<PAGE> 1
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
- --------------------------------------------------------------------------------
We are pleased to provide you with the Cash Equivalent Fund annual report for
the year ended July 31, 1997.
Your fund's management greatly appreciates your decision to invest in Cash
Equivalent Fund. During the past year, the fund registered solid performance and
achieved its objective of providing maximum current income consistent with
stability of principal.
ECONOMIC REVIEW AND OUTLOOK
The economy continues to grow at a healthy rate, as it has for the last two
quarters, with few signs of inflationary pressures. The nation's economic growth
surged at a 5.8% annual rate during the first three months of this year, the
best in a decade and even better than the government's first estimate. The
seasonally adjusted annual growth rate in the gross domestic product -- the sum
of all goods and services produced in the United States -- hasn't been higher
since the fourth quarter of 1987.
Looking ahead, the economy is in very good shape for continued growth with
little inflation. In fact, the growth rate should be about 3%, with the third
and fourth quarters probably showing stronger growth than the second quarter.
Upward pressure on interest rates should become apparent as we move into the
fourth quarter.
Money market funds such as Cash Equivalent Fund should offer the opportunity for
attractive yields and should continue to be an excellent place to invest your
money.
Your fund's management thanks you for the vote of confidence you have shown
through your investment and continues its dedication to performance. We look
forward to serving your investment needs for years to come.
Sincerely,
John W. Stuebe
John W. Stuebe
Vice President and Portfolio Manager
August 21, 1997
John Stuebe is First Vice President of Zurich Kemper Investments, Inc. and Vice
President and Portfolio Manager of Cash Equivalent Fund. Mr. Stuebe holds a B.S.
degree in Finance from the University of Illinois and a M.S. degree in Economics
from DePaul University.
PORTFOLIO RESULTS
For the year ended July 31, 1997, the fund's three Portfolios had the following
net yields:
The Money Market Portfolio had a net yield of 4.68%.
The Government Securities Portfolio had a net yield of 4.74%.
The Tax-Exempt Portfolio had a net yield of 2.99% and a tax-equivalent yield of
4.75%.
NOTES
An investment in the fund is neither insured nor guaranteed by the U.S.
Government, and there can be no assurance that a portfolio will be able to
maintain a stable net asset value of $1.00 per share.
Each Portfolio's net yield for the year ended July 31, 1997, is the sum of the
daily dividend rates for the period. The tax-equivalent yield for the Tax-Exempt
Portfolio is based on a marginal federal income tax rate of 37.1%. Income from
the Tax-Exempt Portfolio may be subject to state and local taxes, and, for some
investors, a portion of income may be subject to the alternative minimum tax.
Yields are historical and do not represent future yields, which will fluctuate.
The views expressed in this report reflect those of the portfolio manager only
through the end of the period of the report as stated above. The manager's views
are subject to change at any time, based on market and other conditions.
<PAGE> 2
Cash Equivalent Fund 2
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
Investments at July 31, 1997
(Value in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE OBLIGATIONS Value
<S> <C>
BANKING--1.5%
--------------------------------------------------------
Credit Lyonnais N.A. Inc.
5.71%, 10/21/97 $ 14,810
--------------------------------------------------------
BUSINESS LOANS--24.1%
--------------------------------------------------------
Ace Overseas Corp.
5.75%, 9/8/97 19,880
--------------------------------------------------------
Astro Capital Corp.
5.70%, 10/15/97 19,766
--------------------------------------------------------
Banner Receivables Corp.
5.83%, 8/1/97 15,000
--------------------------------------------------------
Corporate Receivables Corp.
5.64%, 8/6/97 9,992
--------------------------------------------------------
Eureka Securitization, Inc.
5.65%, 8/25/97 14,944
--------------------------------------------------------
FP Funding Corp.
5.67%, 9/30/97 9,907
--------------------------------------------------------
Gotham Capital Corp.
5.70%, 8/12/97 19,965
--------------------------------------------------------
Jet Funding Corp.
5.67%, 10/31/97 9,859
--------------------------------------------------------
Madison Funding Corp.
5.75%, 8/21/97 14,952
--------------------------------------------------------
Sigma Finance, Inc.
5.61%, 10/6/97 9,898
--------------------------------------------------------
Strategic Asset Funding Corp.
5.57%, 8/22/97 24,919
--------------------------------------------------------
Variable Funding Capital Corp.
5.64%, 8/4/97 24,988
--------------------------------------------------------
WCP Funding Inc.
5.66%, 8/27/97 24,899
--------------------------------------------------------
Working Capital Management Co., L.P.
5.68%, 10/20/97 14,813
--------------------------------------------------------
233,782
CAPITAL AND EQUIPMENT LENDING--14.4%
--------------------------------------------------------
American Honda Finance Corp.
5.57%, 8/7/97 9,991
--------------------------------------------------------
BTM Capital Corp.
5.68% - 5.86%, 8/7/97 - 10/15/97 24,815
--------------------------------------------------------
Ford Motor Credit Co.
5.53%, 8/6/97 14,989
--------------------------------------------------------
Golden Manager's Acceptance Corp.
5.57%, 8/12/97 14,975
--------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CORPORATE OBLIGATIONS Value
<S> <C>
Mitsubishi Motors Credit of America, Inc.
5.73%, 9/9/97 - 9/12/97 $ 19,873
--------------------------------------------------------
SRD Finance Inc.
5.62% - 5.71%, 8/7/97 - 9/18/97 34,869
--------------------------------------------------------
Sanwa Business Credit Corp.
5.58%, 8/20/97 19,941
--------------------------------------------------------
139,453
CAPTIVE BUSINESS LENDING--4.3%
--------------------------------------------------------
(a)FINOVA Capital Corp.
5.73%, 8/13/97 15,000
--------------------------------------------------------
Orix America, Inc.
5.68% - 5.81%, 8/4/97 - 11/3/97 26,800
--------------------------------------------------------
41,800
CONSUMER LENDING--7.7%
--------------------------------------------------------
Countrywide Funding Corp.
5.60%, 8/29/97 19,913
--------------------------------------------------------
(a)(b)GMAC Mortgage Corporation of
Pennsylvania
5.87%, 8/1/97 30,000
--------------------------------------------------------
(a)Household Finance Corp.
5.69%, 8/1/97 15,000
--------------------------------------------------------
NS Finance, Inc.
5.64%, 10/7/97 9,896
--------------------------------------------------------
74,809
CONSUMER PRODUCTS--1.0%
--------------------------------------------------------
Coca-Cola Enterprises Inc.
5.58%, 9/8/97 9,942
--------------------------------------------------------
DIVERSIFIED FINANCE--6.7%
--------------------------------------------------------
APEX Funding Corp.
5.65%, 9/8/97 9,941
--------------------------------------------------------
(a)CIT Group Holdings, Inc.
5.62%, 8/1/97 19,995
--------------------------------------------------------
Dynamic Funding Corp.
5.63%, 8/14/97 9,980
--------------------------------------------------------
Old Line Funding Corp.
5.64%, 8/1/97 25,000
--------------------------------------------------------
64,916
FINANCIAL SERVICES--11.3%
--------------------------------------------------------
(a)Bear Stearns Cos. Inc.
5.69%, 8/6/97 - 8/19/97 20,000
--------------------------------------------------------
(a)CS First Boston, Inc.
5.67%, 8/1/97 5,000
--------------------------------------------------------
</TABLE>
<PAGE> 3
Cash Equivalent Fund 3
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
Investments at July 31, 1997
(Value in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
<S> <C>
(a)Goldman, Sachs Group, L.P.
5.63%, 8/17/97 $ 25,000
------------------------------------------------------------
(a)Merrill Lynch & Co., Inc.
5.64%, 8/18/97 9,999
------------------------------------------------------------
(a)Morgan Stanley Group Inc.
5.57%, 8/18/97 10,000
------------------------------------------------------------
Nomura Holding America Inc.
5.80%, 10/27/97 14,793
------------------------------------------------------------
Salomon Inc.
(a) 5.74%, 9/4/97 10,000
6.13%, 11/19/97 14,727
------------------------------------------------------------
109,519
HEALTH CARE--1.0%
------------------------------------------------------------
Columbia/HCA Healthcare Corp.
5.65%, 8/18/97 9,974
------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS--72.0%
(average maturity: 29 days) 699,005
------------------------------------------------------------
CERTIFICATES OF DEPOSIT
(a)Bankers Trust Co.
5.69%, 8/1/97 24,995
------------------------------------------------------------
(a)First National Bank of Boston
5.67%, 8/1/97 9,998
------------------------------------------------------------
(a)Morgan Guaranty Trust Co. of New York
5.63%, 8/1/97 12,996
------------------------------------------------------------
(a)Old Kent Bank
5.68%, 8/1/97 24,995
------------------------------------------------------------
(a)PNC Bank, N.A.
5.59%, 8/1/97 24,997
------------------------------------------------------------
Sumitomo Bank, Ltd.
5.64%, 9/15/97 15,000
------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT--11.6%
(average maturity: 6 days) 112,981
------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Value
<S> <C>
(c)REPURCHASE AGREEMENTS
(Dated 5/97 - 7/97, collateralized by Federal
Home Loan Mortgage Corp. and Federal National
Mortgage Association securities)
-----------------------------------------------------------
Chase Securities, Inc.
(held at The Chase Manhattan Bank)
5.55%, 8/18/97 - 9/10/97 $ 45,000
-----------------------------------------------------------
Nomura Securities International, Inc.
(held at The Bank of New York)
5.80%, 8/11/97 25,000
-----------------------------------------------------------
Salomon Brothers Inc.
(held at The Bank of New York)
5.55% - 5.70%, 8/8/97 - 9/25/97 85,000
-----------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS--16.0%
(average maturity: 27 days) 155,000
-----------------------------------------------------------
TOTAL INVESTMENTS--99.6%
(average maturity: 26 days) 966,986
-----------------------------------------------------------
CASH AND OTHER ASSETS,
LESS LIABILITIES--.4% 3,530
-----------------------------------------------------------
NET ASSETS--100% $970,516
-----------------------------------------------------------
</TABLE>
See accompanying Notes to Portfolios of Investments.
<PAGE> 4
Cash Equivalent Fund 4
- --------------------------------------------------------------------------------
GOVERNMENT SECURITIES PORTFOLIO
Investments at July 31, 1997
(Value in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
<S> <C>
SHORT-TERM NOTES
(Issued or guaranteed by U.S. government
agencies or instrumentalities)
-------------------------------------------------------------
(a)Export-Import Bank of the United States
Cathay Pacific Airways Limited
5.75%, 8/13/97 $ 13,947
KA Leasing, Ltd.
5.75%, 8/15/97 12,287
Kuwait Investment Authority
5.75%, 8/15/97 12,531
VARIG Brazilian Airlines
5.75%, 10/15/97 13,626
-------------------------------------------------------------
(a)Federal Home Loan Bank
5.49% - 5.77%, 8/2/97 - 8/24/97 25,601
-------------------------------------------------------------
Federal Home Loan Mortgage Corp.
6.16%, 9/1/97 4,103
-------------------------------------------------------------
Federal National Mortgage Association
(a) 5.36%, 8/5/97 21,856
6.10%, 9/3/97 3,998
-------------------------------------------------------------
(a)Overseas Private Investment Corp.
International Paper Co.
5.70%, 8/15/97 13,050
Omolon
5.66%, 8/5/97 5,000
-------------------------------------------------------------
(a)Student Loan Marketing Association
5.47%, 8/5/97 86,711
-------------------------------------------------------------
TOTAL SHORT-TERM NOTES--52.6%
(average maturity: 13 days) 212,710
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Value
<S> <C>
(c)REPURCHASE AGREEMENTS
(Dated 6/97 and 7/97, collateralized by Federal
Home Loan Mortgage Corp., Federal National
Mortgage Association and Government National
Mortgage Association securities)
-------------------------------------------------------------
Bear, Stearns & Co. Inc.
5.62% - 5.69%, 8/4/97 - 9/22/97 $ 37,000
-------------------------------------------------------------
Chase Securities, Inc.
(held at The Chase Manhattan Bank)
5.60% - 5.65%, 8/4/97 - 9/3/97 14,000
-------------------------------------------------------------
Goldman, Sachs & Co.
(held at The Bank of New York)
5.62%, 8/6/97 10,000
-------------------------------------------------------------
Lehman Government Securities Inc.
(held at The Chase Manhattan Bank)
5.90%, 8/1/97 6,000
-------------------------------------------------------------
Merrill Lynch Government Securities, Inc.
(held at The Chase Manhattan Bank)
5.85%, 8/1/97 8,000
-------------------------------------------------------------
Morgan Stanley & Co. Inc.
(held at The Bank of New York)
5.55% - 5.60%, 8/20/97 - 9/17/97 37,000
-------------------------------------------------------------
Nikko Securities Co. International, Inc.
(held at The Bank of New York)
5.57%, 8/6/97 20,000
-------------------------------------------------------------
Salomon Brothers Inc.
(held at The Bank of New York)
5.56% - 5.71%, 8/20/97 - 10/28/97 58,500
-------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS--47.2%
(average maturity: 29 days) 190,500
-------------------------------------------------------------
TOTAL INVESTMENTS--99.8%
(average maturity: 20 days) 403,210
-------------------------------------------------------------
CASH AND OTHER ASSETS,
LESS LIABILITIES--.2% 827
-------------------------------------------------------------
NET ASSETS--100% $404,037
-------------------------------------------------------------
</TABLE>
See accompanying Notes to Portfolios of Investments.
<PAGE> 5
Cash Equivalent Fund 5
- --------------------------------------------------------------------------------
TAX-EXEMPT PORTFOLIO
Investments at July 31, 1997
(Value in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(a)VARIABLE RATE DEMAND SECURITIES Value
<S> <C>
ARIZONA
--------------------------------------------------------------
Apache County
Industrial Development Authority
3.65% $ 10,000
--------------------------------------------------------------
Health Facilities Authority
3.65% 7,000
CALIFORNIA
--------------------------------------------------------------
Los Angeles
Harbor Improvement Corp.
3.95% 6,000
DISTRICT OF COLUMBIA
--------------------------------------------------------------
General Obligation
3.70% 5,915
ILLINOIS
--------------------------------------------------------------
Alsip
Industrial Development Revenue
3.70% 3,750
--------------------------------------------------------------
Development Finance Authority
Adventist Health System
3.75% 7,000
Grecian Delight Foods Project
3.85% 8,300
Mattoon Precision Manufacturing Project
4.00% 7,500
--------------------------------------------------------------
Rockford
Industrial Project Revenue
3.85% 4,000
--------------------------------------------------------------
Student Assistance Commission
3.75% 5,000
KANSAS
--------------------------------------------------------------
Kansas City
Pollution Control Revenue
3.80% 17,835
KENTUCKY
--------------------------------------------------------------
Boone County
Pollution Control Revenue
3.80% 8,000
--------------------------------------------------------------
Shelbyville
Industrial Building Revenue
4.00% 3,500
--------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(a)VARIABLE RATE DEMAND SECURITIES Value
<S> <C>
LOUISIANA
--------------------------------------------------------------
Lafayette
Industrial Economic Development Authority
3.80% $ 5,000
-------------------------------------------------------------
Public Facilities Authority
3.65% 4,900
NEVADA
-------------------------------------------------------------
Department of Business and Industry
3.90% 5,000
NEW MEXICO
-------------------------------------------------------------
Farmington
Pollution Control Revenue
3.65% 4,000
OHIO
-------------------------------------------------------------
Butler County
Industrial Development Revenue
3.80% 4,500
-------------------------------------------------------------
Medina County
Health Care Facilities Revenue
3.70% 3,000
PENNSYLVANIA
-------------------------------------------------------------
Delaware County
Redevelopment Authority
4.29% 8,000
-------------------------------------------------------------
Emmaus
General Authority Revenue
3.65% 9,900
-------------------------------------------------------------
Lehigh County
Industrial Development Authority
3.80% 5,000
SOUTH CAROLINA
-------------------------------------------------------------
Richland County
Hospital Revenue
3.90% 5,075
TENNESSEE
-------------------------------------------------------------
Coffee County
Industrial Board Inc.
3.90% 4,000
-------------------------------------------------------------
Nashville and Davidson County
Industrial Development Board
3.95% 5,000
-------------------------------------------------------------
</TABLE>
<PAGE> 6
Cash Equivalent Fund 6
- --------------------------------------------------------------------------------
TAX-EXEMPT PORTFOLIO
Investments at July 31, 1997
(Value in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEXAS
Value
<S> <C>
- ----------------------------------------------------------
Port Arthur
Industrial Development Corp.
3.70% $ 5,000
UTAH
- ----------------------------------------------------------
Ogden City
Industrial Development Revenue
4.15% 3,660
VERMONT
- ----------------------------------------------------------
Economic Development Authority
4.15% 5,000
WASHINGTON
- ----------------------------------------------------------
Port Angeles
Industrial Development Corp.
4.00% 3,900
- ----------------------------------------------------------
TOTAL VARIABLE RATE
DEMAND SECURITIES--39.3%
(average maturity: 6 days) 174,735
- ----------------------------------------------------------
OTHER SECURITIES
ALASKA
- ----------------------------------------------------------
Valdez
Marine Terminal Revenue
3.80% - 4.00%, 8/8/97 - 10/8/97 13,500
ARIZONA
- ----------------------------------------------------------
Salt River Project
Agricultural Improvement and Power District
3.75% - 3.85%, 8/14/97 - 11/14/97 18,350
COLORADO
- ----------------------------------------------------------
Platte River Power Authority
3.77%, 10/15/97 6,000
DISTRICT OF COLUMBIA
- ----------------------------------------------------------
General Obligation
3.98%, 9/30/97 - 10/8/97 8,003
FLORIDA
- ----------------------------------------------------------
Jacksonville
Electric Authority
3.85%, 8/11/97 4,400
- ----------------------------------------------------------
Orange County
Governmental Regional Financing
3.80%, 8/11/97 4,000
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Value
<S> <C>
Orlando
Capital Improvement Revenue
3.85%, 8/8/97 $ 3,000
- ----------------------------------------------------------
Pinellas County
Educational Facilities Authority
3.80%, 11/13/97 4,800
- ----------------------------------------------------------
Sarasota County
Public Hospital District
3.85%, 8/21/97 1,200
- ----------------------------------------------------------
Sunshine State
Governmental Financing Commission
3.75%, 8/12/97 10,000
GEORGIA
- ----------------------------------------------------------
Municipal Electric Authority
3.80%, 8/11/97 2,400
INDIANA
- ----------------------------------------------------------
Jasper County
Pollution Control Revenue
3.80%, 10/15/97 12,000
- ----------------------------------------------------------
Mount Vernon
Pollution Control and Solid Waste Disposal
Revenue
3.80%, 11/14/97 4,400
- ----------------------------------------------------------
Sullivan
Pollution Control Revenue
3.75%, 11/12/97 2,765
KANSAS
- ----------------------------------------------------------
Burlington
Pollution Control Revenue
3.60% - 3.85%, 8/21/97 - 9/16/97 6,500
KENTUCKY
- ----------------------------------------------------------
Danville
Multi-City Lease Revenue
3.85%, 8/8/97 - 8/14/97 14,000
- ----------------------------------------------------------
Pendleton County
Multi-County Lease Revenue
3.80% - 3.90%, 8/11/97 - 9/11/97 9,600
MISSISSIPPI
- ----------------------------------------------------------
Claiborne County
Pollution Control Revenue
3.80%, 8/11/97 - 8/12/97 7,725
- ----------------------------------------------------------
</TABLE>
<PAGE> 7
Cash Equivalent Fund 7
- --------------------------------------------------------------------------------
TAX-EXEMPT PORTFOLIO
Investments at July 31, 1997
(Value in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEBRASKA
Value
<S> <C>
- ----------------------------------------------------------
Omaha
Public Power District
3.80%, 8/13/97 $ 2,500
NEW HAMPSHIRE
- ----------------------------------------------------------
Business Finance Authority
3.95%, 8/13/97 10,000
NEW YORK
- ----------------------------------------------------------
Nassau County
Revenue Anticipation Notes
3.85%, 4/10/98 5,515
- ----------------------------------------------------------
New York City
Municipal Water Finance Authority
3.75%, 8/12/97 7,000
NORTH CAROLINA
- ----------------------------------------------------------
Municipal Power Agency
3.75% - 3.85%, 8/15/97 - 11/12/97 15,000
OHIO
- ----------------------------------------------------------
Air Quality Development Authority
3.75%, 8/12/97 4,420
PENNSYLVANIA
- ----------------------------------------------------------
Philadelphia
Gas Works Revenue
3.85%, 8/21/97 4,090
TEXAS
- ----------------------------------------------------------
Dallas
Area Rapid Transit
3.80% - 3.85%, 8/14/97 - 8/18/97 9,000
- ----------------------------------------------------------
Harris County
Health Facilities Development Corp.
3.65%, 9/16/97 9,000
- ----------------------------------------------------------
Houston
Water and Sewer System
3.80%, 11/13/97 4,000
- ----------------------------------------------------------
Municipal Power Agency
3.82%, 8/15/97 12,400
- ----------------------------------------------------------
Public Finance Authority
3.75%, 10/15/97 4,600
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Value
<S> <C>
San Antonio
Electric and Gas Systems
3.75% - 3.80%, 8/13/97 - 10/15/97 $ 12,000
- ----------------------------------------------------------
Tax and Revenue Anticipation Notes
3.95%, 8/29/97 5,003
UTAH
- ----------------------------------------------------------
Intermountain Power Agency
3.85%, 8/15/97 5,400
- ----------------------------------------------------------
Tooele County
Waste Treatment Revenue
4.25%, 9/11/97 3,500
VIRGINIA
- ----------------------------------------------------------
Chesterfield County
Industrial Development Authority
3.85%, 8/14/97 4,000
- ----------------------------------------------------------
Louisa
Industrial Development Authority
3.85% - 4.00%, 8/15/97 - 11/14/97 4,975
- ----------------------------------------------------------
Norfolk
Industrial Development Authority
3.75% - 3.85%, 8/11/97 - 10/10/97 16,900
- ----------------------------------------------------------
TOTAL OTHER
SECURITIES--61.1%
(average maturity: 42 days) 271,946
- ----------------------------------------------------------
TOTAL INVESTMENTS--100.4%
(average maturity: 28 days) 446,681
- ----------------------------------------------------------
LIABILITIES, LESS
OTHER ASSETS--(.4)% (1,742)
- ----------------------------------------------------------
NET ASSETS--100% $ 444,939
==========================================================
</TABLE>
See accompanying Notes to Portfolios of Investments.
<PAGE> 8
Cash Equivalent Fund 8
- --------------------------------------------------------------------------------
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,
1997. 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, 1997, the aggregate value of illiquid
securities was $30,000,000 in the Money Market Portfolio, which represented 3.1%
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> 9
Cash Equivalent Fund 9
- --------------------------------------------------------------------------------
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, 1997, and
the related statements of operations for the year then ended and changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the fiscal periods since 1993. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of July
31, 1997, by correspondence with the custodian. 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, 1997, the results
of their operations for the year then ended, the changes in their net assets for
each of the two years in the period then ended and the financial highlights for
each of the fiscal periods since 1993, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 10, 1997
<PAGE> 10
Cash Equivalent Fund 10
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1997
(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 $811,986 212,710 446,681
- -------------------------------------------------------------------------------------------------------
Repurchase agreements 155,000 190,500 --
- -------------------------------------------------------------------------------------------------------
Cash 6,588 487 --
- -------------------------------------------------------------------------------------------------------
Receivable for:
Interest 1,478 2,441 2,010
- -------------------------------------------------------------------------------------------------------
Fund shares sold 609 55 147
- -------------------------------------------------------------------------------------------------------
Total assets 975,661 406,193 448,838
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND NET ASSETS
- -------------------------------------------------------------------------------------------------------
Cash overdraft -- -- 2,164
- -------------------------------------------------------------------------------------------------------
Payable for:
Dividends 2,059 841 605
- -------------------------------------------------------------------------------------------------------
Fund shares redeemed 1,500 908 516
- -------------------------------------------------------------------------------------------------------
Management fee 169 69 82
- -------------------------------------------------------------------------------------------------------
Distribution services fee 306 125 121
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 453 12 138
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 658 201 273
- -------------------------------------------------------------------------------------------------------
Total liabilities 5,145 2,156 3,899
- -------------------------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $970,516 404,037 444,939
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
THE PRICING OF SHARES
- -------------------------------------------------------------------------------------------------------
Shares outstanding 970,516 404,037 444,939
- -------------------------------------------------------------------------------------------------------
Net asset value and redemption price per share $1.00 1.00 1.00
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE> 11
Cash Equivalent Fund 11
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year ended July 31, 1997
(in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
MONEY GOVERNMENT
MARKET SECURITIES TAX-EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------
<S> <C> <C> <C>
INTEREST INCOME $82,198 40,903 23,506
- -------------------------------------------------------------------------------------------------------
EXPENSES:
Management fee 2,795 1,393 1,377
- -------------------------------------------------------------------------------------------------------
Distribution services fee 5,609 2,796 2,107
- -------------------------------------------------------------------------------------------------------
Custodian and transfer agent fees and related expenses 4,988 1,784 883
- -------------------------------------------------------------------------------------------------------
Reports to shareholders 67 27 42
- -------------------------------------------------------------------------------------------------------
Registration costs 45 40 100
- -------------------------------------------------------------------------------------------------------
Professional fees 49 21 21
- -------------------------------------------------------------------------------------------------------
Trustees' fees and other 100 57 22
- -------------------------------------------------------------------------------------------------------
Total expenses 13,653 6,118 4,552
- -------------------------------------------------------------------------------------------------------
Net investment income $68,545 34,785 18,954
- -------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
Years ended July 31, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MONEY MARKET GOVERNMENT SECURITIES TAX-EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS, DIVIDENDS AND
CAPITAL SHARE ACTIVITY
Net investment income $ 68,545 155,023 34,785 85,504 18,954 31,921
- -------------------------------------------------------------------------------------------------------------------------
Net realized loss -- (22,662) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Change in unrealized depreciation -- 22,662 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net
investment income (68,545) (155,023) (34,785) (85,504) (18,954) (31,921)
- -------------------------------------------------------------------------------------------------------------------------
Capital share transactions (dollar amounts
and number of shares are the same):
Shares sold 5,384,970 11,488,265 3,223,496 5,702,420 2,237,435 3,741,602
- -------------------------------------------------------------------------------------------------------------------------
Shares issued in reinvestment of dividends 66,935 156,119 33,510 85,164 18,560 32,004
- -------------------------------------------------------------------------------------------------------------------------
5,451,905 11,644,384 3,257,006 5,787,584 2,255,995 3,773,606
Shares redeemed (7,255,984) (12,463,083) (4,447,097) (5,978,554) (2,742,620) (3,951,903)
- -------------------------------------------------------------------------------------------------------------------------
Net decrease from capital share
transactions and total decrease in net
assets (1,804,079) (818,699) (1,190,091) (190,970) (486,625) (178,297)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 2,774,595 3,593,294 1,594,128 1,785,098 931,564 1,109,861
- -------------------------------------------------------------------------------------------------------------------------
End of year $ 970,516 2,774,595 404,037 1,594,128 444,939 931,564
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 12
Cash Equivalent Fund 12
- --------------------------------------------------------------------------------
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, 1997, the Fund incurred
management fees of $5,565,000.
<PAGE> 13
Cash Equivalent Fund 13
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Distribution agreement
The Fund also has an administration, shareholder services and distribution
agreement with Zurich Kemper Distributors, Inc. (ZKDI) (formerly known as Kemper
Distributors, Inc.). For its services as primary distributor, the Fund pays ZKDI
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, 1997, the Fund incurred
distribution fees of $10,512,000. ZKDI has related service agreements with
various firms to provide cash management and other services for Fund
shareholders. Under these agreements, ZKDI pays such firms 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, 1997, ZKDI paid fees of $10,342,000 to various firms pursuant to
the related service agreements.
Shareholder services agreement
Pursuant to a services agreement with the Fund's transfer agent, Zurich Kemper
Service Company (ZKSvC) (formerly known as Kemper Service Company) is the
shareholder service agent of the Fund. Under the agreement, ZKSvC received
shareholder services fees of $4,532,000 for the year ended July 31, 1997.
Officers and trustees
Certain officers or trustees of the Fund are also officers or directors of ZKI.
During the year ended July 31, 1997, the Fund made no payments to its officers
and incurred trustees' fees of $64,000 to independent trustees.
<PAGE> 14
Cash Equivalent Fund 14
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
MONEY MARKET PORTFOLIO 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $1.00 1.00 1.00 1.00 1.00
- --------------------------------------------------------------------------------------------------------------------------
Net investment income and dividends declared .05 .05 .05 .03 .03
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $1.00 1.00 1.00 1.00 1.00
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 4.78% 4.94 4.95 2.82 2.60
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .93% .89 .87 .88 .85
- --------------------------------------------------------------------------------------------------------------------------
Net investment income 4.64% 4.86 4.84 2.78 2.57
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands) $970,516 2,774,595 3,593,294 3,387,245 3,616,636
- --------------------------------------------------------------------------------------------------------------------------
</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 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $1.00 1.00 1.00 1.00 1.00
- --------------------------------------------------------------------------------------------------------------------------
Net investment income and dividends declared .05 .05 .05 .03 .03
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $1.00 1.00 1.00 1.00 1.00
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 4.85% 5.00 4.96 2.82 2.60
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .83% .79 .81 .81 .78
- --------------------------------------------------------------------------------------------------------------------------
Net investment income 4.73% 4.90 4.87 2.72 2.57
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands) $404,037 1,594,128 1,785,098 1,538,011 2,825,357
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
TAX-EXEMPT PORTFOLIO 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $1.00 1.00 1.00 1.00 1.00
- --------------------------------------------------------------------------------------------------------------------------
Net investment income and dividends declared .03 .03 .03 .02 .02
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $1.00 1.00 1.00 1.00 1.00
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3.03% 3.11 3.21 2.05 2.12
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses .71% .70 .68 .68 .64
- --------------------------------------------------------------------------------------------------------------------------
Net investment income 2.97% 3.08 3.15 2.02 2.09
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets at end of year (in thousands) $444,939 931,564 1,109,861 1,136,901 1,417,307
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 15
Cash Equivalent Fund 15
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FEDERAL TAX STATUS OF 1997 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 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> 16
Cash Equivalent
Fund
Annual Report
July 31, 1997
INVESTMENT MANAGER
Zurich Kemper Investments, Inc.
PRINCIPAL UNDERWRITER
Zurich Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606
This report is not to be distributed unless preceded or
accompanied by a prospectus.
1020180 8/96 [LOGO]printed on recycled paper
