Filed electronically with the Securities and Exchange Commission
on September 30, 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. 26
---- / X /
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 26
---- / 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, Vice President and Secretary
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 filing pursuant to paragraph (a) (1)
/ / 75 days after filing pursuant to paragraph (a) (2)
/ / On __________________ pursuant to paragraph (b)
/ X / On December 1 1999 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
MONEY MARKET PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
TAX-EXEMPT PORTFOLIO
<PAGE>
Cash
Equivalent
Fund
PROSPECTUS December 1, 1999
Cash Equivalent Trust
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 11
- --------------------------------------------------------------------------------
About Your Investment 13
- --------------------------------------------------------------------------------
Transaction Information 13
- --------------------------------------------------------------------------------
Buying Shares 14
- --------------------------------------------------------------------------------
Selling and Exchanging Shares 15
- --------------------------------------------------------------------------------
Distributions 16
- --------------------------------------------------------------------------------
Taxes 16
- --------------------------------------------------------------------------------
Financial Highlights 17
- --------------------------------------------------------------------------------
<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 and fundamental policies 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 mature in 12
months or less:
1. Obligations of, or guaranteed by, the U.S. or Canadian governments, their
agencies or instrumentalities.
2. Bank certificates of deposit, time deposits or bankers' acceptances limited
to domestic banks (including their foreign branches) and Canadian chartered
banks having total assets in excess of $1 billion.
3. Certificates of deposit and time deposits of domestic savings and loan
associations having total assets in excess of $1 billion.
4. Bank certificates of deposit, time deposits or bankers' acceptances of U.S.
branches of foreign banks having total assets in excess of $10 billion.
5. Commercial paper rated Prime-1 or Prime-2 by Moody's Investors Service
("Moody's") or A-1 or A-2 by Standard & Poor's Ratings Services ("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 of obligations that are suitable for investment under
the categories set forth above. The maturities of the securities subject to
repurchase may be greater than 12 months.
The portfolio maintains a dollar-weighted average maturity of 90 days or less.
Also, the portfolio may concentrate more than 25% of its assets in bank
certificates of deposit or bankers' acceptances of U.S. banks.
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>
Risk management strategies
The portfolio manages credit risk by investing exclusively in high quality
securities, whose issuers are considered unlikely to default. The portfolio
manages interest rate risk by limiting the maturity of each of its individual
securities and the weighted average maturity of the portfolio overall.
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.
2
<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. Of course, past
performance is not necessarily an indication of future performance.
All figures on this page assume reinvestment of dividends and distributions.
Annual total returns for years ended December 31
- --------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
For the period included in the bar chart, the portfolio's highest return for a
calendar quarter was --% (the -- quarter of --), and the portfolio's lowest
return for a calendar quarter was --% (the -- quarter of --).
The portfolio's year-to-date total return as of September 30, 1999 was --%.
Average Annual Total Returns
For periods ended December 31, 1998 Money Market Portfolio
- ----------------------------------- ----------------------
One Year --%
Five Years --%
Ten Years --%
7-Day Yield
On December 31, 1998 --%
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>
<CAPTION>
-----------------------------------------------------------------------------------------
<S> <C>
Shareholder Fees (fees paid directly from your investment):
-----------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as % of offering price) NONE
-----------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as % of redemption proceeds) NONE
-----------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested dividends/distribution NONE
-----------------------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, if applicable) NONE
-----------------------------------------------------------------------------------------
Exchange fee NONE
-----------------------------------------------------------------------------------------
Annual portfolio operating expenses (expenses that are deducted from portfolio
assets):
-----------------------------------------------------------------------------------------
Management fee --%
-----------------------------------------------------------------------------------------
Distribution (12b-1) fees --%
-----------------------------------------------------------------------------------------
Other expenses --%
-----------------------------------------------------------------------------------------
Total annual portfolio operating expenses --%
-----------------------------------------------------------------------------------------
</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 $ --
- ------------------------------------------------------
Three Years $ --
- ------------------------------------------------------
Five Years $ --
- ------------------------------------------------------
Ten Years $ --
- ------------------------------------------------------
4
<PAGE>
GOVERNMENT SECURITIES PORTFOLIO
Investment objective
The portfolio seeks to provide maximum current income consistent with stability
of capital. The portfolio's investment objective and fundamental policies 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.
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).
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.
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.
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.
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.
5
<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. Of course, past
performance is not necessarily an indication of future performance.
All figures on this page assume reinvestment of dividends and distributions.
Annual total returns for years ended December 31
- --------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
For the period included in the bar chart, the portfolio's highest return for a
calendar quarter was --% (the -- quarter of --), and the portfolio's lowest
return for a calendar quarter was --% (the -- quarter of --).
The portfolio's year-to-date total return as of September 30, 1999 was --%.
Average Annual Total Returns
For periods ended December 31, 1998 Government Securities Portfolio
----------------------------------- -------------------------------
One Year --%
Five Years --%
Ten Years --%
7-Day Yield
On December 31, 1998 --%
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>
<CAPTION>
-----------------------------------------------------------------------------------------
<S> <C>
Shareholder Fees (fees paid directly from your investment):
-----------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as % of offering price) NONE
-----------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as % of redemption proceeds) NONE
-----------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested dividends/distribution NONE
-----------------------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, if applicable) NONE
-----------------------------------------------------------------------------------------
Exchange fee NONE
-----------------------------------------------------------------------------------------
Annual portfolio operating expenses (expenses that are deducted from portfolio
assets):
-----------------------------------------------------------------------------------------
Management fee --%
-----------------------------------------------------------------------------------------
Distribution (12b-1) fees --%
-----------------------------------------------------------------------------------------
Other expenses --%
-----------------------------------------------------------------------------------------
Total annual portfolio operating expenses --%
-----------------------------------------------------------------------------------------
</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 portfolio expenses and returns vary
from year to year, and may be higher or lower than those shown.
- ------------------------------------------------------
One Year $ --
- ------------------------------------------------------
Three Years $ --
- ------------------------------------------------------
Five Years $ --
- ------------------------------------------------------
Ten Years $ --
- ------------------------------------------------------
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 and fundamental policies 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 high quality 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. 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. These are generally referred to as
"municipal securities." 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 (Aaa or
Aa) assigned by Moody's or (AAA or AA) assigned by S&P;
o are guaranteed or insured by the U.S. Government as to the payment of
principal and interest;
o are fully collateralized by an escrow of U.S. Government securities
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 municipal
securities that are industrial development bonds. Moreover, although the
portfolio does not currently
8
<PAGE>
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.
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.
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.
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.
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.
Industrial development bonds, which are municipal securities, 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 municipal securities that are
industrial development bonds.
To the extent that the portfolio invests in taxable securities, a portion of its
income would be taxable.
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.
9
<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. Of course, past
performance is not necessarily an indication of future performance.
All figures on this page assume reinvestment of dividends and distributions.
Annual total returns for years ended December 31
- --------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
For the period included in the bar chart, the portfolio's highest return for a
calendar quarter was --% (the -- quarter of --), and the portfolio's lowest
return for a calendar quarter was --% (the -- quarter of --).
The portfolio's year-to-date total return as of September 30, 1999 was --%.
Average Annual Total Returns
For periods ended December 31, 1998 Tax-Exempt Portfolio
----------------------------------- --------------------
One Year --%
Five Years --%
Ten Years --%
7-Day Yield
On December 31, 1998 --%
10
<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>
<CAPTION>
-----------------------------------------------------------------------------------------
<S> <C>
Shareholder Fees (fees paid directly from your investment):
-----------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as % of offering price) NONE
-----------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as % of redemption proceeds) NONE
-----------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on reinvested dividends/distribution NONE
-----------------------------------------------------------------------------------------
Redemption fee (as % of amount redeemed, if applicable) NONE
-----------------------------------------------------------------------------------------
Exchange fee NONE
-----------------------------------------------------------------------------------------
Annual portfolio operating expenses (expenses that are deducted from portfolio
assets):
-----------------------------------------------------------------------------------------
Management fee --%
-----------------------------------------------------------------------------------------
Distribution (12b-1) fees --%
-----------------------------------------------------------------------------------------
Other expenses --%
-----------------------------------------------------------------------------------------
Total annual portfolio operating expenses --%
-----------------------------------------------------------------------------------------
</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 portfolio expenses and returns vary
from year to year, and may be higher or lower than those shown.
- ------------------------------------------------------
One Year $ --
- ------------------------------------------------------
Three Years $ --
- ------------------------------------------------------
Five Years $ --
- ------------------------------------------------------
Ten Years $ --
- ------------------------------------------------------
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 ___% 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 ___% 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:
<TABLE>
<CAPTION>
Money Market Portfolio
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.
- ---------------------------------------------------------------------------------------------------------------------
12
<PAGE>
Tax-Exempt 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.
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.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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. In addition,
the portfolio limits its portfolio investments to securities that meet the
quality and diversification requirements of federal law.
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
13
<PAGE>
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 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 will normally
send you the proceeds within one business day following your request, but may
take up to seven business days (or longer in the case of shares recently
purchased by check).
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 and services for that portfolio. Under the Rule 12b-1
plan, each portfolio pays an annual distribution services fee, payable monthly,
of ____% of that portfolio's average daily net assets (except Tax-Exempt
Portfolio, which pays ____%). 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.
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.
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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.
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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 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.
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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. A portion of dividends from
ordinary income may 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.
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FINANCIAL HIGHLIGHTS
To be provided.
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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 (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
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intentionally
left blank.
<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....................................................3
INVESTMENT POLICIES AND TECHNIQUES.........................................6
INVESTMENT MANAGER AND SHAREHOLDER SERVICES...............................11
PORTFOLIO TRANSACTIONS....................................................14
PURCHASE AND REDEMPTION OF SHARES.........................................15
SPECIAL FEATURES..........................................................19
DIVIDENDS, TAXES AND NET ASSET VALUE .....................................19
PERFORMANCE...............................................................21
OFFICERS AND TRUSTEES.....................................................24
SPECIAL FEATURES..........................................................26
SHAREHOLDER RIGHTS........................................................28
APPENDIX -- RATINGS OF INVESTMENTS........................................30
<PAGE>
The financial statements appearing in the Fund's 1999 Annual Report to
Shareholders are incorporated herein by reference. The Fund's Annual Report
accompanies this Statement of Additional Information, and may be obtained
without charge by calling 1-800-231-8568.
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INVESTMENT RESTRICTIONS
The Fund has adopted for the Money Market Portfolio, the Government Securities
Portfolio and the Tax-Exempt Portfolio (each a "Portfolio," collectively, the
"Portfolios") certain investment restrictions which, together with the
investment objective and 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.
(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.
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(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.
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 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).
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(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.
(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.
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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 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. See
"Dividends, Taxes and Net Asset Value."
Money Market Portfolio. The Money Market Portfolio seeks maximum current income
consistent with stability of capital. The Portfolio pursues its objective by
investing exclusively in the following types of U.S. Dollar denominated money
market instruments that mature in 12 months or less:
(1) Obligations of, or guaranteed by, the U.S. or Canadian
Governments, their agencies or instrumentalities.
(2) Bank certificates of deposit, time deposits or bankers'
acceptances limited to domestic banks (including their foreign
branches) and Canadian chartered banks having total assets in
excess of $1 billion.
(3) Certificates of deposit and time deposits of domestic savings
and loan associations having total assets in excess of $1
billion.
(4) Bank certificates of deposit, time deposits or bankers'
acceptances of U.S. branches of foreign banks having total
assets in excess of $10 billion.
(5) Commercial paper rated Prime-1 or Prime-2 by Moody's Investors
Service, Inc. ("Moody's") or A-1 or A-2 by Standard & Poor's
Corporation ("S&P"), or commercial paper or notes issued by
companies with an unsecured debt issue outstanding currently
rated A or higher by Moody's or S&P, where the obligation is
on the same or a higher level of priority as the rated issue,
and investments in other corporate obligations such as
publicly traded bonds, debentures and notes rated A or higher
by Moody's or S&P. For a description of these ratings, see
"Appendix -- Ratings of Investments" in this Statement of
Additional Information.
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(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 under "The
Fund" 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
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.
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 maximum current income that is exempt
from federal income taxes to the extent consistent with stability of capital.
The Portfolio pursues its objective primarily through a professionally managed,
diversified portfolio of short-term high quality tax-exempt municipal
obligations. Under normal market conditions at least 80% of the Portfolio's
total assets will, as a fundamental policy, be invested in obligations issued by
or on behalf of states,
7
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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
(Aaa or Aa) assigned by Moody's or (AAA or AA) assigned by S&P; (b) are
guaranteed or insured by the U.S. Government as to the payment of principal and
interest; (c) are fully collateralized by an escrow of U.S. Government
securities acceptable to the 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.
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.
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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.
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.
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.
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.
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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.
Repurchase Agreements. Each Portfolio may invest in repurchase agreements, which
are instruments under which a Portfolio acquires ownership of a security from a
broker-dealer or bank that agrees to repurchase the security at a mutually
agreed upon time and price (which price is higher than the purchase price),
thereby determining the yield during the Portfolio's holding period. Maturity of
the securities subject to repurchase may exceed one year. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, a Portfolio
might have expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities and loss of
income.
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 ("Variable Rate Demand Securities") have a demand feature entitling
the purchaser to resell the securities at an amount approximately equal to
amortized cost or the principal amount thereof plus accrued interest. As is the
case for other Variable Rate Securities, the interest rate on Variable Rate
Demand Securities varies according to some objective standard intended to
minimize fluctuation in the values of the instruments. Each Portfolio determines
the maturity of Variable Rate Securities in accordance with Rule 2a-7, which
allows the Portfolio to consider certain of such instruments as having
maturities shorter than the maturity date on the face of the instrument.
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.
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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 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 Adviser
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 ServicesGroup. By way of a dual
holding company structure, former Zurich
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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.
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.
[To Be Updated]
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 $_________ for the Money Market
Portfolio, $_______ for the Government Securities Portfolio and $_______ 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 Portfolio. The
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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 12b-1Plan. 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 aPortfolio 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 may also reimburse firms for
costs associated with commissions on 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.
[To Be Updated]
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 $_________, $_________ and $_________, respectively, for
a total amount of $_________. KDI remitted $_________, $_________ and
$_________, 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 $_________; advertising and literature $0; prospectus printing $0
and marketing and sales expenses $_______, for a total of $_________. A portion
of the aforesaid marketing, sales and operating expenses could be considered
overhead expense; however, KDI has made no attempt to differentiate between
expenses that are overhead and those that are not.
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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 $6,523,00. 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 $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
__________ 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.
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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 the
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.
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 portfolios as fully invested as possible at all
times in order to achieve maximum income. Since each Portfolio will be investing
in instruments that normally require immediate payment in Federal Funds (monies
credited to a bank's account with its regional Federal Reserve Bank), 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
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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.
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
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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 pre-authorized telephone redemption transactions
for certain institutional accounts. Shareholders may choose these privileges on
the account application or by contacting the Shareholder Service Agent for
appropriate instructions. Please note that the telephone exchange privilege is
automatic unless the shareholder refuses it on the account application. The Fund
or its agents may be liable for any losses, expenses or costs arising out of
fraudulent or unauthorized telephone requests pursuant to these privileges,
unless the Fund or its agents reasonably believe, based upon reasonable
verification procedures, that the telephonic instructions are genuine. The
shareholder will bear the risk of loss, including loss resulting from fraudulent
or unauthorized transactions, as long as the reasonable verification procedures
are followed. The verification procedures include recording instructions,
requiring certain identifying information before acting upon instructions and
sending written confirmations.
Because of the high cost of maintaining small accounts, 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 to Kemper
Service Company, P.O. Box 419153, Kansas City, Missouri 64141-6153. When
certificates for shares have been issued, they must be mailed to or deposited
with the Shareholder Service Agent, along with a duly endorsed stock power and
accompanied by a written request for redemption. Redemption requests and a stock
power must be endorsed by the account holder with signatures guaranteed by a
commercial bank, trust company, savings and loan association, federal savings
bank, member firm of a national securities exchange or other eligible financial
institution. The redemption request and stock power must be signed exactly as
the account is registered including any special capacity of the registered
owner. Additional documentation may be requested, and a signature guarantee is
normally required, from institutional and fiduciary account holders, such as
corporations, custodians, 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
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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 pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Shares purchased by check
or through certain ACH transactions may not be redeemed under this privilege of
redeeming shares by telephone request until such shares have been owned for at
least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. 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 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.
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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.
Tax-Exempt Portfolio. The Tax-Exempt Portfolio intends to continue to qualify
under the Code as a regulated investment company and, if so qualified, will not
be liable for federal income taxes to the extent its earnings are distributed.
This Portfolio also intends to meet the requirements of the Code applicable to
regulated investment companies distributing tax-exempt interest dividends and,
accordingly, dividends representing net interest received on Municipal
Securities will not be 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.
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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, ____% 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.
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
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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
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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.
[To Be Updated]
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 ____%, the Government Securities Portfolio's yield was
____%, and the Tax-Exempt Portfolio's yield was ____%.
Each Portfolio's effective yield is determined by taking the base period return
(computed as described above) and calculating the effect of assumed compounding.
The formula for the effective yield is: (base period return +1)365/7 - 1. For
the seven-day period ended July 31, 1999, the Money Market Portfolio's effective
yield was ____%, the Government Securities Portfolio's effective yield was
____%, and the Tax-Exempt Portfolio's effective yield was ____%.
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
____%. 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.
22
<PAGE>
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
<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> <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*
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:
------ ----- ---------------- ------------------------------------------------
$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>
23
<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.
24
<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.
25
<PAGE>
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.
[To Be Updated]
<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** $ 0 $ 0
Lewis A. Burnham 7,200 117,800
Donald L. Dunaway*** 12,100 162,700
Robert B. Hoffman 6,800 109,400
Donald R. Jones 7,300 114,200
Shirley D. Peterson 6,400 114,000
William P. Sommers 6,400 109,400
</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 $ $______ for
Mr. Dunaway.
[To Be Updated]
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,
26
<PAGE>
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 (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 to the current limits on
exchanges of 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. 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.
27
<PAGE>
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 Fund
account. Your bank's crediting policies of these transferred funds may vary.
These features may be amended or terminated at any time by the Fund.
Shareholders should contact KSvC at 1-800-231-8568 or the financial services
firm through which their account was established for more information. These
programs may not be available through some firms that distribute shares of the
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
28
<PAGE>
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 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.
29
<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.
30
<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.
31
<PAGE>
CASH EQUIVALENT FUND
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits.
- -------- ---------
<S> <C> <C>
(a) (1) Amended and Restated Agreement and Declaration of Trust dated September 27, 1985.
(Incorporated by reference to Post-Effective Amendment No. 21 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
17, 1995.)
(2) Written Instrument Amending Agreement and Declaration of Trust, dated August 1,
1988.
(Incorporated by reference to Post-Effective Amendment No. 21 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
17, 1995.)
(b) By-laws
(Incorporated by reference to Post-Effective Amendment No. 21 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
17, 1995.)
(c) Text of Share Certificate
(Incorporated by reference to Post-Effective Amendment No. 21 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
17, 1995.)
(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
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
26, 1996.)
(2) Investment Management Agreement between the Registrant, on behalf of Tax-Exempt
Portfolio, and Kemper Financial Services, Inc., dated January 4, 1996
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
26, 1996.)
(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.
(Incorporated by reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
27, 1998.)
Part C - Page 1
<PAGE>
(4) Investment Management Agreement between the Registrant, on behalf of Tax-Exempt
Portfolio, and Scudder Kemper Investments, Inc., dated December 31, 1997.
(Incorporated by reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
27, 1998.)
(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; filed herein.
(6) Investment Management Agreement between the Registrant, on behalf of Tax-Exempt
Portfolio, and Scudder Kemper Investments, Inc., dated September 7, 1998; filed
herein.
(e) (1) Administration, Shareholder Services and Distribution Agreement between the
Registrant and Kemper Distributors, Inc., dated January 4, 1996.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
26, 1996.)
(2) Form of Administration, Services and Selling Group Agreement.
(Incorporated by reference to Post-Effective Amendment No. 21 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
17, 1995.)
(3) Administration, Shareholder Services and Distribution Agreement between the
Registrant and Kemper Distributors, Inc., dated December 31, 1997.
(Incorporated by reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
27, 1998.)
(4) Administration, Shareholder Services and Distribution Agreement between the
Registrant and Kemper Distributors, Inc., dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
27, 1998.)
(f) Kemper Retirement Plan Prototype
(Incorporated by reference to Post-Effective Amendment No. 21 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
17, 1995.)
Model Individual Retirement Account
(Incorporated by reference to Post-Effective Amendment No. 21 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
17, 1995.)
Part C - Page 2
<PAGE>
(g) (1) Custody Agreement between the Registrant and Investors Fiduciary Trust Company,
dated March 1, 1995.
(Incorporated by reference to Post-Effective Amendment No. 21 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
17, 1995.)
(2) Custody Agreement between the Registrant and State Street Bank and Trust
Company, dated April 19, 1999; filed herein.
(3) Amendment to the current Custody Agreement between the Registrant and State
Street Bank and Trust Company, dated May 3, 1999; filed herein.
(h) (1) Agency Agreement between the Registrant and Investors Fiduciary Trust Company,
dated April 1, 1991.
(Incorporated by reference to Post-Effective Amendment No. 21 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
17, 1995.)
(2) Fund Accounting Services Agreement between the Registrant, on behalf of Money
Market Portfolio, and Scudder Fund Accounting Corporation, dated December 31,
1997.
(Incorporated by reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
27, 1998.)
(3) Fund Accounting Services Agreement between the Registrant, on behalf of
Government Securities Portfolio, and Scudder Fund Accounting Corporation, dated
December 31, 1997.
(Incorporated by reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
27, 1998.)
(4) Fund Accounting Services Agreement between the Registrant, on behalf of
Tax-Exempt Portfolio, and Scudder Fund Accounting Corporation, dated December
31, 1997.
(Incorporated by reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
27, 1998.)
(i) Opinion and Consent of Counsel; to be filed by amendment.
(j) Report and Consent of Independent Auditors; to be filed by amendment.
(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.
(Incorporated by reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
27, 1998.)
Part C - Page 3
<PAGE>
(2) Amended and Restated 12b-1 Plan between the Registrant, on behalf of Government
Securities Portfolio, and Kemper Distributors, Inc., dated August 1, 1998.
(Incorporated by reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
27, 1998.)
(3) Amended and Restated 12b-1 Plan between the Registrant, on behalf of Tax-Exempt
Portfolio, and Kemper Distributors, Inc., dated August 1, 1998.
(Incorporated by reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A, filed with the SEC on November
27, 1998.)
(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.
Part C - Page 4
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
- -------- ----------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name Of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Director, Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director and President, Scudder Realty Holdings Corporation*
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
Part C - Page 5
<PAGE>
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small 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.
<TABLE>
<CAPTION>
(1) (2) (3)
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
<S> <C> <C>
James L. Greenawalt President None
Part C - Page 6
<PAGE>
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
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
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
(c) Not applicable
</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
Part C - Page 7
<PAGE>
offices of the Registrant's principal underwriter, Kemper Distributors, Inc.,
222 South Riverside Plaza, Chicago, Illinois 60606 or, in the case of records
concerning custodial functions, at the offices of the custodian, Investors
Fiduciary Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri
64105 or, in the case of records concerning transfer agency functions, at the
offices of IFTC and of the shareholder service agent, Kemper Service Company,
811 Main Street, Kansas City, Missouri 64105.
Item 29. Management Services.
- -------- --------------------
Inapplicable.
Item 30. Undertakings.
- -------- -------------
Inapplicable.
Part C - Page 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
27th day of September, 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 September 27, 1999, on behalf of
the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Mark S. Casady September 27, 1999
- --------------------------------------
Mark S. Casady President
/s/ Thomas W. Littauer September 27, 1999
- --------------------------------------
Thomas W. Littauer* Chairman and Trustee
/s/ John W. Ballantine September 27, 1999
- --------------------------------------
John W. Ballantine* Trustee
/s/ Lewis A. Burnham September 27, 1999
- --------------------------------------
Lewis A. Burnham* Trustee
/s/ Donald L. Dunaway September 27, 1999
- --------------------------------------
Donald L. Dunaway* Trustee
/s/ Robert B. Hoffman September 27, 1999
- --------------------------------------
Robert B. Hoffman* Trustee
/s/ Donald R. Jones September 27, 1999
- --------------------------------------
Donald R. Jones* Trustee
/s/ Shirley D. Peterson September 27, 1999
- --------------------------------------
Shirley D. Peterson* Trustee
/s/ Cornelia M. Small September 27, 1999
- --------------------------------------
Cornelia M. Small* Trustee
<PAGE>
/s/ William P. Sommers September 27, 1999
- --------------------------------------
William P. Sommers* Trustee
/s/ John R. Hebble September 27, 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
pursuant to powers of attorney
filed herewith.
2
<PAGE>
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints Caroline Pearson, Maureen E. Kane, and Philip J. Collora and any of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement of Cash Equivalent
Fund, a Massachusetts business trust, on Form N-1A under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and any or
all amendments thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully as all intents and purposes as he
might or could do in person, hereby ratifying and confirming all said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
DATED: _______________, 1999
------------------------------
John W. Ballantine
Trustee
<PAGE>
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints Caroline Pearson, Maureen E. Kane, and Philip J. Collora and any of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement of Cash Equivalent
Fund, a Massachusetts business trust, on Form N-1A under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and any or
all amendments thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully as all intents and purposes as he
might or could do in person, hereby ratifying and confirming all said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
DATED: _______________, 1999
------------------------------
Thomas W. Littauer
Trustee
<PAGE>
LIMITED POWER OF ATTORNEY
-------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints Caroline Pearson, Maureen E. Kane, and Philip J. Collora and any of
them, her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for her and in her name, place and stead, in
any and all capacities to sign the Registration Statement of Cash Equivalent
Fund, a Massachusetts business trust, on Form N-1A under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and any or
all amendments thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully as all intents and purposes as he
might or could do in person, hereby ratifying and confirming all said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
DATED: _______________, 1999
------------------------------
Cornelia M. Small
Trustee
<PAGE>
File No. 2-63522
File No. 811-2899
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 26
----
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 26
----
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
CASH EQUIVALENT FUND
<PAGE>
CASH EQUIVALENT FUND
EXHIBIT INDEX
(d)(5)
(d)(6)
(g)(2)
(g)(3)
Exhibit (d)(5)
INVESTMENT MANAGEMENT AGREEMENT
Cash Equivalent Fund
222 South Riverside Plaza
Chicago, Illinois 60606
September 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Money Market Portfolio
Government Securities Portfolio
Ladies and Gentlemen:
CASH EQUIVALENT FUND (the "Trust") has been established as a Massachusetts
business trust to engage in the business of an investment company. Pursuant to
the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees is authorized to issue the Trust's shares
of beneficial interest (the "Shares"), in separate series, or funds. The Board
of Trustees has authorized the Money Market Portfolio and the Government
Securities Portfolio (each a "Fund" and collectively, the "Funds"). Series may
be abolished and dissolved, and additional series established, from time to time
by action of the Trustees.
The Trust, on behalf of the Funds, has selected you to act as the investment
manager of the Funds and to provide certain other services, as more fully set
forth below, and you have indicated that you are willing to act as such
investment manager and to perform such services under the terms and conditions
hereinafter set forth. In the event the Trust establishes one or more additional
series with respect to which it desires to retain you to render the services
described hereunder, it shall notify you in writing. If you are willing to
render such services, you shall notify the Trust in writing, whereupon such
series shall become a fund hereunder. Accordingly, the Trust on behalf of the
Funds agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of investing and
reinvesting the assets of each Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to each Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement") filed
by the Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the
Funds:
(a) The Declaration, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof (the "By-
Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders
of each Fund selecting you as investment manager and approving
the form of this Agreement.
(d) Establishment and Designation of Series of Shares of
Beneficial Interest relating to the Funds, as applicable.
<PAGE>
The Trust will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing,
including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the Funds, you
shall provide continuing investment management of the assets of the Funds in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable efforts to manage
each Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Funds shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Funds in accordance with the requirements set forth in this section 2, you shall
be entitled to receive and act upon advice of counsel to the Trust. You shall
also make available to the Trust promptly upon request all of the Funds'
investment records and ledgers as are necessary to assist the Trust in complying
with the requirements of the 1940 Act and other applicable laws. To the extent
required by law, you shall furnish to regulatory authorities having the
requisite authority any information or reports in connection with the services
provided pursuant to this Agreement which may be requested in order to ascertain
whether the operations of the Trust are being conducted in a manner consistent
with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by each Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
each Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of each Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Funds such office space and facilities in the United States as the Funds may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Funds necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Funds' transfer agent; assisting in the preparation
and filing of each Fund's federal, state and local tax returns; preparing and
filing each Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of each Fund under applicable
federal and state securities laws; maintaining or
2
<PAGE>
causing to be maintained for the Funds all books, records and reports and any
other information required under the 1940 Act, to the extent that such books,
records and reports and other information are not maintained by the Funds'
custodian or other agents of the Funds; assisting in establishing the accounting
policies of the Funds; assisting in the resolution of accounting issues that may
arise with respect to the Funds' operations and consulting with the Funds'
independent accountants, legal counsel and the Funds' other agents as necessary
in connection therewith; establishing and monitoring each Fund's operating
expense budgets; reviewing each Fund's bills; processing the payment of bills
that have been approved by an authorized person; assisting the Funds in
determining the amount of dividends and distributions available to be paid by
each Fund to its shareholders, preparing and arranging for the printing of
dividend notices to shareholders, and providing the transfer and dividend paying
agent, the custodian, and the accounting agent with such information as is
required for such parties to effect the payment of dividends and distributions;
and otherwise assisting the Trust as it may reasonably request in the conduct of
the Funds' business, subject to the direction and control of the Trust's Board
of Trustees. Nothing in this Agreement shall be deemed to shift to you or to
diminish the obligations of any agent of the Funds or any other person not a
party to this Agreement which is obligated to provide services to the Funds.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including each Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Funds, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Funds other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Funds' Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of each Fund: organization expenses of each
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Funds' custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Funds in connection with membership in investment company trade
organizations; fees and expenses of the Funds' accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by each Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of each Fund for sale; interest charges, bond premiums and other
insurance expense; freight, insurance and other charges in connection with the
shipment of each Fund's portfolio securities; the compensation and all expenses
(specifically including travel expenses relating to Trust business) of Trustees,
officers and employees of the Trust who are not affiliated persons of you;
brokerage commissions or other costs of acquiring or disposing of any portfolio
securities of the Funds; expenses of printing and distributing reports, notices
and dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of each Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of a Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of a Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of a Fund shall have adopted a plan in conformity
3
<PAGE>
with Rule 12b-1 under the 1940 Act providing that a Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by a Fund (or some other party) pursuant to such a plan.
5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Trust
on behalf of the Funds shall pay you in United States Dollars on the last day of
each month the unpaid balance of a fee equal to the excess of (a) 1/12 of .22 of
1 percent of the combined average daily net assets as defined below of the Funds
for such month; provided that, for any calendar month during which the average
of such values exceeds $500,000,000, the fee payable for that month based on the
portion of the average of such values in excess of $500,000,000 shall be 1/12 of
.20 of 1 percent of such portion; provided that, for any calendar month during
which the average of such values exceeds $1 billion, the fee payable for that
month based on the portion of the average of such values in excess of $1 billion
shall be 1/12 of .175 of 1 percent of such portion; provided that, for any
calendar month during which the average of such values exceeds $2 billion, the
fee payable for that month based on the portion of the average of such values in
excess of $2 billion shall be 1/12 of .16 of 1 percent of such portion; and
provided that, for any calendar month during which the average of such values
exceeds $3 billion, the fee payable for that month based on the portion of the
average of such values in excess of $3 billion shall be 1/12 of .15 of 1 percent
of such portion; over (b) the greater of (i) the amount by which the Funds'
aggregate expenses exceed .90 of 1% of the Funds' combined average daily net
assets up to $500 million, .80 of 1% of the next $500 million, .75 of 1% of the
next $1 billion and .70 of 1% of combined average daily net assets over $2
billion or (ii) any compensation waived by you from time to time (as more fully
described below). You shall be entitled to receive during any month such interim
payments of your fee hereunder as you shall request, provided that no such
payment shall exceed 75 percent of the amount of your fee then accrued on the
books of the Funds and unpaid.
The "average daily net assets" of a Fund shall mean the average of the values
placed on a Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of a Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 5, the value of the net
assets of such Fund as last determined shall be deemed to be the value of its
net assets as of 4:00 p.m. (New York time), or as of such other time as the
value of the net assets of the Fund's portfolio may be lawfully determined on
that day. If a Fund determines the value of the net assets of its portfolio more
than once on any day, then the last such determination thereof on that day shall
be deemed to be the sole determination thereof on that day for the purposes of
this section 5.
You agree that your gross compensation for any fiscal year shall not be greater
than an amount which, when added to other expenses of the Funds, shall cause the
aggregate expenses of the Funds to exceed on an annual basis .90 of 1% of the
Funds' combined average daily net assets up to $500 million, .80 of 1% of the
next $500 million, .75 of 1% of the next $1 billion and .70 of 1% of combined
average daily net assets over $2 billion. Except to the extent that such amount
has been reflected in reduced payments to you, you shall refund to the Funds the
amount of any payment received in excess of the limitation pursuant to this
section 5 as promptly as practicable after the end of such fiscal year, provided
that you shall not be required to pay the Funds an amount greater than the fee
paid to you in respect of such year pursuant to this Agreement. As used in this
section 5, "expenses" shall mean those expenses included in the applicable
expense limitation having the broadest specifications thereof, and "expense
limitation" means a limit on the maximum annual expenses which may be incurred
by an investment company determined (i) by multiplying a fixed percentage by the
average, or by multiplying more than one such percentage by different specified
amounts of the average, of the values of an investment company's net assets for
a fiscal year or (ii) by multiplying a fixed percentage by an investment
company's net investment income for a fiscal year.
4
<PAGE>
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Funds' expenses, as if such waiver
or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Funds, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for each Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of a Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
such Fund.
Your services to the Funds pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Trust. Whenever a Fund and one or
more other accounts or investment companies advised by you have available funds
for investment, investments suitable and appropriate for each shall be allocated
in accordance with procedures believed by you to be equitable to each entity.
Similarly, opportunities to sell securities shall be allocated in a manner
believed by you to be equitable. The Funds recognize that in some cases this
procedure may adversely affect the size of the position that may be acquired or
disposed of for the Funds.
7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Trust agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by a Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Trust, the Funds
or their shareholders to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of your
duties, or by reason of your reckless disregard of your obligations and duties
hereunder.
8. Duration and Termination of This Agreement. This Agreement shall remain in
force until September 30, 1999, and continue in force from year to year
thereafter with respect to each Fund, but only so long as such continuance is
specifically approved for each Fund at least annually (a) by the vote of a
majority of the Trustees who are not parties to this Agreement or interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the Trustees of the Trust, or
by the vote of a majority of the outstanding voting securities of such Fund. The
aforesaid requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with the
1940 Act and the rules and regulations thereunder and any applicable SEC
exemptive order therefrom.
This Agreement may be terminated with respect to a Fund at any time, without the
payment of any penalty, by the vote of a majority of the outstanding voting
securities of such Fund or by the Trust's Board of Trustees on 60 days' written
notice to you, or by you on 60 days' written notice to the Trust. This Agreement
shall terminate automatically in the event of its assignment.
This Agreement may be terminated with respect to a Fund at any time without the
payment of any penalty by the Board of Trustees or by vote of a majority of the
outstanding voting securities of such Fund in the event that it shall have been
established by a court of competent jurisdiction that you or any of your
officers or directors has taken any action which results in a breach of your
covenants set forth herein.
9. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the
5
<PAGE>
change, waiver, discharge or termination is sought, and no amendment of this
Agreement shall be effective until approved in a manner consistent with the 1940
Act and rules and regulations thereunder and any applicable SEC exemptive order
therefrom.
10. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Cash Equivalent
Fund" refers to the Trustees under the Declaration collectively as Trustees and
not as individuals or personally, and that no shareholder of a Fund, or Trustee,
officer, employee or agent of the Trust, shall be subject to claims against or
obligations of the Trust or of a Fund to any extent whatsoever, but that the
Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Trust
on behalf of each Fund pursuant to this Agreement shall be limited in all cases
to each Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of a Fund or any other
series of the Trust, or from any Trustee, officer, employee or agent of the
Trust. You understand that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
11. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause a
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Funds.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
CASH EQUIVALENT FUND, on behalf of
Money Market Portfolio
Government Securities Portfolio
By: /s/Mark S. Casady
----------------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
6
<PAGE>
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/S.R. Beckwith
----------------------------------
Treasurer
7
EXHIBIT (d)(6)
INVESTMENT MANAGEMENT AGREEMENT
Cash Equivalent Fund
222 South Riverside Plaza
Chicago, Illinois 60606
September 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Tax-Exempt Portfolio
Ladies and Gentlemen:
CASH EQUIVALENT FUND (the "Trust") has been established as a Massachusetts
business trust to engage in the business of an investment company. Pursuant to
the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees is authorized to issue the Trust's shares
of beneficial interest (the "Shares"), in separate series, or funds. The Board
of Trustees has authorized Tax-Exempt Portfolio (the "Fund"). Series may be
abolished and dissolved, and additional series established, from time to time by
action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the investment
manager of the Fund and to provide certain other services, as more fully set
forth below, and you have indicated that you are willing to act as such
investment manager and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Trust on behalf of the Fund agrees with
you as follows:
1. Delivery of Documents. The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to the Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement") filed
by the Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the Fund:
(a) The Declaration, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof (the "By-
Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders
of the Fund selecting you as investment manager and approving
the form of this Agreement.
(d) Establishment and Designation of Series of Shares of
Beneficial Interest relating to the Fund, as applicable.
The Trust will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements, if any, to the foregoing,
including the Prospectus, the SAI and the Registration Statement.
2. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing
<PAGE>
investment management of the assets of the Fund in accordance with the
investment objectives, policies and restrictions set forth in the Prospectus and
SAI; the applicable provisions of the 1940 Act and the Internal Revenue Code of
1986, as amended, (the "Code") relating to regulated investment companies and
all rules and regulations thereunder; and all other applicable federal and state
laws and regulations of which you have knowledge; subject always to policies and
instructions adopted by the Trust's Board of Trustees. In connection therewith,
you shall use reasonable efforts to manage the Fund so that it will qualify as a
regulated investment company under Subchapter M of the Code and regulations
issued thereunder. The Fund shall have the benefit of the investment analysis
and research, the review of current economic conditions and trends and the
consideration of long-range investment policy generally available to your
investment advisory clients. In managing the Fund in accordance with the
requirements set forth in this section 2, you shall be entitled to receive and
act upon advice of counsel to the Trust. You shall also make available to the
Trust promptly upon request all of the Fund's investment records and ledgers as
are necessary to assist the Trust in complying with the requirements of the 1940
Act and other applicable laws. To the extent required by law, you shall furnish
to regulatory authorities having the requisite authority any information or
reports in connection with the services provided pursuant to this Agreement
which may be requested in order to ascertain whether the operations of the Trust
are being conducted in a manner consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
3. Administrative Services. In addition to the portfolio management services
specified above in section 2, you shall furnish at your expense for the use of
the Fund such office space and facilities in the United States as the Fund may
require for its reasonable needs, and you (or one or more of your affiliates
designated by you) shall render to the Trust administrative services on behalf
of the Fund necessary for operating as an open end investment company and not
provided by persons not parties to this Agreement including, but not limited to,
preparing reports to and meeting materials for the Trust's Board of Trustees and
reports and notices to Fund shareholders; supervising, negotiating contractual
arrangements with, to the extent appropriate, and monitoring the performance of,
accounting agents, custodians, depositories, transfer agents and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities and the calculation of net
asset value; monitoring the registration of Shares of the Fund under applicable
federal and state securities laws; maintaining or causing to be maintained for
the Fund all books, records and reports and any other information required under
the 1940 Act, to the extent that such books, records and reports and other
information are not maintained by the Fund's custodian or other agents of the
Fund; assisting in establishing the accounting policies of the Fund; assisting
in the resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Fund's independent accountants, legal counsel
and the Fund's other agents as necessary in connection therewith; establishing
and monitoring the Fund's operating expense budgets; reviewing the Fund's bills;
processing the payment of bills that have been approved by an authorized person;
assisting the Fund in determining the amount of
<PAGE>
dividends and distributions available to be paid by the Fund to its
shareholders, preparing and arranging for the printing of dividend notices to
shareholders, and providing the transfer and dividend paying agent, the
custodian, and the accounting agent with such information as is required for
such parties to effect the payment of dividends and distributions; and otherwise
assisting the Trust as it may reasonably request in the conduct of the Fund's
business, subject to the direction and control of the Trust's Board of Trustees.
Nothing in this Agreement shall be deemed to shift to you or to diminish the
obligations of any agent of the Fund or any other person not a party to this
Agreement which is obligated to provide services to the Fund.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this section 4, you shall pay the compensation and expenses of all Trustees,
officers and executive employees of the Trust (including the Fund's share of
payroll taxes) who are affiliated persons of you, and you shall make available,
without expense to the Fund, the services of such of your directors, officers
and employees as may duly be elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law. You shall
provide at your expense the portfolio management services described in section 2
hereof and the administrative services described in section 3 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 4. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent for which the
Trust is responsible pursuant to the terms of the Fund Accounting Services
Agreement, custodians, subcustodians, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and, except as provided below in this section 4,
other expenses in connection with the issuance, offering, distribution, sale,
redemption or repurchase of securities issued by the Fund; expenses relating to
investor and public relations; expenses and fees of registering or qualifying
Shares of the Fund for sale; interest charges, bond premiums and other insurance
expense; freight, insurance and other charges in connection with the shipment of
the Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; and costs of
shareholders' and other meetings.
You shall not be required to pay expenses of any activity which is primarily
intended to result in sales of Shares of the Fund if and to the extent that (i)
such expenses are required to be borne by a principal underwriter which acts as
the distributor of the Fund's Shares pursuant to an underwriting agreement which
provides that the underwriter shall assume some or all of such expenses, or (ii)
the Trust on behalf of the Fund shall have adopted a plan in conformity with
Rule 12b-1 under the 1940 Act providing that the Fund (or some other party)
shall assume some or all of such expenses. You shall be required to pay such of
the foregoing sales expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to be
paid by the Fund (or some other party) pursuant to such a plan.
5. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 2, 3, and 4 hereof, the Trust
on behalf of the Fund shall pay you in United States Dollars on the last day of
each month the unpaid balance of a fee equal to the excess of (a) 1/12 of .22 of
1 percent of the average
<PAGE>
daily net assets as defined below of the Fund for such month; provided that, for
any calendar month during which the average of such values exceeds $500,000,000,
the fee payable for that month based on the portion of the average of such
values in excess of $500,000,000 shall be 1/12 of .20 of 1 percent of such
portion; provided that, for any calendar month during which the average of such
values exceeds $1 billion, the fee payable for that month based on the portion
of the average of such values in excess of $1 billion shall be 1/12 of .175 of 1
percent of such portion; provided that, for any calendar month during which the
average of such values exceeds $2 billion, the fee payable for that month based
on the portion of the average of such values in excess of $2 billion shall be
1/12 of .16 of 1 percent of such portion; and provided that, for any calendar
month during which the average of such values exceeds $3 billion, the fee
payable for that month based on the portion of the average of such values in
excess of $3 billion shall be 1/12 of .15 of 1 percent of such portion; over (b)
the greater of (i) the amount by which the Fund's expenses exceed 1.5% of
average daily net assets up to $30 million and 1% of average daily net assets
over $30 million or (ii) any compensation waived by you from time to time (as
more fully described below). You shall be entitled to receive during any month
such interim payments of your fee hereunder as you shall request, provided that
no such payment shall exceed 75 percent of the amount of your fee then accrued
on the books of the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 5, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 5.
You agree that your gross compensation for any fiscal year shall not be greater
than an amount which, when added to other expenses of the Fund, shall cause the
aggregate expenses of the Fund to exceed on an annual basis 1.5% of average
daily net assets up to $30 million and 1% of average daily net assets over $30
million. Except to the extent that such amount has been reflected in reduced
payments to you, you shall refund to the Fund the amount of any payment received
in excess of the limitation pursuant to this section 5 as promptly as
practicable after the end of such fiscal year, provided that you shall not be
required to pay the Fund an amount greater than the fee paid to you in respect
of such year pursuant to this Agreement. As used in this section 5, "expenses"
shall mean those expenses included in the applicable expense limitation having
the broadest specifications thereof, and "expense limitation" means a limit on
the maximum annual expenses which may be incurred by an investment company
determined (i) by multiplying a fixed percentage by the average, or by
multiplying more than one such percentage by different specified amounts of the
average, of the values of an investment company's net assets for a fiscal year
or (ii) by multiplying a fixed percentage by an investment company's net
investment income for a fiscal year.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
6. Avoidance of Inconsistent Position; Services Not Exclusive. In connection
with purchases or sales of portfolio securities and other investments for the
account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
<PAGE>
Your services to the Fund pursuant to this Agreement are not to be deemed to be
exclusive and it is understood that you may render investment advice, management
and services to others. In acting under this Agreement, you shall be an
independent contractor and not an agent of the Trust. Whenever the Fund and one
or more other accounts or investment companies advised by you have available
funds for investment, investments suitable and appropriate for each shall be
allocated in accordance with procedures believed by you to be equitable to each
entity. Similarly, opportunities to sell securities shall be allocated in a
manner believed by you to be equitable. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position that may be
acquired or disposed of for the Fund.
7. Limitation of Liability of Manager. As an inducement to your undertaking to
render services pursuant to this Agreement, the Trust agrees that you shall not
be liable under this Agreement for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect you against any liability to the Trust, the Fund
or its shareholders to which you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of your duties, or
by reason of your reckless disregard of your obligations and duties hereunder.
8. Duration and Termination of This Agreement. This Agreement shall remain in
force until September 30, 1999, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Trustees who are not parties
to this Agreement or interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Trustees of the Trust, or by the vote of a majority of the outstanding
voting securities of the Fund. The aforesaid requirement that continuance of
this Agreement be "specifically approved at least annually" shall be construed
in a manner consistent with the 1940 Act and the rules and regulations
thereunder and any applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time, without
the payment of any penalty, by the vote of a majority of the outstanding voting
securities of the Fund or by the Trust's Board of Trustees on 60 days' written
notice to you, or by you on 60 days' written notice to the Trust. This Agreement
shall terminate automatically in the event of its assignment.
This Agreement may be terminated with respect to the Fund at any time without
the payment of any penalty by the Board of Trustees or by vote of a majority of
the outstanding voting securities of the Fund in the event that it shall have
been established by a court of competent jurisdiction that you or any of your
officers or directors has taken any action which results in a breach of your
covenants set forth herein.
9. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
10. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Cash Equivalent
Fund" refers to the Trustees under the Declaration collectively as Trustees and
not as individuals or personally, and that no shareholder of the Fund, or
Trustee, officer, employee or agent of the Trust, shall be subject to claims
against or obligations of the Trust or of the Fund to any extent whatsoever, but
that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as set
forth in the Declaration and you agree that the obligations assumed by the Trust
on behalf of the Fund pursuant to this Agreement shall be limited in all cases
<PAGE>
to the Fund and its assets, and you shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Fund or any other
series of the Trust, or from any Trustee, officer, employee or agent of the
Trust. You understand that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
11. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
In interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order. This
Agreement shall be construed in accordance with the laws of the Commonwealth of
Massachusetts, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, or in a manner which would cause the Fund to
fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
CASH EQUIVALENT FUND, on behalf of Tax-
Exempt Portfolio
By: /s/Mark S. Casady
-------------------------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/S. R. Beckwith
-------------------------------
Treasurer
<PAGE>
EXHIBIT (g)(2)
CUSTODIAN CONTRACT
between
KEMPER CASH EQUIVALENT FUND
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
Page
1. Employment of Custodian and Property to be Held By It.........1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States...........2
2.1 Holding Securities...................................2
2.2 Delivery of Securities...............................2
2.3 Registration of Securities...........................4
2.4 Bank Accounts........................................5
2.5 Availability of Federal Funds........................5
2.6 Collection of Income.................................5
2.7 Payment of Fund Monies...............................6
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased.................................7
2.9 Appointment of Agents................................7
2.10 Deposit of Securities in U.S. Securities System......7
2.11 Fund Assets Held in the Custodian's
Direct Paper System..................................8
2.12 Segregated Account...................................9
2.13 Ownership Certificates for Tax Purposes ............10
2.14 Proxies.............................................10
2.15 Communications Relating to Portfolio Securities.....10
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside the United States......................10
3.1 Appointment of Foreign Sub-Custodians...............10
3.2 Assets to be Held...................................11
3.3 Foreign Securities Depositories.....................11
3.4 Agreements with Foreign Banking Institutions........11
3.5 Access of Independent Accountants of the Fund.......11
3.6 Reports by Custodian................................11
3.7 Transactions in Foreign Custody Account.............12
3.8 Liability of Foreign Sub-Custodians.................12
3.9 Liability of Custodian..............................12
3.10 Reimbursement for Advances..........................13
3.11 Monitoring Responsibilities.........................13
3.12 Branches of U.S. Banks..............................13
3.13 Tax Law.............................................14
<PAGE>
TABLE OF CONTENTS
-----------------
Page
4. Payments for Sales or Repurchases or Redemptions
of Shares ....................................................14
5. Proper Instructions...........................................14
6. Actions Permitted without Express Authority...................15
7. Evidence of Authority.........................................15
8. Duties of Custodian with Respect to the Books of Account
and Calculations of Net Asset Value and Net Income............16
9. Records.......................................................16
10. Opinion of Fund's Independent Accountants.....................16
11. Reports to Fund by Independent Public Accountants.............16
12. Compensation of Custodian.....................................17
13. Responsibility of Custodian...................................17
14. Effective Period, Termination and Amendment...................18
15. Successor Custodian...........................................19
16. Interpretive and Additional Provisions....................... 19
17. Additional Funds..............................................20
18. Massachusetts Law to Apply....................................20
19. Prior Contracts...............................................20
20. Shareholder Communications Election...........................20
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between Kemper Cash Equivalent Fund, a business trust
organized and existing under the laws of The Commonwealth of Massachusetts and
having its principal place of business at 222 South Riverside Plaza, Chicago,
Illinois 60606 (the "Fund"), and State Street Bank and Trust Company, a
Massachusetts trust company having its principal place of business at 225
Franklin Street, Boston, Massachusetts 02110 (the "Custodian"),
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund currently intends to offer shares in two (2) series,
Government Securities Portfolio and Money Market Portfolio (such series together
with all other series subsequently established by the Fund and made subject to
this Contract in accordance with Article 17, being herein referred to as the
"Portfolio(s)");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto do hereby agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
of America ("domestic securities") and securities it desires to be held outside
the United States of America ("foreign securities") pursuant to the provisions
of the Fund's declaration of trust (the "Declaration of Trust"). The Fund on
behalf of the Portfolio(s) agrees to deliver to the Custodian all securities and
cash of the Portfolios, and all payments of income, payments of principal or
capital distributions received by it with respect to all securities owned by the
Portfolio(s) from time to time, and the cash consideration received by it for
such new or treasury shares of beneficial interest of the Fund representing
interests in the Portfolios ("Shares") as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of a Portfolio
held or received by the Fund on behalf of the Portfolio and not delivered to the
Custodian.
Upon receipt of "Proper Instructions" (as such term is defined in
Article 5 of this Contract), the Custodian shall on behalf of the applicable
Portfolio(s) from time to time employ one or more sub-custodians located in the
United States of America, including any state or political subdivision thereof
and any territory over which its political sovereignty extends (the "United
States" or
<PAGE>
"U.S."), but only in accordance with an applicable vote by the board of trustees
of the Fund (the "Board of Trustees") on behalf of the applicable Portfolio(s)
and provided that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the Custodian. The
Custodian may employ as sub-custodians for the Fund's foreign securities on
behalf of the applicable Portfolio(s) the foreign banking institutions and
foreign securities depositories designated in Schedule A hereto but only in
accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
--------------------------------------------------------------------
the Custodian in the United States
----------------------------------
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property to be held by
it in the United States including all domestic securities owned by such
Portfolio other than (a) securities which are maintained in a "U.S.
Securities System" (as such term is defined in Section 2.10 of this
Contract) and (b) commercial paper of an issuer for which State Street
Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Custodian's Direct
Paper System pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio and held by the Custodian or
in a U.S. Securities System account of the Custodian, which account
shall not include any assets of the Custodian other than assets held as
a fiduciary, custodian or otherwise for its customers ("U.S. Securities
System Account") or in the Custodian's Direct Paper book-entry system
account, which account shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise for its
customers ("Direct Paper System Account") only upon receipt of Proper
Instructions from the Fund on behalf of the applicable Portfolio, which
may be continuing instructions when deemed appropriate by the parties,
and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
2
<PAGE>
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that, in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's U.S. Securities System Account,
the Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
3
<PAGE>
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent for the
Fund (the "Transfer Agent"), for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the Fund's currently effective prospectus and statement of
additional information related to the Portfolio (the
"Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the executive committee thereof
signed by an officer of the Fund and certified by the Fund's
Secretary or Assistant Secretary specifying the securities of
the Portfolio to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to
be a proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize reasonable efforts only to
(i) timely collect income
4
<PAGE>
due the Fund on such securities and (ii) notify the Fund of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940, as amended. Funds
held by the Custodian for a Portfolio may be deposited by it to its
credit as Custodian in the banking department of the Custodian or in
such other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or
trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940, as amended (the "Investment Company
Act") and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of each
applicable Portfolio be approved by vote of a majority of the Board of
Trustees. Such funds shall be deposited by the Custodian in its
capacity as Custodian and shall be withdrawable by the Custodian only
in that capacity.
2.5 Availability of Federal Funds. Upon agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to United States-registered securities held hereunder to
which each Portfolio shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis
all income and other payments with respect to domestic bearer
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to such Portfolio's account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Collection of income due each Portfolio on
domestic securities loaned pursuant to the provisions of Section 2.2
(10) shall be the responsibility of the Fund; the Custodian will have
no duty or responsibility in connection therewith, other than to
provide the Fund with such information or data in its possession as may
be necessary to assist the Fund in arranging for the timely delivery to
the Custodian of the income to which the Portfolio is properly
entitled.
5
<PAGE>
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act to act as a custodian and has been
designated by the Custodian as its agent for this purpose)
registered in the name of the Portfolio or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof or
in proper form for transfer; (b) in the case of a purchase
effected through a U.S. Securities System, in accordance with
the conditions set forth in Section 2.10 hereof; (c) in the
case of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section 2.11; (d)
in the case of repurchase agreements entered into between the
Fund on behalf of the Portfolio and the Custodian, or another
bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form
or through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant
to Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management
fees, accounting fees, transfer agent fees, legal fees and
operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6
<PAGE>
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the executive committee thereof signed by an
officer of the Fund and certified by the Fund's Secretary or
an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act to
act as a custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct; provided,
however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Securities in U.S. Securities Systems. The Custodian may
deposit and/or maintain domestic securities owned by a Portfolio in a
clearing agency registered with the Securities and Exchange Commission
(the "SEC") under Section 17A of the Exchange Act, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies (a "U.S.
Securities System") in accordance with applicable Federal Reserve Board
and SEC rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep domestic securities of the Portfolio in
a U.S. Securities System provided that such securities are
represented in a U.S. Securities System Account;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for domestic securities purchased for
the account of the Portfolio upon (i) receipt of advice from
the U.S. Securities System that such
7
<PAGE>
securities have been transferred to the U.S. Securities System
Account and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account
of the Portfolio; the Custodian shall transfer securities sold
for the account of the Portfolio upon (i) receipt of advice
from the U.S. Securities System that payment for such
securities has been transferred to the U.S. Securities System
Account and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Portfolio. Copies of all advices from the U.S.
Securities System of transfers of securities for the account
of the Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian shall furnish the
Fund on behalf of the Portfolio confirmation of each transfer
to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities
System for the account of the Portfolio;
4) The Custodian shall provide the Fund on behalf of the
Portfolio(s) with any report obtained by the Custodian on the
U.S. Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
8
<PAGE>
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
the Direct Paper System Account which shall not include any
assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Direct Paper System for the account
of the Portfolio; and
6) Upon the reasonable request of the Fund, the Custodian shall
provide the Fund with any report on the Direct Paper System's
system of internal accounting controls which had been prepared
as of the time of such request.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
a U.S. Securities System Account by the Custodian pursuant to Section
2.10 hereof (i) in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the
NASD (or any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities exchange
(or the Commodity Futures Trading Commission or any registered Contract
Market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or
9
<PAGE>
any subsequent release or releases of the SEC relating to the
maintenance of segregated accounts by registered investment companies
and (iv) for other proper corporate purposes, but only, in the case of
this clause (iv), upon receipt of, in addition to Proper Instructions
from the Fund on behalf of the applicable Portfolio, a certified copy
of a resolution of the Board of Trustees or of the executive committee
thereof signed by an officer of the Fund and certified by the Fund's
Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of such securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Fund on behalf of the Portfolio such
proxies, all proxy soliciting materials and all notices relating to
such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three (3) business days prior to the date on which
the Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
-----------------------------------------------------------------
Outside of the United States
----------------------------
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto (the "foreign sub-custodians"). Upon
receipt
10
<PAGE>
of Proper Instructions, together with a certified resolution of the
Board of Trustees, the Custodian and the Fund on behalf of the
Portfolio(s) may agree to amend Schedule A hereto from time to time to
designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such foreign sub-custodians for
maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Fund's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Funds shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership of the assets of
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to the Custodian
on behalf of its customers; (d) officers of or auditors employed by, or
other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for
the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with
the Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use reasonable efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the
11
<PAGE>
Portfolio(s) held by foreign sub-custodians, including but not limited
to an identification of entities having possession of Portfolio
securities and other assets and advices or notifications of any
transfers of securities to or from each custodial account maintained by
a foreign banking institution for the Custodian on behalf of its
customers indicating, as to securities acquired for a Portfolio, the
identity of the entity having physical possession of such securities.
3.7 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.7, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Portfolio(s) held outside the United
States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund on behalf of the Portfolio, it shall be entitled to be subrogated
to the rights of the Custodian with respect to any claims against a
foreign banking institution as a consequence of any such loss, damage,
cost, expense, liability or claim if and to the extent that the
Portfolio has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by Section 3.12 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency
12
<PAGE>
restrictions, or acts of war or terrorism or any loss where the
sub-custodian has otherwise exercised reasonable care. Notwithstanding
the foregoing provisions of this Section 3.9, in delegating custody
duties to State Street London Ltd., the Custodian shall not be relieved
of any responsibility to the Fund for any loss due to such delegation,
except such loss as may result from (a) political risk (including, but
not limited to, exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil strife or armed
hostilities) or (b) other losses (excluding a bankruptcy or insolvency
of State Street London Ltd. not caused by political risk) due to Acts
of God, nuclear incident or other losses under circumstances where the
Custodian and State Street London Ltd. have exercised reasonable care.
3.10 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund (during the month of June) information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the SEC is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the local currency
equivalent thereof) or that its shareholders' equity has declined below
$200 million (in each case computed in accordance with generally
accepted U.S. accounting principles).
3.12 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
Portfolio assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act meeting the qualification set forth in Section
26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by Article 1 of this Contract.
13
<PAGE>
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
3.13 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States. It shall
be the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares
- -- ----------------------------------------------------------
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent and deposit into the account of the appropriate Portfolio
such payments as are received for Shares of that Portfolio issued or sold from
time to time by the Fund. The Custodian will provide timely notification to the
Fund on behalf of each Portfolio and the Transfer Agent of any receipt by it of
payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees pursuant thereto, the Custodian shall, upon receipt of instructions
from the Transfer Agent, make funds available for payment to holders of Shares
who have delivered to the Transfer Agent a request for redemption or repurchase
of their Shares. In connection with the redemption or repurchase of Shares, the
Custodian is authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares, the
Custodian shall honor checks drawn on the Custodian by a holder of Shares, which
checks have been furnished by the Fund to the holder of Shares, when presented
to the Custodian in accordance with such procedures and controls as are mutually
agreed upon from time to time between the Fund and the Custodian.
5. Proper Instructions
- -- -------------------
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be
14
<PAGE>
considered Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be confirmed
in writing. If given pursuant to procedures to be agreed upon by the Custodian
and the Fund, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices. For purposes of this Section,
Proper Instructions shall include instructions received by the Custodian
pursuant to any three - party agreement which requires a segregated asset
account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees.
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees as conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action by the
Board of Trustees pursuant to the Declaration of Trust as described in such
vote, and such vote may be considered as in full force and effect until receipt
by the Custodian of written notice to the contrary.
15
<PAGE>
8. Duties of Custodian with Respect to the Books of Account and
------------------------------------------------------------
Calculation of Net Asset Value and Net Income
---------------------------------------------
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees to keep the books of
account of each Portfolio and/or compute the net asset value per share of the
outstanding Shares of each Portfolio or, if directed in writing to do so by the
Fund on behalf of the Portfolio(s), shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Prospectus and shall advise the Fund and the Transfer Agent daily of the total
amount of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the daily income of each Portfolio shall be made at the time
or times described from time to time in the Prospectus.
9. Records
-------
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the SEC. The Custodian shall, at the Fund's request,
supply the Fund with a tabulation of securities owned by each Portfolio and held
by the Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountants
-----------------------------------------
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A and N-SAR or other annual reports to the SEC and with respect to any
other SEC requirements.
11. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting
16
<PAGE>
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Section 3.9)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by Section 3.12 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
17
<PAGE>
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
the Custodian.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, the purchase or sale of foreign exchange or of
contracts for foreign exchange, and assumed settlement) for the benefit of a
Portfolio, or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize available cash
and to dispose of such Portfolio's assets to the extent necessary to obtain
reimbursement.
14. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of the date of its execution,
shall continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties hereto
and may be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect not
sooner than thirty (30) days after the date of such delivery or mailing;
provided, however that the Custodian shall not with respect to a Portfolio act
under Section 2.10 hereof in the absence of receipt of an initial certificate of
the Secretary or an Assistant Secretary that the Board of Trustees has approved
the initial use of a particular Securities System by such Portfolio, as required
by Rule 17f-4 under the Investment Company Act and that the Custodian shall not
with respect to a Portfolio act under Section 2.11 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has approved the initial use of the Direct Paper
System by such Portfolio; provided further, however, that the Fund shall not
amend or terminate this Contract in contravention of any applicable federal or
state regulations, or any provision of the Declaration of Trust, and further
provided, that the Fund on behalf of one or more of the Portfolios may at any
time by action of the Board of Trustees (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the Custodian
or (ii) immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
18
<PAGE>
15. Successor Custodian
-------------------
If a successor custodian shall be appointed by the Board of Trustees,
the Custodian shall, upon termination, deliver to such successor custodian at
the offices of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System. If no such successor custodian shall
be appointed, the Custodian shall, in like manner, upon receipt of a certified
copy of a vote of the Board of Trustees, deliver at the offices of the Custodian
and transfer such securities, funds and other properties in accordance with such
vote. In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act, doing
business in Boston, Massachusetts, or New York, New York, of its own selection,
having an aggregate capital, surplus, and undivided profits, as shown by its
last published report, of not less than $25,000,000, all securities, funds and
other properties held by the Custodian on behalf of each applicable Portfolio
and all instruments held by the Custodian relative thereto and all other
property held by it under this Contract on behalf of each applicable Portfolio
and to transfer to an account of such successor custodian all of the securities
of each such Portfolio held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Declaration of Trust. No interpretive
or additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Contract.
19
<PAGE>
17. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to Government Securities Portolio and Money Market Portfolio with
respect to which it desires to have the Custodian render services as custodian
under the terms hereof, it shall so notify the Custodian in writing, and if the
Custodian agrees in writing to provide such services, such series of Shares
shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody of
the assets of the Portfolio(s).
20. Shareholder Communications Election
-----------------------------------
SEC Rule 14b-2 requires banks which hold securities for the account of
customers to respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly objected to disclosure of
this information. In order to comply with the rule, the Custodian needs the Fund
to indicate whether it authorizes the Custodian to provide the Fund's name,
address, and share position to requesting companies whose securities the Fund
owns. If the Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes" or
does not check either "yes" or "no" below, the Custodian is required by the rule
to treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consents or objects by checking one of
the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
20
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of April 19, 1999.
ATTEST KEMPER CASH EQUIVALENT FUND
/s/Maureen Kane By: /s/Mark S. Casady
- --------------- ------------------
Name: Maureen Kane Name: Mark S. Casady
Ass't Sec. Title: President
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/Marc L. Parsons By: /s/Ronald E. Logue
- ------------------ ------------------
Marc L. Parsons Ronald E. Logue
Associate Counsel Vice Chairman
21
Exhibit (g)(3)
CASH EQUIVALENT FUND
222 South Riverside Plaza
Chicago, Illinois 60606
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Re: Cash Equivalent Fund
Gentlemen:
This is to advise you that Cash Equivalent Fund (the "Fund") has established a
new series of shares to be known as Tax-Exempt Portfolio. In accordance with the
Additional Funds provision of Section 17 of the Custodian Contract dated April
19, 1999 between the Fund and State Street Bank and Trust Company, the Fund
hereby requests that you act as Custodian for the new series under the terms of
the contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one to the Fund and retaining one copy for your
records.
CASH EQUIVALENT FUND,
By: /s/Phillip J. Collora
------------------------
Title: Vice President
Agreed to as of May 3, 1999.
STATE STREET BANK AND TRUST COMPANY,
By: /s/Ronald E. Logue /MLP
------------------------
Title: Vice Chairman
