado River Authority
3.50%, 8/12/96 5,000
- ---------------------------------------------------------
Municipal Power Agency
3.45%, 8/20/96 2,000
- ---------------------------------------------------------
San Antonio
Electric and Gas Systems
3.25%, 9/12/96 16,000
- ---------------------------------------------------------
Tax and Revenue Anticipation Notes
3.94%, 8/30/96 8,505
- ---------------------------------------------------------
<CAPTION>
Value
UTAH
<S> <C>
- ---------------------------------------------------------
Intermountain Power Agency
3.50%, 8/14/96 - 8/21/96 28,900
VIRGINIA
- ---------------------------------------------------------
Chesterfield
Industrial Development Authority
3.60%, 9/19/96 9,000
- ---------------------------------------------------------
Louisa County
Industrial Development Authority
3.65%, 9/18/96 - 9/26/96 6,390
- ---------------------------------------------------------
Norfolk
Industrial Development Authority
3.65% - 3.70%, 8/8/96 - 8/12/96 11,000
- ---------------------------------------------------------
York County
Industrial Development Authority
3.75%, 9/11/96 6,000
WYOMING
- ---------------------------------------------------------
Converse County
Pollution Control Revenue
3.65%, 9/20/96 2,800
- ---------------------------------------------------------
TOTAL OTHER
SECURITIES--57.1%
(average maturity: 45 days) 532,444
- ---------------------------------------------------------
TOTAL INVESTMENTS--100.2%
(average maturity: 28 days) 933,628
- ---------------------------------------------------------
LIABILITIES, LESS CASH AND
OTHER ASSETS--(.2)% (2,064)
- ---------------------------------------------------------
NET ASSETS--100% $ 931,564
- ---------------------------------------------------------
</TABLE>
See accompanying Notes to Portfolios of Investments.
<PAGE> 54
Cash Equivalent Fund 10
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIOS OF INVESTMENTS
Interest rates represent annualized yield to date of maturity, except for
variable rate securities described in Note (a). For each security, cost (for
financial reporting and federal income tax purposes) and carrying value are the
same. Likewise, carrying value approximates principal amount.
(a) Variable rate securities. The rates shown are the current rates at July 31,
1996. The dates shown represent the demand date or the next interest rate change
date. Securities in the Tax-Exempt Portfolio shown without a date are payable
within five business days and are backed by credit support agreements from banks
or insurance institutions.
(b) Illiquid securities. At July 31, 1996, the aggregate value of illiquid
securities was $69,863,000 in the Money Market Portfolio, which represented 2.5%
of net assets.
(c) Repurchase agreements are fully collateralized by U.S. Government
securities. All collateral is held at the Fund's custodian bank, Investors
Fiduciary Trust Company, or at subcustodian banks, as indicated. The collateral
is monitored daily by the Fund so that its market value exceeds the carrying
value of the repurchase agreement.
See accompanying Notes to Financial Statements.
<PAGE> 55
Cash Equivalent Fund 11
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS
CASH EQUIVALENT FUND
We have audited the accompanying statement of assets and liabilities, including
the portfolios of investments, of the Money Market, Government Securities and
Tax-Exempt Portfolios, comprising Cash Equivalent Fund, as of July 31, 1996, and
the related statements of operations for the year then ended and changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the fiscal periods since 1992. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of July
31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Portfolios comprising Cash Equivalent Fund at July 31, 1996, the results
of their operations for the year then ended, the changes in their net assets for
each of the two years in the period then ended and the financial highlights for
each of the fiscal periods since 1992, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 18, 1996
<PAGE> 56
Cash Equivalent Fund 12
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1996
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY GOVERNMENT
MARKET SECURITIES TAX-EXEMPT
ASSETS PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Investments, at amortized cost:
Short-term securities $2,102,990 609,570 933,628
- ------------------------------------------------------------------------------------------------------------------------
Repurchase agreements 665,000 982,000 --
- ------------------------------------------------------------------------------------------------------------------------
Cash 11,482 3,473 3,244
- ------------------------------------------------------------------------------------------------------------------------
Receivable for:
Interest 6,138 7,276 6,267
- ------------------------------------------------------------------------------------------------------------------------
Fund shares sold 538 175 70
- ------------------------------------------------------------------------------------------------------------------------
Securities sold -- -- 700
- ------------------------------------------------------------------------------------------------------------------------
Total assets 2,786,148 1,602,494 943,909
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
Payable for:
Dividends 5,660 3,329 1,198
- ------------------------------------------------------------------------------------------------------------------------
Fund shares redeemed 3,512 3,585 1,394
- ------------------------------------------------------------------------------------------------------------------------
Securities purchased -- -- 9,041
- ------------------------------------------------------------------------------------------------------------------------
Management fee 398 230 167
- ------------------------------------------------------------------------------------------------------------------------
Distribution services fee 881 510 260
- ------------------------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 452 344 90
- ------------------------------------------------------------------------------------------------------------------------
Other 650 368 195
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 11,553 8,366 12,345
- ------------------------------------------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $2,774,595 1,594,128 931,564
- ------------------------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- ------------------------------------------------------------------------------------------------------------------------
Shares outstanding 2,774,595 1,594,128 931,564
- ------------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per share $1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE> 57
Cash Equivalent Fund 13
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year ended July 31, 1996
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
MONEY GOVERNMENT
MARKET SECURITIES TAX-EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
-----------------------------------------
INTEREST INCOME $ 183,353 99,325 39,198
- ---------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Management fee 5,401 2,953 2,163
- ---------------------------------------------------------------------------------------------------------------------------
Distribution services fee 12,127 6,631 3,418
- ---------------------------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 10,212 3,791 1,398
- ---------------------------------------------------------------------------------------------------------------------------
Reports to shareholders 308 147 97
- ---------------------------------------------------------------------------------------------------------------------------
Registration costs 89 190 123
- ---------------------------------------------------------------------------------------------------------------------------
Professional fees 83 34 22
- ---------------------------------------------------------------------------------------------------------------------------
Trustees' fees and other 110 75 56
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 28,330 13,821 7,277
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 155,023 85,504 31,921
- ---------------------------------------------------------------------------------------------------------------------------
Net realized loss on investments (22,662) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Change in unrealized depreciation on investments 22,662 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 155,023 85,504 31,921
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
Years ended July 31, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
MONEY MARKET GOVERNMENT SECURITIES TAX-EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations, dividends and
capital share activity
Net investment income $ 155,023 167,290 85,504 78,031 31,921 34,140
- ----------------------------------------------------------------------------------------------------------------------------
Net realized loss (22,662) -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Change in unrealized depreciation 22,662 (22,662) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Capital contribution from investment
manager -- 22,662 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net
investment income (155,023) (167,290) (85,504) (78,031) (31,921) (34,140)
- ----------------------------------------------------------------------------------------------------------------------------
Capital share transactions (dollar
amounts and number of shares are the
same):
Shares sold 11,488,265 11,972,864 5,702,420 5,708,371 3,741,602 3,660,114
- ----------------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of
dividends 156,119 163,874 85,164 76,210 32,004 33,430
- ----------------------------------------------------------------------------------------------------------------------------
11,644,384 12,136,738 5,787,584 5,784,581 3,773,606 3,693,544
Shares redeemed (12,463,083) (11,930,689) (5,978,554) (5,537,494) (3,951,903) (3,720,584)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from capital
share transactions and total increase
(decrease) in net assets (818,699) 206,049 (190,970) 247,087 (178,297) (27,040)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 3,593,294 3,387,245 1,785,098 1,538,011 1,109,861 1,136,901
- ----------------------------------------------------------------------------------------------------------------------------
End of year $ 2,774,595 3,593,294 1,594,128 1,785,098 931,564 1,109,861
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 58
Cash Equivalent Fund 14
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE FUND
Cash Equivalent Fund is an open-end management investment company organized as a
business trust under the laws of Massachusetts currently offering three series
of shares (Portfolios). The Money Market Portfolio invests primarily in
short-term high quality obligations of major banks and corporations. The
Government Securities Portfolio invests exclusively in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements thereon. The Tax-Exempt Portfolio invests in short-term
high quality municipal securities.
2. SIGNIFICANT ACCOUNTING POLICIES
Investment valuation
Investments are stated at amortized cost, which approximates market value. In
the event that a deviation of 1/2 of 1% or more exists between a Portfolio's
$1.00 per share net asset value, calculated at amortized cost, and the net asset
value calculated by reference to market-based values, or if there is any other
deviation that the Board of Trustees believes would result in a material
dilution to shareholders or purchasers, the Board of Trustees will promptly
consider what action should be initiated.
Investment transactions and interest income
Investment transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the accrual basis and
includes amortization of premium and discount on investments.
Expenses
Expenses arising in connection with a Portfolio are allocated to that Portfolio.
Other Fund expenses are allocated among the Portfolios in proportion to their
relative net assets.
Fund share valuation and dividends to shareholders
Fund shares are sold and redeemed on a continuous basis at net asset value. On
each day that the New York Stock Exchange is open for trading, each Portfolio
determines its net asset value per share (NAV) by dividing the total value of
the Portfolio's investments and other assets, less liabilities, by the number of
Portfolio shares outstanding. The NAV is determined at 11:00 a.m., 1:00 p.m. and
3:00 p.m. Chicago time for the Money Market and Government Securities Portfolios
and at 11:00 a.m. and 3:00 p.m. Chicago time for the Tax-Exempt Portfolio. Each
Portfolio declares a daily dividend, equal to its net investment income for that
day, payable monthly. Net investment income consists of all interest income plus
(minus) all taxable realized gains (losses) on portfolio securities, minus all
expenses of the Portfolio.
Federal income taxes
Each Portfolio has complied with the special provisions of the Internal Revenue
Code available to investment companies and therefore no federal income tax
provision is required.
3. TRANSACTIONS WITH AFFILIATES
Management agreement
The Fund has a management agreement with Zurich Kemper Investments, Inc. (ZKI)
and pays a management fee for the Money Market and Government Securities
Portfolios at an annual rate of .22% of the first $500 million of combined
average daily net assets of those Portfolios declining to .15% of combined
average daily net assets in excess of $3 billion. The Tax-Exempt Portfolio pays
a management fee at an annual rate of .22% of the first $500 million of average
daily net assets of such Portfolio declining to .15% of average daily net assets
in excess of $3 billion. During the year ended July 31, 1996,
<PAGE> 59
Cash Equivalent Fund 15
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
the Fund incurred management fees of $10,517,000.
Distribution agreement
The Fund also has an administration, shareholder services and distribution
agreement with Kemper Distributors, Inc. (KDI). For its services as primary
distributor, the Fund pays KDI an annual fee of .38% of average daily net assets
for the Money Market and Government Securities Portfolios and .33% of average
daily net assets for the Tax-Exempt Portfolio. For the year ended July 31, 1996,
the Fund incurred distribution fees of $22,176,000. KDI has related service
agreements with various firms to provide cash management and other services for
Fund shareholders. Under these agreements, KDI pays such firms based on the
average daily net assets of those accounts that they maintain and service at an
annual rate ranging from .15% to .40% for the Money Market and Government
Securities Portfolios, and from .15% to .33% for the Tax-Exempt Portfolio.
During the year ended July 31, 1996, KDI paid fees of $22,549,000 to various
firms pursuant to the related service agreements.
Shareholder services agreement
Pursuant to a services agreement with the Fund's transfer agent, Kemper Service
Company (KSvC) is the shareholder service agent of the Fund. Under the
agreement, KSvC received shareholder services fees of $9,612,000 for the year
ended July 31, 1996.
Officers and trustees
Certain officers or trustees of the Fund are also officers or directors of ZKI.
During the year ended July 31, 1996, the Fund made no payments to its officers
and incurred trustees' fees of $71,000 to independent trustees.
<PAGE> 60
Cash Equivalent Fund 16
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
MONEY MARKET PORTFOLIO 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $1.00 1.00 1.00 1.00 1.00
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income and dividends declared .05 .05 .03 .03 .04
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $1.00 1.00 1.00 1.00 1.00
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 4.94% 4.95 2.82 2.60 4.09
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses .89% .87 .88 .85 .82
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income 4.86% 4.84 2.78 2.57 4.01
- -----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands) $2,774,595 3,593,294 3,387,245 3,616,636 3,916,708
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note:
The Money Market Portfolio's total return for the year ended July 31, 1995
includes the effect of a capital contribution from the investment manager.
Without the capital contribution, the total return would have been 4.28%.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
GOVERNMENT SECURITIES PORTFOLIO 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $1.00 1.00 1.00 1.00 1.00
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income and dividends declared .05 .05 .03 .03 .04
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $1.00 1.00 1.00 1.00 1.00
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 5.00% 4.96 2.82 2.60 4.12
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses .79% .81 .81 .78 .75
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income 4.90% 4.87 2.72 2.57 4.06
- -----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands) $1,594,128 1,785,098 1,538,011 2,825,357 3,000,890
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
TAX-EXEMPT PORTFOLIO 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $1.00 1.00 1.00 1.00 1.00
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income and dividends declared .03 .03 .02 .02 .03
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $1.00 1.00 1.00 1.00 1.00
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3.11% 3.21 2.05 2.12 3.29
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses .70% .68 .68 .64 .64
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income 3.08% 3.15 2.02 2.09 3.21
- -----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands) $931,564 1,109,861 1,136,901 1,417,307 1,289,560
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 61
Cash Equivalent Fund 17
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FEDERAL TAX STATUS OF 1996 DIVIDENDS
All of the dividends from the Money Market and Government Securities Portfolios
are taxable as ordinary income. All of the dividends from the Tax-Exempt
Portfolio constitute tax-exempt interest which is not taxable for federal income
tax purposes; however, a portion of the dividends paid may be includable in the
alternative minimum tax calculation.
These dividends, whether received in cash or reinvested in shares, must be
included in your federal income tax return and must be reported by the Fund to
the Internal Revenue Service in accordance with U.S. Treasury Department
Regulations.
<PAGE> 62
CASH EQUIVALENT FUND
PART C.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(i) Financial statements included in Part A of the Registration
Statement:
Financial Highlights.
(ii) Financial statements included in Part B of the Registration
Statement:
Statements of assets and liabilities--July 31, 1996.
Statements of operations for the year ended July 31, 1996.
Statements of changes in net assets for each of the two years in the
period ended July 31, 1996.
Portfolios of investments--July 31, 1996.
Notes to financial statements.
Schedules II, III, IV and V are omitted as the required information is
not present.
Schedule I has been omitted as the required information is presented in
the portfolios of investments at July 31, 1996.
(b) Exhibits
<TABLE>
<S> <C>
99.b 1.(a) Amended and Restated Agreement and Declaration of Trust.*
99.b 1.(b) Written Instrument Amending Agreement and Declaration of Trust.*
99.b 2. By-Laws.*
99.b 3. Inapplicable.
99.b 4. Text of Share Certificate.*
99.b 5.(a) Investment Management Agreement.
99.b 5.(b) Investment Management Agreement.
99.b 6.(a) Administration, Shareholder Services and Distribution Agreement.
99.b 6.(b) Form of Administration Services and Selling Group Agreement.*
99.b 7. Inapplicable.
99.b 8. Custody Agreement.*
99.b 9. Agency Agreement.*
99.b10. Opinion and Consent of Legal Counsel.
99.b11. Report and Consent of Independent Auditors.
99.b12. Inapplicable.
99.b13. Inapplicable.
99.b14.(a) Kemper Retirement Plan Prototype.*
99.b14.(b) Model Individual Retirement Account.*
99.b15. See Items 99.b6.(a) and (b).
99.b16. Performance Calculations.*
99.b18. Inapplicable.
99.b24. Powers of Attorney.(1)
99.485(b) Representation of Counsel (Rule 485(b)).
27.1MMP Financial Data Schedule.
27.2GSP Financial Data Schedule.
27.3TEP Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated herein by reference to Amendment No. 21 on Form N-1A filed on
November 17, 1995 except the Power of Attorney of Dominique P. Morax which
is filed herewith.
* Incorporated herein by reference to the Amendment to Registrant's
Registration Statement on Form N-1A identified below:
<TABLE>
<CAPTION>
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. DATE OF FILING
- --------------------------------------- ---------------------------- --------------
<S> <C> <C>
1, 2, 4, 5, 6, 8, 9, 14, 16, 24 and 27 21 11/17/95
</TABLE>
C-1
<PAGE> 63
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Inapplicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of November 8, 1996, there were 20,029 holders of record of the Money
Market Portfolio, 4,055 holders of record of the Government Securities Portfolio
and 4,085 holders of record of the Tax-Exempt Portfolio of Registrant.
ITEM 27. INDEMNIFICATION
Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit 1 hereto, which is incorporated herein by reference) provides in effect
that the Registrant will indemnify its officers and trustees under certain
circumstances. However, in accordance with Section 17(h) and 17(i) of the
Investment Company Act of 1940 and its own terms, said Article of the Agreement
and Declaration of Trust does not protect any person against any liability to
the Registrant or its shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question as to whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
C-2
<PAGE> 64
ITEM 28(a) BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information pertaining to business and other connections of the
Registrant's investment advisers is hereby incorporated by reference to the
section of the Prospectus captioned "Investment Manager and Shareholder
Services" and to the section of the Statement of Additional Information
captioned "Investment Manager and Shareholder Services."
Zurich Kemper Investments, Inc., investment adviser of the Registrant, is
investment adviser of:
Kemper Mutual Funds:
Kemper Technology Fund
Kemper Total Return Fund
Kemper Growth Fund
Kemper Small Capitalization Equity Fund
Kemper Income and Capital Preservation Fund
kemper Money Funds
Kemper National Tax-Free Income Series
Kemper Diversified Income Fund
Kemper High Yield Fund
Cash Equivalent Fund
Kemper U.S. Government Securities Fund
Kemper International Fund
Kemper Portfolios
Kemper State Tax-Free Income Series
Tax-Exempt California Money Market Fund
Kemper Adjustable Rate U.S. Government Fund
Kemper Blue Chip Fund
Kemper Global Income Fund
Kemper Target Equity Fund
Cash Account Trust
Investors Cash Trust
Tax-Exempt New York Money Market Fund
Kemper Value Plus Growth Fund
Kemper Quantitative Equity Fund
Kemper Horizon Fund
Kemper Europe Fund
Kemper Asian Growth Fund
Kemper Aggressive Growth Fund
Kemper Closed-End Funds:
Kemper High Income Trust
Kemper Intermediate Government Trust
Kemper Municipal Income Trust
Kemper Multi-Market Income Trust
Kemper Strategic Municipal Income Trust
The Growth Fund of Spain, Inc.
Kemper Strategic Income Fund
Zurich Kemper Investments, Inc. also furnishes investment advice to and
manages investment portfolios for other clients including Kemper Investors Fund
and Kemper International Bond Fund.
C-3
<PAGE> 65
Item 28(b)(i) Business and Other Connections of Officers
and Directors of Zurich Kemper Investments, Inc.,
the Investment Advisor
TIMBERS, STEPHEN B.
Director, President, Chief Executive Officer and Chief Investment
Officer, Zurich Kemper Investments, Inc.
Director, Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Chairman, Kemper Service Company
Director, Dreman Value Advisors, Inc.
Director, ZKI Agency, Inc.
Director, President, Kemper International Management, Inc.
Trustee and President, Kemper Funds
Director, The LTV Corporation
Governor, Investment Company Institute
NEAL, JOHN E.
Director, Zurich Kemper Investments, Inc.
President, Kemper Funds Group, a unit of Zurich Kemper
Investments, Inc.
Director, President, Kemper Service Company
Director, Kemper Distributors, Inc.
Director, Zurich Investment Management, Inc.
Director, Dreman Value Advisors, Inc.
Director, ZKI Agency, Inc.
Director, Community Investment Corporation
Director, Continental Community Development Corporation
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
Director, RespiteCare
Director, Urban Shopping Centers, Inc.
Vice President, Kemper Funds
CHENG, LAURENCE W.
Director, Zurich Kemper Investments, Inc.
President and Chief Executive Officer, Zurich Investment
Management Group
C-4
<PAGE> 66
MORAX, DOMINQUE P.
Director, Zurich Kemper Investments, Inc.
Senior Vice President, Member Extended Corporate Executive Board,
Zurich Insurance Company
Trustee, Kemper Funds
CHAPMAN, II, WILLIAM E.
President, Kemper Retirement Plans Group, a unit of Zurich Kemper
Investments, Inc.
Director, Executive Vice President, Kemper Distributors, Inc.
VOGEL, VICTOR E.
Senior Executive Vice President, Zurich Kemper Investments, Inc.
Trustee, Zurich Kemper Investments, Inc. Profit Sharing Plan & Money
Purchase Pension Plan
BEIMFORD, JR., JOSEPH P.
Executive Vice President, Chief Investment Officer - Fixed
Income, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
Vice President, Galaxy Offshore, Inc.
Vice President, Investors Cash Trust
Vice President, Kemper Adjustable Rate U.S. Government Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Global Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
Vice President, Kemper Income and Capital Preservation Fund
Vice President, Kemper Intermediate Government Trust
Vice President, Kemper International Bond Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Money Funds
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Municipal Income Trust
Vice President, Kemper National Tax-Free Income Series
Vice President, Kemper Portfolios
Vice President, Kemper State Tax-Free Income Series
Vice President, Kemper Strategic Income Fund
Vice President, Kemper Strategic Municipal Income Trust
Vice President, Kemper U.S. Government Securities Fund
Vice President, Tax-Exempt California Money Market Fund
Vice President, Tax-Exempt New York Money Market Fund
COXON, JAMES H.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Vice President, Galaxy Offshore, Inc.
C-5
<PAGE> 67
Executive Vice President, Zurich Investment Management, Inc.
FERRO, DENNIS H.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Managing Director-Equities, Zurich Investment
Management Limited
Vice President, Kemper International Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Target Equity Fund
Vice President, The Growth Fund of Spain, Inc.
Vice President, Kemper Europe Fund
GREENAWALT, JAMES L.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, President, Kemper Distributors, Inc.
Director, President, ZKI Agency, Inc.
JOHNS, GORDON K.
Executive Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Global Income Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper International Bond Fund
Vice President, Kemper International Management, Inc.
Managing Director, Zurich Investment Management Limited
Vice President, Kemper Multi-Market Income Trust
Director, Thames Heritage Parade Limited
LANGBAUM, GARY A.
Executive Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Total Return Fund
Vice President, Kemper Investors Fund
MANZONI, JR., CHARLES R.
Executive Vice President, Secretary & General Counsel, Zurich Kemper
Investments, Inc.
Vice President, Kemper Funds
Secretary, ZKI Agency, Inc.
MURRIHY, MAURA J.
Executive Vice President, Zurich Kemper Investments, Inc.
REYNOLDS, STEVEN H.
Executive Vice President, Chief Investment Officer - Equities, Zurich
Kemper Investments, Inc.
Vice President, Kemper Technology Fund
Vice President, Kemper Total Return Fund
Vice President, Kemper Growth Fund
Vice President, Kemper Small Capitalization Equity Fund
Vice President, Kemper International Fund
Vice President, Kemper Blue Chip Fund
Vice President, Kemper Value Plus Growth Fund
Vice President, Kemper Quantitative Equity Fund
Vice President, Kemper Target Equity Fund
Vice President, Kemper Horizon Fund
Vice President, Kemper Investors Fund
Vice President, The Growth Fund of Spain, Inc.
Vice President, Kemper Europe Fund
C-6
<PAGE> 68
ROBERTS, SCOTT A.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Zurich Investment Management, Inc.
SILIGMUELLER, DALE S.
Executive Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Kemper Service Company
WEISS, ROBERT D.
Executive Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Zurich Investment Management, Inc.
BUKOWSKI, DANIEL J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Quantitative Equity Fund
Vice President, Kemper Value Plus Growth Fund
Vice President, Kemper Investors Fund
BUTLER, DAVID H.
Senior Vice President, Zurich Kemper Investments, Inc.
CERVONE, DAVID M.
Senior Vice President, Zurich Kemper Investments, Inc.
CESSINE, ROBERT S.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Income and Capital Preservation Fund
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Investors Fund
CHESTER, TRACY McCORMICK
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Blue Chip Fund
Vice President, Kemper Target Equity Fund
CIARLELLI, ROBERT W.
Senior Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Kemper Service Company
COLLORA, PHILIP J.
Senior Vice President and Assistant Secretary, Zurich Kemper
Investments, Inc.
Vice President and Secretary, Kemper Funds
C-7
<PAGE> 69
Assistant Secretary, Kemper International Management, Inc.
Assistant Secretary, Zurich Investment Management, Inc.
Assistant Secretary, Dreman Value Advisors, Inc.
Assistant Secretary, ZKI Agency, Inc.
DUDASIK, PATRICK H.
Senior Vice President, Zurich Kemper Investments, Inc.
Executive Vice President, Chief Financial Officer and Treasurer,
Dreman Value Advisors, Inc.
Vice President and Treasurer, Zurich Investment Management, Inc.
Treasurer and Chief Financial Officer, Kemper Distributors, Inc.
Treasurer and Chief Financial Officer, Kemper Service Company
Director and Treasurer, Zurich Investment Management Limited
Treasurer, ZKI Agency, Inc.
DUFFY, JEROME L.
Senior Vice President, Zurich Kemper Investments, Inc.
Treasurer, Kemper Funds
FINK, THOMAS M.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
GALLAGHER, MICHAEL L.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Kemper Service Company
GOERS, RICHARD A.
Senior Vice President, Zurich Kemper Investments, Inc.
GREENWALD, MARSHALL L.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
HARRINGTON, MICHAEL E.
Senior Vice President, Zurich Kemper Investments, Inc.
KLEIN, GEORGE
Senior Vice President, Zurich Kemper Investments, Inc.
Director, Executive Vice President, Zurich Investment Management, Inc.
KLEIN, MARTY
Senior Vice President, Zurich Kemper Investments, Inc.
KORTH, FRANK D.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Technology Fund
McNAMARA, MICHAEL A.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
C-8
<PAGE> 70
Vice President, Kemper Investors Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
MOORE, C. PERRY
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, ZKI Agency, Inc.
MIER, CHRISTOPHER J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper National Tax-Free Income Series
Vice President, Kemper Municipal Income Trust
Vice President, Kemper State Tax-Free Income Series
Vice President, Kemper Strategic Municipal Income Trust
RABIEGA, CRAIG F.
Senior Vice President, Zurich Kemper Investments, Inc.
First Vice President, Kemper Service Company
RACHWALSKI, JR. FRANK J.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
Vice President, Investors Cash Trust
Vice President, Kemper Investors Fund
Vice President, Kemper Money Funds
Vice President, Kemper Portfolios
Vice President, Tax-Exempt California Money Market Fund
Vice President, Tax-Exempt New York Money Market Fund
REGNER, THOMAS M.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Horizon Fund
Vice President, Kemper Investors Fund
RESIS, JR., HARRY E.
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper High Income Trust
Vice President, Kemper High Yield Fund
Vice President, Kemper Investors Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
SCHUMACHER, ROBERT T.
Senior Vice President, Zurich Kemper Investments, Inc.
SILVIA, JOHN E.
Senior Vice President, Zurich Kemper Investments, Inc.
SMITH, JR., EDWARD BYRON
Senior Vice President, Zurich Kemper Investments, Inc.
SWANSON, DAVID
Senior Vice President, Zurich Kemper Investments, Inc.
C-9
<PAGE> 71
THOUIN-LEERKAMP, EDITH A.
Senior Vice President, Zurich Kemper Investments, Inc.
Director-European Equities, Zurich Investment Management Limited
Vice President, Kemper Europe Fund
VANDENBERG, RICHARD
Senior Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper U.S. Government Securities Fund
Vice President, Kemper Portfolios
Vice President, Kemper Adjustable Rate U.S. Government Fund
VINCENT, CHRISTOPHER T.
Senior Vice President, Zurich Kemper Investments, Inc.
First Vice President, Zurich Investment Management, Inc.
WONNACOTT, LARRY R.
Senior Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
BAZAN, KENNETH M.
First Vice President, Zurich Kemper Investments, Inc.
Director, K-P Greenway, Inc.
Director, K-P Plaza Dallas, Inc.
Director, Kemper/Prime Acquisition Fund, Inc.
BOEHM, JONATHAN J.
First Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Kemper Service Company
BURROW, DALE R.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Strategic Municipal Income Trust
BYRNES, ELIZABETH A.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Adjustable Rate U.S. Government Fund
Vice President, Kemper Intermediate Government Trust
CHIEN, CHRISTINE
First Vice President, Zurich Kemper Investments, Inc.
CHRISTIANSEN, HERBERT A.
First Vice President, Zurich Kemper Investments, Inc.
First Vice President, Kemper Service Company
COHEN, JERRI I.
First Vice President, Zurich Kemper Investments, Inc.
DeMAIO, CHRIS C.
First Vice President, Zurich Kemper Investments, Inc.
Vice President and Chief Accounting Officer, Kemper Service
Company
C-10
<PAGE> 72
DEXTER, STEPHEN P.
First Vice President, Zurich Kemper Investments, Inc.
DOYLE, DANIEL J.
First Vice President, Zurich Kemper Investments, Inc.
FENGER, JAMES E.
First Vice President, Zurich Kemper Investments, Inc.
HALE, DAVID D.
First Vice President, Zurich Kemper Investments, Inc.
HORTON, ROBERT J.
First Vice President, Zurich Kemper Investments, Inc.
INNES, BRUCE D.
First Vice President, Zurich Kemper Investments, Inc.
Co-President, International Association of Corporate and
Professional Recruiters
JACOBS, PETER M.
First Vice President, Zurich Kemper Investments, Inc.
KEELEY, MICHELLE M.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Intermediate Government Trust
Vice President, Kemper Portfolios
KIEL, CAROL L.
First Vice President, Zurich Kemper Investments, Inc.
KNAPP, WILLIAM M.
First Vice President, Zurich Kemper Investments, Inc.
LAUGHLIN, ANN M.
First Vice President, Zurich Kemper Investments, Inc.
LENTZ, MAUREEN P.
First Vice President, Zurich Kemper Investments, Inc.
McCRINDLE-PETRARCA, SUSAN
First Vice President, Zurich Kemper Investments, Inc.
MINER, EDWARD
First Vice President, Zurich Kemper Investments, Inc.
MURRAY, SCOTT S.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
NORRIS, JOHNSTON A.
First Vice President, Zurich Kemper Investments, Inc.
C-11
<PAGE> 73
PANOZZO, ROBERTA L.
First Vice President, Zurich Kemper Investments, Inc.
RADIS, STEVE A.
First Vice President, Zurich Kemper Investments, Inc.
RATEKIN, DIANE E.
First Vice President, Assistant General Counsel and Assistant
Secretary, Zurich Kemper Investments, Inc.
Assistant Secretary, Kemper Distributors, Inc.
STUEBE, JOHN W.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Cash Account Trust
Vice President, Cash Equivalent Fund
TEPPER, SHARYN A.
First Vice President, Zurich Kemper Investments, Inc.
TRUTTER, JONATHAN W.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Diversified Income Fund
Vice President, Kemper Multi-Market Income Trust
Vice President, Kemper Strategic Income Fund
WETHERALD, ROBERT F.
First Vice President, Zurich Kemper Investments, Inc.
WILLSON, STEPHEN R.
First Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Strategic Municipal Income Trust
WITTNEBEL, MARK E.
First Vice President, Zurich Kemper Investments, Inc.
ADAMS, DONALD
Vice President, Zurich Kemper Investments, Inc.
ALLEN, PATRICIA L.
Vice President, Zurich Kemper Investments, Inc.
ANDREASEN, AMY
Vice President, Zurich Kemper Investments, Inc.
ANTONAK, GEORGE A.
Vice President, Zurich Kemper Investments, Inc.
BALASUBRAMANIAM, KALAMADI
Vice President, Zurich Kemper Investments, Inc.
BARRY, JOANN M.
Vice President, Zurich Kemper Investments, Inc.
C-12
<PAGE> 74
BIEBERLY, CHRISTINE A.
Vice President, Zurich Kemper Investments, Inc.
BODEM, RICHARD A.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
BUCHANAN, PAMELA S.
Vice President, Zurich Kemper Investments, Inc.
BURKE, MARY PAT
Vice President, Zurich Kemper Investments, Inc.
BURSHTAN, DAVID H.
Vice President, Zurich Kemper Investments, Inc.
CARNEY, ANNE T.
Vice President, Zurich Kemper Investments, Inc.
CACCIOLA, RONALD
Vice President, Zurich Kemper Investments, Inc.
Senior Vice President, Zurich Investment Management, Inc.
CARTER, PAUL J.
Vice President and Compliance Manager, Zurich Kemper Investments, Inc.
COHEN, JERRI I.
Vice President, Zurich Kemper Investments, Inc.
ESOLA, CHARLES J.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
FRIHART, THORA A.
Vice President, Zurich Kemper Investments, Inc.
GERACI, AUGUST L.
Vice President, Zurich Kemper Investments, Inc.
GOLAN, JAMES S.
Vice President, Zurich Kemper Investments, Inc.
GOODWIN, JUDITH C.
Vice President, Zurich Kemper Investments, Inc.
GRAY, PATRICK
Vice President, Zurich Kemper Investments, Inc.
GROOTENDORST, TONYA
Vice President, Zurich Kemper Investments, Inc.
HECHT, MARC L.
Vice President, Zurich Kemper Investments, Inc.
Assistant Secretary, ZKI Agency, Inc.
C-13
<PAGE> 75
HUM, CHI H.
Vice President, Zurich Kemper Investments, Inc.
HUOT, LISA L.
Vice President, Zurich Kemper Investments, Inc.
JASINSKI, R. ANTHONY
Vice President, Zurich Kemper Investments, Inc.
KARWOWSKI, KENNETH F.
Vice President, Zurich Kemper Investments, Inc.
KENNEDY, PATRICK J.
Vice President, Zurich Kemper Investments, Inc.
KOCH, DEBORAH L.
Vice President, Zurich Kemper Investments, Inc.
KOURY, KATHRYN E.
Vice President, Zurich Kemper Investments, Inc.
KOWALCZYK, MARK A.
Vice President, Zurich Kemper Investments, Inc.
Vice President, ZKI Agency, Inc.
KRANZ, KATHY J.
Vice President, Zurich Kemper Investments, Inc.
KRUEGER, PAMELA D.
Vice President, Zurich Kemper Investments, Inc.
KYCE, JOYCE
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
LASKA, ROBERTA E.
Vice President, Zurich Kemper Investments, Inc.
LAUTZ, STEPHEN
Vice President, Zurich Kemper Investments, Inc.
LeFEBVRE, THOMAS J.
Vice President, Zurich Kemper Investments, Inc.
McGOVERN, KAREN B.
Vice President, Zurich Kemper Investments, Inc.
MILLER, GARY L.
Vice President, Zurich Kemper Investments, Inc.
MILLIGAN, BRIAN J.
Vice President, Zurich Kemper Investments, Inc.
C-14
<PAGE> 76
MULLEN, TERRENCE
Vice President, Zurich Kemper Investments, Inc.
MURPHY, THOMAS M.
Vice President, Zurich Kemper Investments, Inc.
NEVILLE, BRIAN P.
Vice President, Zurich Kemper Investments, Inc.
NORMAN, JR., DONALD L.
Vice President, Zurich Kemper Investments, Inc.
NOWAK, GREGORY J.
Vice President, Zurich Kemper Investments, Inc.
PANOZZO, ALBERT R.
Vice President, Zurich Kemper Investments, Inc.
PAXTON, THOMAS
Vice President, Zurich Kemper Investments, Inc.
PONTECORE, SUSAN E.
Vice President, Zurich Kemper Investments, Inc.
QUADRINI, LISA L.
Vice President, Zurich Kemper Investments, Inc.
RANDALL, JR., WALTER R.
Vice President, Zurich Kemper Investments, Inc.
ROBINSON, DEBRA A.
Vice President, Zurich Kemper Investments, Inc.
RODGERS, JOHN B.
Vice President, Zurich Kemper Investments, Inc.
ROKOSZ, PAUL A.
Vice President, Zurich Kemper Investments, Inc.
ROSE, KATIE M.
Vice President, Zurich Kemper Investments, Inc.
RUDIN, MICHELLE I.
Vice President, Zurich Kemper Investments, Inc.
SHULTZ, KAREN D.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
SMITH, ROBERT G.
Vice President, Zurich Kemper Investments, Inc.
SOPHER, EDWARD O.
Vice President, Zurich Kemper Investments, Inc.
C-15
<PAGE> 77
SPILLER, KATHLEEN A.
Vice President, Zurich Kemper Investments, Inc.
SPURLING, CHRIS
Vice President, Zurich Kemper Investments, Inc.
STROMM, LAWRENCE D.
Vice President, Zurich Kemper Investments, Inc.
THOMAS, JILL
Vice President, Zurich Kemper Investments, Inc.
VANDEMERKT, RICHARD J.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
WALKER, ANGELA
Vice President, Zurich Kemper Investments, Inc.
WATKINS, JAMES K.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Service Company
WERTH, ELIZABETH C.
Vice President, Zurich Kemper Investments, Inc.
Vice President, Kemper Distributors, Inc.
Assistant Secretary, Kemper Open-End Mutual Funds
WILNER, MITCHELL
Vice President, Zurich Kemper Investments, Inc.
WIZER, BARBARA K.
Vice President, Zurich Kemper Investments, Inc.
ZURAWSKI, CATHERINE N.
Vice President, Zurich Kemper Investments, Inc.
C-16
<PAGE> 78
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper Mutual
Funds, Kemper Investors Fund, Kemper International Bond Fund and Kemper-Dreman
Fund, Inc.
(b) Information on the officers and directors of Kemper Distributors,
Inc., principal underwriter for the Registrant is set forth below. The
principal business address is 222 South Riverside Plaza, Chicago, Illinois
60606.
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES OFFICES WITH
NAME WITH UNDERWRITER REGISTRANT
---- ---------------- ----------
<S> <C> <C>
James L. Greenawalt Director, President None
William E. Chapman, II Director, Executive Vice President None
John E. Neal Director Vice President
Stephen B. Timbers Director President/Trustee
Patrick H. Dudasik Financial Principal, Treasurer
and Chief Financial Officer None
Linda A. Bercher Senior Vice President None
Terry Cunningham Senior Vice President None
John H. Robison, Jr. Senior Vice President None
Henry J. Schulthesz Senior Vice President None
Thomas V. Bruns Vice President None
Carlene D. Merold Vice President None
Elizabeth C. Werth Vice President Assistant Secretary
Diane E. Ratekin Assistant Secretary None
</TABLE>
(c) Not applicable.
C-17
<PAGE> 79
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All such accounts, books and other documents are maintained at the offices
of the Registrant, the offices of Registrant's investment adviser, Zurich Kemper
Investments, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, at the
offices of the Registrant's principal underwriter, Kemper Distributors, Inc.,
222 South Riverside Plaza, Chicago, Illinois 60606 or, in the case of records
concerning custodial functions, at the offices of the custodian, Investors
Fiduciary Trust Company "IFTC", 127 West 10th Street, Kansas City, Missouri
64105 or, in the case of records concerning transfer agency functions, at the
offices of IFTC and of the shareholder service agent, Kemper Service Company,
811 Main Street, Kansas City, Missouri 64105.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Not applicable.
C-18
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago and State of Illinois, on the 21st day
of November, 1996.
CASH EQUIVALENT FUND
By /s/ Stephen Timbers
------------------------------------
Stephen B. Timbers, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on November 21, 1996 on behalf of
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ Stephen B. Timbers President
- --------------------------------------- (Principal
Stephen B. Timbers Executive Officer)
and Trustee
/s/David W. Belin* Trustee
- ---------------------------------------
/s/Lewis A. Burnham* Trustee
- ---------------------------------------
/s/Donald L. Dunaway* Trustee
- ---------------------------------------
/s/Robert B. Hoffman* Trustee
- ---------------------------------------
/s/Donald R. Jones* Trustee
- ---------------------------------------
/s/Dominique P. Morax* Trustee
- ---------------------------------------
/s/Shirley D. Peterson* Trustee
- ---------------------------------------
/s/William P. Sommers* Trustee
- ---------------------------------------
<PAGE> 81
/s/ Jerome L. Duffy Treasurer (Principal
- --------------------------------------- Financial and
Jerome L. Duffy Accounting Officer)
*Philip J. Collora signs this document pursuant to powers of attorney filed
with Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A
of the Registrant on or about November 17, 1995 (except for the Power of
Attorney of Dominique P. Morax, which is filed herewith).
/s/ Philip J. Collora
- ---------------------------------------
Philip J. Collora
<PAGE> 82
INDEX TO EXHIBITS
Exhibits
<TABLE>
<S> <C>
99.b 1.(a) Amended and Restated Agreement and Declaration of Trust.*
99.b 1.(b) Written Instrument Amending Agreement and Declaration of Trust.*
99.b 2. By-Laws.*
99.b 3. Inapplicable.
99.b 4. Text of Share Certificate.*
99.b 5.(a) Investment Management Agreement.
99.b 5.(b) Investment Management Agreement.
99.b 6.(a) Administration, Shareholder Services and Distribution Agreement.
99.b 6.(b) Form of Administration Services and Selling Group Agreement.*
99.b 7. Inapplicable.
99.b 8. Custody Agreement.*
99.b 9. Agency Agreement.*
99.b10. Opinion and Consent of Legal Counsel.
99.b11. Report and Consent of Independent Auditors.
99.b12. Inapplicable.
99.b13. Inapplicable.
99.b14.(a) Kemper Retirement Plan Prototype.*
99.b14.(b) Model Individual Retirement Account.*
99.b15. See Items 99.b6.(a) and (b).
99.b16. Performance Calculations.*
99.b18. Inapplicable.
99.b24. Powers of Attorney.(1)
99.485(b) Representation of Counsel (Rule 485(b)).
27.1MMP Financial Data Schedule.
27.2GSP Financial Data Schedule.
27.3TEP Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated herein by reference to Amendment No. 21 on Form N-1A filed on
November 17, 1995 except the Power of Attorney of Dominique P. Morax which
is filed herewith.
* Incorporated herein by reference to the Amendment to Registrant's
Registration Statement on Form N-1A identified below:
<TABLE>
<CAPTION>
EXHIBIT NO. POST-EFFECTIVE AMENDMENT NO. DATE OF FILING
- --------------------------------------- ---------------------------- --------------
<S> <C> <C>
1, 2, 4, 5, 6, 8, 9, 14, 15, 24 and 27 21 11/17/95
</TABLE>
<PAGE> 1
EX-99.b5.(a)
INVESTMENT MANAGEMENT AGREEMENT
(MONEY MARKET PORTFOLIO)
(GOVERNMENT SECURITIES PORTFOLIO)
AGREEMENT made this 4th day of January, 1996, by and between CASH
EQUIVALENT FUND, a Massachusetts business trust (the "Fund"), and KEMPER
FINANCIAL SERVICES, INC., a Delaware corporation (the "Adviser").
WHEREAS, the Fund is an open-end, diversified management investment
company, registered under the Investment Company Act of 1940, the shares of
beneficial interest ("Shares") of which are registered under the Securities Act
of 1933;
WHEREAS, the Fund is authorized to issue Shares in separate series with
each such series representing the interests in a separate portfolio of
securities and other assets;
WHEREAS, the Fund currently offers or intends to offer Shares in three
portfolios, the Money Market Portfolio, the Government Securities Portfolio and
the Tax-Exempt Portfolio; and
WHEREAS, the Fund desires to retain the Adviser under this Agreement to
render investment advisory and management services to the Money Market
Portfolio and the Government Securities Portfolio (the "Portfolios"), and the
Adviser is willing to render such services.
NOW THEREFORE, in consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. The Fund hereby employs the Adviser to act as the investment adviser
for the Portfolios and to manage the investment and reinvestment of the assets
of the Fund in accordance with the investment objective and policies and
limitations for each of the Fund's Portfolios, and to administer its affairs to
the extent requested by and subject to the supervision of the Board of Trustees
of the Fund for the period and upon the terms herein set forth. The investment
of funds shall be subject to all applicable restrictions of the Agreement and
Declaration of Trust and By-Laws of the Fund as may from time to time be in
force.
The Adviser accepts such employment and agrees during such period to
render such services, to furnish office facilities and equipment and clerical,
bookkeeping and administrative services for the Fund, to permit any of its
officers or employees to serve without compensation as trustees or officers of
the Fund if elected to such positions and to assume the obligations herein set
forth for the compensation herein provided. The Adviser shall for all purposes
herein provided be deemed to be an independent contractor and, unless otherwise
expressly provided
<PAGE> 2
or authorized, shall have no authority to act for or represent the Fund in any
way or otherwise be deemed an agent of the Fund. It is understood and agreed
that the Adviser, by separate agreements with the Fund, may also serve the Fund
in other capacities.
2. For the services and facilities described in Section 1, the Fund will
pay to the Adviser at the end of each calendar month, an investment management
fee computed at an annual rate of 0.22% of the first $500 million of the
combined average daily net assets of all Portfolios the Adviser manages, 0.20%
of the next $500 million, 0.175% of the next $1 billion, 0.16% of the next $1
billion and 0.15% of the average daily net assets of such Portfolios over $3
billion. The fee as computed above shall be allocated to each Portfolio based
upon the relative net assets of each Portfolio and shall be based only upon the
net assets of the Fund allocated to Portfolios for which this Agreement is then
in effect. For the month and year in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the number
of days that the Agreement is in effect during the month and year,
respectively.
4. The services of the Adviser to the Fund under this Agreement are not
to be deemed exclusive, and the Adviser shall be free to render similar
services or other services to others so long as its services hereunder are not
impaired thereby.
5. In addition to the fee of the Adviser, the Fund shall assume and pay
any expenses for services rendered by a custodian for the safekeeping of the
Fund's securities or other property, for keeping its books of account, for any
other charges of the custodian, and for calculating the net asset value of the
Fund as provided in the Prospectus of the Fund. The Adviser shall not be
required to pay and the Fund shall assume and pay the charges and expenses of
its operations, including compensation of the trustees (other than those
affiliated with the Adviser), charges and expense of independent auditors, of
legal counsel, of any transfer or dividend disbursing agent, any registrar of
the Fund, costs of acquiring and disposing of portfolio securities, interest,
if any, on obligations incurred by the Fund, cost of share certificates and of
reports, membership dues in the Investment Company Institute or any similar
organization, reports and notices to shareholders, other like miscellaneous
expenses and all taxes and fees payable to federal, state or other governmental
agencies on account of the registration of securities issued by the Fund,
filing of corporate documents or otherwise. The Fund shall not pay or incur
any obligation for any expenses for which the Fund intends to seek
reimbursement from the Adviser as herein provided without first obtaining the
written approval of the Adviser. The Adviser shall arrange, if desired by the
Fund, for officers or employees of the Adviser to serve, without compensation
from the Fund, as trustees, officers
2
<PAGE> 3
or agents of the Fund if duly elected or appointed to such positions and
subject to their individual consent and to any limitations imposed by law.
If expenses borne by the Fund for those Portfolios which the Adviser
manages in any fiscal year (including the Adviser's fee, but excluding
interest, taxes, fees payable to the Adviser under the administration,
shareholder services and distribution agreement with the Fund, fees incurred in
acquiring and disposing of portfolio securities, and, to the extent permitted,
extraordinary expenses) exceed 0.90% of the first $500 million of the combined
average daily net assets of such Portfolios, 0.80% of the next $500 million,
0.75% of the next $1 billion and 0.70% of average daily net assets of such
Portfolios over $2 billion, the Adviser will reduce its fee or reimburse the
Fund for any excess. The expense limitation guarantee shall be allocated to
each such Portfolio upon a fee reduction or reimbursement based upon the
relative average daily net assets of each such Portfolio. If for any month the
expenses of the Fund properly chargeable to the income account shall exceed
1/12 of the percentage of average net assets allowable as expenses, the payment
to the Adviser for that month shall be reduced and, if necessary, the Adviser
shall make a refund payment to the Fund so that the total net expense will not
exceed such percentage. As of the end of the Fund's fiscal year, however, the
foregoing computations and payments shall be readjusted so that the aggregate
compensation payable to the Adviser for the year is equal to the percentage set
forth in Section 2 hereof of the average net asset values as determined as
described herein throughout the fiscal year, diminished to the extent necessary
so that the total of the aforementioned expense items shall not exceed the
expense limitation. The aggregate of repayments, if any, by the Adviser to the
Fund for the year shall be the amount necessary to limit the said net expense
to said percentage.
The net asset value for each Portfolio shall be calculated in accordance
with the provisions of the Fund's prospectus or at such other time or times as
the trustees may determine in accordance with the provisions of the Investment
Company Act of 1940. On each day when net asset value is not calculated, the
net asset value of a share of a Portfolio shall be deemed to be the net asset
value of such a share as of the close of business on the last day on which such
calculation was made for the purpose of the foregoing computations.
6. Subject to applicable statutes and regulations, it is understood that
trustees, officers or agents of the Fund are or may be interested in the
Adviser as officers, directors, agents, shareholders or otherwise, and that the
officers, directors, shareholders and agents of the Adviser may be interested
in the Fund otherwise than as a trustee, officer or agent.
3
<PAGE> 4
7. The Adviser shall not be liable for any error of judgment or of law
or for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, except loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Adviser in the performance of its
obligations and duties or by reason of its reckless disregard of its
obligations and duties under this Agreement.
8. This Agreement shall become effective with respect to each Portfolio
on the date hereof and shall remain in full force until December 1, 1996,
unless sooner terminated as hereinafter provided. This Agreement shall
continue in force from year to year thereafter with respect to each Portfolio,
but only as long as such continuance is specifically approved for each
Portfolio at least annually in the manner required by the Investment Company
Act of 1940 and the rules and regulations thereunder; provided, however, that
if the continuation of this Agreement is not approved for a Portfolio, the
Adviser may continue to serve in such capacity for such Portfolio in the manner
and to the extent permitted by the Investment Company Act of 1940 and the rules
and regulations thereunder.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by the Adviser on sixty (60) days written notice to the other
party. The Fund may effect termination with respect to any Portfolio by action
of the Board of Trustees or by vote of a majority of the outstanding voting
securities of such Portfolio.
This Agreement may be terminated with respect to any Portfolio at any time
without the payment of any penalty by the Board of Trustees or by vote of a
majority of the outstanding voting securities of such Portfolio in the event
that it shall have been established by a court of competent jurisdiction that
the Adviser or any officer or director of the Adviser has taken any action
which results in a breach of the covenants of the Adviser set forth herein.
The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Investment Company Act of
1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of the Adviser to
receive payments on any unpaid balance of the compensation described in Section
2 earned prior to such termination.
9. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
4
<PAGE> 5
10. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as
such other party may designate for the receipt of such notice.
11. All parties hereto are expressly put on notice of the Cash
Equivalent Fund Agreement and Declaration of Trust dated August 9, 1985 and all
amendments thereto, all of which are on file with the Secretary of The
Commonwealth of Massachusetts, and the limitation of shareholder and trustee
liability contained therein. This Agreement has been executed by and on behalf
of the Fund by its representatives as such representatives and not
individually, and the obligations of the Fund hereunder are not binding upon
any of the trustees, officers, or shareholders of the Fund individually but are
binding upon only the assets and property of the Fund. With respect to any
claim by Adviser for recovery of that portion of the investment management fee
(or any other liability of the Fund arising hereunder) allocated to a
particular Portfolio, whether in accordance with the express terms hereof or
otherwise, the Adviser shall have recourse solely against the assets of that
Portfolio to satisfy such claim and shall have no recourse against the assets
of any other Portfolio for such purpose.
12. This Agreement shall be construed in accordance with applicable
federal law and (except as to Section 9 hereof which shall be construed in
accordance with the laws of The Commonwealth of Massachusetts) the laws of the
State of Illinois.
5
<PAGE> 6
13. This Agreement is the entire contract between the parties relating to
the subject matter hereof and supersedes all prior agreements between the
parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed as of the day and year first above written.
CASH EQUIVALENT FUND
By: /s/ John E. Peters
--------------------------
Title: Vice President
-----------------------
ATTEST: /s/ Philip J. Collora
-------------------------
Title: Secretary
--------------------------
KEMPER FINANCIAL SERVICES, INC.
By: /s/ Patrick H. Dudasik
---------------------------
Title: Senior Vice President
------------------------
ATTEST: /s/ David F. Dierenfeldt
--------------------------
Title: Assistant Secretary
---------------------------
6
<PAGE> 1
EX-99.b5.(b)
INVESTMENT MANAGEMENT AGREEMENT
(TAX-EXEMPT PORTFOLIO)
AGREEMENT made this 4th day of January, 1996, by and between CASH
EQUIVALENT FUND, a Massachusetts business trust (the "Fund"), and KEMPER
FINANCIAL SERVICES, INC., a Delaware corporation (the "Adviser").
WHEREAS, the Fund is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, the shares of
beneficial interest ("Shares") of which are registered under the Securities Act
of 1933;
WHEREAS, the Fund is authorized to issue Shares in separate series with
each such series representing the interests in a separate portfolio of
securities and other assets;
WHEREAS, the Fund currently offers or intends to offer Shares in three
portfolios, the Money Market Portfolio, the Government Securities Portfolio and
the Tax-Exempt Portfolio; and
WHEREAS, the Fund desires at this time to retain the Adviser under this
Agreement to render investment advisory and management services to the
Tax-Exempt Portfolio, and the Adviser is willing to render such services.
NOW THEREFORE, in consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. The Fund hereby employs the Adviser to act as the investment adviser for the
Tax-Exempt Portfolio or other Portfolios hereunder and to manage the investment
and reinvestment of the assets of the Fund in accordance with applicable
investment objective and policies and limitations and to administer its affairs
to the extent requested by and subject to the supervision of the Board of
Trustees of the Fund for the period and upon the terms herein set forth. The
investment of funds shall be subject to all applicable restrictions of the
Agreement and Declaration of Trust and By-Laws of the Fund as may from time to
time be in force.
The Adviser accepts such employment and agrees during such period to
render such services, to furnish office facilities and equipment and clerical,
bookkeeping and administrative services for the Fund, to permit any of its
officers or employees to serve without compensation as trustees or officers of
the Fund if elected to such positions and to assume the obligations herein set
forth for the compensation herein provided. The Adviser shall for all purposes
herein provided be deemed to be an independent contractor and, unless otherwise
expressly provided or authorized, shall have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the Fund. It
is understood and agreed that the Adviser, by separate agreements with the
Fund, may
<PAGE> 2
also serve the Fund in other capacities.
2. In the event that the Fund establishes one or more portfolios other than the
Tax-Exempt Portfolio with respect to which it desires to retain the Adviser to
render investment advisory and management services hereunder, it shall notify
the Adviser in writing. If the Adviser is willing to render such services it
shall notify the Fund in writing whereupon such portfolio or portfolios shall
become subject to this Agreement. The Tax-Exempt Portfolio, together with any
other Fund portfolios which may be established later and served by the Adviser
under this Agreement shall be herein referred to collectively as the
"Portfolios" and individually referred to as a "Portfolio." The Money Market
Portfolio and the Government Securities Portfolio are not subject to this
Agreement and are not considered to be "Portfolios" hereunder.
3. For the services and facilities described in Section 1, the Fund will pay to
the Adviser at the end of each calendar month, an investment management fee
computed at an annual rate of 0.22% of the first $500 million of the combined
average daily net assets of the Portfolios, 0.20% of the next $500 million,
0.175% of the next $1 billion, 0.16% of the next $1 billion and 0.15% of
combined average daily net assets over $3 billion. The fee as computed above
shall be allocated to each Portfolio based upon the relative average daily net
assets of each Portfolio managed by the Adviser. For the month and year in
which this Agreement becomes effective or terminates, there shall be an
appropriate proration on the basis of the number of days that the Agreement is
in effect during the month and year, respectively.
4. The services of the Adviser to the Fund under this Agreement are not to be
deemed exclusive, and the Adviser shall be free to render similar services or
other services to others so long as its services hereunder are not impaired
thereby.
5. In addition to the fee of the Adviser, the Fund shall assume and pay any
expenses for services rendered by a custodian for the safekeeping of the Fund's
securities or other property, for keeping its books of account, for any other
charges of the custodian, and for calculating the net asset value of the Fund
as provided in-the Agreement and Declaration of Trust of the Fund. The Adviser
shall not be required to pay and the Fund shall assume and pay the charges and
expenses of its operations, including compensation of the trustees (other than
those affiliated with the Adviser), charges and expenses of independent
auditors, of legal counsel, of any transfer or dividend disbursing agent, any
registrar of the Fund, costs of acquiring and disposing of portfolio
securities, interest, if any, on obligations incurred by the Fund, cost of
Share certificates and of reports, membership dues in the Investment Company
Institute or any similar organization, reports and notices to shareholders,
other like miscellaneous expenses and all taxes and fees payable to federal,
state or other governmental agencies on account of the registration of
securities issued by the
<PAGE> 3
Fund, filing of corporate documents or otherwise. The Fund shall not pay or
incur any obligation for any expenses for which the Fund intends to seek
reimbursement from the Adviser as herein provided without first obtaining the
written approval of the Adviser. The Adviser shall arrange, if desired by the
Fund, for officers or employees of the Adviser to serve, without compensation
from the Fund, as trustees, officers or agents of the Fund if duly elected or
appointed to such positions and subject to their individual consent and to any
limitations imposed by law.
If expenses borne by the Portfolios in any fiscal year (including the
Adviser's fee, but excluding interest, taxes, fees incurred in acquiring and
disposing of portfolio securities and, to the extent permitted, extraordinary
expenses) exceed 1 1/2% of average daily net assets up to $30,000,000 and 1% of
average daily net assets over $30,000,000 of the Portfolios, the Adviser will
reduce its fee or reimburse the Fund for any excess. The expense limitation
guarantee shall be allocated to each Portfolio upon a fee reduction or
reimbursement based upon the relative average daily net assets of each
Portfolio. If for any month the expenses of the Fund properly chargeable to
the income account shall exceed 1/12 of the percentage of average net assets
allowable as expenses, the payment to the Adviser for that month shall be
reduced and, if necessary, the Adviser shall make a refund payment to the Fund
so that the total net expense will not exceed such percentage. As of the end
of the Fund's fiscal year, however, the foregoing computations and payments
shall be readjusted so that the aggregate compensation payable to the Adviser
for the year is equal to the percentage set forth in Section 3 hereof of the
average net asset values as determined as described herein throughout the
fiscal year, diminished to the extent necessary so that the total of the
aforementioned expense items shall not exceed the expense limitation. The
aggregate of repayments, if any, by the Adviser to the Fund for the year shall
be the amount necessary to limit the said net expense to said percentage.
The net asset value of each Portfolio shall be calculated as of the close
of the New York Stock Exchange on each day the Exchange is open for trading or
as of such other time or times as the trustees may determine in accordance with
the provisions of the Investment Company Act of 1940. On each day when net
asset value is not calculated, the net asset value of a Share of a Portfolio
shall be deemed to be the net asset value of such a Share as of the close of
business on the last day on which such calculation was made for the purpose of
the foregoing computations.
6. Subject to applicable statutes and regulations, it is understood that
trustees, officers or agents of the Fund are or may be interested in the
Adviser as officers, trustees, agents, shareholders or otherwise, and that the
officers, directors, shareholders and agents of the Adviser may be interested
in the Fund otherwise than as a director, officer or agent.
7. The Adviser shall not be liable for any error of judgment or
<PAGE> 4
of law or for any loss suffered by the Fund in connection with the matters to
which this Agreement relates, except loss resulting from willful misfeasance,
bad faith or gross negligence on the part of the Adviser in the performance of
its obligations and duties or by reason of its reckless disregard of its
obligations and duties under this Agreement.
8. This Agreement shall become effective on the date hereof and shall remain in
full force until December 1, 1996, unless sooner terminated as hereinafter
provided. This Agreement shall continue in force from year to year thereafter,
but only as long as such continuance is specifically approved at least annually
for each Portfolio in the manner required by the Investment Company Act of 1940
and the rules and regulations thereunder; provided, however, that if the
continuation of this Agreement is not approved for a Portfolio, the Adviser may
continue to serve in such capacity for such Portfolio in the manner and to the
extent permitted by the Investment Company Act of 1940 and the rules and
regulations thereunder.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
with respect to any Portfolio by the Fund or by the Adviser on sixty (60) days
written notice to the other party. The Fund may effect termination with
respect to any Portfolio by action of the Board of Trustees or by vote of a
majority of the outstanding voting securities of such Portfolio.
This Agreement may be terminated at any time with respect to any Portfolio
without the payment of any penalty by the Board of Trustees or by vote of a
majority of the outstanding voting securities of such Portfolio in the event
that it shall have been established by a court of competent jurisdiction that
the Adviser or any officer or director of the Adviser has taken any action
which results in a breach of the covenants of the Adviser set forth herein.
The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the Investment Company Act of
1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of the Adviser to
receive payments on any unpaid balance of the compensation described in Section
3 earned prior to such termination.
9. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
10. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as
such other party may designate for the receipt of
<PAGE> 5
such notice.
11. All parties hereto are expressly put on notice of the Cash Equivalent Fund
Agreement and Declaration of Trust and all amendments thereto, all of which are
on file with the Secretary of The Commonwealth of Massachusetts, and the
limitation of shareholder and trustee liability contained therein. This
Agreement has been executed by and on behalf of the Fund by its representatives
as such representatives and not individually, and the obligations of the Fund
hereunder are not binding upon any of the Trustees, officers or shareholders of
the Fund individually but are binding upon only the assets and property of the
Fund. With respect to any claim by Adviser for recovery of that portion of the
investment management fee (or any other liability of the Fund arising
hereunder) allocated to a particular Portfolio, whether in accordance with the
express terms hereof or otherwise, the Adviser shall have recourse solely
against the assets of that Portfolio to satisfy such claim and shall have no
recourse against the assets of any other portfolio of Fund (whether or not a
Portfolio hereunder) for such purpose.
12. This Agreement shall be construed in accordance with applicable federal law
and (except as to Section 10 hereof which shall be construed in accordance with
the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
<PAGE> 6
13. This Agreement is the entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to be
executed on the day and year first above written.
CASH EQUIVALENT FUND
By: /s/ John E. Peters
---------------------------
Title: Vice President
------------------------
ATTEST:
/s/ Philip J. Collora
- ------------------------------
Title: Secretary
------------------------
KEMPER FINANCIAL SERVICES, INC.
By: /s/ Patrick H. Dudasik
---------------------------
Title: Senior Vice President
------------------------
ATTEST:
/s/ David F. Dierenfeldt
- ------------------------------
Title: Assistant Secretary
------------------------
<PAGE> 1
EX-99.b6.(a)
ADMINISTRATION, SHAREHOLDER SERVICES AND
DISTRIBUTION AGREEMENT
AGREEMENT made this 4th day of January, 1996, by and between CASH EQUIVALENT
FUND, a Massachusetts business trust (the "Fund"), and KEMPER DISTRIBUTORS,
INC., a Delaware corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to act as administrator, distributor and
principal underwriter for the distribution of shares of beneficial interest
(hereinafter called "shares") of the Fund in jurisdictions wherein shares of
the Fund may legally be offered for sale; provided, however, that the Fund in
its absolute discretion may (a) issue or sell shares directly to holders of
shares of the Fund upon such terms and conditions and for such consideration,
if any, as it may determine, whether in connection with the distribution of
subscription or purchase rights, the payment or reinvestment of dividends or
distributions, or otherwise; or (b) issue or sell shares at net asset value to
the shareholders of any other investment company, for which KDI shall act as
exclusive distributor, who wish to exchange all or a portion of their
investment in shares of such other investment company for shares of the Fund.
KDI shall appoint various broker-dealers and other financial services firms
("Firms") to provide a cash management service for their clients through the
Fund. The Firms shall provide such office space and equipment, telephone
facilities, personnel, literature distribution, advertising and promotion as is
necessary or beneficial for providing information and services to potential and
existing shareholders of the Fund and to assist the Fund's shareholder service
agent in servicing accounts of the Firm's clients who own Fund shares
("clients"). Such services and assistance may include, but are not limited to,
establishment and maintenance of shareholder accounts and records, processing
purchase and redemption transactions, automatic investment in Fund shares of
client account cash balances, answering routine client inquiries regarding the
Fund, assistance to clients in changing dividend options, account designations
and addresses, and such other services as the Fund or KDI may reasonably
request. KDI may also provide some of the above services for the Fund
directly.
KDI accepts such appointment and agrees during the term hereof to render such
services and to assume the obligations herein set forth for the compensation
herein provided. KDI shall for all purposes herein provided be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Fund in any way or
otherwise be deemed an agent of the Fund. It is understood and agreed that
KDI, by separate agreement with the Fund, may also serve the Fund in other
capacities. The services of KDI to the Fund under this
<PAGE> 2
Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others.
In carrying out its duties and responsibilities hereunder, KDI will, pursuant
to separate administration services and selling group agreements ("services
agreements"), appoint various Firms to provide administrative, distribution and
other services contemplated hereunder directly to or for the benefit of
existing and potential shareholders who may be clients of such Firms. Such
Firms shall at all times be deemed to be independent contractors retained by
KDI and not the Fund. KDI and not the Fund will be responsible for the payment
of compensation to such Firms for such services.
KDI will use its best efforts with reasonable promptness to sell such part of
the authorized shares of the Fund remaining unissued as from time to time shall
be effectively registered under the Securities Act of 1933 ("Securities Act"),
at prices determined as hereinafter provided and on terms hereinafter set
forth, all subject to applicable Federal and state laws and regulations and to
the Agreement and Declaration of Trust of the Fund. The price the Fund shall
receive for all shares purchased from the Fund shall be the net asset value
used in determining the public offering price applicable to the sale of such
shares.
2. KDI shall sell shares of the Fund to or through qualified Firms in such
manner, not inconsistent with the provisions hereof and the then effective
registration statement of the Fund under the Securities Act (and related
prospectus), as KDI may determine from time to time, provided that no Firm or
other person shall be appointed or authorized to act as agent of the Fund
without the prior consent of the Fund. In addition to sales made by it as
agent of the Fund, KDI may, in its discretion, also sell shares of the Fund as
principal to persons with whom it does not have services agreements.
Shares of the Fund offered for sale or sold by KDI shall be so offered or sold
at a price per share determined in accordance with the then current prospectus
relating to the sale of such shares except as departure from such prices shall
be permitted by the rules and regulations of the Securities and Exchange
Commission; provided, however, that any public offering price for shares of the
Fund shall be the net asset value per share. The net asset value per share of
the Fund shall be determined in the manner and at the times set forth in the
then current prospectus of the Fund relating to such shares.
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price of the Fund's shares,
and neither KDI nor any such Firms
2
<PAGE> 3
shall withhold the placing of purchase orders so as to make a profit thereby.
3. The Fund will use its best efforts to keep effectively registered under the
Securities Act for sale as herein contemplated such shares as KDI shall
reasonably request and as the Securities and Exchange Commission shall permit
to be so registered. Notwithstanding any other provision hereof, the Fund may
terminate, suspend or withdraw the offering of shares whenever, in its sole
discretion, it deems such action to be desirable.
4. The Fund will execute any and all documents and furnish any and all
information which may be reasonably necessary in connection with the
qualification of its shares for sale (including the qualification of the Fund
as a dealer where necessary or advisable) in such states as KDI may reasonably
request (it being understood that the Fund shall not be required without its
consent to comply with any requirement which in its opinion is unduly
burdensome). The Fund will furnish to KDI from time to time such information
with respect to the Fund and its shares as KDI may reasonably request for use
in connection with the sale of shares of the Fund.
5. KDI shall issue and deliver or shall arrange for various Firms to issue and
deliver on behalf of the Fund such confirmations of sales made by it as agent
pursuant to this Agreement as may be required. At or prior to the time of
issuance of shares, KDI will pay or cause to be paid to the Fund the amount due
the Fund for the sale of such shares. Certificates shall be issued or shares
registered on the transfer books of the Fund in such names and denominations as
KDI may specify.
6. KDI shall order shares of the Fund from the Fund only to the extent that it
shall have received purchase orders therefor. KDI will not make, or authorize
any Firms or others to make, any short sales of shares of the Fund. KDI, as
agent of and for the account of the Fund, may repurchase the shares of the Fund
at such prices and upon such terms and conditions as shall be specified in the
current prospectus of the Fund. In selling or reacquiring shares of the Fund
for the account of the Fund, KDI will in all respects conform to the
requirements of all state and Federal laws and the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., relating to such sale or
reacquisition, as the case may be, and will indemnify and save harmless the
Fund from any damage or expense on account of any wrongful act by KDI or any
employee, representative or agent of KDI. KDI will observe and be bound by all
the provisions of the Agreement and Declaration of Trust of the Fund (and of
any fundamental policies adopted by the Fund pursuant to the Investment Company
Act of 1940, notice of which shall have been given to KDI) which at the time in
any way require, limit, restrict or prohibit or otherwise regulate any action
on the part of KDI.
3
<PAGE> 4
7. The Fund shall assume and pay all charges and expenses of its operations
not specifically assumed or otherwise to be provided by KDI under this
Agreement. The Fund will pay or cause to be paid expenses (including the fees
and disbursements of its own counsel) and all taxes and fees payable to the
Federal, state or other governmental agencies on account of the registration or
qualification of securities issued by the Fund or otherwise. The Fund will
also pay or cause to be paid expenses incident to the issuance of shares of
beneficial interest, such as the cost of share certificates, issue taxes, and
fees of the transfer agent. KDI will pay all expenses (other than expenses
which one or more Firms may bear pursuant to any agreement with KDI) incident
to the sale and distribution of the shares issued or sold hereunder including,
without limiting the generality of the foregoing, all expenses of printing and
distributing any prospectus and of preparing, printing and distributing or
disseminating any other literature, advertising and selling aids in connection
with the offering of the shares for sale (except that such expenses need not
include expenses incurred by the Fund in connection with the preparation,
typesetting, printing and distribution of any registration statement,
prospectus or report or other communication to shareholders in their capacity
as such) and expenses of advertising in connection with such offering.
8. For the services and facilities described herein, the Fund will pay to KDI
at the end of each calendar month a distribution services fee computed at an
annual rate of .38 of 1% of the average daily net assets of the Money Market
Portfolio and the Government Securities Portfolio and at an annual rate of .33
of 1% of the average daily net assets of the Tax-Exempt Portfolio.
For the month and year in which this Agreement becomes effective or terminates,
there shall be an appropriate proration on the basis of the number of days that
the Agreement is in effect during the month and year, respectively.
The net asset value of each series of shares of the Fund ("Portfolio") shall be
calculated in accordance with the provisions of the Fund's current prospectus.
On each day when net asset value is not calculated, the net asset value of a
share of any Portfolio shall be deemed to be the net asset value of such a
share as of the close of business on the last day on which such calculation was
made for the purpose of the foregoing computations.
9. KDI shall prepare reports for the Board of Trustees of the Fund on a
quarterly basis showing amounts paid to the various Firms, the basis for any
discretionary payments made to such Firms and such other information as from
time to time shall be reasonably requested by the Board of Trustees.
This Agreement shall become effective with respect to the Initial Portfolio on
the date hereof and shall continue until December 1,
4
<PAGE> 5
1996 and shall continue from year to year thereafter with respect to each
Portfolio, but only so long as such continuance is specifically approved for
each Portfolio at least annually by a vote of the Board of Trustees of the Fund
including the trustees who are not interested persons of the Fund and who have
no direct or indirect financial interest in this Agreement or in any agreement
related to this Agreement.
This Agreement may not be amended to increase the amount to be paid to KDI for
services hereunder without the vote of a majority of the outstanding voting
securities of each Portfolio of the Fund. All material amendments to this
Agreement must in any event be approved by a vote of the Board of Trustees of
the Fund including the trustees who are not interested persons of the Fund and
who have no direct or indirect financial interest in this Agreement or in any
agreement related to this Agreement, cast in person at a meeting called for
such purpose.
10. This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Fund or by KDI on sixty (60) days written notice to the other party.
The Fund may effect termination with respect to any Portfolio by a vote of (i)
a majority of the Board of Trustees, (ii) a majority of the trustees who are
not interested persons of the Fund and who have no direct or indirect financial
interest in this Agreement or in any agreement related to this Agreement, or
(iii) a majority of the outstanding voting securities of a Portfolio.
The terms "assignment", "interested" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth in the Investment Company
Act of 1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of KDI to receive
payments on any unpaid balance of the compensation described in Section 8
earned prior to such termination.
11. KDI will not use or distribute or authorize the use, distribution or
dissemination by Firms or others in connection with the sale of the shares any
statements, other than those contained in the Fund's current prospectus, except
such supplemental literature or advertising as shall be lawful under Federal
and state securities laws and regulations, and will furnish the Fund with
copies of all such material.
12. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
13. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at
5
<PAGE> 6
such address as such other party may designate for the receipt of such notice.
14. All parties hereto are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund hereunder
are not binding upon any of the trustees, officers or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund.
With respect to any claim by KDI for recovery of that portion of the
distribution services fees (or any other liability of the Fund arising
hereunder) allocated to a particular Portfolio, whether in accordance with the
express terms hereof or otherwise, KDI shall have recourse solely against the
assets of that Portfolio to satisfy such claim and shall have no recourse
against the assets of any other Portfolio for such purpose.
15. This Agreement shall be construed in accordance with applicable federal
law and (except as to Section 14 hereof which shall be construed in accordance
with the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
6
<PAGE> 7
16. This Agreement is the entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be executed
as of the day and year first above written.
CASH EQUIVALENT FUND
By: /s/ John E. Peters
--------------------------------
Title: Vice President
-----------------------------
ATTEST:
/s/ Philip J. Collora
- -----------------------------
Title: Secretary
-----------------------
KEMPER DISTRIBUTORS, INC.
By: /s/ Patrick H. Dudasik
--------------------------------
Chief Financial Officer
Title: and Treasurer
-----------------------------
ATTEST:
/s/ David F. Dierenfeldt
- -----------------------------
Title: Secretary
-----------------------
7
<PAGE> 1
EXHIBIT 99.b10
[VEDDER, PRICE, KAUFMAN & KAMMHOLZ LETTERHEAD]
NOVEMBER 19, 1996
Cash Equivalent Fund
222 South Riverside Plaza
Chicago, Illinois 60606
Ladies and Gentlemen:
Reference is made to Post-Effective Amendment No. 23 to the
Registration Statement on Form N-1A under the Securities Act of 1933 being
filed by Cash Equivalent Fund (the "Fund") in connection with the proposed
public offering of units of beneficial interest, no par value ("Shares"), in
the Money Market Portfolio, the Government Securities Portfolio and the
Tax-Exempt Portfolio (the "Portfolios").
We have acted as counsel to the Fund, and in such capacity are familiar
with the Fund's organization and have counseled the Fund regarding various
legal matters. We have examined such Fund records and other documents and
certificates as we have considered necessary or appropriate for the purposes of
this opinion. In our examination of such materials, we have assumed the
genuineness of all signatures and the conformity to original documents of all
copies submitted to us.
Based upon the foregoing and upon the opinions dated September 28, 1988
and September 25, 1985 by Ropes & Gray of Boston, Massachusetts, and assuming
that the Fund's Amended and Restated Agreement and Declaration of Trust dated
September 27, 1985, as amended August 1, 1988, and the By-Laws of the Fund
adopted October 10, 1985 are presently in full force and effect and have not
been amended in any respect and that the resolutions adopted by the Board of
Trustees of the Fund on October 10, 1985 and July 26, 1988 relating to
organizational matters, securities matters and the issuance of shares are
presently in full force and effect and have not been amended in any respect, we
advise you and opine that (a) the Fund is a duly authorized and validly
existing voluntary association with transferrable shares under the laws of the
Commonwealth of Massachusetts and is authorized to issue an unlimited number
of Shares in the Portfolios; and (b) upon the issuance of the Shares in
accordance with the Fund's Amended and Restated Agreement and Declaration of
Trust and the receipt by the Fund of a purchase price not less than the net
asset value per Share, the Shares will be legally issued and
<PAGE> 2
[VEDDER PRICE LOGO]
outstanding, fully paid and nonassessable (although shareholders of the Fund
may be subject to liability under certain circumstances described in the
opinion from Ropes & Gray).
This opinion is solely for the benefit of the Fund, the Fund's Board of
Trustees and the Fund's officers and may not be relied upon by any other person
without our prior written consent. We hereby consent to the use of this
opinion in connection with said Post-Effective Amendment.
Very truly yours,
/s/ VEDDER, PRICE, KAUFMAN & KAMMHOLZ
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
COK:sfj
-2-
<PAGE> 1
Exhibit 99.b11
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Cash Equivalent Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolios of investments, of the Money Market, Government Securities and
Tax-Exempt Portfolios, comprising Cash Equivalent Fund, as of July 31, 1996,
and the related statements of operations for the year then ended and changes in
net assets for each of the two years in the period then ended, and the
financial highlights for each of the fiscal periods since 1987. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
July 31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Portfolios comprising Cash Equivalent Fund at July 31, 1996, the results
of their operations for the year then ended, the changes in their net assets
for each of the two years in the period then ended and the financial highlights
for each of the fiscal periods since 1987, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 18, 1996
<PAGE> 2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors and Reports to Shareholders" and to the
use of our report dated September 18, 1996 in the Registration Statement (Form
N-1A) and its incorporation by reference in the related Prospectus of Cash
Equivalent Fund, filed with the Securities and Exchange Commission in this Post-
Effective Amendment No. 23 to the Registration Statement under the Securities
Act of 1933 (File No. 2-63522) and in this Amendment No. 23 to the Registration
Statement under the Investment Company Act of 1940 (File No. 811-2899).
ERNST & YOUNG LLP
Chicago, Illinois
November 18, 1996
<PAGE> 1
EX-99.b24
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Stephen B.
Timbers, Charles R. Manzoni, Jr., and Philip J. Collora and each of them, any
of whom may act without the joinder of the others, as such person's
attorney-in-fact to sign and file on such person's behalf individually and in
the capacity stated below such registration statements, amendments,
post-effective amendments, exhibits, applications and other documents with the
Securities and Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of shares of
Cash Equivalent Fund.
Signature Title Date
/s/ Dominique P. Morax Trustee November 21, 1996
- --------------------------
<PAGE> 1
EXHIBIT 99.485(b)
[VEDDER, PRICE, KAUFMAN & KAMMHOLZ LETTERHEAD]
November 19, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Cash Equivalent Fund
To The Commission:
We are counsel to the above-referenced investment company (the "Fund")
and as such have participated in the preparation and review of Post-Effective
Amendment No. 23 to the Fund's registration statement being filed pursuant to
Rule 485(b) under the Securities Act of 1933. In accordance with paragraph
(b)(4) of Rule 485 and in reliance upon the oral approval of the staff of the
Commission, acting on behalf of the Commission, under Rule 485(b)(ix) for
certain of the disclosures to be contained in the amendment, we hereby
represent that such amendment does not contain disclosures which would render
it ineligible to become effective pursuant to paragraph (b) thereof.
Very truly yours,
/s/ VEDDER, PRICE, KAUFMAN & KAMMHOLZ
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
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<CIK> 0000310030
<NAME> CASH EQUIVALENT FUND
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<NUMBER> 01
<NAME> MONEY MARKET PORTFOLIO
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<S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1996
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</LEGEND>
<CIK> 0000310030
<NAME> CASH EQUIVALENT FUND
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<NUMBER> 02
<NAME> GOVERNMENT SECURITIES PORTFOLIO
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<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
1996 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000310030
<NAME> CASH EQUIVALENT FUND
<SERIES>
<NUMBER> 03
<NAME> TAX EXEMPT PORTFOLIO
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<S> <C>
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</TABLE>
