CASH EQUIVALENT FUND, 485BPOS, 1999-11-24

CASH EQUIVALENT FUND
485BPOS, 1999-11-24

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Filed electronically with the Securities and Exchange Commission
on November 24, 1999

File No. 2-63522
File No. 811-2899

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /

Pre-Effective Amendment No. / /
Post-Effective Amendment No. 27
---- / X /
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /

Amendment No. 27
---- / X /

CASH EQUIVALENT FUND
(Exact Name of Registrant as Specified in Charter)

222 South Riverside Plaza Chicago, Illinois 60606
-------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (312) 537-7000
-------------

Philip J. Collora
Cash Equivalent Fund
222 South Riverside Plaza
Chicago, Illinois 60606
(Name and Address of Agent for Service)

With a copy to:
Cathy G. O'Kelly
David A. Sturms
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601

It is proposed that this filing will become effective (check appropriate box):

/ / Immediately upon filing pursuant to paragraph (b)
/ / 60 days after filingpursuant to paragraph (a) (1)
/ / 75 days after filing pursuant to paragraph (a) (2)
/ X / On December 1, 1999 pursuant to paragraph (b)
/ / On __________________ pursuant to paragraph (a) (1)
/ / On __________________ pursuant to paragraph (a) (2) of Rule 485.

If Appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
Cash
Equivalent
Fund

PROSPECTUS December 1, 1999

Cash Equivalent Fund
222 South Riverside Plaza, Chicago, Illinois 60606

Money Market Portfolio
Government Securities Portfolio
Tax-Exempt Portfolio

Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.

Table of Contents
- ------------------------------------------------------
About the Portfolios 1
- ------------------------------------------------------
Money Market Portfolio 1
- ------------------------------------------------------
Government Securities Portfolio 5
- ------------------------------------------------------
Tax-Exempt Portfolio 8
- ------------------------------------------------------
Investment Adviser 12
- ------------------------------------------------------
About Your Investment 13
- ------------------------------------------------------
Transaction Information 13
- ------------------------------------------------------
Buying Shares 15
- ------------------------------------------------------
Selling and Exchanging Shares 16
- ------------------------------------------------------
Distributions 16
- ------------------------------------------------------
Taxes 17
- ------------------------------------------------------
Financial Highlights 18
- ------------------------------------------------------

<PAGE>

This page
intentionally
left blank.

<PAGE>

CASH EQUIVALENT FUND

ABOUT THE PORTFOLIOS

MONEY MARKET PORTFOLIO

Investment objective

The portfolio seeks maximum current income consistent with stability of capital.
The portfolio's investment objective may not be changed without a vote of
shareholders.

Main investment strategies

The portfolio pursues its objective by investing exclusively in the following
types of U.S. dollar-denominated money market instruments that meet industry
requirements for money market funds relating to the credit quality, maturity,
and diversification of its investments:

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.

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.

The portfolio maintains a dollar-weighted average maturity of 90 days or less
and is managed to maintain a net asset value of $1.00 per share. Also, the
portfolio may concentrate more than 25% of its assets in bank certificates of
deposit or bankers' acceptances of U.S. banks (excluding foreign branches). The
maturities of the securities subject to repurchase may be greater than 12
months.

The portfolio may invest in floating and variable rate instruments (obligations
that do not bear interest at fixed rates).

Securities are selected based on the investment manager's perception of monetary
conditions, the available supply of appropriate investments, and the investment
manager's projections for short-term interest rate movements. Sales of portfolio
holdings are typically made to implement investment strategy or meet shareholder
redemptions. Issues with short maturities are generally held until maturity.

Of course, there can be no guarantee that by following these investment
strategies, the portfolio will achieve its objective.

1
<PAGE>

Main risks

As with most money market funds, the major factor affecting the portfolio's
performance is fluctuations in short-term interest rates. If short-term interest
rates fall, the portfolio's yield is also likely to fall. Floating or variable
rate securities have yields which adjust with changes in interest rates.
Accordingly, to the extent the portfolio invests in floating or variable rate
securities, as interest rates decrease or increase, the potential for capital
appreciation or depreciation is less than that of fixed-rate obligations.
Moreover, the investment manager's strategy or choice of specific investments
may not perform as expected. The portfolio may have lower returns than other
funds that invest in longer-term or lower quality securities. It is also
possible that securities in the portfolio's investment portfolio could
deteriorate in quality or go into default.

Investments by the portfolio in Eurodollar certificates of deposit issued by
London branches of U.S. banks, and different obligations issued by foreign
entities, including foreign banks, involve additional risks than investments in
securities of domestic branches of U.S. banks. These risks include, but are not
limited to, future unfavorable political and economic developments, possible
withholding taxes on interest payments, seizure of foreign deposits, currency
controls, or interest limitations or other governmental restrictions that might
affect payment of principal or interest. The market for such obligations may be
less liquid and, at times, more volatile than for securities of domestic
branches of U.S. banks. Additionally, there may be less public information
available about foreign banks and their branches.

An investment in the portfolio is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the
portfolio seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the portfolio.

<PAGE>

Past performance

The chart and table below provide some indication of the risks of investing in
the portfolio by illustrating how the portfolio has performed from year to year.
Of course, past performance is not necessarily an indication of future
performance. All figures on this page assume reinvestment of dividends and
distributions.

The document has a bar chart here

CHART TITLE:

Annual total returns for years ended December 31

CHART DATA:
1989 8.81
1990 7.81
1991 5.62
1992 3.18
1993 2.51
1994 3.60
1995 5.29
1996 4.74
1997 4.88
1998 4.82

For the periods included in the bar chart, the portfolio's highest return for a
calendar quarter was 2.27% (the 2nd quarter of 1989), and the portfolio's lowest
return for a calendar quarter was 0.60% (the 2nd quarter of 1993).

The portfolio's year-to-date total return as of September 30, 1999 was 3.21%.

Average Annual Total Returns

For periods ended December 31, 1998 Money Market Portfolio
- ----------------------------------- ----------------------
One Year 4.82%
Five Years 4.67%
Ten Years 5.11%

3
<PAGE>

Fee and expense information

The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the portfolio.

<TABLE>
<S> <C>
---------------------------------------------------------------------------------------
Shareholder Fees (fees paid directly from your investment):
---------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as % of offering price) NONE
---------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as % of redemption proceeds) NONE
---------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested dividends/distribution NONE
---------------------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, if applicable) NONE
---------------------------------------------------------------------------------------
Exchange fee NONE
---------------------------------------------------------------------------------------
Annual portfolio operating expenses (expenses that are deducted from portfolio
assets):
---------------------------------------------------------------------------------------
Management fees 0.20%
---------------------------------------------------------------------------------------
Distribution (12b-1) fees 0.38%
---------------------------------------------------------------------------------------
Other expenses 0.31%
---------------------------------------------------------------------------------------
Total annual portfolio operating expenses 0.89%
---------------------------------------------------------------------------------------
</TABLE>

Example

This example is to help you compare the cost of investing in the portfolio with
the cost of investing in other mutual funds.

This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions,
and "Total annual portfolio operating expenses" remaining the same each year.
The expenses would be the same whether you sold your shares at the end of each
period or continued to hold them. Actual expenses and returns vary from year to
year, and may be higher or lower than those shown.

- ------------------------------------------------------
One Year $ 91
- ------------------------------------------------------
Three Years $ 284
- ------------------------------------------------------
Five Years $ 493
- ------------------------------------------------------
Ten Years $ 1,096
- ------------------------------------------------------

<PAGE>

Government Securities Portfolio

Investment objective

The portfolio seeks to provide maximum current income consistent with stability
of capital. The portfolio's investment objective may not be changed without a
vote of shareholders.

Main investment strategies

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 related repurchase
agreements. All such securities purchased mature in 12 months or less. The
portfolio maintains a dollar-weighted average maturity of 90 days or less and is
managed to maintain a net asset value of $1.00 per share.

The portfolio may invest in repurchase agreements. Repurchase agreements are
instruments under which the portfolio acquires ownership of a U.S. Government
security from a broker-dealer or bank that agrees to repurchase such security at
a mutually agreed upon time and price, which price is higher than the purchase
price. The maturity of the securities subject to repurchase may exceed one year.

The portfolio may invest in floating and variable rate instruments (obligations
that do not bear interest at fixed rates).

Of course, there can be no guarantee that by following these investment
strategies, the portfolio will achieve its objective.

Main risks

Some securities issued by U.S. Government agencies or instrumentalities are
supported only by the credit of that agency or instrumentality, while other
securities have 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.

5
<PAGE>

Past performance

THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE

CHART TITLE:

Annual total returns for years ended December 31

CHART DATA:
1989 8.90
1990 7.84
1991 5.51
1992 3.20
1993 2.52
1994 3.59
1995 5.34
1996 4.81
1997 4.88
1998 4.74

For the periods included in the bar chart, the portfolio's highest return for a
calendar quarter was 2.29% (the 2nd quarter of 1989), and the portfolio's lowest
return for a calendar quarter was 0.61% (the 2nd quarter of 1993).

The portfolio's year-to-date total return as of September 30, 1999 was 3.18%.

Average Annual Total Returns

For periods ended December 31, 1998 Government Securities Portfolio
----------------------------------- -------------------------------
One Year 4.74%
Five Years 4.67%
Ten Years 5.12%

6
<PAGE>

Fee and expense information

The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the portfolio.

<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------
Shareholder Fees (fees paid directly from your investment):
-----------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as % of offering price) NONE
-----------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as % of redemption proceeds) NONE
-----------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested dividends/distribution NONE
-----------------------------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, if applicable) NONE
-----------------------------------------------------------------------------------------------
Exchange fee NONE
-----------------------------------------------------------------------------------------------
Annual portfolio operating expenses (expenses that are deducted from portfolio
assets):
-----------------------------------------------------------------------------------------------
Management fees 0.20%
-----------------------------------------------------------------------------------------------
Distribution (12b-1) fees 0.38%
-----------------------------------------------------------------------------------------------
Other expenses 0.27%
-----------------------------------------------------------------------------------------------
Total annual portfolio operating expenses 0.85%
-----------------------------------------------------------------------------------------------
</TABLE>

Example

This example is to help you compare the cost of investing in the portfolio with
the cost of investing in other mutual funds.

- ------------------------------------------------------
One Year $ 87
- ------------------------------------------------------
Three Years $ 271
- ------------------------------------------------------
Five Years $ 471
- ------------------------------------------------------
Ten Years $ 1,049
- ------------------------------------------------------

7
<PAGE>

Tax-Exempt Portfolio

Investment objective

The portfolio seeks to provide maximum current income that is exempt from
federal income taxes to the extent consistent with stability of capital. The
portfolio's investment objective may not be changed without a vote of
shareholders.

Main investment strategies

The portfolio pursues its objective by investing primarily in a professionally
managed, diversified portfolio of short-term tax-exempt municipal obligations.
All such securities purchased mature in 12 months or less. The portfolio
maintains a dollar-weighted average maturity of 90 days or less and is managed
to maintain a net asset value of $1.00 per share. Under normal market conditions
at least 80% of the portfolio's total assets will 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.
These are generally referred to as "municipal securities." This is a fundamental
policy and cannot be changed without a shareholder vote. The portfolio does not
consider bonds whose interest may be subject to the alternative minimum tax as
municipal securities for purposes of this limitation.

Municipal securities are debt obligations issued to obtain funds for various
purposes, including the construction of a wide range of public facilities such
as airports, bridges, highways, housing, hospitals, mass transportation,
schools, streets and water and sewer works. Other public purposes for which
municipal securities may be issued include:

o to refund outstanding obligations;

o to obtain funds for general operating purposes; or

o to obtain funds to loan to other public institutions and facilities.

The portfolio will invest only in municipal securities that at the time of
purchase meet the following criteria:

o are rated within the two highest ratings for municipal securities assigned
by Moody's (Aaa or Aa) or assigned by S&P (AAA or AA);

o are guaranteed or insured by the U.S. Government as to the payment of
principal and interest;

o are fully collateralized by an escrow of U.S. Government securities
acceptable to the portfolio's investment manager;

o 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;

o are unrated, if longer term municipal securities of that issuer are rated
within the two highest rating categories by Moody's or S&P; or

o are determined to be, in the discretion of the portfolio's investment
manager, at least equal in quality to one or more of the above ratings.

The two general classifications of municipal securities are "general obligation"
and "revenue" bonds. General obligation bonds are secured by the issuer's pledge
of its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise or other specific revenue source. Industrial development
bonds, which are municipal securities, are in most cases revenue bonds and
generally do not constitute the pledge of the credit of the issuer of such
bonds. The portfolio may invest all or any part of its assets in industrial

<PAGE>

development bonds and, to a lesser extent, other 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.

The portfolio may invest in floating and variable rate instruments (obligations
that do not bear interest at fixed rates).

Of course, there can be no guarantee that by following these investment
strategies, the portfolio will achieve its objective.

Risk management strategies

From time to time, as a defensive measure or when acceptable short-term
municipal securities are not available, the 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 within the two highest grades
by either of such; certificates of deposit of domestic banks with assets of $1
billion or more; and any of the foregoing temporary investments subject to
repurchase agreements. Interest income from temporary investments is taxable to
shareholders as ordinary income. In such case, the fund would not be pursuing,
and may not achieve, its investment objective.

Main risks

The municipal securities market is narrower and less liquid, with fewer
investors, issuers and market makers, than the taxable securities market. The
more limited marketability of municipal securities may make it more difficult in
certain circumstances to dispose of large investments advantageously. In
addition, certain municipal securities may lose their tax-exempt status in the
event of a change in the applicable tax laws.

A second factor is credit quality. If a portfolio security declines in credit
quality or goes into default, it could hurt the portfolio's performance. To the
extent that the portfolio emphasizes certain geographic regions or sectors of
the short-term securities market, the portfolio increases its exposure to
factors affecting these regions or sectors. For example, industrial development
bonds, or municipal securities that are payable out of revenue streams generated
from economically related projects or facilities, are typically backed by
revenues from a given facility and by the credit of a private company, but are
not backed by the taxing power of a municipality.

To the extent that the portfolio invests in taxable securities, a portion of its
income would be taxable.

9
<PAGE>

Past performance

THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE

CHART TITLE:

Annual total returns for years ended December 31

CHART DATA:
1989 6.05
1990 5.46
1991 4.12
1992 2.61
1993 1.96
1994 2.40
1995 3.44
1996 2.96
1997 3.11
1998 2.98

For the periods included in the bar chart, the portfolio's highest return for a
calendar quarter was 1.62% (the 2nd quarter of 1989), and the portfolio's lowest
return for a calendar quarter was 0.47% (the 1st quarter of 1994).

The portfolio's year-to-date total return as of September 30, 1999 was 1.96%.

Average Annual Total Returns

For periods ended December 31, 1998 Tax-Exempt Portfolio
----------------------------------- --------------------
One Year 2.98%
Five Years 2.97%
Ten Years 3.50%

<PAGE>

Fee and expense information

The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold shares of the portfolio.

<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------
Shareholder Fees (fees paid directly from your investment):
-----------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as % of offering price) NONE
-----------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as % of redemption proceeds) NONE
-----------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested dividends/distribution NONE
-----------------------------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, if applicable) NONE
-----------------------------------------------------------------------------------------------
Exchange fee NONE
-----------------------------------------------------------------------------------------------
Annual portfolio operating expenses (expenses that are deducted from portfolio
assets):
-----------------------------------------------------------------------------------------------
Management fees 0.22%
-----------------------------------------------------------------------------------------------
Distribution (12b-1) fees 0.33%
-----------------------------------------------------------------------------------------------
Other expenses 0.07%
-----------------------------------------------------------------------------------------------
Total annual portfolio operating expenses 0.62%
-----------------------------------------------------------------------------------------------
</TABLE>

Example

This example is to help you compare the cost of investing in the portfolio with
the cost of investing in other mutual funds.

- ------------------------------------------------------
One Year $ 63
- ------------------------------------------------------
Three Years $ 199
- ------------------------------------------------------
Five Years $ 346
- ------------------------------------------------------
Ten Years $ 774
- ------------------------------------------------------

11
<PAGE>

INVESTMENT ADVISER

Each portfolio retains the investment management firm of Scudder Kemper
Investments, Inc. (the "Adviser"), 345 Park Avenue, New York, New York, to
manage each portfolio's daily investment and business affairs subject to the
policies established by the portfolios' Board. The Adviser actively manages each
portfolio's investments. Professional management can be an important advantage
for investors who do not have the time or expertise to invest directly in
individual securities. The Adviser is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, and private family and individual accounts.

Money Market Portfolio and Government Securities Portfolio

The Adviser received an investment management fee from the Money Market and
Government Securities Portfolios of 0.20% of the portfolios' combined average
daily net assets on an annual basis for the fiscal year ended July 31, 1999.

Tax-Exempt Portfolio

The Adviser received an investment management fee of 0.22% of the portfolio's
average daily net assets on an annual basis for the fiscal year ended July 31,
1999.

Portfolio management

The following investment professionals are associated with the portfolios as
indicated:

Money Market Portfolio

<TABLE>
<CAPTION>
Name & Title Joined the Portfolio Background
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frank J. Rachwalski, Jr. 1990 Joined the Adviser in 1973 and began his investment career at
Lead Manager that time. He has been responsible for the trading and portfolio
management of money market funds since 1974.

Jerri I. Cohen 1998 Joined the Adviser in 1981 as an accountant and began her
Manager investment career in 1992 as a money market trader.
- ---------------------------------------------------------------------------------------------------------------------

Government Securities Portfolio

Name & Title Joined the Portfolio Background
- ---------------------------------------------------------------------------------------------------------------------
Frank J. Rachwalski, Jr. 1990 Joined the Adviser in 1973 and began his investment career at
Lead Manager that time. He has been responsible for the trading and portfolio
management of money market funds since 1974.

Geoffrey Gibbs 1999 Joined the Adviser in 1996 as a trader for money market funds
Manager and began his investment career in 1994.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

Tax-Exempt Portfolio

Year 2000 readiness

Like all mutual funds, the portfolios could be affected by the inability of some
computer systems to recognize the year 2000. The Adviser has a year 2000
readiness program designed to address this problem, and has researched and is
comfortable with the readiness of suppliers and business partners as well as
issuers of securities the portfolios own. Still, there is some risk that the
year 2000 problem could materially affect the portfolios' operations (such as
their ability to calculate net asset value and process purchases and
redemptions), their investments, or securities markets in general.

ABOUT YOUR INVESTMENT

Transaction information

Share price

Scudder Fund Accounting Corporation determines the net asset value per share of
each portfolio 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. Central time for Money Market Portfolio and
Government Securities Portfolio, and at 11:00 a.m. and 3:00 p.m. Central time
for Tax-Exempt Portfolio.

Each portfolio seeks to maintain a net asset value of $1.00 per share and values
its portfolio instruments at amortized cost. Calculations are made to compare
the value of each portfolio's investments, valued at amortized cost, with
market-based values. In order to value its investments at amortized cost, each
portfolio purchases only securities with a maturity of 12 months or less and
maintains a dollar-weighted average maturity of 90 days or less.

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.

The net asset value per share of each portfolio is the value of one share and is
determined by dividing the value of a portfolio's total assets, less all
liabilities, by the total number of shares outstanding for that portfolio.

Processing time

Payment for shares you sell will be made in cash as promptly as practicable but
in no event later than seven days after receipt of a properly executed request.
If you have share certificates, these must accompany your order in proper form
for transfer. When you place an order to sell shares for which a portfolio may
not yet have received good payment (i.e., purchases by check or certain
Automated Clearing House Transactions), a portfolio may delay transmittal of the
proceeds until it has determined that collected funds have been received for the
purchase of such shares. This may be up to 10 days from receipt by a portfolio

13
<PAGE>

of the purchase amount. If shares being redeemed were acquired from an exchange
of shares of a mutual fund that were offered subject to a contingent deferred
sales charge, the redemption of such shares by a portfolio may be subject to a
contingent deferred sales charge as explained in the prospectus for the other
fund.

Signature guarantees

A signature guarantee is required unless you sell shares worth $50,000 or less
and the proceeds are payable to the shareholder of record at the address of
record. You can obtain a guarantee from most brokerage houses and financial
institutions, although not from a notary public. The portfolios normally will
send you the proceeds within one business day following your request, but may
take up to seven business days (or longer in the case of shares recently
purchased by check).

Minimum balances

The minimum initial investment for each portfolio is $1,000 and the minimum
subsequent investment is $100, but such minimum amounts may be changed at any
time in management's discretion. Firms offering portfolio shares may set higher
minimums for accounts they service and may change such minimums at their
discretion.

Because of the high cost of maintaining small accounts, each portfolio reserves
the right to redeem an account with a balance below $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 a portfolio
redeems that shareholder account.

Redemption-in-kind

Each portfolio reserves the right to honor any request for redemption or
repurchase order by "redeeming in kind," that is, by giving you marketable
securities (which typically will involve brokerage costs for you to liquidate)
rather than cash; in most cases, a portfolio won't make a redemption-in-kind
unless your requests over a 90-day period total more than $250,000 or 1% of a
portfolio's assets, whichever is less.

Rule 12b-1 plan

Each portfolio has adopted a plan under Rule 12b-1 that provides for fees
payable as an expense of a portfolio that are used by the principal underwriter
to pay for distribution related expenses for that portfolio. Under the Rule
12b-1 plan, each portfolio pays an annual distribution services fee, payable
monthly, of 0.38% of that portfolio's average daily net assets (except
Tax-Exempt Portfolio, which pays 0.33%). Because 12b-1 fees are paid out of the
portfolios' assets on an ongoing basis, they will, over time, increase the cost
of investment and may cost more than paying other types of sales charges.

<PAGE>

Buying shares

Shares of each portfolio may be purchased at net asset value through selected
financial services firms, such as broker-dealers and banks. Investors must
indicate the portfolio in which they wish to invest.

Each portfolio seeks to be as fully invested as possible at all times in order
to achieve maximum income. Since the portfolios will be investing in instruments
that normally require immediate payment in Federal Funds (monies credited to a
bank's account with its regional Federal Reserve Bank), each portfolio has
adopted procedures for the convenience of its shareholders and to ensure that it
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. Central time net asset value determination for the Money
Market Portfolio and the Government Securities Portfolio, and at or prior to the
11:00 a.m. Central time net asset value determination for the Tax-Exempt
Portfolio. Otherwise such shares will receive the dividend for the next calendar
day if effected at 3:00 p.m. Central time.

Orders for purchase accompanied by a check or other negotiable bank draft will
be accepted and effected as of 3:00 p.m. Central time on the next business day
following receipt and such shares will receive the dividend for the next
calendar day following the day 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 of a portfolio will be purchased.

If payment is wired in Federal Funds, the payment should be directed to UMB Bank
N.A. (ABA #101-000-695), 10th and Grand Avenue, Kansas City, Missouri 64106 for
credit to the appropriate portfolio bank account (CEF Money Market Portfolio 17:
98-0103-348-4; CEF Government Securities Portfolio 23: 98-0103-378-6; CEF
Tax-Exempt Portfolio 45: 98-0103-380-8) and further credit to your account
number.

Third party transactions

If you buy and sell shares of a portfolio through a member of the National
Association of Securities Dealers, Inc. (other than the portfolios'
distributor), that member may charge a fee for that service. This prospectus
should be read in connection with such firms' material regarding their fees and
services.

Other information

Each portfolio reserves the right to withdraw all or any part of the offering
made by this prospectus or to reject purchase orders, without prior notice.
Also, from time to time, each portfolio may temporarily suspend the offering of
its shares to new investors. During the period of such suspension, persons who
are already shareholders normally are permitted to continue to purchase
additional shares and to have dividends reinvested. Each portfolio 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 and are
not binding until confirmed or accepted in writing. Any purchase that would
result in total account balances for a single shareholder in excess of $3
million is subject to prior approval by the portfolio. Share certificates are
issued only on request. 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.

Shareholders should direct their inquiries to the firm from which they received
this prospectus or to Kemper Service Company, the portfolios' Shareholder
Service Agent, 811 Main Street, Kansas City, Missouri 64105-2005.

15
<PAGE>

SELLING AND EXCHANGING SHARES

Upon receipt by Kemper Service Company of a request in the form described below,
shares of a portfolio will be redeemed by the portfolio at the next determined
net asset value. If processed at 3:00 p.m. Central time, the shareholder will
receive that day's dividend. A shareholder may use either the regular or
expedited 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.

Shareholders should contact the financial services firm through which shares
were purchased for redemption instructions. Any shareholder may request that a
portfolio redeem his or her shares. When shares are held for the account of a
shareholder by the portfolios' transfer agent, the shareholder may redeem them
by sending a written request with signatures guaranteed (if applicable) to
Kemper Service Company, P.O. Box 419153, Kansas City, Missouri 64141-6153.

An exchange of shares entails the sale of portfolio shares and subsequent
purchase of shares of another Kemper Fund.

Shareholders may obtain additional information about other ways to redeem shares
such as telephone redemptions, expedited wire transfer redemptions, and
redemptions by draft by contacting their financial services firm.

Checkwriting. You may redeem shares of any portfolio by writing checks against
your account for at least $250 and no more than $5,000,000.

Special Features. Certain firms that offer shares of the portfolios also provide
special redemption features through charge or debit cards and checks that redeem
portfolio 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.

Distributions

The portfolios' dividends are declared daily and distributed monthly to
shareholders. Any dividends or capital gains distributions declared in October,
November or December with a record date in such month and paid during the
following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared. A
portfolio may adjust its schedule for dividend reinvestment for the month of
December to assist in complying with the reporting and minimum distribution
requirements contained in Subchapter M of the Internal Revenue Code.

Income dividends and capital gain dividends, if any, of a portfolio will be
credited to shareholder accounts in full and fractional shares of the same
portfolio at net asset value, except that, upon written request to Kemper
Service Company, a shareholder may choose to receive income and capital gain
dividends in cash.

If an investment is in the form of a retirement plan, all dividends and capital
gains distributions must be reinvested into the shareholder's account.
Distributions are generally taxable whether received in cash or reinvested.
Exchanges among other mutual funds may also be taxable events.

16
<PAGE>

Taxes

Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
shareholders as long-term capital gains, regardless of the length of time
shareholders have owned shares. Short-term capital gains and any other taxable
income distributions are taxable as ordinary income. It is not expected that
dividends will qualify for the dividends-received deduction for corporations.
Distributions of tax-exempt interest income from Tax-Exempt Portfolio are
expected to be exempt from federal income taxation, except for the possible
applicability of the alternative minimum tax. The tax exemption of dividends
from 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.

Each portfolio sends detailed tax information about the amount and type of its
distributions by January 31 of the following year.

Each portfolio may be required to withhold U.S. federal income tax at the rate
of 31% of all taxable distributions payable to shareholders who fail to provide
the portfolio with their correct taxpayer identification number or to make
required certifications, or who have been notified by the IRS that they are
subject to backup withholding. Any such withheld amounts may be credited against
the shareholder's U.S. federal income tax liability.

You may be subject to state, local and foreign taxes on portfolio distributions
and dispositions of portfolio shares. You should consult your tax adviser
regarding the particular tax consequences of an investment in a portfolio.

17
<PAGE>

Financial highlights

The financial highlights tables are intended to help you understand each
portfolio's financial performance for the periods indicated. The figures in the
first part of each table are for a single share. The total return figures show
what an investor would have earned on an investment in a portfolio assuming
reinvestment of all dividends and distributions. This information has been
audited by Ernst & Young LLP, whose report, along with the financial statements,
is included in each annual report, which is available upon request (see back
cover).

<TABLE>
<CAPTION>
Money Market Portfolio

Year ended July 31,
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .04 .05 .05 .05 .05
- ---------------------------------------------------------------------------------------------------------------------
Less dividends declared .04 .05 .05 .05 .05
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------
Total Return 4.43% 4.93 4.78 4.94 4.95
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses .89% .91 .93 .89 .87
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 4.34% 4.83 4.64 4.86 4.84
- ---------------------------------------------------------------------------------------------------------------------
Supplemental Data:
Net assets at end of year (in thousands) $1,038,316 851,592 970,516 2,774,595 3,593,294
- ---------------------------------------------------------------------------------------------------------------------
</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>
Government Securities Portfolio

Year ended July 31,
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .04 .05 .05 .05 .05
- ---------------------------------------------------------------------------------------------------------------------
Less dividends declared .04 .05 .05 .05 .05
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------
Total Return 4.37% 4.89 4.85 5.00 4.96
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses .85% .85 .83 .79 .81
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 4.29% 4.79 4.73 4.90 4.87
- ---------------------------------------------------------------------------------------------------------------------
Supplemental Data:
Net assets at end of year (in thousands) $454,530 391,861 404,037 1,594,128 1,785,098
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

18
<PAGE>

<TABLE>
<CAPTION>
Tax-Exempt Portfolio

Year ended July 31,
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .03 .03 .03 .03 .03
- ---------------------------------------------------------------------------------------------------------------------
Less dividends declared .03 .03 .03 .03 .03
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------
Total Return 2.68% 3.13 3.03 3.11 3.21
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses .62% .66 .71 .70 .68
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 2.65% 3.09 2.97 3.08 3.15
- ---------------------------------------------------------------------------------------------------------------------
Supplemental Data:
Net assets at end of year (in thousands) $382,129 333,427 444,939 931,564 1,109,861
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

19
<PAGE>

Additional information about the portfolios may be found in the Statement of
Additional Information and in shareholder reports. Shareholder inquiries may be
made by calling the toll-free telephone number listed below. The Statement of
Additional Information contains more detailed information on each portfolio's
investments and operations. The semiannual and annual shareholder reports
include a listing of portfolio holdings and financial statements. These and
other portfolio documents may be obtained without charge from your financial
adviser, from the Shareholder Service Agent at 1-800-231-8568, from the
Securities and Exchange Commission Web site (http://www.sec.gov), and the
principal underwriter. You can also visit or write the SEC and obtain copies for
a fee: Public Reference Section, Securities and Exchange Commission, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549-6009 (1-800-SEC-0330).

The Statement of Additional Information dated December 1, 1999 is incorporated
by reference into this prospectus (is legally a part of this prospectus).

Investment Company Act file number:

Cash Equivalent Fund 811-2899

<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
December 1, 1999

CASH EQUIVALENT FUND
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-231-8568

This Statement of Additional Information contains information about the Money
Market Portfolio, the Government Securities Portfolio and the Tax-Exempt
Portfolio (each a "Portfolio," collectively, the "Portfolios") offered by Cash
Equivalent Fund (the "Fund"). Cash Equivalent Fund is an open-end diversified
management investment company. This Statement of Additional Information is not a
prospectus and should be read in conjunction with the prospectus of Cash
Equivalent Fund dated December 1, 1999. The prospectus may be obtained without
charge from the Fund, and is also available along with other related materials
on the SEC's Internet Web site (http://www.sec.gov).

TABLE OF CONTENTS

INVESTMENT RESTRICTIONS........................................................2

INVESTMENT POLICIES AND TECHNIQUES.............................................5

INVESTMENT MANAGER AND SHAREHOLDER SERVICES...................................10

PORTFOLIO TRANSACTIONS........................................................14

PURCHASE AND REDEMPTION OF SHARES.............................................15

SPECIAL FEATURES..............................................................18

DIVIDENDS, TAXES AND NET ASSET VALUE .........................................18

PERFORMANCE...................................................................20

OFFICERS AND TRUSTEES.........................................................23

SPECIAL FEATURES..............................................................25

SHAREHOLDER RIGHTS............................................................27

APPENDIX -- RATINGS OF INVESTMENTS............................................29

The financial statements appearing in the Fund's 1999 Annual Report to
Shareholders are incorporated herein by reference. The Fund's Annual Report
dated July 31, 1999 accompanies this Statement of Additional Information, and
may be obtained without charge by calling 1-800-231-8568.

<PAGE>

INVESTMENT RESTRICTIONS

The Fund has adopted certain investment restrictions for each portfolio which,
together with the investment objective and fundamental policies of each
Portfolio (limited in regard to the Tax-Exempt Portfolio to the policies in the
first and third paragraphs under "Tax-Exempt Portfolio" below), 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, as
amended (the "1940 Act"), 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.

2
<PAGE>

(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 1940 Act.

With regard to investment restriction number 10 above, for purposes of
determining the percentage of the Money Market Portfolio's total assets invested
in securities of issuers having their principal business activities in a
particular industry, asset backed securities will be classified separately,
based on the nature of the underlying assets. Currently, the following
categories are used: captive auto, diversified, retail and consumer loans,
captive equipment and business, business trade receivables, nuclear fuel and
capital and mortgage lending. Also, bankers' acceptances will be only of U.S.
banks (excluding foreign branches). In addition, the Money Market Portfolio does
not currently intend to invest 25% or more in U.S. Government Securities.
Similarly, the Government Securities Portfolio does not currently intend to
invest 25% or more in bankers' acceptances.

The Tax-Exempt Portfolio may not:

(1) Purchase securities or make investments other than in accordance with
its investment objective and policies, except that all or substantially
all of the assets of the Portfolio may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Portfolio.

(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, except that all or substantially all of
the assets of the Portfolio may be invested in another registered
investment company having the same investment objective and
substantially similar investment policies as the Portfolio, 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, except that all or
substantially all of the assets of the Portfolio may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Portfolio. For purposes of this limitation, the Portfolio will

3
<PAGE>

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.

(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, except that
all or substantially all of the assets of the Portfolio may be invested
in another registered investment company having the same investment
objective and substantially similar investment policies as the
Portfolio.

(10) Invest more than 5% of the Portfolio's total assets in securities
restricted as to disposition under the federal securities laws, except
that all or substantially all of the assets of the Portfolio may be
invested in another registered investment company having the same
investment objective and substantially similar investment policies as
the Portfolio.

(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,
and except that all or substantially all of the assets of the Portfolio
may be invested in another registered investment company having the
same investment objective and substantially similar investment policies
as the Portfolio.

(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, and except that all or substantially all of the assets of
the Portfolio may be invested in another registered investment company
having the same investment objective and substantially similar
investment policies as the Portfolio.

4
<PAGE>

(16) Issue senior securities as defined in the 1940 Act.

If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. 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.

Master/Feeder Fund Structure. At a special meeting of shareholders, a majority
of the shareholders of the Tax-Exempt Portfolio approved a proposal which gives
the Board of Trustees the discretion to retain the current distribution
arrangement for the Portfolio while investing in a master fund in a
master/feeder fund structure as described below.

A master/feeder fund structure is one in which a fund (a "feeder fund"), instead
of investing directly in a portfolio of securities, invests most or all of its
investment assets in a separate registered investment company (the "master
fund") with substantially the same investment objective and policies as the
feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.

INVESTMENT POLICIES AND TECHNIQUES

The Portfolios are designed to provide their shareholders with professional
management of short-term investment dollars. The Portfolios pool individual and
institutional investors' money which they use to buy high quality money market
instruments. Because each Portfolio combines its shareholders' money, it can buy
and sell large blocks of securities, which reduces transaction costs and
maximizes yields. The Portfolios are 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 high quality ratings, high quality money market instruments, such
as those in which the Portfolios invest, are generally considered to be among
the safest available. Thus, the Portfolios are 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.

In addition, the Portfolios limit their investments to securities that meet the
quality and diversification requirements of Rule 2a-7 under the 1940 Act.

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.

5
<PAGE>

(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 this 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.

To the extent the 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 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.

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
Portfolio'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 below. The
Portfolio's investment manager monitors the liquidity of the Portfolio's
investments in Section 4(2) paper on a continuous basis.

The 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 to
provide 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 in 12 months or less. 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.

6
<PAGE>

Government guarantee of the securities owned by the Portfolio, however, does not
guarantee the net asset value of its shares, which the Portfolio 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 Portfolio seeks to provide maximum current income that
is exempt from federal income taxes to the extent consistent with stability of
capital. The Portfolio pursues its objective by investing primarily in 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 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, Taxes and Net Asset Value - Tax Exempt
Portfolio.") The Portfolio's assets will consist of Municipal Securities,
temporary investments, as described further in this Statement of Additional
Information, and cash. The Portfolio considers short-term Municipal Securities
to be those that mature in one year or less.

The Portfolio will invest only in Municipal Securities which at the time of
purchase: (a) are rated within the two highest-ratings for Municipal Securities
assigned by Moody's (Aaa or Aa) or assigned by S&P (AAA or AA); (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 Portfolio'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 Portfolio's
investment manager.

Municipal Securities generally are classified as "general obligation" or
"revenue" bonds. 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 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.

The 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 Portfolio'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
Portfolio'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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The 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 Portfolio'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 Portfolio'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 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
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 "Dividends, Taxes and
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 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.

Municipal Securities that the 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.

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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 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.

From time to time, as a defensive measure or when acceptable short-term
Municipal Securities are not available, the 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 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, Taxes and Net
Asset Value.") For a description of the ratings, see "Appendix -- Ratings of
Investments" in this Statement of Additional Information.

Repurchase Agreements. A 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 a 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 may enter into repurchase agreements with any member bank of the
Federal Reserve System or any domestic broker/dealer which is recognized as a
reporting Government securities dealer if the creditworthiness of the bank or
broker/dealer has been determined by the Adviser to be at least as high as that
of other obligations a Portfolio may purchase or to be at least equal to that of
issuers of commercial paper rated within the two highest grades assigned by
Moody's, S&P or Duff.

A repurchase agreement provides a means for a Portfolio to earn taxable income
on funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., a Portfolio) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities kept at least equal to the repurchase
price on a daily basis. The

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<PAGE>

repurchase price may be higher than the purchase price, the difference being
income to a Portfolio, or the purchase and repurchase prices may be the same,
with interest at a stated rate due to a Portfolio together with the repurchase
price on the date of repurchase. In either case, the income to a Portfolio
(which is taxable) is unrelated to the interest rate on the Obligation itself.
Obligations will be held by the custodian or in the Federal Reserve Book Entry
system.

For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from
a Portfolio to the seller of the Obligation subject to the repurchase agreement
and is therefore subject to the Portfolio's investment restriction applicable to
loans. It is not clear whether a court would consider the Obligation purchased
by a Portfolio subject to a repurchase agreement as being owned by that
Portfolio or as being collateral for a loan by a Portfolio to the seller. In the
event of the commencement of bankruptcy or insolvency proceedings with respect
to the seller of the Obligation before repurchase of the Obligation under a
repurchase agreement, a Portfolio may encounter delay and incur costs before
being able to sell the security. Delays may involve loss of interest or decline
in price of the Obligation. If the court characterized the transaction as a loan
and a Portfolio has not perfected an interest in the Obligation, a Portfolio may
be required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, a Portfolio is at
risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt obligation purchased for a Portfolio,
the Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the Obligation, in which
case the Portfolio may incur a loss if the proceeds to a Portfolio of the sale
to a third party are less than the repurchase price. However, if the market
value of the Obligation subject to the repurchase agreement becomes less than
the repurchase price (including interest), a Portfolio will direct the seller of
the Obligation to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that a Portfolio will be unsuccessful in
seeking to enforce the seller's contractual obligation to deliver additional
securities.

Illiquid Securities. 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.

Variable Rate 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 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 ("Variable Rate Demand Securities"). 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.

Borrowings. 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.

INVESTMENT MANAGER AND SHAREHOLDER SERVICES

Investment Manager. Scudder Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser"), 345 Park Avenue, New York, New York, is each Portfolio's investment
manager. The Adviser is approximately 70% owned by Zurich Insurance Company
("Zurich"), a leading internationally recognized provider of insurance and
financial services in property/casualty and life insurance, reinsurance and
structured financial solutions, as well as asset management. The balance of the
Adviser is

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owned by its officers and employees. Responsibility for overall management of
each Portfolio rests with the Fund's Board of Trustees and officers. Pursuant to
investment management agreements, Scudder Kemper acts as each Portfolio's
investment adviser, manages its investments, administers its business affairs,
furnishes office facilities and equipment, provides clerical, and administrative
services, and permits any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions.
Each Portfolio pays the expenses of its operations, including the fees and
expenses of independent auditors, counsel, custodian and transfer agent and the
cost of share certificates, reports and notices to shareholders, costs of
calculating net asset value and maintaining all accounting records thereto,
brokerage commissions or transaction costs, taxes, registration fees, the fees
and expenses of qualifying the Portfolio and its shares for distribution under
federal and state securities laws and membership dues in the Investment Company
Institute or any similar organization. Fund expenses generally are allocated
among the Portfolios on the basis of net assets at the time of the allocation,
except that expenses directly attributable to a particular Portfolio are charged
to that Portfolio.

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. 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 the Adviser may continue to serve as investment manager for the
Portfolio for which it is not approved to the extent permitted by the 1940 Act.
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.

Each investment management agreement provides that the Adviser shall not be
liable for any error of judgment or of law, or for any loss suffered by the
Portfolios in connection with the matters to which the agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Adviser in the performance of its obligations and duties, or by
reason of its reckless disregard of its obligations and duties under the
agreement. In certain cases the investments for the Portfolios are managed by
the same individuals who manage one or more other mutual funds advised by the
Adviser that have similar names, objectives and investment styles as the
Portfolios. You should be aware that the Portfolios are likely to differ from
these other mutual funds in size, cash flow pattern and tax matters.
Accordingly, the holdings and performance of the Portfolios can be expected to
vary from those of the other mutual funds.

On December 31, 1997, pursuant to the terms of an agreement, Scudder, Stevens &
Clark, Inc. ("Scudder") and Zurich formed a new global organization by combining
Scudder with Zurich Kemper Investments, Inc. ("ZKI") and Zurich Kemper Value
Advisers, Inc. ("ZKVA"), former subsidiaries of Zurich. ZKI was the former
investment manager for each Portfolio. Upon completion of the transaction,
Scudder changed its name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owns approximately 70% of Scudder Kemper, with the balance
owned by Scudder Kemper's officers and employees.

On September 7, 1998, the businesses of Zurich (including Zurich's 70% interest
in Scudder Kemper) and the financial services businesses of B.A.T Industries
p.l.c. ("B.A.T") were combined to form a new global insurance and financial
services company known as Zurich Financial Services Group. By way of a dual
holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services Group, with the balance initially
owned by former B.A.T. shareholders.

Upon consummation of this transaction, the Portfolios' then current investment
management agreements with Scudder Kemper were deemed to have been assigned and,
therefore, terminated. The Board approved new investment management agreements
(the "Agreements") with Scudder Kemper, which are substantially identical to the
prior investment management agreements except for the dates of execution and
termination. These agreements became effective on September 7, 1998, upon the
termination of the then current investment management agreements, and were
approved at a shareholder meeting held on December 17, 1998.

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<PAGE>

For the services and facilities furnished to the Money Market and Government
Securities Portfolios, such Portfolios pay an annual investment management fee
monthly, on a graduated basis at the following rate: 0.22% of the first $500
million of combined average daily net assets of such 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 of such Portfolios over $3
billion. The Adviser 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 the
Adviser but excluding taxes, interest, the distribution fee of Kemper
Distributors, Inc. ("KDI"), extraordinary expenses (as determined by the Board
of Trustees) and brokerage commissions or transaction costs, exceed 0.90% of the
first $500 million, 0.80% of the next $500 million, 0.75% of the next $1 billion
and 0.70% 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 monthly, on a graduated basis
at the following annual rate: 0.22% of the first $500 million of average daily
net assets, 0.20% of the next $500 million, 0.175% of the next $1 billion, 0.16%
on the next $1 billion and 0.15% of average daily net assets of such Portfolio
over $3 billion. The Adviser has agreed to reimburse the Tax-Exempt Portfolio
should all operating expenses of such Portfolio, including the compensation of
the Adviser 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 in excess of $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, 1999, the Fund incurred
investment management fees aggregating $1,930,000 for the Money Market
Portfolio, $896,000 for the Government Securities Portfolio and $843,000 for the
Tax-Exempt Portfolio. During the fiscal year ended July 31, 1998, the Fund
incurred investment management fees aggregating $1,868,000 for the Money Market
Portfolio, $834,000 for the Government Securities Portfolio and $945,000 for the
Tax-Exempt Portfolio. During the fiscal year ended July 31, 1997, the Fund
incurred investment management fees aggregating $2,795,000 for the Money Market
Portfolio, $1,393,000 for the Government Securities Portfolio and $1,377,000 for
the Tax-Exempt Portfolio.

Fund Accounting Agent. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts 02110, a subsidiary of the Adviser,
is responsible for determining the net asset value per share of each Portfolio
and maintaining all accounting records related thereto. Currently, SFAC receives
no fee for its services to the Portfolios; however, subject to Board approval,
at some time in the future, SFAC may seek payment for its services under this
agreement.

Distributor and Administrator. Pursuant to an administration, shareholder
services and distribution agreement and an underwriting agreement (collectively
"distribution agreement"), KDI, 222 South Riverside Plaza, Chicago, Illinois
60606, an affiliate of the Adviser, serves as primary administrator, distributor
and principal underwriter for the Portfolios 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 Portfolios. 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. Each Portfolio has adopted a plan in accordance
with Rule 12b-1 of the 1940 Act (the "12b-1 Plan"). The rule regulates the
manner in which an investment company may, directly or indirectly, bear the
expenses of distributing shares.

The distribution agreement and the 12b-1 Plans continue 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 distribution agreement automatically terminates in the event of
its assignment and may be terminated at any time without penalty by a Portfolio
or by KDI upon 60 days' written notice. Termination by a Portfolio 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 a Portfolio as defined under the 1940 Act. The 12b-1 Plan may not
be amended to increase the fee to be paid by a Portfolio without approval by a
majority of the outstanding voting securities of a Portfolio 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 each 12b-1 Plan. The
Portfolios of the Fund will vote separately with respect to the

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<PAGE>

12b-1 Plan. For its services under the distribution agreement, and pursuant to
each 12b-1 Plan, the Fund pays KDI an annual distribution fee, payable monthly,
of 0.38% of average daily net assets with respect to the Money Market and
Government Securities Portfolios and 0.33% of average daily net assets with
respect to the Tax-Exempt Portfolio.

KDI is the principal underwriter for shares of each Portfolio and acts as agent
of each Portfolio 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 each Portfolio's 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 Portfolio shares of
client account balances, answering routine inquiries regarding a Portfolio,
assisting clients in changing account options, designations and addresses, and
such other services as may be agreed upon from time to time and as may be
permitted by applicable statute, rule or regulation. KDI also has services
agreements with banking firms to provide the above listed services, except for
certain distribution services that the banks may be prohibited from providing,
for their clients who wish to invest in a Portfolio. KDI also may provide some
of the above services for a Portfolio. KDI normally pays such firms at an annual
rate ranging from 0.15% to 0.40% of average net assets of those accounts in the
Money Market and Government Securities Portfolios that they maintain and service
and ranging from 0.15% to 0.33% of average daily net assets of those accounts in
the Tax-Exempt Portfolio that they maintain and service. In addition, KDI may,
from time to time, from its own resources, pay certain firms additional amounts
for such services including, without limitation fixed dollar amounts and amounts
based upon a percentage of net assets or increased net assets in those Fund
accounts that said firms maintain and service. KDI also may reimburse firms for
costs associated with the transfer of client balances to the Fund. KDI may elect
to keep a portion of the total distribution fee to compensate itself for
functions performed for a Portfolio or to pay for sales materials or other
promotional activities.

For the fiscal year ended July 31, 1999, the Fund incurred distribution fees in
the Money Market Portfolio, the Government Securities Portfolio and the
Tax-Exempt Portfolio of $3,586,000 $1,709,000 and $1,217,000 respectively, for a
total amount of $6,512,000. KDI remitted $3,609,000, $1,696,000 and $1,167,000,
respectively, to various firms, pursuant to the related services agreements. For
the fiscal year ended July 31, 1999, KDI incurred expenses for underwriting,
distribution and administration in the approximate amounts noted: fees to firms
$6,472,000; advertising and literature $0; prospectus printing $0 and marketing
and sales expenses $409,000, for a total of $6,881,000. A portion of the
aforesaid marketing, sales and operating expenses could be considered overhead
expense; however, KDI has made no attempt to differentiate between expenses that
are overhead and those that are not.

For the fiscal year ended July 31, 1998, the Fund incurred distribution fees in
the Money Market Portfolio, the Government Securities Portfolio and the
Tax-Exempt Portfolio of $3,530,000, $1,577,000 and $1,416,000, respectively, for
a total amount of $6,523,000. KDI remitted $3,443,000, $1,561,000 and
$1,252,000, respectively, to various firms, pursuant to the related services
agreements. For the fiscal year ended July 31, 1998, KDI incurred expenses for
underwriting, distribution and administration in the approximate amounts noted:
fees to firms $6,256,000; advertising and literature $0; prospectus printing $0
and marketing and sales expenses $573,000, for a total of $6,829,000. 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 the
Adviser and KDI as indicated under "Officers and Trustees."

Custodian, Transfer Agent and Shareholder Service Agent. State Street Bank and
Trust Company ("State Street"), 225 Franklin Street, Boston, Massachusetts
02110, as custodian, has custody of all securities and cash of the Portfolios.
State Street attends to the collection of principal and income, and payment for
and collection of proceeds of securities bought and sold by the Portfolios.
Investors Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas
City, Missouri 64105 is transfer agent of the Portfolios. Pursuant to a services
agreement with IFTC, Kemper Service Company ("KSvC"), an affiliate of the
Adviser, 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

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<PAGE>

$13 per account plus out-of-pocket expense reimbursement. During the fiscal year
ended July 31, 1999 and 1998, IFTC remitted shareholder service fees in the
amount of $2,616,000, and $2,948,000, respectively, to KSvC as Shareholder
Service Agent.

Independent Auditors and Reports to Shareholders. The Fund's independent
auditors, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
audit and report on the Fund's annual financial statements, review certain
regulatory reports and the Fund's federal income tax return, and perform other
professional accounting, auditing, tax and advisory services when engaged to do
so by the Fund. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.

Legal Counsel. Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street,
Chicago, Illinois 60601, serves as legal counsel to the Fund.

PORTFOLIO TRANSACTIONS

Brokerage Commissions

Allocation of brokerage is supervised by the Adviser.

The primary objective of the Adviser in placing orders for the purchase and sale
of securities for a Portfolio is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
Scudder Investor Services, Inc. ("SIS") with commissions charged on comparable
transactions, as well as by comparing commissions paid by a Portfolio to
reported commissions paid by others. The Adviser routinely reviews commission
rates, execution and settlement services performed and makes internal and
external comparisons.

The Portfolios' purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Portfolio. Trading
does, however, involve transaction costs. Transactions with dealers serving as
primary market makers reflect the spread between the bid and asked prices.
Purchases of underwritten issues may be made, which will include an underwriting
fee paid to the underwriter.

When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Adviser's practice to place such orders with
broker/dealers who supply brokerage and research services to the Adviser or a
Portfolio. The term "research services" includes advice as to the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or purchasers or sellers of securities; and
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and the performance of accounts. The
Adviser is authorized when placing portfolio transactions, if applicable, for
the Portfolio to pay a brokerage commission in excess of that which another
broker might charge for executing the same transaction on account of execution
services and the receipt of research services. The Adviser has negotiated
arrangements, which are not applicable to most fixed-income transactions, with
certain broker/dealers pursuant to which a broker/dealer will provide research
services, to the Adviser or the Portfolio in exchange for the direction by the
Adviser of brokerage transactions to the broker/dealer. These arrangements
regarding receipt of research services generally apply to equity security
transactions. The Adviser may place orders with a broker/dealer on the basis
that the broker/dealer has or has not sold shares of the Portfolio. In effecting
transactions in over-the-counter securities, orders are placed with the
principal market makers for the security being traded unless, after exercising
care, it appears that more favorable results are available elsewhere.

To the maximum extent feasible, it is expected that the Adviser will place
orders for portfolio transactions through SIS, which is a corporation registered
as a broker/dealer and a subsidiary of the Adviser; SIS will place orders on
behalf of a Portfolio with issuers, underwriters or other brokers and dealers.
SIS will not receive any commission, fee or other remuneration from a Portfolio
for this service.

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<PAGE>

Although certain research services from broker/dealers may be useful to a
Portfolio and to the Adviser, it is the opinion of the Adviser that such
information only supplements the Adviser's own research effort since the
information must still be analyzed, weighed, and reviewed by the Adviser's
staff. Such information may be useful to the Adviser in providing services to
clients other than a Portfolio, and not all such information is used by the
Adviser in connection with a Portfolio. Conversely, such information provided to
the Adviser by broker/dealers through whom other clients of the Adviser effect
securities transactions may be useful to the Adviser in providing services to a
Portfolio.

The Trustees review, from time to time, whether the recapture for the benefit of
a Portfolio of some portion of the brokerage commissions or similar fees paid by
a Portfolio on portfolio transactions is legally permissible and advisable.

Money market instruments are normally purchased in principal transactions
directly from the issuer or from an underwriter or market maker. There usually
are no brokerage commissions paid by a Portfolio for such purchases. During the
last three fiscal years none of the Portfolios paid brokerage commissions.
Purchases from underwriters will include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market makers
will include the spread between the bid and asked prices.

PURCHASE AND REDEMPTION OF SHARES

Purchase of Shares

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 prospectus. The
minimum initial investment is $1,000 and the minimum subsequent investment is
$100 but such minimum amounts may be changed at any time. The Fund may waive the
minimum for purchases by trustees, directors, officers or employees of the Fund
or the Adviser and its affiliates. An investor wishing to open an account should
use the Account Information Form available from the Fund or financial services
firms. Orders for the purchase of shares that are accompanied by a check drawn
on a foreign bank (other than a check drawn on a Canadian bank in U.S. Dollars)
will not be considered in proper form and will not be processed unless and until
the Fund determines that it has received payment of the proceeds of the check.
The time required for such a determination will vary and cannot be determined in
advance.

Each Portfolio seeks to have its portfolio 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), each
Portfolio 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.
Central time net asset value determination for the Money Market and the
Government Securities Portfolios and at or prior to the 11:00 a.m. Central time
net asset value determination for the Tax-Exempt Portfolio. Otherwise such
shares will receive the dividend for the next calendar day if effected at 3:00
p.m. Central time. Orders for purchase accompanied by a check or other
negotiable bank draft will be accepted and effected as of 3:00 p.m. Central time
on the next business day following receipt and such shares will receive the
dividend for the calendar 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.

If payment is wired in Federal Funds, the payment should be directed to United
Missouri Bank of Kansas City, N.A. (ABA #101-000-695), 10th and Grand Avenue,
Kansas City, M0 64106 for credit to the appropriate Portfolio bank account (CEF
Money Market Portfolio 17: 98-0103-348-4; CEF Government Securities Portfolio
23: 98-0103-378-6; CEF Tax-Exempt Portfolio 45: 98-0103-380-8).

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. Central 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.

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<PAGE>

Each Portfolio 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 a
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 each Portfolio'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, a Portfolio 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 that Portfolio during any 90-day period for any one shareholder of
record.

If shares of a Portfolio to be redeemed were purchased by check or through
certain Automated Clearing House ("ACH") transactions, the Portfolio 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 Portfolio of the purchase amount. Shareholders may not use
expedited redemption procedures (wire transfer or Redemption Check) until the
shares being redeemed have been owned for at least 10 days, and shareholders may
not use such procedures to redeem shares held in certificated form. There is no
delay when shares being redeemed were purchased by wiring Federal Funds.

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 a Portfolio 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 preauthorized 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, each Portfolio 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 a Portfolio redeems the shareholder account.

Firms provide varying arrangements for their clients to redeem Portfolio 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 (if
applicable) to Kemper Service Company, P.O. Box 419153, Kansas City, Missouri
64141-6153. When certificates for shares have been issued, they must be mailed
to or deposited with the Shareholder Service Agent, along with a duly endorsed
stock power and accompanied by a written request for redemption. Redemption
requests and a stock power must be endorsed by the account holder with
signatures guaranteed

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<PAGE>

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, 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, guardian and custodian account
holders provided the trustee, executor, guardian or custodian is named in the
account registration. Other institutional account holders and guardian account
holders of custodial accounts for gifts 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 preauthorized 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. Each Portfolio reserves the right
to terminate or modify this privilege at any time.

Expedited Wire Transfer Redemptions. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares can be redeemed and proceeds sent by a federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to 11:00 a.m. Central time will result in shares
being redeemed that day and normally the proceeds will be sent to the designated
account that day. Once authorization is on file, the Shareholder Service Agent
will honor requests by telephone or in writing, subject to the limitations on
liability described under "General" above. A Portfolio is not responsible for
the efficiency of the federal wire system or the account holder's financial
services firm or bank. A Portfolio 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 a Portfolio 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. Each Portfolio reserves the right to terminate or modify
this privilege at any time.

Redemptions by Draft. Upon request, shareholders will be provided with drafts to
be drawn on a Portfolio ("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 a Portfolio 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 a
Portfolio 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. Each Portfolio 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 a Portfolio. 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 a Portfolio, 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

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<PAGE>

purchased by check or through certain ACH transactions may not be redeemed by
Redemption Check until the shares have been on a Portfolio's books for at least
10 days. Shareholders may not use this procedure to redeem shares held in
certificated form. Each Portfolio reserves the right to terminate or modify this
privilege at any time.

A Portfolio 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 Portfolio shares in excess of the value of a Portfolio 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 a Portfolio also provide special redemption
features through charge or debit cards, Automatic Teller Machines and checks
that redeem Portfolio 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.

DIVIDENDS, TAXES AND NET ASSET VALUE

Dividends. Dividends are declared daily and paid monthly. Shareholders will
receive dividends in additional shares unless they elect to receive cash.
Dividends will be reinvested monthly in shares of a Portfolio at the net asset
value normally on the fifteenth day of each month if a business day, otherwise
on the next business day. A Portfolio 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 Portfolio 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 Portfolio dividends in shares of another Kemper Mutual
Fund, shareholders must maintain a minimum account value of $1,000 in a
Portfolio.

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 each Portfolio 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.

Each Portfolio reinvests dividend checks (and future dividends) in shares of a
Portfolio if checks are returned as undeliverable. Dividends and other
distributions in the aggregate amount of $10 or less are automatically
reinvested in shares of a Portfolio unless the shareholder requests that such
policy not be applied to the shareholder's account. If an investment is in the
form of a retirement plan, all dividends and capital gains distributions must be
reinvested into the shareholder's account.

Taxes

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. Long-term capital gains distributions, if any, are taxable as
long-term capital gains regardless of the length of time shareholders have owned
their shares. Dividends from these Portfolios do not qualify for the dividends
received deduction available to corporate shareholders.

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<PAGE>

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 subject to 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 included by shareholders in their gross income for
federal income tax purposes, except to the extent such interest is subject to
the alternative minimum tax as discussed 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 1998 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.

General. Dividends declared in October, November or December to shareholders of
record as of a date in one of those months and paid during the following January
are treated as paid on December 31 of the calendar year in which declared for
federal income tax purposes. Each Portfolio 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.

If for any taxable year a Portfolio does not qualify for the special federal
income tax treatment afforded regulated investment companies, all of its taxable
income will be subject to federal income tax at regular corporate rates (without
any deduction for distributions to its shareholders). In such event, dividend
distributions would be taxable to shareholders to the extent of current
accumulated earnings and profits, and would be eligible for the dividends
received deduction, in the case of corporate shareholders.

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.

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<PAGE>

Interest on indebtedness that is incurred to purchase or carry shares of a
mutual fund which distributes exempt-interest dividends during the year is not
deductible for federal income tax purposes. Further, the 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 includable in modified alternative minimum taxable income.
Corporate shareholders are advised to consult their tax advisers with respect to
the consequences of the Superfund Act.

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 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.

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.

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 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.

20
<PAGE>

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 (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, 1999, the Money Market Portfolio's yield was
4.34% the Government Securities Portfolio's yield was 4.28% and the Tax-Exempt
Portfolio's yield was 2.65%

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, 1999, the Tax-Exempt Portfolio's tax-equivalent yield was
4.21% 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.

The Fund may depict the historical performance of the securities in which a
Portfolio may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments
performance indexes of those investments or economic indicators. A Portfolio 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 Portfolio.

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. 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.

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 of any yield that the Tax-Exempt
Portfolio may generate. Both tables are based upon current law as to the 1999
federal tax rate schedules.

Taxable Equivalent Yield Table for Persons Whose Adjusted Gross Income is Under
$126,600

21
<PAGE>
<TABLE>
<CAPTION>

A Tax-Exempt Yield of:
Taxable Income Your Marginal 2% 3% 4% 5% 6% 7%
Single Joint Federal Tax Rate Is Equivalent to a Taxable Yield of:
------ ----- ---------------- ------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
$25,750- $43,050-$104,050 28.0% 2.78 4.17 5.56 6.94 8.33 9.72
$62,450
Over $62,450 Over $104,050 31.0 2.90 4.35 5.80 7.25 8.70 10.14

Taxable Equivalent Yield Table for Persons Whose Adjusted Gross Income is Over $126,600*

$62,450- $104,050- 31.9% 2.94 4.41 5.87 7.34 8.81 10.28
$130,250 $158,550
$130,250- $158,550- 37.1 3.18 4.77 6.36 7.95 9.54 11.13
$283,150 $283,150
Over $283,150 Over $283,150 40.8 3.38 5.07 6.76 8.45 10.14 11.82

</TABLE>

22
<PAGE>

* This table assumes a decrease of $3.00 of itemized deductions for each $100
of adjusted gross income over $126,600. For a married couple with adjusted
gross income between $189,950 and $312,450 (single between $126,600 and
$249,100), add 0.7% to the above Marginal Federal Tax Rate for each
personal and dependency exemption. The taxable equivalent yield is the
tax-exempt yield divided by: 100% minus the adjusted tax rate. For example,
if the table tax rate is 37.1% and you are married with no dependents, the
adjusted tax rate is 38.5% (37.1% + 0.7% + 0.7%). For a tax-exempt yield of
6%, the taxable equivalent yield is about 9.8% (6% / (100% - 38.5%)).

OFFICERS AND TRUSTEES

The officers and trustees of the Fund, their birthdates, their principal
occupations and their affiliations, if any, with the Adviser and KDI are listed
below. All persons named as officers and trustees also serve in similar
capacities for other funds advised by the Adviser.

JOHN W. BALLANTINE (2/16/46), Trustee, 1500 North Lake Shore Drive, Chicago,
Illinois; First Chicago NBD Corporation/The First National Bank of Chicago:
1996-1998 Executive Vice President and Chief Risk Management Officer; 1995-1996
Executive Vice President and Head of International Banking; 1992-1995 Executive
Vice President, Chief Credit and Market Risk Officer.

LEWIS A. BURNHAM (1/8/33), Trustee, 16410 Avila Boulevard, Tampa, Florida;
Retired; formerly, Partner, Business Resources Group (management consulting
firm); formerly, Executive Vice President, Anchor Glass Container Corporation.

DONALD L. DUNAWAY (3/8/37), Trustee, 7011 Green Tree Drive, #903, Naples,
Florida; Retired; formerly, Executive Vice President, A. O. Smith Corporation
(diversified manufacturer).

ROBERT B. HOFFMAN (12/11/36), Trustee, 1530 North State Parkway, Chicago,
Illinois; Chairman, Harnischfeger Industries, Inc. (machinery for the mining and
paper industries); formerly, Vice Chairman and Chief Financial Officer, Monsanto
Company (agricultural, pharmaceutical and nutritional/food products); formerly
Vice President and Head of International Operations, FMC corporation
(manufacturer of machinery and chemicals).

DONALD R. JONES (1/17/30), Trustee, 182 Old Wick Lane, Inverness, Illinois;
Retired; Director, Motorola, Inc. (manufacturer of electronic equipment and
components); formerly, Executive Vice President and Chief Financial Officer,
Motorola, Inc.

THOMAS W. LITTAUER (4/26/55), Trustee and Vice President*, Two International
Place, Boston, Massachusetts; Managing Director, Adviser; formerly, Head of
Broker Dealer Division of an unaffiliated investment management firm during
1997; prior thereto, President of Client Management Services of an unaffiliated
investment management firm from 1991 to 1996.

SHIRLEY D. PETERSON (9/3/41), Trustee, 401 Rosemont Avenue, Frederick, Maryland;
President, Hood College, Maryland; formerly, Partner, Steptoe & Johnson
(attorneys); prior thereto, Commissioner, Internal Revenue Service; prior
thereto, Assistant Attorney General (Tax), U.S. Department of Justice; Director,
Bethlehem Steel Corp.

CORNELIA M. SMALL* (7/28/44), Trustee*, 345 Park Avenue, New York, New York;
Managing Director, Scudder Kemper Investments, Inc.

23
<PAGE>

WILLIAM P. SOMMERS (7/22/33), Trustee, 24717 Harbour View Drive, Ponte Vedro
Beach, Florida; Consultant and Director, SRI International (research and
development); formerly, President and Chief Executive Officer, SRI
International); prior thereto, Executive Vice President, Iameter (medical
information and educational service provider); prior thereto, Senior Vice
President and Director, Booz, Allen & Hamilton, Inc. (management consulting
firm) ; Director, PSI, Inc., Evergreen Solar, Inc.,and Litton Industries.

MARK S. CASADY (9/21/60), President*, 345 Park Avenue, New York, New York;
Managing Director, Adviser; formerly, Institutional Sales Manager of an
unaffiliated mutual fund distributor.

PHILIP J. COLLORA (11/15/45), Vice President and Secretary*, 222 South Riverside
Plaza, Chicago, Illinois; Attorney, Senior Vice President and Assistant
Secretary, Adviser.

ANN M. McCREARY (11/6/56), Vice President*, 345 Park Avenue, New York, New York;
Managing Director, Adviser.

ROBERT C. PECK, JR. (10/1/46), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Adviser; formerly, Executive Vice
President and Chief Investment Officer with an unaffiliated investment
management firm from 1988 to June 1997.

KATHRYN L. QUIRK (12/3/52), Vice President*, 345 Park Avenue, New York, New
York; Managing Director, Adviser.

FRANK J. RACHWALSKI, JR. (3/26/45), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Senior Vice President, Adviser.

LINDA J. WONDRACK (9/12/64), Vice President*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser.

JOHN R. HEBBLE (6/27/58), Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser.

BRENDA LYONS (2/21/63), Assistant Treasurer*, Two International Place, Boston,
Massachusetts; Senior Vice President, Adviser.

CAROLINE PEARSON (4/1/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Senior Vice President, Adviser; formerly, Associate,
Dechert Price & Rhoads (law firm) 1989 to 1997.

MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Adviser; formerly, Assistant Vice
President of an unaffiliated investment management firm; prior thereto,
Associate Staff Attorney of an unaffiliated investment management firm;
Associate, Peabody & Arnold (law firm).

* Interested persons as defined in the 1940 Act.

The trustees and officers who are "interested persons" as designated above
receive no compensation from the Fund. The table below shows amounts paid or
accrued to those trustees who are not designated "interested persons" during the
Fund's 1999 fiscal year except that the information in the last column is for
calendar year 1998.
<TABLE>
<CAPTION>

Total Compensation from
Fund and Kemper
Name of Trustee Aggregate Compensation From Fund Fund Complex Paid to Trustees*
- --------------- -------------------------------- ------------------------------

<S> <C> <C>
John W. Ballantine** $ 1,100 $ 0
Lewis A. Burnham 4,500 126,100
Donald L. Dunaway*** 4,900 135,000
Robert B. Hoffman 4,100 116,100
Donald R. Jones 4,000 129,600

24
<PAGE>

Shirley D. Peterson 4,200 108,800
William P. Sommers 4,200 108,800
</TABLE>

* Includes compensation for service on the boards of twenty-five Kemper
funds with forty-three fund portfolios. Each trustee currently serves as
a trustee of twenty-six Kemper funds and forty-eight fund portfolios.

** John W. Ballantine became a Trustee on May 18, 1999.

*** Pursuant to deferred compensation agreements with the Kemper funds,
deferred amounts accrue interest monthly at a rate equal to the yield of
Zurich Money Funds -- Zurich Money Market Fund. Total deferred amounts
and interest accrued through July 31, 1999 are $ 56,600 for Mr. Dunaway.

On November 2, 1999, 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: ABN AMRO Chicago Corporation, 208 S. LaSalle Street, Chicago, IL
60604 (9.88% of the Money Market Portfolio, 6.19% of the Government Securities
Portfolio and 6.26% of the Tax-Exempt Portfolio); Custody Account for The
Exclusive Benefit of Customers of Hilliard Lyons, 4th Avenue and Muhammad Ali
Boulevard, Louisville, KY 40202 (36.75% of the Money Market Portfolio and 29.91%
of the Tax-Exempt Portfolio); D.A. Davidson & Co., P.O. Box 5015, Great Falls,
MT 59403 (29.32% of the Money Market Portfolio) and IDEX Funds, P.O. Box 9015,
Clearwater, FL 33758 (5.72% 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 Series, Kemper U.S. Government
Securities Fund, Kemper International Fund, Kemper State Tax-Free Income Series,
Kemper Adjustable Rate U.S. Government Fund, Kemper Blue Chip Fund, Kemper
Global Income Fund, Kemper Target Equity Fund (series are subject to a limited
offering period), Kemper Intermediate Municipal Bond Fund, Kemper Cash Reserves
Fund, Kemper U.S. Mortgage Fund, Kemper Value Series, Inc., Kemper Value Plus
Growth Fund, Kemper Horizon Fund, Kemper Europe Fund, Kemper Asian Growth Fund,
Kemper Aggressive Growth Fund, Kemper Global/International Series, Inc., Kemper
U.S. Growth and Income, Kemper Small Cap Relative Value Fund, Kemper-Dreman
Financial Services Fund, Kemper Securities Trust, Kemper Value Fund, Kemper
Classic Growth Fund, Kemper Global Discovery Fund, Kemper High Yield Fund II,
Kemper Equity Trust, Kemper Income Trust and Kemper Funds Trust and ("Kemper
Mutual Funds") and certain "Money Market Funds" (Zurich Money Funds, Zurich
Yieldwise Funds, Cash Equivalent Fund, Tax-Exempt California Money Market Fund,
Cash Account Trust, Investors Municipal Cash Fund and Investors Cash Trust).
Shares of Money Market Funds and Kemper Cash Reserves Fund that were acquired by
purchase (not including shares acquired by dividend reinvestment) are subject to
the applicable sales charge on exchange. In addition, shares of a Kemper Mutual
Fund in excess of $1,000,000 (except Kemper Cash Reserves Fund) acquired by
exchange from another Fund may not be exchanged thereafter until they have been
owned for 15 days (the "15-Day Hold Policy"). In addition, shares with a value
over $1,000,000, shares of a Kemper Mutual Fund with a value of $1,000,000 or
less (except Kemper Cash Reserves Fund) acquired by exchange from another fund,
may not be exchanged thereafter until they have been owned for 15 days, if, in
the investment manager's judgement, the exchange activity may have an adverse
effect on the fund. In particular, a pattern of exchanges that coincides with a
"market timing" strategy may be disruptive to the Kemper fund and therefore may
be subject to the 15-day hold policy. For purposes of determining whether the
15-Day Hold Policy applies to a particular exchange, the value of the shares to
be exchanged shall be computed by aggregating the value of shares being
exchanged for all accounts under common control, discretion or advice, including
without limitation accounts administered by a financial services firm offering
market timing, asset allocation or similar services. Series of Kemper Target
Equity Fund will be available on exchange only during the Offering Period for
such series as described in the prospectus for such series. Cash Equivalent
Fund, Tax-Exempt California Money Market Fund, Cash Account Trust, Investors
Municipal Cash Fund and Investors Cash Trust are available on exchange but only
through a financial services firm having a services agreement with KDI with
respect to such funds. Exchanges may only be made for funds that are available
for sale in the shareholder's state of residence.

25
<PAGE>

Currently, Tax-Exempt California Money Market Fund is available for sale only in
California and the portfolios of Investors Municipal Cash Fund are available for
sale in certain states.

The total value of shares being exchanged must at least equal the minimum
investment requirement of the 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 implement the
telephone exchange privilege. The exchange privilege is not a right and may be
suspended, terminated or modified at any time. Except as otherwise permitted by
applicable regulation, 60 days' prior written notice of any termination or
material change will be provided.

Systematic 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 up to $50,000 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 a Portfolio and may be terminated at any time by the
shareholder or a Portfolio. Firms provide varying arrangements for their clients
to redeem Portfolio 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:

o Individual Retirement Accounts (IRAs) with Investors Fiduciary Trust
Company as custodian. This includes Savings Incentive Match Plan for
Employees of Small Employers ("SIMPLE"), IRA accounts and Simplified
Employee Pension Plan (SEP) IRA accounts and prototype documents.

o 403(b) Custodial Accounts with IFTC as custodian. This type of plan is
available to employees of most non-profit organizations.

o 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, SIMPLE 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
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 KSvC at 1-800-231-8568 or the financial

26
<PAGE>

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 Portfolios.

SHAREHOLDER RIGHTS

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 or "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. Shareholders will vote by Portfolio and not in
the aggregate except when voting in the aggregate is required under the 1940
Act, such as for the election of trustees.

The Fund generally is not required to hold meetings of its shareholders. Under
the Agreement and Declaration of Trust of the Fund ("Declaration of Trust"),
however, shareholder meetings will be held in connection with the following
matters: (a) the election or removal of trustees if a meeting is called for such
purpose; (b) the adoption of any contract for which shareholder approval is
required by the 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.

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

27
<PAGE>

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 the Adviser 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.

28
<PAGE>

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.

29
<PAGE>

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.

30
<PAGE>
CASH EQUIVALENT FUND

PART C. OTHER INFORMATION

Item 23. Exhibits.
- -------- ---------

<S> <C> <C>
(a) (1) Amended and Restated Agreement and Declaration of Trust dated September 27, 1985 is
incorporated by reference to Post-Effective Amendment No. 21 to the Registration
Statement.

(2) Written Instrument Amending Agreement and Declaration of Trust, dated August 1, 1988,
is incorporated by reference to Post-Effective Amendment No. 21 to the Registration
Statement.

(b) By-laws are incorporated by reference to Post-Effective Amendment No. 21 to the
Registration Statement.

(c) Text of Share Certificate incorporated by reference to Post-Effective Amendment No. 21
to the Registration Statement.

(d) (1) Investment Management Agreement between the Registrant, on behalf of Money Market
Portfolio and Government Securities Portfolio, and Kemper Financial Services, Inc.,
dated January 4, 1996, is incorporated by reference to Post-Effective Amendment No. 23
to the Registration Statement.

(2) Investment Management Agreement between the Registrant, on behalf of Tax-Exempt
Portfolio, and Kemper Financial Services, Inc., dated January 4, 1996, is
incorporated by reference to Post-Effective Amendment No. 23 to the Registration
Statement.

(3) Investment Management Agreement between the Registrant, on behalf of Money Market
Portfolio and Government Securities Portfolio, and Scudder Kemper Investments, Inc.,
dated December 31, 1997, is incorporated by reference to Post-Effective Amendment No.
25 to the Registration Statement.

<PAGE>

(4) Investment Management Agreement between the Registrant, on behalf of Tax-Exempt
Portfolio, and Scudder Kemper Investments, Inc., dated December 31, 1997, is
incorporated by reference to Post-Effective Amendment No. 25 to the Registration
Statement.

(5) Investment Management Agreement between the Registrant, on behalf of Money Market
Portfolio and Government Securities Portfolio, and Scudder Kemper Investments, Inc.,
dated September 7, 1998, is incorporated by reference to Post-Effective Amendment No.
26 to the Registration Statement.

(6) Investment Management Agreement between the Registrant, on behalf of Tax-Exempt
Portfolio, and Scudder Kemper Investments, Inc., dated September 7, 1998, is
incorporated by reference to Post-Effective Amendment No. 26 to the Registration
Statement.

(e) (1) Administration, Shareholder Services and Distribution Agreement between the Registrant
and Kemper Distributors, Inc., dated January 4, 1996, is incorporated by reference to
Post-Effective Amendment No. 23 to the Registration Statement.

(2) Form of Administration, Services and Selling Group Agreement is incorporated by
reference to Post-Effective Amendment No. 21 to the Registration Statement.

(3) Administration, Shareholder Services and Distribution Agreement between the Registrant
and Kemper Distributors, Inc., dated December 31, 1997, is incorporated by reference to
Post-Effective Amendment No. 25 to the Registration Statement.

(4) Administration, Shareholder Services and Distribution Agreement between the Registrant
and Kemper Distributors, Inc., dated September 7, 1998, is incorporated by reference to
Post-Effective Amendment No. 25 to the Registration Statement.

(f) Kemper Retirement Plan Prototype is incorporated by reference to Post-Effective
Amendment No. 21 to the Registration Statement.

Model Individual Retirement Account is incorporated by reference to Post-Effective
Amendment No. 21 to the Registration Statement.

2
<PAGE>

(g) (1) Custody Agreement between the Registrant and Investors Fiduciary Trust Company, dated
March 1, 1995, is incorporated by reference to Post-Effective Amendment No. 21 to the
Registration Statement.

(2) Custody Agreement between the Registrant and State Street Bank and Trust Company,
dated April 19, 1999, is incorporated by reference to Post-Effective Amendment No. 26
to the Registration Statement.

(3) Amendment to the current Custody Agreement between the Registrant and State Street Bank
and Trust Company, dated May 3, 1999, is incorporated by reference to Post-Effective
Amendment No. 26 to the Registration Statement.

(h) (1) Agency Agreement between the Registrant and Investors Fiduciary Trust Company, dated
April 1, 1991 is incorporated by reference to Post-Effective Amendment No. 21 to the
Registration Statement.

(2) Fund Accounting Services Agreement between the Registrant, on behalf of Money Market
Portfolio, and Scudder Fund Accounting Corporation, dated December 31, 1997, is
incorporated by reference to Post-Effective Amendment No. 25 to the Registrant's
Registration Statement.

(3) Fund Accounting Services Agreement between the Registrant, on behalf of Government
Securities Portfolio, and Scudder Fund Accounting Corporation, dated December 31, 1997,
is incorporated by reference to Post-Effective Amendment No. 25 to the Registration
Statement.

(4) Fund Accounting Services Agreement between the Registrant, on behalf of Tax-Exempt
Portfolio, and Scudder Fund Accounting Corporation, dated December 31, 1997, is
incorporated by reference to Post-Effective Amendment No. 25 to the Registration
Statement.

(i) Opinion and Consent of Counsel is filed herein.

(j) Report and Consent of Independent Auditors is filed herein.

(k) Inapplicable

(l) Inapplicable

(m) (1) Amended and Restated 12b-1 Plan between the Registrant, on behalf of Money Market
Portfolio, and Kemper Distributors, Inc., dated August 1, 1998 is incorporated by
reference to Post-Effective Amendment No. 25 to the Registration Statement.

(2) Amended and Restated 12b-1 Plan between the Registrant, on behalf of Government
Securities Portfolio, and Kemper Distributors, Inc., dated August 1, 1998 is
incorporated by reference to Post-Effective Amendment No. 25 to the Registration
Statement.

(3) Amended and Restated 12b-1 Plan between the Registrant, on behalf of Tax-Exempt
Portfolio, and Kemper Distributors, Inc., dated August 1, 1998 is incorporated by
reference to Post-Effective Amendment No. 25 to the Registration Statement.

3
<PAGE>

(n) Inapplicable.

(o) Inapplicable.
</TABLE>

Item 24. Persons Controlled by or under Common Control with Fund.
- -------- --------------------------------------------------------

None

Item 25. Indemnification.
- -------- ----------------

Article VIII of the Registrant's Agreement and Declaration of Trust
(Exhibit 1 hereto, which is incorporated herein by reference) provides in effect
that the Registrant will indemnify its officers and trustees under certain
circumstances. However, in accordance with Section 17(h) and 17(i) of the
Investment Company Act of 1940 and its own terms, said Article of the Agreement
and Declaration of Trust does not protect any person against any liability to
the Registrant or its shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question as to whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

On June 26, 1997, Zurich Insurance Company ("Zurich"), ZKI Holding
Corp. ("ZKIH"), Zurich Kemper Investments, Inc. ("ZKI"), Scudder, Stevens &
Clark, Inc. ("Scudder") and the representatives of the beneficial owners of the
capital stock of Scudder ("Scudder Representatives") entered into a transaction
agreement ("Transaction Agreement") pursuant to which Zurich became the majority
stockholder in Scudder with an approximately 70% interest, and ZKI was combined
with Scudder ("Transaction"). In connection with the trustees' evaluation of the
Transaction, Zurich agreed to indemnify the Registrant and the trustees who were
not interested persons of ZKI or Scudder (the "Independent Trustees") for and
against any liability and expenses based upon any action or omission by the
Independent Trustees in connection with their consideration of and action with
respect to the Transaction. In addition, Scudder has agreed to indemnify the
Registrant and the Independent Trustees for and against any liability and
expenses based upon any misstatements or omissions by Scudder to the Independent
Trustees in connection with their consideration of the Transaction.

Item 26. Business and Other Connections of Investment Adviser
- -------- ----------------------------------------------------

Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 26.

Business and Other Connections of Board
Name Of Directors of Registrant's Adviser
---- ------------------------------------

<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Director, Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director and President, Scudder Realty Holdings Corporation*

4
<PAGE>

Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**

Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#

Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, ZKI Holding Corporation xx

William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member, Group Executive Board, Zurich Financial Services, Inc.##
Chairman, Zurich-American Insurance Company o

Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO and Member, Group Executive Board, Zurich Financial Services, Inc.##
CEO/Branch Offices, Zurich Life Insurance Company##

Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx

Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President, Chief Legal Officer & Assistant Clerk, Scudder
Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Financial Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+

5
<PAGE>

Cornelia M. Small Director and Vice President, Scudder Kemper Investments, Inc.**

Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
</TABLE>

* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg,
R.C. Luxembourg B 34.564
*** Toronto, Ontario, Canada
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman,
British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland

Item 27. Principal Underwriters.
- -------- -----------------------

(a)

Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares and acts as principal underwriter of the Kemper
Funds.

(b)

Information on the officers and directors of Kemper Distributors, Inc.,
principal underwriter for the Registrant is set forth below. The
principal business address is 222 South Riverside Plaza, Chicago,
Illinois 60606.

(1) (2) (3)

Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------

<S> <C> <C>
James L. Greenawalt President None

Thomas W. Littauer Director, Chief Executive Officer and Trustee and Vice President
Vice Chairman

Kathryn L. Quirk Director, Secretary, Chief Legal
Officer and Vice President Vice President

James J. McGovern Chief Financial Officer and Vice
President None

Linda J. Wondrack Vice President and Chief Compliance
Officer None

6
<PAGE>

Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------

Herbert A. Christiansen Vice President None

Paula Gaccione Vice President None

Michael Curran Managing Director None

Robert Froehlich Managing Director None

Michael E. Harrington Managing Director None

C. Perry Moore Managing Director None

Lorie O'Malley Managing Director None

David Swanson Managing Director None

William M. Thomas Managing Director None

Robert A. Rudell Vice President None

Todd N. Gierke Assistant Treasurer None

Philip J. Collora Assistant Secretary Vice President and Secretary

Paul J. Elmlinger Senior Vice President and Assistant None
Clerk

Diane E. Ratekin Assistant Secretary None

Mark S. Casady Director, Chairman President

Stephen R. Beckwith Director None
</TABLE>

Item 28. Location of Accounts and Records
- -------- --------------------------------

Accounts, books and other documents are maintained at the offices of
the Registrant, the offices of Registrant's investment adviser, Scudder Kemper
Investments, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, at the
offices of the Registrant's principal underwriter, Kemper Distributors, Inc.,
222 South Riverside Plaza, Chicago, Illinois 60606 or, in the case of records
concerning custodial functions, at the offices of the custodian, Investors
Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri
64105 or, in the case of records concerning transfer agency functions, at the
offices of IFTC and of the shareholder service agent, Kemper Service Company,
811 Main Street, Kansas City, Missouri 64105.

Item 29. Management Services.
- -------- --------------------

Inapplicable.

7
<PAGE>

Item 30. Undertakings.
- -------- -------------

Inapplicable.

8
<PAGE>
SIGNATURES
----------

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Chicago and State of Illinois, on the
23rd day of November, 1999.

CASH EQUIVALENT FUND

By /s/Mark S. Casady
--------------------------------
Mark S. Casady, President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on November 23, 1999, on behalf of
the following persons in the capacities indicated.

SIGNATURE TITLE DATE
- --------- ----- ----

<S> <C> <C>
/s/ Mark S. Casady November 23, 1999
- --------------------------------------
Mark S. Casady President

/s/ Thomas W. Littauer November 23, 1999
- --------------------------------------
Thomas W. Littauer* Chairman and Trustee

/s/ John W. Ballantine November 23, 1999
- --------------------------------------
John W. Ballantine* Trustee

/s/ Lewis A. Burnham November 23, 1999
- --------------------------------------
Lewis A. Burnham* Trustee

/s/ Donald L. Dunaway November 23, 1999
- --------------------------------------
Donald L. Dunaway* Trustee

/s/ Robert B. Hoffman November 23, 1999
- --------------------------------------
Robert B. Hoffman* Trustee

/s/ Donald R. Jones November 23, 1999
- --------------------------------------
Donald R. Jones* Trustee

/s/ Shirley D. Peterson November 23, 1999
- --------------------------------------
Shirley D. Peterson* Trustee

/s/ Cornelia M. Small November 23, 1999
- --------------------------------------
Cornelia M. Small* Trustee

<PAGE>

/s/ William P. Sommers November 23, 1999
- --------------------------------------
William P. Sommers* Trustee

/s/ John R. Hebble November 23, 1999
- --------------------------------------
John R. Hebble Treasurer (Principal Financial and
Accounting Officer)
</TABLE>

*By: /s/Philip J. Collora
-----------------------------
Philip J. Collora**

** Philip J. Collora signs this
document pursuant to powers of
attorney contained in
Post-Effective Amendment No. 21 to
the Registration Statement, filed
on November 17, 1995, and
Post-Effective Amendment No. 26 to
the registration Statement filed on
September 30, 1999.
<PAGE>
File No. 2-63522
File No. 811-2899

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

EXHIBITS

FORM N-1A

POST-EFFECTIVE AMENDMENT NO. 27
----
TO REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

AND

AMENDMENT NO. 27
----

TO REGISTRATION STATEMENT

UNDER

THE INVESTMENT COMPANY ACT OF 1940

CASH EQUIVALENT FUND

<PAGE>

CASH EQUIVALENT FUND

EXHIBIT INDEX

(i)

[LOGO] VEDDER PRICE VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601-1003
312-609-7500
FACSIMILE: 312-609-5005

A PARTNERSHIP INCLUDING VEDDER, PRICE,
KAUFMAN & KAMMHOLZ, P.C.
WITH OFFICES IN CHICAGO AND NEW YORK CITY

November 18, 1999

Cash Equivalent Fund
222 South Riverside Plaza
Chicago, Illinois 60606

Ladies and Gentlemen:

Reference is made to Post-Effective Amendment No. 27 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 public offering from
time to time of units of beneficial interest, no par value ("Shares"), in the
Money Market Portfolio, Government Securities Portfolio, and Tax-Exempt
Portfolio (each a "Portfolio" and collectively, 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 assuming that the Fund's Amended and
Restated Agreement and Declaration of Trust dated September 25, 1985, as amended
on 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
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) presently and upon such further
issuance of the Shares in accordance with the Fund's Amended Agreement and
Declaration of Trust and the receipt by the Fund of a purchase price not less
than the net asset value per Share and when the pertinent provisions of the
Securities Act of 1933 and such "blue-sky" and securities laws as may be
applicable have been complied with, and assuming that the Fund continues to
validly exist as provided in (a) above, the Shares are and will be legally
issued and outstanding, fully paid and nonassessable.

<PAGE>

VEDDER PRICE

Cash Equivalent Fund
November 18, 1999
Page 2

The Fund is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund or a
Portfolio. However, the Amended Agreement and Declaration of Trust disclaims
shareholder liability for acts and obligations of the Fund or the Portfolios and
requires that notice of such disclaimer be given in each note, bond, contract,
instrument, certificate share or undertaking made or issued by the Trustees or
officers of the Fund. The Amended Agreement and Declaration of Trust provides
for indemnification out of the property of the Portfolios for all loss and
expense of any shareholder of that Portfolio held personally liable for the
obligations of such Portfolio. Thus, the risk of liability is limited to
circumstances in which a Portfolio would be unable to meet its obligations.

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

DAS/COK

(j)

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 16, 1999 in the Registration Statement (Form
N-1A) of Cash Equivalent Fund and its incorporation by reference in the related
Prospectus and Statement of Additional Information filed with the Securities and
Exchange Commission in this Post-Effective Amendment No. 27 to the Registration
Statement under the Securities Act of 1933 (File No. 2-63522) and in this
Amendment No. 27 to the Registration Statement under the Investment Company Act
of 1940 (File No. 811-2899).

ERNST & YOUNG LLP
Chicago, Illinois
November 23, 1999