UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM N-CSR Investment Company Act file number 811-2899 CASH EQUIVALENT FUND ---------------------- (Exact Name of Registrant as Specified in Charter) 222 South Riverside Plaza Chicago, Illinois 60606 ------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: (617) 295-2663 -------------- Salvatore Schiavone Two International Place Boston, Massachusetts 02110 --------------------------------------- (Name and Address of Agent for Service) Date of fiscal year end: 7/31 Date of reporting period: 7/31/03ITEM 1. REPORT TO STOCKHOLDERS
Cash Equivalent Fund
ANNUAL REPORT TO SHAREHOLDERS
July 31, 2003
Principal Underwriter
Scudder Distributors, Inc.
222 S. Riverside Plaza
Chicago, IL 60606
This report is not to be distributed unless preceded
or accompanied by a prospectus.
Portfolio Management Review |
In the following interview, Portfolio Managers Geoffrey Gibbs and Joseph Benevento discuss the market environment and their team's approach to managing Cash Equivalent Fund series during the 12-month period ended July 31, 2003.
Q: What impact did Federal Reserve Board policy have on money market activity during the period?
A: Federal Reserve Board policy in general had a major impact on the backdrop to money market activity, as did the US economy. During the first half of the fiscal year, the US economy grew slightly on the back of strong consumer demand for houses, housing-related items and automobiles. In September, the Federal Reserve Board left rates unchanged, but it was a decision opposed by two board members. The ongoing threat of war with Iraq, volatility in the stock market, rising oil prices and relatively soft employment numbers all weighed on consumer confidence, which slumped in October to its lowest level since 1993. Business spending showed no convincing signs of a pickup until November, when a rise in durable goods orders signaled a possible turnaround. Consumer confidence rallied despite a poor labor market. Still, following a weak employment report as well as other unfavorable economic reports, the Federal Reserve Board cut the targeted federal funds rate by 50 basis points to 1.25% on November 6 in an effort to jump-start an economy that it thought might be decelerating.1 This surprisingly aggressive move gave investors some relief that support was in the pipeline for an economy in what Fed chairman Alan Greenspan called a "soft spot." In December, the Bush administration's shake-up of its economic team was seen by the financial markets as a sign that the president was looking to revive the economy with a new stimulus plan, including aggressive tax cuts.
1 The federal funds rate is the interest rate banks charge each other for overnight loans and is a closely watched indicator of US Federal Reserve Board monetary policy.As 2003 began, investors demonstrated enthusiasm for the US government's economic growth initiatives. However, as concerns about the war with Iraq heightened and company managements reported a subdued outlook for first-quarter corporate earnings, the US equity market stumbled again. Gross domestic product (GDP) growth managed to chug along at a rate of 1.4%, but geopolitical uncertainties kept volatility high. In this environment, there was a flight to quality into short-term US Treasuries. In March 2003, the Federal Reserve Board stated that it would not currently take a stance on monetary policy given "the unusually large uncertainties clouding the geopolitical situation in the short run and their apparent effects on economic decision making."
During the second calendar quarter, economic and political conditions improved. A significant number of corporate earnings announcements during the quarter met or exceeded expectations. The $350 billion tax cut and spending incentives recently implemented offered stimulus to the economy. Also, the conclusion of active military operations in Iraq at the end of April provided the financial markets with a welcome sigh of relief. On the other hand, corporate spending remained reluctant and unemployment gradually worsened, keeping consumer spending reined in with the exception of the housing sector. As a result, estimates for second quarter GDP remained in the 1.5% to 1.8% range.
On May 6, the Federal Reserve Board again kept the targeted federal funds rate unchanged at 1.25% but made it clear that it would maintain its accommodative monetary policy. It believed the probability of deflation exceeded that of a pickup in inflation over the next few quarters. Thus, money market yields continued to fall.
Then, on June 25, the Federal Reserve Board cut the targeted federal funds rate by 25 basis points to 1.00% in an effort to further support the economy and stimulate more growth over a longer period. This was the 13th time since the start of 2001 that the Federal Reserve Board cut rates, bringing current interest rates to their lowest level since 1958.
In July, the bond market experienced a strong backup as the 10-year note climbed about 150 basis points in yield, which was its most volatile move in sixteen years. The sharp sell-off in the Treasury market can be attributed to various factors including an oversupply in Treasury securities and confusion over the Fed's communications regarding their use of long-term Treasuries as a policy tool.
Q: How did the portfolios in the series perform over the annual period?
A: We were able to produce competitive yields in the Cash Equivalent Fund - Money Market Portfolio, Government Securities Portfolio and Tax-Exempt Portfolio for the period. However, overall marketplace yields declined in the period, primarily reflecting the ripple effect of the Federal Reserve Board's 50-basis-point (i.e., one-half of a percentage point) interest rate cut on November 6, 2002. The Federal Reserve Board's 25-basis-point (i.e., one-quarter of a percentage point) cut on June 25, 2003, had a more modest impact on the portfolios' yields because the higher-yielding securities bought by the portfolios before the rate cut will continue to benefit the portfolios' yield until these securities mature. At maturity, the proceeds will be reinvested in securities that reflect the current level of rates, which is likely to be lower given the Federal Reserve Board rate cut.
Q: In light of recent market conditions, what has been the strategy for Cash Equivalent Fund - Money Market Portfolio and Government Securities Portfolio?
A: By staying disciplined in the purchase of high-quality instruments and actively maintaining a longer-than- benchmark duration profile as market conditions changed, we were able to produce highly competitive yields in the portfolios for the annual period. In light of the uncertainty in the financial markets and in the US economy, we maintained an average weighted maturity, generally in the 45- to 55-day range, for most of the fiscal year.
Portfolio Performance
As of July 31, 2003
7-Day Current Yield | |
Money Market Portfolio | .36% |
Government Securities Portfolio | .15% |
Tax-Exempt Portfolio | .22% |
(Equivalent Taxable Yield)* | .34% |
Past performance is no guarantee of future results. Yields fluctuate with changing market conditions and are not guaranteed.
At the start of the period, we maintained a "barbell strategy," whereby we purchased short-dated commercial paper for liquidity and also focused on adding yield through certificates of deposit in the Money Market Portfolio. Within both portfolios we added agency discount notes in the nine-month to one-year sector as well as 13-month callable agencies to take advantage of the higher yields available at the long end of the money market yield curve. Toward the end of the third calendar quarter when the yield curve flattened and the large percentage of shorter-term holdings became vulnerable to potential interest rate cuts by the Federal Reserve Board, we adjusted our strategy to include purchases of securities in the intermediate range of the money market yield curve. We focused our investments during October in the one- to three-month range, locking in attractive rates and making the portfolios less susceptible to Federal Reserve Board action. We also reduced the portfolios' position in floating-rate notes. In November, as the yield curve steepened again, we bought primarily in the three- to six-month range, where we were able to pick up significant yield while maintaining the portfolios' weighted average maturity at the longer end of its range. For the first time in several months, we were able to add floating-rate notes products to the Money Market Fund, as the flat yield curve of the prior six to eight months had not made this an attractive investment. In December, we added liquidity to the portfolio.
As 2003 began, we resumed our barbell strategy. When the yield curve flattened in March, we temporarily adjusted the strategy by focusing purchases at the intermediate portion of the money market yield curve. During the second calendar quarter, the majority expectation in our money market portfolio management team was for a 25-basis-point rate cut. When, in the run-up to the June 25 meeting by the Federal Reserve Board, interest rates incorporated more than 25 basis points of cuts, we held off buying securities with longer-term maturities. We focused instead on enhancing liquidity with investments in the one- to three-month range. While this led to a temporary reduction in the weighted average maturity of the portfolios, the decision proved correct. After the Federal Reserve Board's move, rates moved higher, and we used this opportunity to resume purchases of longer-dated securities at rates higher than immediately before June 25. In addition, the yield curve became positively sloped again, making the purchases of longer-dated securities more attractive.
In July, the long end of the Treasury curve steepened considerably, but the money market curve did not follow. Since we continue to anticipate a steeper curve in the future, we have been shortening our weighted average maturities to take advantage of a backup in yields.
Q: In light of recent market conditions, what has been the strategy for Cash Equivalent - Tax-Exempt Portfolio?
A: We adjusted the portfolio's weighted average maturity to prepare for seasonal events and supply/demand phenomena. In light of the uncertainty in the financial markets and in the US economy, we tried to keep the fund's weighted average maturity in a neutral- to shorter-than-the benchmark range. This was especially so in April and May, when the municipal money market yield curve inverted. We continued to focus on the highest-quality investments throughout the period while seeking competitive yields across the municipal investment spectrum. In particular, we emphasized essential-services revenue issues and what is known as enhanced paper, i.e., securities guaranteed by a third party such as a bank or an insurance company. Given our credit concerns regarding California's downgrade in December 2002 and its subsequent placement on negative watch in June 2003, we chose not to participate in California's June issuance sale.
Q: Do you anticipate any change in your management strategies?
A: We intend to maintain our conservative investment strategies. We will seek to provide high current income consistent with liquidity and capital preservation.
The portfolio managers
A group of investment professionals is responsible for the day-to-day management of each portfolio. These investment professionals have a broad range of experience managing money market funds.
Notes
Current annualized yield is the 7-day annualized net investment income per share as of the indicated date.
* The equivalent taxable yield allows you to compare the portfolio's performance with the performance of taxable money market funds. For the Tax-Exempt Portfolio, the equivalent taxable yield is based upon the marginal income tax rate of 35%. Income may be subject to local taxes and, for some investors, the alternative minimum tax.
Like all money market funds, an investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve your investment at $1.00 per share, it is possible to lose money.
The views expressed in this report reflect those of the portfolio manager only through the end of the period stated above. The manager's views are subject to change at any time based on market and other conditions and should not be construed as a recommendation.
Fund shares are not FDIC-insured and are not deposits or other obligations of, or guaranteed by, any bank. Fund shares involve investment risk, including possible loss of principal. For more complete details about the Funds' holdings, see pages 4-12. A quarterly Portfolio Holdings report is available upon request.
Portfolio of Investments as of July 31, 2003 | |
Money Market Portfolio | Principal Amount ($) | Value ($) |
Certificates of Deposit and Bank Notes 13.0% | ||
Canadian Imperial Bank of Commerce, 1.25%, 4/5/2004 | 25,000,000 | 24,981,158 |
Credit Lyonnais SA, 1.19%, 8/11/2003 | 15,000,000 | 15,000,000 |
Lloyds TSB Bank PLC, 0.98%, 8/19/2003 | 25,000,000 | 25,000,000 |
Societe Generale, 0.92%, 12/23/2003 | 10,000,000 | 10,000,000 |
Toronto Dominion Bank, 1.05%, 1/22/2004 | 10,000,000 | 10,000,000 |
Unicredito Italiano SpA, 0.94%, 9/24/2003 | 10,000,000 | 10,000,000 |
Westdeutsche Landesbank AG, 1.06%, 1/5/2004 | 10,000,000 | 10,000,000 |
Total Certificates of Deposit and Bank Notes (Cost $104,981,158) | 104,981,158 | |
Commercial Paper 57.1% | ||
Abbey National North America, 1.11%**, 8/1/2003 | 20,000,000 | 20,000,000 |
Asset Portfolio Funding Corp., 0.95%**, 9/22/2003 | 10,000,000 | 9,986,277 |
CAFCO International, 1.18%**, 8/13/2003 | 7,500,000 | 7,497,050 |
CC (USA), Inc., 1.04%**, 10/20/2003 | 13,500,000 | 13,468,800 |
CIT Group Holdings, Inc., 1.05%**, 11/10/2003 | 10,000,000 | 9,970,542 |
CIT Group Holdings, Inc., 1.06%**, 9/16/2003 | 5,000,000 | 4,993,228 |
CIT Group Holdings, Inc., 1.06%**, 10/15/2003 | 10,000,000 | 9,977,917 |
Coca Cola Enterprises Inc., 1.0%**, 8/6/2003 | 5,000,000 | 4,999,306 |
Delaware Funding Corp., 1.04%**, 8/15/2003 | 10,000,000 | 9,995,956 |
Dorada Finance, Inc., 1.05%**, 1/15/2004 | 10,000,000 | 9,951,292 |
Falcon Asset Securitization Corp., 1.03%**, 8/14/2003 | 10,000,000 | 9,996,281 |
GE Capital International Funding, Inc., 1.03%**, 10/10/2003 | 25,000,000 | 24,949,931 |
Goldman Sachs Group, Inc., 0.94%**, 11/21/2003 | 19,000,000 | 18,944,436 |
Grampian Funding LLC, 1.07%**, 10/23/2003 | 10,000,000 | 9,975,331 |
HBOS Treasury Services PLC, 1.05%**, 1/5/2004 | 10,000,000 | 9,954,208 |
International Lease Finance Corp., 1.04%**, 10/9/2003 | 15,000,000 | 14,970,100 |
Irish Life & Permanent PLC, 1.05%**, 10/20/2003 | 10,000,000 | 9,976,667 |
K2 (USA) LLC, 0.92%**, 12/11/2003 | 10,000,000 | 9,966,267 |
K2 (USA) LLC, 1.05%**, 9/17/2003 | 6,000,000 | 5,991,775 |
K2 (USA) LLC, 1.28%**, 8/29/2003 | 10,000,000 | 9,990,044 |
KBC Financial Products International Ltd., 1.26%**, 9/3/2003 | 15,000,000 | 14,982,674 |
Lake Constance Funding LLC, 1.05%**, 8/18/2003 | 15,100,000 | 15,092,512 |
Lake Constance Funding LLC, 1.05%**, 10/24/2003 | 8,900,000 | 8,878,195 |
Liberty Street Funding Co., 1.04%**, 10/16/2003 | 10,000,000 | 9,978,044 |
Liberty Street Funding Co., 1.05%**, 10/24/2003 | 10,000,000 | 9,975,500 |
Northern Rock PLC, 1.05%**, 8/11/2003 | 5,000,000 | 4,998,542 |
Perry Global Funding LLC, 0.94%**, 10/10/2003 | 20,000,000 | 19,963,444 |
Perry Global Funding LLC, 1.03%**, 9/26/2003 | 10,000,000 | 9,983,978 |
Prudential PLC, 1.03%**, 10/14/2003 | 16,000,000 | 15,966,124 |
RWE AG, 1.05%**, 9/26/2003 | 10,000,000 | 9,983,667 |
Scaldis Capital LLC, 1.05%**, 10/27/2003 | 20,000,000 | 19,949,250 |
Scaldis Capital LLC, 1.23%**, 8/11/2003 | 17,000,000 | 16,994,192 |
Sheffield Receivables Corp., 1.05%**, 8/15/2003 | 10,000,000 | 9,995,917 |
Sheffield Receivables Corp., 1.05%**, 1/8/2004 | 10,000,000 | 9,953,333 |
Spintab AB, 1.22%**, 8/1/2003 | 5,000,000 | 5,000,000 |
Tango Finance Corp., 1.06%**, 1/15/2004 | 9,000,000 | 8,955,745 |
Tulip Funding Corp., 1.03%**, 8/14/2003 | 10,000,000 | 9,996,281 |
Tulip Funding Corp., 1.05%**, 10/23/2003 | 25,188,000 | 25,127,024 |
Verizon Network Funding Group, 1.0%**, 8/14/2003 | 10,000,000 | 9,996,389 |
Total Commercial Paper (Cost $461,326,219) | 461,326,219 | |
Floating Rate Notes* 15.2% | ||
American Honda Finance Corp., 1.227%, 9/8/2003 | 25,000,000 | 25,000,000 |
Associates Corp. of North America, 1.219%, 6/15/2004 | 10,000,000 | 10,000,000 |
Bank of Scotland Treasury Services PLC, 1.262%, 5/28/2004 | 5,000,000 | 5,004,975 |
Beta Finance, Inc., 1.235%, 2/6/2004 | 7,500,000 | 7,499,805 |
Blue Heron Funding Ltd., 1.13%, 5/19/2004 | 5,000,000 | 5,000,000 |
Dorada Finance, Inc., 1.197%, 3/3/2004 | 25,000,000 | 25,000,000 |
Goldman Sachs Group, Inc., 1.232%, 1/23/2004 | 10,000,000 | 10,000,000 |
Nordea Bank Finland PLC, 1.055%, 9/10/2003 | 25,000,000 | 24,999,175 |
Paccar Financial Corp., 1.115%, 12/22/2003 | 10,000,000 | 10,003,025 |
Total Floating Rate Notes (Cost $122,506,980) | 122,506,980 | |
Short-Term Notes 2.3% | ||
Wal-Mart Stores, Inc., 4.375%, 8/1/2003 (Cost $18,500,000) | 18,500,000 | 18,500,000 |
US Agency Obligations 3.7% | ||
Federal Home Loan Bank, 1.0%**, 11/21/2003 | 10,000,000 | 9,968,889 |
Federal Home Loan Mortgage Corp., 3.25%, 1/15/2004 | 20,000,000 | 20,197,280 |
Total US Agency Obligations (Cost $30,166,169) | 30,166,169 | |
Repurchase Agreements*** 8.7% | ||
Goldman Sachs & Co., 1.13%, dated 7/31/2003, to be repurchased at $67,002,103 on 8/1/2003 | 67,000,000 | 67,000,000 |
State Street Bank and Trust Co., 1.05%, dated 7/31/2003, to be repurchased at $3,098,090 on 8/1/2003 | 3,098,000 | 3,098,000 |
Total Repurchase Agreements (Cost $70,098,000) | 70,098,000 | |
Total Investment Portfolio - 100.0% (Cost $807,578,526) (a) | 807,578,526 |
* Floating rate notes are securities whose yields vary with a designated market index or market rate, such as the coupon-equivalent of the US Treasury bill rate. These securities are shown at their current rate as of July 31, 2003.
** Annualized yield at the time of purchase; not a coupon rate.
*** Repurchase agreements are fully collateralized by US Treasury or Government agency securities.
(a) The cost for federal income tax purposes was $807,578,526.
The accompanying notes are an integral part of the financial statements.
Portfolio of Investments as of July 31, 2003 |
Government Securities Portfolio | Principal Amount ($) | Value ($) |
US Agency Obligations 60.0% | ||
Federal Home Loan Bank, 0.98%*, 10/7/2004 | 20,000,000 | 19,991,097 |
Federal Home Loan Bank, 0.99%*, 9/27/2004 | 50,000,000 | 49,982,597 |
Federal Home Loan Bank, 1.25%, 4/15/2004 | 7,000,000 | 6,994,741 |
Federal Home Loan Bank, 1.36%, 3/5/2004 | 6,000,000 | 6,000,000 |
Federal Home Loan Bank, 3.75%, 2/13/2004 | 10,000,000 | 10,148,400 |
Federal Home Loan Bank, 4.75%, 6/28/2004 | 10,000,000 | 10,328,155 |
Federal Home Loan Mortgage Corp., 0.904%**, 12/30/2003 | 10,000,000 | 9,962,250 |
Federal Home Loan Mortgage Corp., 0.972%**, 8/28/2003 | 5,000,000 | 4,996,362 |
Federal Home Loan Mortgage Corp., 1.023%**, 10/23/2003 | 10,000,000 | 9,976,483 |
Federal Home Loan Mortgage Corp., 1.045%**, 12/24/2003 | 5,000,000 | 4,979,056 |
Federal Home Loan Mortgage Corp., 1.055%**, 11/12/2003 | 20,000,000 | 19,939,917 |
Federal Home Loan Mortgage Corp., 1.063%**, 10/30/2003 | 11,000,000 | 10,970,787 |
Federal Home Loan Mortgage Corp., 5.0%, 1/15/2004 | 37,235,000 | 37,893,055 |
Federal Home Loan Mortgage Corp., 6.375%, 11/15/2003 | 12,000,000 | 12,169,156 |
Federal National Mortgage Association, 0.993%*, 3/11/2004 | 10,000,000 | 9,997,745 |
Federal National Mortgage Association, 1.06%*, 1/29/2004 | 20,000,000 | 20,000,000 |
Federal National Mortgage Association, 1.095%**, 10/31/2003 | 20,000,000 | 19,944,894 |
Federal National Mortgage Association, 4.75%, 11/14/2003 | 5,000,000 | 5,049,296 |
Federal National Mortgage Association, 5.625%, 5/14/2004 | 6,000,000 | 6,211,012 |
Student Loan Marketing Association, 1.014%*, 10/16/2003 | 5,000,000 | 5,000,000 |
Student Loan Marketing Association, 1.024%*, 8/21/2003 | 5,000,000 | 4,999,972 |
Total US Agency Obligations (Cost $285,534,975) | 285,534,975 | |
Government Guaranteed Securities 4.7% | ||
Hainan Airlines, Series 2000-2, 0.92%*, 12/21/2004 | 4,268,752 | 4,268,752 |
Hainan Airlines, Series 2001-1, 1.119%*, 12/15/2007 | 4,524,619 | 4,524,619 |
Hainan Airlines, Series 2001-2, 1.119%*, 12/15/2007 | 4,524,619 | 4,524,619 |
Hainan Airlines, Series 2001-3, 1.119%*, 12/15/2007 | 9,049,238 | 9,049,238 |
Total Government Guaranteed Securities (Cost $22,367,228) | 22,367,228 | |
Repurchase Agreements*** 35.3% | ||
Credit Suisse First Boston Corp., 1.13%, dated 7/31/2003, to be repurchased at $75,002,354 on 8/1/2003 | 75,000,000 | 75,000,000 |
Goldman Sachs & Co., 1.13%, dated 7/31/2003, to be repurchased at $47,001,475 on 8/1/2003 | 47,000,000 | 47,000,000 |
Merrill Lynch & Co., 1.083%, dated 7/29/2003, to be repurchased at $40,007,220 on 8/4/2003 | 40,000,000 | 40,000,000 |
State Street Bank and Trust Co., 1.05%, dated 7/31/2003, to be repurchased at $5,879,171 on 8/1/2003 | 5,879,000 | 5,879,000 |
Total Repurchase Agreements (Cost $167,879,000) | 167,879,000 | |
Total Investment Portfolio - 100.0% (Cost $475,781,203) (a) | 475,781,203 |
* Floating rate securities are securities whose yields vary with a designated market index or market rate, such as the coupon-equivalent of the US Treasury bill rate. These securities are shown at their current rate as of July 31, 2003.
** Annualized yield at time of purchase; not a coupon rate.
*** Repurchase agreements are fully collateralized by US Treasury or Government agency securities.
(a) The cost for federal income tax purposes was $475,781,203.
The accompanying notes are an integral part of the financial statements.
Portfolio of Investments as of July 31, 2003 |
Tax-Exempt Portfolio | Principal Amount ($) | Value ($) |
Municipal Investments 100.0% | ||
California 1.0% | ||
Community College Finance Authority, Tax and Revenue Anticipation Notes, Series A, 2.0%, 6/30/2004 (b) | 2,000,000 | 2,018,655 |
Colorado 1.0% | ||
State General Funding Tax and Revenue Anticipation Notes, 1.75%, 6/25/2004 | 2,000,000 | 2,015,494 |
District of Columbia 2.1% | ||
General Obligation, Series D, 0.9%*, 6/1/2029 (b) (c) | 2,185,000 | 2,185,000 |
Multimodal-Medlantic, Series C, 0.9%*, 8/15/2038 (b) | 1,900,000 | 1,900,000 |
4,085,000 | ||
Florida 8.9% | ||
Alachua County, Health Facilities Authority Revenue, Shands Teaching Hospital, Series A, 0.9%*, 12/1/2012 (c) | 500,000 | 500,000 |
Capital Travel Agency Revenue, Seminole Tribe Resort, Series B, 0.9%*, 10/1/2033 (c) | 1,300,000 | 1,300,000 |
Dade County, School Board Certificates of Anticipation Notes, Series A, Prerefunded, 5.75%, 5/1/2009 (b) | 1,000,000 | 1,046,071 |
Indian River County, Hospital Revenue, 0.98%*, 10/1/2015 (c) | 3,500,000 | 3,500,000 |
Jacksonville, Electric Authority Revenue, Electric Systems, Series C-1, 0.85%, 9/5/2003 | 4,000,000 | 4,000,000 |
Lee County, Airport Revenue, Series 811-X, 0.96%*, 10/1/2029 (b) | 500,000 | 500,000 |
Ocean Highway and Port Authority Revenue, 0.95%*, 12/1/2020 (c) | 500,000 | 500,000 |
Orange County, Health Facilities Authority Revenue, Presbyterian Retirement Project, 0.9%*,11/1/2028 (c) | 1,960,000 | 1,960,000 |
Pasco County, School Board Certificates of Participation, 0.85%*, 8/1/2026 (b) (c) | 4,000,000 | 4,000,000 |
17,306,071 | ||
Georgia 6.4% | ||
Burke County, Development Authority, Pollution Control Revenue, Oglethorpe Power Corp. Project, Series C, 0.9%*, 1/1/2018 (b) | 320,000 | 320,000 |
Cobb County, Development Authority, Educational Facilities Revenue, Mt. Paran Christian School, Inc. Project, 0.85%*, 7/1/2022 (c) | 6,100,000 | 6,100,000 |
LaGrange, Development Authority Revenue, LaGrange College Project, 0.93%*, 6/1/2031 (c) | 6,000,000 | 6,000,000 |
12,420,000 | ||
Illinois 12.6% | ||
Chicago, General Obligation, Series B, 0.88%*, 1/1/2037 (b) (c) | 1,200,000 | 1,200,000 |
Chicago, Homestart Program, Series A, 0.95%*, 6/1/2005 (c) | 3,000,000 | 3,000,000 |
Chicago, O'Hare International Airport Revenue, General Airport 2nd Lien, Series A, 0.8%*, 1/1/2015 (c) | 1,600,000 | 1,600,000 |
Chicago, Sales Tax Revenue, 0.9%*, 1/1/2034 (b) (c) | 4,200,000 | 4,200,000 |
General Obligation, 2.0%, 1/15/2004 | 6,500,000 | 6,530,786 |
Health Facilities Authority Revenue, The Carle Foundation, Series B, 0.9%*, 7/1/2028 (b) | 5,500,000 | 5,500,000 |
Will and Kendall Counties, Community School District No. 202, 0.92%*, 1/1/2023 (b) | 2,600,000 | 2,600,000 |
24,630,786 | ||
Indiana 5.6% | ||
Bond Bank Revenue, Advance Funding Program Notes, Series A, 2.0%, 1/27/2004 (b) | 2,000,000 | 2,008,722 |
Development Finance Authority, Industrial Development Revenue, Enterprise Center II Project, AMT, 0.95%*, 6/1/2022 (c) | 2,000,000 | 2,000,000 |
Health Facilities Finance Authority Revenue, Ascension Health Credit, Series B, 0.82%*, 11/15/2039 | 2,230,000 | 2,230,000 |
Portage, Economic Development Revenue, Breckenridge Apartments Project, AMT, 0.94%*, 5/1/2025 (c) | 4,650,000 | 4,650,000 |
10,888,722 | ||
Iowa 0.5% | ||
Higher Education Authority Revenue, St. Ambrose Private College, 0.9%*, 4/1/2033 (c) | 1,000,000 | 1,000,000 |
Kentucky 8.6% | ||
Boone County, Pollution Control Revenue, Cincinnati Gas & Electric Co., Series A, 1.0%*, 8/1/2013 (c) | 8,000,000 | 8,000,000 |
Economic Development Finance Authority, Health Facilities Revenue, Easter Seal Society Project, 1.0%*, 11/1/2030 (c) | 3,730,000 | 3,730,000 |
Pendleton County, Multi-City Lease Revenue, 0.85%, 9/8/2003 | 5,000,000 | 5,000,000 |
16,730,000 | ||
Louisiana 0.7% | ||
Offshore Term Authority, Deep Water Port Revenue, Loop LLC Project, Series A, 0.9%*, 9/1/2014 (c) | 1,300,000 | 1,300,000 |
Maine 0.8% | ||
General Obligation, Tax Anticipation Notes, 1.75%, 6/30/2004 | 1,500,000 | 1,512,889 |
Massachusetts 2.5% | ||
Water Reserves Authority, Series C, 0.92%*, 8/1/2020 (c) | 4,900,000 | 4,900,000 |
Michigan 8.4% | ||
ABN Amro Munitops Certificates, 0.93%*, 1/1/2011 (b) (c) | 350,000 | 350,000 |
Battle Creek, Downtown Development Authority, Prerefunded, 7.65%, 5/1/2022 | 500,000 | 535,121 |
Farmington Hills, Economic Development Corp., Brookfield Building Association, 0.91%*, 11/1/2010 (c) | 100,000 | 100,000 |
General Obligation, Pinckney Community Schools, 2.0%, 5/1/2004 | 1,600,000 | 1,613,326 |
Higher Education Facilities Authority Revenue, University of Detroit, 0.91%*, 11/1/2017 (c) | 5,000,000 | 5,000,000 |
Housing Development Authority, Series A, AMT, 0.93%*, 6/1/2020 (b) (c) | 100,000 | 100,000 |
Sterling Heights, Economic Development Corp., Kunath Enterprises LLC Project, AMT, 1.1%*, 2/1/2016 (c) | 2,400,000 | 2,400,000 |
Strategic Fund, Limited Obligation Revenue, Continental Aluminum Project, AMT, 1.05%*, 10/1/2015 | 3,850,000 | 3,850,000 |
Strategic Fund, Limited Obligation Revenue, Lake Shore, Inc., AMT, 1.1%*, 11/1/2019 (c) | 2,410,000 | 2,410,000 |
16,358,447 | ||
Montana 1.1% | ||
Forsyth Pollution Control Revenue, Pacificorp Project, 0.92%*, 1/1/2018 (c) | 2,100,000 | 2,100,000 |
Nevada 1.3% | ||
Clark County, Airport Revenue, Series A, AMT, 1.03%*, 7/1/2036 (b) (c) | 750,000 | 750,000 |
Department of Business and Industrial Development Revenue, Diamond Plastics Corp. Project, AMT, 1.0%*, 1/1/2005 (c) | 1,100,000 | 1,100,000 |
Las Vegas Valley Water District, Series B-10, 0.95%*, 6/1/2024 (b) (c) | 700,000 | 700,000 |
2,550,000 | ||
New York 5.6% | ||
New York City, Municipal Water Finance Authority, 1.0%, 8/14/2003 | 3,000,000 | 3,000,000 |
New York City, Transitional Finance Authority Revenue, Series 1, 0.85%*, 11/1/2022 | 3,000,000 | 3,000,000 |
New York City, Transitional Finance Authority, Bond Anticipation Notes, Series 2, 2.0%, 2/19/2004 | 2,500,000 | 2,512,306 |
Power Authority, 1.0%, 8/6/2003 | 2,500,000 | 2,500,000 |
11,012,306 | ||
Ohio 1.0% | ||
Higher Educational Facilities Community Revenue, Pooled Program, Series A, 1.0%*, 9/1/2020 (c) | 1,895,000 | 1,895,000 |
Oklahoma 2.2% | ||
Payne County, Economic Development Authority, Student Housing Revenue, OSUF Phase III Project, 0.88%*, 6/1/2032 (b) (c) | 1,995,000 | 1,995,000 |
Tulsa County, Industrial Authority Revenue, First Mortgage Montercau, Series A, 0.9%*, 7/1/2032 (c) | 2,400,000 | 2,400,000 |
4,395,000 | ||
Oregon 1.0% | ||
Economic Development Revenue, KRC Western, Inc. Project, Series 178, AMT, 0.95%*, 1/1/2017 (c) | 2,000,000 | 2,000,000 |
Pennsylvania 0.6% | ||
Lehigh County, Industrial Development Authority, Pollution Control Revenue, Allegheny Electric Corp., 1.05%*, 10/1/2014 (c) | 1,200,000 | 1,200,000 |
South Carolina 0.5% | ||
Jobs Economic Development Authority, Hospital Facilities Revenue, Sisters of Charity Hospitals, 0.87%*, 11/1/2032 (c) | 1,000,000 | 1,000,000 |
Tennessee 1.9% | ||
Clarksville, Public Building Authority Revenue, 0.95%*, 7/1/2031 (c) | 1,700,000 | 1,700,000 |
Kingsport, General Obligation, 4.0%, 3/1/2004 (b) | 550,000 | 559,868 |
Montgomery County, Public Building Authority, Pooled Financing Revenue, Tennessee County Loan Pool, 0.95%*, 4/1/2032 (c) | 200,000 | 200,000 |
Shelby County, Tax Anticipation Notes, 2.0%, 6/30/2004 | 1,200,000 | 1,211,379 |
3,671,247 | ||
Texas 11.3% | ||
Bexar County, Health Facilities Development Corp. Revenue, Air Force Village Foundation, 0.85%*, 8/15/2030 (c) | 2,200,000 | 2,200,000 |
Harris County, Health Facilities Development Corp. Revenue, Methodist Hospital, 0.9%*, 12/1/2032 | 6,600,000 | 6,600,000 |
Houston, General Obligation, 0.95%, 8/14/2003 | 3,000,000 | 3,000,000 |
Irving, Independent School District, 2.0%, 2/17/2004 | 270,000 | 271,374 |
Public Finance Authority, General Obligation, 0.95%, 9/10/2003 | 5,000,000 | 5,000,000 |
Public Finance Authority, General Obligation, 0.95%, 11/5/2003 | 3,035,000 | 3,035,000 |
Waco, Industrial Development Corp., Economic Development Revenue, Patriot Homes of Texas Project, AMT, 1.1%*, 6/1/2014 (c) | 1,900,000 | 1,900,000 |
22,006,374 | ||
Utah 1.9% | ||
Heber City, Industrial Development Revenue, Industrial Parkway Properties LLC Project, AMT, 1.1%*, 7/1/2033 (c) | 3,650,000 | 3,650,000 |
Vermont 2.1% | ||
Student Assistance Corp., Student Loan Revenue, 1.0%*, 1/1/2004 (c) | 4,200,000 | 4,200,000 |
Washington 3.7% | ||
Health Care Facilities Authority Revenue, Providence Services, Series A, 0.9%*,12/1/2030 (b) (c) | 500,000 | 500,000 |
Longview, Water and Sewer Revenue, 2.5%, 12/1/2003 (b) | 200,000 | 200,923 |
Port of Anacortes, Industrial Development, Texaco Project, 1.08%*, 6/15/2019 | 4,000,000 | 4,000,000 |
Tacoma City, General Obligation, 1.05%, 8/14/2003 | 2,500,000 | 2,500,000 |
7,200,923 | ||
West Virginia 0.9% | ||
Preston County, Industrial Development Revenue, Allegheny Wood Products, Inc., AMT, 1.1%*, 12/1/2007 (c) | 1,675,000 | 1,675,000 |
Wisconsin 3.3% | ||
Franklin, Industrial Development Revenue, All Glass Aquarium Co. Project, AMT, 1.1%*, 9/1/2018 (c) | 2,390,000 | 2,390,000 |
Transportation Authority, 0.85%, 9/4/2003 | 4,000,000 | 4,000,000 |
6,390,000 | ||
Wyoming 2.5% | ||
Platte County, Pollution Control Revenue, Series A, 0.92%*, 7/1/2014 (c) | 2,250,000 | 2,250,000 |
Platte County, Pollution Control Revenue, Series B, 0.92%*, 7/1/2014 (c) | 300,000 | 300,000 |
Sweetwater, Pollution Control Revenue, Series A, 1.0%, 8/14/2003 | 2,400,000 | 2,400,000 |
4,950,000 | ||
Total Investment Portfolio - 100.0% (Cost $195,061,914) (a) | 195,061,914 |
* Variable rate demand notes are securities whose interest rates are reset periodically at market levels. These securities are often payable on demand and are shown at their current rates as of July 31, 2003.
(a) The cost for federal income tax purposes was $195,061,914.
(b) Bond is insured by one of these companies:
AMBAC | AMBAC Assurance Corp. |
FGIC | Financial Guaranty Insurance Company |
FHA | Federal Housing Administration |
FHLMC | Federal Home Loan Mortgage Corp. |
FNMA | Federal National Mortgage Association |
FSA | Financial Security Assurance |
MBIA | Municipal Bond Investors Assurance |
(c) Security incorporates a letter of credit or line of credit from a major bank.
AMT: Subject to alternative minimum tax
Prerefunded: Bonds which are prerefunded are collateralized by US Treasury securities which are held in escrow and are used to pay principal and interest on tax-exempt issues and to retire the bonds in full at the earliest refunding date.
The accompanying notes are an integral part of the financial statements.
Financial Statements |
Statements of Assets as of July 31, 2003 | |||
Assets | Money Market Portfolio | Government Securities Portfolio | Tax-Exempt Portfolio |
Investments in securities, at amortized cost: Short-term securities | $ 737,480,526 | $ 307,902,203 | $ 195,061,914 |
Repurchase agreements | 70,098,000 | 167,879,000 | - |
Total investments in securities, at amortized cost | 807,578,526 | 475,781,203 | 195,061,914 |
Cash | 938 | 800 | - |
Receivable for investments sold | - | - | 4,228,496 |
Interest receivable | 809,158 | 762,911 | 285,127 |
Receivable for Portfolio shares sold | 6,597,071 | 4,466,195 | 2,036,547 |
Other assets | 16,751 | 10,253 | 11,653 |
Total assets | 815,002,444 | 481,021,362 | 201,623,737 |
Liabilities | |||
Due to custodian bank | - | - | 451,383 |
Payable for investments purchased | - | 40,000,000 | - |
Dividends payable | 7,561 | 4,466 | 1,114 |
Payable for Portfolio shares redeemed | 6,525,026 | 4,789,984 | 1,695,090 |
Accrued management fee | 133,334 | 76,111 | 35,662 |
Other accrued expenses and payables | 294,570 | 280,372 | 71,695 |
Total liabilities | 6,960,491 | 45,150,933 | 2,254,944 |
Net assets, at value | $ 808,041,953 | $ 435,870,429 | $ 199,368,793 |
Net Asset Value | |||
Net assets consist of: Undistributed (accumulated distributions in excess of) net investment income | 142,146 | (989) | 106,084 |
Accumulated net realized gain (loss) | (65,835) | (522) | (28,783) |
Paid-in capital | 807,965,642 | 435,871,940 | 199,291,492 |
Net assets, at value | $ 808,041,953 | $ 435,870,429 | $ 199,368,793 |
Shares outstanding | 807,963,101 | 435,871,085 | 199,345,930 |
Net Asset Value, offering and redemption price per share (Net asset value / outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 1.00 | $ 1.00 | $ 1.00 |
The accompanying notes are an integral part of the financial statements.
Statements of Operations for the year ended July 31, 2003 | |||
Investment Income | Money Market Portfolio | Government Securities Portfolio | Tax-Exempt Portfolio |
Income: Interest | $ 11,053,272 | $ 6,703,483 | $ 2,892,419 |
Expenses: Management fee | 1,466,761 | 933,547 | 484,066 |
Services to shareholders | 1,325,084 | 861,568 | 158,999 |
Custodian fees | 61,971 | 56,189 | 16,783 |
Distribution service fees | 2,716,929 | 1,729,724 | 726,099 |
Auditing | 35,043 | 33,049 | 31,845 |
Legal | 25,534 | 8,289 | 7,236 |
Trustees' fees and expenses | 34,347 | 24,958 | 23,412 |
Reports to shareholders | 223,701 | 186,249 | 44,741 |
Registration fees | 19,778 | 12,707 | 20,304 |
Other | 20,433 | 30,364 | 13,256 |
Total expenses, before expense reductions | 5,929,581 | 3,876,644 | 1,526,741 |
Expense reductions | (382) | (677) | (305) |
Total expenses, after expense reductions | 5,929,199 | 3,875,967 | 1,526,436 |
Net investment income | 5,124,073 | 2,827,516 | 1,365,983 |
Net realized gain (loss) on investment transactions | 6,110 | (522) | 5,731 |
Net increase (decrease) in net assets resulting from operations | $ 5,130,183 | $ 2,826,994 | $ 1,371,714 |
The accompanying notes are an integral part of the financial statements.
Statements of Changes in Net Assets | ||||||
Money Market | Government Securities Portfolio | Tax-Exempt | ||||
Increase (Decrease) in Net Assets | Years Ended July 31, | Years Ended July 31, | Years Ended July 31, | |||
2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |
Operations: Net investment income | $ 5,124,073 | $ 15,307,177 | $ 2,827,516 | $ 7,470,093 | $ 1,365,983 | $ 3,180,552 |
Net realized gain (loss) on investment transactions | 6,110 | 3,887 | (522) | 8,678 | 5,731 | - |
Net increase (decrease) in net assets resulting from operations | 5,130,183 | 15,311,064 | 2,826,994 | 7,478,771 | 1,371,714 | 3,180,552 |
Distributions to shareholders from: Net investment income | (5,813,307) | (14,551,737) | (2,973,612) | (7,303,491) | (1,432,639) | (3,096,783) |
Fund share transactions: Proceeds from shares sold | 2,547,473,428 | 2,762,836,567 | 1,790,605,067 | 1,660,519,054 | 749,556,465 | 758,232,624 |
Reinvestment of distributions | 5,829,058 | 15,680,793 | 2,980,883 | 7,892,525 | 1,418,817 | 3,313,778 |
Cost of shares redeemed | (2,482,204,454) | (2,955,171,052) | (1,819,939,600) | (1,704,256,431) | (786,328,683) | (814,320,233) |
Net increase (decrease) in net assets from Portfolio share transactions | 71,098,032 | (176,653,692) | (26,353,650) | (35,844,852) | (35,353,401) | (52,773,831) |
Increase (decrease) in net assets | 70,414,908 | (175,894,365) | (26,500,268) | (35,669,572) | (35,414,326) | (52,690,062) |
Net assets at beginning of period | 737,627,045 | 913,521,410 | 462,370,697 | 498,040,269 | 234,783,119 | 287,473,181 |
Net assets at end of period | $ 808,041,953 | $ 737,627,045 | $ 435,870,429 | $ 462,370,697 | $ 199,368,793 | $ 234,783,119 |
Undistributed (accumulated distributions in excess of) net investment income | $ 142,146 | $ 831,380 | $ (989) | $ 145,107 | $ 106,084 | $ 172,739 |
Other Information | ||||||
Shares outstanding at beginning of period | 736,865,069 | 913,518,762 | 462,224,735 | 498,069,587 | 234,699,331 | 287,473,161 |
Shares sold | 2,547,473,428 | 2,762,836,566 | 1,790,605,067 | 1,660,519,054 | 749,556,465 | 758,232,625 |
Shares issued to shareholders in reinvestment of distributions | 5,829,058 | 15,680,793 | 2,980,883 | 7,892,525 | 1,418,817 | 3,313,778 |
Shares redeemed | (2,482,204,454) | (2,955,171,052) | (1,819,939,600) | (1,704,256,431) | (786,328,683) | (814,320,233) |
Net increase (decrease) in Fund Shares | 71,098,032 | (176,653,693) | (26,353,650) | (35,844,852) | (35,353,401) | (52,773,830) |
Shares outstanding at end of period | 807,963,101 | 736,865,069 | 435,871,085 | 462,224,735 | 199,345,930 | 234,699,331 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights |
Money Market Portfolio
Years Ended July 31, | 2003 | 2002 | 2001 | 2000 | 1999 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 |
Net investment income | .008 | .02 | .05 | .05 | .04 |
Less distributions from net investment income | (.008) | (.02) | (.05) | (.05) | (.04) |
Net asset value, end of period | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 |
Total Return (%) | .82 | 1.65 | 5.21 | 5.31 | 4.43 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 808 | 738 | 914 | 760 | 1,038 |
Ratio of expenses before expense reductions (%) | .83 | .72 | .78a | .83 | .89 |
Ratio of expenses after expense reductions (%) | .83 | .72 | .77a | .83 | .89 |
Ratio of net investment income (%) | .72 | 1.76 | 5.05 | 5.13 | 4.34 |
Government Securities Portfolio
Years Ended July 31, | 2003 | 2002 | 2001 | 2000 | 1999 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 |
Net investment income | .006 | .02 | .05 | .05 | .04 |
Less distributions from net investment income | (.006) | (.02) | (.05) | (.05) | (.04) |
Net asset value, end of period | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 |
Total Return (%) | .65 | 1.49 | 4.93 | 5.16 | 4.37 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 436 | 462 | 498 | 445 | 455 |
Ratio of expenses before expense reductions (%) | .85 | .85 | .91b | .84 | .85 |
Ratio of expenses after expense reductions (%) | .85 | .85 | .90b | .84 | .85 |
Ratio of net investment income (%) | .62 | 1.53 | 4.79 | 5.03 | 4.29 |
a The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were .76% and .76%, respectively.
b The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were .89% and .89%, respectively.
Tax-Exempt Portfolio
Years Ended July 31, | 2003 | 2002 | 2001 | 2000 | 1999 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 |
Net investment income | .006 | .01 | .03 | .03 | .03 |
Less distributions from net investment income | (.006) | (.01) | (.03) | (.03) | (.03) |
Net asset value, end of period | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 |
Total Return (%) | .65 | 1.16 | 3.19 | 3.25 | 2.68 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 199 | 235 | 287 | 271 | 382 |
Ratio of expenses (%) | .69 | .62 | .64a | .67 | .62 |
Ratio of net investment income (%) | .62 | 1.19 | 3.13 | 3.17 | 2.65 |
a The ratio of operating expenses excluding costs incurred in connection with a fund complex reorganization was .64%.
Notes to Financial Statements |
1. Significant Accounting Policies
Cash Equivalent Fund (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, diversified management investment company organized as a Massachusetts business trust.
The Fund offers three series of shares (Portfolios): the Money Market Portfolio invests primarily in short-term, high-quality obligations of major banks and corporations; the Government Securities Portfolio invests primarily in obligations issued or guaranteed by the US Government, its agencies or instrumentalities and repurchase agreements thereon; and the Tax-Exempt Portfolio invests in short-term, high-quality municipal securities.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
Security Valuation. Portfolio securities are valued utilizing the amortized cost method permitted in accordance with Rule 2a-7 under the 1940 Act and conditions therein. Under this method, which does not take into account unrealized capital gains or losses on securities, an instrument is initially valued at its cost and thereafter assumes a constant accretion/amortization to maturity of any discount or premium.
Repurchase Agreements. Each Portfolio may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund, through its custodian or sub-custodian bank, receives delivery of the underlying securities, the amount of which at the time of purchase and each subsequent business day is required to be maintained at such a level that the market value is equal to at least the principal amount of the repurchase price plus accrued interest. The custodian or agent bank holds the collateral in a separate account until the agreement matures. If the value of the securities falls below the principal amount of the repurchase agreement plus accrued interest, the financial institution deposits additional collateral by the following business day. If the financial institution either fails to deposit the required additional collateral or fails to repurchase the securities as agreed, the Fund has the right to sell the securities and recover any resulting loss from the financial institution. If the financial institution enters into bankruptcy, the Fund's claims on the collateral may be subject to legal proceedings.
Federal Income Taxes. Each Portfolio's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Accordingly, each Portfolio paid no federal income taxes and no federal income tax provision was required.
At July 31, 2003, the Portfolios had a net tax basis capital loss carryforward as follows, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until the respective expiration dates, whichever occurs first:
Portfolio | Capital Loss Carryforward ($) | Expiration |
Money Market Portfolio | (2,000) | 7/31/2009 |
(64,000) | 7/31/2010 | |
Government Securities Portfolio | (500) | 7/31/2011 |
Tax-Exempt Portfolio | (29,000) | 7/31/2005 |
Distribution of Income. All of the net investment income of each Portfolio is declared as a daily dividend and is distributed to shareholders monthly.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital. Temporary book and tax basis differences will reverse in a subsequent period.
At July 31, 2003, the Fund's components of distributable earnings (accumulated losses) on a tax-basis are as follows:
Money Market Portfolio | Government Securities Portfolio | Tax-Exempt Portfolio | |
Undistributed ordinary income* | $ 174,496 | $ 16,748 | $ - |
Undistributed tax-exempt income | - | - | 116,190 |
Capital loss carryforwards | (66,000) | (500) | (29,000) |
In addition, during the years ended July 31, 2003 and July 31, 2002, the tax character of distributions paid to shareholders by each Portfolio is summarized as follows:
Portfolio | 2003 | 2002 |
Money Market Portfolio: | ||
Distributions from ordinary income* | $ 5,813,307 | $ 14,551,737 |
Government Securities Portfolio: | ||
Distributions from ordinary income* | $ 2,973,612 | $ 7,303,491 |
Tax-Exempt Portfolio: | ||
Distributions from tax-exempt income | $ 1,432,639 | $ 3,096,783 |
* For tax purposes, short-term capital gains distributions are considered ordinary income distributions.
Expenses. Expenses of the Fund arising in connection with a specific Portfolio are allocated to that Portfolio. Other Fund expenses which cannot be directly attributed to a Portfolio are apportioned among the Portfolios in the Fund.
Other. Investment transactions are accounted for on the trade date. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions are recorded on an identified cost basis. All discounts and premiums are accreted/amortized for both tax and financial reporting purposes.
Management Agreement. Under the Management Agreement with Deutsche Investment Management Americas Inc. ("DeIM or the Advisor"), the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund. In addition to portfolio management services, the Advisor provides certain administrative services in accordance with the Management Agreement. The management fee payable for the Money Market and Government Securities Portfolios under the Management Agreement is equal to an annual rate of 0.22% of the first $500,000,000 of combined average daily net assets of those portfolios, 0.20% of the next $500,000,000 of such net assets, 0.175% of the next $1,000,000,000 of such net assets, 0.16% of the next $1,000,000,000 of such net assets and 0.15% of such net assets in excess of $3,000,000,000. The management fee payable for the Tax-Exempt Portfolio under the Management Agreement is equal to an annual rate of 0.22% of the first $500,000,000 of average daily net assets of such portfolio, 0.20% of the next $500,000,000 of such net assets, 0.175% of the next $1,000,000,000 of such net assets, 0.16% of the next $1,000,000,000 of such net assets and 0.15% of such net assets in excess of $3,000,000,000. Accordingly, for the year ended July 31, 2003, the fee pursuant to the Management Agreement was equivalent to an annual effective rate of the Portfolios' average daily net assets as follows:
Portfolio | Effective Rate (%) |
Money Market Portfolio | .21 |
Government Securities Portfolio | .21 |
Tax-Exempt Portfolio | .22 |
Service Provider Fees. Scudder Investments Service Company ("SISC"), an affiliate of the Advisor, is the transfer, dividend-paying and shareholder service agent for the Fund. For the year ended July 31, 2003, SISC received shareholder services fees as follows:
Portfolio | Total Aggregated | Unpaid at July 31, 2003 |
Money Market Portfolio | $ 1,073,847 | $ - |
Government Securities Portfolio | 850,602 | 83,317 |
Tax-Exempt Portfolio | 64,802 | - |
Effective January 15, 2003, pursuant to a sub-transfer agency agreement between SISC and DST Systems, Inc. ("DST"), SISC has delegated certain transfer agent and dividend paying agent functions to DST. The costs and expenses of such delegation are born by SISC, not by the Fund.
Distribution Service Agreement. The Fund also has an administration, shareholder services and distribution agreement with Scudder Distributors, Inc. ("SDI"). For its services as primary distributor, the Fund pays SDI an annual fee of 0.38% of average daily net assets for the Money Market and Government Securities Portfolios and 0.33% of average daily net assets for the Tax-Exempt Portfolio pursuant to separate Rule 12b-1 plans for these portfolios. The amount charged to the Fund by SDI, for the year ended July 31, 2003 was as follows:
Portfolio | Total Aggregated | Unpaid at July 31, 2003 |
Money Market Portfolio | $ 2,716,929 | $ 245,072 |
Government Securities Portfolio | 1,729,724 | 145,846 |
Tax-Exempt Portfolio | 726,099 | 58,691 |
SDI has related service agreements with various firms to provide cash management and other services for Fund shareholders.
Trustees' Fees and Expenses. The Fund pays each Trustee not affiliated with the Advisor retainer fees plus specified amounts for attended board and committee meetings.
2. Expense Off-Set Arrangement
The Fund has entered into an arrangement with its custodian and transfer agent whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund's expenses. During the year ended July 31, 2003, the Fund's custodian fees were reduced as follows:
Portfolio | Custodian Credits |
Money Market Portfolio | $ 382 |
Government Securities Portfolio | 677 |
Tax-Exempt Portfolio | 305 |
3. Line of Credit
The Fund and several other affiliated funds (the "Participants") share in a $1.25 billion revolving credit facility administered by J.P. Morgan Chase Bank for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated, pro rata based upon net assets, among each of the Participants. Interest is calculated at the Federal Funds Rate plus 0.5 percent. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement.
Report of Ernst & Young LLP, |
The Trustees and Shareholders
Cash Equivalent Fund
We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of the Cash Equivalent Fund ("the Fund") comprising the Money Market, Government Securities and Tax-Exempt Portfolios, as of July 31, 2003, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of July 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the portfolios comprising Cash Equivalent Fund, at July 31, 2003, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States.
Boston, Massachusetts
September 26, 2003
Tax Information (Unaudited) |
Of the dividends paid from net investment income for the Cash Equivalent Fund Tax-Exempt Portfolio for the taxable year ended July 31, 2003, 100% are designated as exempt interest dividends for federal income tax purposes.
Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please call 1-800-621-1048.
Trustees and Officers |
The following table presents certain information regarding the Trustees and Officers of the fund as of July 31, 2003. Each individual's age is set forth in parentheses after his or her name. Unless otherwise noted, (i) each individual has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity, and (ii) the address of each individual is c/o Deutsche Asset Management, 222 South Riverside Plaza, Chicago, Illinois, 60606. Each Trustee's term of office extends until the next shareholder's meeting called for the purpose of electing Trustees and until the election and qualification of a successor, or until such Trustee sooner dies, resigns or is removed as provided in the governing documents of the fund.
Non-Interested Trustees | ||
Name, Age, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and Other Directorships Held | Number of Funds in Fund Complex Overseen |
John W. Ballantine (57) Trustee, 1999-present | Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996-1998); Executive Vice President and Head of International Banking (1995-1996). Directorships: Enron Corporation (energy trading firm) (effective May 30, 2002); First Oak Brook Bancshares, Inc.; Oak Brook Bank; Tokheim Corporation (designer, manufacturer and servicer of electronic and mechanical petroleum marketing systems); American Healthways, Inc. (provider of disease and care management services). | 82 |
Lewis A. Burnham (70) Trustee, 1977-present | Retired; formerly, Director of Management Consulting, McNulty & Company (1990-1998); prior thereto, Executive Vice President, Anchor Glass Container Corporation. | 82 |
Donald L. Dunaway (66) Trustee, 1980-present | Retired; formerly, Executive Vice President, A.O. Smith Corporation (diversified manufacturer) (1963-1994). | 82 |
James R. Edgar (57) Trustee, 1999-present | Distinguished Fellow, University of Illinois, Institute of Government and Public Affairs (1999-present); formerly, Governor, State of Illinois (1991-1999). Directorships: Kemper Insurance Companies; John B. Sanfilippo & Son, Inc. (processor/packager/marketer of nuts, snacks and candy products); Horizon Group Properties, Inc.; Youbet.com (online wagering platform); Alberto-Culver Company (manufactures, distributes and markets health and beauty-care products). | 82 |
Paul K. Freeman (53) Trustee, 2002-present | President, Cook Street Holdings (consulting); Adjunct Professor, University of Denver; Consultant, World Bank/Inter-American Development Bank; formerly, Project Leader, International Institute for Applied Systems Analysis (1998-2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986-1998). | 82 |
Robert B. Hoffman (66) Trustee, 1981-present | Retired; formerly, Chairman, Harnischfeger Industries, Inc. (machinery for the mining and paper industries) (1999-2000); prior thereto, Vice Chairman and Chief Financial Officer, Monsanto Company (agricultural, pharmaceutical and nutritional/food products) (1994-1999). | 82 |
Shirley D. Peterson (61) Trustee, 1995-present | Retired; formerly, President, Hood College (1995-2000); prior thereto, Partner, Steptoe & Johnson (law firm); Commissioner, Internal Revenue Service; Assistant Attorney General (Tax), U.S. Department of Justice. Directorships: Bethlehem Steel Corp.; Federal Mogul Corp. (supplier of automotive components and subsystems); Trustee, Bryn Mawr College. | 82 |
Fred B. Renwick (73) Trustee, 1988-present | Retired; Professor Emeritus of Finance, New York University, Stern School of Business (2001-present); formerly, Professor, New York University Stern School of Business (1965-2001). Directorships: The Wartburg Foundation; Chairman, Finance Committee of Morehouse College Board of Trustees; formerly, Director of Board of Pensions, Evangelical Lutheran Church in America; member of the Investment Committee of Atlanta University Board of Trustees; Chair of the Investment Committee, American Bible Society Board of Trustees. | 82 |
William P. Sommers (70) Trustee, 1979-present | Retired; formerly, President and Chief Executive Officer, SRI International (research and development) (1994-1998); prior thereto, Executive Vice President, lameter (medical information and educational service provider); Senior Vice President and Director, Booz, Allen & Hamilton Inc. (management consulting firm). Directorships: PSI Inc. (satellite engineering and components); Evergreen Solar, Inc. (develop/manufacture solar electric system engines); H2 Gen (manufacture hydrogen generators); Zassi Medical Evolutions, Inc. (specialists in intellectual property opportunities in medical device arena); Guckenheimer Enterprises (executive food services). | 82 |
John G. Weithers (69) Trustee, 1993-present | Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago Stock Exchange. Directorships: Federal Life Insurance Company; Chairman of the Members of the Corporation and Trustee, DePaul University; formerly, International Federation of Stock Exchanges; Records Management Systems. | 82 |
Interested Trustees and Officers2 | ||
Name, Age, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and Other Directorships Held | Number of Funds in Fund Complex Overseen |
Richard T. Hale3 (58) Chairman and Trustee, 2002-present President, 2003-present | Managing Director, Deutsche Investment Management Americas Inc. (2003-present); Managing Director, Deutsche Bank Securities Inc. (formerly Deutsche Banc Alex. Brown Inc.) and Deutsche Asset Management (1999 to present); Director and President, Investment Company Capital Corp. (registered investment advisor) (1996 to present); Director, Deutsche Global Funds, Ltd. (2000 to present), CABEI Fund (2000 to present), North American Income Fund (2000 to present) (registered investment companies); Director, Scudder Global Opportunities Fund (since 2003); Director/Officer Deutsche/Scudder Mutual Funds (various dates); President, Montgomery Street Income Securities, Inc. (2002 to present) (registered investment companies); Vice President, Deutsche Asset Management, Inc. (2000 to present); formerly, Director, ISI Family of Funds (registered investment companies; 4 funds overseen) (1992-1999) | 200 |
Joseph Benevento5 (36) Vice President, 2003-present | Director, Deutsche Asset Management (2002-present); formerly, Portfolio Manager for Citigroup Asset Management and Assistant Portfolio Manager for Smith Barney. | n/a |
Philip J. Collora (57) Vice President and Assistant Secretary, 1986-present | Director, Deutsche Asset Management | n/a |
Daniel O. Hirsch3 (49) Vice President and Assistant Secretary, 2002-present | Managing Director, Deutsche Asset Management (2002-present) and Director, Deutsche Global Funds Ltd. (2002-present); formerly, Director, Deutsche Asset Management (1999-2002); Principal, BT Alex. Brown Incorporated (now Deutsche Bank Securities Inc.) (1998-1999); Assistant General Counsel, United States Securities and Exchange Commission (1993-1998) | n/a |
Kenneth Murphy4 (39) Vice President, 2002-present | Vice President, Deutsche Asset Management (2000-present); Vice President, Scudder Distributors, Inc. (December 2002-present); formerly, Director, John Hancock Signature Services (1992-2000) | n/a |
Darlene M. Rasel6 (52) Vice President, 2002-present | Managing Director, Deutsche Asset Management | n/a |
Charles A. Rizzo4 (45) Treasurer, 2002-present | Director, Deutsche Asset Management (April 2000-present). Formerly, Vice President and Department Head, BT Alex. Brown Incorporated (now Deutsche Bank Securities Inc.) (1998-1999); Senior Manager, Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP) (1993-1998) | n/a |
Salvatore Schiavone4 (37) Assistant Treasurer, 2003-present | Director, Deutsche Asset Management | n/a |
Lucinda H. Stebbins4 (57) Assistant Treasurer, 2003-present | Director, Deutsche Asset Management | n/a |
Kathleen Sullivan D'Eramo4 (46) Assistant Treasurer, 2003-present | Director, Deutsche Asset Management | n/a |
John Millette4 (40) Secretary, 2001-present | Director, Deutsche Asset Management | n/a |
Caroline Pearson4 (41) Assistant Secretary, 1998-present | Managing Director, Deutsche Asset Management | n/a |
1 Length of time served represents the date that each Trustee was first elected to the common board of trustees which oversees a number of investment companies, including the fund, managed by the Advisor. For the Officers of the fund, length of time served represents the date that each Officer was first elected to serve as an officer of any fund overseen by the aforementioned common board of trustees.
2 As a result of their respective positions held with the Advisor, these individuals are considered "interested persons" of the Advisor within the meaning of the 1940 Act, as amended. Interested persons receive no compensation from the fund.
3 Address: One South Street, Baltimore, Maryland
4 Address: Two International Place, Boston, Massachusetts
5 Address: 280 Park Avenue, New York, New York
6 Address: 345 Park Avenue, New York, New York
The fund's Statement of Additional Information ("SAI") includes additional information about the Trustees. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: 1-800-621-1048.
Notes |
ITEM 2. CODE OF ETHICS. Scudder/DeAM Funds Principal Executive and Principal Financial Officer Code of Ethics For the Registered Management Investment Companies Listed on Appendix A Effective Date [July 15, 2003]Table of Contents Page Number I. Overview..........................................................3 II. Purposes of the Officer Code......................................3 III. Responsibilities of Covered Officers..............................4 A. Honest and Ethical Conduct........................................4 B. Conflicts of Interest.............................................4 C. Use of Personal Fund Shareholder Information......................6 D. Public Communications.............................................6 E. Compliance with Applicable Laws, Rules and Regulations............6 IV. Violation Reporting...............................................7 A. Overview..........................................................7 B. How to Report.....................................................7 C. Process for Violation Reporting to the Fund Board.................7 D. Sanctions for Code Violations.....................................7 V. Waivers from the Officer Code.....................................7 VI. Amendments to the Code............................................8 VII. Acknowledgement and Certification of Adherence to the Officer Code..................................................8 IX. Recordkeeping.....................................................8 X. Confidentiality...................................................9 Appendices................................................................10 Appendix A: List of Officers Covered under the Code, by Board.........10 Appendix B: Officer Code Acknowledgement and Certification Form.......11 Appendix C: Definitions...............................................13 I. Overview This Principal Executive Officer and Principal Financial Officer Code of Ethics ("Officer Code") sets forth the policies, practices, and values expected to be exhibited in the conduct of the Principal Executive Officers and Principal Financial Officers of the investment companies ("Funds") they serve ("Covered Officers"). A list of Covered Officers and Funds is included on Appendix A. The Boards of the Funds listed on Appendix A have elected to implement the Officer Code, pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 and the SEC's rules thereunder, to promote and demonstrate honest and ethical conduct in their Covered Officers. Deutsche Asset Management, Inc. or its affiliates ("DeAM") serves as the investment adviser to each Fund. All Covered Officers are also employees of DeAM or an affiliate. Thus, in addition to adhering to the Officer Code, these individuals must comply with DeAM policies and procedures, such as the DeAM Code of Ethics governing personal trading activities, as adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940.1 In addition, such individuals also must comply with other applicable Fund policies and procedures. The DeAM Compliance Officer, who shall not be a Covered Officer and who shall serve as such subject to the approval of the Fund's Board (or committee thereof), is primarily responsible for implementing and enforcing this Code. The Compliance Officer has the authority to interpret this Officer Code and its applicability to particular circumstances. Any questions about the Officer Code should be directed to the DeAM Compliance Officer. The DeAM Compliance Officer and his or her contact information can be found in Appendix A. II. Purposes of the Officer Code The purposes of the Officer Code are to deter wrongdoing and to: o promote honest and ethical conduct among Covered Officers, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o promote full, fair, accurate, timely and understandable disclosures in reports and documents that the Funds file with or submit to the SEC (and in other public communications from the Funds) and that are within the Covered Officer's responsibilities; o promote compliance with applicable laws, rules and regulations; o encourage the prompt internal reporting of violations of the Officer Code to the DeAM Compliance Officer; and o establish accountability for adherence to the Officer Code. Any questions about the Officer Code should be referred to DeAM's Compliance Officer. - -------- 1 The obligations imposed by the Officer Code are separate from, and in addition to, any obligations imposed under codes of ethics adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940, and any other code of conduct applicable to Covered Officers in whatever capacity they serve. The Officer Code does not incorporate any of those other codes and, accordingly, violations of those codes will not necessarily be considered violations of the Officer Code and waivers granted under those codes would not necessarily require a waiver to be granted under this Code. Sanctions imposed under those codes may be considered in determining appropriate sanctions for any violation of this Code. 3 III. Responsibilities of Covered Officers A. Honest and Ethical Conduct It is the duty of every Covered Officer to encourage and demonstrate honest and ethical conduct, as well as adhere to and require adherence to the Officer Code and any other applicable policies and procedures designed to promote this behavior. Covered Officers must at all times conduct themselves with integrity and distinction, putting first the interests of the Fund(s) they serve. Covered Officers must be honest and candid while maintaining confidentiality of information where required by law, DeAM policy or Fund policy. Covered Officers also must, at all times, act in good faith, responsibly and with due care, competence and diligence, without misrepresenting or being misleading about material facts or allowing their independent judgment to be subordinated. Covered Officers also should maintain skills appropriate and necessary for the performance of their duties for the Fund(s). Covered Officers also must responsibly use and control all Fund assets and resources entrusted to them. Covered Officers may not retaliate against others for, or otherwise discourage the reporting of, actual or apparent violations of the Officer Code or applicable laws or regulations. Covered Officers should create an environment that encourages the exchange of information, including concerns of the type that this Code is designed to address. B. Conflicts of Interest A "conflict of interest" occurs when a Covered Officer's personal interests interfere with the interests of the Fund for which he or she serves as an officer. Covered Officers may not improperly use their position with a Fund for personal or private gain to themselves, their family, or any other person. Similarly, Covered Officers may not use their personal influence or personal relationships to influence decisions or other Fund business or operational matters where they would benefit personally at the Fund's expense or to the Fund's detriment. Covered Officers may not cause the Fund to take action, or refrain from taking action, for their personal benefit at the Fund's expense or to the Fund's detriment. Some examples of conflicts of interest follow (this is not an all-inclusive list): being in the position of supervising, reviewing or having any influence on the job evaluation, pay or benefit of any immediate family member who is an employee of a Fund service provider or is otherwise associated with the Fund; or having an ownership interest in, or having any consulting or employment relationship with, any Fund service provider other than DeAM or its affiliates. Certain conflicts of interest covered by this Code arise out of the relationships between Covered Officers and the Fund that already are subject to conflict of interest provisions in the Investment Company Act and the Investment Advisers Act. For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" of the Fund. Covered Officers must comply with applicable laws and regulations. Therefore, any violations of existing statutory and regulatory prohibitions on individual behavior could be considered a violation of this Code. As to conflicts arising from, or as a result of the advisory relationship (or any other relationships) between the Fund and DeAM, of which the Covered Officers are also officers or employees, it is recognized by the Board that, subject to DeAM's fiduciary duties to the Fund, the Covered Officers will in the normal course of their duties (whether formally for the Fund or for DeAM, or for both) be involved in establishing policies and implementing decisions which will have different effects on 4 DeAM and the Fund. The Board recognizes that the participation of the Covered Officers in such activities is inherent in the contract relationship between the Fund and DeAM, and is consistent with the expectation of the Board of the performance by the Covered Officers of their duties as officers of the Fund. Covered Officers should avoid actual conflicts of interest, and appearances of conflicts of interest, between the Covered Officer's duties to the Fund and his or her personal interests beyond those contemplated or anticipated by applicable regulatory schemes. If a Covered Officer suspects or knows of a conflict or an appearance of one, the Covered Officer must immediately report the matter to the DeAM Compliance Officer. If a Covered Officer, in lieu of reporting such a matter to the DeAM Compliance Officer, may report the matter directly to the Fund's Board (or committee thereof), as appropriate (e.g., if the conflict involves the DeAM Compliance Officer or the Covered Officer reasonably believes it would be futile to report the matter to the DeAM Compliance Officer). When actual, apparent or suspected conflicts of interest arise in connection with a Covered Officer, DeAM personnel aware of the matter should promptly contact the DeAM Compliance Officer. There will be no reprisal or retaliation against the person reporting the matter. Upon receipt of a report of a possible conflict, the DeAM Compliance Officer will take steps to determine whether a conflict exists. In so doing, the DeAM Compliance Officer may take any actions he or she determines to be appropriate in his or her sole discretion and may use all reasonable resources, including retaining or engaging legal counsel, accounting firms or other consultants, subject to applicable law.2 The costs associated with such actions may be borne by the Fund, if appropriate, after consultation with the Fund's Board (or committee thereof). Otherwise, such costs will be borne by DeAM or other appropriate Fund service provider. After full review of a report of a possible conflict of interest, the DeAM Compliance Officer may determine that no conflict or reasonable appearance of a conflict exists. If, however, the DeAM Compliance Officer determines that an actual conflict exists, the Compliance Officer will resolve the conflict solely in the interests of the Fund, and will report the conflict and its resolution to the Fund's Board (or committee thereof). If the DeAM Compliance Officer determines that the appearance of a conflict exists, the DeAM Compliance Officer will take appropriate steps to remedy such appearance. In lieu of determining whether a conflict exists and/or resolving a conflict, the DeAM Compliance Officer instead may refer the matter to the Fund's Board (or committee thereof), as appropriate. However, the DeAM Compliance Officer must refer the matter to the Fund's Board (or committee thereof) if the DeAM Compliance Officer is directly involved in the conflict or under similar appropriate circumstances. After responding to a report of a possible conflict of interest, the DeAM Compliance Officer will discuss the matter with the person reporting it (and with the Covered Officer at issue, if different) for purposes of educating those involved on conflicts of interests (including how to detect and avoid them, if appropriate). Appropriate resolution of conflicts may restrict the personal activities of the Covered Officer and/or his family, friends or other persons. Solely because a conflict is disclosed to the DeAM Compliance Officer (and/or the Board or Committee thereof) and/or resolved by the DeAM Compliance Officer does not mean that the conflict or its resolution constitutes a waiver from the Code's requirements. - -------- 2 For example, retaining a Fund's independent accounting firm may require pre-approval by the Fund's audit committee. 5 Any questions about conflicts of interests, including whether a particular situation might be a conflict or an appearance of one, should be directed to the DeAM Compliance Officer. C. Use of Personal Fund Shareholder Information A Covered Officer may not use or disclose personal information about Fund shareholders, except in the performance of his or her duties for the Fund. Each Covered Officer also must abide by the Funds' and DeAM's privacy policies under SEC Regulation S-P. D. Public Communications In connection with his or her responsibilities for or involvement with a Fund's public communications and disclosure documents (e.g., shareholder reports, registration statements, press releases), each Covered Officer must provide information to Fund service providers (within the DeAM organization or otherwise) and to the Fund's Board (and any committees thereof), independent auditors, government regulators and self-regulatory organizations that is fair, accurate, complete, objective, relevant, timely and understandable. Further, within the scope of their duties, Covered Officers having direct or supervisory authority over Fund disclosure documents or other public Fund communications will, to the extent appropriate within their area of responsibility, endeavor to ensure full, fair, timely, accurate and understandable disclosure in Fund disclosure documents. Such Covered Officers will oversee, or appoint others to oversee, processes for the timely and accurate creation and review of all public reports and regulatory filings. Within the scope of his or her responsibilities as a Covered Officer, each Covered Officer also will familiarize himself or herself with the disclosure requirements applicable to the Fund, as well as the business and financial operations of the Fund. Each Covered Officer also will adhere to, and will promote adherence to, applicable disclosure controls, processes and procedures, including DeAM's Disclosure Controls and Procedures, which govern the process by which Fund disclosure documents are created and reviewed. To the extent that Covered Officers participate in the creation of a Fund's books or records, they must do so in a way that promotes the accuracy, fairness and timeliness of those records. E. Compliance with Applicable Laws, Rules and Regulations In connection with his or her duties and within the scope of his or her responsibilities as a Covered Officer, each Covered Officer must comply with governmental laws, rules and regulations, accounting standards, and Fund policies/procedures that apply to his or her role, responsibilities and duties with respect to the Funds ("Applicable Laws"). These requirements do not impose on Covered Officers any additional substantive duties. Additionally, Covered Officers should promote compliance with Applicable Laws. If a Covered Officer knows of any material violations of Applicable Laws or suspects that such a violation may have occurred, the Covered Officer is expected to promptly report the matter to the DeAM Compliance Officer. 6 IV. Violation Reporting A. Overview Each Covered Officer must promptly report to the DeAM Compliance Officer, and promote the reporting of, any known or suspected violations of the Officer Code. Failure to report a violation may be a violation of the Officer Code. Examples of violations of the Officer Code include, but are not limited to, the following: o Unethical or dishonest behavior o Obvious lack of adherence to policies surrounding review and approval of public communications and regulatory filings o Failure to report violations of the Officer Code o Known or obvious deviations from Applicable Laws o Failure to acknowledge and certify adherence to the Officer Code The DeAM Compliance Officer has the authority to take any and all action he or she considers appropriate in his or her sole discretion to investigate known or suspected Code violations, including consulting with the Fund's Board, the independent Board members, a Board committee, the Fund's legal counsel and/or counsel to the independent Board members. The Compliance Officer also has the authority to use all reasonable resources to investigate violations, including retaining or engaging legal counsel, accounting firms or other consultants, subject to applicable law.3 The costs associated with such actions may be borne by the Fund, if appropriate, after consultation with the Fund's Board (or committee thereof). Otherwise, such costs will be borne by DeAM. B. How to Report Any known or suspected violations of the Officer Code must be promptly reported to the DeAM Compliance Officer. C. Process for Violation Reporting to the Fund Board The DeAM Compliance Officer will promptly report any violations of the Code to the Fund's Board (or committee thereof). D. Sanctions for Code Violations Violations of the Code will be taken seriously. In response to reported or otherwise known violations, DeAM and the relevant Fund's Board may impose sanctions within the scope of their respective authority over the Covered Officer at issue. Sanctions imposed by DeAM could include termination of employment. Sanctions imposed by a Fund's Board could include termination of association with the Fund. V. Waivers from the Officer Code A Covered Officer may request a waiver from the Officer Code by transmitting a written request for a waiver to the DeAM Compliance Officer.4 The request must include the rationale for the request and must explain how the waiver would be in furtherance of the standards of conduct described in and underlying purposes of the Officer Code. The DeAM Compliance Officer will present this information - -------- 3 For example, retaining a Fund's independent accounting firm may require pre-approval by the Fund's audit committee. 4 Of course, it is not a waiver of the Officer Code if the Fund's Board (or committee thereof) determines that a matter is not a deviation from the Officer Code's requirements or is otherwise not covered by the Code. 7 to the Fund's Board (or committee thereof). The Board (or committee) will determine whether to grant the requested waiver. If the Board (or committee) grants the requested waiver, the DeAM Compliance Officer thereafter will monitor the activities subject to the waiver, as appropriate, and will promptly report to the Fund's Board (or committee thereof) regarding such activities, as appropriate. The DeAM Compliance Officer will coordinate and facilitate any required public disclosures of any waivers granted or any implicit waivers. VI. Amendments to the Code The DeAM Compliance Officer will review the Officer Code from time to time for its continued appropriateness and will propose any amendments to the Fund's Board (or committee thereof) on a timely basis. In addition, the Board (or committee thereof) will review the Officer Code at least annually for its continued appropriateness and may amend the Code as necessary or appropriate. The DeAM Compliance Officer will coordinate and facilitate any required public disclosures of Code amendments. VII. Acknowledgement and Certification of Adherence to the Officer Code Each Covered Officer must sign a statement upon appointment as a Covered Officer and annually thereafter acknowledging that he or she has received and read the Officer Code, as amended or updated, and confirming that he or she has complied with it (see Appendix B: Acknowledgement and Certification of Obligations Under the Officer Code). Understanding and complying with the Officer Code and truthfully completing the Acknowledgement and Certification Form is each Covered Officer's obligation. The DeAM Compliance Officer will maintain such Acknowledgements in the Fund's books and records. VIII. Scope of Responsibilities A Covered Officer's responsibilities under the Officer Code are limited to: (1) Fund matters over which the Officer has direct responsibility or control, matters in which the Officer routinely participates, and matters with which the Officer is otherwise involved (i.e., matters within the scope of the Covered Officer's responsibilities as a Fund officer); and (2) Fund matters of which the Officer has actual knowledge. IX. Recordkeeping The DeAM Compliance Officer will create and maintain appropriate records regarding the implementation and operation of the Officer Code, including records relating to conflicts of interest determinations and investigations of possible Code violations. 8 X. Confidentiality All reports and records prepared or maintained pursuant to this Officer Code shall be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Officer Code, such matters shall not be disclosed to anyone other than the DeAM Compliance Officer, the Fund's Board (or committee thereof), legal counsel, independent auditors, and any consultants engaged by the Compliance Officer. 9 Appendices Appendix A: List of Officers Covered under the Code, by Board: ================================================================================ Fund Board Principal Executive Principal Financial Other Persons with Officers Officers Similar Functions - -------------------------------------------------------------------------------- Chicago Richard T. Hale Charles A. Rizzo -- ================================================================================ DeAM Compliance Officer: Name: Amy Olmert DeAM Department: Compliance Phone Numbers: 410-895-3661 (Baltimore) and 212-454-0111 (New York) Fax Numbers: 410-895-3837 (Baltimore) and 212-454-2152 (New York) As of: [July 15], 2003 10 Appendix B: Acknowledgement and Certification Initial Acknowledgement and Certification of Obligations Under the Officer Code - -------------------------------------------------------------------------------- Print Name Department Location Telephone 1. I acknowledge and certify that I am a Covered Officer under the Scudder Fund Principal Executive and Financial Officer Code of Ethics ("Officer Code"), and therefore subject to all of its requirements and provisions. 2. I have received and read the Officer Code and I understand the requirements and provisions set forth in the Officer Code. 3. I have disclosed any conflicts of interest of which I am aware to the DeAM Compliance Officer. 4. I will act in the best interest of the Funds for which I serve as an officer and have maintained the confidentiality of personal information about Fund shareholders. 5. I will report any known or suspected violations of the Officer Code in a timely manner to the DeAM Compliance Officer. - -------------------------------------------------------------------------------- Signature Date 11 Annual Acknowledgement and Certification of Obligations Under the Officer Code - -------------------------------------------------------------------------------- Print Name Department Location Telephone 6. I acknowledge and certify that I am a Covered Officer under the Scudder Fund Principal Executive and Financial Officer Code of Ethics ("Officer Code"), and therefore subject to all of its requirements and provisions. 7. I have received and read the Officer Code, and I understand the requirements and provisions set forth in the Officer Code. 8. I have adhered to the Officer Code. 9. I have not knowingly been a party to any conflict of interest, nor have I had actual knowledge about actual or apparent conflicts of interest that I did not report to the DeAM Compliance Officer in accordance with the Officer Code's requirements. 10. I have acted in the best interest of the Funds for which I serve as an officer and have maintained the confidentiality of personal information about Fund shareholders. 11. With respect to the duties I perform for the Fund as a Fund officer, I believe that effective processes are in place to create and file public reports and documents in accordance with applicable regulations. 12. With respect to the duties I perform for the Fund as a Fund officer, I have complied to the best of my knowledge with all Applicable Laws (as that term is defined in the Officer Code) and have appropriately monitored those persons under my supervision for compliance with Applicable Laws. 13. I have reported any known or suspected violations of the Officer Code in a timely manner to the DeAM Compliance Officer. - -------------------------------------------------------------------------------- Signature Date 12 Appendix C: Definitions Principal Executive Officer Individual holding the office of President of the Fund or series of Funds, or a person performing a similar function. Principal Financial Officer Individual holding the office of Treasurer of the Fund or series of Funds, or a person performing a similar function. Registered Investment Management Investment Company Registered investment companies other than a face-amount certificate company or a unit investment trust. Waiver A waiver is an approval of an exemption from a Code requirement. Implicit Waiver An implicit waiver is the failure to take action within a reasonable period of time regarding a material departure from a requirement or provision of the Officer Code that has been made known to the DeAM Compliance Officer or the Fund's Board (or committee thereof). 13 ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Fund's Board of Directors/Trustees has determined that the Fund has at least one "audit committee financial expert" serving on its audit committee: Mr. Donald L. Dunaway. This audit committee member is "independent," meaning that he is not an "interested person" of the Fund (as that term is defined in Section 2(a)(19) of the Investment Company Act of 1940) and he does not accept any consulting, advisory, or other compensatory fee from the Fund (except in the capacity as a Board or committee member). An "audit committee financial expert" is not an "expert" for any purpose, including for purposes of Section 11 of the Securities Act of 1933, as a result of being designated as an "audit committee financial expert." Further, the designation of a person as an "audit committee financial expert" does not mean that the person has any greater duties, obligations, or liability than those imposed on the person without the "audit committee financial expert" designation. Similarly, the designation of a person as an "audit committee financial expert" does not affect the duties, obligations, or liability of any other member of the audit committee or board of directors. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not currently applicable. ITEM 5. [RESERVED] ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) The Chief Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. (b) There have been no significant changes in the Registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation and until the filing of this report, including any corrective actions with regard to significant deficiencies and material weaknesses. Form N-CSR Item F SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: Government Securities Portfolio By: /s/Richard T. Hale --------------------------- Richard T. Hale Chief Executive Officer Date: September 22, 2003 --------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Registrant: Government Securities Portfolio By: /s/Richard T. Hale --------------------------- Richard T. Hale Chief Executive Officer Date: September 22, 2003 --------------------------- By: /s/Charles A. Rizzo --------------------------- Charles A. Rizzo Chief Financial Officer Date: September 22, 2003 --------------------------- Form N-CSR Item F SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: Money Market Portfolio By: /s/Richard T. Hale --------------------------- Richard T. Hale Chief Executive Officer Date: September 22, 2003 --------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Registrant: Money Market Portfolio By: /s/Richard T. Hale --------------------------- Richard T. Hale Chief Executive Officer Date: September 22, 2003 --------------------------- By: /s/Charles A. Rizzo --------------------------- Charles A. Rizzo Chief Financial Officer Date: September 22, 2003 --------------------------- Form N-CSR Item F SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: Tax-Exempt Portfolio By: /s/Richard T. Hale --------------------------- Richard T. Hale Chief Executive Officer Date: September 22, 2003 --------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Registrant: Tax-Exempt Portfolio By: /s/Richard T. Hale --------------------------- Richard T. Hale Chief Executive Officer Date: September 22, 2003 --------------------------- By: /s/Charles A. Rizzo --------------------------- Charles A. Rizzo Chief Financial Officer Date: September 22, 2003 ---------------------------