CASH ACCOUNT TRUST, 497, 1999-10-06

CASH ACCOUNT TRUST
497, 1999-10-06

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STATEMENT OF ADDITIONAL INFORMATION
September 1, 1999
As Revised October 6, 1999

CASH ACCOUNT TRUST
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-231-8568

This combined Statement of Additional Information contains information about the
Service Shares of the Money Market Portfolio and shares of the Government
Portfolio and shares of the Tax-Exempt Portfolio (each a "Portfolio",
collectively the "Portfolios") offered by Cash Account Trust (the "Trust"). Cash
Account Trust is an open-end diversified management investment company. This
combined Statement of Additional Information is not a prospectus and should be
read in conjunction with the prospectus of Cash Account Trust dated September 1,
1999. The prospectus may be obtained without charge from the Trust at the
address or telephone number on this cover or the firm from which this Statement
of Additional Information was received and is also available along with other
related materials at the SEC's Internet web site (http://www.sec.gov). The
Portfolios' Annual Report, dated April 30, 1999 is incorporated by reference
into and is hereby deemed to be a part of this Statement of Additional
Information.

TABLE OF CONTENTS

INVESTMENT RESTRICTIONS.................................................2
INVESTMENT POLICIES AND TECHNIQUES......................................4
INVESTMENT MANAGER AND SHAREHOLDER SERVICES............................10
PORTFOLIO TRANSACTIONS.................................................13
PURCHASE AND REDEMPTION OF SHARES......................................14
DIVIDENDS, NET ASSET VALUE AND TAXES...................................17
PERFORMANCE............................................................20
OFFICERS AND TRUSTEES..................................................22
SPECIAL FEATURES.......................................................24
SHAREHOLDER RIGHTS.....................................................25
APPENDIX -- RATINGS OF INVESTMENTS.....................................27

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INVESTMENT RESTRICTIONS

The Trust has adopted for the Portfolios certain investment restrictions which,
together with the investment objective and policies of each Portfolio (except
for policies designated as non-fundamental and limited in regard to the
Tax-Exempt Portfolio to the policies in the first and fifth paragraphs under
Investment Policies and Techniques- "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 (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 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.

(2) Purchase more than 10% of any class of securities of any
issuer. All debt securities and all preferred stocks are each
considered as one class.

(3) Make loans to others (except through the purchase of debt
obligations or repurchase agreements in accordance with its
investment objective and policies).

(4) 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 days (not including
Sundays and holidays), reduce its indebtedness to the extent
necessary. The Portfolio will not borrow for leverage
purposes.

(5) 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.

(6) Write, purchase or sell puts, calls or combinations thereof.

(7) Purchase or retain the securities of any issuer if any of the
officers, trustees or directors of the Trust 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.

(8) Invest for the purpose of exercising control or management of
another issuer.

(9) Invest in commodities or commodity futures contracts or in
real estate (or real estate limited partnerships), although it
may invest in securities which are secured by real estate and
securities of issuers which invest or deal in real estate.

(10) Invest in interests in oil, gas or other mineral exploration
or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such
programs.

(11) 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.

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

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Additionally, the Money Market Portfolio may not:

(13) Concentrate 25% or more of the value of the Portfolio's assets
in any one industry; provided, however, that (a) the Portfolio
reserves freedom of action to invest up to 100% of its assets
in obligations of, or guaranteed by, the United States
Government, its agencies or instrumentalities in accordance
with its investment objective and policies and (b) the
Portfolio will invest at least 25% of its assets in
obligations issued by banks in accordance with its investment
objective and policies. However, the Portfolio may, in the
discretion of its investment adviser, invest less than 25% of
its assets in obligations issued by banks whenever the
Portfolio assumes a temporary defensive posture.

With regard to restriction #13, for purposes of determining the percentage of
the 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 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. Municipal Securities and
obligations of, or guaranteed by, the U.S. Government, its
agencies or instrumentalities are not considered an industry
for purposes of this restriction.

(2) Purchase securities of any issuer (other than obligations of,
or guaranteed by, the U.S. Government, its agencies or
instrumentalities) if as a result more than 5% of the value of
the Portfolio's assets would be invested in the securities of
such issuer. For purposes of this limitation, the Portfolio
will regard the entity that has the primary responsibility for
the payment of interest and principal as the issuer.

(3) Make loans to others (except through the purchase of debt
obligations or repurchase agreements in accordance with its
investment objective and policies).

(5) 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.

(6) Write, purchase or sell puts, calls or combinations thereof,
although the Portfolio may purchase Municipal Securities
subject to Standby Commitments in accordance with its
investment objective and policies.

(8) Invest for the purpose of exercising control or management of
another issuer.

(9) Invest in commodities or commodity futures contracts or in
real estate (or real estate limited partnerships) except that
the Portfolio may invest in Municipal Securities secured by
real estate or interests therein.

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(10) Invest in interests in oil, gas or other mineral exploration
or development programs or leases, although it may invest in
Municipal Securities of issuers which invest in or sponsor
such programs or leases.

(12) 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 in the latest fiscal period and have no present
intention of borrowing during the coming year as permitted for each Portfolio by
investment restriction number 4. 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. The Money Market
Portfolio and the Government Securities Portfolio, as a non-fundamental policy
that may be changed without shareholder vote, individually may not:

(i) Purchase securities of other investment companies,
except in connection with a merger, consolidation,
reorganization or acquisition of assets.

In addition, the Tax-Exempt Portfolio, as a non-fundamental policy that may be
changed without shareholder vote, may not:

(i) Purchase securities of other investment companies,
except in connection with a merger, consolidation,
reorganization or acquisition of assets.

INVESTMENT POLICIES AND TECHNIQUES

Descriptions in this Statement of Additional Information of a particular
investment practice or technique in which a Portfolio may engage or a financial
instrument which a Portfolio may purchase are meant to describe the spectrum of
investments that Scudder Kemper Investments, Inc. (the "Adviser"), in its
discretion, might, but is not required to, use in managing a Portfolio's assets.
The Adviser may, in its discretion, at any time, employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
a Portfolio, but, to the extent employed, could, from time to time, have a
material impact on a Portfolio's performance.

The Portfolios described in this Statement of Additional Information seek to
provide maximum current income consistent with the stability of capital. Each
Portfolio is managed to maintain a net asset value of $1.00 per share.

The Trust 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 Trust pools individual and institutional investors' money that it
uses to buy high quality money market instruments. The Trust is a series
investment company that is able to provide investors with a choice of separate
investment 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 Trust 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 Portfolios invest, are generally considered to be among the safest
available. Thus, each Portfolio 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.

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Money Market Portfolio. The 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 Portfolio's investment manager. Currently, only obligations in the top
two categories are considered to be rated high quality. The two highest
rating categories of 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 this 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 1940 Act.

The 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
Portfolio's investment manager temporarily invest less than 25% of its assets in
such obligations whenever the Portfolio assumes a defensive posture. Investments
by the 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 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
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 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 Trust, 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

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

The Portfolio may 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 ("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
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 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 Portfolio 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 anticipated that such investments will
not exceed 25% of the Portfolio's assets.

Government Securities Portfolio. The 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 such 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 Fannie Mae, the Farm Credit System and the 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.

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, 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 Portfolio does not consider "private
activity" bonds 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.

Municipal Securities, such as industrial development bonds, are issued by or on
behalf of public authorities to obtain funds for purposes including privately
operated airports, housing, conventions, trade shows, ports, sports, parking or
pollution control facilities or for facilities for water, gas, electricity or
sewage and solid waste disposal. Such obligations, which may include lease
arrangements, are included within the term Municipal Securities if the interest
paid thereon qualifies as exempt from federal income tax. Other types of
industrial development bonds, the proceeds of which are used for the
construction, equipment, repair or improvement of privately operated industrial
or commercial facilities, may constitute Municipal Securities, although current
Federal tax laws place substantial limitations on the size of such issues.

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Municipal Securities which 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.

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 or "Ginnie Mae" (the Government National
Mortgage Association) at the end of the project construction period.
Pre-refunded municipal bonds are bonds which are not yet refundable, but for
which securities have been placed in escrow to refund an original municipal bond
issue when it becomes refundable. Tax-free commercial paper is an unsecured
promissory obligation issued or guaranteed by a municipal issuer. The Tax-Exempt
Portfolio may purchase other Municipal Securities similar to the foregoing,
which are or may become available, including securities issued to pre-refund
other outstanding obligations of municipal issuers.

The 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) 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. 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."

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. 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. 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.

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 Portfolio are
in most cases revenue bonds and generally are not payable from the unrestricted
revenues of the issuer, and do not constitute the pledge of the credit of the
issuer of such bonds. 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. See "Appendix" for
a more detailed discussion of the Moody's and S&P ratings outlined above. The
Portfolio may invest in short-term "private activity" bonds.

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 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

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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.

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 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 because 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.

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 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

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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.

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 that ultimately could affect the
validity of those Municipal Securities or the tax-free nature of the interest
thereon.

The Trust. Each Portfolio may invest in repurchase agreements, which are
instruments under which a Portfolio acquires ownership of a security from a
broker-dealer or bank that agrees to repurchase the security at a mutually
agreed upon time and price (which price is higher than the purchase price),
thereby determining the yield during the Portfolio's holding period. Maturity of
the securities subject to repurchase may exceed one year. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, a Portfolio
might have expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities and loss of
income. A Portfolio will not purchase illiquid securities, including time
deposits and repurchase agreements maturing in more than seven days if, as a
result thereof, more than 10% of such Portfolio's net assets valued at the time
of the transaction would be invested in such securities.

Each Portfolio may invest in Variable Rate Securities, 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. 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 each 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.

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

A repurchase agreement provides a means for a Portfolio to earn taxable income
on funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Portfolio) acquires a security ("Obligation") and the
seller agrees, at the time of sale, to repurchase the Obligation at a specified
time and price. Securities subject to a repurchase agreement are held in a
segregated account and the value of such securities kept at least equal to the
repurchase price on a daily basis. The repurchase price may be higher than the
purchase price, the difference being income to the Portfolio, or the purchase
and repurchase prices may be the same, with interest at a stated rate due to the
Portfolio together with the repurchase price on the

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date of repurchase. In either case, the income to a Portfolio (which is taxable)
is unrelated to the interest rate on the Obligation itself. Obligations will be
held by the custodian or in the Federal Reserve Book Entry system.

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

INVESTMENT MANAGER AND SHAREHOLDER SERVICES
Investment Adviser. Scudder Kemper Investments, Inc. ("Scudder Kemper") 345 Park
Avenue, New York, New York, is the investment adviser for each Fund. Scudder
Kemper is approximately 70% owned by Zurich Insurance Company, 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 Scudder Kemper is owned by
Scudder Kemper's officers and employees. Responsibility for overall management
of each Fund rests with the Trust's Board of Trustees and officers. Pursuant to
an investment management agreement (the "Agreement"), Scudder Kemper acts as
each Fund's Adviser, manages its investments, administers its business affairs,
furnishes office facilities and equipment, provides clerical and administrative
services, provides shareholder and information services and permits any of its
officers or employees to serve without compensation as trustees or officers of
the Trust if elected to such positions. The Trust 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 related thereto, brokerage commissions or transaction
costs, taxes, registration fees, the fees and expenses of qualifying the Trust
and its shares for distribution under federal and state securities laws and
membership dues in the Investment Company Institute or any similar organization.

The Agreement provides that Scudder Kemper shall not be liable for any error of
judgment or of law, or for any loss suffered by the Trust 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 Scudder Kemper 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 Funds 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 Funds. You
should be aware that the Funds are likely to differ from these other mutual
funds in size, cash flow pattern and tax matters. Accordingly, the holdings and
performance of the Funds 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 Insurance Company ("Zurich"), formed a new
global investment organization by combining Scudder with Zurich Kemper
Investments, Inc. ("ZKI") and Zurich Kemper Value Advisors, Inc. ("ZKVA"),
former subsidiaries of Zurich. ZKI was the former investment adviser for each
Fund. 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.

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

Upon consummation of this transaction, each Fund's then current investment
management agreement with the Adviser was deemed to have been assigned and,
therefore, terminated. The Board approved the Agreement with the Adviser, which
is substantially identical to the prior investment management agreement, except
for the dates of execution and termination. The Agreement became effective on
September 7, 1998, upon the termination of the then current investment
management agreement, and was approved at a shareholder meeting held on December
17, 1998.

The Agreement, dated September 7, 1998, was approved by the trustees of the
Trust on August 11, 1998. The Agreement will continue in effect until September
30, 1999 and from year to year thereafter only if its continuance is approved
annually by the vote of a majority of those trustees who are not parties to such
Agreement or interested persons of the Adviser or the Trust, cast in person at a
meeting called for the purpose of voting on such approval, and either by a vote
of the Trust's trustees or of a majority of the outstanding voting securities of
the Trust. The Agreement may be terminated at any time without payment of
penalty by either party on sixty days' written notice, and automatically
terminate in the event of its assignment.

If additional Portfolios become subject to the Agreement, the provisions
concerning continuation, amendment and termination shall be on a Portfolio by
Portfolio basis and the management fee and the expense limitations shall be
computed based upon the average daily net assets of all Portfolios subject to
the agreement and shall be allocated among such Portfolios based upon the
relative net assets of such Portfolios. Additional Portfolios may be subject to
a different agreement.

For the services and facilities furnished to the Money Market, Government
Securities and Tax-Exempt Portfolios, the Portfolios pay 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
investment management fee is computed based on average daily net assets of the
Portfolios and allocated among the Portfolios based upon the relative net assets
of each. Pursuant to the investment management agreement, the Money Market,
Government Securities and Tax-Exempt Portfolios paid the Adviser fees of
$3,120,000, $1,167,000 and $699,000, respectively, for the fiscal year ended
April 30, 1999; $1,888,000, $1,020,000 and $530,000 respectively, for the fiscal
year ended April 30, 1998; and $975,000, and $483,000 and $69,000, respectively,
for the fiscal year ended April 30, 1997. The Adviser and certain affiliates
have agreed to limit certain operating expenses of the Portfolios to the extent
described in the prospectus. If expense limits had not been in effect the
Adviser would have received investment management fees from the Money Market,
Government Securities and Tax-Exempt Portfolios of $4,086,000, $1,270,000 and
$699,000, respectively, for the fiscal year ended April 30, 1999; $2,463,000,
$1,301,000 and $630,000, respectively, for the fiscal year ended April 30, 1998,
and $1,150,000, $744,000 and $212,000, respectively, for the fiscal year ended
April 30, 1997. The Adviser absorbed operating expenses for the Money Market,
Government Securities and Tax-Exempt Portfolios of $2,233,000, $103,000 and $0,
respectively, for the fiscal year ended April 30, 1999; $1,253,000, $281,000 and
$100,000, respectively, for the year ended April 30, 1998; $175,000, $261,000
and $143,000, respectively, for the fiscal year ended April 30, 1997.

Certain officers or trustees of the Trust are also directors or officers of the
Adviser as indicated under "Officers and Trustees."

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Fund Accounting Agent. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts 02110, a subsidiary of Scudder
Kemper, is responsible for determining the daily net asset value per share of
the Portfolios and maintaining all accounting records related hereto. Currently,
SFAC receives no fee for its services to the Portfolos; 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 ("distribution agreement"), Kemper
Distributors, Inc. ("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60606,
an affiliate of the Adviser, serves as primary administrator 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 cash management services for their customers or
clients through the Portfolios. The firms are to provide such office space and
equipment, telephone facilities, personnel and literature distribution as is
necessary or appropriate for providing information and services to the firms'
clients. Each Portfolio has adopted (for the Service Shares only in the case of
the Money Market Portfolio) a plan in accordance with Rule 12b-1 of the 1940 Act
(the "12b-1 Plans"). This rule regulates the manner in which an investment
company may, directly or indirectly, bear the expenses of distributing shares.
For its services under the distribution agreement and pursuant to the 12b-1
Plans, each Portfolio pays KDI a distribution services fee, payable monthly, at
the annual rate of 0.60% of average daily net assets with respect to the Service
shares of the Money Market Portfolio and shares of the Government Securities
Portfolio and 0.50% of average daily net assets with respect to the shares of
the Tax-Exempt Portfolio. Expenditures by KDI on behalf of the Portfolios need
not be made on the same basis that such fees are allocated. The fees are accrued
daily as an expense of the Portfolios.

As principal underwriter for the Portfolios, KDI acts as agent of each Portfolio
in the sale of that Portfolio's shares. KDI pays all its expenses under the
distribution agreement including, without limitation, services fees to firms.
The Trust 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 administration services and selling group agreements ("services
agreements") with various firms to provide cash management and other services
for a Portfolio's shareholders. Such services and assistance may include, but
may not be limited to, establishing and maintaining 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 may provide some of the above services for the Portfolio. KDI normally
pays such firms for services at a maximum annual rate of 0.60% of average daily
net assets of those accounts in the shares of the Money Market Service Shares
and Government Securities Portfolios that they maintain and service and 0.50% of
average daily net assets of those accounts in the shares of the Tax-Exempt
Portfolio that they maintain and service. KDI in its discretion may pay certain
firms additional amounts. During the fiscal year ended April 30, 1999, the
shares of the Money Market Portfolio, and shares of the Government Securities
Portfolio and Tax-Exempt Portfolio paid distribution services fees of
$12,373,000, $4,329,000 and $1,831,000, respectively. Of such amounts, KDI
remitted pursuant to related services agreements $19,750,000 as service fees to
firms. A portion of the aforesaid marketing, sales and operating expenses could
be considered overhead expense. In addition to the discounts or commissions
described above, KDI will, from time to time, pay or allow additional discounts,
commissions or promotional incentives, in the form of cash or other
compensation, to firms that sell shares of the Funds.

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 Trust, including the Trustees who are not interested
persons of the Trust 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 the Trust
or by KDI upon 60 days' written notice. Termination of the distribution
agreement by the Trust 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 Trust and who
have no direct or indirect financial interest in the agreement, or a "majority
of the outstanding voting securities" of the Trust as defined under the 1940
Act. The 12b-1 Plans 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
the 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 the 12b-1 Plans. The 12b-1 Plans may be

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terminated at any time without penalty by a vote of the majority of the Trustees
who are not interested persons of the Trust and who have no direct or indirect
financial interest in the Plan, or by a vote of the majority of the outstanding
voting securities of the Trust. The Portfolios of the Trust will vote separately
with respect to the 12b-1 Plans.

Custodian, Transfer Agent and Shareholder Service Agent. State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, as custodian,
has custody of all securities and cash of the Trust. It attends to the
collection of principal and income, and payment for and collection of proceeds
of securities bought and sold by each Portfolio. Pursuant to a services
agreement with Investors Fiduciary Trust Company ("IFTC"), 801 Pennsylvania
Avenue, Kansas City, Missouri 64105, Kemper Service Company ("KSvC"), an
affiliate of the Adviser, serves as "Shareholder Service 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
April 30, 1999, IFTC remitted shareholder service fees for Money Market
Portfolio in the amount of $4,860,000, for Government Securities Portfolio of
$1,242,000, and for Tax-Exempt Portfolio of $698,000 to KSvC as Shareholder
Service Agent.

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

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.

A Portfolio's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, with out any brokerage commission being paid by a Portfolio. Trading
does, however, involve transaction costs. Transactions with dealers serving as
primary market makers reflect the spread between the bid and asked prices.
Purchases of underwritten issues may be made, which will include an underwriting
fee paid to the underwriter.

When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Adviser's practice to place such orders with
broker/dealers who supply brokerage and research services to the Adviser or a
Portfolio. The term "research services" includes advice as to the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or purchasers or sellers of securities; and
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and the performance of accounts. The
Adviser is authorized when placing portfolio transactions, if applicable, for a
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 a 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 a Portfolio. In effecting
transactions in over-the-

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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 each Portfolio paid no portfolio 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 each Portfolio 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. Each Portfolio has
established a minimum initial investment for Shares of each Portfolio of
$1,000and $100 for subsequent investments, but these minimums may be changed at
anytime in management's discretion. Firms offering Portfolio shares may set
higher minimums for accounts they service and may change such minimums at their
discretion. The Trust may waive the minimum for purchases by trustees,
directors, officers or employees of the Trust or the Adviser and its affiliates.

Each Portfolio seeks to have their investment 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. An
investor wishing to open an account should use the Account Information Form
available from the Trust 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 a Portfolio 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.

Orders for purchase of shares of a Portfolio received by wire transfer in the
form of Federal Portfolios 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. 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; (ii) the dividend for the next calendar day if effected at the
3:00p.m. or, for the Government Securities Portfolio, 8:00 p.m. Central time net
asset value determination provided such payment is received by 3:00 p.m. Central
time; or (iii) the dividend for the next business day if effected at the 8:00
p.m. Central time net asset value determination and payment is received after
3:00 p.m. Central time on such date for the Government Securities Portfolio.
Confirmed share purchases that are effective at the 8:00 p.m.

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Central time 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. 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 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, 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) and further credit to your account
number.

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 a Portfolio at the
next determined net asset value. If processed at 3:00 p.m. (or 8:00 p.m. for the
Government Securities Portfolio) 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 Trust'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 part by a distribution of portfolio securities in
lieu of cash, in conformity with the applicable rules of the Securities and
Exchange Commission, taking such securities at the same value used to determine
net asset value, and selecting the securities in such manner as the Board of
Trustees may deem fair and equitable. If such a distribution occurs,
shareholders receiving securities and selling them could receive less than the
redemption value of such securities and in addition would incur certain
transaction costs. Such a redemption would not be as liquid as a redemption
entirely in cash. The Trust has elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which the Trust 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
ACH or Redemption Checks (defined below) 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

15
<PAGE>

the shareholder refuses it on the account application. The Trust 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 Trust
or its agents reasonably believe, based upon reasonable verification procedures,
that the telephone instructions are genuine. The shareholder will bear the risk
of 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.
Thus, a shareholder who makes only the minimum initial investment and then
redeems any portion thereof might have the account redeemed. 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.

Financial services firms provide varying arrangements for their clients to
redeem Portfolio shares. Such firms may independently establish and charge
amounts to their clients for such services.

Regular Redemptions. When shares are held for the account of a shareholder by
the Trust'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
(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, guardian and custodian account
holders, provided the trustee, executor guardian or custodian is named in the
account registration. Other institutional account holders 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, 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 certificate 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 at 1-800-231-8568 or in writing, subject to the
limitations on liability. A Portfolio is not responsible for the efficiency of
the federal wire system or the account holder's financial services firm or bank.
Each 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, send a written request
to the Shareholder Service Agent with signatures guaranteed as described above,
or contact the firm through which shares of a Portfolio were purchased. Shares
purchased by check or through certain ACH transactions may not be redeemed by
wire

16
<PAGE>

transfer until the shares have been owned for at least 10 days. Account holders
may not use this procedure to redeem shares held in certificate 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 Application which is available from each 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 each Portfolio. In addition, firms may impose minimum
balance requirements in order to offer this feature. Firms may also impose fees
to investors for this privilege or establish variations of minimum check amounts
if approved by each Portfolio.

Unless one signer is authorized on the Account Application, 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
certificate 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.

Special Features. Certain firms that offer Shares of a Portfolio 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.

DIVIDENDS, NET ASSET VALUE AND TAXES

Dividends. Dividends are declared daily and paid monthly. Shareholders will
receive dividends in additional shares unless they elect to receive cash.
Dividends will be reinvested monthly in shares of a Portfolio at the net asset
value normally on the 21st 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 this Portfolio
and must maintain a minimum account value of $1,000 in the fund in which
dividends are reinvested.

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

17
<PAGE>

investments at market value and then unrealized gains and losses would be
included in net investment income above. Dividends are reinvested monthly and
shareholders will receive monthly confirmations of dividends and of purchase and
redemption transactions except that confirmations of dividend reinvestment for
Individual Retirement Accounts and other fiduciary accounts for which Investors
Fiduciary Trust Company acts as trustee will be sent quarterly.

If the shareholder elects to receive dividends in cash, checks will be mailed
monthly, within five business days of the reinvestment date (described below),
to the shareholder or any person designated by the shareholder. At the option of
the shareholder, cash dividends may be sent by Federal Funds wire. Shareholders
may request to have dividends sent by wire on the Account Application or by
contacting the Shareholder Service Agent (see "Purchase of Shares"). The
Portfolio reinvests dividend checks (and future dividends) in shares of the
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 the Portfolio unless the shareholder requests that such
policy not be applied to the shareholder's account.

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 that the Board of Trustees of the Trust
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 Trust 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 Trust might supplement dividends in an effort to maintain the
net asset value at $1.00 per share. 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 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. Redemption orders received in
connection with the administration of checkwriting programs by certain dealers
or other financial services firms prior to the determination of the Portfolio's
net asset value also may be processed on a confirmed basis in accordance with
the procedures established by KDI.

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.

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 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 the Code.

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<PAGE>

Tax-Exempt Portfolio. The Tax-Exempt Portfolio intends to continue to qualify
under the Code as a regulated investment company and, if so qualified, will not
be 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. Net interest on certain "private
activity bonds" issued on or after August 8,1986 is treated as an item of tax
preference and may, therefore, be subject to both the individual and corporate
alternative minimum tax. To the extent provided by regulations to be issued by
the Secretary of the Treasury, exempt-interest dividends from the Tax-Exempt
Portfolio are to be treated as interest on private activity bonds in proportion
to the interest income the Portfolio receives from private activity bonds,
reduced by allowable deductions. For the 1998 calendar year 19% of the net
interest income 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.

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.

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.

Interest on indebtedness which is incurred to purchase or carry shares of a
mutual fund which distributes exempt-interest dividends during the year is not
deductible for Federal income tax purposes. Further, the Tax-Exempt Portfolio
may not be an appropriate investment for persons who are "substantial users" of
facilities financed by industrial development bonds held by the Tax-Exempt
Portfolio or are "related persons" to such users; such persons should consult
their tax advisers before investing in the Tax-Exempt Portfolio.

The "Superfund Act of 1986" (the "Superfund Act") imposes a separate tax on
corporations at a rate of 0.12 percent of the excess of such corporation's
"modified alternative minimum taxable income" over $2 million. A portion of
tax-exempt interest, including exempt-interest dividends from the Tax-Exempt
Portfolio, may be includable in modified alternative minimum taxable income.
Corporate shareholders are advised to consult their tax advisers with respect to
the consequences of the Superfund Act.

Shareholders normally will receive monthly confirmations of dividends and of
purchase and redemption transactions except that confirmations of dividend
reinvestment for IRAs and other fiduciary accounts for which Investors Fiduciary
Trust

19
<PAGE>

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 reporting
purposes. However, those who have incomplete records may obtain historical
account transaction information at a reasonable fee.

PERFORMANCE

From time to time, the Trust may advertise several types of performance
information for a Portfolio, including "yield" and "effective yield" and, in the
case of the Tax-Exempt Portfolio, "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
when annualized. The effective yield will be slightly higher than the yield due
to this compounding effect.

The Adviser, the Portfolio's Principal Underwriter, Kemper Distributors, Inc.,
the Portfolio's Shareholder Service Agent, Kemper Service Company, and the
Portfolio's Accounting Agent, Scudder Fund Accounting Corporation, temporarily
have agreed to maintain certain operating expenses of each Portfolio to the
extent specified in the prospectus. The performance results noted herein for the
Money Market, Tax-Exempt and Government Securities Portfolios would have been
lower had certain expenses not been capped.

Each Portfolio's seven-day 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, 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
calculations. For the period ended April 30, 1999, the Money Market Portfolio's
seven-day yield was 3.93%, the Tax-Exempt Portfolio's seven-day yield was 2.63%
and the Government Securities Portfolio's seven-day yield was 3.86%.

Each Portfolio's effective seven-day yield is determined by taking the base
period return (computed as described above) and calculating the effect of
assumed compounding. The formula for the seven-day effective yield is:
(seven-day base period return +1)365/7 - 1. Each Portfolio may also advertise a
thirty-day effective yield in which case the formula is (thirty-day base period
return +1)365/30 - 1. For the period ended April 30, 1999, the Money Market
Portfolio's effective seven-day yield was 4.01%, the Tax-Exempt Portfolio's
effective seven-day yield was 2.67% and the Government Securities Portfolio's
effective seven-day yield was 3.93%.

The tax equivalent yield of the Tax-Exempt Portfolio is computed by dividing
that portion of the Portfolio's yield (computed as described above) which 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 an assumed 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 April 30, 1999, the Tax-Exempt Portfolio's tax equivalent yield for
the period was 4.18%. 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 a 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 a 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 a Portfolio with that of its competitors.
Past performance cannot be a guarantee of future results.

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<PAGE>

The Trust may depict the historical performance of the securities in which a
Portfolio may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments
performance indexes of those investments or economic indicators. A Portfolio may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Portfolio.

Investors also may want to compare the 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 generally will 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. The Portfolio's yield will
fluctuate. Also, while the 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 the 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 taxable equivalent yield, simply divide the yield from the
tax-exempt investment by the sum of [1 minus your marginal tax rate]. The tables
below are 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 tax rates schedules.

Taxable Equivalent Yield Table For Persons Whose Adjusted Gross Income Is Under
$126,600

<TABLE>
<CAPTION>
Your A Tax-Exempt Yield of:
Single Joint
2% 3% 4% 6% 7%
Marginal 5%

Taxable Income Federal Tax Rate Is Equivalent to a Taxable Yield of:
- -------------- ---------------- ------------------------------------

Taxable Equivalent Yield Table For Persons Whose Adjusted Gross Income Is Over
$126,600

<TABLE>
<CAPTION>
Your A Tax-Exempt Yield of:
Single Joint
2% 3% 4% 6% 7%
Marginal 5%

Taxable Income Federal Tax Rate Is Equivalent to a Taxable Yield of:
- -------------- ---------------- ------------------------------------

* 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%

21
<PAGE>

(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 Trust, 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; formerly, Executive Vice
President, Anchor Glass Container Corporation.

DONALD L. DUNAWAY (3/8/37), Trustee, 7011 Green Tree Drive, 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, 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), Vice President and Trustee*, Two International
Place, Boston, Massachusetts; Managing Director, Scudder Kemper; 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; 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, NY; Managing
Director, Scudder Kemper.

WILLIAM P. SOMMERS (7/22/33), Trustee, 24717 Harbour View Drive, Ponte Vedra
Beach, Florida; Consultant and Director, SRI Consulting; prior thereto President
and Chief Executive Officer, SRI International (research and development); 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, Scudder Kemper.

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

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

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ROBERT C. PECK, JR. (10/1/46), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Scudder Kemper; 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, Scudder Kemper.

FRANK J. RACHWALSKI, JR. (3/26/45), Vice President*, 222 South Riverside Plaza,
Chicago, Illinois; Managing Director, Scudder Kemper.

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

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

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

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

MAUREEN E. KANE (2/14/62), Assistant Secretary*, Two International Place,
Boston, Massachusetts; Vice President, Scudder Kemper; 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 Investment Company Act of 1940.

The trustees and officers who are "interested persons" as designated above
receive no compensation from the Trust. The table below shows amounts paid or
accrued to those trustees who are not designated "interested persons" during the
Trust's fiscal year ended April 30, 1999. The information in the last column
indicates the total amounts paid or accrued for the calendar year 1998 for all
Scudder Kemper Funds.
<TABLE>
<CAPTION>
Total Compensation Scudder
Aggregate Kemper Funds Paid
Name of Trustee Compensation From Trust To Trustees(2)
- --------------- ----------------------- --------------

<S> <C> <C>
John W. Ballantine(3) $ 0 $ 0
Lewis A. Burnham $5,890 $117,800
Donald L. Dunaway (1) $5,780 $125,900
Robert B. Hoffman $6,000 $109,000
Donald R. Jones $5,480 $114,200
Shirley D. Peterson $5,480 $114,000
William P. Sommers $6,330 $109,000
</TABLE>

(1) Includes deferred fees pursuant to deferred compensation agreements with
the Trust. Deferred amounts accrue interest monthly at a rate approximate
to the yield of Zurich Money Funds -- Zurich Money Market Fund. Total
deferred fees and interest accrued from Cash Account Trust for the latest
and all prior fiscal years are $22,000 and $16,500 for Mr. Dunaway.

(2) Includes compensation for service on the Boards of 25 Kemper funds with 41
fund portfolios. Each trustee currently serves as trustee of 27 Kemper
Funds with 46 fund portfolios.

(3) John W. Ballantine became a Trustee on May 18, 1999.

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<PAGE>

The Board of Trustees is responsible for the general oversight of each Fund's
business. A majority of the Board's members are not affiliated with Scudder
Kemper Investments, Inc.

On July 31, 1999, the officers and trustees of the Trust, as a group, owned less
than 1% of the then outstanding shares of each Portfolio. No person owned of
record 5% or more of the outstanding shares of any class of any Portfolio,
except the persons indicated in the chart below:

Name and Address % Owned Portfolio
- ---------------- ---------
Roney & Co. 7.41 Money Market Portfolio
Omnibus Account 51.97 Government Securities Portfolio
1 Griswold 17.86 Tax-Exempt Portfolio
Detroit, MI 48226
Prudential Securities
1 New York Plaza 9.84 Tax-Exempt Portfolio
New York, NY 10004

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 Short-Intermediate Government Fund,
Kemper Value Series, Inc., Kemper Value Plus Growth Fund, Kemper Quantitative
Equity Fund, Kemper Horizon Fund, Kemper Europe Fund, Kemper Asian Growth Fund,
Kemper Aggressive Growth Fund, Kemper Global/International Series, Inc., Kemper
Securities Trust and Kemper Equity Trust ("Kemper Mutual Funds") and certain
"Money Market Funds" (Zurich Money Funds, Zurich Yieldwise Money Fund, Cash
Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account Trust,
Investors Municipal Cash Fund and Investors Cash Trust). Shares of Money Market
Funds and Kemper Cash Reserves Fund that were acquired by purchase (not
including shares acquired by dividend reinvestment) are subject to the
applicable sales charge on exchange. In addition, shares of a Kemper Mutual Fund
in excess of $1,000,000 (except Zurich Yieldwise Money Fund and 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 fund with a value of $1,000,000 or less (except
Kemper Cash Reserves Fund) acquired by exchange from another Kemper fund, or
from a money market fund, may not be exchanged thereafter until they have been
owned for 15 days, if, in the investment manager's judgment, 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.

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<PAGE>

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 shares of a Portfolio 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) trusteed by Investors Fiduciary
Trust Company ("IFTC"). This includes Simplified Employee Pension Plan
(SEP) IRA accounts and prototype documents.

o 403(b) Custodial Accounts also trusteed by IFTC. 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 and materials for
establishing them are available from the Shareholder Service Agent upon request.
The brochures for plans trusteed by IFTC describe the current fees payable to
IFTC for its services as trustee. Investors should consult with their own tax
advisers before establishing a retirement plan.

Electronic Funds Transfer Programs. For your convenience, the Trust has
established several investment and redemption programs using electronic funds
transfer via the Automated Clearing House (ACH). There is currently no charge by
the Trust for these programs. To use these features, your financial institution
(your employer's financial institution in the case of payroll deposit) must be
affiliated with an Automated Clearing House (ACH). This ACH affiliation permits
the Shareholder Service Agent to electronically transfer money between your bank
account, or employer's payroll bank in the case of Direct Deposit, and your
account. Your bank's crediting policies of these transferred funds may vary.
These features may be amended or terminated at any time by the Trust.
Shareholders should contact Kemper Service Company at 1-800-621-1048 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 Trust generally is not required to hold meetings of its shareholders. Under
the Agreement and Declaration of Trust ("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 Trust to the extent and as provided in the
Declaration of

25
<PAGE>

Trust; (d) any amendment of the Declaration of Trust (other than amendments
changing the name of the Trust or any Portfolio, establishing a Portfolio,
supplying any omission, curing any ambiguity or curing, correcting or
supplementing any defective or inconsistent provision thereof); and (e) such
additional matters as may be required by law, the Declaration of Trust, the
By-laws of the Trust, or any registration of the Trust 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 a
successor or until such trustee sooner dies, resigns, retires or is removed by a
majority vote of the shares entitled to vote (as described below) or a majority
of the trustees. In accordance with the 1940 Act (a) the Trust 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 Trust 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
Trust 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 a Portfolio 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 a Portfolio 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 Trust (or any Portfolio or class) 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
Trust. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Trust or the trustees. Moreover, the Declaration of Trust provides for
indemnification out of Trust property for all losses and expenses of any
shareholder held personally liable for the obligations of the Trust and the
Trust 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 Trust itself is unable to meet its obligations.

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<PAGE>

APPENDIX -- RATINGS OF INVESTMENTS

COMMERCIAL PAPER RATINGS

A-1, A-2, Prime-1, Prime-2 and Duff 1, Duff 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.

The rating Duff-1 is the highest commercial paper rating assigned by Duff &
Phelps Inc. Paper rated Duff-1 is regarded as having very high certainty of
timely payment with excellent liquidity factors that are supported by ample
asset protection. Risk factors are minor. Paper rated Duff-2 is regarded as
having good certainty of timely payment, good access to capital markets and
sound liquidity factors and company fundamentals. Risk factors are small.

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.

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.

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<PAGE>

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.

DUFF & PHELP'S INC. BOND RATINGS

AAA -- Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA -- High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.

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