Cash Account Trust
222 South Riverside Plaza
Chicago, Illinois 60606
TABLE OF CONTENTS
SUMMARY....................................................................2
SUMMARY OF EXPENSES........................................................3
FINANCIAL HIGHLIGHTS.......................................................4
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS...........................8
NET ASSET VALUE...........................................................15
PURCHASE OF SHARES........................................................16
REDEMPTION OF SHARES......................................................18
SPECIAL FEATURES..........................................................21
DIVIDENDS AND TAXES.......................................................22
INVESTMENT MANAGER AND SHAREHOLDER SERVICES...............................24
PERFORMANCE...............................................................27
CAPITAL STRUCTURE.........................................................28
This prospectus contains information about the Fund that a
prospective investor should know before investing and should be retained for
future reference. A Statement of Additional Information dated September 1, 1998,
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. It is available upon request without charge from the Fund
at the address or telephone number on this cover or the firm from which this
prospectus was received.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Cash
Account
Trust
PROSPECTUS September 1, 1998
CASH ACCOUNT TRUST
222 South Riverside Plaza, Chicago, Illinois 60606 1-800-231-8568.
The Fund offers a choice of investment portfolios and is designed for investors
who seek maximum current income to the extent consistent with stability of
capital. The Fund currently offers the Money Market Portfolio, the Government
Securities Portfolio and the Tax-Exempt Portfolio. Each Portfolio invests
exclusively in high quality money market instruments.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other agency, and is not a deposit or obligation of, or guaranteed or
endorsed by, any bank. There can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
2
<PAGE>
CASH ACCOUNT TRUST
222 South Riverside Plaza, Chicago, Illinois 60606, Telephone 1-800-231-8568
SUMMARY
Investment Objectives. Cash Account Trust (the "Fund") is an open-end
diversified management investment company. The Fund currently offers a choice of
three investment portfolios ("Portfolios"). Each Portfolio invests in a
portfolio of high quality short-term money market instruments consistent with
its specific objective. The Money Market Portfolio seeks maximum current income
to the extent consistent with stability of capital from a portfolio primarily of
commercial paper and bank obligations. The Government Securities Portfolio seeks
maximum current income to the extent consistent with stability of capital from a
portfolio of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. The Tax-Exempt Portfolio seeks maximum current
income that is exempt from federal income taxes to the extent consistent with
stability of capital from a portfolio of municipal securities. Each Portfolio
may use a variety of investment techniques, including the purchase of repurchase
agreements and variable rate securities. Each Portfolio seeks to maintain a net
asset value of $1.00 per share. There is no assurance that the objective of any
Portfolio will be achieved or that any Portfolio will be able to maintain a net
asset value of $1.00 per share. See "Investment Objectives, Policies and Risk
Factors."
Investment Manager and Shareholder Services. Scudder Kemper Investments, Inc.
(the "Adviser") is the investment manager for the Fund and provides the Fund
with continuous professional investment supervision. The Adviser is paid a
monthly investment management fee on a graduated basis ranging from 1/12 of
0.22% of the first $500 million of combined average daily net assets of all
Portfolios of the Fund to 0.15% of the combined average daily net assets of all
Portfolios of the Fund over $3 billion. Kemper Distributors, Inc. ("KDI"), an
affiliate of the Adviser, is the primary administrator, distributor and
principal underwriter of the Fund and, as such, provides information and
services for existing and potential shareholders and acts as agent of the Fund
in the sale of its shares. KDI receives a distribution services fee, payable
monthly, at an annual rate of 0.60% of average daily net assets of the Money
Market and Government Securities Portfolios and 0.50% of average daily net
assets of the Tax-Exempt Portfolio. As distributor, KDI normally pays financial
services firms that provide cash management and other services for their
customers at an annual rate of 0.60% of average daily net assets of those
accounts in the Money Market and Government Securities Portfolios that they
service and 0.50% of average daily net assets of those accounts in the
Tax-Exempt Portfolio that they maintain and service. See "Investment Manager and
Shareholder Services."
2
<PAGE>
Purchases and Redemptions. Shares of each Portfolio are available at net asset
value through selected financial services firms. The minimum initial investment
for each Portfolio is $1,000 and the minimum subsequent investment is $100. See
"Purchase of Shares." Shares may be redeemed at the net asset value next
determined after receipt by the Fund's Shareholder Service Agent of a request to
redeem in proper form. Shares may be redeemed by written request or by using one
of the Fund's expedited redemption procedures. See "Redemption of Shares."
Dividends. Dividends are declared daily and paid monthly. Dividends are
automatically reinvested in additional shares of the same Portfolio, unless the
shareholder makes a different election. See "Dividends and Taxes."
General Information and Capital. The Fund is organized as a business trust under
the laws of Massachusetts and may issue an unlimited number of shares of
beneficial interest. Shares are fully paid and nonassessable when issued, are
transferable without restriction and have no preemptive or conversion rights.
The Fund is not required to hold annual shareholder meetings; but will hold
special meetings as required or deemed desirable for such purposes as electing
trustees, changing fundamental policies or approving an investment management
agreement. See "Capital Structure."
3
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Expenses(1)..............................................................................None
Annual Fund Operating Expenses Money Market Government Tax-Exempt
(after fee waiver and expense absorption) Portfolio Securities Portfolio Portfolio
--------- -------------------- ---------
(as a percentage of average net assets)
Management Fees.................................................... 0.10% 0.18% 0.19%
12b-1 Fees(2)...................................................... 0.60% 0.60% 0.50%
Other Expenses..................................................... 0.30% 0.22% 0.25%
---- ---- ----
Total Operating Expenses........................................... 1.00% 1.00% 0.94%
===== ===== ======
(1) Investment dealers and other firms may independently charge shareholders
additional fees; please see their materials for details.
(2) As a result of the accrual of 12b-1 fees, long-term shareholders may pay
more than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers.
3
<PAGE>
Example Portfolio 1 Year 3 Years 5 Years 10 Years
- ------- --------- ------ ------- ------- --------
You would pay the following expenses on a Money Market $10 $32 $55 $122
$1,000 investment, assuming (1) 5% annual return and (2) Government $10 $32 $55 $122
redemption at the end of each time Securities
period: Tax-Exempt $10 $30 $52 $115
</TABLE>
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. As discussed more fully under "Investment Manager and Shareholder
Services," the Fund's investment manager has agreed to waive temporarily its
management fee and reimburse or pay operating expenses of a Portfolio to the
extent, if any, that such expenses as defined, exceed the following percentages
of average daily net assets of the Portfolios: Money Market Portfolio (1.00%),
Government Securities Portfolio (1.00%) and Tax-Exempt Portfolio (0.95%).
Without such waiver and reimbursement during the fiscal year ended April 30,
1998, "Management Fees" for the Money Market Portfolio and the Government
Securities Portfolio would have been 0.19% and 0.19%, respectively, and "Total
Operating Expenses" would have been 1.10% and 1.02%, respectively. The actual
expenses for the Tax-Exempt Portfolio were lower than the expense limit of
0.95%, therefore, the numbers in the table do not reflect any waiver or
reimbursement. In addition, from time to time, the Adviser may voluntarily waive
fees or absorb certain additional operating expenses of the Portfolios. "Other
Expenses" does not reflect the effect of this additional expense absorption. The
Example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of any Portfolio of
the Fund. The Example should not be considered to be a representation of past or
future expenses. Actual expenses may be greater or lesser than those shown.
FINANCIAL HIGHLIGHTS
The tables below show financial information expressed in terms of one share
outstanding throughout the period. The information in the tables is covered by
the report of the Fund's independent auditors. The report is contained in the
Fund's Registration Statement and is available from the Fund. The financial
statements contained in the Fund's 1998 Annual Report to Shareholders are
incorporated herein by reference and may be obtained by writing or calling the
Fund.
4
<PAGE>
<TABLE>
<CAPTION>
Year ended April 30,
---------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO 1998 1997 1996 1995 1994 1993 1992 December
---------------------- 3, 1990 to
April 30,
1991
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
----------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.05 0.05 0.05 0.04 0.02 0.02 0.04 0.03
----------------------------------------------------------------------------------------------------------------------------------
Less dividends declared 0.05 0.05 0.05 0.04 0.02 0.02 0.04 0.03
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
----------------------------------------------------------------------------------------------------------------------------------
Total Return 4.85% 4.60 4.96 4.38 2.42 2.65 4.44 2.63
Ratios to Average Net Assets:
Expenses after expense waiver 1.00% 1.00 1.00 0.99 0.93 0.84 0.93 1.00
----------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.71% 4.51 4.83 4.54 2.48 2.59 4.03 6.24
----------------------------------------------------------------------------------------------------------------------------------
Other Ratios to Average Net Assets:
Expenses 1.10% 1.03 1.05 1.05 1.20 1.36 1.57 1.58
----------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.61% 4.48 4.78 4.48 2.21 2.07 3.39 5.66
----------------------------------------------------------------------------------------------------------------------------------
Supplemental Data:
Net assets at end of period (in $1,995,057 584,947 455,025 378,551 156,153 34,267 27,905 6,105
thousands)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Year ended April 30,
---------------------------------------------------------------------------------------------
GOVERNMENT SECURITIES PORTFOLIO 1998 1997 1996 1995 1994 1993 1992 December
3, 1990 to
April 30,
1991
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
----------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.05 0.05 0.05 0.04 0.02 0.02 0.04 0.03
----------------------------------------------------------------------------------------------------------------------------------
Less dividends declared 0.05 0.05 0.05 0.04 0.02 0.02 0.04 0.03
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
----------------------------------------------------------------------------------------------------------------------------------
Total Return 4.78% 4.69 5.01 4.37 2.49 2.65 4.54 2.47
Ratios to Average Net Assets:
Expenses after expense waiver 0.98% 0.92 0.90 0.90 0.84 0.79 0.79 0.87
----------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.68% 4.59 4.88 4.66 2.47 2.63 4.41 5.95
----------------------------------------------------------------------------------------------------------------------------------
Other Ratios to Average Net Assets:
Expenses 1.02% 0.99 1.06 1.05 1.22 1.18 1.20 1.44
----------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.64% 4.52 4.72 4.51 2.09 2.24 4.00 5.38
----------------------------------------------------------------------------------------------------------------------------------
Supplemental Data:
Net assets at end of period (in $804,565 544,501 189,919 138,020 30,829 28,963 34,119 30,080
thousands)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Year ended April 30,
---------------------------------------------------------------------------------------------
TAX-EXEMPT PORTFOLIO 1998 1997 1996 1995 1994 1993 1992 December
3, 1990 to
April 30,
1991
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
----------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.03 0.03 0.03 0.03 0.02 0.02 0.03 0.02
----------------------------------------------------------------------------------------------------------------------------------
Less dividends declared 0.03 0.03 0.03 0.03 0.02 0.02 0.03 0.02
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
----------------------------------------------------------------------------------------------------------------------------------
Total Return 2.92% 2.82 3.16 2.80 1.84 2.13 3.46 1.76
Ratios to Average Net Assets:
Expenses after expense waiver 0.91% 0.81 0.78 0.76 0.74 0.71 0.67 0.75
----------------------------------------------------------------------------------------------------------------------------------
Net investment income 2.87% 2.78 3.10 3.00 1.82 2.09 3.34 4.30
----------------------------------------------------------------------------------------------------------------------------------
Other Ratios to Average Net Assets:
Expenses 0.94% 0.96 0.98 0.93 1.20 1.39 1.38 0.97
----------------------------------------------------------------------------------------------------------------------------------
Net investment income 2.84% 2.63 2.90 2.83 1.36 1.41 2.63 4.08
----------------------------------------------------------------------------------------------------------------------------------
Supplemental Data:
Net assets at end of period (in $368,141 220,791 66,981 67,748 16,991 10,014 7,097 3,904
thousands)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(a) The Money Market Portfolio's total returns for the years ended
April 30, 1996 and 1995 include the effect of a capital
contribution from the investment manager. Without the capital
contribution, the total returns would have been 4.80% and
4.16%, respectively.
(b) The Adviser has agreed to waive temporarily its management fee
and reimburse or pay certain operating expenses to the extent
necessary to limit expenses to specific levels. The Other
Ratios to Average Net Assets are computed without this waiver
and expense absorption. Ratios have been determined on an
annualized basis. Total return is not annualized.
7
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The Fund is a money market mutual fund designed to provide its shareholders with
professional management of short-term investment dollars. It is designed for
investors who seek maximum current income consistent with stability of capital.
The Fund pools individual and institutional investors' money that it uses to buy
high quality money market instruments. The Fund is a series investment company
that is able to provide investors with a choice of separate investment
portfolios ("Portfolios"). It currently offers three investment Portfolios: the
Money Market Portfolio, the Government Securities Portfolio and the Tax-Exempt
Portfolio. Because each Portfolio combines its shareholders' money, it can buy
and sell large blocks of securities, which reduces transaction costs and
maximizes yields. The Fund is managed by investment professionals who analyze
market trends to take advantage of changing conditions and who seek to minimize
risk by diversifying each Portfolio's investments. A Portfolio's investments are
subject to price fluctuations resulting from rising or declining interest rates
and are subject to the ability of the issuers of such investments to make
payment at maturity. However, because of their short maturities, liquidity and
high quality ratings, high quality money market instruments, such as those in
which the Fund invests, are generally considered to be among the safest
available. Thus, the Fund is designed for investors who want to avoid the
fluctuations of principal commonly associated with equity or 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.
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 of U.S. banks (including their foreign branches)
and Canadian chartered banks having total assets in excess of
$1 billion.
3. Bank certificates of deposit, time deposits or bankers'
acceptances of foreign banks (including their U.S. and foreign
branches) having total assets in excess of $10 billion.
4. Commercial paper, notes, bonds, debentures, participation
certificates or other debt obligations that (i) are rated
high quality by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("S&P"), or Duff & Phelps, Inc.
("Duff"); or (ii) if unrated, are determined to be at least
equal in quality to one or more of the above ratings in the
discretion of the Fund's investment manager. Currently, only
obligations in the top two categories are considered to be
rated high quality. The two highest rating categories of
8
<PAGE>
Moody's, S&P and Duff for commercial paper are Prime-1 and
Prime-2, A-1 and A-2 and Duff 1 and Duff 2, respectively. For
other debt obligations, the two highest rating categories for
such services are Aaa and Aa, AAA and AA and AAA and AA,
respectively. For a description of these ratings, see
"Appendix-- Ratings of Investments" in the Statement of
Additional Information.
5. Repurchase agreements of obligations that are suitable for
investment under the categories set forth above. Repurchase
agreements are discussed below.
In addition, the Portfolio limits its investments to securities that meet the
quality and diversification requirements of Rule 2a-7 under the Investment
Company Act of 1940 (the "1940 Act"). See "Net Asset Value."
The Money Market Portfolio will normally invest at least 25% of its assets in
obligations issued by banks; provided, however, the Portfolio may in the
discretion of the Fund's investment manager temporarily invest less than 25% of
its assets in such obligations whenever the Portfolio assumes a defensive
posture. Investments by the Money Market Portfolio in Eurodollar certificates of
deposit issued by London branches of U.S. banks, or obligations issued by
foreign entities, including foreign banks, involve risks that are different from
investments in securities of domestic branches of U.S. banks. These risks may
include future unfavorable political and economic developments, possible
withholding taxes on interest payments, seizure of foreign deposits, currency
controls, 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. The profitability of the
banking industry is dependent largely upon the availability and cost of funds
for the purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important part
in banking operations. As a result of Federal and state laws and regulations,
domestic banks are, among other things, required to maintain specified levels of
reserves, limited in the amounts they can loan to a single borrower and subject
to other regulations designed to promote financial soundness. However, not all
such laws and regulations apply to the foreign branches of domestic banks.
Foreign branches of foreign banks are not regulated by U.S. banking authorities,
and generally are not bound by accounting, auditing and financial reporting
standards comparable to U.S. banks. Bank obligations held by the Portfolio do
not benefit materially from insurance from the Federal Deposit Insurance
Corporation.
The Money Market Portfolio may invest in commercial paper issued by major
corporations under the Securities Act of 1933 in reliance on the exemption from
registration afforded by Section 3(a)(3) thereof. Such commercial paper may be
issued only to finance current transactions and must mature in nine months or
less. Trading of such commercial paper is conducted primarily by institutional
investors through investment dealers and individual investor participation in
9
<PAGE>
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 that 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 who agree that they are purchasing
the paper for investment and not with a view to public distribution. Any resale
by the purchaser must be in an exempt transaction. Section 4(2) paper normally
is resold to other institutional investors like the Portfolio through or with
the assistance of the issuer or investment dealers who make a market in the
Section 4(2) paper, thus providing liquidity. The Fund's investment manager
considers the legally restricted but readily saleable Section 4(2) paper to be
liquid; however, pursuant to procedures approved by the Board of Trustees of the
Fund, if a particular investment in Section 4(2) paper is not determined to be
liquid, that investment will be included within the 10% limitation on illiquid
securities discussed under "The Fund" below. The Fund's investment manager
monitors the liquidity of the Portfolio's investments in Section 4(2) paper on a
continuous basis.
The Money Market Portfolio may invest in high quality participation certificates
("certificates") representing undivided interests in trusts that hold a
portfolio of receivables from consumer and commercial credit transactions, such
as transactions involving consumer revolving credit card accounts or commercial
revolving credit loan facilities. The receivables would include amounts charged
for goods and services, finance charges, late charges and other related fees and
charges. Interest payable on the certificates may be fixed or may be adjusted
periodically or "float" continuously according to a formula based upon an
objective standard such as the 30-day commercial paper rate. See "The Fund"
below for a discussion of "Variable Rate Securities." A trust may have the
benefit of a letter of credit from a bank at a level established to satisfy
rating agencies as to the credit quality of the assets supporting the payment of
principal and interest on the certificates. Payments of principal and interest
on the certificates would be dependent upon the underlying receivables in the
trust 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 is
based primarily upon the value of the receivables 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 trust. The Fund's investment manager considers
these factors as well as others, such as any quality ratings issued by the
rating services identified above, in reviewing the credit risk presented by a
certificate and in determining whether the certificate is appropriate for
investment by the Portfolio. Collection of receivables in the trust may be
affected by various social, legal and economic factors affecting the use of
credit and repayment patterns, such as changes in consumer protection laws, the
rate of inflation, unemployment levels and relative interest rates. It is
anticipated that for most publicly offered certificates there will be a liquid
secondary market or there may be demand features enabling the Fund to readily
sell its certificates prior to maturity to the issuer or a third party. While
the Portfolio may invest without limit in certificates, it is currently
10
<PAGE>
anticipated that such investments will not exceed 25% of the Portfolio's assets.
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 Fund seeks to maintain at
$1.00 per share. Also, with respect to securities supported only by the credit
of the issuing agency or instrumentality or by an additional line of credit with
the U.S. Treasury, there is no guarantee that the U.S. Government will provide
support to such agencies or instrumentalities and such securities may involve
risk of loss of principal and interest. Repurchase agreements are discussed
below.
Tax-Exempt Portfolio. The Tax-Exempt Portfolio seeks maximum current income that
is exempt from Federal income taxes to the extent consistent with stability of
capital. The Portfolio pursues its objective primarily through a professionally
managed, diversified portfolio of short-term high quality tax-exempt municipal
obligations. Under normal market conditions at least 80% of the Portfolio's
total assets will, as a fundamental policy, be invested in obligations issued by
or on behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities, the income from which is exempt from Federal income tax
("Municipal Securities"). In compliance with the position of the staff of the
Securities and Exchange Commission, the Fund does not consider "private
activity" bonds as described in "Dividends and Taxes -- Tax-Exempt Portfolio" to
be Municipal Securities for purposes of the 80% limitation. This is a
fundamental policy so long as the staff maintains its position, after which it
would become non-fundamental.
Dividends representing net interest income received by the Tax-Exempt Portfolio
on Municipal Securities will be exempt from federal income tax when distributed
to the Portfolio's shareholders. Such dividend income may be subject to state
and local taxes. See "Dividends and Taxes -- Tax-Exempt Portfolio." The
Portfolio's assets will consist of Municipal Securities, taxable temporary
investments as described below and cash. The Portfolio considers short-term
Municipal Securities to be those that mature in one year or less.
The Tax-Exempt Portfolio will invest only in Municipal Securities that 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)
11
<PAGE>
are guaranteed or insured by the U.S. Government as to the payment of principal
and interest; (c) are fully collateralized by an escrow of U.S. Government
securities acceptable to the Fund's investment manager; (d) have at the time of
purchase Moody's short-term Municipal Securities rating of MIG-2 or higher or a
municipal commercial paper rating of P-2 or higher, or S&P's municipal
commercial paper rating of A-2 or higher; (e) are unrated, if longer term
Municipal Securities of that issuer are rated within the two highest rating
categories by Moody's or S&P; or (f) are determined to be at least equal in
quality to one or more of the above ratings in the discretion of the Fund's
investment manager. In addition, the Portfolio limits its investments to
securities that meet the quality requirements of Rule 2a-7 under the Investment
Company Act of 1940. See "Net Asset Value."
Municipal Securities generally are classified as "general obligation" or
"revenue" issues. General obligation bonds are secured by the issuer's pledge of
its full credit and taxing power for the payment of principal and interest.
Revenue bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Industrial development bonds held by the Fund are in
most cases revenue bonds and are not payable from the unrestricted revenues of
the issuer. Among other types of instruments, the Portfolio may purchase
tax-exempt commercial paper, warrants and short-term municipal notes such as tax
anticipation notes, bond anticipation notes, revenue anticipation notes,
construction loan notes and other forms of short-term loans. Such notes are
issued with a short-term maturity in anticipation of the receipt of tax
payments, the proceeds of bond placements or other revenues. A more detailed
discussion of Municipal Securities and the Moody's and S&P ratings outlined
above is contained in the Statement of Additional Information. As indicated
under "Dividends and Taxes -- Tax-Exempt Portfolio," the Portfolio may invest in
short-term "private activity" bonds.
The Tax-Exempt Portfolio may purchase securities that provide for the right to
resell them to an issuer, bank or dealer at an agreed upon price or yield within
a specified period prior to the maturity date of such securities. Such a right
to resell is referred to as a "Standby Commitment." Securities may cost more
with Standby Commitments than without them. Standby Commitments will be entered
into solely to facilitate portfolio liquidity. A Standby Commitment may be
exercised before the maturity date of the related Municipal Security if the
Fund's investment adviser revises its evaluation of the creditworthiness of the
underlying security or of the entity issuing the Standby Commitment. The
Portfolio's policy is to enter into Standby Commitments only with issuers, banks
or dealers that are determined by the Fund's investment manager to present
minimal credit risks. If an issuer, bank or dealer should default on its
obligation to repurchase an underlying security, the Portfolio might be unable
to recover all or a portion of any loss sustained from having to sell the
security elsewhere.
12
<PAGE>
The Tax-Exempt Portfolio may purchase high quality Certificates of Participation
in trusts that hold Municipal Securities. A Certificate of Participation gives
the Portfolio an undivided interest in the Municipal Security in the proportion
that the Portfolio's interest bears to the total principal amount of the
Municipal Security. These Certificates of Participation may be variable rate or
fixed rate with remaining maturities of one year or less. A Certificate of
Participation may be backed by an irrevocable letter of credit or guarantee of a
financial institution that satisfies rating agencies as to the credit quality of
the Municipal Security supporting the payment of principal and interest on the
Certificate of Participation. Payments of principal and interest would be
dependent upon the underlying Municipal Security and may be guaranteed under a
letter of credit to the extent of such credit. The quality rating by a rating
service of an issue of Certificates of Participation is based primarily upon the
rating of the Municipal Security held by the trust and the credit rating of the
issuer of any letter of credit and of any other guarantor providing credit
support to the issue. The Fund's investment manager considers these factors as
well as others, such as any quality ratings issued by the rating services
identified above, in reviewing the credit risk presented by a Certificate of
Participation and in determining whether the Certificate of Participation is
appropriate for investment by the Portfolio. It is anticipated by the Fund's
investment manager that, for most publicly offered Certificates of
Participation, there will be a liquid secondary market or there may be demand
features enabling the Portfolio to readily sell its Certificates of
Participation prior to maturity to the issuer or a third party. As to those
instruments with demand features, the Portfolio intends to exercise its right to
demand payment from the issuer of the demand feature only upon a default under
the terms of the Municipal Security, as needed to provide liquidity to meet
redemptions, or to maintain a high quality investment portfolio.
The Tax-Exempt Portfolio may purchase and sell Municipal Securities on a
when-issued or delayed delivery basis. A when-issued or delayed delivery
transaction arises when securities are bought or sold for future payment and
delivery to secure what is considered to be an advantageous price and yield to
the Portfolio at the time it enters into the transaction. In determining the
maturity of portfolio securities purchased on a when-issued or delayed delivery
basis, the Portfolio will consider them to have been purchased on the date when
it committed itself to the purchase.
A security purchased on a when-issued basis, like all securities held by the
Tax-Exempt Portfolio, is subject to changes in market value based upon changes
in the level of interest rates and investors' perceptions of the
creditworthiness of the issuer. Generally such securities will appreciate in
value when interest rates decline and decrease in value when interest rates
rise. Therefore if, in order to achieve higher interest income, the Portfolio
remains substantially fully invested at the same time that it has purchased
securities on a when-issued basis, there will be a greater possibility that the
market value of the Portfolio's assets will vary from $1.00 per share because
the value of a when-issued security is subject to market fluctuation and no
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interest accrues to the purchaser prior to settlement of the transaction. See
"Net Asset Value."
The Portfolio will only make commitments to purchase Municipal Securities on a
when-issued or delayed delivery basis with the intention of actually acquiring
the securities, but the Portfolio reserves the right to sell these securities
before the settlement date if deemed advisable. The sale of these securities may
result in the realization of gains that are not exempt from federal income tax.
In seeking to achieve its investment objective, the Tax-Exempt Portfolio may
invest all or any part of its assets in Municipal Securities that are industrial
development bonds. Moreover, although the Portfolio does not currently intend to
do so on a regular basis, it may invest more than 25% of its assets in Municipal
Securities that are repayable out of revenue streams generated from economically
related projects or facilities, if such investment is deemed necessary or
appropriate by the Portfolio's investment manager. To the extent that the
Portfolio's assets are concentrated in Municipal Securities payable from
revenues on economically related projects and facilities, the Portfolio will be
subject to the risks presented by such projects to a greater extent than it
would be if the Portfolio's assets were not so concentrated.
From time to time, as a defensive measure or when acceptable short-term
Municipal Securities are not available, the Tax-Exempt Portfolio may invest in
taxable "temporary investments" that include: obligations of the U.S.
Government, its agencies or instrumentalities; debt securities rated within the
two highest grades by Moody's or S&P; 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 (limited under normal market conditions to 20% of the
Portfolio's total assets), it is the Portfolio's primary intention to generate
income dividends that are not subject to federal income taxes. See "Dividends
and Taxes." For a description of the ratings, see "Appendix -- Ratings of
Investments" in the Statement of Additional Information.
The Fund. Each Portfolio may invest in repurchase agreements, which are
instruments under which a Portfolio acquires ownership of a security from a
broker-dealer or bank that agrees to repurchase the security at a mutually
agreed upon time and price (which price is higher than the purchase price),
thereby determining the yield during the Portfolio's holding period. Maturity of
the securities subject to repurchase may exceed one year. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, a Portfolio
might have expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities and loss of
income. A Portfolio will not purchase illiquid securities, including time
deposits and repurchase agreements maturing in more than seven days if, as a
result thereof, more than 10% of such Portfolio's net assets valued at the time
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of the transaction would be invested in such securities.
Each Portfolio may invest in instruments having rates of interest that are
adjusted periodically or that "float" continuously according to formulae
intended to minimize fluctuation in values of the instruments ("Variable Rate
Securities"). The interest rate of Variable Rate Securities ordinarily is
determined by reference to or is a percentage of an objective standard such as a
bank's prime rate, the 90-day U.S. Treasury Bill rate, or the rate of return on
commercial paper or bank certificates of deposit. Generally, the changes in the
interest rate on Variable Rate Securities reduce the fluctuation in the market
value of such securities. Accordingly, as interest rates decrease or increase,
the potential for capital appreciation or depreciation is less than for
fixed-rate obligations. Some Variable Rate Securities ("Variable Rate Demand
Securities") have a demand feature entitling the purchaser to resell the
securities at an amount approximately equal to amortized cost or the principal
amount thereof plus accrued interest. As is the case for other Variable Rate
Securities, the interest rate on Variable Rate Demand Securities varies
according to some objective standard intended to minimize fluctuation in the
values of the instruments. Each Portfolio determines the maturity of Variable
Rate Securities in accordance with Rule 2a-7, which allows the Portfolio to
consider certain of such instruments as having maturities shorter than the
maturity date on the face of the instrument.
A Portfolio may not borrow money except as a temporary measure for extraordinary
or emergency purposes, and then only in an amount up to one-third of the value
of its total assets, in order to meet redemption requests without immediately
selling any portfolio securities. Any such borrowings under this provision will
not be collateralized. No Portfolio will borrow for leverage purposes.
The Fund has adopted for each Portfolio certain investment restrictions that are
presented in the Statement of Additional Information and that, together with the
investment objective and policies of such Portfolio (except for policies
designated as non-fundamental and limited in regard to the Tax-Exempt Portfolio
to the policies in the first and third paragraphs under "Tax-Exempt Portfolio"
above), cannot be changed without approval by holders of a majority of its
outstanding voting shares. As defined in the 1940 Act, this means with respect
to a Portfolio the lesser of the vote of (a) 67% of the shares of such Portfolio
present at a meeting where more than 50% of the outstanding shares of the
Portfolio are present in person or by proxy or (b) more than 50% of the
outstanding shares of the Portfolio.
NET ASSET VALUE
The net asset value per share of each Portfolio is calculated by dividing the
total assets of such Portfolio less its liabilities by the total number of its
shares outstanding. The net asset value per share of each Portfolio is
determined on each day the New York Stock Exchange ("Exchange") is open for
trading, at 11:00 a.m., 1:00 p.m. and 3:00 p.m. Chicago time for the Money
Market Portfolio; at 11:00 a.m., 1:00 p.m., 3:00 p.m. and 8:00 p.m. Chicago time
15
<PAGE>
for Government Securities Portfolio and at 11:00 a.m. and 3:00 p.m. Chicago time
for the Tax-Exempt Portfolio. Fund shares are sold at the net asset value next
determined after an order and payment are received in the form described under
"Purchase of Shares." Orders received by dealers or other financial services
firms prior to the 8:00 p.m. determination of net asset value for the Government
Securities Portfolio and received by KDI, the primary administrator, distributor
and principal underwriter for the Funds, prior to the close of its business day
can be confirmed at the 8:00 p.m. determination of net asset value for that day.
Such transactions are settled by payment of Federal funds in accordance with
procedures established by KDI. Each Portfolio seeks to maintain its net asset
value at $1.00 per share.
Each Portfolio values its portfolio instruments at amortized cost in accordance
with Rule 2a-7 under the 1940 Act, which means that they are valued at their
acquisition cost (as adjusted for amortization of premium or accretion of
discount) rather than at current market value. Calculations are made to compare
the value of each Portfolio's investments valued at amortized cost with
market-based values. Market-based valuations are obtained by using actual
quotations provided by market makers, estimates of market value, or values
obtained from yield data relating to classes of money market instruments
published by reputable sources at the mean between the bid and asked prices for
the instruments. If a deviation of 1/2 of 1% or more were to occur between a
Portfolio's net asset value per share calculated by reference to market-based
values and the Portfolio's $1.00 per share net asset value, or if there were any
other deviation that the Board of Trustees believed would result in a material
dilution to shareholders or purchasers, the Board of Trustees would promptly
consider what action, if any, should be initiated. In order to value its
investments at amortized cost, the Portfolios purchase only securities with a
maturity of one year or less and maintain a dollar-weighted average portfolio
maturity of 90 days or less. In addition, the Portfolios limit their portfolio
investments to securities that meet the quality and diversification requirements
of Rule 2a-7.
PURCHASE OF SHARES
Shares of each Portfolio of the Fund are sold at net asset value through
selected financial services firms, such as broker-dealers and banks ("firms").
Investors must indicate the Portfolio in which they wish to invest. The Fund has
established a minimum initial investment for each Portfolio of $1,000 and $100
for subsequent investments, but these minimums may be changed at any time in
management's discretion. Firms offering Fund shares may set higher minimums for
accounts they service and may change such minimums at their discretion.
The Fund seeks to have its Portfolios as fully invested as possible at all times
in order to achieve maximum income. Since each Portfolio will be investing in
instruments that normally require immediate payment in Federal Funds (monies
credited to a bank's account with its regional Federal Reserve Bank), the Fund
has adopted procedures for the convenience of its shareholders and to ensure
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<PAGE>
that each Portfolio receives investable funds.
Orders for purchase of shares of a Portfolio received by wire transfer in the
form of Federal Funds will be effected at the next determined net asset value.
Shares purchased by wire will receive (i) that day's dividend if effected at or
prior to the 1:00 p.m. Chicago time net asset value determination for the Money
Market and the Government Securities Portfolio and at or prior to the 11:00 a.m.
Chicago time net asset value determination for the Tax-Exempt Portfolio; (ii)
the dividend for the next calendar day if effected at the 3:00 p.m. or 8:00 p.m.
Chicago time net asset value determination provided such payment is received by
3:00 p.m. Chicago time; or (iii) the dividend for the next business day if
effected at the 8:00 p.m. Chicago time net asset value calculation and payment
is received after 3:00 p.m. Chicago time on such date for the Government
Securities Portfolio. Confirmed share purchases that are effective at the 8:00
p.m. Chicago net asset value determination for the Government Securities
Portfolio will receive dividends upon receipt of payment for such transactions
in the form of Federal Funds in accordance with the time provisions immediately
above. Orders for purchase accompanied by a check or other negotiable bank draft
will be accepted and effected as of 3:00 p.m. Chicago time on the next business
day following receipt and such shares will receive the dividend for the 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 will be purchased. See "Purchase and Redemption of
Shares" in the Statement of Additional Information.
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, MO 64106 for credit to appropriate Fund bank account (CAT Money
Market Fund 46: 98-0119-980-3; CAT Government Securities Fund 47: 98-0119-983-8;
CAT Tax-Exempt Fund 48: 98-0119-985-4).
Clients of Firms. Firms provide varying arrangements for their clients with
respect to the purchase and redemption of Fund shares and the confirmation
thereof and may arrange with their clients for other investment or
administrative services. Such firms are responsible for the prompt transmission
of purchase and redemption orders. Some firms may establish higher minimum
investment requirements than set forth above. Such firms may independently
establish and charge additional amounts to their clients for their services,
which charges would reduce their clients' yield or return. Firms may also hold
Fund shares in nominee or street name as agent for and on behalf of their
clients. In such instances, the Fund's transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
through the Fund's Shareholder Service Agent for record-keeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares (such as check writing
redemptions) or the reinvestment of dividends may not be available through such
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<PAGE>
firms or may only be available subject to certain conditions or limitations.
Some firms may participate in a program allowing them access to their clients'
accounts for servicing including, without limitation, transfers of registration
and dividend payee changes; and may perform functions such as generation of
confirmation statements and disbursement of cash dividends. The prospectus
should be read in connection with such firm's material regarding its fees and
services.
Other Information. The Fund reserves the right to withdraw all or any part of
the offering made by this prospectus or to reject purchase orders, without prior
notice. The Fund also reserves the right at any time to waive or increase the
minimum investment requirements. All orders to purchase shares of a Portfolio
are subject to acceptance by the Fund and are not binding until confirmed or
accepted in writing. Any purchase that would result in total account balances
for a single shareholder in excess of $3 million is subject to prior approval by
the Fund. Share certificates are issued only on request. 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 ("KSvC"), the Fund's "Shareholder
Service Agent," 811 Main Street, Kansas City, Missouri 64105-2005.
REDEMPTION OF SHARES
General. Upon receipt by the Shareholder Service Agent of a request in the form
described below, shares of a Portfolio will be redeemed by the Fund at the next
determined net asset value. If processed at 3:00 p.m. or 8:00 p.m. (for the
Government Securities Portfolio) Chicago time, the shareholder will receive that
day's dividend. A shareholder may use either the regular or expedited redemption
procedures. Shareholders who redeem all their shares of a Portfolio will receive
the net asset value of such shares and all declared but unpaid dividends on such
shares.
If shares of a Portfolio to be redeemed were purchased by check or through
certain Automated Clearing House ("ACH") transactions, the Fund may delay
transmittal of redemption proceeds until it has determined that collected funds
have been received for the purchase of such shares, which will be up to 10 days
from receipt by the Fund of the purchase amount. Shareholders may not use
expedited redemption procedures (wire transfer or Redemption Check) until the
shares being redeemed have been owned for at least 10 days, and shareholders may
not use such procedures to redeem shares held in certificated form. There is no
delay when shares being redeemed were purchased by wiring Federal Funds.
If shares being redeemed were acquired from an exchange of shares of a mutual
fund that were offered subject to a contingent deferred sales charge as
described in the prospectus for that other fund, the redemption of such shares
by the Fund may be subject to a contingent deferred sales charge as explained in
such prospectus.
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<PAGE>
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 telephone instructions are genuine. The
shareholder will bear the risk of loss, including loss resulting from fraudulent
or unauthorized transactions, as long as the reasonable verification procedures
are followed. The verification procedures include recording instructions,
requiring certain identifying information before acting upon instructions and
sending written confirmations.
Because of the high cost of maintaining small accounts, the Fund reserves the
right to redeem an account that falls below the minimum investment level,
currently $1,000. A shareholder will be notified in writing and will be allowed
60 days to make additional purchases to bring the account value up to the
minimum investment level before the Fund redeems the shareholder account.
Firms provide varying arrangements for their clients to redeem Fund shares. Such
firms may independently establish and charge additional amounts to their clients
for such services.
Regular Redemptions. 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 ("KSvC"), P.O. Box
419153, Kansas City, Missouri 64141-6153. When certificates for shares have been
issued, they must be mailed to or deposited with the Shareholder Service Agent,
along with a duly endorsed stock power and accompanied by a written request for
redemption. Redemption requests and a stock power must be endorsed by the
account holder with signatures guaranteed by a commercial bank, trust company,
savings and loan association, federal savings bank, member firm of a national
securities exchange or other eligible financial institution. The redemption
request and stock power must be signed exactly as the account is registered
including any special capacity of the registered owner. Additional documentation
may be requested, and a signature guarantee is normally required, from
institutional and fiduciary account holders, such as corporations, custodians
(e.g., under the Uniform Transfers to Minors Act), executors, administrators,
trustees, or guardians.
Telephone Redemptions. If the proceeds of the redemption are $50,000 or less and
the proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors) provided the
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<PAGE>
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-231-8568. Shares purchased by check or through certain ACH
transactions may not be redeemed under this privilege of redeeming shares by
telephone request until such shares have been owned for at least 10 days. This
privilege of redeeming shares by telephone request or by written request without
a signature guarantee may not be used to redeem shares held in certificated form
and may not be used if the shareholder's account has had an address change
within 30 days of the redemption request. During periods when it is difficult to
contact the Shareholder Service Agent by telephone, it may be difficult to use
the telephone redemption privilege, although investors can still redeem by mail.
The Fund reserves the right to terminate or modify this privilege at any time.
Expedited Wire Transfer Redemptions. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares can be redeemed and proceeds sent by a federal wire
transfer to a single previously designated account. Requests received by the
Shareholder Service Agent prior to 11:00 a.m. Chicago time will result in shares
being redeemed that day and normally the proceeds will be sent to the designated
account that day. Once authorization is on file, the Shareholder Service Agent
will honor requests by telephone at 1-800-231-8568 or in writing, subject to the
limitations on liability described under "General" above. The Fund is not
responsible for the efficiency of the federal wire system or the account
holder's financial services firm or bank. The Fund currently does not charge the
account holder for wire transfers. The account holder is responsible for any
charges imposed by the account holder's firm or bank. There is a $1,000 wire
redemption minimum. To change the designated account to receive wire redemption
proceeds, send a written request to the Shareholder Service Agent with
signatures guaranteed as described above or contact the firm through which
shares of the Fund were purchased. Shares purchased by check or through certain
ACH transactions may not be redeemed by wire transfer until the shares have been
owned for at least 10 days. Account holders may not use this procedure to redeem
shares held in certificated form. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use the
expedited wire transfer redemption privilege. The Fund reserves the right to
terminate or modify this privilege at any time.
Expedited Redemptions by Draft. Upon request, shareholders will be provided with
drafts to be drawn on the Fund ("Redemption Checks"). These Redemption Checks
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<PAGE>
may be made payable to the order of any person for not more than $5 million.
Shareholders should not write Redemption Checks in an amount less than $250
since a $10 service fee will be charged as described below. When a Redemption
Check is presented for payment, a sufficient number of full and fractional
shares in the shareholder's account will be redeemed as of the next determined
net asset value to cover the amount of the Redemption Check. This will enable
the shareholder to continue earning dividends until the Fund receives the
Redemption Check. A shareholder wishing to use this method of redemption must
complete and file an Account Information Form which is available from the Fund
or firms through which shares were purchased. Redemption Checks should not be
used to close an account since the account normally includes accrued but unpaid
dividends. The Fund reserves the right to terminate or modify this privilege at
any time. This privilege may not be available through some firms that distribute
shares of the Fund. In addition, firms may impose minimum balance requirements
in order to obtain this feature. Firms may also impose fees to investors for
this privilege or establish variations of minimum check amounts if approved by
the Fund.
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 the Fund's books for
at least 10 days. Shareholders may not use this procedure to redeem shares held
in certificated form. The Fund reserves the right to terminate or modify this
privilege at any time.
The Fund may refuse to honor Redemption Checks whenever the right of redemption
has been suspended or postponed, or whenever the account is otherwise impaired.
A $10 service fee will be charged when a Redemption Check is presented to redeem
Fund shares in excess of the value of a Fund account or in an amount less than
$250; when a Redemption Check is presented that would require redemption of
shares that were purchased by check or certain ACH transactions within 10 days;
or when "stop payment" of a Redemption Check is requested.
SPECIAL FEATURES
Certain firms that offer shares of the Fund also provide special redemption
features through charge or debit cards and checks that redeem Fund shares.
Various firms have different charges for their services. Shareholders should
obtain information from their firm with respect to any special redemption
features, applicable charges, minimum balance requirements and special rules of
the cash management program being offered.
Information about the following special features is contained in the Statement
of Additional Information; and further information may be obtained without
charge from KDI: Tax Sheltered Retirement Programs; Systematic Withdrawal
Program; Exchange Privilege and Automated Clearing House Programs.
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DIVIDENDS AND TAXES
Dividends are declared daily and paid monthly. Shareholders may select one of
the following ways to receive dividends.
1. Reinvest Dividends at net asset value into additional shares
of the same Portfolio. Dividends are normally reinvested on
the 21st of each month if a business day, otherwise on the
next business day. Dividends will be reinvested unless the
shareholder elects to receive them in cash.
2. Receive Dividends in Cash, if so requested. Checks will be
mailed monthly to the shareholder or any person designated by
the shareholder.
The Fund reinvests dividend checks (and future dividends) in shares of the Fund
if checks are returned as undeliverable. Dividends and other distributions in
the aggregate amount of $10 or less are automatically reinvested in shares of
the Fund unless the shareholder requests that such policy not be applied to the
shareholder's account.
Taxable Portfolios. The Money Market Portfolio and the Government Securities
Portfolio each intend to continue to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code (the "Code") and, if so
qualified, will not be subject to Federal income taxes to the extent its
earnings are distributed. Dividends derived from interest and short-term capital
gains are taxable as ordinary income whether received in cash or reinvested in
additional shares. 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 includable by shareholders in their gross income for
Federal income tax purposes, except to the extent such interest is subject to
the alternative minimum tax as discussed below. Dividends representing taxable
net investment income (such as net interest income from temporary investments in
obligations of the U.S. Government) and net short-term capital gains, if any,
are taxable to shareholders as ordinary income.
Net interest on certain "private activity bonds" issued on or after August 8,
1986 is treated as an item of tax preference and may, therefore, be subject to
both the individual and corporate alternative minimum tax. To the extent
provided by regulations to be issued by the Secretary of the Treasury,
exempt-interest dividends from the Tax-Exempt Portfolio are to be treated as
interest on private activity bonds in proportion to the interest income the
Portfolio receives from private activity bonds, reduced by allowable deductions.
For the 1997 calendar year 17% of the net interest income was derived from
"private activity bonds."
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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.
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 Portfolios are advised to consult their own tax advisers
as to the status of their accounts under state and local tax laws.
The Fund. Dividends declared in October, November or December to shareholders of
record as of a date in one of those months and paid during the following January
are treated as paid on December 31 of the calendar year in which declared for
Federal income tax purposes. The Fund may adjust its schedule for dividend
reinvestment for the month of December to assist in complying with the reporting
and minimum distribution requirements contained in the Code.
Each Portfolio is required by law to withhold 31% of taxable dividends paid to
certain shareholders who do not furnish a correct taxpayer identification number
(in the case of individuals a social security number) and in certain other
circumstances. Trustees of qualified retirement plans and 403(b)(7) accounts are
required by law to withhold 20% of the taxable portion of any distribution that
is eligible to be "rolled over." The 20% withholding requirement does not apply
to distributions from IRAs or any part of a distribution that is transferred
directly to another qualified retirement plan, 403(b)(7) account, or IRA.
Shareholders should consult their tax advisers regarding the 20% withholding
requirement.
Shareholders normally will receive monthly confirmations of dividends and of
purchase and redemption transactions except that confirmations of dividend
reinvestment for IRAs and other fiduciary accounts for which Investors Fiduciary
Trust Company serves as trustee will be sent quarterly. Firms may provide
varying arrangements with their clients with respect to confirmations. Tax
information will be provided annually. Shareholders are encouraged to retain
copies of their account confirmation statements or year-end statements for tax
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reporting purposes. However, those who have incomplete records may obtain
historical account transaction information at a reasonable fee.
INVESTMENT MANAGER AND SHAREHOLDER SERVICES
Investment Manager. Scudder Kemper Investments, Inc. (the "Adviser"), 345 Park
Avenue, New York, New York, is the investment manager of the Fund and provides
the Fund with continuous professional investment supervision. The Adviser is one
of the largest investment managers in the country with more than $200 billion in
assets under management and has been engaged in the management of investment
funds for more than seventy years. 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, owns approximately 70% of the Adviser,
with the balance owned by the Adviser's officers and employees.
Responsibility for overall management of the Fund rests with its Board of
Trustees and officers. Professional investment supervision is provided by the
Adviser. The investment management agreement provides that the Adviser shall act
as the Fund's investment adviser, manage its investments and provide it with
various services and facilities. For the services and facilities furnished to
the Money Market, Government Securities and Tax-Exempt Portfolios, the Fund pays
the Adviser a monthly investment management fee on a graduated basis at 1/12 of
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 waive temporarily its
management fee and absorb operating expenses of each Portfolio to the extent, if
any, that they exceed the following percentages of average daily net assets of
the Portfolios: Money Market Portfolio (1.00%), Government Securities Portfolio
(1.00%) and Tax-Exempt Portfolio (0.95%). For this purpose, Portfolio operating
expenses do not include taxes, interest, extraordinary expenses, brokerage
commissions or transaction costs. Upon notice to the Fund, the Adviser may at
any time terminate this waiver or absorption of operating expenses. In addition,
from time to time, the Adviser may voluntarily absorb certain additional
operating expenses of the Portfolios. The level of this voluntary expense
absorption shall be in the Adviser's discretion and is in addition to the
Adviser's agreement to absorb temporarily certain operating expenses of the
Portfolios described above. For its services as investment adviser and manager
and for facilities furnished during the fiscal year ended April 30, 1998, the
Adviser received management fees aggregating 0.14%, 0.15% and 0.16% of the
average daily net assets of the Money Market Portfolio, the Government
Securities Portfolio and the Tax-Exempt Portfolio, respectively, which includes
the effect of the fee waiver.
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On December 22, 1997, Zurich entered into an agreement with B.A.T Industries
p.l.c. ("B.A.T") pursuant to which the financial services businesses of B.A.T
will be combined with Zurich's businesses (including Zurich's 70% interest in
the adviser) to form a new global insurance and financial services company known
as Zurich Financial Services Group. After the transaction is completed, by way
of a dual holding company structure, current Zurich shareholders will own
approximately 57% of the new organization, with the balance owned by B.A.T's
current shareholders.
The transaction is expected to close in the third quarter of 1998. Upon
consummation of the transaction, each Fund's investment management agreement
with the adviser will be deemed to have been assigned and, therefore, will
terminate. The Board has approved a new investment management agreement with the
adviser, which is substantially identical to the current investment management
agreement, except for the date of execution and termination. The new investment
management agreement is to become effective upon the termination of the current
investment management agreement.
Fund Accounting Agent. Scudder Fund Accounting Corporation ("SFAC"), a
subsidiary of the Adviser, is responsible for determining the daily net asset
value per share of each Portfolio and maintaining all accounting records related
thereto. Currently, SFAC receives no fee for its services; however, subject to
Board approval, at some time in the future SFAC may seek payment for its
services under its agreement with the Fund.
Year 2000 Compliance. Like other mutual funds and financial and business
organizations worldwide, the Fund could be adversely affected if computer
systems on which the Fund relies, which primarily include those used by the
Adviser, its affiliates or other service providers, are unable to process
correctly date-related information on and after January 1, 2000. This risk is
commonly called the Year 2000 Issue. Failure to address successfully the Year
2000 Issue could result in interruptions to and other material adverse effects
on the Fund's business and operations. The Adviser has commenced a review of the
Year 2000 Issue as it may affect the Fund and is taking steps it believes are
reasonably designed to address the Year 2000 Issue, although there can be no
assurances that these steps will be sufficient. In addition, there can be no
assurances that the Year 2000 Issue will not have an adverse effect on the
companies whose securities are held by the Fund or on global markets or
economies generally.
Distributor and Administrator. Pursuant to an administration, shareholder
services and distribution agreement ("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 Fund to
provide information and services for existing and potential shareholders. The
distribution agreement provides that KDI shall appoint various financial
services firms to provide a cash management service for their customers or
clients through the Fund. The firms are to provide such office space and
equipment, telephone facilities, personnel and literature distribution as is
necessary or appropriate for providing information and services to the firms'
clients. The Fund has adopted a plan in accordance with Rule 12b-1 of the 1940
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Act (the "12b-1 Plan"). This rule regulates the manner in which an investment
company may, directly or indirectly, bear the expenses of distributing its
shares. For its services under the distribution agreement and pursuant to the
12b-1 Plan, KDI receives a distribution services fee, payable monthly, at the
annual rate of 0.60% of average daily net assets from the Money Market and
Government Securities Portfolios and 0.50% of average daily net assets from the
Tax-Exempt Portfolio. The fee is accrued daily as an expense of the Portfolios.
As principal underwriter for the Fund, KDI acts as agent of the Fund in the sale
of its shares.
KDI has related administration services and selling group agreements ("services
agreements") with various firms to provide cash management and other services
for Fund shareholders. KDI normally pays such firms for services at an annual
rate of 0.60% of average daily net assets of those accounts in the Money Market
and Government Securities Portfolios that they maintain and service and 0.50% 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.
Since the fee payable to KDI under the 12b-1 Plan is based upon percentages of
the average daily net assets of the Portfolios as provided above and not upon
the actual expenditures of KDI, the expenses of KDI, which may include overhead
expense, may be more or less than the fees received by it under the 12b-1 Plan.
For example, during the fiscal year ended April 30, 1998, KDI incurred expenses
under the 12b-1 Plan of approximately $14,389,000, while it received an
aggregate fee under the 12b-1 Plan of $13,029,000 after the expense waiver. If
the 12b-1 Plan is terminated in accordance with its terms, the obligation of the
Fund to make payments to KDI pursuant to the 12b-1 Plan will cease and the Fund
will not be required to make any payments past the termination date. Thus, there
is no legal obligation for the Fund to pay any expenses incurred by KDI in
excess of its fees under the 12b-1 Plan, if for any reason the 12b-1 Plan is
terminated in accordance with its terms. Future fees under the 12b-1 Plan may or
may not be sufficient to reimburse KDI for its cumulative expenses incurred.
KDI also has agreements with banking firms to provide administrative and other
services, except for certain underwriting or distribution services that banks
may be prohibited from providing under the Glass-Steagall Act, for their clients
who wish to invest in the Fund. If the Glass-Steagall Act should prevent banking
firms from acting in any capacity or providing any of the described services,
management will consider what action, if any, is appropriate. Management does
not believe that termination of a relationship with a bank would result in any
material adverse consequences to the Fund. Banks or other financial services
firms may be subject to various state laws regarding the services described
above and may be required to register as dealers pursuant to state law.
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Custodian, Transfer Agent and Shareholder Service Agent. Investors Fiduciary
Trust Company ("IFTC"), 801 Pennsylvania Avenue, Kansas City, Missouri 64105, as
custodian, and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as sub-custodian, have custody of all securities and cash
of the Fund. They attend to the collection of principal and income, and payment
for and collection of proceeds of securities bought and sold by the Fund. IFTC
also is the Fund's transfer and dividend-paying agent. Pursuant to a services
agreement with IFTC, Kemper Service Company, 811 Main Street, Kansas City,
Missouri 64105, an affiliate of the Adviser, serves as Shareholder Service Agent
of the Fund.
PERFORMANCE
The Fund may advertise several types of performance information including
"yield," "effective yield" and, for the Tax-Exempt Portfolio only, "tax
equivalent yield." Each of these figures is based upon historical earnings and
is not representative of the future performance of a Portfolio. The yield of a
Portfolio refers to the net investment income generated by a hypothetical
investment in the Portfolio over a specific seven-day period. This net
investment income is then annualized, which means that the net investment income
generated during the seven-day period is assumed to be generated each week over
an annual period and is shown as a percentage of the investment. The effective
yield is calculated similarly, but the net investment income earned by the
investment is assumed to be compounded weekly when annualized. The effective
yield will be slightly higher than the yield due to this compounding effect. Tax
equivalent yield is the yield that a taxable investment must generate in order
to equal the Tax-Exempt Portfolio's yield for an investor in a stated Federal
income tax bracket (normally assumed to be the maximum tax rate). Tax equivalent
yield is based upon, and will be higher than, the portion of the Tax-Exempt
Portfolio's yield that is tax-exempt.
The performance of a Portfolio may be compared to that of other money market
mutual funds or mutual fund indexes as reported by independent mutual fund
reporting services such as Lipper Analytical Services, Inc. A Portfolio's
performance and its relative size may be compared to other money market mutual
funds as reported by IBC/Financial Data, Inc.(R) or Money Market Insight(R),
reporting services on money market funds. Investors may want to compare a
Portfolio's performance to that of various bank products as reported by BANK
RATE MONITOR(TM), a financial reporting service that weekly publishes average
rates of bank and thrift institution money market deposit accounts and interest
bearing checking accounts or various certificate of deposit indexes. The
performance of a Portfolio also may be compared to that of U.S. Treasury bills
and notes. Certain of these alternative investments may offer fixed rates of
return and guaranteed principal and may be insured. In addition, investors may
want to compare a Portfolio's performance to the Consumer Price Index either
directly or by calculating its "real rate of return," which is adjusted for the
effects of inflation.
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Information may be quoted from publications such as Morningstar, Inc., The Wall
Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago Tribune,
USA Today, Institutional Investor and Registered Representative. The Fund may
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. The Fund may also describe its
portfolio holdings and depict its size or relative size compared to other mutual
funds, the number and make-up of its shareholder base and other descriptive
factors concerning the Fund.
Each Portfolio's yield will fluctuate. Shares of the Fund are not insured.
Additional information concerning a Portfolio's performance appears in the
Statement of Additional Information.
CAPITAL STRUCTURE
The Fund is an open-end, diversified, management investment company, organized
as a business trust under the laws of Massachusetts on September 7, 1989. The
Fund may issue an unlimited number of shares of beneficial interest in one or
more series ("Portfolios"), all having no par value, which may be divided by the
Board of Trustees into classes of shares, subject to compliance with the
Securities and Exchange Commission regulations permitting the creation of
separate classes of shares. The Fund's shares are not currently divided into
classes. 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 subject to any preferences, rights or
privileges of any classes of shares within the Portfolio. Generally, each class
of shares issued by a particular Portfolio would differ as to the allocation of
certain expenses of the Portfolio, such as distribution and administrative
expenses, permitting, among other things, different levels of services or
methods of distribution among various classes. Shares are fully paid and
nonassessable when issued, are transferable without restriction and have no
preemptive or conversion rights. As of August 7, 1998, Roney & Co. owned more
than 25% of the outstanding shares of the Government Securities and Tax-Exempt
Portfolios. The Fund is not required to hold annual shareholders' meetings and
does not intend to do so. However, it will hold special meetings as required or
deemed desirable for such purposes as electing trustees, changing fundamental
policies or approving an investment management agreement. Subject to the
Agreement and Declaration of Trust of the Fund, shareholders may remove
trustees. Shareholders will vote by Portfolio and not in the aggregate or by
class except when voting in the aggregate is required under the Investment
Company Act of 1940, such as for the election of trustees, or when the Board of
Trustees determines that voting by class is appropriate.
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