Scudder Fund, Inc.
345 Park Avenue, New York, New York 10154
(212) 326-6656
Scudder Fund, Inc. (the "Company") is a professionally managed, open-end,
diversified investment company that currently has eight portfolios
(collectively, the "Funds"):
Managed Government Securities Fund, Managed Federal Securities Fund,
Managed Cash Fund and Managed Tax-Free Fund (collectively, the "Money Market
Funds") are money market funds that seek to provide investors with as high a
level of current income (which, in the case of Managed Tax-Free Fund, is exempt
from federal income taxes and, in the case of Managed Federal Securities Fund,
cannot be subjected to state and local income taxes by reason of federal law) as
is consistent with their investment policies and with preservation of capital
and liquidity. The Money Market Funds are neither insured nor guaranteed by the
United States Government. Each of the Money Market Funds intends to maintain a
net asset value per share of $1.00 but there is no assurance that the Funds will
be able to do so.
Managed Intermediate Government Fund seeks to provide investors with a high
level of current income and to keep the price of its shares more stable than
that of a long-term bond. The net asset value of the Managed Intermediate
Government Fund's shares will fluctuate.
Managed Municipal Income Fund and Managed New York Municipal Income Fund
(together with Managed Tax-Free Fund, the "Tax-Free Funds") seek to provide
investors with as high a level of income exempt from federal income taxes as is
consistent with preservation of capital. The Managed New York Municipal Income
Fund also seeks to provide income exempt from the personal income taxes of New
York State and City.
Managed Total Return Fund seeks to provide investors with a high level of
total return, that is, income and capital appreciation combined, that is
consistent with preservation of capital.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Funds. A Statement of Additional Information
dated May 1, 1994, containing additional and more detailed information about the
Funds (the "Statement of Additional Information"), has been filed with the
Securities and Exchange Commission and is hereby incorporated by reference into
this Prospectus. It is available without charge and can be obtained by writing
or calling the Company at the address and telephone number printed above.
____________________
Investors are advised to read this Prospectus and retain it for future
reference.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
May 1, 1994
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Fee Table 2
Summary 3
Financial Highlights 4
Investment Objectives
and Policies 8
Additional Permitted
Investment Activities 14
Investment Restrictions 19
Management 19
Determination of Net Asset Value 20
Purchase of Shares 21
Redemption of Shares 22
Exchange Privilege 25
Special Arrangements with Banks and
Other Institutions 25
Shareholder Service, Administration and
Distribution Plan 26
Dividends and Distributions 26
Taxes 27
Account Services 28
Shareholder Services 28
Organization and Capital Stock 29
Custodian and Transfer and Dividend
Disbursing Agent 29
Reports to Shareholders 29
Calculation of Yield and Total Return 29
</TABLE>
____________________
Fee Table
<TABLE>
<CAPTION>
Managed Managed Managed
Government Federal Intermediate
Securities Securities Managed Cash Managed Tax- Government
Fund Fund Fund Free Fund Fund+++
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Shareholder Transaction None None None None None
Expenses
Annual Fund Operating
Expenses (as a percentage of
average net assets)
Management Fees 0.40%* 0.40% 0.40%* 0.40% 0.65%
12b-1 Fees 0.18 0.22 0.14 0.18 0.24+
Other Expenses:
Custodian and Transfer Agent 0.08 0.10 0.05 0.08 0.20
Fees
Miscellaneous 0.11 0.42 0.07 0.12 0.60
Total 0.37% 0.74% 0.26% 0.38% 1.04%
Total Fund Operating Expenses 0.77%* 1.14%** 0.66%* 0.78% 1.69%**
</TABLE>
Example
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% gross annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1 year $ 8 $ 12 $ 7 $ 8 $ 17
3 years 25 36 21 25 53
5 years 43 63 37 43 92
10 years 95 139 82 97 200
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES
WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
* For the year ended December 31, 1993, Scudder, Stevens & Clark, Inc.
voluntarily agreed to waive its management fee, to the extent necessary, so
that the expenses of each of the Managed Government Securities Fund and the
Managed Cash Fund during such period would not exceed 0.55% of the average
daily net assets of each such Fund; accordingly, for the fiscal year ended
December 31, 1993 the actual total fund operating expenses for such Funds
were 0.55% and 0.55%, respectively, and the effective management fee rates
for such Funds were 0.18% and 0.29%, respectively.
** The management fees shown above for each of the Managed Federal Securities
Fund and the Managed Intermediate Government Fund do not reflect the
investment manager's assumption of expenses and voluntary waiver of its
management fees which reduced Total Fund Operating Expenses for such Funds
to 0.52% and 0.51%, respectively for 1993. The Manager may continue to
waive all or a portion of its fee.
+++ "Other Expenses" for the Managed Intermediate Government Fund have been
annualized for its first fiscal year ended December 31, 1993.
+ To the extent that these payments may be deemed to be for distribution
purposes, long-term shareholders of the Managed Intermediate Government
Fund may pay more than the economic equivalent of the maximum front-end
sales charges permitted by the National Association of Securities Dealers,
Inc.
The purpose of this table is to assist the investor in understanding the various
costs and expenses that an investor in a Fund will bear.
"12b-1 Fees" represents payments made by the Company pursuant to special
contractual arrangements with banks and other institutions that perform
shareholder servicing functions for the Company with respect to shares of any
Fund owned by customers of such banks and institutions. These shareholder
services would include certain services that otherwise would have been performed
for the Company by its transfer agent. In addition, each of the Funds in the
above Fee Table may pay service fees to brokers and dealers, investment advisers
and other institutions. For information with respect to such payments see
"Custodian and Transfer and Dividend Disbursing Agent", "Special Arrangements
with Banks and Other Institutions" and "Shareholder Service, Administration and
Distribution Plan". "Miscellaneous Expenses" represents all other expenses
including legal and audit fees, registration fees, insurance premiums,
amortization of deferred organization costs (where applicable), membership dues,
Directors' fees and expenses of printing and mailing reports to shareholders.
Summary
Scudder Fund, Inc. (the "Company") is a professionally managed, open-end,
diversified investment company that currently has eight portfolios: Managed
Government Securities Fund (the "Government Fund"), Managed Federal Securities
Fund (the "Federal Fund"), Managed Cash Fund (the "Cash Fund"), Managed Tax-Free
Fund (the "Tax-Free Fund"), Managed Intermediate Government Fund (the
"Intermediate Government Fund"), Managed Municipal Income Fund (the "Municipal
Income Fund"), Managed New York Municipal Income Fund (the "New York Municipal
Income Fund") and Managed Total Return Fund (the "Total Return Fund"). Municipal
Income Fund, New York Municipal Income Fund and the Total Return Fund are
currently inactive portfolios, and Intermediate Government Fund commenced
operations on March 1, 1993. Scudder, Stevens & Clark, Inc. ("Scudder"), which
serves as investment adviser to many individuals and institutions, including
over 50 other mutual fund portfolios, serves as investment manager to each of
the active Funds. For a description of the investment manager, the services it
provides and the management fees, see "Management".
The Government Fund, the Federal Fund and the Cash Fund are each money
market funds that invest exclusively in high-quality instruments having
remaining maturities of not more than 397 days. The Government Fund invests
exclusively in obligations issued or guaranteed by the United States Government
or its agencies or instrumentalities and repurchase agreements. The Federal Fund
may make the same investments as the Government Fund; however, the Federal Fund
may invest in certain repurchase agreements when in the judgment of Scudder it
would be advisable for liquidity purposes, in order to enhance yield or in other
circumstances such as when appropriate securities are not available. The Cash
Fund invests in a broad range of money market instruments.
Each of the Tax-Free Funds invests only in municipal obligations that are
exempt from federal income taxes, and, in the case of the New York Municipal
Income Fund, from the personal income taxes of New York State and New York City
(except for certain temporary investments). The Tax-Free Fund invests in high-
quality municipal obligations with remaining maturities of not more than 397
days. The Municipal Income Fund and the New York Municipal Income Fund invest
primarily in investment-grade municipal obligations and ordinarily will have a
dollar-weighted average maturity of seven to ten years.
The Intermediate Government Fund invests in obligations in which the
Government Fund may invest, except that the Intermediate Government Fund is not
subject to the limitations on maturities applicable to the Government Fund. The
Intermediate Government Fund may also invest in mortgage-related pass-through
obligations issued by the Government National Mortgage Association, Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation;
and purchase collateralized mortgage obligations issued by the Federal Home Loan
Mortgage Corporation, Federal National Mortgage Association or other agencies of
the United States Government or instrumentalities established or sponsored by
the United States Government. Under ordinary market conditions, it is expected
that the portfolio of the Intermediate Government Fund will have a dollar-
weighted average life of three to seven years. The Intermediate Government Fund
will limit its investments to those which are eligible for federally-chartered
credit unions.
The Total Return Fund seeks to provide investors with as high a level of
total return, that is, income and capital appreciation combined, that is
consistent with preservation of capital by investing primarily in investment-
grade debt securities.
For a description of each Fund's investment objective and policies, see
"Investment Objectives and Policies".
Each Fund may (i) invest in obligations that have a floating or variable
rate of interest, (ii) enter into repurchase agreements, (iii) purchase
securities on a when-issued basis and (iv) purchase securities with put
features. Each of these activities entails certain risks. The Total Return Fund
may invest in warrants and purchase and write certain put and call options. The
Total Return Fund may also enter into transactions in financial futures
contracts and options thereon for hedging purposes and may also invest in
certain foreign debt securities. Investments in foreign securities involve
certain considerations that differ from investments in domestic securities. See
"Additional Permitted Investment Activities".
Several factors, including fluctuations in interest rates, could affect the
market value of investments of the Intermediate Government Fund, Municipal
Income Fund, New York Municipal Income Fund and Total Return Fund.
Shares of any Fund may be purchased by writing or calling Scudder Service
Corporation (the "Transfer Agent"). Shares of any Fund may be redeemed through
the Transfer Agent. The minimum initial investment in each of the Municipal
Income Fund, the New York Municipal Income Fund and the Total Return Fund is
$2,500. While the Money Market Funds and the Intermediate Government Fund have
no specific minimum initial investment requirement, it is the Company's policy
normally not to accept initial investments in amounts below $100,000 for each of
the Money Market Funds and the Intermediate Government Fund. For more
information, see "Purchase of Shares" and "Redemption of Shares".
Dividends on shares of each Fund are declared daily and paid monthly.
Capital gain distributions for each Fund, if any, are declared annually. See
"Dividends and Distributions".
Financial Highlights
The following financial highlights have been audited by Price Waterhouse,
independent accountants. This information should be read in conjunction with the
financial statements and notes thereto that appear in the Statement of
Additional Information. The Annual Report for the year ended December 31, 1993
for the Money Market Funds and the Annual Report for the Intermediate Government
Fund for the year ended December 31, 1993, which also contains management's
discussion of the Intermediate Government Fund's performance, may be obtained
without charge by writing or calling the Company.
<TABLE>
<CAPTION>
Managed Government Securities Fund
----------------------------------
Years Ended December 31
------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, at $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
beginning of
period
Net investment income .026 .035 .056 .075 .084 .069 .061 .063 .077 .097
Dividends paid (.026) (.035) (.056) (.075) (.084) (.069) (.061) (.063) (.077) (.097)
Net asset value, at end $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
of period
Total return 2.68%* 3.51%* 5.65%* 7.73%* 8.81%* 7.13% 6.24% 6.44%* 7.97%* 10.33%*
Ratio of operating 0.55% 0.55% 0.55% 0.73% 0.75% 0.69% 0.69% 0.60% 0.51% 0.61%
expenses to average net
assets**
Ratio of net investment 2.65% 3.39% 5.54% 7.48% 8.42% 6.83% 6.01% 6.19% 7.71% 9.83%
income
to average net
assets
Net assets end of period $92 $151 $87 $82 $64 $409 $587 $786 $564 $416
(millions)
<FN>
* Total returns are higher, for the periods indicated, due to the maintenance
of the Managed Government Securities Fund's expenses.
** Had the investment manager not waived, at its discretion, a portion of the
management fee, the expense ratios for the years ended December 31, 1993,
1992, 1991, 1990, 1989, 1986, 1985 and 1984 would have been 0.77%, 0.76%,
0.80%, 0.80%, 0.80%, 0.71%, 0.77% and 0.77%, respectively. Note: Lazard
Freres & Co. ("Lazard Freres") became the Managed Government Securities
Fund's investment manager on January 7, 1986, and Scudder replaced Lazard
Freres as the Managed Government Securities Fund's investment manager on
January 1, 1989.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Managed Cash Fund
-----------------
Years Ended December 31
------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, at $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
beginning of
period
Net investment income .028 .037 .059 .076 .086 .070 .062 .063 .077 .100
Dividends paid (.028) (.037) (.059) (.076) (.086) (.070) (.062) (.063) (.077) (.100)
Net asset value, at end $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
of period
Total return 2.81%* 3.74%* 6.07%* 7.92%* 8.93% 7.21% 6.35% 6.46%* 7.92%* 10.58%*
Ratio of operating 0.55% 0.55% 0.55% 0.67% 0.72% 0.65% 0.68% 0.69% 0.64% 0.66%
expenses to average net
assets**
Ratio of net investment 2.78% 3.76% 5.93% 7.64% 8.56% 6.95% 6.08% 6.26% 7.65% 10.02%
income
to average net
assets
Net assets end of period $324 $305 $347 $385 $331 $389 $445 $752 $915 $962
(millions)
<FN>
* Total returns are higher, for the periods indicated, due to the maintenance
of the Managed Cash Fund's expenses.
** Had the investment manager not waived, at its discretion, a portion of the
management fee, the expense ratios for the years ended December 31, 1993,
1992, 1991, 1990, 1986, 1985 and 1984 would have been 0.66%, 0.64%, 0.64%,
0.70%, 0.73%, 0.71% and 0.68%, respectively. Note: Lazard Freres became
the Managed Cash Fund's investment manager on January 7, 1986, and Scudder
replaced Lazard Freres as the Managed Cash Fund's investment manager on
January 1, 1989.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Managed Tax-Free Fund
---------------------
Years Ended December 31
------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, at $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
beginning of
period
Net investment income .018 .025 .042 .053 .057 .049 .042 .044 .050 .055
Dividends paid (.018) (.025) (.042) (.053) (.057) (.049) (.042) (.044) (.050) (.055)
Net asset value, at end $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
of period
Total return 1.85% 2.56% 4.20% 5.47% 5.91% 4.98% 4.25% 4.47%* 5.08%* 5.67%*
Ratio of operating 0.78% 0.77% 0.75% 0.77% 0.76% 0.60% 0.66% 0.69% 0.64% 0.61%
expenses to average net
assets**
Ratio of net investment 1.83% 2.54% 4.14% 5.33% 5.72% 4.85% 4.14% 4.35% 4.96% 5.47%
income
to average net
assets
Net assets end of period $107 $91 $107 $135 $137 $261 $336 $415 $388 $244
(millions)
<FN>
* Total returns are higher, for the periods indicated, due to the maintenance
of the Managed Tax-Free Fund's expenses.
** Had the investment manager not waived, at its discretion, a portion of the
management fee, the expense ratios for the years ended December 31, 1986,
1985, and 1984 would have been 0.72%, 0.74%, and 0.75%, respectively. Note:
Lazard Freres became the Managed Tax-Free Fund's investment manager on
January 7, 1986, and Scudder replaced Lazard Freres as the Managed Tax-Free
Fund's investment manager on January 1, 1989.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Managed Federal Securities Fund
-------------------------------
Year ended December 31
July 17, 1991
(commencement of
operations)
through
1993 1992 December 31, 1991
------ ------ -----------------
<S> <C> <C> <C>
Net asset value, at beginning of period $1.00 $1.00 $1.00
Net investment income .024 .030 .021
Dividends paid (.024) (.030) (.021)
Net asset value, at end of period $1.00 $1.00 $1.00
Total return 2.45%* 3.02%* 4.80%*+
Ratio of operating expenses to average net 0.52% 0.53% 0.52%+
assets**
Ratio of net investment income to average 2.43% 3.00% 4.67%+
net assets
Net assets end of period (millions) $13 $12 $14
<FN>
* Total returns are higher, for the periods indicated, due to the maintenance
of the Managed Federal Securities Fund's expenses.
** Had the investment manager not voluntarily waived its management fee, the
annualized expense ratios for the years ended December 31, 1993 and 1992
and for the period July 17, 1991 (commencement of operations) to December
31, 1991 would have been 1.14%, 1.07% and 0.92%, respectively.
+ Annualized
</FN>
</TABLE>
<TABLE>
<CAPTION>
Managed Intermediate
Government Fund
--------------------
For the period March 1,
1993 (commencement of
operations) to
December 31, 1993
-----------------
<S> <C>
Net asset value, beginning of period $10.00
Income from Investment Operations:
Net investment income* .45
Net realized and unrealized gain (loss) on investments (.02)
Total from investment operations .43
Less dividends from net investment income (.45)
Net asset value, end of period $9.98
Total return (%) 4.37**
Ratios and Supplementary Data
Net assets, end of period ($ millions) 15
Ratio of operating expenses, to average net assets (%)(*) .51+
Ratio of net investment income, to average net assets (%) 5.35+
Portfolio turnover rate (%) 132.98+
* Reflects a per share amount of expenses reimbursed by $.03
the investment manager
Reflects a per share amount of management fee and $.07
other fees not imposed
Operating expense ratio including expenses reimbursed, 1.69+
management fee and other expenses not imposed (%)
<FN>
** Not annualized
+ Annualized
</FN>
</TABLE>
<TABLE>
<CAPTION>
Managed Total Return Fund1
---------------------------
For the period
June 8, 1987
(commencement of
Year ended operations) to
December 31, 1988 December 31, 1987
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $ 9.900 $ 10.000
Income from Investment Operations:
Net investment income .752(2) .375(2)
Net realized and unrealized gain (loss) on investments (.260) (.100)
Total from investment operations .492 .275
Less dividends from net investment income (.752) (.375)
Net asset value, end of period $9.640 $9.900
Ratios to average net assets:
Expenses 1.05%# 1.71%*
Net investment income 8.75% 6.81%*
Portfolio turnover rate 106% 75%
Shares outstanding at end of period 100 603,106
<FN>
1 Lazard Freres was the investment manager for the Managed Total Return Fund
for the period shown in the above table.
(2) Calculated based upon monthly average shares outstanding.
# Had the investment manager not voluntarily waived a portion of the
management fee, the expense ratio for the year ended December 31, 1988
would have been 1.70%.
* Annualized.
</FN>
</TABLE>
The Municipal Income Fund and the New York Municipal Income Fund have not yet
commenced operations, and the Total Return Fund terminated operations on
December 31, 1988. Accordingly, there are no financial highlights for the
Municipal Income Fund and the New York Municipal Income Fund. There are no
current plans to commence or recommence operations of the Municipal Income Fund,
the New York Municipal Income Fund and the Total Return Fund in the near future,
and therefore, there is no fee table data regarding any of these three Funds.
Investment Objectives and Policies
The investment objective of each Money Market Fund is to provide investors
with as high a level of current income (which, in the case of the Tax-Free Fund,
is exempt from federal income taxes and, in the case of the Federal Fund cannot
be subjected to state and local income taxes by reason of federal law) as is
consistent with its investment policies and with preservation of capital and
liquidity. Each of the Money Market Funds will maintain a dollar-weighted
average maturity of 90 days or less in an effort to maintain a net asset value
per share of $1.00, but there is no assurance that the Funds will be able to do
so. The Intermediate Government Fund seeks to provide investors with a high
level of current income and to keep the price of its shares more stable than
that of a long-term bond. In seeking its investment objective of high current
income, the Intermediate Government Fund will not invest in non-investment grade
securities. The Municipal Income Fund and the New York Municipal Income Fund
seek to provide investors with as high a level of income exempt from federal
income taxes as is consistent with their investment policies and with
preservation of capital. The New York Municipal Income Fund also seeks to
provide income exempt from the personal income taxes of New York State and New
York City. The Total Return Fund seeks to provide investors with a high level of
total return, that is, income and capital appreciation combined, that is
consistent with preservation of capital. The relative amount of income and
capital appreciation will vary with market conditions. There is no assurance
that any of the Funds will achieve its investment objective.
Government Fund
The Government Fund invests exclusively in obligations issued or guaranteed
by the United States Government or its agencies or instrumentalities that have
remaining maturities of not more than 397 days and certain repurchase agreements
described below under "Additional Permitted Investment Activities".
United States Government Obligations. These are direct obligations of the
United States Government and differ primarily in the length of their maturity.
United States Government Agency and Instrumentality Obligations.
Obligations of United States Government agencies and instrumentalities are debt
securities issued by United States Government sponsored enterprises and federal
agencies. Some of such obligations are supported by (a) the full faith and
credit of the United States Treasury (such as Government National Mortgage
Association participation certificates), (b) the limited authority of the issuer
to borrow from the United States Treasury (such as securities of the Federal
Home Loan Bank), (c) the authority of the United States Government to purchase
certain obligations of the issuer (such as securities of the Federal National
Mortgage Association) or (d) only the credit of the issuer. In the case of
obligations not backed by the full faith and credit of the United States, the
investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment. The Government Fund will invest in
obligations of United States Government agencies and instrumentalities only when
the investment manager is satisfied that the credit risk with respect to the
issuer is minimal.
Federal Fund
The Federal Fund invests exclusively in certain obligations in which the
Government Fund may invest, including securities issued by the United States
Treasury and by certain agencies or instrumentalities of the United States
Government such as the Federal Home Loan Bank, Federal Farm Credit Banks Funding
Corp. and the Student Loan Marketing Association, and in certain repurchase
agreements when in the judgment of the investment manager this is advisable for
liquidity purposes, in order to enhance yield or in other circumstances such as
when appropriate securities are not available.
Cash Fund
The Cash Fund invests in a broad range of short-term money market
instruments that have remaining maturities of not more than 397 days, including
obligations in which the Government Fund may invest and the following:
Bank Obligations. These obligations include negotiable certificates of
deposit, bankers' acceptances, fixed time deposits or other short-term bank
obligations. The Cash Fund may not invest less than 25% of the current value of
its total assets in bank obligations (including repurchase agreements with
banks), except that if at some future date adverse economic conditions prevail
in the banking industry, the Cash Fund may, for defensive purposes, temporarily
invest less than 25% of its assets in bank obligations. The Cash Fund limits its
investments in United States bank obligations to obligations of United States
banks (including foreign branches and thrift institutions, the obligations of
which are guaranteed by the U.S. parent) that have more than $1 billion in total
assets at the time of investment and are members of the Federal Reserve System
or are examined by the Comptroller of the Currency or whose deposits are insured
by the Federal Deposit Insurance Corporation ("United States banks"). The Cash
Fund limits its investments in foreign bank obligations to United States dollar
denominated obligations of foreign banks (including United States branches),
which banks (based upon their most recent annual financial statements) at the
time of investment (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) are among the 100 largest banks in the world,
as determined on the basis of assets; and (iii) have branches or agencies in the
United States; and which obligations, in the opinion of the investment manager,
are of an investment quality comparable to obligations of United States banks
that may be purchased by the Cash Fund.
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 obligations. The Cash Fund may not invest more than
10% of the value of the total assets of the Cash Fund in investments that are
not readily marketable, including fixed time deposits subject to withdrawal
penalties maturing in more than seven calendar days. See "Investment
Restrictions".
Obligations of foreign banks involve somewhat different investment risks
than those affecting obligations of United States banks, including the
possibilities that liquidity could be impaired because of future political and
economic developments, that the obligations may be less marketable than
comparable obligations of United States banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions such as exchange controls may be adopted, which might adversely
affect the payment of principal and interest on those obligations, and that the
selection of those obligations may be more difficult because there may be less
publicly available information concerning foreign banks or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to United States
banks. In that connection, foreign banks are not subject to examination by any
United States Government agency or instrumentality. Except for obligations of
foreign banks and foreign branches of United States banks, the Cash Fund will
not invest in the securities of foreign issuers. There is no limitation on the
amount of the Cash Fund's assets that may be invested in obligations of foreign
banks that meet the conditions set forth above.
Corporate Commercial Paper. The commercial paper purchased by the Cash Fund
may consist of direct obligations of domestic corporate issuers, including bank
holding companies that at the time of investment are (i) rated "P-1" by Moody's
Investors Service, Inc. ("Moody's") or "A-1" or better by Standard & Poor's
Corporation ("S&P") or "F-1" by Fitch Investors Service, Inc. ("Fitch"),
(ii) issued or guaranteed as to principal and interest by issuers having an
existing debt security rating of "Aa" or better by Moody's or "AA" or better by
S&P or Fitch, or (iii) securities which, if not rated, are of comparable
investment quality as determined by the investment manager in accordance with
procedures adopted by the Board of Directors.
Other Short-Term Corporate Obligations including Variable Amount Master
Demand Notes. The Cash Fund may invest in non-convertible corporate debt
securities such as notes, bonds and debentures that have remaining maturities of
not more than 397 days and are rated "Aa" or better by Moody's or "AA" or better
by S&P or Fitch, and variable amount master demand notes. A variable amount
master demand note differs from ordinary commercial paper in that it is issued
pursuant to a written agreement between the issuer and the holder. Its amount
may from time to time be increased by the holder (subject to an agreed maximum)
or decreased by the holder or the issuer; it is payable on demand and the rate
of interest varies pursuant to an agreed-upon formula. Generally, master demand
notes are not rated by a rating agency. However, the Cash Fund may invest in a
master demand note if, in the opinion of the investment manager, it is of an
investment quality comparable to rated securities in which the Cash Fund may
invest. The investment manager monitors the issuers of such master demand notes
on a daily basis. Transfer of such notes is usually restricted by the issuer,
and there is no secondary trading market for such notes. The Cash Fund may not
invest in a master demand note if, as a result, more than 10% of the value of
the Fund's total net assets would be invested in such notes.
In addition, the Cash Fund may invest in municipal obligations in which the
Tax-Free Fund may invest, as described below. Such obligations may or may not be
exempt from federal income taxes.
Intermediate Government Fund
The Intermediate Government Fund invests in obligations in which the
Government Fund may invest, except that the Intermediate Government Fund is not
subject to the limitations on maturities applicable to the Government Fund. The
Intermediate Government Fund may also invest in mortgage-related pass-through
obligations issued by the Government National Mortgage Association, Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation
("pass-through obligations"); purchase collateralized mortgage obligations
("CMOs") issued by the Federal Home Loan Mortgage Corporation, Federal National
Mortgage Association or other agencies of the United States Government or
instrumentalities established or sponsored by the United States Government; and
invest in zero coupon bonds. Under ordinary market conditions, it is expected
that the portfolio of the Intermediate Government Fund will have a dollar-
weighted average life of three to seven years. The Intermediate Government Fund
will limit its investments to those which are eligible for federally-chartered
credit unions.
The investment objective of the Intermediate Government Fund is to provide
investors with a high level of current income and to keep the price of its
shares more stable than that of a long-term bond. The Intermediate Government
Fund is not a fixed-price money market fund, and the value of its shares will
fluctuate.
Pass-Through Obligations. A pass-through obligation is a security that
represents an ownership interest in a pool of mortgages and the resultant cash
flow from those mortgages. Payments by homeowners on the loans in the pool flow
through to certificate holders in amounts sufficient to repay principal and to
pay interest at the pass-through rate. The average lives of pass-through
obligations may be shortened by unscheduled prepayments of principal and
interest on the underlying mortgages. Variations in the maturities of pass-
through obligations will affect the Intermediate Government Fund's yield.
Furthermore, as with any debt obligation, fluctuations in interest rates will
inversely affect the market value of pass-through obligations. Moreover, during
periods of declining interest rates, prepayments may affect the Intermediate
Government Fund's ability to maintain positions in high-yielding pass-through
obligations. In the case of pass-through obligations purchased at a premium,
such premiums may be lost as a result of a decrease in value of the pass-through
obligations due to such prepayments. The Intermediate Government Fund will
invest only in pass-through obligations that are supported by the full faith and
credit of the United States Government (such as those issued by the Government
National Mortgage Association) or those that are guaranteed by an agency of the
United States Government (such as the Federal National Mortgage Association or
the Federal Home Loan Mortgage Corporation). Such guarantees are only for timely
payment of principal and/or interest and do not guarantee yield or protect
against declines in market value. The Intermediate Government Fund will invest
only in pass-through obligations of United States Government agencies or
instrumentalities that meet the criteria as set forth for the Government Fund.
There is no limitation on the amount of the Intermediate Government Fund's
assets that may be invested in pass-through obligations.
CMOs. A CMO is a debt obligation backed by a portfolio of mortgages or
mortgage-backed securities. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. Generally, a CMO is partitioned into several classes
with a ranked priority by which the classes of obligations are redeemed.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the underlying mortgages or securities may cause
the CMOs to be retired substantially earlier than their stated maturities or
final distribution dates. Interest is paid or accrues on all classes of the CMOs
on a monthly, quarterly or semi-annual basis. The principal of and interest on
the underlying mortgages or securities may be allocated among the several
classes of series of a CMO in innumerable ways. In one structure, payments of
principal, including any principal prepayments, on the underlying mortgages or
securities are applied to the classes of a CMO in the order of their respective
stated maturities or final distribution dates, so that no payment of principal
will be made on any class of CMOs until all other classes having an earlier
stated maturity or final distribution date have been paid in full.
The Intermediate Government Fund may also invest in, among others, parallel
pay CMOs and Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs
are structured to provide payments of principal on each payment date to more
than one class. These simultaneous payments are taken into account in
calculating the stated maturity date or final distribution date of each class,
which, as with other CMO structures, must be retired by its stated maturity date
or final distribution date but may be retired earlier. PAC Bonds generally call
for payments of a specified amount of principal on each payment date.
The Company is managed by a team of Scudder investment professionals, each
of whom plays an important role in the Funds' management process. Team members
work closely together to develop investment strategies and select securities for
each Fund's portfolio. They are supported by Scudder's large staff of
economists, research analysts, traders, and other investment specialists who
work in Scudder's offices across the United States and abroad. Scudder believes
its team-approach benefits each Fund's investors by bringing together many
disciplines and leveraging Scudder's extensive resources. Lead Portfolio Manager
David H. Glen has set Intermediate Government Fund's investment strategy and
overseen its daily operation since the Fund was introduced in 1993. Mr. Glen has
14 years of experience in finance and investing. Robert E. Pruyne, the Portfolio
Manager has also been a member of the Intermediate Government Fund's management
team since the Fund's inception. Mr. Pruyne, with more than 35 years of
investment experience, contributes expertise on fixed-income securities.
Tax-Free Fund, Municipal Income Fund and New York Municipal Income Fund
The Tax-Free Fund invests primarily in high-quality municipal obligations
that have remaining maturities of not more than 397 days and meet the rating
standards described below. The Municipal Income Fund and the New York Municipal
Income Fund invest primarily in investment-grade municipal obligations and,
under ordinary circumstances, each will have a dollar-weighted average maturity
of seven to ten years. The New York Municipal Income Fund ordinarily limits its
investments to such obligations issued by the State of New York, and its cities,
municipalities and other public authorities.
Municipal obligations are debt obligations issued by or on behalf of
states, cities, municipalities and other public authorities.
As a matter of fundamental policy, except for temporary investments in
taxable obligations described below, each of the Tax-Free Funds will invest only
in municipal obligations that are exempt from federal income taxes and, in the
case of the New York Municipal Income Fund, exempt from the personal income
taxes of New York State and New York City. Such obligations include:
Municipal Bonds. Municipal bonds generally have a maturity at the time of
issuance of up to thirty years. The Tax-Free Fund's investments in municipal
bonds are limited to bonds that are rated at the date of purchase "Aa" or better
by Moody's or "AA" or better by S&P or Fitch. The Municipal Income Fund and the
New York Municipal Income Fund may invest in municipal bonds that are rated at
the date of purchase "Baa" or better by Moody's or "BBB" or better by S&P or
Fitch. Such bonds may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds.
Municipal Notes. Municipal notes generally have maturities at the time of
issuance of three years or less. The Tax-Free Fund's investments in municipal
notes are 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. The Municipal Income Fund and the New York Municipal Income Fund each may
invest in all of the foregoing and in municipal notes that are rated at the date
of purchase "MIG 3" (or "VMIG 3") by Moody's, "SP-2" by S&P or "F-2" by Fitch.
Such notes are generally issued in anticipation of the receipt of tax funds, of
the proceeds of bond placements or of other revenues. The ability of an issuer
to make payments is therefore dependent on such tax receipts, proceeds from bond
sales or other revenues, as the case may be.
See "Additional Permitted Investment Activities--Municipal Notes" in the
Statement of Additional Information.
Municipal Commercial Paper. 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 Tax-Free Fund may invest in municipal commercial paper that is rated
at the date of purchase "P-1" by Moody's, "A-1" or "A-1+" by S&P or "F-1" by
Fitch.
From time to time each Tax-Free Fund may invest 25% or more of its assets
in municipal obligations that are related in such a way that an economic,
business or political development or change affecting one such obligation would
also affect the other obligations; for example, municipal obligations the
interest on which is paid from revenues of similar type projects or municipal
obligations whose issuers are located in the same state.
The taxable market is a broader and more liquid market with a greater
number of investors, issuers and market makers than the market for municipal
obligations. The more limited marketability of tax-exempt municipal obligations
may make it difficult in certain circumstances to dispose of large investments
advantageously. In general, tax-exempt municipal obligations are also subject to
credit risks such as the loss of credit ratings or possible default. In
addition, certain tax-exempt municipal obligations might lose tax-exempt status
in the event of a change in the tax laws.
In abnormal market conditions, if, in the judgment of the investment
manager, tax-exempt securities satisfying the objective of the New York
Municipal Income Fund may not be purchased, such Fund may, for defensive
purposes, temporarily invest up to 20% of the value of its total assets in
instruments the interest on which is exempt from federal income taxes, but not
New York personal income taxes.
Each Tax-Free Fund may, pending the investment of proceeds from sales of
Fund shares or proceeds from the sale of portfolio securities, in anticipation
of redemptions or to maintain a "defensive" posture when, in the opinion of the
investment manager, it is advisable to do so because of market conditions, elect
to invest temporarily up to 20% of the current value of its total assets in cash
reserves or in taxable securities in which the Cash Fund may invest. Under
ordinary market conditions, each Tax-Free Fund will maintain as a fundamental
policy at least 80% of the value of its total assets in obligations that are
exempt from federal income tax and not subject to the alternative minimum tax.
It is anticipated that the portfolio turnover rate for each of the
Municipal Income Fund and the New York Municipal Income Fund will not normally
exceed 100% in any year.
Because the New York Municipal Income Fund will invest more than 80% of the
value of its assets in obligations issued by the State of New York and its
cities, municipalities and other public authorities, it is more susceptible to
factors adversely affecting issuers of such obligations than would be a
comparable municipal bond fund that is not concentrated in these issuers to this
degree. New York State and New York City have encountered financial difficulties
over the past several years. If either New York State or any of its local
governmental entities is unable to meet its financial obligations, the income
derived from the Fund, the ability to preserve or realize appreciation of the
Fund's capital and the Fund's liquidity could be adversely affected. See
"Special Factors Affecting the New York Municipal Income Fund" in the Statement
of Additional Information.
Total Return Fund
The Total Return Fund invests primarily in a broadly diversified list of
investment-grade debt securities. The Total Return Fund engages in portfolio
trading (rather than holding portfolio securities to maturity) by seeking to
take advantage of yield discrepancies and variations in the creditworthiness of
issuers and changing conditions in the financial markets and the economy. This
policy can result in portfolio turnover rates that may vary significantly from
year to year.
Under ordinary circumstances, at least 80% of the Total Return Fund's total
assets will be invested in the debt obligations of the U.S. Government, its
agencies or instrumentalities, debt obligations of domestic corporations,
foreign government and private issuers that are denominated in and pay interest
in U.S. dollars and are rated "Baa" or better by Moody's or "BBB" or better by
S&P; obligations of the International Bank for Reconstruction and Development
("World Bank"); and, if considered by the investment manager to be of
investment- grade, debt obligations of U.S. banks and bank holding companies and
certain foreign governmental and private issuers, mortgage-related obligations
and municipal obligations.
Although the Total Return Fund may invest up to 20% of its total assets in
debt securities that are not rated within the four highest grades by Moody's or
S&P as described above, it has no current intention to invest more than 5% of
its net assets in such obligations. The Total Return Fund will not invest in
obligations rated lower than "B" by Moody's or S&P. Obligations rated at the
minimum level have predominantly speculative characteristics. See the Appendix
to the Statement of Additional Information. In addition, the Total Return Fund
may invest, without limitation, in the short-term money market instruments in
which the Cash Fund may invest.
The Total Return Fund may enter into transactions in interest rate futures
contracts and options thereon solely for the purpose of hedging the Total Return
Fund against adverse movements in the market value of fixed-income securities
held by the Total Return Fund, or which the Total Return Fund intends to
purchase, and not for the purpose of speculation. Transactions in options on
debt securities also may be entered into for such hedging purposes, as well as
for non-hedging purposes intended to increase the Total Return Fund's return.
See "Additional Permitted Investment Activities--Investment in Interest Rate
Futures Contracts and Options by the Total Return Fund".
____________________
The Intermediate Government Fund invests only in obligations issued or
guaranteed by the United States Government or its agencies or instrumentalities
and repurchase agreements relating to the foregoing securities, and such
securities are not rated. Each other Fund may purchase obligations that are not
rated if, in the opinion of the investment manager, it is of investment quality
comparable to other rated investments that are permitted by such Fund. After
purchase by any of such Funds, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by such Fund. Neither
event will require a sale of such security by any of the Municipal Income Fund,
the New York Municipal Income Fund and the Total Return Fund. Such events,
however, would require any of the Money Market Funds holding such security to
dispose of such security as soon as practicable unless the Board of Directors of
the Company determines that such disposition would not be in the best interests
of such Fund.
To the extent the ratings given by Moody's, S&P or Fitch may change as a
result of changes in such organizations or their rating systems, each such Fund
will attempt to use comparable ratings as standards for investments in
accordance with the investment policies contained in this Prospectus and in the
Statement of Additional Information. The ratings of Moody's, S&P and Fitch are
more fully described in the Appendix to the Statement of Additional Information.
Additional Permitted Investment Activities
Floating and Variable Rate Instruments. Certain of the obligations that the
Funds may purchase have a floating or variable rate of interest. Such
obligations bear interest at rates that are not fixed, but vary with changes in
specified market rates or indices, such as the Prime Rate, and at specified
intervals. Certain of such obligations may carry a demand feature that would
permit the holder to tender them back to the issuer at par value prior to
maturity. Each of the Money Market Funds may invest in floating and variable
rate obligations even if they carry stated maturities in excess of 397 days,
upon compliance with certain conditions contained in a rule of the Securities
and Exchange Commission, in which case such obligations will be treated, in
accordance with the Commission's rule, as having maturities of not more than 397
days. Each Fund will limit its purchase of floating and variable rate
obligations to those of the same quality as it otherwise is allowed to purchase.
The investment manager will monitor on an ongoing basis the ability of an issuer
of a demand instrument to pay principal and interest on demand. A Fund's right
to obtain payment at par on a demand instrument could be affected by events
occurring between the date such Fund elects to demand payment and the date
payment is due that may affect the ability of the issuer of the instrument to
make payment when due, except when such demand instruments permit same day
settlement. To facilitate settlement, these same day demand instruments must be
held in book entry form at a bank other than the Fund's custodian subject to a
subcustodian agreement approved by the Fund between that bank and the Fund's
custodian.
The floating and variable rate obligations that the Funds other than the
Intermediate Government Fund may purchase include certificates of participation
in such obligations purchased from banks. A certificate of participation gives
each such Fund an undivided interest in the underlying obligations in the
proportion that such Fund's interest bears to the total principal amount of such
obligations. Certain of such certificates of participation may carry a demand
feature that would permit the holder to tender them back to the issuer prior to
maturity. The Money Market Funds may invest in certificates of participation
even if the underlying obligations carry stated maturities in excess of one
year, upon compliance with certain conditions contained in a rule of the
Securities and Exchange Commission. The income received on certificates of
participation in tax-exempt municipal obligations constitutes interest from tax-
exempt obligations.
To the extent that floating and variable rate instruments without demand
features are not readily marketable, they will be subject to the investment
restriction that no Fund may invest an amount equal to 10% or more of the
current value of its total assets in securities that are not readily marketable.
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 investment manager, are of investment quality
comparable to other permitted investments of the Funds may be used for letter of
credit-backed investments.
Repurchase Agreements. Each Fund may enter into repurchase agreements
wherein the seller of a security to the Fund agrees to repurchase that security
from the Fund at a mutually agreed upon time and price. Sellers of repurchase
agreements are banks that are issuers of eligible bank obligations (see "Bank
Obligations" under "Investment Objectives and Policies" above) and dealers that
meet guidelines established by the Board of Directors. The period of maturity is
usually quite short, often overnight or a few days, although it may extend over
a number of months. Each Fund may enter into repurchase agreements only with
respect to obligations that could otherwise be purchased by the Fund. While the
maturities of the underlying securities may be greater than one year, the term
of the repurchase agreement in the case of the Money Market Funds is always less
than one year. If the seller defaults and the value of the underlying
securities has declined, the Fund may incur a loss. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security, the Funds'
disposition of the security may be delayed or limited.
A Fund may not enter into a repurchase agreement if, as a result, more than
10% of the market value of that Fund's total assets would be invested in
repurchase agreements with a maturity of more than seven days, illiquid
securities and securities for which current market quotations or bids are not
readily available.
When-Issued Securities. Each Fund may purchase securities on a when-issued
basis, in which case delivery and payment normally take place within 45 days
after the date of the commitment to purchase. The Funds will only make
commitments to purchase securities on a when-issued basis with the intention of
actually acquiring the securities but may sell them before the settlement date
if it is deemed advisable. When-issued securities are subject to market
fluctuation and no income accrues to the purchaser prior to issuance. The
purchase price and the interest rate that will be received on debt securities
are fixed at the time the purchaser enters into the commitment. Purchasing a
security on a when-issued basis can involve a risk that the market price at the
time of delivery may be lower than the agreed-upon purchase price, in which case
there could be an unrealized loss at the time of delivery.
Each Fund will establish a segregated account in which it will maintain
liquid assets in an amount at least equal in value to the Fund's commitments to
purchase when-issued securities. If the value of these assets declines, the Fund
will place additional liquid assets in the account on a daily basis so that the
value of the assets in the account is equal to the amount of such commitments.
Securities with Put Rights. The Funds other than the Intermediate
Government Fund may enter into put transactions with respect to obligations held
in their portfolios with broker-dealers pursuant to a Rule under the Investment
Company Act of 1940 (the "1940 Act") and with commercial banks.
The right of such Funds to exercise a put is unconditional and unqualified.
A put is not transferable by a Fund, although the Fund may sell the underlying
securities to a third party at any time. If necessary and advisable, any such
Fund may pay for certain puts either separately in cash or by paying a higher
price for portfolio securities which are acquired subject to such a put (thus
reducing the yield to maturity otherwise available for the same securities).
Such Funds expect, however, that puts generally will be available without the
payment of any direct or indirect consideration.
The Funds other than the Intermediate Goverment Fund may enter into puts
only with banks or broker-dealers which, in the opinion of the investment
manager, present minimal credit risks. The ability of such Funds 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 Fund might be unable to recover all or a portion of any loss
sustained from having to sell the security elsewhere.
The Funds other than the Intermediate Goverment Fund intend to enter into
puts solely to maintain liquidity and do not intend to exercise their rights
thereunder for trading purposes. The puts will be only for periods substantially
less than the life of the underlying security. The acquisition of a put will not
affect the valuation by the Fund of the underlying security. The actual put will
be valued at zero in determining net asset value in the case of the Money Market
Funds. Where a Fund pays directly or indirectly for a put, its cost will be
reflected as an unrealized loss for the period during which the put is held by
the Fund and 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 a Fund will not be considered
shortened by any put to which such obligation is subject.
Third Party Puts. The Money Market Funds may also purchase long-term fixed
rate bonds that have been coupled with an option granted by a third party
financial institution allowing a Money Market Fund 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. A Money Market Fund receives 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 a Money Market Fund will be that of holding such a
long-term bond and the dollar-weighted average maturity of a Money Market Fund's
portfolio would be adversely affected.
Investment in Interest Rate Futures Contracts and Options by the Total Return
Fund
Interest Rate Futures Contracts. The Total Return Fund may use interest
rate futures contracts ("futures contracts") solely as a defense, or hedge,
against anticipated interest rate changes and not for speculation. A futures
contract is an agreement to purchase or sell a specified amount or specified
debt securities for a set price at a specified future time. Historically, prices
established in the futures markets have tended to move generally and in the
aggregate in concert with cash market prices and have maintained fairly
predictable relationships. The Total Return Fund may only invest in interest
rate futures contracts involving (i) the sale of the underlying securities
(i.e., short positions) to hedge the value of securities held by the Total
Return Fund, and (ii) the purchase of underlying securities as to which the
Total Return Fund holds a short position having the same delivery month (i.e., a
long position offsetting a short position) or in which the Total Return Fund has
determined to invest. Futures contracts currently traded on United States
commodity exchanges include, among others, those covering the following
financial instruments: long-term United States treasury bonds and notes,
modified pass-through mortgage-backed securities of the Government National
Mortgage Association and three-month United States treasury bills. The Total
Return Fund will enter into an interest rate futures contract as a hedge against
anticipated adverse market movements. If, however, the market moves favorably,
then, as a result of having entered into such a hedging transaction, the Total
Return Fund will have foreclosed its opportunity to benefit from the effect of
such favorable market movements on the securities so hedged. The Total Return
Fund will establish a segregated account in which it will maintain liquid assets
in an amount at least equal in value to the Fund's commitments under futures
contracts.
The Total Return Fund would engage in a futures contract sale to maintain
the income advantage from continued holding of a long-term security while
endeavoring to avoid part or all of the loss in market value that would
otherwise accompany a decline in long-term security prices. If, however,
securities prices rise, the Total Return Fund would realize a loss in closing
out its futures contract sales that would offset any increases in prices of the
long-term securities it holds.
Investment by the Total Return Fund in futures contracts involves certain
risks. One risk in employing futures contracts to protect against cash market
price volatility is the prospect that futures prices will correlate imperfectly
with the behavior of cash prices. The ordinary spreads between prices in the
cash and futures markets, due to differences in the natures of those markets,
are subject to distortions. First, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions that could distort the normal relationship
between the cash and futures markets. Second, the liquidity of the futures
market depends on participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Third, the deposit requirements in the futures market are less than
margin requirements in the securities market. Therefore, increased participation
by speculators in the futures market may cause temporary price distortions. Due
to the possibility of distortion, a correct forecast of general interest trends
by the Total Return Fund's investment manager may still not result in a
successful transaction. Commodity exchanges generally limit the amount of
fluctuation permitted in futures contract prices during a single trading day,
and the existence of such limits may prevent the prompt liquidation of futures
positions in certain cases.
Options on Futures Contracts. The Total Return Fund may invest in put and
call options on futures contracts that are traded on U.S. commodity exchanges
and, subject to obtaining any required regulatory approvals from the Commodity
Futures Trading Commission, write call options on such futures contracts. An
option on a futures contract gives the purchaser the right, but not the
obligation, in return for the premium paid, to assume a position in a specified
underlying futures contract (which position may be a long or short position) at
a specified exercise price at any time during the option exercise period. The
Total Return Fund intends to engage in transactions in options on futures
contracts only to hedge the value of securities it holds, and not for purposes
of speculation.
The Total Return Fund may enter into futures contracts and may write call
options and purchase call and put options on futures contracts if each futures
contract represents a short position to hedge the value of securities held by
the Total Return Fund or represents a long position offsetting a short position
and immediately thereafter, no more than 5% of the Total Return Fund's total
assets would be committed to margin.
Investment in Warrants by the Total Return Fund
The Total Return Fund may invest no more than 5% of its total assets at the
time of purchase in warrants (other than those that have been acquired in units
or attached to other securities). Such warrants represent rights to purchase
debt securities at a specific price valid for a specific period of time. The
prices of warrants do not necessarily correlate with the prices of the
underlying securities. The Total Return Fund may purchase warrants only on
securities in which the Fund may invest directly.
Investment in Bond Options by the Total Return Fund
The Total Return Fund may purchase put and call options and write covered
put and call options on securities in which the Fund may invest directly and
that are traded on registered domestic securities exchanges or that result from
separate, privately negotiated transactions with primary U.S. Government
securities dealers recognized by the Board of Governors of the Federal Reserve
System. The writer of a call option, who receives a premium, has the obligation,
upon exercise of the option, to deliver the underlying security against payment
of the exercise price during the option period. The writer of a put, who
receives a premium, has the obligation to buy the underlying security, upon
exercise, at the exercise price during the option period.
The Total Return Fund may write put and call options on bonds only if they
are "covered", and such options must remain "covered" as long as the Fund is
obligated as a writer. A call option is "covered" if the Fund owns the
underlying security covered by the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration if held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio. A call
option is also covered if the Fund holds on a share-for-share or equal principal
amount basis a call on the same security as the call written where the exercise
price of the call held is equal to or less than the exercise price of the call
written or greater than the exercise price of the call written if the difference
is maintained by the Fund in cash, treasury bills or other high-grade short-term
obligations in a segregated account with its custodian. A put option is
"covered" if the Fund maintains cash, treasury bills or other high-grade short-
term obligations with a value equal to the exercise price in a segregated
account with its custodian, or else owns on a share-for-share or equal principal
amount basis a put on the same security as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the put
written.
The principal reason for writing call options is to attempt to realize,
through the receipt of premiums, a greater current return than would be realized
on the underlying securities alone. In return for the premium, the Fund would
give up the opportunity for profit from a price increase in the underlying
security above the exercise price so long as the option remains open, but
retains the risk of loss should the price of the security decline. Upon exercise
of a call option when the market value of the security exceeds the exercise
price, the Fund would incur a loss equal to the difference between the exercise
price and the market value, less the premium received for writing the option.
The Total Return Fund may purchase put options in an effort to protect the
value of a security owned against an anticipated decline in market value.
Exercise of a put option will generally be profitable only if the market price
of the underlying security declines sufficiently below the exercise price to
offset the premium paid and the transaction costs. If the market price of the
underlying security increases, the Fund's profit upon the sale of the security
will be reduced by the premium paid for the put option less any amount for which
the put is sold.
The Staff of the Securities and Exchange Commission has taken the position
that purchased options not traded on registered domestic securities exchanges
and the assets used as cover for these written options are illiquid securities.
The Company has agreed that, pending resolution of the issue, the Total Return
Fund will treat such options and such assets as subject to such Fund's
limitation on investment in securities that are not readily marketable.
Investment in Foreign Securities by the Total Return Fund
The Total Return Fund may invest in debt obligations of foreign
governmental and private issuers that are denominated in and pay interest in
U.S. dollars. Investments in foreign securities involve certain considerations
that are not typically associated with investing in domestic securities. There
may be less publicly available information about a foreign issuer than about a
domestic issuer. Foreign issuers are not generally subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic issuers. In addition, with respect to certain foreign
countries, interest may be withheld at the source under foreign income tax laws
and there is a possibility of expropriation or confiscatory taxation, political
or social instability or diplomatic developments that could adversely affect
investments in securities of issuers located in those countries.
____________________
The foregoing investment objectives and related policies and activities of
each of the Funds, except as indicated above, are not fundamental and may be
changed by the Board of Directors of the Company without the approval of the
shareholders. If there is a change in the investment objective of a Fund,
shareholders of such Fund should consider whether the Fund remains an
appropriate investment in light of their then current financial position and
needs.
Investment Restrictions
The following investment restrictions and those described in the Statement
of Additional Information are fundamental policies of each of the Funds that may
be changed only when permitted by law and approved by the holders of a majority
of such Fund's outstanding voting securities, as described under "Organization
and Capital Stock" in the Statement of Additional Information. No Fund may (1)
issue senior securities, borrow money or pledge or mortgage its assets, except
that each Fund may borrow from banks up to 10% of the current value of such
Fund's total net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of not more than
10% of the current value of the Fund's total net assets (but investments may not
be purchased by such Fund while any such borrowing exists); (2) make loans,
except that each Fund may loan portfolio securities, purchase or hold a portion
of an issue of publicly distributed bonds, debentures or other obligations, and
enter into repurchase agreements with respect to its portfolio securities and
except that each Fund (other than the Intermediate Government Fund) may purchase
negotiable certificates of deposit and bankers' acceptances; or (3) invest an
amount equal to 10% or more of the current value of such Fund's total assets in
investments that are not readily marketable, including securities restricted as
to disposition under the Securities Act of 1933, repurchase agreements having
maturities of more than seven days and, in the case of the Cash Fund, fixed time
deposits subject to withdrawal penalties having maturities of more than seven
days.
Management
The Board of Directors, under applicable laws of the State of Maryland, in
addition to supervising the actions of the investment manager and the principal
underwriter, as set forth below, decides upon matters of general policy.
Pursuant to Investment Advisory Agreements (the "Agreements") with the
Company on behalf of each of the active Funds, Scudder, 345 Park Avenue, New
York, NY 10154, regularly provides each such Fund with investment research,
advice and supervision and furnishes continuously an investment program for each
such Fund consistent with its investment objective and policies. The Agreements
further provide that Scudder will pay the compensation and certain expenses of
all officers and certain employees of the Company who are affiliated with
Scudder or its affiliates and will make available to such Funds such of
Scudder's directors, officers and employees as are reasonably necessary for such
Fund's operations or as may be duly elected officers or directors of the
Company. Under the Agreements, Scudder also pays each such Fund's office rent
and provides investment advisory research and statistical facilities and all
clerical services relating to research, statistical and investment work.
Scudder, including the Scudder employees who serve such Funds, may render
investment advice, management and other services to others.
Scudder is one of the most experienced investment counsel firms in the
United States. It was established in 1919 as a partnership and was restructured
as a Delaware corporation in 1985. The principal source of Scudder's income is
professional fees received from providing continuing investment advice.
Scudder's wholly-owned subsidiary, Scudder Investor Services, Inc. (the
"Distributor"), acts as principal underwriter for shares of registered open-end
investment companies and confirms all purchases of shares of the Funds. Scudder
Service Corporation (the "Transfer Agent"), another wholly-owned subsidiary,
provides transfer, shareholder servicing and dividend disbursing agent services
to the Company for customary fees. Scudder provides investment counsel for many
individuals and institutions, including insurance companies, endowments,
industrial corporations and financial and banking organizations. As of
December 31, 1993, Scudder and its affiliates had in excess of $90 billion under
their supervision, approximately two-thirds of which was invested in fixed-
income securities.
Each Fund will bear all expenses not specifically assumed by Scudder,
including, among others, the fee payable to Scudder, the fees of the Directors
who are not "affiliated persons" of Scudder, the expenses of all Directors and
the fees and out-of-pocket expenses of the Company's Custodian and the Transfer
and Dividend Disbursing Agent. For a more detailed description of the expenses
to be borne by the Funds, see "Management" in the Statement of Additional
Information.
As compensation for its services on behalf of each of the Money Market
Funds, Scudder is paid a management fee each month at an annual rate of 0.40% of
each Money Market Fund's average daily net assets up to $1.5 billion, at which
point it becomes 0.35% of such Fund's average daily net assets in excess of $1.5
billion. The Intermediate Government Fund is charged a management fee each month
at an annual rate of 0.65% of its average daily net assets. Each of the
Municipal Income Fund, New York Municipal Income Fund and Total Return Fund will
be charged a management fee each month at an annual rate of 0.65% of its average
daily net assets.
Under the Underwriting Agreement with the Company, the Distributor acts as
the principal underwriter and bears the cost of printing and mailing
prospectuses to potential investors and any advertising expenses incurred by it
in connection with the distribution of shares.
Determination of Net Asset Value
Net asset value per share for each Fund is determined by the Company's
Custodian, State Street Bank and Trust Company (the "Custodian"), on each day
the New York Stock Exchange (the "NYSE") is open for trading and on any other
day during which there is a sufficient degree of trading in the underlying
portfolio securities of the Fund to affect materially the Fund's net asset
value. The net asset value of shares of the Money Market Funds is determined at
2:00 P.M. (New York time), and the net asset value of shares of the other Funds
is determined at the close of regular trading on the NYSE, which is currently
4:00 P.M. (New York time). The net asset value per share of each Fund is
computed by dividing the value of the total assets of the Fund, less all
liabilities, by the total number of outstanding shares of the Fund.
Each Money Market Fund uses the amortized cost method to value its
portfolio securities and seeks to maintain a constant net asset value of $1.00
per share. The amortized cost method involves valuing a security at its cost and
accreting any discount and amortizing any premium over the period until
maturity, regardless of the impact of fluctuating interest rates on the market
value of the security. See the Statement of Additional Information for a more
complete description of the amortized cost method.
The value of securities of each of the Intermediate Government Fund,
Municipal Income Fund, New York Municipal Income Fund and Total Return Fund
(other than options listed on national securities exchanges and debt securities
maturing in 60 days or less) is determined as of the close of regular trading on
the NYSE. Options on stocks and stock indices listed on national securities
exchanges are valued as of the close of options trading on such exchanges (which
is currently 4:10 P.M. New York time). Debt securities maturing in 60 days or
less are valued at amortized cost. With respect to the Intermediate Government
Fund, Municipal Income Fund, New York Municipal Income Fund and Total Return
Fund, their securities are valued utilizing primarily the latest bid prices or,
if bid prices are not available, on the basis of valuations based on a matrix
system, both as furnished by a reputable independent pricing service. All other
securities and other assets for which current market quotations are not readily
available are valued at fair value as determined in good faith by the Company's
Board of Directors and in accordance with procedures adopted by the Board of
Directors.
Because of the difference between the bid and asked prices of the over-the-
counter securities in which a Fund may invest, there may be an immediate
reduction in the net asset value of the shares of a Fund after the Fund has
completed a purchase of such securities, since they will be valued at the bid
price but usually purchased at or near the asked price.
Purchase of Shares
Shares of any Fund may be purchased by writing or calling the Transfer
Agent. The minimum initial investment is $2,500 for each of the Municipal Income
Fund, the New York Municipal Income Fund and the Total Return Fund; investments
in any of these three Funds made by directors, officers and partners and
employees of the Distributor and affiliated companies or by the trustees of
benefit plans covering those individuals are subject to a $1,000 minimum initial
investment requirement. While the Money Market Funds and the Intermediate
Government Fund have no specific minimum initial investment requirement, it is
the Company's policy normally not to accept initial investments in amounts below
$100,000 for each. The minimum subsequent investment for any of the Funds is
$100. The minimum investment requirements may be waived or lowered for
investments effected through banks and other institutions that have entered into
special arrangements with the Company and for investments effected on a group
basis by certain other entities and their employees, such as pursuant to a
payroll deduction plan and for investments made in an Individual Retirement
Account offered by the Company. The Company and the Distributor reserve the
right to reject any purchase order. All funds will be invested in full and
fractional shares.
Orders for shares of each Fund will be executed at the net asset value per
share next determined after an order has become effective. See "Determination of
Net Asset Value".
Orders for shares of each of the Intermediate Government Fund, Municipal
Income Fund, New York Municipal Income Fund and Total Return Fund will become
effective at the net asset value per share next determined after receipt by the
Transfer Agent of a check drawn on any member of the Federal Reserve System or
by the Custodian of a bank wire or Federal Reserve wire.
Orders for shares of a Money Market Fund will become effective when an
investor's bank wire order or check is converted into federal funds (monies
credited to the Custodian's account with its registered Federal Reserve Bank).
If payment is transmitted by the Federal Reserve Wire System, the order will
become effective upon receipt. Orders will be executed at 2:00 P.M. (New York
time) on the same day if a bank wire or check is converted to federal funds by
12:00 Noon (New York time) or a federal funds' wire is received by 12:00 Noon
(New York time). In addition, if investors known to the Company notify the
Company by 2:00 P.M. (New York time) that they intend to wire federal funds to
purchase shares of any Money Market Fund on any business day and if monies are
received in time to be invested, orders will be executed at the net asset value
per share determined at 2:00 P.M. (New York time) the same day. Wire
transmissions may, however, be subject to delays of several hours, in which
event the effectiveness of the order will be delayed. Payments by a bank wire
other than the Federal Reserve Wire System may take longer to be converted into
federal funds. When payment for shares is by check drawn on any member of the
Federal Reserve System, federal funds normally become available to the Company
on the business day after the check is deposited.
Checks drawn on a non-member bank or a foreign bank may take substantially
longer to be converted into federal funds and, accordingly, may delay the
execution of an order. Checks must be payable in United States dollars and will
be accepted subject to collection at full face value.
By investing in a Fund, a shareholder appoints the Transfer Agent to
establish an open account to which all shares purchased will be credited,
together with any dividends and capital gain distributions that are paid in
additional shares. See "Dividends and Distributions". Although most shareholders
elect not to receive stock certificates, certificates for full shares can be
obtained on specific written request to the Transfer Agent. No certificates are
issued for fractional shares. It is more complicated to redeem shares held in
certificate form, and the Expedited Redemption and Check Redemption Services
described below are not available with respect to those shares.
Initial Purchase by Wire
1. Telephone toll free from any continental state: (800) 854-8525. Give
the Fund(s) to be invested in, name(s) in which shares are to be registered,
address, social security or taxpayer identification number (where applicable),
dividend payment election, amount to be wired, name of the wiring bank and name
and telephone number of the person to be contacted in connection with the order.
An account number will be assigned.
2. Instruct the wiring bank to transmit the specified amount in federal
funds to:
State Street Bank and Trust Company
Boston, Massachusetts
ABA Number 011000028
Custody and Shareholder Services Division
Attention: [Name of Fund]
Account (name(s) in which registered)
Account Number (as assigned by telephone)
3. Complete a Purchase Application. Indicate the services to be used. A
completed Purchase Application for a Money Market Fund or an Intermediate
Government Fund investment must be received by the Transfer Agent before the
Expedited Redemption or Check Redemption Service can be used. Mail the Purchase
Application to:
Scudder Service Corporation
P.O. Box 2038
Boston, Massachusetts 02106
Additional Purchases by Wire
Instruct the wiring bank to transmit the specified amount in federal funds
to:
State Street Bank and Trust Company
Boston, Massachusetts
ABA Number 011000028
Custody and Shareholder Services Division
Attention: [Name of Fund]
Account (name(s) in which registered)
Account Number
Initial Purchase by Mail
1. Complete a Purchase Application. Indicate the services to be used.
2. Mail the Purchase Application and your check payable to the Fund whose
shares are to be purchased, to the Transfer Agent at the address set forth
above.
Additional Purchases by Mail
1. Make a check payable to the Fund whose shares are to be purchased.
Write the shareholder's Fund account number on the check.
2. Mail the check and the detachable stub from the Statement of Account
(or a letter providing the account number) to the Transfer Agent at the address
set forth above.
Redemption of Shares
Upon receipt by the Transfer Agent of a redemption request in proper form,
shares of any Fund will be redeemed at their next determined net asset value.
See "Determination of Net Asset Value". For the shareholder's convenience, the
Company has established several different redemption procedures.
Redemption by Mail
1. Write a letter of instruction. Indicate the dollar amount or number of
shares to be redeemed. Refer to the shareholder's Fund account number and give
social security or taxpayer identification number (where applicable).
2. Sign the letter in exactly the same way the account is registered. If
there is more than one owner of the shares, all must sign.
3. If shares to be redeemed have a value of $50,000 or more, the
signature(s) must be guaranteed by a commercial bank that is a member of the
Federal Deposit Insurance Corporation, a trust company, a member firm of a
domestic stock exchange or a foreign branch of any of the foregoing. In
addition, signatures may be guaranteed by other Eligible Guarantor Institutions,
i.e., other banks, other brokers and dealers, municipal securities brokers and
dealers, government securities brokers and dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies and
savings associations. The Transfer Agent, however, may reject redemption
instructions if the guarantor is neither a member of nor a participant in a
signature guarantee program (currently known as "STAMP_"). Signature guarantees
by notaries public are not acceptable. Further documentation, such as copies of
corporate resolutions and instruments of authority, may be requested from
corporations, administrators, executors, personal representatives, trustees or
custodians to evidence the authority of the person or entity making the
redemption request.
4. If shares to be redeemed are held in certificate form, enclose the
certificates with the letter. Do not sign the certificates and for protection
use registered mail.
5. Mail the letter to the Transfer Agent at the address set forth under
"Purchase of Shares".
Checks for redemption proceeds will normally be mailed the day following
receipt of the request in proper form, although the Company reserves the right
to take up to seven days. Unless other instructions are given in proper form, a
check for the proceeds of a redemption will be sent to the shareholder's address
of record. The Custodian may benefit from the use of redemption proceeds until
the check issued to a redeeming shareholder for such proceeds has cleared.
When proceeds of a redemption are to be paid to someone other than the
shareholder, either by wire or check, the signature(s) on the letter of
instruction must be guaranteed regardless of the amount of the redemption.
Redemption of Shares by Expedited Redemption Service
If shares are held in book credit form and the Expedited Redemption Service
has been elected on the Purchase Application on file with the Transfer Agent,
redemption of shares may be requested on any day the Company and the Custodian
are open for business by telephone, telegraph or letter. A signature guarantee
is not required.
No redemption of shares purchased by check will be permitted pursuant to
the Expedited Redemption Service until 21 days after those shares have been
credited to the shareholder's account.
1. Telephone the request to the Transfer Agent by calling toll free from
any continental state: (800) 854-8525, or
2. Mail the request to the Transfer Agent at the address set forth under
"Purchase of Shares".
Expedited Redemption may be placed only up to 12:00 Noon (New York time)
for shares of the Money Market Funds and up to the close of regular trading on
the NYSE (currently 4:00 P.M., New York time) for shares of the Intermediate
Government Fund each business day. Proceeds of Expedited Redemptions of $1,000
or more will be wired to the shareholder's bank indicated in the Purchase
Application. If an Expedited Redemption request for the Money Market Funds is
received by the Transfer Agent by 12:00 Noon (New York time) on a day the
Company and the Custodian are open for business, the redemption proceeds will be
transmitted to the shareholder's bank that same day. Such expedited redemption
request received after 12:00 Noon and before 2:00 P.M. (New York time) will be
honored the same day if such redemption can be accomplished in time to meet the
Federal Reserve Wire System's schedule. The redemption proceeds for the
Intermediate Government Fund will be transmitted the following business day. A
check for proceeds of less than $1,000 will be mailed to the shareholder's
address of record. In the case of investments in a Fund that have been effected
through banks and other institutions that have entered into special arrangements
with the Company, the full amount of the redemption proceeds will be transmitted
by wire.
Each Fund uses procedures designed to give reasonable assurance that
telephone instructions are genuine, including recording telephone calls, testing
a caller's identity and sending written confirmation of telephone transactions.
If a Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. Each Fund will not be liable
for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption of Shares by Check Redemption Service
If shares are held in book credit form and the Check Redemption Service has
been elected on the Purchase Application on file with the Transfer Agent,
redemptions of shares may be made by using redemption checks provided by the
Company. There is no charge for this service.
No redemption of shares purchased by check will be permitted pursuant to
the Check Redemption Service until 21 days after those shares have been credited
to the shareholder's account.
1. Checks must be written for amounts of $500 or more.
2. Checks may be payable to anyone and negotiated in the normal way.
3. If more than one shareholder owns the shares, all must sign the check
unless an election has been made to require only one signature on checks and
that election has been indicated on the Purchase Application.
The shareholder should make certain that there are adequate shares in the
account to cover the amount of checks written under this service. If
insufficient shares are in the account, or if checks are improperly signed, they
will not be honored.
Shares represented by a redemption check will continue to earn daily income
until the check clears the banking system. When honoring a redemption check, the
Transfer Agent will redeem exactly enough full and fractional shares from an
account to cover the amount of the check. The Check Redemption Service may be
terminated at any time by the Custodian or the Company.
____________________
Payment of redemption proceeds may be made in securities, subject to
regulation by some state securities commissions. The Company may suspend the
right of redemption during any period when (i) trading on the New York Stock
Exchange is restricted or that Exchange is closed, other than customary weekend
and holiday closings, (ii) the Securities and Exchange Commission has by order
permitted such suspension or (iii) an emergency, as defined by rules of the
Securities and Exchange Commission, exists making disposal of portfolio
securities or determination of the value of the net assets of the Funds not
reasonably practicable.
The proceeds of redemption may be more or less than the amount invested
and, therefore, a redemption may result in a gain or loss for federal income tax
purposes.
A shareholder's account in a Fund remains open for up to one year following
complete redemption, and all costs during the period will be borne by that Fund.
The Company reserves the right to redeem upon not less than 30 days'
written notice the shares in an account that has a value of $1,000 or less.
However, any shareholder affected by the exercise of this right will be allowed
to make additional investments prior to the date fixed for redemption to avoid
liquidation of the account.
The Company also reserves the right, following 30 days' notice to
shareholders, to redeem all shares in accounts without certified social security
or taxpayer identification numbers. A shareholder may avoid involuntary
redemption by providing the Company with a taxpayer identification number during
the 30-day notice period.
Exchange Privilege
Shares of any of the Funds that have been held for seven days or more may
be exchanged for shares of one of the other Funds in an identically registered
account. Shares may be exchanged for shares of another Fund only if shares of
such Fund may legally be sold under applicable state laws.
A shareholder may exchange shares by calling the Transfer Agent by
4:00 P.M. (New York time), if the shareholder has properly completed a Purchase
Application authorizing such exchange and submitted it to the Transfer Agent in
advance of the first such exchange. The Transfer Agent's toll-free number for
exchanges is (800) 854-8525.
Procedures applicable to redemption of a Fund's shares are also applicable
to exchanging shares. A shareholder who has not authorized an exchange for
shares of one of the other Funds of the Company on the Purchase Application and
wishes to do so at a later date would be required to send a letter to the
Transfer Agent signed exactly the same way the account is registered. If there
is more than one owner of the shares, all must sign. The Company and the
Distributor may modify or discontinue exchange privileges at any time upon 60
days' notice. A capital gain or loss for tax purposes may be realized upon an
exchange, depending upon the cost or other basis of shares redeemed.
Special Arrangements with Banks and Other Institutions
As more fully described in the Statement of Additional Information, the
Company and the investment manager for a Fund may enter into special contractual
arrangements with banks and other institutions (collectively, "Participating
Organizations") that process substantial volumes of purchases and redemptions of
shares of the Fund for their customers. Under such contractual arrangements, the
Transfer Agent will ordinarily maintain an omnibus account for a Participating
Organization and the Participating Organization will maintain sub-accounts for
its customers for whom it processes purchases and redemptions of shares. The
Company pays a Participating Organization to the extent that it performs a
shareholder servicing function for the Company with respect to shares of any
Fund owned from time to time by customers of the Participating Organization.
These shareholder services would otherwise have been performed for the Company
by its transfer agent. In certain cases, the investment manager for a Fund may
also pay a Participating Organization for providing other administrative
services to its customers who invest in such Fund where those services would
have been provided to shareholders by the investment manager. A Participating
Organization may charge its customers a fee, as agreed upon by the Participating
Organization and the customer, with respect to the cash management or other
services it provides. Customers of Participating Organizations should read this
Prospectus in conjunction with the service agreement and other literature
describing the services and related fees that will be provided by the
Participating Organization to its customers prior to any purchase of shares.
There are currently unresolved issues with respect to existing federal laws
and regulations relating to the permissible activities of banks and trust
companies, including the extent to which certain Participating Organizations may
perform the shareholder and administrative services described herein. A judicial
or administrative decision or interpretation with respect to those laws and
regulations, as well as future changes in such laws and regulations, could
prevent certain Participating Organizations from performing these services. If a
Participating Organization were prohibited from performing these services, it is
expected that all arrangements between the Company, the investment manager and
the Participating Organization would be terminated and that customers of the
Participating Organization who seek to invest in a Fund would have to purchase
and redeem shares directly through the Transfer Agent.
Shareholder Service, Administration and Distribution Plan
The Company's Board of Directors has adopted, and each Fund's shareholders
have approved, a Shareholder Service, Administration and Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 on
behalf of each Fund. Under the Plan, Participating Organizations that enter into
contractual arrangements with the Company on behalf of a Fund and the investment
manager for the Fund may receive up to 0.50% on an annual basis of such Fund's
average daily net assets for any of shareholder service, administration and
distribution assistance. Of such fees, up to 0.25% may be paid by the Fund and
up to 0.25% may be paid by the investment manager out of its management fee,
past profits or any other sources available to it. Under existing agreements,
the Company pays fees to Participating Organizations that perform shareholder
services for their customers that would otherwise be performed by the Company's
transfer agent. In certain cases, the investment manager for a Fund may also pay
fees to Participating Organizations for providing other administrative services
to their customers that would be provided by the investment manager. In
addition, each of the Money Market Funds and the Intermediate Government Fund
may pay service fees to brokers and dealers, investment advisers and other
institutions. The investment manager for each of such Funds may make payments to
all such institutions for similar purposes. The fees payable to Participating
Organizations from time to time shall, within such limits, be determined by the
Board of Directors of the Company. Among the factors that will be considered in
determining the amount of fees payable to a Participating Organization will be
the amount of the average daily net assets of a Fund attributable to the
Participating Organization, the facilities that the Participating Organization
has for the establishment of shareholder accounts and records, the processing of
purchases and redemptions of shares of that Fund, the automatic investment in
shares of that Fund of client account balances, the furnishing of assistance in
handling client inquiries regarding the Fund and related shareholder services.
Participating Organizations referred to above under "Special Arrangements with
Banks and Other Institutions" may be compensated for their services pursuant to
the Plan.
Dividends and Distributions
The Company intends to declare as a dividend on the outstanding shares of
each Money Market Fund substantially all of such Fund's net investment income at
the close of each business day to shareholders of record at 2:00 P.M. (New York
time) on the day of declaration. Shares purchased will begin earning dividends
on the day the purchase order is executed and shares redeemed will earn
dividends through the previous day, except that with respect to the Check
Redemption Service, shares redeemed will cease to earn dividends on the day the
check is charged to the Custodian's account at its Federal Reserve Bank. Net
investment income for a Saturday, Sunday or holiday will be declared as a
dividend on the previous business day to shareholders of record at 2:00 P.M.
(New York time) on that day.
The Company intends to declare a dividend on the outstanding shares of each
of the Intermediate Government Fund, Municipal Income Fund, New York Municipal
Income Fund and Total Return Fund from such Fund's net investment income at the
close of each business day to shareholders of record at 4:00 P.M. (New York
time) on the previous business day. Shares purchased will begin earning
dividends on the day after the purchase order is executed and shares redeemed
will earn dividends through the day of redemption except that with respect to
orders for shares for which federal funds wires are received by 12:00 Noon (New
York time) or if monies are otherwise received in time to be invested by such
Fund that same day, such shares purchased will begin earning dividends on the
day the purchase order is executed. Net investment income for a Saturday, Sunday
or holiday will be declared as a dividend on the next business day to
shareholders of record at 4:00 P.M. (New York time) on the previous business
day.
Investment income for a Money Market Fund includes, among other things,
interest income, accretion of market and original issue discount and
amortization of premium. Investment income for the Intermediate Government Fund
includes, among other things, interest income and accretion of original issue
discount.
With respect to all Funds, dividends declared in and attributable to the
preceding month will be paid on the first business day of each month. Net
realized capital gains, if any, will be distributed annually, although an
additional distribution may be necessary to prevent the application of a federal
excise tax. Dividends and distributions will be invested in additional shares of
the same Fund at net asset value and credited to the shareholder's account on
the payment date or, at the shareholder's election, paid in cash. Dividend
checks and Statements of Account will be mailed approximately two business days
after the payment date. Each Fund forwards to the Custodian the monies for
dividends to be paid in cash on the payment date.
Shareholders of Funds who redeem all their shares prior to a dividend
payment will receive, in addition to the redemption proceeds, dividends declared
but unpaid. Such shareholders who redeem only a portion of their shares will be
entitled to all dividends declared but unpaid on such shares on the next
dividend payment date.
Taxes
Each of the Company's Funds has in the past qualified, and each of such
Funds intends to continue to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"). Each Fund will
be treated as a separate entity for tax purposes and thus the provisions of the
Code applicable to regulated investment companies generally will be applied to
each Fund separately, rather than to the Company as a whole. In addition, net
capital gains, net investment income, and operating expenses will be determined
separately for each Fund. By complying with the applicable provisions of the
Code, each Fund will not be subject to federal income taxes with respect to net
investment income and net capital gains distributed to its shareholders. A 4%
non-deductible excise tax will be imposed on each Fund (except the Tax-Free
Funds to the extent of their tax-exempt income) to the extent such Fund does not
meet certain distribution requirements by the end of each calendar year.
Dividends from net investment income (including realized net short-term
capital gains in excess of net long-term capital losses), except "exempt-
interest dividends" (described below), will be taxable as ordinary income for
federal income tax purposes. In the case of the dividends distributed by the
Tax- Free Funds, that part of each Fund's net investment income that is
attributable to interest from tax-exempt securities and that is distributed to
shareholders will be designated by the Company as an "exempt-interest dividend",
and, as such, will be exempt from federal income tax. Because substantially all
of the income of each Fund will arise from interest, no part of the
distributions to shareholders is expected to qualify for the dividends-received
deduction. Each year the Company will notify shareholders of the federal income
tax status of distributions. Distributions of net long-term capital gains in
excess of net short-term capital losses, if any, will be taxable as long-term
capital gains, whether received in cash or reinvested in additional shares,
regardless of how long the shareholder has held the shares.
In the case of the shareholders of each of the Tax-Free Funds, interest on
indebtedness incurred, or continued, to purchase or carry shares of the Funds
will not be deductible for federal income tax purposes to the extent that the
Fund's distributions are exempt from federal income tax. In addition, the
portion of an exempt-interest dividend allocable to certain tax-exempt
obligations will be treated as a preference item for purposes of the alternative
minimum tax imposed on both individuals and corporations. Persons who may be
"substantial users" (or "related persons" of substantial users) of facilities
financed by private activity bonds should consult their tax advisors before
purchasing shares in the Tax-Free Funds.
The Company will be required to withhold, subject to certain exemptions, at
a rate of 31% on dividends paid or credited to individual shareholders (except
shareholders of the Tax-Free Funds to the extent they distribute exempt-interest
dividends) and on redemption proceeds, if a correct social security or taxpayer
identification number, certified when required, is not on file with the Company
or Transfer Agent. (See also "Redemption of Shares").
Most states exempt from personal income tax dividends paid by a regulated
investment company attributable to interest derived from obligations of the
United States Government and certain of its agencies and instrumentalities. For
example, shareholders of a regulated investment company will not be subject to
New York State or City personal income tax on the dividends paid by such a fund
to the extent attributable to interest on obligations of the United States
Government and certain of its agencies and instrumentalities, provided that at
the close of each quarter of the fund's taxable year at least 50% of the value
of the total assets of the fund consists of such obligations. Dividends paid by
the Federal Fund are intended to qualify for this treatment, and dividends paid
by the Government Fund and the Intermediate Government Fund may qualify. In
addition, with respect to distributions made by the New York Municipal Income
Fund, the shareholders of the Fund will not be subject to New York State and
City personal income taxes on the dividends paid by the Fund to the extent that
such distributions qualify as exempt-interest dividends and represent interest
income attributable to federally tax-exempt obligations of the State of New York
and its political subdivisions (as well as certain other federally tax-exempt
obligations the interest on which is exempt from New York State and City
personal income taxes, such as certain obligations of Puerto Rico). Dividends
distributed by the Tax-Free Funds are not excluded in determining New York State
or City franchise taxes on corporations and financial institutions. The
exemption of interest income for federal income tax purposes may not result in
similar exemptions under the tax law of state and local tax authorities. In
general, interest earned on obligations issued by the state or locality in which
the investor resides may be exempt from state and local taxes. State and local
laws may differ, however, with respect to the tax treatment of dividends
attributable to interest on obligations of: (i) the United States Government
and certain of its agencies and instrumentalities and (ii) obligations of states
and localities, and shareholders should consult their tax advisors about the
taxability of dividends. The Company furnishes each shareholder of record with
the portion of the previous year's income derived from: (i) United States
Government Obligations and (ii) various agencies and instrumentalities each of
which is specified by name.
Shareholders are urged to consult their own tax advisors regarding specific
questions as to federal, state or local taxes.
Account Services
Shareholders will be sent a Statement of Account from the Distributor, as
agent of the Company, whenever a share transaction is effected in the accounts.
Shareholders can write or call the Company at the address and telephone number
on the cover of this Prospectus with any questions relating to their investment
in shares of any of the Funds.
Shareholder Services
The Company offers the following shareholder services. See Statement of
Additional Information for further details about these services or call or write
the Company.
Special Monthly Summary of Accounts. A special service is available to
banks, brokers, investment advisers, trust companies and others who have a
number of accounts in one or more of the Funds. A monthly summary of accounts
can be provided, showing for each account the account number, the month-end
share balance and the dividends and distributions paid during the month.
IRAs. A form of individual retirement account ("IRA") is available to
qualified individuals for investment in shares of any active Fund of the
Company. Individuals who have received certain distributions from tax qualified
plans under the Code or other IRAs are eligible to establish an IRA by making a
rollover contribution.
Organization and Capital Stock
The Company was incorporated in Maryland on June 18, 1982. The authorized
capital stock of the Company consists of 10,000,000,000 shares having a par
value of $.001 per share. The Company's Board of Directors has authorized the
issuance of eight classes representing shares in each of the Funds and may, in
the future, authorize the issuance of other classes of capital stock
representing shares of additional portfolios. All shares of the Company have
equal voting rights and will be voted in the aggregate, and not by class, except
where voting by class is required by law or where the matter involved affects
only one class. A more complete statement of the voting rights of shareholders
is contained in the Statement of Additional Information. All shares of the
Company, when issued, will be fully paid and non-assessable.
On April 8, 1994, Scudder owned 100% of the outstanding shares of each of
the Municipal Income Fund, New York Municipal Income Fund and the Total Return
Fund, which either have not yet commenced, or have terminated, operations. In
addition, on such date Raytheon Employees Federal Credit Union and Summa Four
Inc. held of record and beneficially 50.76% and 34.12%, respectively, of the
outstanding shares of the Intermediate Government Fund. To the extent that a
shareholder is the beneficial owner of 25% or more of a Fund's outstanding
shares, it may be deemed to be a "control" person of such Fund for purposes of
the 1940 Act.
The Company, if requested to do so by the holders of at least 10% of the
Company's shareholders, will call a meeting of shareholders for the purpose of
voting upon the question of the removal of a director or directors, and will
assist in communications with other shareholders as required by Section 16(c) of
the Investment Company Act of 1940.
Custodian and Transfer and Dividend Disbursing Agent
State Street Bank and Trust Company, which has its principal business
address at 225 Franklin Street, Boston, Massachusetts 02110, has been retained
to act as Custodian of the Funds' investments and Scudder Service Corporation,
Two International Place, Boston, Massachusetts 02110-4103, serves as the
Company's Transfer and Dividend Disbursing Agent. Neither the Custodian nor the
Transfer Agent has any part in deciding the Funds' investment policies or which
securities are to be purchased or sold for the Funds' portfolios.
Reports to Shareholders
The fiscal year of the Company ends on December 31 of each year. The
Company sends to its shareholders, at least semi-annually, reports showing the
investments in each of the Funds and other information (including unaudited
financial statements) pertaining to the Company. An annual report, containing
financial statements audited by the Company's independent accountants, is sent
to shareholders each year.
Calculation of Yield and Total Return
From time to time each of the Money Market Funds advertises its "yield" and
"effective yield". Both yield figures are based on historical earnings and are
not intended to indicate future performance. The "yield" of each such Fund
refers to the income generated by an investment in the Fund over a seven-day
period (which period will be stated in the advertisement). This income is then
"annualized". That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment.
From time to time the Intermediate Government Fund may advertise its
"yield" and its "total return". These figures are based on historical earnings
and are not intended to indicate future performance. The "yield" of the
Intermediate Government Fund refers to the income generated by an investment in
the Intermediate Government Fund over a 30-day period (which period will be
stated in the advertisement). This income is then "annualized". That is, the
amount of income generated by the investment during that 30-day period is
assumed to be generated each 30-day period for twelve periods and is shown as a
percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The "total
return" shows what an investment in the Intermediate Government Fund would have
earned over a specified period of time (such as one, five or ten years or the
period of time since commencement of operations, if shorter) assuming that all
distributions and dividends by the Intermediate Government Fund were reinvested
on their reinvestment dates during the period, less all recurring fees. At times
the Intermediate Government Fund may in advertisements compare its performance
to comparative performance information as published by Lipper Analytical
Services, Inc., other industry publications, business periodicals, rating
services and market indices.
Investors who purchase and redeem shares of any Fund through broker-
dealers, banks and other institutions may be subject to service fees imposed by
those entities with respect to the cash management and other services they
provide. Such fees will have the effect of reducing the return for those
investors. See "Special Arrangements with Banks and Other Institutions". Orders
placed by an investor directly with the Transfer Agent will not be subject to
such fees.
Scudder Fund, Inc.
345 Park Avenue, New York, New York Scudder Fund, Inc.
10154
(212) 326-6656
Distributor
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110-4103
Investment Manager
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, New York 10154
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Transfer Agent and Dividend
Disbursing Agent
Scudder Service Corporation PROSPECTUS
P.O. Box 2038 May 1, 1994
Boston, Massachusetts 02106
Independent Accountants
Price Waterhouse
New York, New York
Legal Counsel
Sullivan & Cromwell
New York, New York
- -------------------------------------
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, and information or
representations not contained herein must not be relied upon as having been
authorized by the Company or the Distributor. This Prospectus does not
constitute an offer of any security other than the registered securities to
which it relates or an offer to any person in any jurisdiction where such offer
would be unlawful.
<PAGE>
Managed Federal Securities Fund at not more than 0.75% of average daily net
assets of the Fund until June 30, 1995.
Until June 30, 1995, the Manager has agreed to continue to maintain the
total annualized expenses of the Managed Government Securities Fund and the
Managed Cash Fund at not more than 0.55% of average daily net assets of
each Fund.
January 20, 1995
<PAGE>
Managed Intermediate Government Fund
Supplement to Prospectus
Dated May 1, 1994
The Company's investment manager, Scudder, Stevens & Clark, Inc., has
agreed to maintain the total annualized expenses of the Managed
Intermediate Government Fund at not more than 0.80% of average daily net
assets of the Fund until June 30, 1995.
January 20, 1995
