Filed with the Securities and Exchange Commission on June 18, 1999
File No. 2-65669
File No. 811-2959
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
----
Post-Effective Amendment No. 27
----
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 29
----
Scudder Tax Free Money Fund
---------------------------
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
----------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-1000
--------------
John Millette
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110
-----------------------------------------
(Name Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/ X / Immediately upon filing pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (1)
/ / 75 days after filing pursuant to paragraph (a) (2)
/ / On __________________ pursuant to paragraph (b)
/ / On __________________ pursuant to paragraph (a) (1)
/ / On __________________ pursuant to paragraph (a) (2) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
Part A (the Prospectus for Scudder Tax Free Money Fund)
Part A of this Post-Effective Amendment No. 27 to the
Registration Statement is incorporated by reference in its
entirety to the Scudder Tax Free Money Fund's Post-Effective
Amendment No. 26 on Form N-1A filed on April 30, 1999.
<PAGE>
SCUDDER CASH INVESTMENT TRUST
A No-load (No Sales Charges) Mutual Fund Seeking to
Maintain the Stability of Capital and, consistent therewith,
to Maintain the Liquidity of Capital and to Provide Current Income.
The Fund Seeks to Achieve Its Objective by
Investing in High Quality, Short-Term Securities.
and
SCUDDER U.S. TREASURY MONEY FUND
A No-load (No Sales Charges) Money Market Fund Seeking Safety,
Liquidity and Stability of Capital and, consistent therewith, to Provide
Current Income. The Fund Seeks to Achieve Its Objective by Investing in
Short-Term U.S. Government Securities and Repurchase Agreements.
and
SCUDDER TAX FREE MONEY FUND
A No-Load (No Sales Charges) Money Market Fund
Seeking to Provide Income Exempt from Regular Federal Income Tax and
Stability of Principal. The Fund Seeks to Achieve Its Objective by Investing in
Municipal Securities.
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
June 15, 1999
- --------------------------------------------------------------------------------
This combined Statement of Additional Information is not a prospectus
and should be read in conjunction with the combined prospectus of Scudder Cash
Investment Trust, Scudder U.S. Treasury Money Fund, Scudder Tax Free Money Fund
and Scudder Money Market Series -- Scudder Prime Reserve Money Market Shares and
Scudder Premium Money Market Shares dated May 1, 1999, as may be amended from
time to time, copies of which may be obtained without charge by writing to
Scudder Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103.
The Annual Reports to Shareholders for Scudder Cash Investment Trust
and Scudder U.S. Treasury Money Fund dated June 30, 1998 and the Annual Report
to Shareholders for Scudder Tax Free Money Fund dated December 31, 1998, are
incorporated by reference and is hereby deemed to be part of this Statement of
Additional Information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
THE FUNDS'INVESTMENT OBJECTIVES AND POLICIES........................................................................1
General Investment Objectives and Policies.................................................................1
Scudder Cash Investment Trust..............................................................................1
Scudder U.S. Treasury Money Fund...........................................................................3
Scudder Tax Free Money Fund................................................................................4
Specialized Investment Techniques of the Funds............................................................10
Trustees'Power to Change Objectives and Policies..........................................................13
Investment Restrictions...................................................................................13
Master/feeder structure...................................................................................16
PURCHASES..........................................................................................................16
Additional Information About Opening an Account...........................................................16
Minimum balances..........................................................................................16
Checks....................................................................................................17
Wire Transfer of Federal Funds............................................................................17
Additional Information About Making Subsequent Investments by QuickBuy....................................17
Share Price...............................................................................................18
Share Certificates........................................................................................18
Other Information.........................................................................................18
EXCHANGES AND REDEMPTIONS..........................................................................................19
Exchanges.................................................................................................19
Redemption by Telephone...................................................................................20
Redemption By QuickSell...................................................................................20
Redemption by Mail or Fax.................................................................................21
Redemption by Checkwriting................................................................................21
Other Information.........................................................................................21
FEATURES AND SERVICES OFFERED BY THE FUNDS.........................................................................22
The No-Load Concept.......................................................................................22
Internet access...........................................................................................23
Dividends and Capital Gains Distribution Options..........................................................23
Scudder Investor Centers..................................................................................24
Reports to Shareholders...................................................................................24
Transaction Summaries.....................................................................................24
THE SCUDDER FAMILY OF FUNDS........................................................................................24
SPECIAL PLAN ACCOUNTS..............................................................................................29
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations and
Self-Employed Individuals.................................................................................30
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals.......30
Scudder IRA: Individual Retirement Account...............................................................30
Scudder Roth IRA: Individual Retirement Account..........................................................31
Scudder 403(b) Plan.......................................................................................32
Automatic Withdrawal Plan.................................................................................32
Group or Salary Deduction Plan............................................................................32
Automatic Investment Plan.................................................................................32
Uniform Transfers/Gifts to Minors Act.....................................................................33
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS..........................................................................33
PERFORMANCE INFORMATION............................................................................................34
Yield.....................................................................................................34
Effective Yield...........................................................................................34
Tax-Equivalent Yield --Scudder Tax Free Money Fund........................................................35
Average Annual Total Return...............................................................................35
Cumulative Total Return...................................................................................36
Total Return..............................................................................................37
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
Comparison of Fund Performance.............................................................................37
ORGANIZATION OF THE FUNDS..........................................................................................40
INVESTMENT ADVISER.................................................................................................41
Personal Investments by Employees of the Adviser..........................................................45
TRUSTEES AND OFFICERS..............................................................................................45
REMUNERATION.......................................................................................................47
Responsibilities of the Board --Board and Committee Meetings..............................................47
Compensation of Officers and Trustees.....................................................................47
DISTRIBUTOR........................................................................................................48
TAXES ..........................................................................................................49
PORTFOLIO TRANSACTIONS.............................................................................................52
Brokerage Commissions.....................................................................................52
NET ASSET VALUE....................................................................................................53
ADDITIONAL INFORMATION.............................................................................................53
Experts...................................................................................................53
Shareholder Indemnification...............................................................................53
Other Information.........................................................................................53
FINANCIAL STATEMENTS...............................................................................................55
Scudder Cash Investment Trust.............................................................................55
Scudder U.S. Treasury Money Fund..........................................................................55
Scudder Tax Free Money Fund...............................................................................55
APPENDIX
Ratings of Municipal Obligations
Commercial Paper Ratings
</TABLE>
ii
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
(See "About the Funds" in the Funds' combined prospectus.)
Scudder Cash Investment Trust is sometimes referred to herein as
"SCIT." Scudder U.S. Treasury Money Fund is sometimes referred to herein as
"Treasury Fund." Scudder Tax Free Money Fund is sometimes referred to herein as
STFMF. SCIT, Treasury Fund and STFMF are sometimes jointly referred to herein as
the "Funds" or "Scudder Money Market Funds."
General Investment Objectives and Policies
Descriptions in this Statement of Additional Information of a
particular investment practice or technique in which a Fund may engage or a
financial instrument which a Fund may purchase (such as options, forward foreign
currency contracts, etc.) are meant to describe the spectrum of investments that
Scudder Kemper Investments, Inc. ("the Adviser"), in its discretion, might, but
is not required to, use in managing each Fund's portfolio assets. The Adviser
may, in its discretion, at any time employ such practice, technique or
instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
a Fund, but, to the extent employed, could from time to time have a material
impact on a Fund's performance.
Scudder Cash Investment Trust
Scudder Cash Investment Trust is a no-load, open-end, diversified
management investment company. SCIT's investment objectives are to maintain
stability of capital and, consistent therewith, to maintain liquidity of capital
and to provide current income. SCIT seeks to maintain a constant net asset value
of $1.00 per share, although in certain circumstances this may not be possible.
SCIT's management seeks to improve investment income by keeping money at work in
what it considers to be the most attractive short-term debt investments
consistent with the Fund's objectives of maintaining the stability and liquidity
of capital. There is no assurance that SCIT's investment objectives will be
achieved. Unless otherwise stated, the investment objectives and policies of
SCIT are nonfundamental and may be changed by the Trustees without a vote of a
majority of the outstanding voting securities of the Fund, as that term is
defined below in "Investment Restrictions." All of the securities in which SCIT
may invest are U.S. dollar-denominated. Shares of the Fund are not insured or
guaranteed by an agency of the U.S. Government.
SCIT may invest in short-term securities consisting of obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities;
obligations of supranational organizations such as those listed below;
obligations of domestic banks and foreign branches of domestic banks, including
bankers' acceptances, certificates of deposit, deposit notes and time deposits;
and obligations of savings and loan institutions.
SCIT may also invest in: instruments whose credit has been enhanced by
banks (letters of credit), insurance companies (surety bonds) or other corporate
entities (corporate guarantees); corporate obligations and obligations of
trusts, finance companies and other entities, including commercial paper, notes,
bonds, loans and loan participations; securities with variable or floating
interest rates; when-issued securities; asset-backed securities, including
certificates, participations and notes; municipal securities, including notes,
bonds and participation interests, either taxable or tax free; and illiquid or
restricted securities. Securities and instruments in which the Fund may invest
may be issued by the U.S. Government, its agencies and instrumentalities,
corporations, trusts, banks, finance companies and other business entities.
In addition, SCIT may invest in repurchase agreements and securities
with put features. Obligations which are subject to repurchase agreements will
be limited to those of the type and quality described below. The Fund may also
hold cash.
Investments in municipal securities will be limited to those which are
rated at the time of purchase by Moody's Investors Service, Inc. ("Moody's")
within its two highest rating categories for municipal obligations -- Aaa and
Aa, or within Moody's short-term municipal obligations top rating categories of
MIG 1 and MIG 2 -- or are rated at the time of
<PAGE>
purchase by Standard & Poor's Corporation ("S&P") within S&P's two highest
rating categories for municipal obligations AAA/AA and SP-1+/SP-1, or are rated
at the time of purchase by Fitch Investors Service, Inc. ("Fitch") within
Fitch's two highest rating categories for municipal obligations -- AAA/AA or
within Fitch's highest short term rating categories of F-1 and F-2, all in such
proportions as management will determine. SCIT also may invest in securities
rated within the two highest rating categories by only one of those rating
agencies if no other rating agency has rated the security. In some cases,
short-term municipal obligations are rated using the same categories as are used
for corporate obligations. In addition, unrated municipal securities will be
considered as being within the foregoing quality ratings if the issuer, or other
equal or junior municipal securities of the same issuer, has a rating within the
foregoing ratings of Moody's, S&P or Fitch. SCIT may also invest in municipal
securities which are unrated if, in the opinion of the Adviser, such securities
possess creditworthiness comparable to those rated securities in which the Fund
may invest.
For purposes of determining the percentage of the Fund's total assets
invested in securities of issuers having their principal business activities in
a particular industry, asset backed securities will be classified separately,
based on the nature of the underlying assets, according to the following
categories: captive auto, diversified, retail and consumer loans, captive
equipment and business, business trade receivables, nuclear fuel and capital and
mortgage lending.
Foreign Securities. Supranational entities are international organizations
designated or supported by governmental entities to promote economic
reconstruction or development and international banking institutions and related
government agencies. Examples include the International Bank for Reconstruction
and Development (the World Bank), the European Coal and Steel Community, The
Asian Development Bank and the InterAmerican Development Bank. Obligations of
supranational entities are backed by the guarantee of one or more foreign
governmental parties which sponsor the entity.
Municipal Securities. Municipal Securities are issued by or on behalf of states,
territories and possessions of the U.S. and their political subdivisions,
agencies and instrumentalities to obtain funds for various public purposes. The
interest on these obligations is generally exempt from federal income tax in the
hands of most investors, except for the possible applicability of the
alternative minimum tax. The two principal classifications of municipal
securities are "Notes" and "Bonds." Municipal Notes are generally used to
provide for short-term capital needs and generally have maturities of one year
or less. Municipal Notes include: Tax Anticipation Notes; Revenue Anticipation
Notes; Bond Anticipation Notes; and Construction Loan Notes. Municipal Bonds,
which meet longer term capital needs and generally have maturities of more than
one year when issued, have two principal classifications: "General Obligation"
Bonds and "Revenue" Bonds.
Industrial Development and Pollution Control Bonds (which are types of
private activity bonds), although nominally issued by municipal authorities, are
generally not secured by the taxing power of the municipality but are secured by
the revenues of the authority derived from payments by the industrial user.
Under Federal tax legislation, certain types of Industrial Development Bonds and
Pollution Control Bonds may no longer be issued on a tax-exempt basis, although
previously-issued bonds of these types and certain refundings of such bonds are
not affected.
Bank and Savings and Loan Obligations. These obligations include negotiable
certificates of deposit, bankers' acceptances, deposit notes, fixed time
deposits or other short-term bank obligations. Certificates of deposit are
negotiable certificates evidencing the obligations of a bank to repay funds
deposited with it for a specified period of time. SCIT may invest in
certificates of deposit of large domestic banks (i.e., banks which at the time
of their most recent annual financial statements show total assets in excess of
$1 billion), and of smaller banks as described below. The Fund does not invest
in certificates of deposit of foreign banks. Although the Fund recognizes that
the size of a bank is important, this fact alone is not necessarily indicative
of its creditworthiness. Investment in certificates of deposit issued by foreign
branches of domestic banks involves investment risks that are different in some
respects from those associated with investment in certificates of deposit issued
by domestic branches of domestic banks, including the possible imposition of
withholding taxes on interest income, the possible adoption of foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such certificates of deposit, or other adverse political or
economic developments. In addition, it might be more difficult to obtain and
enforce a judgment against a foreign branch of a domestic bank.
SCIT may also invest in certificates of deposit issued by banks and
savings and loan institutions which had, at the time of their most recent annual
financial statements, total assets of less than $1 billion, provided that (i)
the principal amounts of such certificates of deposit are insured by an agency
of the U.S. Government, (ii) at no time will the Fund
2
<PAGE>
hold more than $100,000 principal amount of certificates of deposit of any one
such bank, and (iii) at the time of acquisition, no more than 10% of the Fund's
assets (taken at current value) are invested in certificates of deposit of such
banks having total assets not in excess of $1 billion.
Banker's acceptances are credit instruments evidencing the obligations
of a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by SCIT will not benefit from insurance from the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation. Fixed time deposits may be withdrawn on
demand by the investor, but may be subject to early withdrawal penalties that
vary with market conditions and the remaining maturity of the obligation. Fixed
time deposits subject to withdrawal penalties maturing in more than seven
calendar days are subject to the Fund's limitation on investments in illiquid
securities.
Eurodollar Obligations. Eurodollar bank obligations are dollar-denominated
certificates of deposit and time deposits issued outside the U.S. capital
markets by foreign branches of U.S. banks and U.S. branches of foreign banks.
Eurodollar obligations are subject to the same risks that pertain to domestic
issues, notably credit risk, market risk and liquidity risk. Additionally,
Eurodollar obligations are subject to certain sovereign risks.
Commercial Paper. Commercial paper consists of short-term, unsecured promissory
notes issued to finance short-term credit needs. The commercial paper purchased
by SCIT will consist only of direct obligations issued by domestic and foreign
entities. The other corporate obligations in which the Fund may invest consist
of high quality short term bonds and notes (including variable amount master
demand notes) issued by domestic and foreign corporations, including banks.
Participation Interests. SCIT may purchase from financial institutions
participation interests in securities in which the Fund may invest. A
participation interest gives the Fund an undivided interest in the security in
the proportion that the Fund's participation interest bears to the principal
amount of the security. These instruments may have fixed, floating or variable
interest rates, with remaining maturities of 397 days or less. If the
participation interest is unrated, or has been given a rating below that which
is permissible for purchase by the Fund, the participation interest will be
backed by an irrevocable letter of credit or guarantee of a bank, or the payment
obligation otherwise will be collateralized by U.S. Government securities, or,
in the case of unrated participation interest, determined by the Adviser to be
of comparable quality to those instruments in which the Fund may invest. For
certain participation interests, the Fund will have the right to demand payment,
on not more than seven days' notice, for all or any part of the Fund's
participation interests in the security, plus accrued interest. As to these
instruments, the Fund intends to exercise its right to demand payment only upon
a default under the terms of the security.
Asset-backed securities. Asset backed securities may include pools of mortgages,
loans, receivables or other assets. Payment of principal and interest may be
largely dependent upon the cash flows generated by the assets backing the
securities.
Scudder U.S. Treasury Money Fund
Scudder U.S. Treasury Money Fund is a no-load, open-end, diversified
management investment company. Treasury Fund's investment objectives are to
provide safety, liquidity and stability of capital, and consistent therewith, to
provide current income. The Fund seeks to maintain a constant net asset value of
$1.00 and declares dividends daily. There can be no assurance that the Fund's
objectives will be met.
The Fund seeks to achieve its objective by investing in short-term U.S.
Government securities and repurchase agreements. The Fund is a "fixed-price"
fund; that is, it seeks to maintain a constant share price of $1.00, although
under certain circumstances this may not be possible. The Fund's price stability
makes it so that it may be suitable for investors who are seeking current income
and who are unwilling to accept stock or bond market risk. The Fund is also
designed to minimize credit risk. It invests exclusively in short-term
securities unconditionally guaranteed by the U.S. Government (as to payment of
both principal and interest) and repurchase agreements backed fully by U.S.
Treasury obligations. The Fund invests without limitation in short-term
securities consisting of U.S. Treasury notes, bonds, bills
3
<PAGE>
and in other securities issued or guaranteed by the U.S. Government and thus
backed by the full faith and credit of the United States. The Fund may invest
its assets, when conditions are appropriate, in repurchase agreements, but only
if they are fully collateralized by the U.S. Treasury obligations. At least 80%
of the Fund's total assets will be invested in either U.S. Treasury securities
or in repurchase agreements collateralized by U.S. Treasury obligations. All of
the securities in which the Fund may invest are U.S. dollar-denominated. The
Fund may also invest in when-issued securities whose market value may involve an
unrealized gain or loss prior to settlement. In addition, the Fund may invest in
illiquid securities.
The Fund invests in U.S. Government securities whose interest is
specifically exempted from state and local income taxes under federal law; the
interest is not exempt from federal income tax. Most, but not all, states allow
this tax-exempt character of the Fund's income to pass through to its
shareholders, so that distributions from the Fund, to the extent derived from
interest that is exempt from state and local income taxes, are exempt from such
taxes when earned by a shareholder of the Fund. Shareholders should, however,
contact their own tax advisers regarding the possible exclusion for state and
local income tax purposes of the portion of distributions received from the Fund
which is attributable to interest from U.S. Government securities. Income earned
by the Fund from U.S. Treasury-backed repurchase agreements generally is not
exempt from state and local tax.
The Fund's investments in U.S. Government securities may have
maturities of up to 762 calendar days; all other portfolio securities will have
maturities of up to 397 calendar days. The dollar-weighted average maturity of
the Fund's portfolio investments varies with money market conditions, but is
always 90 days or less. As a money market fund with a short-term maturity, the
Fund's income fluctuates with changes in interest rates but its price is
expected to remain fixed at $1.00 per share.
For purposes of determining the percentage of the fund's total assets
invested in securities of issuers having their principal business activities in
a particular industry, asset backed securities will be classified separately,
based on the nature of the underlying assets, according to the following
categories: captive auto, diversified, retail and consumer loans, captive
equipment and business, business trade receivables, nuclear fuel and capital and
mortgage lending.
Scudder Tax Free Money Fund
Scudder Tax Free Money Fund, a diversified open-end management
investment company, seeks to provide income exempt from regular federal income
tax and stability of principal through investments in municipal securities. All
of the Fund's investments are high quality, have a remaining maturity of 397
calendar days or less and have minimal credit risk as determined by the Adviser.
The dollar-weighted average maturity of the Fund's portfolio is 90 days or less.
The Fund seeks to maintain a constant net asset value of $1.00 per
share, although in extreme circumstances this may not be possible. A small
portion of the income may be subject to regular federal, alternative minimum,
state and local income taxes.
All of the Fund's municipal securities must meet certain quality
criteria at the time of purchase. Generally, the Fund may purchase only
securities which are rated, or issued by an issuer rated, within the two highest
quality rating categories of two or more of the following rating agencies:
Moody's (Aaa and Aa, MIG 1 and MIG 2, and P1 and P-2), S&P (AAA and AA, SP1+ and
SP1, A1+ and A1 and A-2) and Fitch (AAA and AA, F1 and F2). Where only one
rating agency has rated a security (or its issuer), the Fund generally may
purchase that security as long as the rating falls within the categories
described above. Where a security (or its issuer) is unrated, the Fund may
purchase that security if, in the judgment of the Adviser, it is comparable in
quality to securities described above. All of the securities in which the Fund
may invest are dollar-denominated and must meet credit standards applied by the
Adviser pursuant to procedures established by the Trustees. Should an issue of
municipal securities cease to be rated or if its rating is reduced below the
minimum required for purchase by the Fund, the Adviser will dispose of any such
security unless the Trustees of the Fund determine that such disposal would not
be in the best interests of the Fund.
The Fund may also invest in when-issued securities, whose market value
may involve an unrealized gain or loss prior to settlement. In addition the Fund
may invest, to a limited extent, in illiquid or restricted securities.
Municipal securities in which the Fund may invest include municipal
notes, short-term municipal bonds, variable rate demand instruments and
tax-exempt commercial paper. Municipal notes are generally used to provide for
4
<PAGE>
short-term capital needs and generally have maturities of one year or less.
Examples include tax anticipation and revenue anticipation notes, which are
generally issued in anticipation of various seasonal revenues, bond anticipation
notes, and construction loan notes. Short-term municipal bonds may include
general obligation bonds, which are secured by the issuer's pledge of its faith,
credit and taxing power for payment of principal and interest, and revenue
bonds, which are generally paid from the revenues of a particular facility or a
specific excise tax or other source. Examples of taxable investments in which
the Fund may invest include obligations of corporate issuers, U.S. Treasury
obligations, U.S. Government obligations, money market instruments and
repurchase agreements.
The Fund may invest more than 25% of its assets in industrial
development or other private activity bonds, subject to the Fund's fundamental
investment policies, and also subject to the Fund's 20% limitation on investing
in securities whose investment income is subject to the alternative minimum tax
("AMT" bonds) and the Fund's current intention not to invest in municipal
securities whose investment income is subject to regular federal income tax. For
purposes of the Fund's investment limitation regarding concentration of
investments in any one industry, industrial development or other private
activity bonds ultimately payable by companies within the same industry will be
considered as if they were issued by issuers in the same industry. The Fund's
distributions from interest on AMT bonds may be taxable depending upon an
investor's particular situation. (For more information please see the Statement
of Additional Information.)
It is a fundamental policy, which may not be changed without a vote of
shareholders, that at least 80% of the Fund's assets will normally be invested
in short-term municipal securities.
Under normal market conditions the Fund expects to invest 100% of its
portfolio securities in municipal securities. The Fund may, on a temporary
basis, hold and invest up to 20% of its assets in cash and cash equivalents and
in temporary investments of taxable securities with remaining maturities of 397
calendar days or less. For temporary defensive purposes the Fund may invest more
than 20% in such investments or may otherwise vary from its investment policies
during periods when the Adviser determines that it is advisable to do so because
of conditions in the securities markets or other economic or political
conditions. It is impossible to accurately predict how long such alternative
strategies may be utilized. In 1998, all the Fund's dividends were 100%
federally tax-exempt. The Fund may also invest in stand-by commitments and other
puts, repurchase agreements, participation interests and when-issued or forward
delivery securities. See "Additional information about policies and investments"
for more information about these investment techniques.
Municipal Securities. Municipal Securities are issued by or on behalf of states,
territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities to obtain funds for various public
purposes. The interest on these obligations is generally exempt from federal
income tax in the hands of most investors, except for the possible applicability
of the alternative minimum tax. The two principal classifications of municipal
securities are "Notes" and "Bonds."
1. Municipal Notes. Municipal Notes are generally used to provide for
short-term capital needs and generally have maturities of one year or less.
Municipal notes include: Tax Anticipation Notes; Revenue Anticipation Notes;
Bond Anticipation Notes; and Construction Loan Notes.
Tax anticipation notes are sold to finance working capital needs of
municipalities. They are generally payable from specific tax revenues expected
to be received at a future date. Revenue anticipation notes are issued in
expectation of receipt of other types of revenue such as Federal revenues
available under the Federal Revenue Sharing Program. Tax anticipation notes and
revenue anticipation notes are generally issued in anticipation of various
seasonal revenues such as income, sales, use, and business taxes. Bond
anticipation notes are sold to provide interim financing. These notes are
generally issued in anticipation of long-term financing in the market. In most
cases, these monies provide for the repayment of the notes. Construction loan
notes are sold to provide construction financing. After the projects are
successfully completed and accepted, many projects receive permanent financing
through the Federal Housing Administration under "Fannie Mae" (the Federal
National Mortgage Association) or "Ginnie Mae" (the Government National Mortgage
Association). There are, of course, a number of other types of notes issued for
different purposes and secured differently from those described above.
5
<PAGE>
2. Municipal Bonds. Municipal bonds, which meet longer term capital
needs and generally have maturities of more than one year when issued, have two
principal classifications: "General Obligation" Bonds and "Revenue" Bonds.
Issuers of General Obligation Bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to fund
a wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of General Obligation Bonds is the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. The taxes that can be levied for the payment of debt service may
be limited or unlimited as to rate or amount or special assessments.
The principal security for a Revenue Bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
Bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may also be
used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security including partially or
fully insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund. Lease rental revenue bonds issued by a state or local authority for
capital projects are secured by annual lease rental payments from the state or
locality to the authority sufficient to cover debt service on the authority's
obligations.
Industrial Development and Pollution Control Bonds (which are types of
private activity bonds), although nominally issued by municipal authorities, are
generally not secured by the taxing power of the municipality but are secured by
the revenues of the authority derived from payments by the industrial user.
Under federal tax legislation, certain types of Industrial Development Bonds and
Pollution Control Bonds may no longer be issued on a tax-exempt basis, although
previously-issued bonds of these types and certain refundings of such bonds are
not affected. STFMF may invest more than 25% of its assets in industrial
development or other private activity bonds, subject to the Fund's fundamental
investment policies, and also subject to the Fund's current intention not to
invest in municipal securities whose investment income is taxable or AMT bonds.
For the purposes of the Fund's investment limitation regarding concentration of
investments in any one industry, industrial development or other private
activity bonds ultimately payable by companies within the same industry will be
considered as if they were issued by issuers in the same industry.
3. Municipal Lease Obligations and Participation Interests. A municipal
lease obligation may take the form of a lease, installment purchase contract or
conditional sales contract which is issued by a state or local government and
authorities to acquire land, equipment and facilities. Income from such
obligations is generally exempt from state and local taxes in the state of
issuance. Municipal lease obligations frequently involve special risks not
normally associated with general obligations or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title in the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
relieve the governmental issuer of any obligation to make future payments under
the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. In addition,
such leases or contracts may be subject to the temporary abatement of payments
in the event the issuer is prevented from maintaining occupancy of the leased
premises or utilizing the leased equipment. Although the obligations may be
secured by the leased equipment or facilities, the disposition of the property
in the event of nonappropriation or foreclosure might prove difficult, time
consuming and costly, and result in a delay in recovery or the failure to fully
recover the Fund's original investment.
Participation interests represent undivided interests in municipal
leases, installment purchase contracts, conditional sales contracts or other
instruments. These are typically issued by a trust or other entity which has
received an assignment of the payments to be made by the state or political
subdivision under such leases or contracts.
6
<PAGE>
Certain municipal lease obligations and participation interests may be
deemed illiquid for the purpose of the Fund's limitation on investments in
illiquid securities. Other municipal lease obligations and participation
interests acquired by the Fund may be determined by the Adviser to be liquid
securities for the purpose of such limitation. In determining the liquidity of
municipal lease obligations and participation interests, the Adviser will
consider a variety of factors including: (1) the willingness of dealers to bid
for the security; (2) the number of dealers willing to purchase or sell the
obligation and the number of other potential buyers; (3) the frequency of trades
or quotes for the obligation; and (4) the nature of the marketplace in which the
security trades. In addition, the Adviser will consider factors unique to
particular lease obligations and participation interests affecting the
marketability thereof. These include the general creditworthiness of the issuer,
the importance to the issuer of the property covered by the lease and the
likelihood that the marketability of the obligation will be maintained
throughout the time the obligation is held by the Fund.
The Fund may purchase participation interests in municipal lease
obligations held by a commercial bank or other financial institution. Such
participations provide the Fund with the right to a pro rata undivided interest
in the underlying municipal lease obligations. In addition, such participations
generally provide the Fund with the right to demand payment, on not more than
seven days' notice, of all or any part of the Fund's participation interest in
the underlying municipal lease obligation, plus accrued interest. The Fund will
only invest in such participations if, in the opinion of bond counsel, counsel
for the issuers of such participations or counsel selected by the Adviser, the
interest from such participations is exempt from regular federal income tax and
state income tax, if applicable.
4. Other Municipal Securities. There is, in addition, a variety of
hybrid and special types of municipal securities as well as numerous differences
in the security of municipal securities both within and between the two
principal classifications above.
The Fund may purchase variable rate demand instruments that are
tax-exempt municipal obligations providing for a periodic adjustment in the
interest rate paid on the instrument according to changes in interest rates
generally. These instruments also permit the Fund to demand payment of the
unpaid principal balance plus accrued interest upon a specified number of days'
notice to the issuer or its agent. The demand feature may be backed by a bank
letter of credit or guarantee issued with respect to such instrument. The Fund
intends to exercise the demand only (1) upon a default under the terms of the
municipal obligation, (2) as needed to provide liquidity to the Fund, or (3) to
maintain a high quality investment portfolio or (4) to maximize the Fund's
yield. A bank that issues a repurchase commitment may receive a fee from the
Fund for this arrangement. The issuer of a variable rate demand instrument may
have a corresponding right to prepay in its discretion the outstanding principal
of the instrument plus accrued interest upon notice comparable to that required
for the holder to demand payment.
The variable rate demand instruments that the Fund may purchase are
payable on demand on not more than seven calendar days' notice. The terms of the
instruments provide that interest rates are adjustable at intervals ranging from
daily up to six months, and the adjustments are based upon the current interest
rate environment as provided in the respective instruments. The Fund will
determine the variable rate demand instruments that they will purchase in
accordance with procedures approved by the Trustees to minimize credit risks.
The Adviser may determine that an unrated variable rate demand instrument meets
the Fund's quality criteria by reason of being backed by a letter of credit or
guarantee issued by a bank that meets the quality criteria for the Fund. Thus,
either the credit of the issuer of the municipal obligation or the guarantor
bank or both will meet the quality standards of the Fund. The Adviser will
reevaluate each unrated variable rate demand instrument held by the Fund on a
quarterly basis to determine that it continues to meet the Fund's quality
criteria.
The interest rate of the underlying variable rate demand instruments
may change with changes in interest rates generally, but the variable rate
nature of these instruments should decrease changes in value due to interest
rate fluctuations. Accordingly, as interest rates decrease or increase, the
potential for capital gain and the risk of capital loss on the disposition of
portfolio securities are less than would be the case with a comparable portfolio
of fixed income securities. The Fund may purchase variable rate demand
instruments on which stated minimum or maximum rates, or maximum rates set by
state law, limit the degree to which interest on such variable rate demand
instruments may fluctuate; to the extent it does, increases or decreases in
value of such variable rate demand notes may be somewhat greater than would be
the case without such limits. Because the adjustment of interest rates on the
variable rate demand instruments is made in relation to movements of the
applicable rate adjustment index, the variable rate demand instruments are not
comparable to long-term fixed interest rate securities. Accordingly, interest
rates on the variable rate
7
<PAGE>
demand instruments may be higher or lower than current market rates for fixed
rate obligations of comparable quality with similar final maturities.
The maturity of the variable rate demand instruments held by the Fund
will ordinarily be deemed to be the longer of (1) the notice period required
before the Fund is entitled to receive payment of the principal amount of the
instrument or (2) the period remaining until the instrument's next interest rate
adjustment.
5. General Considerations. An entire issue of Municipal Securities may
be purchased by one or a small number of institutional investors such as the
Fund. Thus, the issue may not be said to be publicly offered. Unlike securities
which must be registered under the Securities Act of 1933, as amended (the "1933
Act") prior to offer and sale unless an exemption from such registration is
available, municipal securities which are not publicly offered may nevertheless
be readily marketable. A secondary market exists for municipal securities which
were not publicly offered initially.
Securities purchased for the Fund are subject to the limitations on
holdings of securities which are not readily marketable contained in the Fund's
investment restrictions. The Adviser determines whether a municipal security is
readily marketable based on whether it may be sold in a reasonable time
consistent with the customs of the municipal markets (usually seven days) at a
price (or interest rate) which accurately reflects its value. The Adviser
believes that the quality standards applicable to the Fund's investments enhance
marketability. In addition, Stand-by Commitments and demand obligations also
enhance marketability.
For the purpose of the Fund's investment restrictions, the
identification of the "issuer" of municipal securities which are not General
Obligation Bonds is made by the Adviser on the basis of the characteristics of
the obligation as described above, the most significant of which is the source
of funds for the payment of principal of and interest on such obligations.
The Fund expects that it will not invest more than 25% of its total
assets in municipal securities whose issuers are located in the same state or
more than 25% of its total assets in municipal securities the security of which
is derived from any one of the following categories: hospitals and health
facilities; turnpikes and toll roads; ports and airports; or colleges and
universities. The Fund may invest more than 25% of its total assets in municipal
securities of one or more of the following types: public housing authorities;
general obligations of states and localities; lease rental obligations of states
and local authorities; state and local housing finance authorities; municipal
utilities systems; bonds that are secured or backed by the Treasury or other
U.S. Government guaranteed securities; or industrial development and pollution
control bonds. There could be economic, business or political developments,
which might affect all municipal securities of a similar type. However, the Fund
believes that the most important consideration affecting risk is the quality of
particular issues of municipal securities rather than factors affecting all, or
broad classes of, municipal securities.
Stand-by Commitments. The Fund may engage in Stand-by Commitments. STFMF has
received an order from the SEC which will enable it to improve its portfolio
liquidity by making available same-day settlements on portfolio sales (and thus
facilitate the same-day payments of redemption proceeds in federal funds)
through the acquisition of "Stand-by Commitments." A Stand-by Commitment is a
right acquired by a Fund, when it purchases a municipal security from a broker,
dealer or other financial institution ("seller"), to sell up to the same
principal amount of such securities back to the seller, at that Fund's option,
at a specified price. Stand-by Commitments are also known as "puts." STFMF's,
investment policies permit the acquisition of Stand-by Commitments solely to
facilitate portfolio liquidity. The acquisition of or the power to exercise a
Stand-by Commitment will not affect the valuation or maturity of STFMF's
underlying portfolio, which will be valued in accordance with the order of the
SEC. The exercise by a Fund of a Stand-by Commitment is subject to the ability
of the other party to fulfill its contractual commitment.
Stand-by Commitments acquired by the Fund will have the following
features: (1) they will be in writing and will be physically held by a Fund's
custodian; (2) a Fund's rights to exercise them will be unconditional and
unqualified; (3) they will be entered into only with sellers which in the
Adviser's opinion present a minimal risk of default; (4) although Stand-by
Commitments will not be transferable, municipal securities purchased subject to
such commitments may be sold to a third party at any time, even though the
commitment is outstanding; and (5) their exercise price will be (i) a Fund's
acquisition cost (excluding the cost, if any, of the Stand-by Commitment) of the
municipal securities which are subject to the commitment (excluding any accrued
interest which a Fund paid on their acquisition), less any amortized market
premium or plus any amortized market or original issue discount during the
period a Fund owned the
8
<PAGE>
securities, plus (ii) all interest accrued on the securities since the last
interest payment date. Since STFMF will value municipal securities on an
amortized cost basis, the amount receivable upon exercise of a Stand-by
Commitment will be substantially the same as the value assigned by that Fund to
the underlying securities. Moreover, while there is little risk of an event
occurring which would make amortized cost valuation of its portfolio securities
inappropriate, if such condition developed, the securities may, in the
discretion of the Trustees, be valued on the basis of available market
information and held to maturity. The Fund expects to refrain from exercising a
Stand-by Commitment in the event that the amount receivable upon exercise of the
Stand-by Commitment is significantly greater than the then current market value
of the underlying municipal securities in order to avoid imposing a loss on a
seller and thus jeopardizing the Fund's business relationship with that seller.
The Fund expects that Stand-by Commitments generally will be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund will pay for Stand-by Commitments, either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitments. As a matter of policy, the total amount
"paid" by the Fund in either manner for outstanding Stand-by Commitments will
not exceed 1/2 of 1% of the value of total assets of the Fund calculated
immediately after any Stand-by Commitment is acquired.
It is difficult to evaluate the likelihood of use or the potential
benefit of a Stand-by Commitment. Therefore, it is expected that the Fund's
Trustees will determine that Stand-by Commitments ordinarily have a "fair value"
of zero, regardless of whether any direct or indirect consideration was paid.
When the Fund has paid for a Stand-by Commitment, its cost will be reflected as
unrealized depreciation for the period during which the commitment is held. In
addition, for purposes of complying with the condition of the SEC's amortized
cost Rule that the dollar-weighted average maturity of its portfolio shall not
exceed 90 days, the maturity of a portfolio security of STFMF shall not be
considered shortened or otherwise affected by any Stand-by Commitment to which
such security is subject.
Management of the Fund understands that the Internal Revenue Service
(the "Service") has issued a favorable revenue ruling to the effect that, under
specified circumstances, a registered investment company will be the owner of
tax-exempt municipal obligations acquired subject to a put option. The Service
has also issued private letter rulings to certain taxpayers (which do not serve
as precedent for other taxpayers) to the effect that tax-exempt interest
received by a regulated investment company with respect to such obligations will
be tax-exempt in the hands of the company and may be distributed to its
shareholders as exempt-interest dividends. The Service has subsequently
announced that it will not ordinarily issue advance ruling letters as to the
identity of the true owner of property in cases involving the sale of securities
or participation interests therein if the purchaser has the right to cause the
security, or the participation interest therein, to be purchased by either the
seller or a third party. The Fund intends to take the position that it owns any
municipal obligations acquired subject to a Stand-by Commitment and that
tax-exempt interest earned with respect to such municipal obligations will be
tax-exempt in its hands. There is no assurance that the Service will agree with
such position in any particular case. There is no assurance that Stand-by
Commitments will be available to the Fund nor has the Fund assumed that such
commitments would continue to be available under all market conditions.
Third Party Puts. These long-term fixed rate bonds coupled with puts may present
the same tax issues as are associated with Stand-by Commitments discussed above.
As with any Stand-by Commitments acquired by the Fund, the Fund intends to take
the position that it is the owner of any municipal obligation acquired subject
to a third-party put, and that tax-exempt interest earned with respect to such
municipal obligations will be tax-exempt in its hands. There is no assurance
that the Service will agree with such position in any particular case.
Additionally, the federal income tax treatment of certain other aspects of these
investments, including the treatment of tender fees and swap payments, in
relation to various regulated investment company tax provisions is unclear.
However, the Adviser intends to manage the Fund's portfolio in a manner designed
to minimize any adverse impact from these investments.
Participation Interests. STFMF may purchase from banks participation interests
in all or part of specific holdings of municipal securities. Each participation
is backed by an irrevocable letter of credit or guarantee of the selling bank
that the Adviser has determined meets the prescribed quality standards of the
Fund. Thus, even if the credit of the issuer of the municipal security does not
meet the quality standards of STFMF, the credit of the selling bank will. STFMF
has the right to sell the participation back to the bank after seven days'
notice for the full principal amount of the Fund's interest in the municipal
security plus accrued interest, but only (1) as required to provide liquidity to
the Fund, (2) to maintain a high quality investment portfolio or (3) upon a
default under the terms of the municipal security. The selling bank may receive
a fee from STFMF in connection with the arrangement. STFMF will not purchase
participation interests unless
9
<PAGE>
it receives an opinion of counsel or a ruling of the Internal Revenue Service
satisfactory to the Trustees of the Fund that interest earned by the Fund on
municipal obligations in which it holds participation interests is exempt from
federal income tax. An opinion of counsel is not binding on the Service and
there is no assurance that the Service will agree with any opinion of counsel.
Specialized Investment Techniques of the Funds
Floating and Variable Rate Instruments. Certain of the obligations that each
Fund may purchase have a floating or variable rate of interest. Such obligations
bear interest at rates that are not fixed, but which vary with changes in
specified market rates or indices, such as the Prime Rate, and at specified
intervals.
Municipal Obligations. Municipal obligations, which are debt obligations issued
by or on behalf of states, cities, municipalities and other public authorities,
and may be general obligation, revenue, or industrial development bonds, include
municipal bonds, municipal notes and municipal commercial paper.
Each Fund's investments in municipal notes will be limited to notes
that are rated at the date of purchase "MIG 1" or "MIG 2" (or "VMIG 1" or "VMIG
2" in the case of an issue having a variable rate demand feature) by Moody's,
"SP-1" or "SP-1+" by S&P or "F-1" or "F-1+" by Fitch.
Municipal commercial paper is a debt obligation with a stated maturity
of 270 days or less that is issued to finance seasonal working capital needs or
as short-term financing in anticipation of longer-term debt. Each Fund may
invest in municipal commercial paper that is rated at the date of purchase "P-1"
or "P-2" by Moody's, "A-1" or "A-2" or "A-" by S&P or "F-1" by Fitch. If a
municipal obligation is not rated, each Fund may purchase the obligation if, in
the opinion of the Adviser, it is of investment quality comparable to other
rated investments that are permitted in each Fund.
Letters of Credit. Municipal obligations, including certificates of
participation, commercial paper and other short-term obligations may be backed
by an irrevocable letter of credit of a bank which assumes the obligation for
payment of principal and interest in the event of default by the issuer. Only
banks which, in the opinion of the adviser, are of investment quality comparable
to other permitted investments of each Fund may be used for letter of credit
backed investments.
Securities with Put Rights. Each Fund may enter into put transactions with
respect to obligations held in its portfolio with broker/dealers pursuant to a
rule under the Investment Company Act of 1940, as amended (the "1940 Act"), and
with commercial banks.
The right of each Fund to exercise a put is unconditional and
unqualified. A put is not transferable by the Funds, although each Fund may sell
the underlying securities to a third party at any time. If necessary and
advisable, each Fund may pay for certain puts either separately in cash or by
paying a higher price for portfolio securities that are acquired subject to such
a put (thus reducing the yield to maturity otherwise available for the same
securities). Each Fund expects, however, that puts generally will be available
without the payment of any direct or indirect consideration.
Each Fund may enter into puts only with banks or broker/dealers that,
in the opinion of the Adviser, present minimal credit risks. The ability of each
Fund to exercise a put will depend on the ability of the bank or broker/dealer
to pay for the underlying securities at the time the put is exercised. In the
event that a bank or broker/dealer should default on its obligation to
repurchase an underlying security, the Funds, might be unable to recover all or
a portion of any loss sustained from having to sell the security elsewhere.
Each Fund intends to enter into puts solely to maintain liquidity and
does not intend to exercise its rights thereunder for trading purposes. The puts
will only be for periods of substantially less than the life of the underlying
security. The acquisition of a put will not affect the valuation by the Funds of
the underlying security. The actual put will be valued at zero in determining
net asset value of each Fund. Where the Funds pay directly or indirectly for a
put, its cost will be reflected in realized gain or loss when the put is
exercised or expires. If the value of the underlying security increases the
potential for unrealized or realized gain is reduced by the cost of the put. The
maturity of a municipal obligation purchased by each Fund will not be considered
shortened by any put to which such obligation is subject.
10
<PAGE>
Third Party Puts. The Funds may also purchase long-term fixed rate bonds that
have been coupled with an option granted by a third party financial institution
allowing the Funds at specified intervals (not exceeding 397 calendar days) to
tender (or "put") the bonds to the institution and receive the face value
thereof (plus accrued interest). These third party puts are available in several
different forms, may be represented by custodial receipts or trust certificates
and may be combined with other features such as interest rate swaps. The Funds
receive a short-term rate of interest (which is periodically reset), and the
interest rate differential between that rate and the fixed rate on the bond is
retained by the financial institution. The financial institution granting the
option does not provide credit enhancement, and in the event that there is a
default in the payment of principal or interest, or downgrading of a bond to
below investment grade, or a loss of the bond's tax-exempt status, the put
option will terminate automatically, the risk to the Funds will be that of
holding such a long-term bond and the dollar-weighted average maturity of each
Fund's portfolio would be adversely affected.
Maintenance of $1.00 Net Asset Value and Credit Quality. Pursuant to a Rule of
the Securities and Exchange Commission (the "SEC"), each Fund effects sales,
redemptions and repurchases at the net asset value per share, normally $1.00. In
fulfillment of their responsibilities under that Rule, the Trustees of each Fund
have approved policies established by the Funds' Adviser reasonably calculated
to prevent each Fund's net asset value per share from deviating from $1.00
except under unusual or extraordinary circumstances and the Trustees of each
Fund will periodically review the Adviser's operations under such policies at
regularly scheduled Trustees' meetings. Those policies include a weekly
monitoring by the Adviser of unrealized gains and losses in each Fund's
portfolio, and when necessary, in an effort to avoid deviation, taking
corrective action, such as adjusting the maturity of the portfolio, or, if
possible, realizing gains or losses to offset in part unrealized losses or
gains. The result of those policies may be that the yield on shares of each Fund
will be lower than would be the case if the policies were not in effect. Such
policies also provide for certain action to be taken with respect to portfolio
securities which experience a downgrade in rating or suffer a default.
Securities eligible for investment by the Funds are those securities
which are generally rated (or issued by an issuer with comparable securities
rated) in the highest short-term rating category by at least two rating services
(or by one rating service, if no other rating agency has issued a rating with
respect to that security). These securities are known as "first tier
securities." Securities generally rated (or issued by an issuer with comparable
securities rated) in the top two categories by at least two rating agencies (or
one, if only one rating agency has rated the security) which do not qualify as
first tier securities are known as "second tier securities." To ensure diversity
of a Fund's investments, as a matter of non-fundamental policy, each Fund will
not invest more than 5% of its total assets in the securities of a single
issuer, other than the U.S. Government. Each Fund may, however, invest more than
5% of its total assets in the first tier securities of a single issuer for a
period of up to three business days after purchase, although a Fund may not make
more than one such investment at any time during such period. Each Fund may not
invest more than 5% of its total assets in securities which were second tier
securities when acquired by the Fund. Further, each Fund may not invest more
than the greater of (1) 1% of its total assets, or (2) one million dollars, in
the securities of a single issuer which were second tier securities when
acquired by the Fund.
Portfolio Maturity. The assets of each Fund consist entirely of cash items and
investments having a stated maturity date of 397 calendar days or less (except
in the case of Government securities, 762 calendar days) from date of purchase
(including investment in repurchase agreements, in which case maturity is
measured by the repurchase date, without respect to the maturity of the
obligation). The term "Government securities," as used herein, means securities
issued or guaranteed as to principal or interest by the U.S. Government, its
agencies or instrumentalities. The portfolio of each Fund will be managed so
that the average maturity of all instruments (on a dollar-weighted basis) will
be 90 days or less. The average maturity of the two portfolios will vary
according to the management's appraisal of money market conditions. Each Fund
will invest only in securities determined by or under the direction of the
Trustees to be of high quality with minimal credit risks.
Portfolio Turnover. The Funds may sell portfolio securities to take advantage of
investment opportunities arising from changing market levels or yield
relationships. Although such transactions involve additional costs in the form
of spreads, they will be undertaken in an effort to improve a Fund's overall
investment return, consistent with its objectives.
U.S. Government Securities. U.S. Government Securities are securities issued or
guaranteed by the U.S. Treasury, by federal agencies, or by instrumentalities
established or sponsored by the U.S. Government. Obligations issued by the U.S.
Treasury are backed by the full faith and credit of the U.S. Government. They
include Treasury bills, notes and
11
<PAGE>
bonds, which differ in their interest rates, maturities and times of issuance.
Obligations guaranteed by the U.S. Treasury include Government National Mortgage
Association participation certificates. Obligations of a federal agency or U.S.
Government instrumentality may be supported in various ways, including the
limited authority of the issuer to borrow from the U.S. Treasury, such as
securities of the Federal Home Loan Bank; the discretionary authority of the
U.S. Government to purchase obligations of the agency or instrumentality, such
as Federal National Mortgage Association bonds; or the credit only of the
issuing agency or instrumentality, such as Student Loan Marketing Association.
In the case of obligations not backed by the full faith and credit of the U.S.
Government, the Fund must look principally to the agency issuing or guaranteeing
the obligations for ultimate repayment, which agency may be privately owned.
These securities may bear fixed, floating or variable rates of interest.
Interest may fluctuate based on generally recognized reference rates or the
relationship of rates.
When-issued and Forward Delivery Securities. Government securities are
frequently offered on a "when-issued" or "forward delivery" basis. When so
offered, the price, which is generally expressed in yield terms, is fixed at the
time the commitment to purchase is made, but delivery and payment for the
when-issued or forward delivery securities take place at a later date normally
within 45 days after the date of the commitment to purchase. During the period
between purchase and settlement, no payment is made by the Funds to the issuer
and no interest accrues to the Funds. To the extent that assets of the Funds are
not invested prior to the settlement of a purchase of securities, the Funds will
earn no income; however, it is intended that the Funds will be fully invested to
the extent practicable and subject to the policies stated herein. When-issued or
forward delivery purchases are negotiated directly with the other party and are
not traded on an exchange. While when-issued or forward delivery securities may
be sold prior to the settlement date, it is intended that the Funds will
purchase such securities with the purpose of actually acquiring them unless a
sale appears desirable for investment reasons. At the time a Fund makes the
commitment to purchase securities on a when-issued or forward delivery basis, it
will record the transaction and reflect the value of the security in determining
its respective net asset values. None of the Funds believes that their net asset
value or income will be adversely affected by their purchase of securities on a
when-issued or forward delivery basis. Each Fund will establish a segregated
account in which to maintain cash or liquid assets equal in value to commitments
for when-issued or forward delivery securities. Such segregated securities
either will mature or, if necessary, be sold on or before the settlement date.
Each Fund will not enter into such transactions for leverage purposes.
Repurchase Agreements. Each Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System or any broker/dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker/dealer has been determined by the Adviser to be at least
as high as that of other obligations the Funds may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest
ratings categories assigned by Moody's, S&P or Fitch.
A repurchase agreement provides a means for a Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., a Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and, as described in more detail below, the value of such securities is
kept at least equal to the repurchase price on a daily basis. The repurchase
price may be higher than the purchase price, the difference being income to a
Fund, or the purchase and repurchase prices may be the same, with interest at a
stated rate due to a Fund together with the repurchase price upon repurchase. In
either case, the income to a Fund is unrelated to the interest rate on the
Obligation itself. Obligations will be held by the custodian or in the Federal
Reserve Book Entry System.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from a Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to each Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by a Fund subject to a repurchase agreement as being owned
by that Fund or as being collateral for a loan by that Fund to the seller. In
the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, a Fund may encounter delay and incur costs before
being able to sell the security. Delays may involve loss of interest or decline
in price of the Obligation. If the court characterizes the transaction as a loan
and a Fund has not perfected a security interest in the Obligation, that Fund
may be required to return the Obligation to the seller's estate and be treated
as an unsecured creditor of the seller. As an unsecured creditor, a Fund would
be at risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt Obligation purchased for a Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation. Apart from the risk
12
<PAGE>
of bankruptcy or insolvency proceedings, there is also the risk that the seller
may fail to repurchase the Obligation, in which case a Fund may incur a loss if
the proceeds to that Fund of the sale to a third party are less than the
repurchase price. However, if the market value (including interest) of the
Obligation subject to the repurchase agreement becomes less than the repurchase
price (including interest), a Fund will direct the seller of the Obligation to
deliver additional securities so that the market value (including interest) of
all securities subject to the repurchase agreement will equal or exceed the
repurchase price.
Illiquid Securities. Each Fund may occasionally purchase securities other than
in the open market. While such purchases may often offer attractive
opportunities for investment not otherwise available on the open market, the
securities so purchased are often "restricted securities", i.e., securities
which cannot be sold to the public without registration under the Securities Act
of 1933 or the availability of an exemption from registration (such as Rules 144
or 144A), or which are "not readily marketable" because they are subject to
other legal or contractual delays in or restrictions on resale.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the Securities Act of 1933. Each Fund may be deemed to be an
"underwriter" for purposes of the Securities Act of 1933 when selling restricted
securities to the public, and in such event each Fund may be liable to
purchasers of such securities if the registration statement prepared by the
issuer, or the prospectus forming a part of it, is materially inaccurate or
misleading.
The Adviser will monitor the liquidity of such restricted securities
subject to the supervision of each Fund's Board of Trustees. In reaching
liquidity decisions, the Adviser will consider the following factors: (1) the
frequency of trades and quotes for the security, (2) the number of dealers
wishing to purchase or sell the security and the number of their potential
purchasers, (3) dealer undertakings to make a market in the security; and (4)
the nature of the security and the nature of the marketplace trades (i.e. the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
The conclusions and investment decisions of the Adviser with respect to
each Fund are based primarily on the analyses of its own research specialists.
While these specialists have the major responsibility for doing research on debt
securities, they receive the support of the Adviser's general economics
department for studies on interest rate trends and of the Adviser's stock
research analysts for consultation on the qualitative aspects of credit analysis
which enable the Adviser to establish its own credit ratings for issuers of
senior securities. The Adviser believes it is important to have this combination
of specialized skills available for developing the proper investment strategies
for the Funds. The Adviser subscribes to leading bond information services and
receives directly published reports and statistical compilations of the issuers
themselves, as well as analyses from brokers and dealers who may execute
portfolio transactions for the Adviser's clients. However, the Adviser regards
this information and material as an adjunct to its own research activities.
Borrowing. As a matter of fundamental policy, each Fund will not borrow money,
except as permitted under the 1940 Act, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time. While the Trustees
do not currently intend to borrow for investment leverage purposes, if such a
strategy were implemented in the future it would increase the Funds' volatility
and the risk of loss in a declining market. Borrowing by the each Fund will
involve special risk considerations. Although the principal of each Fund's
borrowings will be fixed, each Fund's assets may change in value during the time
a borrowing is outstanding, thus increasing exposure to capital risk.
Trustees' Power to Change Objectives and Policies
The objectives and policies of the Funds described above may be
changed, unless expressly stated to the contrary, by their respective Trustees
without a vote of their shareholders.
Investment Restrictions
13
<PAGE>
Unless specified to the contrary, the following restrictions may not be
changed without the approval of a majority of the outstanding voting securities
of the Fund involved which, under the 1940 Act and the rules thereunder and as
used in this Statement of Additional Information, means the lesser of (1) 67% or
more of the voting securities present at a meeting, if the holders of more than
50% of the outstanding voting securities of the Fund are present or represented
by proxy; or (2) more than 50% of the outstanding voting securities of a Fund.
Any investment restrictions herein which involve a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, a Fund.
As a matter of fundamental policy, SCIT will not:
1. borrow money, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
2. issue senior securities, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
3. concentrate its investments in a particular industry, as that
term is used in the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time ( except SCIT
reserves the freedom of action to concentrate its investments
in instruments issued by domestic banks);
4. engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
5. purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
6. purchase physical commodities or contracts relating to
physical commodities; or
7. make loans except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
In addition, although not a matter of fundamental policy, SCIT does not
currently intend to:
1. borrow money in an amount greater than 5% of its total assets,
except for temporary or emergency purposes;
2. lend portfolio securities in an amount greater than 5% of its
total assets.
As a matter of fundamental policy Treasury Fund may not:
1. borrow money, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
2. issue senior securities, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
3. concentrate its investments in a particular industry, as that
term is used in the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
4. engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
14
<PAGE>
5. purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
6. purchase physical commodities or contracts relating to
physical commodities; or
7. make loans except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
Treasury Fund has undertaken that if the Fund obtains an exemptive
order of the SEC which would permit the taking of action in contravention of any
policy which may not be changed without a shareholder vote, the Fund will not
take such action unless either (i) the applicable exemptive order permits the
taking of such action without a shareholder vote or (ii) the staff of the SEC
has issued to the Fund a "no action" or interpretive letter to the effect that
the Fund may proceed without a shareholder vote.
Although not a matter of fundamental policy Treasury Fund may not:
1. borrow money in an amount greater than 5% of its total assets,
except for temporary or emergency purposes;
2. lend portfolio securities in an amount greater than 5% of its
total assets.
As a matter of fundamental policy, Scudder Tax Free Money may not:
1. borrow money, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
2. issue senior securities, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
3. concentrate its investments in a particular industry, as that
term is used in the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
4. engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
5. purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
6. purchase physical commodities or contracts relating to
physical commodities;
7. make loans except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
In addition, as a matter of fundamental policy, Scudder Tax Free Money
Fund will:
1. have at least 80% of its net assets invested in short-term
municipal securities during periods of normal market
conditions.
As a matter of non-fundamental policy, Scudder Tax Free Money Fund may
not:
15
<PAGE>
1. borrow money in an amount greater than 5% of its total assets,
except for temporary or emergency purposes; and
2. lend portfolio securities in an amount greater than 5% of its
total assets.
Master/feeder structure
The Board of Trustees of each Fund has the discretion to retain the
current distribution arrangement for the Funds while investing in a master fund
in a master/feeder structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
PURCHASES
(See "Purchases" and "Transaction information" in the Funds'
combined prospectus.)
Additional Information About Opening an Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 of Fund
shares through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, TWX or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have a certified tax identification number, clients having a
regular investment counsel account with Scudder or its affiliates and members of
their immediate families, officers and employees of the Adviser or of any
affiliated organization and their immediate families, members of the NASD and
banks may open an account by wire. These investors must call 1-800-225-5163 to
get an account number. During the call the investor will be asked to indicate
the Fund name, amount to be wired ($2,500 minimum), name of bank or trust
company from which the wire will be sent, the exact registration of the new
account, the tax identification number or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, Boston, MA 02110, ABA Number 011000028, Account
Number: 9903-5552. The investor must give the Scudder fund name, account name
and the new account number. Finally, the investor must send the completed and
signed application to the Fund promptly.
The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500
($1,000 for fiduciary accounts such as IRAs, and custodial accounts such as
Uniform Gift to Minor Act, and Uniform Trust to Minor Act accounts), which
amount may be changed by the Board of Trustees A shareholder may open an account
with at least $1,000 ($500 for fiduciary/custodial accounts), if an automatic
investment plan (AIP) of $100/month ($50/month for fiduciary/custodial accounts)
is established. Scudder group retirement plans and certain other accounts have
similar or lower minimum share balance requirements.
The Fund reserves the right, following 60 days' written notice to
applicable shareholders, to:
16
<PAGE>
o assess an annual $10 per Fund charge (with the Fee to be paid
to the Fund) for any non-fiduciary/non-custodial account
without an automatic investment plan (AIP) in place and a
balance of less than $2,500; and
o redeem all shares in Fund accounts below $1,000 where a
reduction in value has occurred due to a redemption, exchange
or transfer out of the account. The Fund will mail the
proceeds of the redeemed account to the shareholder.
Reductions in value that result solely from market activity will not
trigger an involuntary redemption. Shareholders with a combined household
account balance in any of the Scudder Funds of $100,000 or more, as well as
group retirement and certain other accounts will not be subject to a fee or
automatic redemption.
Fiduciary (e.g., IRA or Roth IRA) and custodial accounts (e.g., UGMA or
UTMA) with balances below $100 are subject to automatic redemption following 60
days' written notice to applicable shareholders.
Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on or
payable through a United States bank.
If shares of a Fund are purchased with a check which proves to be
uncollectible, that Fund reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by that Fund or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, such Fund will have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from or restricted in placing future orders in any of the Scudder
funds.
Wire Transfer of Federal Funds
To purchase shares of a Fund and obtain the same day's dividend you
must have your bank forward federal funds by wire transfer and provide the
required account information so as to be available to a Fund prior to twelve
o'clock noon eastern time on that day. If you wish to make a purchase of
$500,000 or more, you should notify the Fund's transfer agent, Scudder Service
Corporation (the "Transfer Agent") of such a purchase by calling 1-800-225-5163.
If either the federal funds or the account information is received after twelve
o'clock noon eastern time, but both the funds and the information are made
available before the close of regular trading on the New York Stock Exchange
(the "Exchange") (normally 4 p.m. eastern time) on any business day, shares will
be purchased at net asset value determined on that day but will not receive the
dividend; in such cases, dividends commence on the next business day.
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, each Fund pays a fee for receipt by State Street
Bank and Trust Company (the "Custodian") of "wired funds," but the right to
charge investors for this service is reserved.
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include Columbus Day (the 2nd Monday in October) and
Veterans' Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
federal funds on behalf of either Fund.
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
Exchange, normally 4 p.m. eastern time. Proceeds in the amount of your purchase
will be transferred from your bank checking account two or three business days
following your call. For requests received by the close of regular trading on
the Exchange, shares will be purchased at the net asset value per share
calculated at the close of trading on the day of your call. QuickBuy requests
received after the close of
17
<PAGE>
regular trading on the Exchange will begin their
processing and be purchased at the net asset value calculated the following
business day. If you purchase shares by QuickBuy and redeem them within seven
days of the purchase, the Fund may hold the redemption proceeds for a period of
up to seven business days. If you purchase shares and there are insufficient
funds in your bank account the purchase will be canceled and you will be subject
to any losses or fees incurred in the transaction. QuickBuy transactions are not
available for most retirement plan accounts. However, QuickBuy transactions are
available for Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing a QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Share Price
Purchases made by check will be filled without sales charge at the
close of regular trading on the Exchange on the day the check is received by the
Transfer Agent in good order. Net asset value of each Fund normally is computed
twice a day, as of twelve o'clock noon and the close of regular trading on the
Exchange on each day when the Exchange is open for trading.
Share Certificates
Due to the desire of each Fund's management to afford ease of
redemption, certificates will not be issued to indicate ownership in either
Fund. Share certificates now in a shareholder's possession may be sent to the
Transfer Agent for cancellation and credit to such shareholder's account.
Shareholders who prefer may hold the certificates in their possession until they
wish to exchange or redeem such shares.
Other Information
The Funds have authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Funds' shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on each Fund's behalf. Orders for purchase or redemption will be deemed
to have been received by a Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between a Fund and the
broker, ordinarily orders will be priced at that Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of a Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Trustees and the Distributor, also the Funds' principal underwriter,
each has the right to limit the amount of purchases of each Fund by, and to
refuse to sell to, any person. The Trustees and the Distributor may suspend or
terminate the offering of shares of a Fund at any time for any reason.
The "Tax Identification Number" section of the application must be
completed when opening an account. Applications and purchase orders without a
correct certified tax identification number and certain other certified
information (e.g. from exempt investors a certification of exempt status) will
be returned to the investor. The Funds reserve the right, following 30 days'
notice, to redeem all shares in accounts without a correct certified Social
Security or tax identification number. A shareholder may avoid involuntary
redemption by providing a Fund with a tax identification number during the
30-day notice period.
18
<PAGE>
The Funds may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company (or series thereof) or personal holding company, subject to the
requirements of the 1940 Act.
EXCHANGES AND REDEMPTIONS
(See "Exchanges and redemptions" and "Transaction information" in
the Funds' prospectus.)
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange either may
be an additional investment into an existing account or may involve opening a
new account in the other fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL(TM)) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges into a new fund account must be for a minimum of $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration, tax
identification number, address, and account options/features as the account of
origin. Exchanges into an existing account must be for $100 or more. If the
account receiving the exchange proceeds is to be different in any respect, the
exchange request must be in writing and must contain an original signature
guarantee as described under "Transaction information -- Redeeming shares --
Signature guarantees" in each Fund's prospectus.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the respective net
asset values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund, at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic Exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Trusts and the Transfer Agent each reserve the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.
There is no charge to the shareholder for any exchange described above.
An exchange into another Scudder fund is a redemption of shares, and therefore
may result in tax consequences (gain or loss) to the shareholder, and the
proceeds of such an exchange may be subject to backup withholding. (See
"TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Trusts employ
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Trusts do not follow such
procedures, they may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Trusts will not be liable for acting upon
instructions communicated by telephone that they reasonably believe to be
genuine. The Trusts and the Transfer Agent each reserve the right to suspend or
terminate the privilege of exchanging by telephone or fax at any time.
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated. The exchange privilege may not be
available for certain Scudder funds or classes thereof. For more information,
please call 1-800-225-5163.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
19
<PAGE>
Redemption by Telephone
In order to request redemptions by telephone, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which the redemption proceeds are to be sent.
Shareholders currently receive the right to redeem up to $100,000 to their
address of record automatically, without having to elect it. Shareholders may
also request to have the proceeds mailed or wired to their pre-designated bank
account.
(a) NEW INVESTORS wishing to establish telephone redemption to a
pre-designated bank account must complete the appropriate
section on the application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder Pension and Profit-Sharing, Scudder 401(k) and Scudder
403(b) Planholders) who wish to establish telephone redemption
to a pre-designated bank account or who want to change the
bank account previously designated to receive redemption
payments should either return a Telephone Redemption Option
Form (available upon request) or send a letter identifying the
account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s)
appears on the account. A signature and a signature guarantee
are required for each person in whose name the account is
registered.
Telephone redemption is not available with respect to shares
represented by share certificates or shares held in certain retirement accounts.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating a savings bank to receive their
telephone redemption proceeds are advised that if the savings
bank is not a participant in the Federal Reserve System,
redemption proceeds must be wired through a commercial bank
which is a correspondent of the savings bank. As this may
delay receipt by the shareholder's account, it is suggested
that investors wishing to use a savings bank discuss wire
procedures with their bank and submit any special wire
transfer information with the telephone redemption
authorization. If appropriate wire information is not
supplied, redemption proceeds will be mailed to the designated
bank.
The Funds employ procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Funds do not follow such procedures, they may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Funds will not be
liable for acting upon instructions communicated by telephone that they
reasonably believe to be genuine.
Redemption requests by telephone (technically a repurchase by agreement
between the Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.
Redemption By QuickSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and have elected to participate in
the QuickSell program may sell shares of a Fund by telephone. Redemptions must
be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account in two or three business days
following your call. For requests received by the close of regular trading on
the Exchange, shares will be redeemed at the net asset value per share
calculated at the close of trading on the day of your call. QuickSell requests
received after the close of regular trading on the Exchange will begin their
processing and be redeemed at the net asset value calculated the following
business day. QuickSell transactions are not available for Scudder IRA accounts
and most other retirement plan accounts.
20
<PAGE>
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which redemption proceeds will be credited. New
investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders who wish to add QuickSell to their account may do so by
completing a QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.
The Funds employ procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that a Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Funds will not be liable
for acting upon instructions communicated by telephone that they reasonably
believe to be genuine.
Redemption by Mail or Fax
Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assignment form with signatures guaranteed as explained in each
Fund's prospectus.
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax (required in
some states when settling estates).
It is suggested that shareholders holding share certificates or shares
registered in other than individual names contact the Transfer Agent prior to
any redemptions to ensure that all necessary documents accompany the request.
When shares are held in the name of a corporation, trust, fiduciary, agent,
attorney or partnership, the Transfer Agent requires, in addition to the stock
power, certified evidence of authority to sign. These procedures are for the
protection of shareholders and should be followed to ensure prompt payment.
Redemption requests must not be conditional as to date or price of the
redemption. Proceeds of a redemption will be sent within five days after receipt
by the Transfer Agent of a request for redemption that complies with the above
requirements. Delays of more than seven business days of payment for shares
tendered for repurchase or redemption may result, but only until the purchase
check has cleared.
The requirements for IRA redemptions are different from those for
regular accounts. For more information call 1-800-225-5163.
Redemption by Checkwriting
All new investors and existing shareholders who apply to State Street
Bank and Trust Company for checks may use them to pay any person, provided that
each check is for at least $100 and not more than $5 million. By using the
checks, the shareholder will receive daily dividend credit on his or her shares
until the check has cleared the banking system. Investors who purchased shares
by check may write checks against those shares only after they have been on a
Fund's book for seven business days. Shareholders who use this service may also
use other redemption procedures. No shareholder may write checks against
certificated shares. The Funds pay the bank charges for this service. However,
each Fund will review the cost of operation periodically and reserve the right
to determine if direct charges to the persons who avail themselves of this
service would be appropriate. Each Fund, Scudder Service Corporation and State
Street Bank and Trust Company reserve the right at any time to suspend or
terminate the Checkwriting procedure.
Other Information
If a shareholder redeems all shares in the account, the shareholder
will receive, in addition to the net asset value thereof, all declared but
unpaid dividends thereon. None of the Funds impose a redemption or repurchase
charge, although a wire charge may be applicable for redemption proceeds wired
to an investor's bank account. Redemptions of shares, including redemptions
undertaken to effect an exchange for shares of another Scudder fund or
portfolio, and including exchanges and redemptions by Checkwriting, may result
in tax consequences (gain or loss) to the shareholder and the proceeds of such
redemptions may be subject to backup withholding (see "TAXES").
21
<PAGE>
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
The determination of net asset value may be suspended at times and a
shareholder's right to redeem shares and to receive payment may be suspended at
times during which (a) during which the Exchange is closed, other than customary
weekend and holiday closings, (b) during which trading on the Exchange is
restricted for any reason, (c) during which an emergency exists as a result of
which disposal by a Fund of securities owned by it is not reasonably practicable
or it is not reasonably practicable for a Fund fairly to determine the value of
its net assets, or (d) during which the SEC by order permits suspension of the
right of redemption or a postponement of the date of payment or of redemption;
provided that applicable rules and regulations of the SEC (or any succeeding
governmental authority) shall govern as to whether the conditions prescribed in
(b), (c) or (d) exist.
FEATURES AND SERVICES OFFERED BY THE FUNDS
(See "Shareholder benefits" in each Fund's prospectus.)
The No-Load Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its Scudder Family
of Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers' Conduct Rules, a mutual fund can
call itself a "no-load" fund only if the 12b-1 fee and/or service fee does not
exceed 0.25% of a fund's average annual net assets.
Because funds in the Scudder Family of Funds do not pay any asset-based
sales charges or service fees, Scudder uses the phrase no-load to distinguish
Scudder funds and classes from other no-load mutual funds. Scudder pioneered the
no-load concept when it created the nation's first no-load fund in 1928, and
later developed the nation's first family of no-load mutual funds.
The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder Family of Funds pure no-load fund over investing
the same amount in a load fund that collects an 8.50% front-end load, a load
fund that collects only a 0.75% 12b-1 and/or service fee, and a no-load fund
charging only a 0.25% 12b-1 and/or service fee. The hypothetical figures in the
chart show the value of an account assuming a constant 10% rate of return over
the time periods indicated and reinvestment of dividends and distributions.
22
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================
No-Load Fund with
Scudder Load Fund with 0.75% 0.25% 12b-1
YEARS No-Load Fund 8.50% Load Fund 12b-1 Fee Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10 $ 25,937 $ 23,733 $ 24,222 $ 25,354
- --------------------------------------------------------------------------------------------------------------------
15 41,772 38,222 37,698 40,371
- --------------------------------------------------------------------------------------------------------------------
20 67,275 61,557 58,672 64,282
====================================================================================================================
</TABLE>
Internet access
World Wide Web Site -- The address of the Scudder Funds site is
http://www.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.
The site is designed for interactivity, simplicity and maneuverability.
A section entitled "Planning Resources" provides information on asset
allocation, tuition, and retirement planning to users who fill out interactive
"worksheets." Investors can easily establish a "Personal Page," that presents
price information, updated daily, on funds they're interested in following. The
"Personal Page" also offers easy navigation to other parts of the site. Fund
performance data from both Scudder and Lipper Analytical Services, Inc. are
available on the site. Also offered on the site is a news feature, which
provides timely and topical material on the Scudder Funds.
The Adviser has communicated with shareholders and other interested
parties on Prodigy since 1988 and has participated since 1994 in GALT's Networth
"financial marketplace" site on the Internet. The firm made Scudder Funds
information available on America Online in early 1996.
Account Access -- The Adviser is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
The Adviser's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
A Call Me(TM) feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call Me(TM) feature, an individual must have two phone lines
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.
Dividends and Capital Gains Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of a Fund. A change of instructions for the
23
<PAGE>
method of payment must be received by the Transfer Agent at least five days
prior to a dividend record date. Shareholders also may change their dividend
option either by calling 1-800-225-5163 or by sending written instructions to
the Transfer Agent. Please include your account number with your written
request. See "Purchases" in the Funds' prospectuses for the address.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of a Fund.
Investors may also have dividends and distributions automatically
deposited in their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Scudder Investor Centers
Investors may visit any of the Investor Centers maintained by the
Distributor listed in the Funds' prospectuses. The Centers are designed to
provide individuals with services during any business day. Investors may pick up
literature or obtain assistance with opening an account, adding monies or
special options to existing accounts, making exchanges within the Scudder Family
of Funds, redeeming shares or opening retirement plans. Checks should not be
mailed to the "The Scudder Funds" at the address listed under "Purchases" in the
prospectuses.
Reports to Shareholders
The Trust issues shareholders unaudited semiannual financial statements
and annual financial statements audited by independent accountants, including a
list of investments held and statements of assets and liabilities, operations,
changes in net assets and financial highlights. The Trust presently intends to
distribute to shareholders informal quarterly reports during the intervening
quarters, containing a statement of the investments of the Funds.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.
THE SCUDDER FAMILY OF FUNDS
(See "Investment products and services" in the Funds' combined prospectus.)
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
MONEY MARKET
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and, consistent therewith, to provide current
income. The Fund seeks to maintain a constant net asset value of $1.00
per share, although in certain circumstances this may not be possible,
and declares dividends daily.
24
<PAGE>
Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability
of capital and, consistent therewith, to maintain the liquidity of
capital and to provide current income. SCIT seeks to maintain a
constant net asset value of $1.00 per share, although in certain
circumstances this may not be possible, and declares dividends daily.
Scudder Money Market Series+ seeks to provide investors with as high a
level of current income as is consistent with its investment polices
and with preservation of capital and liquidity. The Fund seeks to
maintain a constant net asset value of $1.00 per share, but there is no
assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
Scudder Government Money Market Series+ seeks to provide investors with
as high a level of current income as is consistent with its investment
polices and with preservation of capital and liquidity. The Fund seeks
to maintain a constant net asset value of $1.00 per share, but there is
no assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") seeks to provide income exempt
from regular federal income tax and stability of principal through
investments primarily in municipal securities. STFMF seeks to maintain
a constant net asset value of $1.00 per share, although in extreme
circumstances this may not be possible.
Scudder Tax Free Money Market Series+ seeks to provide investors with
as high a level of current income that cannot be subjected to federal
income tax by reason of federal law as is consistent with its
investment policies and with preservation of capital and liquidity. The
Fund seeks to maintain a constant net asset value of $1.00 per share,
but there is no assurance that it will be able to do so. The
institutional class of shares of this Fund is not within the Scudder
Family of Funds.
Scudder California Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share while
providing California taxpayers income exempt from both California State
personal and regular federal income taxes. The Fund is a professionally
managed portfolio of high quality, short-term California municipal
securities. There can be no assurance that the stable net asset value
will be maintained.
Scudder New York Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share, while
providing New York taxpayers income exempt from New York State and New
York City personal income taxes and regular federal income tax. There
can be no assurance that the stable net asset value will be maintained.
TAX FREE
Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a
high degree of principal stability.
Scudder Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation. The Fund will invest primarily in high-grade,
intermediate-term bonds.
Scudder Managed Municipal Bonds seeks to provide income exempt from
regular federal income tax primarily through investments in high-grade,
long-term municipal securities.
- --------
+ The institutional class of shares is not part of the Scudder Family of
Funds.
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
25
<PAGE>
Scudder High Yield Tax Free Fund seeks to provide a high level of
interest income, exempt from regular federal income tax, from an
actively managed portfolio consisting primarily of investment-grade
municipal securities.
Scudder California Tax Free Fund* seeks to provide California taxpayers
with income exempt from both California State personal income and
regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of California municipal securities.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide
Massachusetts taxpayers with as high a level of income exempt from
Massachusetts personal income tax and regular federal income tax, as is
consistent with a high degree of price stability, through a
professionally managed portfolio consisting primarily of
investment-grade municipal securities.
Scudder Massachusetts Tax Free Fund* seeks to provide Massachusetts
taxpayers with income exempt from both Massachusetts personal income
tax and regular federal income tax. The Fund is a professionally
managed portfolio consisting primarily of investment-grade municipal
securities.
Scudder New York Tax Free Fund* seeks to provide New York taxpayers
with income exempt from New York State and New York City personal
income taxes and regular federal income tax. The Fund is a
professionally managed portfolio consisting primarily of New York
municipal securities.
Scudder Ohio Tax Free Fund* seeks to provide Ohio taxpayers with income
exempt from both Ohio personal income tax and regular federal income
tax. The Fund is a professionally managed portfolio consisting
primarily of investment-grade municipal securities.
Scudder Pennsylvania Tax Free Fund* seeks to provide Pennsylvania
taxpayers with income exempt from both Pennsylvania personal income tax
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of investment-grade municipal
securities.
U.S. INCOME
Scudder Short Term Bond Fund seeks to provide high income while
managing its portfolio in a way that is consistent with maintaining a
high degree of stability of shareholders' capital. It does this by
investing mainly in bonds with short remaining maturities.
Scudder GNMA Fund seeks to provide high income. It does this by
investing mainly in "Ginnie Maes": mortgage-backed securities that are
issued or guaranteed by the Government National Mortgage Association
(GNMA).
Scudder Income Fund seeks to provide high income while managing its
portfolio in a way that is consistent with the prudent investment of
shareholders' capital. It does this by using a flexible investment
program that emphasizes high-grade bonds.
Scudder Corporate Bond Fund seeks to provide high income. It does this
by investing mainly in corporate bonds.
Scudder High Yield Bond Fund seeks to provide high income and,
secondarily, capital appreciation. It does this by investing mainly in
lower rated, higher yielding corporate bonds, often called junk bonds.
GLOBAL INCOME
Scudder Global Bond Fund seeks to provide total return with an emphasis
on current income by investing primarily in high-grade bonds
denominated in foreign currencies and the U.S. dollar. As a secondary
objective, the Fund will seek capital appreciation.
- ----------
26
<PAGE>
Scudder International Bond Fund seeks to provide income primarily by
investing in a managed portfolio of high-grade international bonds. As
a secondary objective, the Fund seeks protection and possible
enhancement of principal value by actively managing currency, bond
market and maturity exposure and by security selection.
Scudder Emerging Markets Income Fund seeks to provide high current
income and, secondarily, long-term capital appreciation through
investments primarily in high-yielding debt securities issued by
governments and corporations in emerging markets.
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio, under normal market conditions, will invest
substantially in a select mix of Scudder bond mutual funds, but will
have some exposure to Scudder equity mutual funds.
Scudder Pathway Series: Balanced Portfolio seeks to provide investors
with a balance of growth and income by investing in a select mix of
Scudder money market, bond and equity mutual funds.
Scudder Pathway Series: Growth Portfolio seeks to provide investors
with long-term growth of capital. In pursuing this objective, the
Portfolio will, under normal market conditions, invest predominantly in
a select mix of Scudder equity mutual funds designed to provide
long-term growth.
Scudder Pathway Series: International Portfolio seeks maximum total
return for investors. Total return consists of any capital appreciation
plus dividend income and interest. To achieve this objective, the
Portfolio invests in a select mix of established international and
global Scudder funds.
U.S. GROWTH AND INCOME
Scudder Balanced Fund seeks a balance of growth and income from a
diversified portfolio of equity and fixed-income securities. The Fund
also seeks long-term preservation of capital through a quality-oriented
investment approach that is designed to reduce risk.
Scudder Dividend & Growth Fund seeks high current income and long-term
growth of capital through investment in income paying equity
securities.
Scudder Growth and Income Fund seeks long-term growth of capital,
current income, and growth of income.
Scudder Select 500 Fund seeks to provide long-term growth and income
through investment in selected stocks of companies in the S&P 500
Index.
Scudder 500 Index Fund seeks to provide investment results that, before
expenses, correspond to the total return of common stocks publicly
traded in the United States, as represented by the Standard & Poor's
500 Composite Stock Price Index.
Scudder Real Estate Investment Fund seeks long-term capital growth and
current income by investing primarily in equity securities of companies
in the real estate industry.
U.S. GROWTH
Value
Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a value-driven investment program.
27
<PAGE>
Scudder Value Fund** seeks long-term growth of capital through
investment in undervalued equity securities.
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies.
Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-capitalization
("micro-cap") common stocks.
Growth
Scudder Classic Growth Fund** seeks to provide long-term growth of
capital with reduced share price volatility compared to other growth
mutual funds.
Scudder Large Company Growth Fund seeks to provide long-term growth of
capital through investment primarily in the equity securities of
seasoned, financially strong U.S. growth companies.
Scudder Select 1000 Growth Fund seeks to provide long-term growth of
capital through investment in selected stocks of companies in the
Russell 1000 Growth Index.
Scudder Development Fund seeks long-term growth of capital by investing
primarily in medium-size companies with the potential for sustainable
above-average earnings growth.
Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in the securities of emerging growth companies
poised to be leaders in the 21st century.
GLOBAL EQUITY
Worldwide
Scudder Global Fund seeks long-term growth of capital through a
diversified portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt
securities convertible into common stocks.
Scudder International Value Fund seeks long-term capital appreciation
through investment primarily in undervalued foreign equity securities.
Scudder International Growth and Income Fund seeks long-term growth of
capital and current income primarily from foreign equity securities.
Scudder International Fund*** seeks long-term growth of capital
primarily through a diversified portfolio of marketable foreign equity
securities.
Scudder International Growth Fund seeks long-term capital appreciation
through investment primarily in the equity securities of foreign
companies with high growth potential.
Scudder Global Discovery Fund** seeks above-average capital
appreciation over the long term by investing primarily in the equity
securities of small companies located throughout the world.
Scudder Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the
globe.
- --------
** Only the Scudder Shares are part of the Scudder Family of Funds.
*** Only the International Shares are part of the Scudder Family of Funds.
** Only the Scudder Shares are part of the Scudder Family of Funds.
28
<PAGE>
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
Regional
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
The Japan Fund, Inc. seeks long-term capital appreciation by investing
primarily in equity securities (including American Depository Receipts)
of Japanese companies.
INDUSTRY SECTOR FUNDS
Choice Series
Scudder Financial Services Fund seeks long-term growth of capital
primarily through investment in equity securities of financial services
companies.
Scudder Health Care Fund seeks long-term growth of capital primarily
through investment in securities of companies that are engaged in the
development, production or distribution of products or services related
to the treatment or prevention of diseases and other medical problems.
Scudder Technology Fund seeks long-term growth of capital primarily
through investment in securities of companies engaged in the
development, production or distribution of technology-related products
or services.
SCUDDER PREFERRED SERIES
Scudder Tax Managed Growth Fund seeks long-term growth of capital on an
after-tax basis by investing primarily in established, medium- to
large-sized U.S. companies with leading competitive positions.
Scudder Tax Managed Small Company Fund seeks long-term growth of
capital on an after-tax basis through investment primarily in
undervalued stocks of small U.S. companies.
The net asset values of most Scudder funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
service representative of Scudder Investor.
SPECIAL PLAN ACCOUNTS
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. The
discussions of the plans below describe only certain aspects of the federal
income tax
29
<PAGE>
treatment of the plan. The state tax treatment may be different and may vary
from state to state. It is advisable for an investor considering the funding of
the investment plans described below to consult with an attorney or other
investment or tax adviser with respect to the suitability requirements and tax
aspects thereof.
Shares of the Funds may also be a permitted investment under profit
sharing and pension plans and IRAs other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Funds may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code as to form.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Funds may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of the Funds may be purchased as the underlying investment for
an Individual Retirement Account which meets the requirements of Section 408(a)
of the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples, even if only one spouse
has earned income). All income and capital gains derived from IRA investments
are reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)
30
<PAGE>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
</TABLE>
This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming average
annual returns of 5, 10 and 15%. (At withdrawal, a portion of the accumulation
in this table will be taxable.)
Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
</TABLE>
Scudder Roth IRA: Individual Retirement Account
Shares of the Funds may be purchased as the underlying investment for a
Roth Individual Retirement Account which meets the requirements of Section 408A
of the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions of earnings from a Roth IRA
are taxable and subject to a 10% tax penalty unless an exception applies.
Exceptions to the 10% penalty include: disability, certain medical expenses, the
purchase of health insurance for an unemployed individual and education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
31
<PAGE>
Scudder 403(b) Plan
Shares of the Funds may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s) as
described under "Transaction information -- Redeeming shares -- Signature
guarantees" in the Funds' prospectus. Any such requests must be received by the
applicable Funds' transfer agent ten days prior to the date of the first
automatic withdrawal. An Automatic Withdrawal Plan may be terminated at any time
by the shareholder, the Trust or its agent on written notice, and will be
terminated when all shares of the Fund under the Plan have been liquidated or
upon receipt by the applicable Trust of notice of death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, each Trust and its agents reserve the right to establish a maintenance
charge in the future depending on the services required by the investor.
Each Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
32
<PAGE>
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
Each Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See "Distributions" in the Funds' combined prospectus.)
The net income of each Fund is determined as of the close of regular
trading on the Exchange, usually 4 p.m. eastern time on each day the Exchange is
open for trading.
All the net investment income and all net realized short-term capital
gains and net realized short and long-term capital losses of SCIT so determined
normally will be declared as a dividend to shareholders of record as of
determination of the net asset value at twelve o'clock noon after the purchase
and redemption of shares. Any losses may be included in the daily dividend for
such number of days as is deemed appropriate in order to avoid a
disproportionate impact on holders of shares of beneficial interest of the Fund
on any one day on which a dividend is declared. All the net investment income
and all realized capital gains and losses on securities held for one year or
less (short-term capital gain/loss) of Treasury Fund so determined normally will
be declared as a dividend to shareholders of record as of determination of the
net asset value at twelve o'clock noon after the purchase and redemption of
shares. All the investment income of STFMF so determined normally will be
declared as a dividend to shareholders of record as of determination of the net
asset value at twelve o'clock noon after the purchase and redemption of shares.
Shares purchased as of the determination of net asset value made as of the
regular close of the Exchange will not participate in that day's dividend; in
such cases dividends commence on the next business day. Checks will be mailed to
shareholders electing to take dividends in cash, and confirmations will be
mailed to shareholders electing to invest dividends in additional shares for the
month's dividends within four business days after the dividend is calculated.
Dividends will be invested at the net asset value per share, normally $l.00,
determined as of the close of regular trading on the Exchange on the last
business day of each month.
Dividends are declared daily on each day on which the Exchange is open
for business. The dividends for a business day immediately preceding a weekend
or holiday will normally include an amount equal to the net income for the
subsequent days on which dividends are not declared. However, no daily dividend
will include any amount of net investment income in respect of a subsequent
semiannual accounting period.
Net investment income (from the time of the immediately preceding
determination thereof) consists of all interest income accrued on the portfolio
assets of a Fund, less all actual and accrued expenses. Interest income included
in the daily computation of net investment income is comprised of original issue
discount earned on discount paper accrued to the date of maturity as well as
accrued interest. Expenses of each Fund, including the management fee payable to
the Adviser, are accrued each day.
Normally, each Fund will have a positive net investment income at the
time of each determination thereof. Net investment income may be negative if an
unexpected liability must be accrued or a loss realized. If the net investment
income of a Fund determined at any time is a negative amount, the net asset
value per share will be reduced below $l.00 unless one or more of the following
steps are taken: the Trustees have the authority (1) to reduce the number of
shares in each shareholder's account, (2) to offset each shareholder's pro rata
portion of negative net investment income from the shareholder's accrued
dividend account or from future dividends, or (3) to combine these methods in
order to seek to maintain the net asset value per share at $1.00. Each Fund may
endeavor to restore the net asset value per share to $l.00 by not declaring
dividends from net investment income on subsequent days until restoration, with
the result that the net asset value per share will increase to the extent of
positive net investment income which is not declared as a dividend.
Because the net investment income of each Fund is declared as a
dividend each time the net investment income of the Fund is determined, the net
asset value per share of each Fund (i.e., the fair value of the net assets of
the Fund
33
<PAGE>
divided by the number of shares of the Fund outstanding) will remain at $l.00
per share immediately after each such determination and dividend declaration,
unless (i) there are unusual or extended fluctuations in short-term interest
rates or other factors, such as unfavorable changes in the creditworthiness of
issuers affecting the value of securities in the Fund's portfolio, or (ii) net
income is a negative amount.
Should a Fund incur or anticipate any unusual or unexpected significant
expense or loss which would affect disproportionately that Fund's income for a
particular period, the Trustees would at that time consider whether to adhere to
the dividend policy described above or to revise it in the light of the then
prevailing circumstances in order to ameliorate to the extent possible the
disproportionate effect of such expense, loss or depreciation on then existing
shareholders. Such expenses or losses may nevertheless result in a shareholder's
receiving no dividends for the period during which the shares are held and in
receiving upon redemption a price per share lower than that which was paid.
Distributions of realized capital gains, if any, are paid in November
or December of STFMF's taxable year, although the Fund may make an additional
distribution within three months of the Fund's fiscal year end of December 31.
STFMF expects to follow the practice of distributing all net realized capital
gains to shareholders and expects to distribute realized capital gains at least
annually. However, if any realized capital gains are retained by STFMF for
reinvestment and federal income taxes are paid thereon by the Fund, the Fund
will elect to treat such capital gains as having been distributed to
shareholders; as a result, shareholders would be able to claim their share of
the taxes paid by the Fund on such gains as a credit against their individual
federal income tax liability.
Each Fund does not anticipate realizing any long-term capital gains.
PERFORMANCE INFORMATION
From time to time, quotations of each Fund's performance may be
included in advertisements, sales literature or reports to shareholders or
prospective investors. These performance figures may be calculated in the
following manner:
Yield
For SCIT, Treasury Fund and STFMF, yield is the net annualized yield
based on a specified 7 calendar days calculated at simple interest rates. Yield
is calculated by determining the net change, exclusive of capital changes, in
the value of a hypothetical pre-existing account having a balance of one share
at the beginning of the period, and dividing the difference by the value of the
account at the beginning of the base period to obtain the base period return.
The yield is annualized by multiplying the base period return by 365/7. The
yield figure is stated to the nearest hundredth of one percent. For SCIT and
Treasury Fund, the yields for the seven-day period ended June 30, 1998 were
4.81% and 4.91% respectively. If SCIT's Adviser had not absorbed a portion of
the Fund's expenses and had imposed a full management fee, the Fund's yield for
the seven-day period ended June 30, 1998 would have been 4.58%. If Treasury
Fund's Adviser had not absorbed a portion of the Fund's expenses and had imposed
a full management fee, the Fund's yield for the seven-day period ended June 30,
1998 would have been 4.36%. For STFMF, the yield for the seven-day period ended
December 31, 1998 was 2.94%. If STFMF's Adviser had not absorbed a portion of
the Fund's expenses and had imposed a full management fee, the Fund's yield for
the seven-day period ended December 31, 1998 would have been 2.89%.
Effective Yield
Effective yield is the net annualized yield for a specified 7 calendar
days assuming a reinvestment of the income or compounding. Effective yield is
calculated by the same method as yield except the effective yield figure is
compounded by adding 1, raising the sum to a power equal to 365 divided by 7,
and subtracting 1 from the result, according to the following formula:
Effective yield = [(Base Period Return + 1)^365/7] - 1.
The effective yield for the seven-day period ended June 30, 1998 was
4.92% for SCIT and 5.03% for Treasury Fund. If SCIT's Adviser had not absorbed a
portion of the Fund's expenses and had imposed a full management fee, the Fund's
yield for the seven-day period ended June 30, 1998 would have been 4.69%. If
Treasury Fund's Adviser had not
34
<PAGE>
absorbed a portion of the Fund's expenses and had imposed a full management fee,
the Fund's yield for the seven-day period ended June 30, 1998 would have been
4.48%. The effective yield for STFMF for the seven-day period ended December 31,
1998 was 2.99%. If STFMF's Adviser had not absorbed a portion of the Fund's
expenses and had imposed a full management fee, the Fund's yield for the
seven-day period ended December 31, 1998 would have been 2.94%.
Tax-Equivalent Yield -- Scudder Tax Free Money Fund
For STFMF, the tax-equivalent yield is the net annualized taxable yield
needed to produce a specified tax-exempt yield at a given tax rate based on a
specified 7-day period assuming a reinvestment of all dividends paid during such
period. Tax-equivalent yield is calculated by dividing that portion of the
Fund's yield (as computed in the yield description in A. above) which is
tax-exempt by one minus a stated income tax rate and adding the product to that
portion, if any, of the yield of the Fund that is not tax-exempt. Thus,
taxpayers with effective federal income tax rates of 36% and 39.6% would need to
earn a taxable yield of 4.13% and 4.37% respectively, to receive after-tax
income equal to the 2.64% 30-day tax-free yield of Scudder Tax Free Money Fund
on December 31, 1998.
Yield, effective yield and tax-equivalent yield are historical, show
the performance of a hypothetical investment and are not intended to indicate
future performance. Yield, effective yield and, tax-equivalent yield will vary
based on changes in market conditions and the level of the Fund's expenses.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indices which may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs.
From time to time, in marketing pieces and other fund literature, the
Fund's yield and performance over time may be compared to the performance of
broad groups of comparable mutual funds, bank money market deposit accounts and
fixed-rate insured certificates of deposit (CDs), or unmanaged indices of
securities that are comparable to money market funds in their terms and intent,
such as Treasury bills, bankers' acceptances, negotiable order of withdrawal
accounts, and money market certificates. Most bank CDs differ from money market
funds in several ways: the interest rate is fixed for the term of the CD, there
are interest penalties for early withdrawal of the deposit, and the deposit
principal is insured by the FDIC.
Quotations of each Fund's performance are based on historical earnings
and are not intended to indicate future performance. An investor's shares when
redeemed may be worth more or less than their original cost. Performance of the
Fund will vary based on changes in market conditions and the level of each
Fund's expenses.
Average Annual Total Return
Average annual total return is the average annual compound rate of
return for the periods of one year, five years and ten years, all ended on the
last day of a recent calendar quarter. Average annual total return quotations
reflect changes in the price of a Fund's shares, if any, and assume that all
dividends and capital gains distributions during the respective periods were
reinvested in Fund shares. Average annual total return is calculated by finding
the average annual compound rates of return of a hypothetical investment over
such periods, according to the following formula (average annual total return is
then expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
P = a hypothetical initial investment of $1,000
T = Average Annual Total Return
n = number of years
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
35
<PAGE>
Average Annual Total Return for periods ended June 30, 1998
One Five Ten
Year Years Years
---- ----- -----
SCIT* 4.92% 4.44% 5.34%
Treasury Fund** 4.83% 4.35% 5.10%
* If the Adviser had not absorbed a portion of SCIT expenses and had
imposed a full management fee, the average annual total return for the
one year, five year and ten year periods ended June 30, 1998, would
have been lower.
** If the Adviser had not absorbed a portion of Treasury Fund expenses and
had imposed a full management fee, the average annual total return for
the one year, five year and ten year periods ended June 30, 1998, would
have been lower.
Average Annual Total Return for periods ended December 31, 1998
One Five Ten
Year Years Years
---- ----- -----
STFMF* 2.92% 2.89% 3.42%
* If the Adviser had not absorbed a portion of STFMF expenses and had
imposed a full management fee, the average annual total return for the
one year, five year and ten year periods ended December 31, 1998, would
have been lower.
Cumulative Total Return
Cumulative Total Return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect the change in the price of a Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative total return is calculated by finding the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the
value, at the end of the applicable
period, of a hypothetical $1,000
investment made at the beginning of the
applicable period.
Cumulative Total Return for periods ended June 30, 1998
One Five Ten
Year Years Years
---- ----- -----
SCIT* 4.92% 24.27% 68.26%
Treasury Fund** 4.83% 23.72% 64.38%
* If the Adviser had not absorbed a portion of SCIT's expenses and had
imposed a full management fee, the cumulative total return for the one
year, five year and ten year periods ended June 30, 1998, would have
been lower.
** If the Adviser had not absorbed a portion of Treasury Fund's expenses
and had imposed a full management fee, the cumulative total return for
the one year, five year and ten year periods ended June 30, 1998, would
have been lower.
36
<PAGE>
Cumulative Total Return for periods ended December 31, 1998
One Five Ten
Year Years Years
---- ----- -----
STFMFF* 2.92% 15.31% 40.03%
* If the Adviser had not absorbed a portion of STFMF's expenses and had
imposed a full management fee, the cumulative total return for the one
year, five year and ten year periods ended December 31, 1998, would have
been lower.
Total Return
Total return is the rate of return on an investment for a specified
period of time calculated in the manner as cumulative total return.
Quotations of the Funds' performance are historical, show the
performance of a hypothetical investment and are not intended to indicate future
performance. Average annual total return, cumulative total return and yield for
a Fund will vary based on changes in market conditions and the level of each
Fund's expenses. An investor's shares when redeemed may be worth more or less
than their original cost.
Investors should be aware that the principal of each Fund is not
insured.
Comparison of Fund Performance
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the Nasdaq OTC Composite Index, the Nasdaq
Industrials Index, the Russell 2000 Index, the Wilshire Real Estate Securities
Index and statistics published by the Small Business Administration.
From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.
From time to time, in marketing and other Fund literature, Trustees and
officers of the Fund, the Fund's portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management in
various geographical areas may be quoted in advertising and marketing materials.
37
<PAGE>
The Fund may be advertised as an investment choice in Scudder's college
planning program. The description may contain illustrations of projected future
college costs based on assumed rates of inflation and examples of hypothetical
fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund. Sources for Fund performance information and articles
about the Fund include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
38
<PAGE>
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
39
<PAGE>
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication issued 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
ORGANIZATION OF THE FUNDS
Scudder Cash Investment Trust is a Massachusetts business trust
established under a Declaration of Trust dated December 12, 1975. Treasury Fund
is a Massachusetts business trust established under a Declaration of Trust dated
April 4, 1980. On February 12, 1991, the Board of Trustees of Treasury Fund
approved the change in name from Scudder Government Money Fund to Scudder U.S.
Treasury Money Fund. Scudder Tax Free Money Fund is a Massachusetts business
trust established under a Declaration of Trust dated October 5, 1979, as
amended. Each Fund's authorized capital consists of an unlimited number of
shares of beneficial interest, par value $.01 per share, all of which are one
class and have equal rights as to voting, dividends and liquidation.
Shareholders have one vote for each share held. All shares issued and
outstanding will be fully paid and non-assessable by the Funds, and redeemable
as described in this combined Statement of Additional Information and in the
Funds' prospectus. The Trustees of the Funds have the authority to issue more
than one series of shares, but have no present intention to do so. If more than
one series of shares were issued and a series were unable to meet its
obligations, the remaining series might have to assume the unsatisfied
obligations of that series.
Each Fund's activities are supervised by a Board of Trustees. Each Fund
is not required to and has no current intention of holding annual shareholder
meetings, although special meetings may be called for purposes such as electing
or removing Trustees, changing fundamental investment policies or approving an
investment management agreement. Shareholders will be assisted in communicating
with other shareholders in connection with removing a Trustee as if Section
16(c) of the 1940 Act were applicable.
40
<PAGE>
The Trustees of Treasury Fund and STFMF, in their discretion, may
authorize the division of shares of each of their respective Funds (or shares of
a series) into different classes, permitting shares of different classes to be
distributed by different methods. Although shareholders of different classes
would have an interest in the same portfolio of assets, shareholders of
different classes may bear different expenses in connection with different
methods of distribution. The Trustees have no present intention of taking the
action necessary to change the method of distribution of shares of the Funds.
Each Fund has a Declaration of Trust which provides that obligations of
the Fund involved are not binding upon the Trustees individually but only upon
the property of that Fund, that the Trustees and officers will not be liable for
errors of judgment or mistakes of fact or law, and that the Fund involved will
indemnify its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Fund involved except if it is determined in the manner provided
in the Declarations of Trust that they have not acted in good faith in the
reasonable belief that their actions were in the best interests of the Fund
involved. However, nothing in the Declarations of Trust protects or indemnifies
a Trustee or officer against any liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his or her office.
INVESTMENT ADVISER
(See "Investment adviser" in the Funds' combined prospectus.)
Scudder Kemper Investments, Inc., an investment counsel firm, acts as
investment adviser to each Fund. This organization, the predecessor of which is
Scudder, Stevens & Clark, Inc., is one of the most experienced investment
counsel firms in the U.S. It was established as a partnership in 1919 and
pioneered the practice of providing investment counsel to individual clients on
a fee basis. In 1928 it introduced the first no-load mutual fund to the public.
In 1953 the Adviser introduced Scudder International Fund, Inc., the first
mutual fund available in the U.S. investing internationally in securities of
issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On June 26, 1997, Scudder,
Stevens & Clark, Inc. ("Scudder") entered into an agreement with Zurich
Insurance Company ("Zurich") pursuant to which Scudder and Zurich agreed to form
an alliance. On December 31, 1997, Zurich acquired a majority interest in
Scudder, and Zurich Kemper Investments, Inc., a Zurich subsidiary, became part
of Scudder. Scudder's name has been changed to Scudder Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Value
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Global/International
Fund, Inc., Scudder Global High Income Fund, Inc., Scudder GNMA Fund, Scudder
Portfolio Trust, Scudder International Fund, Inc., Investment Trust, Scudder
Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia Fund, Inc.,
Scudder New Europe Fund, Inc., Scudder Pathway Series, Scudder Securities Trust,
Scudder State Tax Free Trust, Scudder Tax Free Money Fund, Scudder Tax Free
Trust, Scudder U.S. Treasury Money Fund, Scudder Variable Life Investment Fund,
The Argentina Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc. and The
Japan Fund, Inc. Some of the foregoing companies or trusts have two or more
series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $13 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.
41
<PAGE>
Pursuant to an Agreement between the Adviser and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Adviser has agreed, subject to applicable state regulations, to pay AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by the Adviser with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Adviser
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment adviser
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLink(SM) Program will be a customer of the Adviser (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.
The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. In this work, the Adviser
utilizes certain reports and statistics from a variety of sources, including
brokers and dealers who may execute portfolio transactions for the Fund and for
clients of the Adviser, but conclusions are based primarily on investigations
and critical analyses by its own research specialists.
Certain investments may be appropriate for more than one of the Funds
and also for other clients advised by the Adviser. Investment decisions for the
Funds and other clients are made with a view to achieving their respective
investment objectives and after consideration of such factors as their current
holdings, availability of cash for investment and the size of their investments
generally. Frequently, a particular security may be bought or sold for only one
client or in different amounts and at different times for more than one but less
than all clients. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling the security. In addition,
purchases or sales of the same security may be made for two or more clients on
the same day. In such event, such transactions will be allocated among the
clients in a manner believed by the Adviser to be equitable to each. In some
cases, this procedure could have an adverse effect on the price or amount of the
securities purchased or sold by the Funds. Purchase and sales orders for each
Fund may be combined with those of other clients of the Adviser in the interest
of achieving the most favorable net results to the Funds.
The transaction between Scudder and Zurich resulted in the assignment
of each Funds' investment management agreements with Scudder and those
agreements were deemed to be automatically terminated at the consummation of the
transaction. In anticipation of the transaction, however, new investment
management agreements between the Funds and the Adviser were approved by the
Trustees on August 6, 1997. At the special meeting of the Funds' shareholders
held on October 24, 1997, the shareholders also approved the new investment
management agreements. The new investment management agreements (the
"Agreements") became effective as of December 31, 1997.
On September 7, 1998, the businesses of Zurich (including Zurich's 70%
interest in Scudder Kemper) and the financial services businesses of B.A.T
Industries p.l.c. ("B.A.T") were combined to form a new global insurance and
financial services company known as Zurich Financial Services Group. By way of a
dual holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services Group, with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, each Fund's existing investment
management agreement with Scudder Kemper was deemed to have been assigned and,
therefore, terminated. The Board approved new investment management agreements
(the "Agreements") with Scudder Kemper, which are substantially identical to the
former investment management agreements, except for the dates of execution and
termination. These agreements became effective September 7, 1998, upon the
termination of the then current investment management agreements, and were
approved at a shareholder meeting held on December 15, 1998.
The Agreements dated September 7, 1998 were last approved by the
Trustees of the Funds on August 10, 1998. The Agreements will continue in effect
until September 30, 1999 and from year to year thereafter only if their
continuance is approved annually by the vote of a majority of those Trustees who
are not parties to such Agreements or interested persons of the Adviser or the
Fund, cast in person at a meeting called for the purpose of voting on such
approval, and either by a vote of the Trust's Trustees or of a majority of the
outstanding voting securities of the respective Fund. The Agreements may be
terminated at any time without payment of penalty by either party on sixty days'
written notice, and automatically terminate in the event of their reassignment.
42
<PAGE>
Under each Agreement, the Adviser regularly provides a Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objectives, policies and restrictions set forth, and
determines what securities shall be purchased for the portfolio of the Fund,
what portfolio securities shall be held or sold by the Fund, and what portion of
the Fund's assets shall be held uninvested, subject always to the provisions of
the Trust's Declaration of Trust and By-Laws, and of the 1940 Act and the Code
and to the Fund's investment objectives, policies and restrictions, and subject
further to such policies and instructions as the Trustees of the Trust may from
time to time establish. The Adviser also advises and assists the officers of the
Trust in taking such steps as are necessary or appropriate to carry out the
decisions of its Trustees and the appropriate committees of the Trustees
regarding the conduct of the business of the Trust.
Under each Agreement, the Adviser also renders significant
administrative services (not otherwise provided by third parties) necessary for
a Fund's operations as an open-end investment company including, but not limited
to, preparing reports and notices to the Trustees and shareholders; supervising,
negotiating contractual arrangements with, to the extent appropriate, and
monitoring various third-party service providers to a Fund (such as a Fund's
transfer agent, pricing agents, custodian, accountants and others); preparing
and making filings with the SEC and other regulatory agencies; assisting in the
preparation and filing of a Fund's federal, state and local tax returns;
preparing and filing a Fund's federal excise tax returns; assisting with
investor and public relations matters; monitoring the valuation of securities
and the calculation of net asset value; monitoring the registration of shares of
a Fund under applicable federal and state securities laws; maintaining or
causing to be maintained for a Fund all books, record and reports to the extent
not otherwise maintained by a third party; assisting in establishing accounting
policies of a Fund; assisting in the resolution of accounting and legal issues;
establishing and monitoring a Fund's operating budget; processing the payment of
a Fund's bills; assisting a Fund in, and otherwise arranging for, the payment of
distributions and dividends, and otherwise assisting a Fund in the conduct of
its business, subject to the direction and control of the Trustees.
The Adviser pays the compensation and expenses of all affiliated
Trustees and executive employees of the Trust and makes available, without
expense to the Funds, the services of such Trustees, officers and employees as
may duly be elected Trustees, officers or employees of a Fund, subject to their
individual consent to serve and to any limitations imposed by law, and provides
the Funds' office space and facilities.
Under the Investment Management Agreement between SCIT and the Adviser
(the "Agreement"), the Fund agrees to pay the Adviser a fee equal to an annual
rate of 0.50% of the first $250,000,000 of the Fund's average daily net assets,
0.45% of the next $250,000,000 of such net assets, 0.40% of the next
$500,000,000 of such net assets and 0.35% of such net assets in excess of
$1,000,000,000 computed and accrued daily. The fee is payable monthly, provided
the Fund will make such interim payments as may be requested by the Adviser not
to exceed 75% of the amount of the fee then accrued on the books of the Fund and
unpaid. As manager of the assets of the Fund, the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies
and restrictions. The Adviser 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 Adviser provides certain
administrative services in accordance with the Management Agreement. In
addition, the Adviser has agreed to maintain the annualized expenses of the Fund
at not more than 0.85% of average daily net assets until September 30, 1999. For
the fiscal years ended June 30, 1996, 1997 and 1998 the investment advisory fee
was $5,898,959, $5,944,464 and $5,260,517, respectively, and the fees not
imposed in 1996, 1997 and 1998 amounted to $0, $2,420 and $1,289,666,
respectively.
Under the Investment Management Agreement between Treasury Fund and the
Adviser (the "Agreement"), the Fund agrees to pay the Adviser a fee equal to an
annual rate of 0.50% of its average daily net assets computed and accrued daily
and payable monthly. As manager of the assets of the Fund, the Adviser directs
the investments of the Fund in accordance with its investment objectives,
policies and restrictions. The Adviser 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 Adviser
provides certain administrative services in accordance with the Management
Agreement. The Adviser has agreed not to impose all or a portion of its
management fee until September 30, 1999, and during such period to maintain the
annualized expenses of the Fund at not more than 0.65% of average daily net
assets.
For these services, Treasury Fund pays the Adviser a fee equal to 0.50
of 1% of the Fund's average daily net assets. The fee is payable monthly,
provided the Fund will make such interim payments as may be requested by the
Adviser not to exceed 75% of the amount of the fee then accrued on the books of
the Fund and unpaid. For the fiscal years ended June 30, 1996, 1997 and 1998 the
investment advisory fee was $1,968,151, $2,095,848, and $1,995,553,
43
<PAGE>
respectively and the fees not imposed amounted to $1,077,479, $1,202,181 and
$1,378,392, respectively. For the fiscal year ended June 30, 1998, $9,563 of
Treasury Fund's investment advisory fee was unpaid at June 30, 1998.
Under the Investment Management Agreement between STFMF and the Adviser
(the "Agreement"), the Fund agrees to pay the Adviser a fee equal to an annual
rate of 0.50% of the first $500 million of the Fund's average daily net assets
and 0.48% of such net assets over $500 million, payable monthly, provided the
Fund will make such interim payments as may be requested by the Adviser not to
exceed 75% of the amount of the fee then accrued on the books of the Fund and
unpaid. As manager of the assets of the Fund, the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies
and restrictions. The Adviser 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 Adviser provides certain
administrative services in accordance with the Agreement. In addition, the
Adviser has agreed to maintain the annualized expenses of the Fund at not more
than 0.65% of average daily net assets until September 30, 1999. For the fiscal
years ended December 31, 1996, 1997 and 1998 the investment advisory fee was
$1,134,327, $1,120,092, and $1,284,548, respectively and the fees not imposed
amounted to $103,572, $238,094 and $167,229, respectively.
Under the Agreements, the Funds are responsible for all their other
expenses, including fees and expenses incurred in connection with membership in
investment company organizations; brokers' commissions; payments for portfolio
pricing services to a pricing agent, if any; legal, auditing and accounting
expenses; taxes and governmental fees; the fees and expenses of the Transfer
Agent; the cost of preparing share certificates or any other expenses, including
expenses of issuance, sale, redemption or repurchase of shares of beneficial
interest; the expenses of and fees for registering or qualifying securities for
sale; the fees and expenses of Trustees, officers and employees of the Funds who
are not affiliated with the Adviser; the cost of printing and distributing
reports and notices to shareholders; and the fees and disbursements of
custodians. The Funds may arrange to have third parties assume all or part of
the expense of sale, underwriting and distribution of shares of the Funds. Each
Fund is also responsible for its expenses of shareholder meetings and expenses
incurred in connection with litigation, proceedings and claims and the legal
obligation it may have to indemnify its officers and Trustees with respect
thereto.
The expense ratios for SCIT for the fiscal years ended June 30, 1996,
1997 and 1998 were 0.83%, 0.86% and 0.85%, respectively. The ratios of expenses
to annual investment income for SCIT for the same years were 14.75%, 15.63% and
15.00%, respectively. The expense ratios for Treasury Fund for the fiscal years
ended June 30, 1996, 1997 and 1998 were 0.65%, 0.65% and 0.65%, respectively.
The ratios of expenses to annual investment income for the same periods were
11.94%, 12.65% and 12.10%, respectively. The expense ratios for STFMF for the
fiscal years ended December 31, 1996, 1997 and 1998 were 0.70%, 0.65% and 0.65%,
respectively. The ratios of expenses to annual investment income for STFMF for
the same years were 19.71%, 17.53% and 18.41%, respectively. If reimbursement is
required, it will be made as promptly as practicable after the end of a Fund's
fiscal year. However, no fee payment will be made to the Adviser during any
fiscal year which will cause year-to-date expenses to exceed the cumulative pro
rata expense limitation at the time of such payment.
Each Management Agreement identifies the Adviser as the exclusive
licensee of the rights to use and sublicense the names "Scudder," "Scudder
Kemper Investments, Inc." and "Scudder, Stevens & Clark, Inc." (together, the
"Scudder Marks"). Under this license, the Trust, with respect to the Fund, has
the non-exclusive right to use and sublicense the Scudder name and marks as part
of its name, and to use the Scudder Marks in the Trust's investment products and
services.
In reviewing the terms of the Agreements and in discussions with the
Adviser concerning the Agreements, Trustees of each Fund who are not "interested
persons" of the Fund or the Adviser are represented by independent counsel at
that Fund's expense. Dechert Price & Rhoads acts as general counsel for SCIT and
Treasury Fund. Willkie, Farr & Gallagher acts as general counsel for STFMF.
Each Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by a Fund in
connection with matters to which the Agreements relate, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
44
<PAGE>
Any person, even though also employed by Scudder, who may be or become
an employee of and paid by the Fund shall be deemed, when acting within the
scope of his or her employment by the Fund, to be acting in such employment
solely for the Fund and not as an agent of Scudder.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Funds' custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions were not
influenced by existing or potential custodial or other Fund relationships.
The Adviser may serve as adviser to other funds with investment
objectives and policies similar to those of the Funds that may have different
distribution arrangements or expenses, which may affect performance.
None of the Trustees or officers of a Fund may have dealings with that
Fund as principals in the purchase or sale of securities, except as individual
subscribers to or holders of shares of the Fund.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Principal Occupation** Position with Underwriter,
Name, Age and Address Position with Fund and Affiliations Scudder Investor Services, Inc.
- --------------------- ------------------ ------------------------ -------------------------------
<S> <C> <C> <C>
Daniel Pierce (65)*#@ President and Trustee Managing Director of Vice President, Director and
Scudder Kemper Assistant Treasurer
Investments, Inc.
Henry P. Becton, Jr. (55)# Trustee President and General --
WGBH Manager, WGBH Educational
125 Western Avenue Foundation
Allston, MA 02134
Dawn-Marie Driscoll (52)# Trustee Executive Fellow, Center --
4909 SW 9th Place for Business Ethics;
Cape Coral, FL 33914 President, Driscoll
Associates (consulting
firm)
Peter B. Freeman (66)# Trustee Corporate Director and --
100 Alumni Avenue Trustee
Providence, RI 02906
George M. Lovejoy, Jr. (69)# Trustee President and Director, --
50 Congress Street, Ste. 43 Fifty Associates (real
Boston, MA 02109 estate corporation)
45
<PAGE>
Principal Occupation** Position with Underwriter,
Name, Age and Address Position with Fund and Affiliations Scudder Investor Services, Inc.
- --------------------- ------------------ ------------------------ -------------------------------
Dr. Wesley W. Marple, Jr. (67) Trustee Professor of Business --
Northeastern University Administration,
360 Huntington Avenue Northeastern University
Boston, MA 02115
Kathryn L. Quirk (46)*#+ Trustee, Vice Managing Director of --
President and Scudder Kemper
Assistant Secretary Investments, Inc.
Jean C. Tempel (56) Trustee Venture Partner, Internet --
10 Post Office Square Capital Corporation
Suite 1325
Boston, MA 02109-4603
Thomas W. Joseph (60)@ Vice President Senior Vice President of Vice President, Treasurer and
Scudder, Kemper Assistant Clerk
Investments, Inc.
Ann M. McCreary(42)+ Vice President Managing Director of __
Scudder Kemper
Investments, Inc.
Frank J. Rachwalski, Jr. (54) +++ Vice President Managing Director of --
Scudder Kemper
Investments, Inc.
John R. Hebble (40)@ Treasurer Senior Vice President of --
Scudder Kemper
Investments, Inc.
Caroline Pearson (37)@ Assistant Secretary Senior Vice President of Clerk
Scudder Kemper
Investments, Inc.;
Associate, Dechert Price &
Rhoads (law firm) 1989 to
1997.
</TABLE>
* Mr. Pierce and Ms. Quirk are considered by the Funds and their counsel
to be Trustees who are "interested persons" of the Adviser of the Fund,
within the meaning of the 1940 Act, as amended.
** Unless otherwise stated, all officers and Trustees have been associated
with their respective companies for more than five years, but not
necessarily in the same capacity.
# Messrs. Becton, Lovejoy and Pierce and Ms. Quirk are members of the
Executive Committee for Scudder Cash Investment Trust. Messrs. Lovejoy
and Pierce and Mses. Driscoll and Quirk are members of the Executive
Committee for the Scudder U.S. Treasury Money Fund. Messrs. Freeman,
Lovejoy and Pierce and Ms. Quirk are members of the Executive Committee
for Scudder Tax Free Money Fund. The Executive Committee has the power
to declare dividends from ordinary income and distributions of realized
capital gains to the same extent as the Board is so empowered.
@ Address: Two International Place, Boston, Massachusetts 02110
+ Address: 345 Park Avenue, New York, New York 10154
++ Address: 333 South Hope Street, 37th floor, Los Angeles, CA 90071
+++ Address: 222 South Riverside Plaza, Chicago, IL
46
<PAGE>
As of May 31, 1999, all Trustees and officers as a group owned
beneficially (as that term is defined under Section 13(d) of the Securities
Exchange Act of 1934) 15,000,579 shares, or 1.31%, of the shares of Scudder Cash
Investment Trust outstanding on such date.
As of May 31, 1999, all Trustees and officers as a group owned
beneficially (as that term is defined under Section 13(d) of the Securities
Exchange Act of 1934) less than 1% of the shares of Scudder U.S. Treasury Money
Fund outstanding on such date.
As of May 31, 1999, all Trustees and officers as a group owned
beneficially (as the term is defined in Section 13 (d) of the Securities
exchange Act of 1934) less than 1% of the Tax Free Money Fund outstanding on
such date.
Certain accounts for which the Adviser acts as investment adviser owned
14,093,473 shares in the aggregate, or 5.12% of the outstanding shares of the
Tax Free Money Fund on May 31, 1999. The Adviser may be deemed to be the
beneficial owner of such shares but disclaims any beneficial ownership in such
shares.
As of May 31, 1999, 52,179,947 shares in the aggregate, 18.95% of the
outstanding shares of the Tax Free Money Fund, were held in the name of Scudder
Trust Company, Disbursement Account, c/o Laurie Clifford, 5 Industrial Way,
Salem, NH, 03079 who may be deemed to be the beneficial owner of certain of
these shares, but disclaims any beneficial ownership therein.
To the best of each Fund's knowledge as of May 31, 1999, no person
owned beneficially more than 5% of the Fund's outstanding shares, except as
stated above.
The Trustees and officers of each Fund also serve in similar capacities
with respect to other Scudder Funds.
REMUNERATION
Responsibilities of the Board -- Board and Committee Meetings
Each Fund's Board of Trustees is responsible for the general oversight
of each Fund's business. A majority of each Board's members are not affiliated
with Scudder Kemper Investments, Inc. These "Independent Trustees" have primary
responsibility for assuring that each Fund is managed in the best interests of
its shareholders.
The Board of Trustees for each Fund meets at least quarterly to review
the investment performance of each Fund and other operational matters, including
policies and procedures designed to ensure compliance with various regulatory
requirements. At least annually, the Independent Trustees review the fees paid
to the Adviser and its affiliates for investment advisory services and other
administrative and shareholder services. In this regard, they evaluate, among
other things, each Fund's investment performance, the quality and efficiency of
the various other services provided, costs incurred by the Adviser and its
affiliates and comparative information regarding fees and expenses of
competitive funds. They are assisted in this process by each Fund's independent
public accountants and by independent legal counsel selected by the Independent
Trustees.
All the Independent Trustees serve on each Fund's respective Committee
on Independent Trustees, which nominates Independent Trustees and considers
other related matters, and the respective Audit Committee, which selects each
Fund's independent public accountants and reviews accounting policies and
controls. In addition, Independent Trustees from time to time have established
and served on task forces and subcommittees focusing on particular matters such
as investment, accounting and shareholder service issues.
Compensation of Officers and Trustees
The Independent Trustees receive the following compensation from each
of SCIT, STFMF and Treasury Fund: an annual trustee's fee of $7,200 for SCIT and
$4,800 for STFMF and Treasury Fund; a fee of $150 for attendance at each Board
Meeting, Audit Committee Meeting or other meeting held for the purposes of
considering arrangements between the Trust on behalf of each Fund and the
Adviser or any affiliate of the Adviser; $150 for Audit Committee and Contract
Meetings and $75 for all other committee meetings; and reimbursement of expenses
incurred for travel to and from Board Meetings. The Independent Trustee who
serves as lead or liaison Trustee receives an additional annual
47
<PAGE>
retainer fee of $500 from each Fund. No additional compensation is paid to any
Independent Trustee for travel time to meetings, attendance at directors'
educational seminars or conferences, service on industry or association
committees, participation as speakers at directors' conferences or service on
special trustee task forces or subcommittees. Independent Trustees do not
receive any employee benefits such as pension or retirement benefits or health
insurance. Notwithstanding the schedule of fees, the Independent Trustees have
in the past and may in the future waive a portion of their compensation.
The Independent Trustees of the Fund also serve as Independent Trustees
of certain other Scudder Funds, which enables them to address investment and
operational issues that are common to many of the Funds in a cost-efficient and
effective manner. During 1998, the Independent Trustees participated in 26
meetings of the Fund's board or board committees, which were held on 21
different days during the year.
The Independent Trustees also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type and complexity
and in some cases have substantially different Trustee fee schedules. The
following table shows the aggregate compensation received by each Independent
Trustee during 1998 from the Trusts and from all of the Scudder funds as a
group.
<TABLE>
<CAPTION>
Scudder U.S.
Scudder Cash Scudder Tax Treasury
Name Investment Trust Free Money Fund Money Fund All Scudder Funds
- ---- ---------------- --------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Henry P. Becton, Jr.,
Trustee $7,823 $6,023 $6,023 $135,000 (28 funds)
Dawn-Marie Driscoll,
Trustee $8,249 $6,449 $6,449 $145,000 (28 funds)
Peter B. Freeman,
Trustee $8,062 $6,070 $6,070 $172,425 (46 funds)
George M. Lovejoy, Jr.,
Trustee $7,823 $6,023 $6,023 $148,600 (29 funds)
Dr. Wesley W. Marple,
Jr., Trustee $7,823 $6,023 $6,023 $135,000 (28 funds)
Jean C. Temple,
Trustee $7,833 $6,033 $6,033 $135,000 (29 funds)
</TABLE>
Members of each Board of Trustees who are employees of the Adviser or
its affiliates receive no direct compensation from either Fund, although they
are compensated as employees of the Adviser, or its affiliates, as a result of
which they may be deemed to participate in fees paid by each Fund.
DISTRIBUTOR
Each Fund has an underwriting agreement with Scudder Investor Services,
Inc. Two International Place, Boston, MA 02110 (the "Distributor"), a
Massachusetts corporation, which is a wholly-owned subsidiary of the Adviser, a
Delaware corporation.
As agent, the Distributor currently offers shares of the Funds on a
continual basis to investors in all states in which the Funds may from time to
time be registered or where permitted by applicable law. The underwriting
agreement provides that the Distributor accept orders for shares at net asset
value as no sales commission or load is charged the investor. The Distributor
has made no firm commitment to acquire shares of either Fund.
Each Fund's underwriting agreement dated September 7, 1998 will remain
in effect until September 30, 1999 and from year to year only if its continuance
is approved annually by a majority of the respective Board of Trustees who are
not parties to such agreement or "interested persons" of any such party and
either by vote of a majority of the Trustees or a majority of the outstanding
voting securities of the Fund. Each Fund has agreed to pay all expenses in
connection with registration of its shares with the SEC and auditing and filing
fees in connection with registration of its shares under the various state
"blue-sky" laws and to assume the cost of preparation of prospectuses and other
expenses. The Distributor pays all expenses of printing prospectuses used in
offering shares (other than prospectuses used by the
48
<PAGE>
Funds for transmission to shareholders, for which the Funds pay printing
expenses), expenses, other than filing fees, of qualification of the respective
Fund's shares in various states, including registering each Fund as a dealer,
and all other expenses in connection with the offer and sale of shares which are
not specifically allocated to the Funds. Each Fund's underwriting agreement was
approved by the respective Fund's Trustees on August 10, 1998.
Under the underwriting agreements, each Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the SEC of its registration statement and prospectus and any amendments and
supplements thereto; the registration and qualification of shares for sale in
the various states, including registering each Fund as a broker or dealer; the
fees and expenses of preparing, printing and mailing prospectuses, notices,
proxy statements, reports or other communications (including newsletters) to
shareholders of each Fund; the cost of printing and mailing confirmations of
purchases of shares and the prospectuses accompanying such confirmations; any
issuance taxes or any initial transfer taxes; a portion of shareholder toll-free
telephone charges and expenses of customer service representatives; the cost of
wiring funds for share purchases and redemptions (unless paid by the shareholder
who initiates the transaction); the cost of printing and postage of business
reply envelopes; and a portion of the cost of computer terminals used by both
the Fund and the Distributor. Although each Fund does not currently have a 12b-1
Plan and shareholder approval would be required in order to adopt one, each Fund
will also pay those fees and expenses permitted to be paid or assumed by the
Fund pursuant to a 12b-1 Plan, if any, adopted by each Fund, notwithstanding any
other provision to the contrary in the underwriting agreement and each Fund or a
third party will pay those fees and expenses not specifically allocated to the
Distributor in the underwriting agreement.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the shares to
the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of each Fund to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
customer service representatives, a portion of the cost of computer terminals,
and of any activity which is primarily intended to result in the sale of shares
issued by each Fund, unless a 12b-1 Plan is in effect which provides that the
Fund shall bear some or all of such expenses.
TAXES
(See "Distributions" and "Taxes" in the Funds' combined prospectus)
Each Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, or a predecessor statute and has qualified as
such since its inception. Such qualification does not involve governmental
supervision or management of investment practices or policy.
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
If for any taxable year a Fund does not qualify for the special federal
income tax treatment afforded regulated investment companies, all of its taxable
income will be subject to federal income tax at regular corporate rates (without
any deduction for distributions to its shareholders). In such event, dividend
distributions, would be taxable to shareholders to the extent of current
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.
Each Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of a Fund's ordinary income for the calendar year, at
least 98% of the excess of its capital gains over capital losses (adjusted for
certain ordinary losses) realized during the one-year period ending October 31
during such year, and all ordinary income and capital gains for prior years that
were not previously distributed.
Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of a Fund. Presently, each
Fund has no capital loss carryforwards.
49
<PAGE>
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by each Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, each Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a proportionate share of federal income taxes paid
by each Fund on such gains as a credit against the shareholder's federal income
tax liability, and will be entitled to increase the adjusted tax basis of the
shareholder's Fund shares by the difference between such reported gains and the
shareholder's tax credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are not expected to comprise a
substantial part of each Fund's gross income. If any such dividends constitute a
portion of the Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the 70% deduction for dividends received by
corporations. Shareholders will be informed of the portion of dividends which so
qualify. The dividends-received deduction is reduced to the extent the shares of
a Fund with respect to which the dividends are received are treated as
debt-financed under federal income tax law and is eliminated if either those
shares or the shares of a Fund are deemed to have been held by the Fund or the
shareholders, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable to shareholders as
long-term capital gains, regardless of the length of time the shares of a Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional Shares will have a cost basis for federal income tax purposes in each
Share so received equal to the net asset value of a Share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares, including exchanges for shares of
another Scudder Fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.
An individual may make a deductible IRA contribution of up to $2,000
or, if less, the amount of the individual's earned income for any taxable year
only if (i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,000 per individual for married couples if only one spouse has earned income)
for that year. There are special rules for determining how withdrawals are to be
taxed if an IRA contains both deductible and nondeductible amounts. In general,
a proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.
Distributions by a Fund result in a reduction in the net asset value of
the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution.
50
<PAGE>
Those purchasing just prior to a distribution will then receive a partial return
of capital upon the distribution, which will nevertheless be taxable to them.
Over-the-counter options on debt securities written or purchased by
each Fund will be subject to tax under Section 1234 of the Code. In general, no
loss will be recognized by a Fund upon payment of a premium in connection with
the purchase of a put or call option. The character of any gain or loss
recognized (i.e. long-term or short-term) will generally depend, in the case of
a lapse or sale of the option, on a Fund's holding period for the option, and in
the case of the exercise of a put option, on a Fund's holding period for the
underlying property. The purchase of a put option may constitute a short sale
for federal income tax purposes, causing an adjustment in the holding period of
any stock in a Fund's portfolio similar to the stocks on which the index is
based. If a Fund writes an option, no gain is recognized upon its receipt of a
premium. If the option lapses or is closed out, any gain or loss is treated as
short-term capital gain or loss. If a call option is exercised, the character of
the gain or loss depends on the holding period of the underlying stock.
Many futures and forward contracts entered into by each Fund and listed
nonequity options written or purchased by each Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options on currencies), will be governed by Section 1256 of the Code. Absent a
tax election to the contrary, gain or loss attributable to the lapse, exercise
or closing out of any such position generally will be treated as 60% long-term
and 40% short-term, and on the last trading day of each Fund's fiscal year, all
outstanding Section 1256 positions will be marked to market (i.e., treated as if
such positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term.
Notwithstanding any of the foregoing, each Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of a Fund's taxable year, if certain conditions are met.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will recognize gain at that time as though it
had closed the short sale. Future regulations regulatories may apply similar
treatment to other transactions with respect to property that becomes
substantially worthless.
Each Fund will be required to report to the IRS all distributions of
investment company taxable income, capital gains and (should the Fund fail to
maintain a constant net asset value) as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of investment company taxable income and capital gains and
proceeds from the redemption or exchange of the shares of a regulated investment
company may be subject to withholding of federal income tax at the rate of 31%
in the case of non-exempt shareholders who fail to furnish the investment
company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if a Fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of each Fund may be subject to state and local taxes on
distributions received from a Fund and on redemptions of a Fund's shares.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of each Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
51
<PAGE>
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for a Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by a Fund to reported commissions paid by others.
The Adviser routinely reviews commission rates, execution and settlement
services performed and makes internal and external comparisons.
The Funds' purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by a Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply brokerage and research services to the Adviser or a
Fund. The term "research services" includes advice as to the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or purchasers or sellers of securities; and
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and the performance of accounts. The
Adviser is authorized when placing portfolio transactions, if applicable, for a
Fund to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction on account of execution services and
the receipt of research services. The Adviser has negotiated arrangements, which
are not applicable to most fixed-income transactions, with certain
broker/dealers pursuant to which a broker/dealer will provide research services,
to the Adviser or a Fund in exchange for the direction by the Adviser of
brokerage transactions to the broker/dealer. These arrangements regarding
receipt of research services generally apply to equity security transactions.
The Adviser will not place orders with a broker/dealer on the basis that the
broker/dealer has or has not sold shares of a Fund. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker/dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Funds with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Funds for this service.
Although certain research services from broker/dealers may be useful to
a Fund and to the Adviser, it is the opinion of the Adviser that such
information only supplements the Adviser's own research effort since the
information must still be analyzed, weighed, and reviewed by the Adviser's
staff. Such information may be useful to the Adviser in providing services to
clients other than a Fund, and not all such information is used by the Adviser
in connection with a Fund. Conversely, such information provided to the Adviser
by broker/dealers through whom other clients of the Adviser effect securities
transactions may be useful to the Adviser in providing services to a Fund.
The Trustees review, from time to time, whether the recapture for the
benefit of the Funds of some portion of the brokerage commissions or similar
fees paid by the Funds on portfolio transactions is legally permissible and
advisable.
52
<PAGE>
NET ASSET VALUE
The net asset value per share of each Fund is determined by Scudder
Fund Accounting Corporation twice daily as of twelve o'clock noon and the close
of regular trading on the Exchange on each day when the Exchange is open for
trading. The Exchange normally is closed on the following national holidays: New
Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on
the preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively. Net asset value per share is determined by
dividing the total assets of each Fund, less all of its liabilities, by the
total number of shares of each Fund outstanding. The valuation of each Fund's
portfolio securities is based upon their amortized cost which does not take into
account unrealized securities gains or losses. This method involves initially
valuing an instrument at its cost and thereafter amortizing to maturity any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price each Fund would receive if it
sold the instrument. During periods of declining interest rates, the quoted
yield on shares of each Fund may tend to be higher than a like computation made
by a fund with identical investments utilizing a method of valuation based upon
market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by each Fund resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in each
Fund would be able to obtain a somewhat higher yield if he purchased shares of
each Fund on that day than would result from investment in a fund utilizing
solely market values, and existing investors in each Fund would receive less
investment income. The converse would apply in a period of rising interest
rates. Other securities and assets for which market quotations are not readily
available are valued in good faith at fair value using methods determined by the
Trustees and applied on a consistent basis. For example, securities with
remaining maturities of more than 60 days for which market quotations are not
readily available are valued on the basis of market quotations for securities of
comparable maturity, quality and type. The Trustees review the valuation of each
Fund's securities through receipt of regular reports from the Adviser at each
regular Trustees' meeting. Determinations of net asset value made other than as
of the close of the Exchange may employ adjustments for changes in interest
rates and other market factors.
ADDITIONAL INFORMATION
Experts
The financial highlights of each Fund included in the Funds' prospectus
and the Financial Statements incorporated by reference in this Statement of
Additional Information have been so included or incorporated by reference in
reliance on the report of PricewaterhouseCoopers LLP, One Post Office Square,
Boston, Massachusetts 02109, independent accountants, and given on the authority
of that firm as experts in accounting and auditing. PricewaterhouseCoopers LLP
is responsible for performing annual audits of the financial statements and
financial highlights of each Fund in accordance with generally accepted auditing
standards and the preparation of federal tax returns.
Shareholder Indemnification
The Funds are organizations of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of that trust. The Declarations of Trust of each Fund
contain an express disclaimer of shareholder liability in connection with the
Funds' property or the acts, obligations or affairs of the Funds. The
Declarations of Trust also provide for indemnification out of the Funds'
property of any shareholder held personally liable for the claims and
liabilities to which a shareholder may become subject by reason of being or
having been a shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which a
Fund itself would be unable to meet its obligations.
Other Information
Dechert Price & Rhoads acts as general counsel for SCIT and Treasury
Fund. Willkie, Farr & Gallagher acts as general counsel for STFMF.
53
<PAGE>
SCIT and Treasury Fund each have a fiscal year end of June 30. The
fiscal year end for STFMF is December 31 .
Portfolio securities of each Fund are held separately, pursuant to
separate custodian agreements, by State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02101 as custodian.
The CUSIP number of Scudder Cash Investment Trust is 811118-10-8.
The CUSIP number of Scudder Tax Free Money Fund is 811235-10-0.
The CUSIP number of Scudder U.S. Treasury Money Fund is 81123P-10-6.
The name "Scudder Cash Investment Trust" is the designation of the Fund
for the time being under a Declaration of Trust dated December 12, 1975, the
name "Scudder U.S. Treasury Money Fund" is the designation of the Fund for the
time being under a Declaration of Trust dated April 4, 1980 and the name
"Scudder Tax Free Money Fund" is the designation of the Fund for the time being
under a Declaration of Trust dated December 9,1987, each as amended from time to
time, and all persons dealing with a Fund must look solely to the property of
that Fund for the enforcement of any claims against that Fund as neither the
Trustees, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of a Fund. Upon the initial purchase of
shares, the shareholder agrees to be bound by a Fund's Declaration of Trust, as
amended from time to time. No series is liable for the obligations of any other
series. The Declaration of Trust of each Fund is on file at the Massachusetts
Secretary of State's Office in Boston, Massachusetts.
Scudder Fund Accounting Corporation (SFAC), Two International Place,
Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes the
Funds' net asset value. Each Fund pays SFAC an annual fee equal to 0.02% of the
first $150 million of average daily net assets, 0.006% of such assets in excess
of $150 million, 0.0035% of such assets in excess of $1 billion, plus holding
and transaction charges for this service. For the fiscal years ended June 30,
1997 and 1996, SFAC charged SCIT aggregate fees of $105,874 and $104,207. For
the fiscal year ended June 30, 1998, the amount charged to SCIT by SFAC
aggregated $98,059, of which $7,867 was unpaid at June 30, 1998. For the fiscal
years ended June 30, 1997 and 1996, SFAC charged Treasury Fund aggregate fees of
$50,134 and $49,647. For the year ended June 30, 1998, the amount charged to
Treasury Fund by SFAC aggregated $50,194, of which $4,172 was unpaid at June 30,
1998. For the fiscal years ended December 31, 1997 and 1996, SFAC charged STFMF
aggregate fees of $44,913 and $45,463. For the year ended December 31, 1998, the
amount charged to STFMF by SFAC aggregated $46,090, of which $3,764 was unpaid
at December 31, 1998.
Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer
and dividend disbursing agent for both funds. Service Corporation also serves as
shareholder service agent for the Funds and provides subaccounting and
recordkeeping services for shareholder accounts in certain retirement and
employee benefit plans. The Funds each pay Service Corporation an annual fee of
$31.50 for each regular account and $34.50 for each retirement account
maintained for a participant. For the fiscal years ended June 30, 1997 and 1996,
Service Corporation charged SCIT aggregate fees of $2,907,025 and $2,884,988.
For the year ended June 30, 1998, the amount charged to SCIT aggregated
$3,099,779, of which $264,502 was unpaid at June 30, 1998. For the fiscal years
ended June 30, 1997 and 1996, Service Corporation charged Treasury Fund
aggregate fees of $710,792 and $682,565. For the year ended June 30, 1998, the
amount charged to Treasury Fund by SSC aggregated $698,152, of which $58,219 was
unpaid at June 30, 1998. For the fiscal years ended December 31, 1997 and 1996,
Service Corporation charged STFMF an aggregate fee of $204,129 and $221,703. For
the fiscal year ended December 31, 1998, Service Corporation charged STFMF
aggregate fees of $201,755, of which $15,635 was unpaid at December 31, 1998.
The Funds, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are generally
held in an omnibus account.
Scudder Trust Company, Two International Place, Boston, MA 02110-4103,
an affiliate of the Adviser provides services for certain retirement plan
accounts. The Funds each pay Scudder Trust Company an annual fee of $34.50 for
each account maintained for a participant. For the fiscal years ended June 30,
1997 and 1996, Scudder Trust
54
<PAGE>
Company's fees amounted to $1,699,834 and $1,431,726 for SCIT and $525,821 and
$447,051 for Treasury Fund. For the year ended June 30, 1998, the amount charged
to SCIT by STC aggregated $1,883,755, of which $165,923 was unpaid at June 30,
1998. For the year ended June 30, 1998, the amount charged Treasury Fund by STC
aggregated $730,475, of which $72,009 was unpaid at June 30, 1998.
This Statement of Additional Information contains the information of
Scudder Cash Investment Trust, Scudder Tax Free Money Fund and Scudder U.S.
Treasury Money Fund. Each Fund, through its combined prospectus, offers only its
own shares, yet it is possible that one Fund might become liable for a
misstatement regarding the other Fund. The Trustees of each Fund have considered
this, and have approved the use of this Statement of Additional Information.
The Funds' combined prospectus and this combined Statement of
Additional Information omit certain information contained in the Registration
Statements which the Funds have filed with the SEC under the Securities Act of
1933 and reference is hereby made to the Registration Statements for further
information with respect to the Funds and the securities offered hereby. These
Registration Statements are available for inspection by the public at the
offices of the SEC in Washington, D.C.
FINANCIAL STATEMENTS
Scudder Cash Investment Trust
The financial statements, including the investment portfolio, of
Scudder Cash Investment Trust, together with the Financial Highlights and notes
to financial statements in the Semiannual Report to the Shareholders of the Fund
dated December 31, 1998, are incorporated herein by reference and are hereby
deemed to be a part of this combined Statement of Additional Information.
Scudder U.S. Treasury Money Fund
The financial statements, including the investment portfolio, of
Scudder U.S. Treasury Money Fund, together with the Financial Highlights and
notes to financial statements in the Semiannual Report to the Shareholders of
the Fund dated December 31, 1998, are incorporated herein by reference and are
hereby deemed to be a part of this combined Statement of Additional Information.
Scudder Tax Free Money Fund
The financial statements, including the investment portfolio, of
Scudder Tax Free Money Fund, together with the Report of Independent
Accountants, Financial Highlights and notes to financial statements in the
Annual Report to the Shareholders of the Fund dated December 31, 1998, are
incorporated herein by reference and are hereby deemed to be a part of this
combined Statement of Additional Information.
55
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Ratings of Municipal Obligations
The six highest ratings of Moody's for municipal bonds are Aaa, Aa, A,
Baa, Ba and B. Bonds rated Aaa are judged by Moody's to be of the best quality.
Bonds rated Aa are judged to be of high quality by all standards. Together with
the Aaa group, they comprise what are generally known as high-quality bonds.
Moody's states that Aa bonds are rated lower than the best bonds because margins
of protection or other elements make long-term risks appear somewhat larger than
for Aaa municipal bonds. Municipal bonds which are rated A by Moody's possess
many favorable investment attributes and are considered "upper medium grade
obligations." Factors giving security to principal and interest of A rated
municipal bonds are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future. Securities rated
Baa are considered medium grade, with factors giving security to principal and
interest adequate at present but may be unreliable over any period of time. Such
bonds have speculative elements as well as investment-grade characteristics.
Securities rated Ba or below by Moody's are considered below investment grade,
with factors giving security to principal and interest inadequate and
potentially unreliable over any period of time. Such securities are commonly
referred to as "junk" bonds and as such they carry a high margin of risk.
Moody's ratings for municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). This distinction is in recognition of
the differences between short-term and long-term credit risk. Loans bearing the
designation MIG1 are of the best quality, enjoying strong protection by
establishing cash flows of funds for their servicing or by established and
broad-based access to the market for refinancing, or both. Loans bearing the
designation MIG2 are of high quality, with margins of protection ample although
not as large as in the preceding group.
The six highest ratings of S&P for municipal bonds are AAA (Prime), AA
(High-grade), A (Good-grade), BBB (Investment-grade) and BB and B (Below
investment-grade). Bonds rated AAA have the highest rating assigned by S&P to a
municipal obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree. Bonds
rated A have a strong capacity to pay principal and interest, although they are
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions. Bonds rated BBB have an adequate capacity to pay principal
and interest. Adverse economic conditions or changing circumstances are likely
to lead to a weakened capacity to pay interest and repay principal for bonds of
this category than for bonds of higher rated categories. Securities rated BB or
below by S&P are considered below investment grade, with factors giving security
to principal and interest inadequate and potentially unreliable over any period
of time. Such securities are commonly referred to as "junk" bonds and as such
they carry a high margin of risk.
S&P's top ratings for municipal notes issued after July 29, 1984 are
SP-1 and SP-2. The designation SP-1 indicates a very strong capacity to pay
principal and interest. A "+" is added for those issues determined to possess
overwhelming safety characteristics. An "SP-2" designation indicates a
satisfactory capacity to pay principal and interest.
The six highest ratings of Fitch for municipal bonds are AAA, AA, A,
BBB, BB and B. Bonds rated AAA are considered to be investment-grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated `AAA.'
Because bonds rated in the `AAA' and `AA' categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated `f-1+.' Bonds rated A are considered to be investment grade
and of high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with higher rates.
Bonds rated BBB are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse effects on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with greater ratings. Securities
rated BB or below by Fitch are considered
<PAGE>
below investment grade, with factors giving security to principal and interest
inadequate and potentially unreliable over any period of time. Such securities
are commonly referred to as "junk" bonds and as such they carry a high margin of
risk.
Commercial Paper Ratings
Commercial paper rated A-1 or better by S&P has the following
characteristics: liquidity ratios are adequate to meet cash requirements;
long-term senior debt is rated "A" or better, although in some cases "BBB"
credits may be allowed; the issuer has access to at least two additional
channels of borrowing; and basic earnings and cash flow have an upward trend
with allowance made for unusual circumstances. Typically, the issuer's industry
is well established and the issuer has a strong position within the industry.
The reliability and quality of management are unquestioned.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationship which exists with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
The rating F-1+ is the highest rating assigned by Fitch. Among the
factors considered by Fitch in assigning this rating are: (1) the issuer's
liquidity; (2) its standing in the industry; (3) the size of its debt; (4) its
ability to service its debt; (5) its profitability; (6) its return on equity;
(7) its alternative sources of financing; and (8) its ability to access the
capital markets. Analysis of the relative strength or weakness of these factors
and others determines whether an issuer's commercial paper is rated F-1+.
Relative strength or weakness of the above factors determine how the
issuer's commercial paper is rated within the above categories.
<PAGE>
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits.
-------- ---------
<S> <C> <C>
(a) (1) Amended and Restated Declaration of Trust dated December 9, 1987.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement.)
(2) Amendment to the Amended and Restated Declaration of Trust dated December
11, 1990.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement.)
(b) (1) By-Laws dated October 5, 1979 as amended through December 19, 1979.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement.)
(2) Amendment to the By-Laws dated August 13, 1991.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement.)
(3) Amendment to the By-Laws dated December 10, 1991.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement.)
(c) Inapplicable.
(d) Investment Management Agreement between the Registrant and Scudder Kemper
Investments, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 25 to the
Registration Statement.)
Underwriting Agreement between the Registrant and Scudder Investor Services,
(e) Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 25 to the
Registration Statement.)
(f) Inapplicable.
(g) (1) Custodian Contract with State Street Bank and Trust Company dated December
31, 1979.
(Incorporated by reference to Post-Effective amendment No. 23 to the
Registration Statement.)
(2) Amendment to the Custodian Contract with State Street Bank and Trust Company
dated December 11, 1990.
(Incorporated by reference to Post-Effective amendment No. 23 to the
Registration Statement.)
(3) Fee schedule for Exhibit (g)(1).
(Incorporated by reference to Post-Effective Amendment No. 25 to the
Registration Statement.)
(4) Subcustodian Agreement between State Street Bank and Morgan Guaranty Trust
Company of New York dated November 25, 1985.
<PAGE>
(Incorporated by reference to Post-Effective amendment No. 23 to the
Registration Statement.)
(5) Subcustodian Agreement between State Street Bank and Irving Trust Company
dated November 30, 1987.
(Incorporated by reference to Post-Effective amendment No. 23 to the
Registration Statement.)
(6) Subcustodian Agreement between State Street Bank and Chemical Bank dated May
31, 1988.
(Incorporated by reference to Post-Effective amendment No. 23 to the
Registration Statement.)
(7) Subcustodian Agreement between State Street Bank and Security Pacific
National Trust Company (New York) dated February 18, 1988.
(Incorporated by reference to Post-Effective amendment No. 23 to the
Registration Statement.)
(8) Subcustodian Agreement between State Street Bank and Bankers Trust Company
dated August 15, 1989.
(Incorporated by reference to Post-Effective amendment No. 23 to the
Registration Statement.)
(h) (1) Transfer Agency and Service Agreement with Scudder Service Corporation dated
October 2, 1989.
(Incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement.)
(2) Fee schedule for Exhibit (h)(1).
(Incorporated by reference to Post-Effective Amendment No. 25 to the
Registration Statement.)
(3) Fund Accounting Services Agreement between the Registrant and Scudder Fund
Accounting Corporation dated September 27, 1994.
(Incorporated by reference to Post-Effective Amendment No. 18 to the
Registration Statement.)
(i) Consent of Legal Counsel is filed herein.
(j) Consent of Independent Accountants is filed herein.
(k) Inapplicable.
(l) Inapplicable.
(m) Inapplicable.
(n) Article 6 Financial Data Schedules are filed herein.
(o) Inapplicable.
</TABLE>
Item 24. Persons Controlled by or under Common Control with Fund.
- -------- --------------------------------------------------------
None
2
<PAGE>
Item 25. Indemnification.
- -------- ----------------
A policy of insurance covering Scudder Kemper Investments,
Inc., its subsidiaries including Scudder Investor Services,
Inc., and all of the registered investment companies advised
by Scudder Kemper Investments, Inc. insures the Registrant's
trustees and officers and others against liability arising by
reason of an alleged breach of duty caused by any negligent
act, error or accidental omission in the scope of their
duties.
Article IV, Sections 4.1 - 4.3 of the Registrant's Declaration
of Trust provide as follows:
Section 4.1. No Personal Liability of Shareholders, Trustees,
Etc. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or
the acts, obligations or affairs of the Trust. No Trustee,
officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to
the Trust or its Shareholders, in connection with Trust
Property or the affairs of the Trust, save only that arising
from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person;
and all such Persons shall look solely to the Trust Property
for satisfaction of claims of any nature arising in connection
with the affairs of the Trust. If any Shareholder, Trustee,
officer, employee, or agent, as such, of the Trust, is made a
party to any suit or proceeding to enforce any such liability
of the Trust, he shall not, on account thereof, be held to any
personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and
liabilities, to which such Shareholder may become subject by
reason of his being or having been a Shareholder, and shall
reimburse such Shareholder for all legal and other expenses
reasonably incurred by him in connection with any such claim
or liability. The indemnification and reimbursement required
by the preceding sentence shall be made only out of the assets
of the one or more Series of which the Shareholder who is
entitled to indemnification or reimbursement was a Shareholder
at the time the act or event occurred which gave rise to the
claim against or liability of said Shareholder. The rights
accruing to a Shareholder under this Section 4.1 shall not
impair any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not
specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee,
officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee,
officer, employee, or agent thereof for any action or failure
to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard of the duties involved
in the conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of
the Trust shall be indemnified by the Trust to the fullest extent
permitted by law against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer
and against amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal, administrative or other, including appeals), actual or
threatened; and the words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
3
<PAGE>
(i) against any liability to the Trust, a Series thereof, or
the Shareholders by reason of a final adjudication by a court or other
body before which a proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i) or
(b)(ii) resulting in a payment by a Trustee or officer, unless there
has been a determination that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office:
(A) by the court or other body approving the
settlement or other disposition; or
(B) based upon a review of readily available
facts (as opposed to a full trial-type inquiry) by
(x) vote of a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the
Disinterested Trustees then in office act on the
matter) or (y) written opinion of independent legal
counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust,
shall be severable, shall not affect any other rights
to which any Trustee or officer may now or hereafter
be entitled, shall continue as to a person who has
ceased to be such Trustee or officer and shall insure
to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing
contained herein shall affect any rights to
indemnification to which personnel of the Trust other
than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense
to any claim, action, suit or proceeding of the
character described in paragraph (a) of this Section
4.3 may be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by
or on behalf of the recipient to repay such amount if
it is ultimately determined that he is not entitled
to indemnification under this Section 4.3, provided
that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust shall be
insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees act on
the matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one
who is not (i) an "Interested Person" of the Trust (including anyone
who has been exempted from being an "Interested Person" by any rule,
regulation or order of the Commission), or (ii) involved in the claim,
action, suit or proceeding.
Item 26. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 26.
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
4
<PAGE>
<TABLE>
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member Group Executive Board, Zurich Financial Services, Inc. ##
Chairman, Zurich-American Insurance Company o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO, Member Group Executive Board, Zurich Financial Services, Inc. ##
CEO/Branch Offices, Zurich Life Insurance Company ##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Financial Services, Inc.*
5
<PAGE>
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small Director and Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
</TABLE>
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C.
Luxembourg B 34.564
*** Toronto, Ontario, Canada
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman,
British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
Item 27. Principal Underwriters.
- -------- -----------------------
(a)
Scudder Investor Services, Inc. acts as principal underwriter of the
Registrant's shares and also acts as principal underwriter for other
funds managed by Scudder Kemper Investments, Inc.
(b)
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 27.
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C>
Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY 10154
Mary Elizabeth Beams Vice President None
Two International Place
Boston, MA 02110
Mark S. Casady Director, President and Assistant None
Two International Place Treasurer
Boston, MA 02110
6
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Linda Coughlin Director and Senior Vice President None
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and Assistant None
345 Park Avenue Clerk
New York, NY 10154
Philip S. Fortuna Vice President None
101 California Street
San Francisco, CA 94111
William F. Glavin Vice President None
Two International Place
Boston, MA 02110
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
John R. Hebble Assistant Treasurer Treasurer
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, Treasurer Vice President
Two International Place and Assistant Clerk
Boston, MA 02110
James J. McGovern Chief Financial Officer None
345 Park Avenue
New York, NY 10154
Lorie C. O'Malley Vice President None
Two International Place
Boston, MA 02110
Caroline Pearson Clerk Assistant Secretary
Two International Place
Boston, MA 02110
Daniel Pierce Director, Vice President President and Trustee
Two International Place and Assistant Treasurer
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President, Chief Trustee, Vice President
345 Park Avenue Legal Officer and Assistant Clerk and Assistant Secretary
New York, NY 10154
7
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Robert A. Rudell Director and Vice President None
Two International Place
Boston, MA 02110
William M. Thomas Vice President None
Two International Place
Boston, MA 02110
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
Sydney S. Tucker Vice President None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President and Chief Compliance None
Two International Place Officer
Boston, MA 02110
</TABLE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 28. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder Kemper
Investments Inc., Two International Place, Boston, MA
02110-4103. Records relating to the duties of the Registrant's
custodian are maintained by State Street Bank and Trust
Company, Heritage Drive, North Quincy, Massachusetts. Records
relating to the duties of the Registrant's transfer agent are
maintained by Scudder Service Corporation, Two International
Place, Boston, Massachusetts.
Item 29. Management Services.
- -------- --------------------
Inapplicable.
Item 30. Undertakings.
- -------- -------------
Inapplicable.
8
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston, and the
Commonwealth of Massachusetts, on the 16th of June, 1999.
SCUDDER TAX FREE MONEY FUND
By /s/ DANIEL PIERCE
-----------------------------
Daniel Pierce, President
<TABLE>
<CAPTION>
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ DANIEL PIERCE
- --------------------------------------
Daniel Pierce President (Principal Executive June 16, 1999
Officer) and Trustee
/s/ HENRY P. BECTON, JR.
- --------------------------------------
Henry P. Becton, Jr. Trustee June 16, 1999
- --------------------------------------
Dawn-Marie Driscoll Trustee June 16, 1999
/s/Peter B. Freeman
- --------------------------------------
Peter B. Freeman Trustee June 16, 1999
/s/ GEORGE M. LOVEJOY, JR.
- --------------------------------------
George M. Lovejoy, Jr. Trustee June 16, 1999
- --------------------------------------
Wesley W. Marple, Jr. Trustee June 16, 1999
- --------------------------------------
Jean C. Tempel Trustee June 16, 1999
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ KATHYRN L. QUIRK
- --------------------------------------
Kathryn L. Quirk Trustee, Vice President & Assistant June 16, 1999
Secretary
/s/JOHN R. HEBBLE
- --------------------------------------
John R. Hebble Treasurer (Principal Financial June 16, 1999
Officer)
</TABLE>
2
<PAGE>
File No. 2-65669
File No. 811-2959
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 27
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 29
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER TAX FREE MONEY FUND
9
<PAGE>
SCUDDER TAX FREE MONEY FUND
EXHIBIT INDEX
Exhibit (i)
Exhibit (j)
Exhibit (n)
10
Exhibit (i)
[LETTERHEAD OF WILLKIE FARR AND GALLAGHER APPEARS HERE]
June 18, 1999
Scudder Tax Free Money Fund
Two International Place
Boston, Massachusetts 02110
Re: Post-Effective Amendment No. 27 to Registration Statement
(Securities Act File No. 2-65669; Investment Company Act
File No. 811-2959)
-------------------------
Ladies and Gentlemen:
You have requested us, as counsel to Scudder Tax Free Money Fund (the "Trust"),
a business trust organized under the laws of the Commonwealth of Massachusetts,
to furnish you with this opinion in connection with the Trust's filing of
Post-Effective Amendment No. 27 to its Registration Statement
on Form N-1A (the "Amendment").
As to the various questions of fact material to the opinion expressed herein we
have relied upon and assumed the genuineness of the signatures on, the
conformity to originals of, and the authenticity of, all documents, including
but not limited to certificates of officers of the Trust, submitted to us as
originals or copies, which facts we have not independently verified. We have
also examined such other records, documents, papers, statutes and authorities as
we have deemed necessary to form a basis for the opinion hereinafter expressed.
Capitalized terms used herein but not otherwise defined have the meanings
ascribed to them in the Amendment.
Based on the foregoing, we are of the opinion that the shares of beneficial
interest of the Trust, when duly sold, issued and paid for in accordance with
the laws of applicable jurisdictions and the terms of the Trust's Prospectus and
Statement of Additional Information included as part of the Amendment, and
assuming at the time of sale such shares will be sold at a sales price in each
case in excess of their par value, will be valid, legally issued, fully paid and
non-assessable. We note, however, that shareholders of a Massachusetts business
trust may under certain circumstances be subject to assessment at the instance
of creditors to pay the obligations of such trust in the event that its assets
are insufficient for the purpose.
We are members of the Bar of the State of New York and do not hold ourselves out
as being conversant with the laws of any jurisdiction other than those of the
United States of America and the State of New York. We note that we are not
licensed to practice law in the Commonwealth of Massachusetts, and to the extent
that any opinion expressed herein involves the law of the Commonwealth of
Massachusetts, such opinion should be understood to be based solely upon our
review of the documents referred to above, the published statutes of the
Commonwealth of Massachusetts, and where applicable, published cases, rules or
regulations of regulatory bodies of the Commonwealth of Massachusetts.
We hereby consent to the filing of this opinion as an exhibit to the Amendment.
Very truly yours,
/s/ Willkie Farr & Gallagher
Exhibit (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Prospectus and
Statement of Additional Information constituting the Post-Effective Amendment
No. 27 to the Registration Statement on Form N-1A (the "Registration Statement")
of Scudder Tax Free Money Fund, of our report dated February 9, 1999, on the
financial statements and financial highlights appearing in the December 31, 1998
Annual Report to the Shareholders of Scudder Tax Free Money Fund, which is also
incorporated by reference into the Registration Statement. We further consent to
the references to our Firm under the headings "Financial Highlights," in the
Prospectus and "Experts" in the Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 15, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Scudder
Tax Free Money Fund Annual Report for the fiscal year ended 12/31/98 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 0
<NAME> Scudder Tax Free Money Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 245,583,812
<INVESTMENTS-AT-VALUE> 245,583,812
<RECEIVABLES> 5,222,070
<ASSETS-OTHER> 1,092,865
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 251,898,747
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,060,459
<TOTAL-LIABILITIES> 3,060,459
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 249,541,228
<SHARES-COMMON-STOCK> 248,667,568
<SHARES-COMMON-PRIOR> 282,883,282
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (702,940)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 248,838,288
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,075,116
<OTHER-INCOME> 0
<EXPENSES-NET> 1,671,590
<NET-INVESTMENT-INCOME> 7,403,526
<REALIZED-GAINS-CURRENT> (3,898)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,399,628
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,401,457)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,093,015,777
<NUMBER-OF-SHARES-REDEEMED> (1,134,001,313)
<SHARES-REINVESTED> 6,769,820
<NET-CHANGE-IN-ASSETS> (34,217,545)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (699,042)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,284,548
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,838,819
<AVERAGE-NET-ASSETS> 257,549,081
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.03)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
