SCUDDER FUND INC, 497, 1997-05-09

SCUDDER FUND INC
497, 1997-05-09

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Managed Cash Fund

Managed Tax Free Fund

Managed Government Securities Fund
345 Park Avenue, New York, New York 10154
(800) 854-8525

Investment Manager

Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, New York 10154

Distributor

Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110

Custodian

State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110

Fund Accounting Agent

Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110

Transfer Agent and
Dividend Disbursing Agent

Scudder Service Corporation
P.O. Box 2038
Boston, Massachusetts 02106

- --------------------------------------------------------------------------------
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.

Managed Cash Fund

Managed Tax Free Fund

Managed Government Securities Fund

Prospectus
May 1, 1997

<PAGE>

Managed Cash Fund

Managed Tax Free Fund
Managed Government Securities Fund

345 Park Avenue, New York, New York 10154
1-800-854-8525

Scudder, Stevens & Clark, Inc. - Investment Adviser

Scudder Investor Services, Inc. - Distributor

Managed Cash Fund, Managed Tax Free Fund and Managed Government Securities
Fund are series of Scudder Fund, Inc. (the "Company"), a professionally managed,
open-end, diversified management investment company.

Managed Cash Fund, Managed Tax Free Fund and Managed Government Securities
Fund (each, a "Fund" and collectively, the "Funds") are money market funds that
seek to provide investors with as high a level of current income as is
consistent with their investment objectives and policies and with preservation
of capital and liquidity. The Funds are neither insured nor guaranteed by the
U.S. Government. Each Fund intends to maintain a net asset value per share of
$1.00, but there is no assurance that it will be able to do so.

-------------------------------------

This Prospectus sets forth concisely the information about the Company
that a prospective investor should know before investing. Please retain it for
future reference. If you require more detailed information, a Statement of
Additional Information dated May 1, 1997, as amended from time to time, may be
obtained without charge by writing or calling the Company at the address and
telephone number printed above. The Statement of Additional Information, which
is incorporated by reference into this Prospectus, has been filed with the
Securities and Exchange Commission and is available along with other related
materials on the Securities and Exchange Commission's Internet Web site
(http://www.sec.gov).

--------------------------------------

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, 1997

<PAGE>

Table of Contents
Page
----
Summary 2
Expense Information 5
Financial Highlights 7
Investment Objectives and Policies 10
Additional Information About Policies and Investments 12
Special Arrangements with Banks and Other Institutions 15
Shareholder Service, Administration and Distribution Plan 15
Distribution and Performance Information 16
Company Organization 18
Transaction Information 20
Shareholder Benefits 24

Summary

The Company Scudder Fund, Inc. is a professionally managed,
open-end, diversified management investment company
which offers the following three investment series:
Managed Cash Fund (the "Cash Fund"), Managed Tax
Free Fund (the "Tax Free Fund") and Managed
Government Securities Fund (the "Government Fund"),
(each, a "Fund" and collectively, the "Funds"). See
"Company Organization."

Objectives and Policies Each Fund seeks to provide investors with as high a
level of current income as is consistent with its
stated investment objective and policies and with
preservation of capital and liquidity. Each Fund
invests exclusively in high quality investments
with remaining maturities of not more than 397
calendar days. Each Fund values its portfolio
securities on the basis of amortized cost rather
than at market value. Thus, although the market
value of a portfolio may vary inversely to changes
in prevailing interest rates and may be affected by
changes in the creditworthiness of issuers of
securities held in its portfolio and other market
factors, each Fund expects to maintain a constant
net asset value of $1.00 per share. There is no
assurance, however, that this can be achieved.

The Cash Fund invests in obligations issued or
guaranteed by the U.S. Government or its agencies
or instrumentalities, obligations of certain U.S.
or foreign banks and their branches (such banks in
each case to have total assets of at least $1
billion), corporate commercial paper and other
short-term corporate obligations, and securities
issued by or on behalf of states, cities,
municipalities and other public authorities (which
may or may not be exempt from federal income
taxes).

The Tax Free Fund invests in a broad range of
securities issued by or on behalf of states,
cities, municipalities and other public authorities
("municipal obligations") the income of which

2
<PAGE>

is exempt from federal income taxes. Income from
the Tax Free Fund may not be exempt from certain
state and local taxes. See "Investment
Objectives and Policies."

The Government Fund invests in obligations issued
or guaranteed by the U.S. Government or its
agencies or instrumentalities.

Additional Investment The Cash Fund may invest in obligations
Activities of foreign banks, which involve different risks
than those associated with obligations of domestic
banks. In addition, certain obligations in which
each Fund may invest may have a floating or
variable rate of interest. Certain obligations in
which the Cash Fund and Tax Free Fund invest may be
backed by bank letters of credit. Each Fund may
enter into repurchase agreements, and investments
in any of the Funds may be purchased on a
when-issued basis and with put features. Each of
these investment practices entails certain risks.
See "Additional Information About Policies and
Investments."

Investment Adviser The Funds' investment adviser is Scudder, Stevens &
Clark, Inc., (the "Adviser"), a leading provider of
U.S. and international investment management
services for clients throughout the world.

The Adviser receives monthly an investment
management fee for its services, equal, on an
annual basis, to 0.40% of the first $1.5 billion
of each Fund's average daily net assets and 0.35%
of such assets in excess of $1.5 billion.
Effective July 7, 1997, the Adviser will receive
a management fee of 0.25% of each Fund's average
daily net assets on an annual basis.

Distributor Scudder Investor Services, Inc., a subsidiary of
the Adviser (the "Distributor") is the principal
underwriter for the Company.

Custodian State Street Bank and Trust Company (the
"Custodian") is the custodian for the Company.

Purchasing Shares Shares of any Fund may be purchased at net asset
value by writing or calling Scudder Service
Corporation, a subsidiary of the Adviser (the
"Transfer Agent"). There is no sales charge. While
the Funds 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 Fund. The minimum
subsequent investment for any Fund is $100. See
"Transaction Information--Purchasing Shares."

Redeeming Shares Shareholders may redeem all or any part of their
investments in the Funds by contacting the Transfer
Agent. Shares will be redeemed at their next
determined net asset value. There is no redemption
charge. The Company reserves the right, upon
notice, to redeem the shares in an investor's
account if the value of such shares falls below
certain levels or if the account does not have a
certified Social Security or taxpayer
identification number. See "Transaction
Information--Redeeming Shares."

Share Price Scudder Fund Accounting Corporation, a subsidiary
of the Adviser, determines net asset value per
share of each Fund on each day the New York Stock
Exchange (the "Exchange") is open for trading. The
net asset value per share is determined at 2:00
p.m. (eastern time) for the Tax Free Fund and at

3
<PAGE>

4:00 p.m.(eastern time) for the Cash Fund and
Government Fund. See "Transaction Information--
Share Price."

Dividends Dividends on shares of each Fund are declared daily
and paid monthly. Distributions of capital gains,
if any, are paid annually. Dividends and capital
gains distributions with respect to shares of each
Fund are automatically paid in additional shares of
the same Fund unless shareholders elect to receive
payments in cash. See "Distribution and Performance
Information--Dividends and Capital Gains
Distributions."

4
<PAGE>

Expense Information

<TABLE>
<CAPTION>
This information is designed to help an investor understand the various costs
and expenses of investing in Cash Fund and Tax Free Fund.

1) Shareholder Transaction Expenses: Expenses charged directly to an individual account in a Fund for
various transactions.
<S> <C> <C>

Cash Fund Tax Free Fund
---------- --------------
NONE NONE

2) Annual Fund Operating Expenses: Expenses paid by a Fund before it distributed its net investment income,
expressed as a percentage of that Fund's average daily net assets for the fiscal year ended December 31,
1996.

Investment Management Fees 0.26%* 0.40%

Other Expenses:

Payments to Banks and Other Institutions for 0.11% 0.19%
Shareholder and Distribution Services

Miscellaneous 0.18% 0.24%
----- -----
Total 0.29% 0.43%
----- -----
Total Fund Operating Expenses 0.55%* 0.83%
----- -----
----- -----

Example

Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by each Fund before it distributes its
net investment income to shareholders.

One year $ 6 $ 8
Three years $ 18 $ 26
Five years $ 31 $ 46
Ten years $ 69 $ 103

</TABLE>

See "Company Organization--Investment Adviser" for further information about
investment management fees. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
Operating Expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than
those shown.

* Other expenses for the fiscal year ended December 31, 1996 have been
restated to reflect an increase in transfer agency fees which will take
effect July 1, 1997.

** Until July 7, 1997, the Adviser has agreed to waive a portion of its
investment management fee to the extent necessary so that the total
annualized expenses of the Fund do not exceed 0.55% of average daily net
assets. If the Adviser had not agreed to waive a portion of its fee,
annualized Fund expenses would have been: investment management fee 0.40%,
other expenses 0.29% and total operating expenses 0.69% for the fiscal year
ended December 31, 1996.

"Payments to Banks and Other Institutions for Shareholder and Distribution
Services" represent 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 Fund 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 "Special Arrangements with Banks and Other Institutions" and "Shareholder
Service, Administration and Distribution Plan."

5
<PAGE>

Expense Information

This information is designed to help an investor understand the various costs
and expenses of investing in Government Securities Fund.

1) Shareholder Transaction Expenses: Expenses charged directly to an
individual account in a Fund for various transactions.

Government
Securities Fund
---------------
NONE

2) Annual Fund Operating Expenses: Expenses paid by a Fund before it
distributed its net investment income, expressed as a percentage of that
Fund's average daily net assets for the fiscal year ended December 31,
1996.

Investment Management Fees 0.00%*
Other Expenses:
Payments to Banks and Other Institutions
for Shareholder and Distribution Services 0.15%
Miscellaneous (after reimbursement, if any) 0.40%
Total 0.55%
-----
Total Fund Operating Expenses 0.55%*
-----
-----

Example

One year $ 6

Three years $ 18

Five years $ 31

Ten years $ 69

* Other expenses for the fiscal year ended December 31, 1996 have been
restated to reflect an increase in transfer agency fees which will take
effect July 1, 1997.

6
<PAGE>

Financial Highlights

Cash Fund

The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the audited financial
statements.

If you would like more detailed information concerning the Fund's performance,
audited financial statements are available in the Company's Annual Report dated
December 31, 1996 and may be obtained without charge by writing or calling the
Company.

The following information has been audited by Price Waterhouse LLP,
independent accountants, whose unqualified report thereon is included in the
Annual Report to Shareholders, which is incorporated by reference into the
Statement of Additional Information. The financial highlights should be read in
conjunction with the financial statements and notes thereto included in the
Annual Report.

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----

Net investment
income............ .049 .054 .038 .028 .037 .059 .076 .086 .070 .062

Distributions from
net investment
income and net
realized capital
gains............. (.049) (.054) (.038) (.028) (.037) (.059) (.076) (.086) (.070) (.062)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end
of period........... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- -----

Total Return (%).... 4.97(b) 5.57(b) 3.86(b) 2.81(b) 3.74(b) 6.07(b) 7.92(b) 8.93 7.21 6.35

Ratios and
Supplemental Data

Net assets, end of
year ($ millions)... $431 $372 $367 $324 $305 $347 $385 $331 $389 $445

Ratio of operating
expenses to average
daily net assets(%)(a) .55 .55 .55 .55 .55 .55 .67 .72 .65 .68

Ratio of net
investment
income to average
net assets (%)...... 4.86 5.45 3.84 2.78 3.76 5.93 7.64 8.56 6.95 6.08

(a) Operating
expense ratio
including expenses
reimbursed,
management fee and
other expenses not
imposed (%)........... .62 .68 .68 .66 .64 .64 .70 -- -- --

(b) Total returns are higher, for the periods indicated, due to maintenance of the Fund's expenses.
</TABLE>

7
<PAGE>

Tax Free Fund

The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the audited financial
statements.

The following information has been audited by Price Waterhouse LLP, independent
accountants, whose unqualified report thereon is included in the Annual Report
to Shareholders, which is incorporated by reference into the Statement of
Additional Information. The financial highlights should be read in conjunction
with the financial statements and notes thereto included in the Annual Report.

<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------------

1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net investment
income............ .028 0.32 .023 .018 .025 .042 .053 .057 .049 .042

Distributions from
net investment income
and net realized
capital gains........ (.028) (.032) (.023) (.018) (.025) (.042) (.053) (.057) (.049) (.042)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----

Net asset value, end of
period.............. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- -----

Total Return (%)...... 2.88 3.30 2.29 1.85 2.56 4.20 5.47 5.91 4.98 4.25

Ratios and Supplemental
Data

Net assets, end of
year ($ millions)... $165 $138 $125 $107 $91 $107 $135 $137 $261 $336

Ratio of operating
expenses to average
daily net assets (%) .72 .79 .77 .78 .77 .75 .77 .76 .60 .66

Ratio of net investment
income to average net
assets (%)........... 2.84 3.25 2.26 1.83 2.54 4.14 5.33 5.72 4.85 4.14
</TABLE>

8
<PAGE>

Government Fund

The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the audited financial
statements.

The following information has been audited by Price Waterhouse LLP, independent
accountants, whose unqualified report thereon is included in the Annual Report
to Shareholders, which is incorporated by reference into the Statement of
Additional Information. The financial highlights should be read in conjunction
with the financial statements and notes thereto included in the Annual Report.

Years Ended December 31,
----------------------------------------------------------------------------------------------

1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Net asset value,
beginning of
period....... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----

Net investment
income..... .048 .054 .037 .026 .035 .056 .075 .084 .069 .061

Distributions
from net
investment
income and net
realized
capital gains (.048) (.054) (.037) (.026) (.035) (.056) (.075) (.084) (.069) (.061)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----

Net asset value,
end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- -----

Total Return (%) 4.91(b) 5.49(b) 3.75(b) 2.68(b) 3.51(b) 5.65(b) 7.73(b) 8.81(b) 7.13 6.24

Ratios and
Supplemental Data

Net assets, end
of year ($
millions)...... $28 $50 $69 $92 $151 $87 $82 $64 $409 $587

Ratio of
operating
expenses to
average daily
net assets
(%)(a)......... .55 .55 .55 .55 .55 .55 .73 .75 .69 .69

Ratio of net
investment
income to
average net
assets (%).... 4.81 5.36 3.61 2.65 3.39 5.54 7.48 8.42 6.83 6.01

(a) Operating
expense ratio
including
expenses
reimbursed,
management fee
and other
expenses not
imposed (%)...... .77 .86 .84 .77 .76 .80 .80 .80 -- --
</TABLE>

(b) Total returns are higher, for the periods indicated, due to maintenance of
the Fund's expenses.

9
<PAGE>

Investment Objectives and Policies

Set forth below is a description of the investment objective and policies
of each Fund. The Funds seek to provide investors with as high a level of
current income through investment in high-quality short-term obligations as is
consistent with their investment objectives and policies and with preservation
of capital and liquidity. In addition, the Tax Free Fund seeks to provide
current income that is exempt from federal income taxes. Except as otherwise
indicated, each Fund's investment objective and policies are not fundamental and
may be changed without a vote of shareholders. There can be no assurance that
any of the Funds will achieve its investment objective.

Securities in which the Funds invest may not yield as high a level of
current income as securities of lower quality and longer maturities which
generally have less liquidity and greater market risk.

Each Fund 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 it will be able to do so.

Cash Fund

The Cash Fund seeks to provide investors with as high a level of current
income as is consistent with its investment policies and with preservation of
capital and liquidity. The Fund invests exclusively in a broad range of
short-term money market instruments that have remaining maturities of not more
than 397 calendar days and certain repurchase agreements. These securities
consist of obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, taxable and tax-exempt municipal obligations,
corporate and bank obligations, certificates of deposit, bankers' acceptances
and variable amount master demand notes.

The bank obligations in which the Fund may invest include negotiable
certificates of deposit, bankers' acceptances, fixed time deposits or other
short-term bank obligations. The Fund limits its investments in U.S. bank
obligations to obligations of U.S. banks (including foreign branches, the
obligations of which are guaranteed by the U.S. parent) that have at least $1
billion in total assets at the time of investment. "U.S. banks" include
commercial banks that 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. In addition, the Fund may invest in obligations
of savings banks and savings and loan associations insured by the Federal
Deposit Insurance Corporation that have total assets in excess of $1 billion at
the time of the investment. The Fund limits its investments in foreign bank
obligations to U.S. dollar-denominated obligations of foreign banks (including
U.S. 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 U.S.; and which obligations, in the opinion of the Adviser,
are of an investment quality comparable to obligations of U.S. banks in which
the Fund may invest.

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 Fund may not invest more than 10% of
the value of its total assets in investments that are not readily marketable
including fixed time deposits subject to withdrawal penalties maturing in more
than seven calendar days.

The Fund may invest in U.S. dollar-denominated obligations of foreign
banks. There is no limitation on the amount of the Fund's assets that may be
invested in obligations of foreign banks that meet the conditions set forth
above. Such investments may involve greater risks than those affecting U.S.
banks or Canadian affiliates of U.S. banks. In addition, foreign banks are not
subject to examination by any U.S. Government agency or instrumentality.

Except for obligations of foreign banks and foreign branches of U.S.
banks, the Fund will not invest in the securities of foreign issuers. Generally,
the Fund may not invest less than 25% of the current value of its total assets
in bank obligations (including bank obligations subject to repurchase
agreements).

10
<PAGE>

Investors Service, Inc. ("Moody's"), "A-1" or better by Standard & Poor's
("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 that, if not rated, are of comparable investment quality as
determined by the Adviser in accordance with procedures adopted by the Board of
Directors.

The Fund may invest in non-convertible corporate debt securities such as
notes, bonds and debentures that have remaining maturities of not more than 397
calendar days and that 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 and is payable on demand. The rate of
interest varies pursuant to an agreed-upon formula. Generally, master demand
notes are not rated by a rating agency. However, the Fund may invest in a master
demand note that, if not rated, is in the opinion of the Adviser of an
investment quality comparable to rated securities in which the Fund may invest.
The Adviser 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 Fund may not invest in a master
demand note if, as a result, more than 10% of the value of its total net assets
would be invested in such notes.

All of the securities in which the Fund will invest must meet credit
standards applied by the Adviser pursuant to procedures established by the Board
of Directors. Should an issue of securities cease to be rated or if its rating
is reduced below the minimum required for purchase by the Fund, the Adviser will
dispose of any such security, as soon as practicable, unless the Directors of
the Company determine that such disposal would not be in the best interests of
the Fund.

In addition, the Fund may invest in variable or floating rate obligations,
obligations backed by bank letters of credit, when-issued securities and
securities with put features.

Tax Free Fund

The Tax Free Fund seeks to provide investors with as high a level of
current income that cannot be subjected to federal income tax by reason of
federal law as is consistent with its investment policies and with preservation
of capital and liquidity. The Fund invests primarily in high-quality municipal
obligations the interest on which is exempt from federal income taxes and that
have remaining maturities of not more than 397 calendar days. Opinions relating
to the exemption of interest on municipal obligations from federal income tax
are rendered by bond counsel to the municipal issuer. The Fund may also invest
in certain taxable obligations on a temporary defensive basis, as described
below.

From time to time the Fund may invest 25% or more of the current value of
its total 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, certain
municipal obligations accrue interest that is paid from revenues of similar type
projects; other municipal obligations have issuers located in the same state.

The Fund may elect, pending the investment of proceeds of sales of shares
or proceeds from sales of portfolio securities or in anticipation of
redemptions, or to maintain a "defensive" posture when, in the opinion of the
Adviser, it is advisable to do so because of market conditions, to invest
temporarily up to 20% of the current value of its total assets in cash reserves
or taxable securities. Under ordinary market conditions, the Fund will maintain
at least 80% of the value of its total assets in obligations that are exempt
from federal income taxes and are not subject to the alternative minimum tax.
The foregoing constitutes a fundamental policy that cannot be changed without
the approval of a majority of the outstanding shares of the Fund.

11
<PAGE>

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 municipal obligations may make it
difficult in certain circumstances to dispose of large investments
advantageously. In addition, certain municipal obligations might lose tax-exempt
status in the event of a change in the tax laws.

In addition, the Fund may enter into repurchase agreements, and invest in
variable or floating rate obligations, obligations backed by bank letters of
credit, when-issued securities and securities with put features.

Government Fund

The Government Fund seeks to provide investors with as high a level of
current income as is consistent with its investment policies and with
preservation of capital and liquidity. The Fund invests exclusively in
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities that have remaining maturities of not more than 397 calendar
days and certain repurchase agreements.

In addition, the Fund may invest in variable or floating rate obligations,
when-issued securities and securities with put features.

Additional Information About Policies and Investments

Investment Restrictions

The following investment restrictions and those described in the Statement
of Additional Information are fundamental policies of each Fund 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 "Company
Organization" 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 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 calendar days.

For a more complete description, see "Investment Restrictions" in the
Statement of Additional Information.

Obligations of U.S. Government Agencies and Instrumentalities. Obligations
of U.S. Government agencies and instrumentalities are debt securities issued or
guaranteed by U.S. Government-sponsored enterprises and federal agencies. Some
of such obligations are supported by (a) the full faith and credit of the U.S.
Treasury (such as Government National Mortgage Association participation
certificates), (b) the limited authority of the issuer to borrow from the U.S.
Treasury (such as securities of the Federal Home Loan Bank), (c) the authority
of the U.S. 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 U.S., the investor must look principally to the agency issuing or

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<PAGE>

guaranteeing the obligation for ultimate repayment, which agency may be
privately owned. The Company will invest in obligations of U.S. Government
agencies and instrumentalities only when the Adviser is satisfied that the
credit risk with respect to the issuer is minimal.

Floating and Variable Rate Instruments. Certain of the obligations that
each Fund may purchase have a floating or variable rate of interest. Such
obligations bear interest at rates that are not fixed, but which vary with
changes in specified market rates or indices, such as the Prime Rate, and at
specified intervals. 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 Fund may invest in floating and variable rate obligations even if
they carry stated maturities in excess of 397 calendar days, if certain
conditions contained in a rule of the Securities and Exchange Commission ( the
"SEC") are met, in which case the obligations will be treated as having
maturities of not more than 397 days. Each Fund will limit its purchase of
floating and variable rate obligations to those meeting the quality standards
set forth above for such Fund. The Adviser will monitor on an ongoing basis the
earning power, cash flow and other liquidity ratios of the issuers of such
obligations, and will similarly monitor the ability of an issuer of a demand
instrument to pay principal and interest on demand. Each Fund's right to obtain
payment at par on a demand instrument could be affected by events occurring
between the date the 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, the 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 may purchase
include certificates of participation in such obligations purchased from banks.
A certificate of participation gives the 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 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 SEC. 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.

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 "Cash
Fund" 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 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 Fund's disposition of the security may be delayed or
limited.

Municipal Obligations. Municipal obligations, which are debt obligations
issued by or on behalf of states, cities, municipalities and other public
authorities, and may be general obligation, revenue, or industrial development
bonds, include municipal bonds, municipal notes and municipal commercial paper.

The Tax Free Fund may invest in excess of 25% of its assets in industrial
development bonds subject to the Fund's fundamental investment policy requiring
that it maintain at least 80% of the value of its total assets in obligations

13
<PAGE>

that are exempt from federal income tax and are not subject to the alternative
minimum tax. For purposes of the Fund's fundamental investment limitation
regarding concentration of investments in any one industry, industrial
development bonds will be considered representative of the industry for which
purpose that bond was issued.

The Cash and Tax Free Funds' 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 Funds' investments in municipal notes will be limited to notes that
are rated at the date of purchase "MIG 1" or "MIG 2" (or "VMIG 1" or "VMIG 2" in
the case of an issue having a variable rate demand feature) by Moody's, "SP-1"
or "SP-1+" by S&P or "F-1" or "F-1+" by Fitch.

Municipal commercial paper is a debt obligation with a stated maturity of
270 days or less that is issued to finance seasonal working capital needs or as
short-term financing in anticipation of longer-term debt. The Funds 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. If a municipal obligation is
not rated, the Funds may purchase the obligation if, in the opinion of the
Adviser, it is of investment quality comparable to other rated investments that
are permitted in the Funds.

Letters of Credit. Municipal obligations, including certificates of
participation, commercial paper and other short-term obligations may be backed
by an irrevocable letter of credit of a bank which assumes the obligation for
payment of principal and interest in the event of default by the issuer. Only
banks which, in the opinion of the Adviser, are of investment quality comparable
to other permitted investments of the Funds may be used for letter of credit
backed investments.

Securities with Put Rights. The Funds 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 the 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 Fund
may pay for certain puts either separately in cash or by paying a higher price
for portfolio securities that are acquired subject to such a put (thus reducing
the yield to maturity otherwise available for the same securities). The Funds
expect, however, that puts generally will be available without the payment of
any direct or indirect consideration.

The Funds may enter into puts only with banks or broker/dealers that, in
the opinion of the Adviser, present minimal credit risks. The ability of the
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 intend to enter into puts solely to maintain liquidity and do
not intend to exercise their rights thereunder for trading purposes. The puts
will only be 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 of the 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 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 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 Fund receives a short-term rate of interest (which is periodically

14
<PAGE>

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 Fund will be that of
holding such a long-term bond and the dollar-weighted average maturity of the
Fund would be adversely affected.

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 that 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.

Special Arrangements with Banks and Other Institutions

As more fully described in the Statement of Additional Information, the
Company and the Adviser 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 Adviser 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 otherwise have been
provided to shareholders by the Adviser. 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 Adviser 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 1940 Act 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 Adviser for the Fund may receive up

15
<PAGE>

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 Adviser
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 Adviser for a
Fund may also pay fees to Participating Organizations for providing other
administrative services to their customers that would otherwise be provided by
the Adviser. In addition, each of the Funds may pay service fees to brokers and
dealers, investment advisers and other institutions. The Adviser 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.

Distribution and Performance Information

Dividends and Capital Gains Distributions

The Company declares dividends on the outstanding shares of each Fund from
each Fund's net investment income at the close of each business day to
shareholders of record at 2:00 p.m. for the Tax Free Fund and 4:00 p.m. for the
Cash Fund and Government Fund on the day of declaration. Realized capital gains
and losses (other than long-term capital gains) may be taken into account in
determining the daily distribution. Shares purchased will begin earning
dividends on the day the purchase order is executed and shares redeemed will
earn dividends through the previous day. 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. for the Tax Free Fund and 4:00 p.m. for the
Cash Fund and Government Fund on that day.

Investment income for a Fund includes, among other things, interest income
and accretion of market and original issue discount and amortization of premium.

Dividends declared in and attributable to the preceding month will be paid
on the first business day of each month. Net realized capital gains, after
utilization of capital loss carryforwards, 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 who redeem all their shares prior to a dividend payment will
receive, in addition to the redemption proceeds, dividends declared but unpaid.
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.
(See also "Transaction Information--Redeeming Shares.")

Taxes

Each of the Company's Funds has in the past qualified, and 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

16
<PAGE>

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 Fund
to the extent of its 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. Most states exempt from personal income
tax dividends paid by a regulated investment company attributable to interest
derived from obligations of the U.S. 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 U.S. 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 Government Fund may qualify.
Dividends distributed by the Tax Free Fund are not excluded in determining New
York State or City franchise taxes on corporations and financial institutions.
In addition to the distributions described above, in the case of the dividends
distributed by the Tax Free Fund, that part of the 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. Income from the Tax Free Fund may not be exempt from certain state and
local taxes.

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. 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 available to
corporations. Each year the Company will notify shareholders of the federal
income tax status of distributions.

In the case of the shareholders of the Tax Free Fund, interest on
indebtedness incurred, or continued, to purchase or carry shares of the Fund
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, a portion
of an exempt-interest dividend allocable to certain tax-exempt obligations may
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 Fund.

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 Fund to the extent it distributes
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 "Transaction
Information--Redeeming Shares.")

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 differ, however, with respect to the tax treatment of
dividends attributable to interest on obligations of: (i) the U.S. 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 a
statement of the portion of the previous year's income derived from: (i) U.S.
Government Obligations and (ii) various agencies and instrumentalities, each of
which is specified by name.

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<PAGE>

Shareholders are urged to consult their own tax advisors regarding
specific questions as to federal, state or local taxes.

Performance Information

From time to time, quotations of a Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance. The "yield" of a Fund refers to income
generated by an investment in a Fund over a specified seven-day period. Yield is
expressed as an annualized percentage. The "effective yield" of a Fund is
expressed similarly but, when annualized, the income earned by an investment in
a Fund is assumed to be reinvested and will reflect the effects of compounding.
"Total return" is the change in value of an investment in a Fund for a specified
period. The "average annual total return" of a Fund is the average annual
compound rate of return of an investment in a Fund assuming the investment has
been held for one year, five years and ten years as of a stated ending date. If
a Fund has not been in operation for at least ten years, the life of the Fund
will be used where applicable. "Cumulative total return" represents the
cumulative change in value of an investment in a Fund for various periods. All
types of total return calculations assume that all dividends and capital gains
distributions during the period were reinvested in shares of a Fund. Performance
will vary based upon, among other things, changes in market conditions and the
level of a Fund's expenses.

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.

Company Organization

The Company was formed on June 18, 1982 as a corporation under the laws of
the State of Maryland. The Company is a professionally managed, open-end
diversified management investment company registered under the 1940 Act. The
Company's activities are supervised by its Board of Directors. The Board of
Directors, under applicable laws of the State of Maryland, in addition to
supervising the actions of the Company's Adviser and Distributor, as set forth
below, decides upon matters of general policy.

Shareholders have one vote for each share held on matters on which they
are entitled to vote. The Company is not required to and has no current
intention of holding annual shareholder meetings, although meetings may be
called for purposes such as electing or removing Directors, changing fundamental
investment policies or approving an investment advisory agreement. Shareholders
will be assisted in communicating with other shareholders in connection with
removing a Director as if Section 16(c) of the 1940 Act were applicable.

The Company has adopted a plan pursuant to Rule 18f-3 (the "Plan") under
the 1940 Act to permit the Company to establish a multiple class distribution
system for all of its Funds to be effective July 7, 1997. In addition, the Board
has approved a new transfer agency agreement, fund accounting agreement and
investment management agreement for each Fund.

Investment Adviser

The Company retains the investment management firm of Scudder, Stevens &
Clark, Inc. (the "Adviser"), a Delaware corporation, to manage the Company's
daily investment and business affairs subject to the policies established by the
Board of Directors. The Adviser is one of the most experienced investment
counsel firms in the U.S. The Adviser was established in 1919 as a partnership
and was restructured as a Delaware corporation in 1985. The principal source of
the Adviser's income is professional fees received from providing continuing
investment advice. The Adviser provides investment counsel for many individuals
and institutions, including insurance companies, endowments, industrial
corporations and financial and banking organizations. As of December 31, 1996,

18
<PAGE>

the Adviser and its affiliates had in excess of $115 billion under their
supervision, approximately two-thirds of which was invested in fixed-income
securities.

Pursuant to Investment Advisory Agreements (the "Agreements") with the
Company on behalf of each Fund, the Adviser regularly provides each Fund with
investment research, advice and supervision and furnishes continuously an
investment program for each Fund consistent with its investment objective and
policies. The Agreements further provide that the Adviser will pay the
compensation and certain expenses of all officers and certain employees of the
Company and make available to each such Fund such of the Adviser'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, the Adviser pays each Fund's office rent and will provide investment
advisory research and statistical facilities and all clerical services relating
to research, statistical and investment work. The Adviser, including the
Adviser's employees who serve the Funds, may render investment advice,
management and other services to others.

Each Fund will bear all expenses not specifically assumed by the Adviser
under the terms of the Agreements, including, among others, the fee payable to
the Adviser as investment adviser, the fees of the Directors who are not
"affiliated persons" of the Adviser, the expenses of all Directors and the fees
and out-of-pocket expenses of the Company's Custodian and its Transfer Agent.
For a more complete description of the expenses to be borne by the Funds, see
"Investment Adviser" and "Distributor" in the Statement of Additional
Information.

Each Fund is charged a management fee at an annual rate equal to 0.40% of
the first $1.5 billion of average daily net assets and 0.35% of such assets in
excess of $1.5 billion. Management fees are computed daily and paid monthly. The
Adviser has agreed to maintain the annualized expenses of the Fund at not more
than 0.55% of the average daily net assets of the Cash Fund and the Government
Fund until July 7, 1997. Accordingly, for the fiscal year ended December 31,
1996, the Adviser received a management fee of 0.33% and 0.18%, respectively, of
each Fund's average daily net assets. Under a new investment management
agreement approved by the Board of Directors, effective July 7, 1997, the
Adviser will receive a management fee of 0.25% of each Fund's average daily net
assets on an annual basis.

Transfer Agent

Scudder Service Corporation, P.O. Box 2038, Boston, Massachusetts 02106, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Company.

Distributor

Scudder Investor Services, Inc., a subsidiary of the Adviser, is the
Company's principal underwriter. Scudder Investor Services, Inc. confirms, as
agent, all purchases of shares of the Company. 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 of any
advertising expenses incurred by it in connection with the distribution of
shares.

Custodian

State Street Bank and Trust Company is the custodian for the Company.

Fund Accounting Agent

Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the general accounting records of each Fund.

Transaction Information

Purchasing Shares

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<PAGE>

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. Investment minimums may also be waived for
Directors and Officers of 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.

Shares of any Fund may be purchased by writing or calling the Company's
Transfer Agent. Orders for shares of a Fund will be executed at the net asset
value per share next determined after an order has become effective. See "Share
Price."

Orders for shares of a 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 4:00 p.m., (except for the Tax Free
Fund which will be executed at 2:00 p.m.), on the same day if a bank wire or
check is received or converted to federal funds by 4:00 p.m. for the Cash Fund
and Government Fund and 2:00 p.m. for the Tax Free Fund. In addition, if
investors known to the Company notify the Company by 4:00 p.m. for the Cash and
Government Funds and 2:00 p.m. for the Tax Free Fund that they intend to wire
federal funds to purchase shares of a 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 4:00 p.m. for the Cash and Government Funds and 2:00
p.m. for the Tax Free Fund 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 transmitted by a bank wire other than the
Federal Reserve Wire System may take longer to be converted into federal funds.

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 U.S. 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 gains distributions that are paid in
additional shares. See "Distribution and Performance Information--Dividends and
Capital Gains Distributions."

Initial Purchase by Wire

1. Shareholders may open an account by calling toll-free from any
continental state: 1-800-854-8525. Give the Fund(s) to be invested in, name(s)
in which the account is to be registered, address, Social Security or taxpayer
identification number, 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 then be assigned.

2. Instruct the wiring bank to transmit the specified amount to:

State Street Bank and Trust Company
Boston, Massachusetts
ABA Number 011000028
Custody and Shareholder Services Division
Attention: [Name of Fund(s)]
Account (name(s) in which registered)
Account Number (as assigned by telephone) and amount invested in
each Fund

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3. Complete a Purchase Application. Indicate the services to be used.
A completed Purchase Application 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 to the Custodian
with the information stated above.

Initial Purchase by Mail

1. Complete a Purchase Application. Indicate the services to be used.

2. Mail the Purchase Application and 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.

Redeeming 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 "Share Price." For the shareholder's convenience, the Company has
established several different redemption procedures.

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 (the "Exchange") is restricted or the Exchange is closed, other than
customary weekend and holiday closings, (ii) the SEC has by order permitted such
suspension or (iii) an emergency, as defined by rules of the SEC, exists making
disposal of portfolio securities or determination of the value of the net assets
of the Funds not reasonably practicable.

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 all 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.

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.

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<PAGE>

3. If shares to be redeemed have a value of $100,000 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 "STAMPsm"). 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. Mail the letter to the Transfer Agent at the address set forth under
"Purchasing 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 by Expedited Redemption Service

If Expedited Redemption Service has been elected on the Purchase
Application on file with the Transfer Agent, redemption of shares may be
requested by telephoning the Transfer Agent on any day the Company and the
Custodian are open for business.

No redemption of shares purchased by check will be permitted pursuant to
the Expedited Redemption Service until seven business 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: 1-800-854-8525, or

2. Mail the request to the Transfer Agent at the address set forth under
"Purchasing Shares."

Regarding the Tax Free Fund, 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 Funds is received by the
Transfer Agent by 12:00 noon (eastern 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 (eastern time) will be honored the same day
if such redemption can be accomplished in time to meet the Federal Reserve Wire
System's schedule. 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.

Regarding the Cash Fund and the Government Fund, 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 Funds is
received by the Transfer Agent by 4:00 p.m. on a day the Company and the
Custodian are open for business, the redemption will be executed at the net
asset value calculated at 4:00 p.m. and proceeds will normally start
transmission that same day if such redemption can be accomplished in time to
meet the Federal Reserve Wire System's schedule. 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

22
<PAGE>

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 by Check Redemption Service

If 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 seven business 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.

Exchanging Shares

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's
toll-free number at 1-800-854-8525. Procedures applicable to redemption of a
Fund's shares are also applicable to exchanging shares. The Company and the
Distributor may modify or discontinue exchange privileges at any time upon 60
days' notice.

Share Price

Net asset value per share for each Fund is determined by Scudder Fund
Accounting Corporation on each day the Exchange is open for trading. The net
asset value per share is determined at 2:00 p.m. for the Tax Free Fund and 4:00
p.m. for the Cash Fund and the Government Fund. 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 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.

23
<PAGE>

Shareholder Benefits

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 the 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.

Shareholder Reports. The fiscal year of the Company ends on December 31 of
each year. The Company sends to its shareholders, semi-annually, reports showing
the investments in each of the Company's 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.

Shareholder inquiries should be addressed to Scudder Fund, Inc., 345 Park
Avenue, New York, New York 10154.

IRAs. A form of individual retirement account ("IRA") is available to
qualified individuals for investment in shares of any 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.

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SCUDDER FUND, INC.
345 Park Avenue
New York, New York 10154
1-800-854-8525

Scudder Fund, Inc. (the "Company") is a professionally managed, open-end,
diversified management investment company comprised of three
investment portfolios.

MANAGED CASH FUND
MANAGED TAX FREE FUND
MANAGED GOVERNMENT SECURITIES FUND

Three money market mutual funds that seek to provide investors with as
high a level of current income as is consistent with their
investment objectives and policies and with preservation of
capital and liquidity.

- --------------------------------------------------------------------------------

Statement of Additional Information

May 1, 1997

- --------------------------------------------------------------------------------

This combined Statement of Additional Information is not a prospectus
and should be read in conjunction with the applicable prospectuses of Scudder
Fund, Inc. dated May 1, 1997, as may be amended from time to time, a copy of
which may be obtained without charge by writing to Scudder Investor Services,
Inc., Two International Place, Boston, Massachusetts 02110-4103.

<PAGE>

TABLE OF CONTENTS
Page
THE FUNDS AND THEIR OBJECTIVES...............................................1
General Investment Objectives and Policies..........................1
Cash Fund...........................................................1
Tax Free Fund.......................................................3
Government Fund.....................................................4
Investment Restrictions.............................................5

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES...................................6

PURCHASING SHARES............................................................7

REDEEMING SHARES.............................................................8

DIVIDENDS....................................................................8

PERFORMANCE INFORMATION......................................................9
Yield...............................................................9
Effective Yield.....................................................9
Average Annual Total Return.........................................9
Cumulative Total Return............................................10
Total Return.......................................................10
Comparison of Fund Performance.....................................11

THE PROGRAM.................................................................11

SHAREHOLDER BENEFITS........................................................12

COMPANY ORGANIZATION........................................................13

INVESTMENT ADVISER..........................................................13
Personal Investments by Employees of the Adviser...................15

DISTRIBUTOR.................................................................15

SPECIAL ARRANGEMENTS WITH BANKS AND OTHER INSTITUTIONS......................15

SHAREHOLDER SERVICE, ADMINISTRATION AND DISTRIBUTION PLAN...................16

DIRECTORS AND OFFICERS......................................................17

REMUNERATION................................................................19
Responsibilities of the Board--Board and Committee Meetings........19
Compensation of Officers and Directors.............................19

TAXES.......................................................................20

PORTFOLIO TRANSACTIONS......................................................21

NET ASSET VALUE.............................................................21

ADDITIONAL INFORMATION......................................................22
Experts............................................................22
Other Information..................................................22

FINANCIAL STATEMENTS........................................................23

APPENDIX

<PAGE>

THE FUNDS AND THEIR OBJECTIVES

(See "Investment Objectives and Policies" and "Additional Information About
Policies and Investments" in the Company's Prospectuses)

General Investment Objectives and Policies

Managed Cash Fund ("Cash Fund") Managed Tax Free Fund ("Tax Free Fund")
and Managed Government Securities Fund ("Government Fund") (collectively, the
"Funds") are each series of Scudder Fund, Inc. (the "Company"), a professionally
managed open-end, diversified management investment company comprised of three
investment portfolios. The Funds seek to provide investors with as high a level
of current income as is consistent with their investment objectives and policies
and with preservation of capital and liquidity. In addition, the Tax Free Fund
seeks to provide current income that is exempt from federal income taxes. There
can be no assurance that any of the Funds will achieve its investment objective.

Securities in which the Funds invest may not yield as high a level of
current income as securities of lower quality and longer maturities which
generally have less liquidity and greater market risk. Each Fund 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 it will be
able to do so.

Except as otherwise indicated, each Fund's investment objective and
policies are not fundamental and may be changed without a vote of shareholders.
Shareholders will receive written notice of any changes in each Fund's
objective.

The Funds' investment adviser is Scudder, Stevens & Clark, Inc. (the
"Adviser"), a leading provider of U.S. and international investment management
services for clients throughout the world. See "Investment Adviser."

Cash Fund

The Cash Fund seeks to provide investors with as high a level of
current income as is consistent with its investment policies and with
preservation of capital and liquidity. The Fund invests exclusively in a broad
range of short-term money market instruments that have remaining maturities of
not more than 397 calendar days and certain repurchase agreements. These
securities consist of obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, taxable and tax-exempt municipal obligations,
corporate and bank obligations, certificates of deposit, bankers' acceptances
and variable amount master demand notes.

The bank obligations in which the Fund may invest include negotiable
certificates of deposit, bankers' acceptances, fixed time deposits or other
short-term bank obligations. The Fund limits its investments in U.S. bank
obligations to obligations of U.S. banks (including foreign branches, the
obligations of which are guaranteed by the U.S. parent) that have at least $1
billion in total assets at the time of investment. "U.S. banks" include
commercial banks that 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. In addition, the Fund may invest in savings banks
and savings and loan associations insured by the Federal Deposit Insurance
Corporation that have total assets in excess of $1 billion at the time of the
investment. The Fund limits its investments in foreign bank obligations to U.S.
dollar-denominated obligations of foreign banks (including U.S. 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
U.S.; and which obligations, in the opinion of the Adviser, are of an investment
quality comparable to obligations of U.S. banks in which the Fund may invest.

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 Fund may not invest more than 10%
of the value of its total assets in investments that are not readily marketable
including fixed time deposits subject to withdrawal penalties maturing in more
than seven calendar days.

The Fund may invest in U.S. dollar-denominated certificates of deposit
and promissory notes issued by Canadian affiliates of U.S. banks under
circumstances where the instruments are guaranteed as to principal and interest

<PAGE>

by the U.S. bank. While foreign obligations generally involve greater risks than
those of domestic obligations, such as risks relating to liquidity,
marketability, foreign taxation, nationalization and exchange controls,
generally the Adviser believes that these risks are substantially less in the
case of instruments issued by Canadian affiliates that are guaranteed by U.S.
banks than in the case of other foreign money market instruments.

The commercial paper purchased by the Fund is limited to direct
obligations of domestic corporate issuers, including bank holding companies,
which obligations, at the time of investment, are (i) rated "P-1" by Moody's
Investors Service, Inc. ("Moody's"), "A-1" or higher by Standard & Poor's
("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 higher by Moody's or "AA" or higher by S&P or Fitch,
or (iii) securities that, if not rated, are of comparable investment quality as
determined by the Adviser in accordance with procedures adopted by the Board of
Directors.

The Fund may invest in non-convertible corporate debt securities such
as notes, bonds and debentures that have remaining maturities of not more than
397 calendar days and that are rated "Aa" or higher by Moody's or "AA" or higher
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 and is payable on demand. The rate of
interest varies pursuant to an agreed-upon formula. Generally, master demand
notes are not rated by a rating agency. However, the Fund may invest in a master
demand note that, if not rated, is in the opinion of the Adviser of an
investment quality comparable to rated securities in which the Fund may invest.
The Adviser 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 Fund may not invest in a master
demand note if, as a result, more than 10% of the value of its total net assets
would be invested in such notes.

Municipal obligations, which are debt obligations issued by or on
behalf of states, cities, municipalities and other public authorities, and may
be general obligation, revenue, or industrial development bonds, include
municipal bonds, municipal notes and municipal commercial paper.

The Fund's investments in municipal bonds are limited to bonds that are
rated at the date of purchase "Aa" or higher by Moody's or "AA" or higher by S&P
or Fitch.

The Fund's investments in municipal notes will be limited to notes that
are rated at the date of purchase "MIG 1" or "MIG 2" (or "VMIG 1" or "VMIG 2" in
the case of an issue having a variable rate demand feature) by Moody's, "SP-1"
or "SP-1+" by S&P or "F-1" or "F-1+" by Fitch.

Municipal commercial paper is a debt obligation with a stated maturity
of 270 days or less that is issued to finance seasonal working capital needs or
as short-term financing in anticipation of longer-term debt. The 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. If a municipal obligation is
not rated, the Fund may purchase the obligation if, in the opinion of the
Adviser, it is of investment quality comparable to other rated investments that
are permitted in the Fund.

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<PAGE>

In addition, the Fund may invest in variable or floating rate
obligations, obligations backed by bank letters of credit, when-issued
securities and securities with put features.

Tax Free Fund

The 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.

If a municipal obligation is not rated, the Fund may purchase the
obligation if, in the opinion of the Adviser, it is of investment quality
comparable to other rated investments that are permitted in the Fund. From time
to time the Fund may invest 25% or more of the current value of its total 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, certain municipal obligations
accrue interest that is paid from revenues of similar type projects; other
municipal obligations have issuers located in the same state.

The floating and variable rate municipal obligations that the Fund may
purchase include certificates of participation in such obligations purchased
from banks. A certificate of participation gives the Fund an undivided interest
in the underlying municipal obligations, usually private activity bonds, in the
proportion that the Fund's interest bears to the total principal amount of such
municipal 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 Fund may invest in certificates of participation even if
the underlying municipal obligations carry stated maturities in excess of one
year, if compliance with certain conditions contained in a rule of the
Securities and Exchange Commission (the "SEC") is met. The income received on
certificates of participation constitutes interest from tax-exempt obligations.

The Fund may, pending the investment of proceeds of sales of shares or
proceeds from sales of portfolio securities or in anticipation of redemptions,
or to maintain a "defensive" posture when, in the opinion of the Adviser, 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 taxable
securities. Under ordinary market conditions, the Fund will maintain at least
80% of the value of its total assets in obligations that are exempt from federal
income taxes and are not subject to the alternative minimum tax. The foregoing
constitutes a fundamental policy that cannot be changed without the approval of
a majority of the outstanding shares of the Fund.

3
<PAGE>

difficult in certain circumstances to dispose of large investments
advantageously. In addition, certain municipal obligations might lose tax-exempt
status in the event of a change in the tax laws.

In addition, the Fund may enter into repurchase agreements, and invest
in variable or floating rate obligations, obligations backed by bank letters of
credit, when-issued securities and securities with put features.

Government Fund

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 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 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 Fund will invest only in
pass-through obligations that are supported by the full faith and credit of the
U.S. Government (such as those issued by the Government National Mortgage
Association) or those that are guaranteed by an agency of the U.S. 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 Fund will invest only in pass-through obligations of U.S. Government
agencies or instrumentalities that meet the criteria as set forth above. There
is no limitation on the amount of the Fund's assets that may be invested in
pass-through obligations.

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 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 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

4
<PAGE>

date but may be retired earlier. PAC Bonds generally call for payments of a
specified amount of principal on each payment date.

Investment Restrictions

In connection with its investment objectives and policies as set forth
in the Prospectuses, the Company has adopted fundamental investment
restrictions, on behalf of each Fund, none of which may be changed without the
approval of the holders of a majority of a Fund's outstanding shares, as defined
in the Investment Company Act of 1940 (the "1940 Act").

As a matter of fundamental policy, the Funds may not:

(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and as
a result thereof, the value of any Fund's investments in that industry would
exceed 25% of the current value of such Fund's total assets, provided that there
is no limitation with respect to investments in (i) municipal obligations (for
the purpose of this restriction, private activity bonds shall not be deemed
municipal obligations if the payments of principal and interest on such bonds is
the ultimate responsibility of non-governmental users), or (ii) obligations of
the U.S. Government, its agencies or instrumentalities;

(2) purchase or sell real estate (other than municipal obligations or
other money market securities secured by real estate or interests therein or
securities issued by companies that invest in real estate or interests therein),
commodities or commodity contracts;

(3) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions) or make short sales of securities;

(4) underwrite securities of other issuers, except to the extent that
the purchase of municipal obligations or other permitted investments directly
from the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with any Fund's investment program
may be deemed to be an underwriting;

(5) purchase restricted securities, which are securities that must be
registered under the Securities Act of 1933 before they may be offered or sold
to the public;

(6) invest more than 5% of the current value of any Fund's total assets
in the securities of any one issuer, other than obligations of the U.S.
Government, its agencies or instrumentalities or securities which are backed by
the full faith and credit of the U.S.;

(7) purchase securities of an issuer if, as a result, as to 75% of such
Fund's total assets, such Fund would own more than 10% of the voting securities
of such issuer;

(8) make investments for the purpose of exercising control or
management;

(9) write, purchase or sell puts, calls, warrants or options or any
combination thereof, except that the Funds may purchase securities with put
rights in order to maintain liquidity; or

(10) purchase equity securities or securities convertible into equity
securities.

Each of the investment restrictions described above and in the
Prospectuses under "Investment Restrictions" are fundamental policies of each of
the Funds and may be changed only when permitted by law and approved by the
holders of a majority of a Fund's outstanding voting securities, as described
under "Company Organization."

For purposes of these investment restrictions as well as for purposes
of diversification under the 1940 Act, the identification of the issuer of a
municipal obligation depends on the terms and conditions of the obligation. If
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government creating the
subdivision and the obligation is backed only by the assets and revenues of the
subdivision, such subdivision would be regarded as the sole issuer. Similarly,
in the case of a "private activity bond," if the bond is backed only by the

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<PAGE>

assets and revenues of the nongovernmental user, the nongovernmental user would
be deemed to be the sole issuer. If in either case the creating government or
another entity guarantees an obligation, the guarantee would be considered a
separate security and be treated as an issue of such government or entity.

In addition to the above fundamental investment policies, each of the
following investment restrictions may be changed at any time by the Board of
Directors:

1. No Fund may invest in oil, gas and other mineral exploration
or development programs or leases.

2. No Fund will invest in real estate limited partnership
interests.

3. No Fund may purchase or retain securities of any open-end
investment company, or securities of closed-end investment
companies except by purchase in the open market where no
commission or profit to a sponsor or dealer results from such
purchase, or except when such purchase, though not made in the
open market, is part of a plan of merger, consolidation,
reorganization or acquisition of assets; in any event no Fund
may purchase more than 3% of the outstanding voting securities
of another investment company, may invest more than 5% of its
assets in another investment company, or may invest more than
10% of its assets in other investment companies.

4. No Fund may purchase securities of any issuer with a record of
less than three years continuous operations, including
predecessors, except U.S. Government securities and
obligations issued or guaranteed by any foreign government or
its agencies or instrumentalities, if such purchase would
cause the investments of the Fund in all such issuers to
exceed 5% of the total assets of the Fund taken at market
value.

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES

(See "Additional Information About Policies and Investments" in the
Company's Prospectuses)

Municipal Notes. The Tax Free Fund and the Cash Fund may invest in
municipal notes. Municipal notes include, but are not limited to, tax
anticipation notes ("TANs"), bond anticipation notes ("BANs"), revenue
anticipation notes ("RANs"), construction loan notes and project notes.
Municipal notes generally have maturities at the time of issuance of three years
or less. Notes sold as interim financing in anticipation of collection of taxes,
a bond sale or receipt of other revenues are usually general obligations of the
issuer. Project notes are issued by local housing authorities to finance urban
renewal and public housing projects and are secured by the full faith and credit
of the U.S. Government.

TANs An uncertainty in a municipal issuer's capacity to raise taxes as
a result of such things as a decline in its tax base or a rise in
delinquencies could adversely affect the issuer's ability to meet its
obligations on outstanding TANs. Furthermore, some municipal issuers
mix various tax proceeds into a general fund that is used to meet
obligations other than those of the outstanding TANs. Use of such a
general fund to meet various obligations could affect the likelihood of
making payments on TANs.

BANs The ability of a municipal issuer to meet its obligations on its
BANs is primarily dependent on the issuer's adequate access to the
longer term municipal bond market and the likelihood that the proceeds
of such bond sales will be used to pay the principal of, and interest
on, BANs.

RANs A decline in the receipt of certain revenues, such as anticipated
revenues from another level of government, could adversely affect an
issuer's ability to meet its obligations on outstanding RANs. In
addition, the possibility that the revenues would, when received, be
used to meet other obligations could affect the ability of the issuer
to pay the principal of, and interest on, RANs.

Zero Coupon Bonds. As indicated in the Prospectuses, the Intermediate
Government Fund may also invest in zero coupon bonds. Although the Fund may
invest up to and including 5% of its net assets in zero coupon bonds, such Fund
has no current intention to invest in any such securities. Zero coupon bonds are
debt obligations which do not entitle the holder to any periodic payments prior
to maturity and therefore are issued and traded at a discount from their face

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<PAGE>

amounts. The discount, in the absence of financial difficulties of the issuer,
decreases as the final maturity of the security approaches. Zero coupon bonds
can be sold prior to their due date in the secondary market at the then
prevailing market value, which depends primarily on the time remaining to
maturity, prevailing levels of interest rates and the perceived credit quality
of the issuer. The market prices of zero coupon bonds are more volatile than the
market prices of securities of comparable quality and similar maturity that pay
interest periodically and may respond to a greater degree to fluctuations in
interest rates than do such non-zero coupon bonds. There are currently two basic
types of zero coupon bonds: (i) those created by separating the interest and
principal components of a previously issued interest-paying security and (ii)
those originally issued in the form of a face amount only security with no
payments prior to maturity. The Fund will only invest in zero coupon bonds of
the U.S. Government and certain of its agencies and instrumentalities.

Loans of Portfolio Securities. Each Fund may lend securities from its
portfolio to brokers, dealers and financial institutions if cash or cash
equivalent collateral, including letters of credit, marked-to-market daily and
equal to at least 100% of the current market value of the securities loaned
(including accrued interest and dividends thereon) plus the interest payable to
the Fund with respect to the loan is maintained by the borrower with the Fund in
a segregated account. In determining whether to lend a security to a particular
broker, dealer or financial institution, the Adviser will consider all relevant
facts and circumstances, including the creditworthiness of the broker, dealer or
financial institution. The Funds will not enter into any security lending
arrangement having a duration of longer than one year. Securities that a Fund
may receive as collateral will not become part of that Fund at the time of the
loan. In the event of a default by the borrower, such Fund will, if permitted by
law, dispose of the collateral except for such part thereof that is a security
in which such Fund is permitted to invest. During the time securities are on
loan, the borrower will pay the Fund any accrued income on those securities, and
the Fund may invest the cash collateral and earn additional income or receive an
agreed upon fee from a borrower that has delivered cash equivalent collateral.
No Fund will lend securities having a value that exceeds 10% of the current
value of its total assets. Loans of securities by a Fund will be subject to
termination at the Fund's or the borrower's option. Each Fund may pay reasonable
administrative and custodial fees in connection with a securities loan and may
pay a negotiated portion of the interest or fee earned with respect to the
collateral to the borrower or the placing broker. Borrowers and placing brokers
may not be affiliated, directly or indirectly, with the Company or the Adviser.
The Funds did not lend any of their portfolio securities during 1995 and have no
present intention to do so.

CMOs and REMICs. The Government Fund did not invest in collateralized
mortgage obligations (CMOs) or real estate mortgage investment conduits (REMICs)
during 1995 and has no present intention to do so.

The foregoing policies and activities of the Funds are not fundamental
and may be changed by the Board of Directors of the Company without the approval
of shareholders.

PURCHASING SHARES

(See "Transaction Information--Purchasing Shares" in the Company's Prospectuses)

While the Funds 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 Funds. 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.
Investment minimums may also be waived for Directors and officers of the
Company. The Company and Scudder Investor Services, Inc. (the "Distributor")
reserve the right to reject any purchase order. All funds will be invested in
full and fractional shares.

7
<PAGE>

Funds and 2:00 p.m. for the Tax Free Fund that they intend to wire federal funds
to purchase shares of a 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 4:00 p.m. for the Cash and Government Funds and 2:00 p.m. for the
Tax Free Fund 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 transmitted by a bank wire other than the Federal Reserve Wire
System may take longer to be converted into federal funds.

Shares of any Fund may be purchased by writing or calling the Transfer
Agent. Orders for shares of a Fund will be executed at the net asset value per
share next determined after an order has become effective. Due to the desire of
the Company to afford ease of redemption, certificates will not be issued to
indicate ownership in a Fund.

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 U.S. dollars and will
be accepted subject to collection at full face value.

REDEEMING SHARES

(See "Transaction Information--Redeeming Shares" in the Company's Prospectuses)

Payment of redemption proceeds may be made in securities. The Company
may suspend the right of redemption with respect to any Fund during any period
when (i) trading on the New York Stock Exchange (the "Exchange") is restricted
or the Exchange is closed, other than customary weekend and holiday closings,
(ii) the SEC has by order permitted such suspension or (iii) an emergency, as
defined by rules of the SEC, exists making disposal of portfolio securities or
determination of the value of the net assets of that Fund not reasonably
practicable.

A shareholder's Company account remains open for up to one year
following complete redemption and all costs during the period will be borne by
the Company. This permits an investor to resume investments.

DIVIDENDS

(See "Distribution and Performance Information--Dividends and
Capital Gains Distributions" in the Company's Prospectuses)

The Company declares dividends on the outstanding shares of each Fund
from each Fund's net investment income at the close of each business day to
shareholders of record at 2:00 p.m. for the Tax Free Fund and 4:00 p.m. for the
Cash Fund and Government Fund on the day of declaration. Realized capital gains
and losses (other than long-term capital gains) may be taken into account in
determining the daily distribution. Shares purchased will begin earning
dividends on the day the purchase order is executed and shares redeemed will
earn dividends through the previous day. 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. for the Tax Free Fund and 4:00 p.m. for the
Cash Fund and Government Fund on that day.

Investment income for a Fund includes, among other things, interest
income and accretion of market and original issue discount and amortization of
premium.

Dividends declared in and attributable to the preceding month will be
paid on the first business day of each month. Net realized capital gains, after
utilization of capital loss carryforwards, 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

8
<PAGE>

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 who redeem all their shares prior to a dividend payment
will receive, in addition to the redemption proceeds, dividends declared but
unpaid. 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.

PERFORMANCE INFORMATION

(See "Distribution and Performance Information--Performance Information"
in the Company's Prospectuses)

From time to time, quotations of each Fund's performance may be
included in advertisements, sales literature or reports to shareholders or
prospective investors. These performance figures may be calculated in the
following manner:

Yield

The Company makes available various yield quotations with respect to
shares of the Funds. The annualized yield for each of the following Funds for
the seven-day period ended December 31, 1996 was 4.94% for the Cash Fund, 3.23%
for the Tax Free Fund and 4.46% for the Government Fund. Each Fund's yield may
fluctuate daily and does not provide a basis for determining future yields. The
foregoing yields were computed by determining the net change in value, exclusive
of capital changes, of a hypothetical account having a balance of one share at
the beginning of the period, dividing the net change in value by the value of
the account at the beginning of the base period to obtain the base period
return, and multiplying the base period return by 365/7, with the resulting
yield figure carried to the nearest hundredth of one percent. The net change in
value of an account consists of the value of additional shares purchased with
dividends from the original share plus dividends declared on both the original
share and any such additional shares (not including realized gains or losses and
unrealized appreciation or depreciation) less applicable expenses, including the
management fee payable to the Adviser.

Current yield for each Fund will fluctuate from time to time, unlike
bank deposits or other investments that pay a fixed yield for a stated period of
time, and do not provide a basis for determining future yields. Yield is a
function of portfolio quality, composition, maturity and market conditions as
well as expenses allocated to such Funds. Yield information may be useful in
reviewing the performance of the Fund and for providing a basis for comparison
with investment alternatives. The yield of a Fund, however, may not be
comparable to investment alternatives because of differences in the foregoing
variables and differences in the methods used to value portfolio securities and
compute expenses.

Effective Yield

The effective yield for the Funds is calculated in a similar fashion to
yield, except that the seven-day period return is compounded by adding 1,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result, according to the following formula:

EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)^365/7] - 1

The effective yields (i.e., on a compound basis, assuming the daily reinvestment
of dividends) for each of the following Funds for the seven-day period ended
December 31, 1996 was 5.06% for the Cash Fund, 3.29% for the Tax Free Fund and
4.56% for the Government Fund.

Average Annual Total Return

Average annual total return is the average annual compound rate of
return for periods of one year, five years, and ten years and the life of a
Fund, where applicable, all ended on the last day of a recent calendar quarter.
Average annual total return quotations reflect changes in the price of a Fund's
shares, if any, and assume that all dividends and capital gains distributions
during the respective periods were reinvested in Fund shares. Average annual
total return is calculated by finding the average annual compound rates of

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<PAGE>

return of a hypothetical investment over such periods, according to the
following formula (average annual total return is then expressed as a
percentage):

T = (ERV/P)^1/n - 1
Where:
P = a hypothetical initial investment of $1,000.
T = Average Annual Total Return.
n = number of years.
ERV = ending redeemable value: ERV is the
value, at the end of the applicable
period, of a hypothetical $1,000
investment made at the beginning of the
applicable period.

Average Annual Total Return for periods ended December 31, 1996

One Year Five Years Ten Years

Cash Fund 4.97%* 4.19%* 5.73%
Tax Free Fund 2.88% 2.57% 3.76%
Government Fund 4.91%* 4.07%* 5.58%

* Total returns are higher, for the periods indicated, due to maintenance
of the Fund's expenses.

Cumulative Total Return

Cumulative total return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of a Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative total return is calculated by finding the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):

C = (ERV/P) - 1

Where:

C = Cumulative Total Return.
P = a hypothetical initial investment of $1,000.
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.

Cumulative Total Return for periods ended December 31, 1996

One Year Five Years Ten Years

Cash Fund 4.97%* 22.76%* 74.54%
Tax Free Fund 2.88% 13.54% 44.64%
Government Fund 4.91%* 22.05%* 72.05%

* Total returns are higher, for the periods indicated, due to maintenance
of the Fund's expenses.

Total Return

Total return is the rate of return on an investment for a specified
period of time calculated in the same manner as cumulative total return.

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<PAGE>

Comparison of Fund Performance

Quotations of each Fund's performance are based on historical earnings,
show the performance of a hypothetical investment, and are not intended to
indicate future performance of a Fund. An investor's shares when redeemed may be
worth more or less than their original cost. Performance of a Fund will vary
based on changes in market conditions and the level of a Fund's expenses.

From time to time, in marketing and other fund literature, the
performance of each of the Funds may be compared to the performance of broad
groups of mutual funds with similar investment goals, as tracked by independent
organizations. Among these organizations, Lipper Analytical Services, Inc.
("Lipper") may be cited. When Lipper's tracking results are used, the Fund will
be compared to Lipper's appropriate fund category, that is, by fund objective
and portfolio holdings. For instance, the Funds will be compared with funds
within Lipper's money market fund category. Rankings may be listed among one or
more of the asset-size classes as determined by Lipper.

Since the assets in all funds are always changing, the Funds may be
ranked within one Lipper asset-size class at one time and in another Lipper
asset-size class at some other time. Footnotes in advertisements and other
marketing literature will include the time period and Lipper asset-size class,
as applicable, for the ranking in question.

From time to time, in marketing pieces and other fund literature, the
yield of one or more of the Funds may be compared to the performance of broad
groups of comparable mutual funds, unmanaged indices of comparable securities,
bank money market deposit accounts and fixed-rate insured certificates of
deposit ("CDs"), or unmanaged indices of securities that are comparable to money
market funds in their terms and intent, such as Treasury bills, bankers'
acceptances, negotiable order of withdrawal (NOW) accounts, and money market
certificates. Most bank CDs differ from money market funds in several ways: the
interest rate is fixed for the term of the CD, there are interest penalties for
early withdrawal of the deposit, and the deposit principal is insured by the
Federal Deposit Insurance Corporation. Evaluations of Fund performance made by
independent sources may also be used in advertisements concerning the Funds. In
addition, from time to time the Company may advertise what an initial $10,000
investment in one or more of its portfolios would grow to over a five-year
period as compared to other institutional money market funds with similar
investment objectives and their related rankings, all as computed by
IBC/Donoghue, Inc. Sources for any and all performance information may include,
but are not limited to:

IBC Money Fund Report, a weekly publication of IBC Financial Data,
Inc., reporting on the performance of the nation's money market funds,
summarizing money market fund activity and including certain averages as
performance benchmarks, specifically "IBC's Money Fund Average," and "IBC's
Government Money Fund Average."

Bank Rate Monitor, a weekly newsletter, published by the Advertising
News Service, Inc., that includes a national index of bank money market rates
and yields on CDs and other bank depository instruments of varied maturities for
the 100 leading banks and thrifts in the nation's top 10 Census Statistical
Metropolitan Areas.

THE PROGRAM

Scudder Treasurers Trust(TM) (the "Program") is a corporate and
institutional cash investment program with respect to the Funds. The Program is
designed especially for treasurers and financial officers of small and
middle-sized corporations and financial institutions. The Funds reduce
substantially the costs and inconvenience of direct investment in individual
securities. They help reduce risk by diversifying investments across a broad
range of securities. They also provide flexibility since shares can be redeemed
from or exchanged between any of the Funds at no extra cost.

The Funds seek to provide busy executives with assistance in the
professional management of their cash reserves. These executives frequently
engage experts (meaning experienced professionals) for services requiring
specialized knowledge and expertise. The investment of liquid assets is one such
service. Each of the Funds has a different objective and offers full-time
professional reserve asset management, which is frequently not available from
traditional cash management providers. The Program can help institutional cash
managers take advantage of today's investment opportunities and techniques to
improve the performance of their liquid assets.

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<PAGE>

The Funds allow small and middle-sized businesses and other
institutions to take advantage of the investment management services of the
Adviser. The Adviser's investment counsel clients include corporations,
foundations, institutions, insurance companies, endowments, trusts, retirement
plans and individuals.

The Funds also anticipate lower expense ratios than those of money
market mutual funds designed for individual investors because the Funds' average
account balances are normally higher than those of the average money market
fund. The Program also offers special services designed for the convenience of
corporate and institutional treasurers.

Each of the Funds seeks to provide the combination of price stability,
liquidity and current income that treasurers often require for liquid assets
such as operating reserves.

SHAREHOLDER BENEFITS

(See "Shareholders Benefits" in the Company's Prospectuses)

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 any Fund. In addition to the copy of the regular Statement
of Account furnished to the registered holder after each transaction, a monthly
summary of accounts can be provided. The monthly summary will show for each
account the account number, the month-end share balance and the dividends and
distributions paid during the month. All costs of this service will be borne by
the Company. For information on the special monthly summary of accounts, contact
the Company.

IRAs. A form of individual retirement account ("IRA") is available for
investment in shares of any active Fund of the Company. Individuals, who have
not attained 70-1/2 years of age, may make tax-deductible IRA contributions of
up to $2,000 annually ($2,250 if contributions are made to separate IRAs for the
contributor and a nonworking spouse and a joint return is filed). Such
deductions, however, are reduced or eliminated if the individual or, in the case
of a married individual filing jointly, either the individual or the
individual's spouse is an active participant in an employer-sponsored retirement
plan, depending on adjusted gross income.

In addition, individuals who have received certain distributions from
qualified plans or other IRAs are eligible to establish an IRA by making a
rollover contribution.

Individuals may also make nondeductible IRA contributions in an amount
equal to the $2,000 (or $2,250) contribution limit less any deductible
contributions for the year. As with deductible contributions, taxes on the
income from such contributions will be deferred until distributed from the IRA.

Scudder Trust Company has agreed to serve as custodian of the IRA and
furnish the services provided for in the Custody Agreement. Scudder Trust
Company will charge individuals establishing an IRA an application fee as well
as certain additional fees for its services under the Custody Agreement. In
accordance with IRS regulations, an individual may revoke an IRA within seven
calendar days after it is established.

Distributions prior to death, disability or attainment of age 59-1/2
will generally result in a 10% excise tax on the amount distributed. In
addition, distributions to a participant in an IRA must commence by April 1 of
the calendar year following the year such participant attains age 70-1/2.

For additional information required for adopting an IRA, including
information on fees, obtain the form of Custody Agreement and related materials,
including disclosure materials, available from the Company. The foregoing
discussion is provided for your general information. Because the application of
the tax provisions discussed above will vary depending on the particular
individual's situation, consultation with a legal advisor regarding an IRA is
strongly recommended.

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<PAGE>

COMPANY ORGANIZATION

(See "Company Organization" in the Company's Prospectuses)

The Company was formed on June 18, 1982 as a corporation under the laws
of the State of Maryland. The authorized capital stock of the Company consists
of 10,000,000,000 shares having a par value of $.001 per share of which
3,000,000,000 shares each have been designated for the Government Fund and Cash
Fund, and 1,000,000,000 shares have been designated for the Tax Free Fund. The
Company's Articles of Incorporation authorize the Board of Directors to classify
or reclassify any unissued shares of capital stock. Pursuant to that authority,
the Board of Directors has created twenty-eight classes constituting the
Government Fund, Federal Fund, Cash Fund, Tax Free Fund, Intermediate Government
Fund, Managed Municipal Income Fund, Managed New York Municipal Income Fund,
Managed Total Return Fund, Managed Cash Plus Fund, Managed Global Equity Fund,
Managed Emerging Markets Equity Fund, Managed International Equity Fund, Managed
Global Small Company Equity Fund, Managed Latin America Equity Fund, Managed
Japanese Equity Fund, Managed Pacific Basin Equity Fund, Managed Growth and
Income Fund, Managed Quality Growth Fund, Managed Value Equity Fund, Managed
Small Company Equity Fund, Managed Defensive Limited Volatility Bond Fund,
Managed Intermediate Limited Volatility Bond Fund, Managed Active Value Bond
Fund, Managed Long Duration Bond Fund, Managed Mortgage Investment Fund, Managed
Global Bond Fund, Managed International Bond Fund, and Managed Emerging Markets
Fixed Income Fund, and may, in the future, create other classes of capital stock
representing shares of additional portfolios.

Generally, 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, such as
with respect to approval of an investment advisory agreement or a Rule 12b-1
plan. As used in the Prospectuses and in this Statement of Additional
Information, the term "majority", when referring to the approvals to be obtained
from shareholders in connection with general matters affecting the Funds and all
additional portfolios (e.g., election of directors), means the vote of the
lesser of (i) 67% of the Company's shares represented at a meeting if the
holders of more than 50% of the outstanding shares are present in person or by
proxy, or (ii) more than 50% of the Company's outstanding shares. The term
"majority", when referring to the approvals to be obtained from shareholders in
connection with matters affecting a single Fund or any other single portfolio
(e.g., annual approval of investment management contracts), means the vote of
the lesser of (i) 67% of the shares of the portfolio represented at a meeting if
the holders of more than 50% of the outstanding shares of the portfolio are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the portfolio. Shareholders are entitled to one vote for each full share held
and fractional votes for fractional shares held.

Each share of a Fund of the Company represents an equal proportionate
interest in that Fund with each other share of the same Fund and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to that Fund as are declared in the discretion of the Company's Board
of Directors. In the event of the liquidation or dissolution of the Company,
shares of a Fund are entitled to receive the assets attributable to that Fund
that are available for distribution, and a proportionate distribution, based
upon the relative net assets of the Funds, of any general assets not
attributable to a Fund that are available for distribution.

Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Company.

INVESTMENT ADVISER

(See "Company Organization--Investment Adviser" in the Company's Prospectuses)

The Company retains Scudder, Stevens & Clark, Inc. (the "Adviser") as
investment adviser on behalf of each of the Funds pursuant to Investment
Advisory Agreements (the "Agreements"). The Adviser is one of the most
experienced investment counsel firms in the U.S. It was established in 1919 as a
partnership and was restructured as a Delaware corporation in 1985. The
principal source of the Adviser's income is professional fees received from
providing continuing investment advice. The Adviser's subsidiary, the
Distributor, acts as principal underwriter for shares of registered open-end
investment companies. The Adviser provides investment counsel for many
individuals and institutions, including insurance companies, endowments,

13
<PAGE>

industrial corporations and financial and banking organizations. As of December
31, 1996, the Adviser and its affiliates had in excess of $115 billion under
their supervision, approximately two-thirds of which was invested in
fixed-income securities.

The Adviser maintains a research department with more than 50
professionals, which conducts continuous studies of the factors that affect
various industries, companies and individual securities in the U.S. as well as
abroad. In this work the Adviser utilizes reports, statistics and other
investment information from a wide variety of sources, including brokers and
dealers who may execute portfolio transactions for the Portfolios and for other
clients of the Adviser. Investment decisions, however, are based primarily on
investigations and critical analyses by the Adviser's own research specialists
and portfolio managers.

The Adviser may give advice and take action with respect to any of its
other clients, which may differ from advice given or from the time or nature of
action taken with respect to a Fund of the Company. If these clients and such
Fund are simultaneously buying or selling a security with a limited market, the
price may be adversely affected. In addition, the Adviser may, on behalf of
other clients, furnish financial advice or be involved in tender offers or
merger proposals relating to companies in which such Fund invests. The best
interests of any Fund may or may not be consistent with the achievement of the
objectives of the other persons for whom the Adviser is providing advice or for
whom they are acting. Where a possible conflict is apparent, the Adviser will
follow whatever course of action is in its judgment in the best interests of the
Fund. The Adviser may consult independent third persons in reaching its
decision.

Subject to policy established by the Company's Board of Directors,
which has overall responsibility for the business and affairs of each Fund, the
Adviser manages the operations of the Funds. In addition to providing advisory
services, the Adviser furnishes office space and certain facilities and
personnel required for conducting the business of the Funds and the Adviser pays
the compensation of the Company's officers, directors and employees affiliated
with the Adviser or its affiliates. Although the Adviser currently pays the
compensation, as well as certain expenses, of all officers and employees of the
Company who are affiliated with the Adviser or its affiliates, the terms of the
Agreements state that the Adviser is not obligated to pay the compensation and
expenses of the Company's clerical employees other than those providing advisory
services. The Adviser, however, has represented to the Company's Board of
Directors that its current intention is to continue to pay such compensation and
expenses.

Each Fund is charged a management fee at an equal rate equal to 0.40%
of the first $1.5 billion of average daily net assets and 0.35% of such assets
in excess of $1.5 billion. Management fees are computed daily and paid monthly.
Effective July 7, 1997 the Adviser will receive a management fee of 0.25% of
each Fund's average daily net assets.

For the Company's fiscal year ended December 31, 1996, management fees
paid to the Adviser were $131,141 for the Government Fund, $1,227,581 for the
Cash Fund, and $587,278 for the Tax Free Fund. Had the Adviser not waived
$150,102 of its management fee for the Government Fund, $274,989 of its
management fee for the Cash Fund, the total fee paid by each Fund in 1996 would
have been $281,243 and $1,502,570, respectively.

For the Company's fiscal year ended December 31, 1995, management fees
paid to the Adviser were $62,892 for the Government Fund, $1,045,111 for the
Cash Fund, and $530,696 for the Tax Free Fund. Had the Adviser not waived
$211,734 of its management fee for the Government Fund and $474,280 of its
management fee for the Cash Fund, the total fee paid by each such Fund in 1995
would have been $274,626 and $1,519,391, respectively.

For the Company's fiscal year ended December 31, 1994, management fees
paid to the Adviser were $80,152 for the Government Fund, $948,135 for the Cash
Fund, and $498,692 for the Tax Free Fund. Had the Adviser not waived $221,083 of
its management fee for the Government Fund and $458,399 of its management fee
for the Cash Fund, the total fee paid by each such Fund in 1994 would have been
$301,235 and $1,406,534, respectively.

Each of the Agreements provides that the relevant Fund pay all of its
expenses that are not specifically assumed by the Adviser. (Expenses
attributable to each Fund will be charged against the assets of that Fund, other
expenses of the Company will be allocated among the Funds in a manner which may,
but need not, be proportionately in relation to the net assets of each Fund.)
Expenses payable by each of the Funds include, but are not limited to,
organizational expenses; clerical salaries; brokerage and other expenses of
executing portfolio transactions; legal, auditing or accounting expenses; trade
association dues; taxes or governmental fees; the fees and expenses of the
transfer agent of the Fund; the cost of preparing share certificates or any
other expenses, including clerical expenses of issue, redemption or repurchase

14
<PAGE>

of shares of the Fund; the expenses and fees for registering and qualifying
securities for sale; the fees of Directors of the Company who are not employees
or affiliates of the Adviser or its affiliates; travel expenses of all officers,
directors and employees; insurance premiums; the cost of preparing and
distributing reports and notices to shareholders; and the fees or disbursements
of custodians of the Fund's assets.

Each of the Agreements will continue in effect from year to year
provided such continuance is approved annually (i) by the holders of a majority
of the respective Fund's outstanding voting securities or by the Company's Board
of Directors and (ii) by a majority of the directors of the Company who are not
parties to the investment management contract or "interested persons" (as
defined in the 1940 Act) of any such party. Each of the Agreements may be
terminated on 60 days' written notice by either party and will terminate
automatically if assigned.

Personal Investments by Employees of the Adviser

Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.

DISTRIBUTOR

(See "Company Organization--Distributor" in the Company's Prospectuses)

Pursuant to a contract with the Company, Scudder Investor Services,
Inc. (the "Distributor"), a subsidiary of the Adviser, serves as the Company's
principal underwriter in connection with a continuous offering of shares of the
Company. The Distributor receives no remuneration for its services as principal
underwriter and is not obligated to sell any specific amount of Company shares.
As principal underwriter, it accepts purchase orders for shares of the Company.
In addition, the Underwriting Agreement obligates the Distributor to pay certain
expenses in connection with the offering of the shares of the Company. After the
Prospectuses and periodic reports have been prepared, set in type and mailed to
shareholders, the Distributor will pay for the printing and distribution of
copies thereof used in connection with the offering to prospective investors.
The Distributor will also pay for supplemental sales literature and advertising
costs.

SPECIAL ARRANGEMENTS WITH BANKS AND OTHER INSTITUTIONS

(See "Special Arrangements with Banks and Other Institutions" in the
Company's Prospectuses)

As indicated under "Special Arrangements with Banks and Other
Institutions" in the Prospectuses, the Company and the Adviser enter into
special contractual arrangements with certain banks and other institutions
(collectively, "Participating Organizations") that process substantial volumes
of purchases and redemptions of shares of the Funds 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 of the Funds. The Company pays a
Participating Organization to the extent that it performs a shareholder
servicing function for the Company with respect to shares of the Funds owned
from time to time by customers of the Participating Organization. These
shareholder services, which would otherwise have been performed for the Company
by its transfer agent, generally include providing office space, equipment and
various personnel as necessary to (i) maintain an account in the name of each
investor reflecting purchases, redemptions, daily dividend accruals and monthly
dividend disbursements, (ii) process purchase and redemption requests and
dividend payments and reinvestments, (iii) prepare and mail statements of
account and (iv) address and mail all communications by the Company to its
shareholders, including financial reports, other reports to shareholders, tax
notices and proxy statements. In certain cases the Adviser of a Fund also pays a
Participating Organization for providing other administrative services to its

15
<PAGE>

customers who invest in such Fund where these services would have been provided
to shareholders by the Adviser. Those services typically consist of handling
general shareholder relations with investors in the Funds, such as information
as to the status of their accounts, the current yield and dividends declared to
date and assistance with other questions related to their accounts.

Payments by the Company to a Participating Organization for the
shareholder services described above are calculated on the basis of the
estimated charge by the transfer agent for providing comparable services. Such
payments are separately negotiated with each Participating Organization and vary
depending upon such factors as the services provided and the costs incurred by
the Participating Organization. Payments by the Company will be made monthly at
an annual rate that is not expected to exceed 0.25% of the average daily net
asset value of shares of any Fund owned by customers of the Participating
Organization. Payments by the Company to Participating Organizations for 1996
amounted to $135,832 for the Government Fund, $536,533 for the Cash Fund, and
$301,843 for the Tax Free Fund. Payments by the Adviser to a Participating
Organization for the administrative services described above, to the extent such
payments are made, will be paid out of the Adviser's investment management fee,
past profits or any other source available to it. For the year ended December
31, 1996 payments by the Adviser pursuant to these arrangements aggregated
$36,968 for the Government Fund, $98,756 for the Cash Fund and $62,644 for the
Tax Free Fund. Arrangements with Participating Organizations, which will be
subject to contractual agreement between the parties and may be terminated by
the Company without cause and in its sole discretion, will be reviewed
periodically by the Company's Board of Directors.

A Participating Organization may charge its customer one or more of the
following types of fees, as agreed upon by the Participating Organization and
the customer, with respect to the cash management or other services it provides:
account fees (a fixed amount per month or per year); transaction fees (a fixed
amount per transaction processed); compensating balance requirements (a minimum
dollar amount a customer must maintain in order to obtain the services offered);
or account maintenance fees (a periodic charge based upon a percentage of the
assets in the account or of the dividends paid on those assets). Services
provided by a Participating Organization to its customers are in addition to and
not duplicative of the services for which the Company or the Adviser may make
payments pursuant to the arrangements described above. Participating
Organizations and other interested investors may obtain Prospectuses from the
Distributor upon request. No preference will be shown in the selection of
portfolio investments of any Fund for the instruments of Participating
Organizations. Payments by each of the Funds and the Adviser to Participating
Organizations in respect of shareholder services and administration discussed in
this section may be made under the Shareholder Service, Administration and
Distribution Plan discussed below.

SHAREHOLDER SERVICE, ADMINISTRATION AND DISTRIBUTION PLAN

(See "Shareholder Service, Administration and Distribution Plan" in the
Company's Prospectuses)

As indicated in the Prospectuses, each of the Funds has adopted a
Shareholder Service, Administration and Distribution Plan (the "Plan") under
Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the "Rule").

Each Plan will continue in effect from year to year thereafter if such
continuance is approved by a majority vote of both the Directors of the Company
and a majority of the Directors who were not "interested persons" (as defined by
the 1940 Act) of the Funds and who had no direct or indirect financial interest
in the operation of the Plan or in any agreement related to the Plan (the
"Qualified Directors"). Agreements related to the Plans must also be approved by
such vote of the Directors and the Qualified Directors. Such agreements will
terminate automatically if assigned, and may be terminated at any time, without
payment of any penalty, by a vote of a majority of the outstanding voting
securities of the proper Fund. No Plan may be amended to increase materially the
amounts payable to Service Organizations without the approval of a majority of
the outstanding voting securities of the proper Fund and no material amendment
to a Plan may be made except by a majority of both the Directors of the Company
and the Qualified Directors.

Each Plan requires that the Treasurer of the Fund shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of Directors who are not "interested
persons" of the Company be made by such disinterested directors.

16
<PAGE>

DIRECTORS AND OFFICERS

The principal occupations of the Directors and executive officers of
the Company for the past five years are listed below.
<TABLE>
<CAPTION>

Position with
Position with Underwriter, Scudder
Name (Age) and Address Company Principal Occupation** Investor Services, Inc.
- ---------------------- ------- ---------------------- -----------------------
<S> <C> <C> <C>
Daniel Pierce (63)+*# President and Chairman of the Board and Vice President, Director
Director Managing Director of and Assistant Treasurer
Scudder, Stevens & Clark,
Inc.

David S. Lee (63)+*# Chairman of the Managing Director of President, Director and
Board and Director Scudder, Stevens & Clark, Assistant Treasurer
Inc.

Edgar R. Fiedler (68)# Director Senior Fellow and Economic --
50023 Brogden Counselor, The Conference
Chapel Hill, NC 27514 Board, Inc.

Peter B. Freeman (64) Director Corporate Director and --
100 Alumni Avenue Trustee
Providence, RI 02906

Robert W. Lear (79) Director Executive-in-Residence, --
429 Silvermine Road Visiting Professor, Columbia
New Canaan, CT 06840 University Graduate School
of Business

Stephen L. Akers (45)+ Vice President Managing Director of --
Scudder, Stevens & Clark,
Inc.

K. Sue Cote (35)+ Vice President Principal of Scudder, --
Stevens & Clark, Inc.

Carol L. Franklin (44)++ Vice President Managing Director of --
Scudder, Stevens & Clark,
Inc.

Jerard K. Hartman (64)++ Vice President Managing Director of --
Scudder, Stevens & Clark,
Inc.

Thomas W. Joseph (57)+ Vice President and Principal of Scudder, Vice President,
Assistant Secretary Stevens & Clark, Inc. Director, Treasurer and
Assistant Clerk

17
<PAGE>

Kathryn L. Quirk (44)++ Vice President Managing Director of Senior Vice President,
Scudder, Stevens & Clark, Director and Clerk
Inc.

Thomas F. McDonough (50)+ Vice President and Principal of Scudder, Assistant Clerk
Secretary Stevens & Clark, Inc.

Pamela A. McGrath (43)+ Vice President Managing Director of --
and Treasurer Scudder, Stevens & Clark,
Inc.
</TABLE>

* Messrs. Lee and Pierce are considered by the Company to be persons who
are "interested persons" of the Adviser or of the Company (within the
meaning of the 1940 Act).
** All the Directors and officers have been associated with their
respective companies for more than five years, but not necessarily in
the same capacity.
# Messrs. Pierce, Fiedler and Lee are members of the Executive Committee.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York

Directors of the Company not affiliated with the Adviser receive from
the Company an annual fee and a fee for each Board of Directors and Board
Committee meeting attended and are reimbursed for all out-of-pocket expenses
relating to attendance at such meetings. Directors who are affiliated with the
Adviser do not receive compensation from the Company, but the Company may
reimburse such Directors for all out-of-pocket expenses relating to attendance
at meetings.

As of April 1, 1997, the Directors and officers of the Company, as a
group, owned less than 1% of the outstanding shares of the Portfolio as of the
commencement of operations.

As of April 1, 1997, the following shareholders held of record more
than five percent of such Fund:

Cash Fund. Chemical Bank, Jericho, NY 10017-2014, State Street Bank &
Trust Co., North Quincy, MA 02171-1753, Wilmington Trust Company, Wilmington, DE
19801, Cudd & Co., New York, NY 10036, Lucian T. Baldwin, III Trust, Winnetka,
IL 60093-4223, Hare & Co., New York, NY 10005, and Citibank, Long Island City,
NY 11120, held of record 14%, 14%, 9%, 8%,7%, 7% and 6%, respectively, of the
outstanding shares of the Cash Fund.

Tax-Free Fund. Chemical Bank, Jericho, NY 10017-2014, Hare & Co., New
York, NY 10005, Cudd & Co., New York, NY 10036 and State Street Bank & Trust
Co., North Quincy, MA 02171-1753, held of record 36%, 21%, 15% and 7%,
respectively, of the outstanding shares of the Tax Free Fund.

Government Fund. Citibank, N.A., New York, NY 11120 and Cudd & Co., New
York, NY 10036, held of record 65% and 11%, respectively, of the outstanding
shares of the Government Fund.

As of April 1, 1997 no other persons, to the knowledge of management,
owned of record or beneficially more than 5% of the outstanding shares of any
Fund. To the extent that any of the above institutions is the beneficial owner
of more than 25% of the outstanding shares of the Company or a Fund, it may be
deemed to be a "control" person of the Company or such Fund for purposes of the
1940 Act.

18
<PAGE>

REMUNERATION

Responsibilities of the Board--Board and Committee Meetings

The Board of Directors is responsible for the general oversight of each
Fund's business. A majority of the Board's members are not affiliated with
Scudder, Stevens & Clark, Inc. (The "Adviser"). These "Independent Directors"
have primary responsibility for assuring that each Fund is managed in the best
interests of its shareholders.

The Board of Directors meets at least quarterly to review the
investment performance of each Fund and other operational matters, including
policies and procedures designated to assure compliance with various regulatory
requirements. At least annually, the Independent Directors review the fees paid
to the Adviser and its affiliates for investment advisory services and other
administrative and shareholder services. In this regard, they evaluate, among
other things, each Funds' investment performance, the quality and efficiency of
the various other services provided, costs incurred by the Adviser and its
affiliates, and comparative information regarding fees and expenses of
competitive funds. They are assisted in this process by each Fund's independent
public accountants and by independent legal counsel selected by the Independent
Directors.

All of the Independent Directors serve on the Committee on Independent
Directors, which nominates Independent Directors and considers other related
matters, and the Audit Committee, which selects each Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Directors from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.

The Independent Directors met four times during 1996, including Board
and Committee meetings and meetings to review each Fund's contractual
arrangements as described above. All of the Independent Directors attended 100%
of all such meetings.

Compensation of Officers and Directors

The Independent Directors receive compensation of $150 per Fund for
each Directors' meeting and each Board Committee meeting attended, and an annual
Director's fee of $500 for each Fund with average daily net assets less than
$100 million, and $1,500 for each Fund with average daily net assets in excess
of $100 million, payable quarterly. No additional compensation is paid to any
Independent Director for travel time to meetings, attendance at directors'
educational seminars or conferences, service on industry or association
committees, participation as speakers at directors' conferences, service on
special trustee task forces or subcommittees or service as lead or liaison
trustee. Independent Directors do not receive any employee benefits such as
pension, retirement or health insurance.

The Independent Directors also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type an complexity
and in some cases have substantially different Directors fee schedules. The
following table shows the aggregate compensation received by each Independent
Directors during 1996 from the Company and from all of Scudder funds as a group.

Name Scudder Fund, Inc.* All Scudder Funds
---- ------------------- -----------------

Edgar R. Fiedler, Director** $17,776 $108,083 (20 funds)

Peter B. Freeman, Director $8,000 $131,734 (33 funds)

Robert W. Lear, Director $8,000 $33,049 (11 funds)

* Scudder Fund, Inc. consists of the Cash Fund, Tax Free Fund and
Government Fund.

** Mr. Fiedler received $17,776 through a deferred compensation program.
As of December 31, 1996, Mr. Fiedler had a total of $205,223 accrued in
a deferred compensation program for serving on the Board of Directors
of the Company. In addition, as of December 31, 1996, Mr. Fiedler had a
total of $191,130 accrued in a deferred compensation program for
serving on the Board of Directors of Scudder Institutional Fund, Inc.

19
<PAGE>

Members of the Board of Directors who are employees of Scudder or its
affiliates receive no direct compensation from the Company, although they are
compensated as employees of Scudder, or its affiliates, as a result of which
they may be deemed to participate in fees paid by each Fund.

TAXES

(See "Distribution and Performance Information--Taxes" in the
Company's Prospectuses)

The Prospectuses describe generally the tax treatment of distributions
by the Company. This section of the Statement includes additional information
concerning federal taxes.

Qualification by each Fund as a regulated investment company under the
Internal Revenue Code of 1986 (the "Code") requires, among other things, that
(a) at least 90% of the Fund's annual gross income, without offset for losses
from the sale or other disposition of securities, be derived from interest,
payments with respect to securities loans, dividends and gains from the sale or
other disposition of securities or options thereon; (b) the Fund derive less
than 30% of its gross income from gains (without offset for losses) from the
sale or other disposition of securities or options thereon held for less than
three months; and (c) the Fund diversify its holdings so that, at the end of
each quarter of the taxable year, (i) at least 50% of the market value of the
Fund's assets is represented by cash, Government securities and other securities
limited in respect of any one issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of the Fund's assets is invested in the
securities of any one issuer (other than U.S. government securities or
securities of other regulated investment companies), or of two or more issuers
which the taxpayer controls and which are determined to be engaged in the same
or similar trade or business. As a regulated investment company, each Fund will
not be subject to federal income tax on its net investment income and net
capital gains distributed to its shareholders, provided that it distributes to
its stockholders at least 90% of its net taxable investment income (including
net short-term capital gain) and at least 90% of the excess of its tax-exempt
interest income over attributable expenses earned in each year. Investment
income of a Fund includes, among other things, accretion of market and original
issue discount, even though the Fund will not receive current payments on
discount obligations. In addition, the Tax Free Fund intends that at least 50%
of the value of its total assets at the close of each quarter of its taxable
year will consist of obligations, the interest on which is exempt from federal
income tax, so that the Fund will qualify under the Code to pay exempt-interest
dividends.

A 4% nondeductible excise tax will be imposed on a Fund (except the Tax
Free Fund to the extent of its tax-exempt income) to the extent it does not meet
certain minimum distribution requirements by the end of each calendar year. For
this purpose, any income or gain retained by a Fund that is subject to tax will
be considered to have been distributed by year-end. In addition, dividends
declared in October, November or December payable to shareholders of record on a
specified date in such a month and paid in the following January will be treated
as having been paid by each Fund and received by shareholders on December 31 of
the calendar year in which the dividend was declared. Each Fund intends that it
will timely distribute substantially all of its net investment income and net
capital gains and, thus, expects not to be subject to the excise tax.

Any gain or loss realized upon a sale or redemption of shares of a Fund
by a shareholder who is not a dealer in securities is generally treated as
long-term capital gain or loss if the shares have been held for more than one
year and otherwise as short-term capital gain or loss. However, any loss
realized by a shareholder upon the sale or redemption of shares of a Fund held
for six months or less is treated as long-term capital loss to the extent of any
long-term capital gain distribution received by the shareholder. Any loss
realized by a shareholder upon the sale or redemption of shares of the Tax Free
Fund held for six months or less is disallowed to the extent of any
exempt-interest dividends received by the shareholder.

Gains or losses on sales of securities by a Fund will generally be
long-term capital gains or losses if the securities have been held by it for
more than one year, except in certain cases where the Fund acquires a put or
writes a call thereon. Other gains or losses on the sale of securities will be
short-term capital gains or losses.

Exempt-interest dividends allocable to interest received by the Tax
Free Fund, on certain "private activity" obligations issued after August 7, 1986
will be treated as interest on such obligations and thus will give rise to an
item of tax preference that will increase a shareholder's alternative minimum
taxable income. Exempt-interest dividends paid to a corporate shareholder by the
Tax Free Fund (whether or not from interest on private activity bonds) will be

20
<PAGE>

taken into account (i) in determining the alternative minimum tax imposed on 75%
of the excess of adjusted current earnings of the corporation over alternative
minimum taxable income, (ii) in calculating the environmental tax equal to 0.12%
of a corporation's modified alternative minimum taxable income in excess of $2
million, and (iii) in determining the foreign branch profits tax imposed on the
effectively connected earnings and profits tax (with adjustments) of U.S.
branches of foreign corporations.

Any loss realized on a sale or exchange of shares of a Fund will be
disallowed to the extent shares of such Fund are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are disposed
of.

Income from the Federal Fund and Tax Free Fund may not be exempt from
certain state and local taxes.

PORTFOLIO TRANSACTIONS

Subject to the supervision of the Board of Directors, the Adviser is
primarily responsible for the investment decisions of each of the Funds and the
placing of such Funds' portfolio transactions. In placing orders, it is the
policy of the Adviser to obtain the most favorable net results, taking into
account such factors as price, size of order, difficulty of execution and skill
required of the executing broker. While the Adviser will generally seek
reasonably competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available.

To the maximum extent feasible, the Adviser places orders for portfolio
transactions for the Funds through the Distributor, which in turn places orders
on behalf of the Funds. The Distributor receives no commissions, fees or other
remuneration from the Funds for this service. Allocation of portfolio
transactions by the Distributor is supervised by the Adviser.

The Funds' purchases and sales of portfolio securities are generally
placed by the Adviser with the issuer or a primary market maker for these
securities on a net basis, without any brokerage commissions being paid by the
Funds. Trading, however, does involve transaction costs. Transactions with
dealers serving as primary market makers reflect the spread between the bid and
asked prices. Transaction costs may also include fees paid to third parties for
information as to potential purchasers or sellers of securities but only for the
purpose of seeking for the Funds the most favorable net results, including such
fees, on a particular transaction. Purchases of underwritten issues may be made,
which will include an underwriting fee paid to the underwriter. During the
Company's last three fiscal years, the Funds paid no brokerage commissions.

Research and Statistical Information. When it can be done consistently
with the policy of obtaining the most favorable net results, it is the Adviser's
practice to place orders with brokers and dealers who supply market quotations
to the fund accounting agent of the Funds for valuation purposes, or who supply
research, market and statistical information to the Adviser. Except for
implementing the policy stated above, there is no intention on the part of the
Adviser to place portfolio transactions with particular brokers or dealers or
groups thereof, and the Adviser does not place orders with brokers or dealers on
the basis that such broker or dealer has or has not sold shares of the Funds.
Although such research, market and statistical information is useful to the
Adviser, it is the Adviser's opinion that such information is only supplementary
to their own research efforts, since the information must still be analyzed,
weighed and reviewed by the staff of the Adviser. Information so received will
be in addition to, and not in lieu of, the services required to be performed by
the Adviser under the investment advisory agreements with the Funds, and the
expenses of the Adviser will not necessarily be reduced as a result of the
receipt of such information. Such information may be useful to the Adviser in
providing services to clients other than the Funds, and not all such information
is used by the Adviser in connection with the Funds.

NET ASSET VALUE

Net asset value per share for each Fund is determined by Scudder Fund
Accounting Corporation, a subsidiary of the Adviser, on each day the Exchange is
open for trading. The net asset value per share is determined at 2:00 p.m. for
the Tax Free Fund and 4:00 p.m. for the Cash Fund and Government Fund. 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. The Exchange is closed on Saturdays, Sundays,
and on New Year's Day, Presidents' Day (the third Monday in February), Good
Friday, Memorial Day (the last Monday in May), Independence Day, Labor Day (the

21
<PAGE>

first Monday in September), Thanksgiving Day and Christmas Day (collectively,
the "Holidays"). When any Holiday falls on a Saturday, the Exchange is closed
the preceding Friday, and when any Holiday falls on a Sunday, the Exchange is
closed the following Monday. Although the Company intends to declare dividends
with respect to each of its Money Market Funds on all other days, including
Martin Luther King, Jr. Day (the third Monday in January), Columbus Day (the
second Monday in October) and Veterans' Day, no redemptions will be made on
these three bank holidays nor on any of the Holidays.

As indicated under "Transaction Information--Share Price" in the
Prospectuses, each Fund uses the amortized cost method to determine the value of
its portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The amortized
cost method involves valuing a security at its cost and amortizing any discount
or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
that the Fund would receive if the security were sold. During these periods the
yield to a shareholder may differ somewhat from that which could be obtained
from a similar fund that uses a method of valuation based upon market prices.
Thus, during periods of declining interest rates, if the use of the amortized
cost method resulted in a lower value of a Fund's portfolio on a particular day,
a prospective investor in that Fund would be able to obtain a somewhat higher
yield than would result from investment in a fund using solely market values,
and existing Fund shareholders would receive correspondingly less income. The
converse would apply during periods of rising interest rates.

Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, each Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase securities having remaining
maturities (as defined in Rule 2a-7) of no more than 397 calendar days and
invest only in securities determined by the Board of Directors to be of high
quality with minimal credit risks. The maturity of an instrument is generally
deemed to be the period remaining until the date when the principal amount
thereof is due or the date on which the instrument is to be redeemed. However,
Rule 2a-7 provides that the maturity of an instrument may be deemed shorter in
the case of certain instruments, including certain variable and floating rate
instruments subject to demand features. Pursuant to Rule 2a-7, the Board is
required to establish procedures designed to stabilize, to the extent reasonably
possible, such Fund's price per share as computed for the purpose of sales and
redemptions at $1.00. Such procedures include review of the Fund's portfolio
holdings by the Board of Directors, at such intervals as it may deem
appropriate, to determine whether the Fund's net asset value calculated by using
available market quotations deviates from $1.00 per share based on amortized
cost. The extent of any deviation will be examined by the Board of Directors. If
such deviation exceeds 1/2 of 1%, the Board will promptly consider what action,
if any, will be initiated. In the event the Board determines that a deviation
exists that may result in material dilution or other unfair results to investors
or existing shareholders, the Board will take such corrective action as it
regards as appropriate, including the redemption of shares in kind, the sale of
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity, withholding dividends or establishing a net
asset value per share by using available market quotations.

ADDITIONAL INFORMATION

Experts

The financial highlights of each Fund included in the Prospectuses and
the Financial Statements incorporated by reference in this Statement of
Additional Information have been audited by Price Waterhouse LLP, 1177 Avenue of
the Americas, New York, New York 10036, independent accountants, and are
included in the Prospectuses and this Statement of Additional Information in
reliance upon the accompanying report of said firm, which reports are given upon
their authority as experts in accounting and auditing.

Other Information

The CUSIP number of the Cash Fund is 811149202.
The CUSIP number of the Tax Free Fund is 811149301.
The CUSIP number of the Government Fund is 811149103.

Each Fund has a fiscal year end of December 31.

22
<PAGE>

The law firm of Dechert Price & Rhoads is counsel to the Company.

Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts 02110-4103, a subsidiary of the Adviser, computes net
asset value for the Funds. Each Fund pays SFAC an annual fee equal to 0.0200% of
the first $150 million of average daily net assets, 0.0060% of such assets in
excess of $150 million and 0.0035% of such assets in excess of $1 billion, plus
holding and transaction charges for this service. For the year ended December
31, 1996, the amount charged to the Funds by SFAC aggregated $48,900 for the
Cash Fund, $39,965 for the Tax Free Fund and $30,000 for the Government Fund, of
which $4,177, $3,306 and $2,500, respectively, remained unpaid at December 31,
1996.

Scudder Service Corporation (the "Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for the Corporation and as such
performs the customary services of a transfer agent and dividend disbursing
agent. These services include, but are not limited to: (i) receiving for
acceptance in proper form orders for the purchase or redemption of Fund shares
and promptly effecting such orders; (ii) recording purchases of Fund shares and,
if requested, issuing stock certificates; (iii) reinvesting dividends and
distributions in additional shares or transmitting payments therefor; (iv)
receiving for acceptance in proper form transfer requests and effecting such
transfers; (v) responding to shareholder inquiries and correspondence regarding
shareholder account status; (vi) reporting abandoned property to the various
states; and (vii) recording and monitoring daily the issuance in each state of
shares of each Fund of the Corporation. The Service Corporation applies monthly
activity fees for servicing shareholder accounts of $220,000. Effective October
1, 1995 the minimum monthly charge to any Fund shall be the pro rata portion of
the annual fee, determined by dividing such aggregate fee by the number of Funds
of the Corporation and series of Institutional Fund. When a Fund's monthly
activity charges do not equal or exceed the minimum monthly charge, the minimum
will be charged. For the year ended December 31, 1996, the amount charged to the
Corporation by Scudder Service Corporation aggregated $66,490 for the Cash Fund,
$23,477 for the Tax Free Fund and $23,477 for the Government Fund, of which
$5,556, $2,292 and $2,292, respectively, remained unpaid at December 31, 1996.

The Company's Prospectuses and this Statement of Additional Information
omit certain information contained in the Registration Statement and its
amendments which the Company has filed with the SEC under the Securities Act of
1933 and reference is hereby made to the Registration Statement for further
information with respect to the Company and the securities offered hereby. The
Registration Statement and its amendments are available for inspection by the
public at the SEC in Washington, D.C.

FINANCIAL STATEMENTS

The financial statements, including the investment portfolios of the
Company, together with the Report of Independent Accountants, Financial
Highlights and notes to financial statements are incorporated herein by
reference in the Annual Reports to the Shareholders of the Company dated
December 31, 1996 and are hereby deemed to be a part of this Statement of
Additional Information.

23
<PAGE>

APPENDIX

The following is a description of the ratings given by Moody's, S&P and
Fitch to corporate and municipal bonds, corporate and municipal commercial paper
and municipal notes.

Corporate and Municipal Bonds
- -----------------------------

Moody's: The four highest ratings for corporate and municipal bonds are
"Aaa," "Aa," "A" and "Baa". Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest degree of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated
"A" possess many favorable investment attributes and are considered to be upper
medium grade obligations. Bonds rated "Baa" are considered to be medium grade
obligations, neither highly protected nor poorly secured. Moody's applies
numerical modifiers 1, 2 and 3 in each rating category from "Aa" through "Baa"
in its rating system. The modifier 1 indicates that the security ranks in the
higher end of the category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end.

S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB". Bonds rated "AAA" have the highest ratings assigned
by S&P and have an extremely strong capacity to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity to pay interest and
repay principal" and differ "from the higher rated issues only in small degree".
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible to" adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead a "weakened capacity" to make such payments. The ratings
from "AA" to "BBB" may be modified by the addition of a plus or minus sign to
show relative standing within the category.

Fitch: The four highest ratings of Fitch for corporate and municipal
bonds are "AAA," "AA," "A" and "BBB". Bonds rated "AAA" are considered to be
investment-grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events. Bonds rated "AA" are
considered to be investment grade and of very high credit quality. The obligor's
ability to pay interest and repay principal is very strong, although not quite
as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA"
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F1+". Bonds rated "A" are
considered to be investment grade and of high credit quality. The obligor's
ability to pay interest and repay principal is considered to be strong, but may
be more vulnerable to adverse changes in economic conditions and circumstances
than bonds with higher rates. Bonds rated "BBB" are considered to be investment
grade and of satisfactory credit quality. The obligor's ability to pay interest
and repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse effects
on these bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for bonds
with greater ratings.

Corporate and Municipal Commercial Paper
- ----------------------------------------

Moody's: The highest rating for corporate and municipal commercial
paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior ability for
repayment of senior short-term obligations".

S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is strong".
Commercial paper with "overwhelming safety characteristics" will be rated
"A-1+".

Fitch: The rating "F-1" is the highest rating assigned by Fitch. Among
the factors considered by Fitch in assigning this rating are: (1) the issuer's
liquidity; (2) its standing in the industry; (3) the size of its debt; (4) its
ability to service its debt; (5) its profitability; (6) its return on equity;
(7) its alternative sources of financing; and (8) its ability to access the
capital markets. Analysis of the relative strength or weakness of these factors
and others determines whether an issuer's commercial paper is rated "F-1".

<PAGE>

Municipal Notes
- ---------------

Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality". Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins or protection "ample although
not as large as in the preceding group". Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for but lacking the
strength of the preceding grades.

S&P: The "SP-1" rating reflects a "very strong or strong capacity to
pay principal and interest". Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+". The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.

Fitch: The highest ratings for state and municipal short-term
obligations are "F-1+," "F-1," and "F-2".

<PAGE>

MANAGED GOVERNMENT SECURITIES FUND

MANAGED CASH FUND

MANAGED TAX-FREE FUND

- --------------------------------------------------------------------------------

ANNUAL REPORT
DECEMBER 31, 1996

- --------------------------------------------------------------------------------
<PAGE>

<TABLE>
<CAPTION>
Board of Directors
<S> <C>
DAVID S. LEE^(1) Chairman of the Board; Managing Director, Scudder,
Stevens
& Clark, Inc.

EDGAR R. FIEDLER^(1)^(2)^(3) Vice President and Economic Counsellor, The Conference
Board;
formerly Assistant Secretary of the Treasury for
Economic Policy

PETER B. FREEMAN^(2)^(3) Corporate Director and Trustee

ROBERT W. LEAR^(2)^(3) Executive-in-Residence and Visiting Professor, Columbia
University Graduate School of Business; Director or Trustee,
Various Organizations

DANIEL PIERCE^(1) President; Chairman of the Board, Scudder, Stevens & Clark, Inc.

(1)Member of Executive Committee
(2)Member of Nominating Committee
(3)Member of Audit Committee
</TABLE>

- --------------------------------------------------------------------------------
Officers

DAVID S. LEE Chairman of the Board

DANIEL PIERCE President

STEPHEN L. AKERS Vice President

K. SUE COTE Vice President

CAROL L. FRANKLIN Vice President

JERARD K. HARTMAN Vice President

KATHRYN L. QUIRK Vice President

THOMAS W. JOSEPH Vice President and Assistant Secretary

THOMAS F. McDONOUGH Vice President and Secretary

PAMELA A. McGRATH Vice President and Treasurer

2
<PAGE>

Dear Shareholder:

Operated exclusively for institutions and their clients, Scudder Fund, Inc.
provided competitive investment results in 1996. Scudder Fund, Inc. includes
three separate money market funds -- Managed Government Securities Fund, Managed
Cash Fund, and Managed Tax-Free Fund. Each Fund seeks to provide a high level of
income while preserving capital and maintaining liquidity.

All three funds seek to maintain a net asset value of $1.00, and have done so
since their inception. (There is no guarantee, of course, that each fund will
maintain stable net asset values.) The Managed Tax-Free Fund seeks to provide
income exempt from Federal income tax.

Total net assets for Managed Government Securities Fund, Managed Cash Fund and
Managed Tax-Free Fund were $625 million on December 31, 1996, compared to $560
million at the start of the year, which does not include the assets of Managed
Federal Securities Fund. Managed Federal Securities Fund ceased operations on
November 29, 1996. A table showing dividend payments and other financial
information for the twelve months ended December 31, 1996 is on page 16. This
table also shows dividend payments and financial information for each fund for
the five years ended December 31, 1996. In addition, please see the following
pages for audited financial statements for the year ended December 31, 1996, as
well as a list of each Fund's investments.

If you have any questions concerning any of these funds, please call toll free
(800) 854-8525 from any continental state.

/s/David S. Lee
David S. Lee
Chairman

3
<PAGE>

MANAGED GOVERNMENT SECURITIES FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1996

<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DATE AMOUNT (NOTE 2a)
------- --------- ---------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS -- 7.1%

State Street Bank & Trust, dated 12/31/96 at 6.00%
(proceeds at maturity $1,976,659) collateralized
by $1,865,000 U.S. Treasury Bond, 7.125%, 2/15/23
(cost $1,976,000) (note 3) ................................. 1/2/97 $ 1,976,000 $ 1,976,000
-------------
U.S. AGENCY OBLIGATIONS -- 93.5%
Federal Home Loan Bank Discount Note ......................... 1/2/97 2,000,000 1,999,708
Federal Home Loan Mortgage Corp. Discount Note ............... 4/1/97 4,000,000 3,946,900
Federal Home Loan Mortgage Corp. Discount Note ............... 1/14/97 3,000,000 2,994,301
Federal Home Loan Mortgage Corp. Discount Note ............... 1/17/97 3,200,000 3,192,590
Federal Home Loan Mortgage Corp. Discount Note ............... 1/24/97 3,000,000 2,989,957
Federal National Mortgage Assn. Discount Note ................ 1/21/97 6,000,000 5,982,700
Federal National Mortgage Assn., 5.18% ....................... 3/14/97* 5,000,000 5,000,000
-------------
TOTAL U.S. AGENCY OBLIGATIONS (cost $26,106,156) ............................................... 26,106,156
-------------
TOTAL INVESTMENTS -- 100.6% (cost $28,082,156)** ............................................... 28,082,156
-------------
OTHER ASSETS AND LIABILITIES -- (0.6%)
Cash ........................................................................................... 706
Receivable for capital stock sold .............................................................. 10,417
Interest receivable and other assets ........................................................... 58,489
Dividend payable ............................................................................... (118,924)
Payable for capital stock redeemed ............................................................. (1,400)
Management fee payable (note 4) ................................................................ (18,770)
Accrued expenses (note 4) ...................................................................... (94,387)
-------------
(163,869)
-------------
NET ASSETS -- 100.0%
Applicable to 27,918,287 shares of $.001 par value Capital Stock outstanding;
3,000,000,000 shares authorized (note 7) .................................................... $ 27,918,287
=============
NET ASSET VALUE PER SHARE ...................................................................... $1.00
=====
</TABLE>

* Date of next interest rate change.
** Cost for federal income tax purposes.

See notes to financial statements.

4
<PAGE>

MANAGED CASH FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1996

<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DATE AMOUNT (NOTE 2a)
-------- --------- ---------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- 18.8%
Bank of America, Illinois, 5.70% ............................. 5/28/97 $ 5,000,000 $ 4,997,843
Bank of New York Co., Inc., 5.365% ........................... 6/10/97 7,000,000 7,000,000
Canadian Imperial, 5.37% ..................................... 1/10/97 15,000,000 15,000,000
Fifth Third Bank, 5.36% ...................................... 1/8/97 15,000,000 15,000,013
National Westminster Bank, PLC, 5.41% ........................ 1/21/97 15,000,000 15,000,246
Rabobank Nederland N.V., 5.56% ............................... 3/3/97 14,000,000 14,001,352
Societe Generale, 5.37% ...................................... 2/19/97 10,000,000 10,000,000
-------------
TOTAL CERTIFICATES OF DEPOSIT (cost $80,999,454) ............................................... 80,999,454
-------------
COMMERCIAL PAPER -- 63.6%
American Express Credit Corp. ................................ 1/23/97 15,000,000 14,951,142
Associates Corp. of North America ............................ 1/21/97 15,000,000 14,955,667
Barclays U.S. Funding Corp. .................................. 2/28/97 10,000,000 9,914,933
Beneficial Corp. ............................................. 4/1/97 10,000,000 9,866,250
Centric Funding Corp. ........................................ 2/10/97 10,000,000 9,940,667
Centric Funding Corp. ........................................ 2/18/97 5,000,000 4,963,600
Chevron Transport Corp. ...................................... 4/1/97 10,000,000 9,865,500
Ciesco, L.P. ................................................. 1/15/97 14,000,000 13,971,144
CIT Group Holdings, Inc. ..................................... 1/22/97 15,000,000 14,950,913
Commerzbank AG ............................................... 2/28/97 10,000,000 9,914,772
Corporate Asset Funding Co., Inc. ............................ 2/25/97 12,000,000 11,901,733
Deutsche Bank Financial, Inc. ................................ 3/4/97 12,000,000 11,891,093
Dresdner U.S. Finance, Inc. .................................. 1/2/97 14,000,000 13,997,814
Ford Motor Credit Corp. ...................................... 4/1/97 10,000,000 9,866,250
General Electric Capital Corp. ............................... 1/23/97 15,000,000 14,949,583
Household Finance Corp. ...................................... 1/15/97 10,000,000 9,978,456
J.P. Morgan & Co., Inc. ...................................... 1/8/97 14,000,000 13,985,354
New Center Asset Trust ....................................... 5/27/97 18,000,000 17,610,180
Pacificorp ................................................... 2/28/97 10,000,000 9,914,772
Prudential Funding Corp. ..................................... 1/9/97 15,000,000 14,982,267
Republic New York Corp. ...................................... 1/15/97 8,000,000 7,983,107
Texaco Inc. .................................................. 1/9/97 14,000,000 13,982,796
Virginia Electric & Power Co. ................................ 2/13/97 10,000,000 9,936,097
-------------
TOTAL COMMERCIAL PAPER (cost $274,274,090) ..................................................... 274,274,090
-------------
CORPORATE BOND -- 1.7%
General Electric Capital Corp., 7.625% ....................... 1/10/97 2,000,000 2,001,052
MMR Funding I (LOC Bayerische Vereinsbank), 5.84% ............ 1/2/97* 5,500,000 5,500,000
-------------
TOTAL CORPORATE BOND (cost $7,501,052) ......................................................... 7,501,052
-------------
</TABLE>

See notes to financial statements.

5
<PAGE>

MANAGED CASH FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1996

<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
DATE AMOUNT (NOTE 2a)
-------- --------- ---------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 8.7%
Student Loan Marketing Association, 5.39% .................... 1/14/97* $ 15,000,000 $ 15,000,000
Student Loan Marketing Association, 5.41% .................... 1/14/97* 22,400,000 22,396,073
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (cost $37,396,073) .................................... 37,396,073
-------------
REPURCHASE AGREEMENTS -- 12.9%

State Street Bank & Trust, dated 12/31/96 at 6.00%
(proceeds at maturity $55,637,540) collateralized
by $52,410,000 U.S. Treasury Bond, 7.125%, 2/15/23
(cost $55,619,000) ......................................... 1/2/97 55,619,000 55,619,000
-------------
TOTAL INVESTMENTS -- 105.7% (cost $455,789,669)** .............................................. 455,789,669
-------------
OTHER ASSETS AND LIABILITIES -- (5.7%)
Receivable for capital stock sold .............................................................. 5,614,903
Interest receivable and other assets ........................................................... 1,334,256
Dividend payable ............................................................................... (1,569,532)
Payable for capital stock redeemed ............................................................. (1,147,761)
Due to custodian ............................................................................... (28,399,017)
Management fee payable (note 4) ................................................................ (115,079)
Accrued expenses (note 4) ...................................................................... (209,164)
-------------
(24,491,394)
-------------
NET ASSETS -- 100.0%
Applicable to 431,298,275 shares of $.001 par value Capital Stock outstanding;
3,000,000,000 shares authorized (note 7) .................................................... $ 431,298,275
=============
NET ASSET VALUE PER SHARE ...................................................................... $1.00
=====
</TABLE>

* Date of next interest rate change.
** Cost for federal income tax purposes.

See notes to financial statements.

6
<PAGE>

MANAGED TAX-FREE FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1996

<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATING* SHORT-TERM MUNICIPAL INVESTMENTS -- 100.7% AMOUNT (NOTE 2a)
- ------ --------- ---------
<S> <C> <C>
ARIZONA
MIG1 Pima County Industrial Development Authority, Series 1985, SFE
Technologies, VRDN, 4.5%, 12/1/05 ................................. $ 1,900,000 $ 1,900,000
A1+ Pima County, Industrial Development Authority, Tucson Electric
Power Co., Series 1982A, VRDN, 4.1%, 7/1/22 ....................... 1,800,000 1,800,000
-----------
TOTAL ARIZONA ................................................. 3,700,000
-----------
CALIFORNIA
A1+ Burbank Redevelopment Agency, Multifamily Housing Series 1985A,
VRDN, 3%, 11/1/10 ................................................. 5,100,000 5,100,000
SP1+ California State, GO, RAN, Series 1996, 4.5%, 6/30/97 ................ 2,000,000 2,007,805
MIG1+ California Statewide Community Development Authority, Northern
California Retired Officers, VRDN, 5%, 6/1/26 ..................... 1,300,000 1,300,000
A1 Corona Multi--Family Housing Revenue, Series 1985B, VRDN, 4.125%,
2/1/05 ............................................................ 2,000,000 2,000,000
SS&C Huntington Beach, Multi--Family Housing Revenue, River Meadows
Apartments, Series B, VRDN, 4.125%, 10/1/05 ....................... 6,800,000 6,800,000
SS&C Lancaster Household Bank Project, Antelope Pines Estate, Series 1984-A
VRDN, 3.55%, 11/1/04 .............................................. 3,000,000 3,000,000
A1+ Orange County, Sanitation District #1- 3, 5- 7&11, Series 1993, VRDN,
5%, 8/1/16 ........................................................ 900,000 900,000
SS&C San Marcos, Redevelopment Agency, Multi-Family Rental Housing
Series 1985 A, VRDN, 4.125%, 6/1/05 ............................... 6,900,000 6,900,000
-----------
TOTAL CALIFORNIA .............................................. 28,007,805
-----------
COLORADO
A1+ Colorado Health Facilities Authority, Composite Issue for Kaiser
Permanente, Series 1995A, VRDN, 4.15%, 8/1/15 ..................... 1,000,000 1,000,000
A1+ Regional Transportation, District of Colorado, Special Passenger Fare
Revenue, Series 1989A, VRDN, 4%, 6/1/99 ........................... 1,700,000 1,700,000
-----------
TOTAL COLORADO ................................................ 2,700,000
-----------
DISTRICT OF COLUMBIA
A1+ District of Columbia, General Fund Recovery, Series B-3, VRDN,
5.1%, 6/1/03 ...................................................... 2,000,000 2,000,000
MIG1 District of Columbia, GO, General Fund Recovery, Series B2,
VRDN, 5.1%, 6/1/03 ................................................ 300,000 300,000
MIG1 District of Columbia, GO, VRDN, Series A3, 5%, 10/1/07 ............... 1,000,000 1,000,000
-----------
TOTAL DISTRICT OF COLUMBIA .................................... 3,300,000
-----------
FLORIDA
MIG1 Broward County, Housing Finance Authority, Welleby Apartments
Project, VRDN, 4.25%, 12/1/06 ..................................... 1,000,000 1,000,000
A1+ Gainesville, Florida Utilities System, Series C, TECP, 3.6%, 1/6/97 .. 1,000,000 1,000,000
AAA Dade County Health Facilities Authority, Miami Children's Hospital,
VRDN, AMBAC Insured, 4%, 9/1/25 ................................... 1,200,000 1,200,000
A1+ Dade County, Water and Sewer System Revenue, Series 1994, VRDN,
FGIC Insured, 4%, 10/5/22 ......................................... 4,700,000 4,700,000
</TABLE>

See notes to financial statements.

7
<PAGE>

MANAGED TAX-FREE FUND (CONTINUED)

<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATING* AMOUNT (NOTE 2a)
- ------ --------- ---------
<S> <C> <C>
MIG1 Jacksonville Pollution Control Revenue, Florida Power and Light, TECP,
Series 1994, 3.55%, 2/20/97 ....................................... $ 1,300,000 $ 1,300,000
A1 Sarasota County, Public Hospital District, Sarasota Memorial Hospital,
TECP, Series 1993A, 3.7%, 2/18/97 ................................. 2,500,000 2,500,000
-----------
TOTAL FLORIDA ................................................. 11,700,000
-----------
GEORGIA
A1+ Turner County Industrial Development Revenue, Coats & Clark Inc.,
Series 1984, VRDN, 3.65%, 10/1/98 ................................. 1,600,000 1,600,000
-----------
IDAHO
MIG1 Idaho Health Facilities Authority Revenue, St. Lukes Regional Medical
Center Project, Series 1995, VRDN, 5.25%, 5/1/22 .................. 2,400,000 2,400,000
-----------
ILLINOIS
P1 Illinois Education Facilities Authority Pooled Financing Program, TECP,
3.55%, 2/20/97 .................................................... 3,500,000 3,500,000
MIG1 Illinois Educational Facilities Authority, University Pooled Finance
Program, VRDN, FGIC Insured, 4.25%, 12/1/05 ....................... 1,810,000 1,810,000
SS&C Pekin, Industrial Development Revenue Refunding Bonds, BOC Group,
Series 1992, VRDN, 4.15%, 9/1/12 .................................. 2,600,000 2,600,000
-----------
TOTAL ILLINOIS ................................................ 7,910,000
-----------
INDIANA
A1+ Sullivan Hoosier Energy Rural Electric Project, TECP, Series 1985L
3.45%, 2/12/97 .................................................... 2,000,000 2,000,000
A1+ Sullivan PCR, Hoosier Energy Rural Electric Project, TECP, 3.6%,
1/6/97 ............................................................ 2,000,000 2,000,000
-----------
TOTAL INDIANA ................................................. 4,000,000
-----------
IOWA
MIG1 Council Bluffs Pollution Control, VRDN, Iowa Illinois Gas & Electric
Company, Series 1995, 4.25%, 1/1/25 ............................... 1,000,000 1,000,000
-----------
KENTUCKY
MIG1 Mayfield, Multi-City Lease Revenue, Kentucky League of Cities Funding
Trust, VRDN, Series 1996, 4.3%, 7/1/26 ............................ 1,000,000 1,000,000
-----------
LOUISIANA
MIG1 Louisiana State Offshore Terminal Authority, Deepwater Port Revenue,
1st Stage, Series 1994, VRDN, 5%, 9/1/06 .......................... 100,000 100,000
-----------
MARYLAND
A1 Anne Arundel County, Baltimore Electric & Gas Company, TECP,
3.55%, 1/9/97 ..................................................... 3,020,000 3,020,000
-----------
MASSACHUSETTS
MIG1 Commonwealth of Massachusetts GO Note, Series A, 4.25%, 6/10/97 ...... 5,000,000 5,018,815
SP1 Massachusetts Bay Transportation Authority, Series B, 4.75%, 9/5/97 .. 1,000,000 1,005,204
A1+ Massachusetts Health & Educational Facilities Authority, Harvard
University, Series I, VRDN, 3.9%, 2/1/16 .......................... 3,215,000 3,215,000
MIG1 Massachusetts Industrial Finance Agency, Merritt Care Beverly
Enterprises, VRDN, 5%, 4/1/09 ..................................... 800,000 800,000
</TABLE>

See notes to financial statements.

8
<PAGE>

<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATING* AMOUNT (NOTE 2a)
- ------ --------- ---------
<S> <C> <C>
MIG1 Massachusetts Industrial Finance Agency, Resource Recovery, Ogden
Haverhill Project, VRDN, 3.9%, 12/1/06 ............................ $ 2,900,000 $ 2,900,000
P1 Massachusetts Water Resources Authority, TECP, Series 1994, 3.65%,
1/15/97 ........................................................... 1,000,000 1,000,000
-----------
TOTAL MASSACHUSETTS ........................................... 13,939,019
-----------
MISSISSIPPI
A1 Jackson County, Chevron USA Inc., Project, Pollution Control Revenue
Bonds, VRDN, 5%, 12/1/16 .......................................... 1,400,000 1,400,000
-----------
MISSOURI
MIG1 Missouri HEFA, Health Facilities Revenue, Sisters of Mercy, VRDN,
4.2%, 6/1/19 ...................................................... 1,100,000 1,100,000
MIG1 Missouri HEFA, Health Facilities Revenue, Sisters of Mercy, VRDN,
4.2%, 6/1/19 ...................................................... 1,000,000 1,000,000
SP1+ Missouri HEFA, School District, Advance Funding Notes, Series 1996 C,
Kansas City School District, 4.5%, 9/8/97 ......................... 1,000,000 1,003,959
P1 St. Louis Industrial Development Authority, Kirkwood Project, Series
1985, VRDN, 4.125%, 12/1/15 ....................................... 1,000,000 1,000,000
-----------
TOTAL MISSOURI ................................................ 4,103,959
-----------
NEBRASKA
P1 Nebraska Public Power District (all Districts), TECP, Series 1996,
3.5%, 1/28/97 ..................................................... 5,000,000 5,000,000
A1+ Omaha Public Power District, TECP, 3.6%, 1/28/97 ..................... 1,300,000 1,300,000
-----------
TOTAL NEBRASKA ................................................ 6,300,000
-----------
NEW HAMPSHIRE
A1+ New Hampshire Business Finance Authority, Connecticut Light & Power,
VRDN, 4.15%, 12/1/22 .............................................. 2,000,000 2,000,000
-----------
NEW JERSEY
A1+ New Jersey State Turnpike Authority, Series D, VRDN, 3.75%, 1/1/18 ... 1,900,000 1,900,000
-----------
NEW MEXICO
SS&C Belen Industrial Revenue Refunding Bond, United Desiccants Project,
VRDN, 4.3%, 4/1/00 ................................................ 1,000,000 1,000,000
P1 Farmington, Pollution Control Revenue, Arizona Public Service Co.,
Series 1994B, VRDN, 5%, 9/1/24 .................................... 1,300,000 1,300,000
-----------
TOTAL NEW MEXICO .............................................. 2,300,000
-----------
NEW YORK
MIG1 New York City Municipal Water Finance Authority, Series 1994G,
FGIC insured, VRDN, 5%, 6/15/24 ................................... 1,000,000 1,000,000
MIG1 New York City, Municipal Water Finance Authority, Series C, VRDN,
FGIC Insured, 5%, 6/15/23 ......................................... 1,000,000 1,000,000
MIG1 New York City, TAN, Series 1996A, 4.5%, 2/12/97 ...................... 1,875,000 1,876,888
P1 State of New York, TECP, Series Q, 3.55%, 1/14/97 .................... 2,500,000 2,500,000
-----------
TOTAL NEW YORK ................................................ 6,376,888
-----------
</TABLE>

See notes to financial statements.

9
<PAGE>

MANAGED TAX-FREE FUND (CONTINUED)

<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATING* AMOUNT (NOTE 2a)
- ------ --------- ---------
<S> <C> <C>
NORTH CAROLINA
A1+ North Carolina Municipal Power Agency #1, Catawaba Project, TECP,
Series 1996A, 3.55%, 2/20/97 ...................................... $ 2,000,000 $ 2,000,000
-----------
OHIO
MIG1 Cuyahoga County, Health & Education, University Hospital of
Cleveland, VRDN, 5%, 1/1/16 ....................................... 1,100,000 1,100,000
-----------
PENNSYLVANIA
MIG1 Delaware Valley, Finance Authority, Series 1985A, VRDN, 4.15%,
12/1/20 .......................................................... 1,600,000 1,600,000
SS&C Elk County, Industrial Development Authority, VRDN, 3.795%, 3/1/04 ... 750,000 750,000
A1+ Emmaus, General Authority, Local Government Revenue Pool
Program, Series 1989 G, VRDN, 4.15%, 3/1/24 ....................... 1,300,000 1,300,000
A1 Emmaus, General Authority, Local Government Revenue Pool Program,
1989 Series G-5, VRDN, 4.2%, 3/1/24 .............................. 2,000,000 2,000,000
A1+ Emmaus, General Authority, Local Government Revenue Pool Program,
1989 Series G-6, VRDN, 4.15%, 3/1/24 ............................. 1,900,000 1,900,000
MIG1 Philadelphia, TRAN, GO, 4.5%, 6/30/97 ................................ 1,000,000 1,002,606
SP1 Philadelphia, School District, TRAN, Series 1996-1997,
4.5%, 6/30/97 ..................................................... 3,000,000 3,007,122
-----------
TOTAL PENNSYLVANIA ............................................ 11,559,728
-----------
PUERTO RICO
MIG1 Puerto Rico Commonwealth, TRAN, Series 1996, 4%, 7/30/97 ............. 1,500,000 1,504,830
-----------
RHODE ISLAND
MIG1 Rhode Island State, TAN, 4.5%, 6/30/97 ............................... 3,000,000 3,015,369
-----------
TENNESSEE
MIG1 Clarksville, Public Building Authority, Pooled Financing, Series 1990,
VRDN, MBIA Insured, 4%, 7/1/13 .................................... 1,900,000 1,900,000
MIG1 Franklin, Industrial Development Revenue, Franklin Oaks Apartments,
VRDN, 4.25%, 12/1/07 .............................................. 2,000,000 2,000,000
-----------
TOTAL TENNESSEE ............................................... 3,900,000
-----------
TEXAS
MIG1 Harris County, TAN, Series 1996, 4.5%, 2/28/97 ....................... 1,000,000 1,001,149
A1+ Harris County, Toll Roads, Series 1994G, VRDN, 4%, 8/1/20 ............ 2,500,000 2,500,000
MIG1 Lone Star, Airport Improvement Authority, Series A5, VRDN, 4.95%,
12/1/14 ........................................................... 1,300,000 1,300,000
MIG1 Lone Star, Airport Improvement Authority, Series B2, VRDN,
4.95%, 12/1/14 .................................................... 1,600,000 1,600,000
MIG1 Lone Star, Airport Improvement Authority, Series 1984 B1, VRDN,
4.95%, 12/1/14 .................................................... 1,000,000 1,000,000
SS&C Montgomery Industrial Development Authority, Medical Manufacturing
Partners Project, Series 1987, VRDN, 4.1%, 8/1/17 ................. 3,640,000 3,640,000
MIG1 North Central Texas Health Facilities Development Corp., Presbyterian
Medical Center, VRDN, Series 1985 C, 4.95%, 12/1/15 ............... 1,900,000 1,900,000
A1+ San Antonio, Electric & Gas City Public Services, TECP, Series 1995A,
3.55%, 2/13/97 .................................................... 1,000,000 1,000,000
</TABLE>

See notes to financial statements.

10
<PAGE>

<TABLE>
<CAPTION>
CREDIT PRINCIPAL VALUE
RATING* AMOUNT (NOTE 2a)
- ------ --------- ---------
<S> <C> <C>

A1+ San Antonio, Water System Revenue, TECP, Series 1995, 3.6%, 2/7/97 ... $ 1,500,000 $ 1,500,000
SP1+ State of Texas TRAN, Series 1996, 4.75%, 8/29/97 ..................... 4,000,000 4,030,082
MIG1 Texas Association of School Boards, Certificates of Participation TAN,
Series 1996 FSA Insured, 4.75%, 8/29/97 ........................... 1,000,000 1,005,202
-----------
TOTAL TEXAS ................................................... 20,476,433
-----------
VERMONT
SS&C Vermont Industrial Development, Vermont Marble Company, Series 1984,
VRDN, 3.795%, 12/1/04 ............................................. 3,575,000 3,575,000
MIG1 Vermont Student Assistance Corporation, VRDN, 3.65%, 1/1/04 .......... 2,500,000 2,500,000
-----------
TOTAL VERMONT ................................................. 6,075,000
-----------
VIRGINIA
MIG1 Henrico County, Industrial Development Authority Revenue, Health
Facility Hermitage Project, VRDN, 5.1%, 5/1/24 .................... 400,000 400,000
A1+ Peninsula Port Authority, Coal Terminal Revenue, Dominio Terminal
Project, VRDN, 4.85%, 7/1/16 ...................................... 1,600,000 1,600,000
SS&C Peninsula Port Authority, Shell Oil, VRDN, 5%, 12/1/05 ............... 1,800,000 1,800,000
MIG1 Town of Louisa, Pollution Control Revenue, Virginia Electric
Power Company 1987 TECP, 3.8%, 1/14/97 ............................ 1,000,000 1,000,000
-----------
TOTAL VIRGINIA ................................................ 4,800,000
-----------
WASHINGTON
A1+ Washington Health Care Facilities Authority, Sisters of Providence, VRDN,
Series 1985 B, 5%, 10/1/05 ........................................ 1,590,000 1,590,000
A1+ Washington Public Power Supply Authority, Projects #1 & #3, Series 1993
A-3, VRDN, 3.95%, 7/1/18 ......................................... 1,895,000 1,895,000
-----------
TOTAL WASHINGTON .............................................. 3,485,000
-----------
TOTAL INVESTMENT PORTFOLIO -- 100.7% (cost $166,674,031) ............. 166,674,031
-----------
OTHER ASSETS AND LIABILITIES -- (0.7)%
Cash .......................................................................................... 74,550
Receivable for Investments sold ............................................................... 200,000
Receivable for capital stock sold ............................................................. 10,612
Interest receivable and other assets .......................................................... 1,137,650
Dividend payable .............................................................................. (379,040)
Payable for investments purchased ............................................................. (2,053,095)
Payable for capital stock redeemed ............................................................ (11,000)
Management fee payable (note 4) ............................................................... (51,144)
Accrued expenses (note 4) ..................................................................... (149,175)
-----------
(1,220,642)
-----------
</TABLE>

See notes to financial statements.

11
<PAGE>

MANAGED TAX-FREE FUND (CONTINUED)

<TABLE>
<CAPTION>
CREDIT VALUE
RATING* (NOTE 2a)
- ------ ---------
<S> <C>
NET ASSETS -- 100.0%
Applicable to 165,453,389 shares of $.001 par value Capital Stock outstanding;
1,000,000,000 shares authorized (note 7) ...................................................... $165,453,389
============
NET ASSET VALUE PER SHARE ..................................................................... $1.00
=====
</TABLE>

** Cost for federal income tax purposes.

* CREDIT RATINGS (UNAUDITED) SHOWN ARE EITHER BY MOODY'S INVESTORS SERVICE,
INC., STANDARD & POOR'S CORPORATION OR SCUDDER, STEVENS & CLARK

MOODY'S STANDARD &
POOR'S

P1 A1/A1+ Commercial paper of the highest quality.

MIG1 SP1/SP1+ Short-term tax-exempt instrument of the best quality
with strong protection.

VMIG1 Short-term tax-exempt variable rate demand instrument of
the best quality with strong protection.

ABBREVIATIONS USED IN THE STATEMENT:

TECP Tax Exempt Commercial Paper VRDN Variable Rate Demand Note
GO General Obligation RAN Revenue Anticipation Note
TAN Tax Anticipation Note TRAN Tax Revenue Anticipation Note

SS&C These securities are not rated by either Moody's or
Standard & Poor's. Scudder has determined that these
securities are of comparable quality to rated acceptable
notes on a cash flow basis and are of appropriate credit
for the standards required by the Fund's investment
objective.

See notes to financial statements.

12
<PAGE>

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
MANAGED
GOVERNMENT MANAGED MANAGED
SECURITIES CASH TAX-FREE
FUND FUND FUND
---------- ------- --------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $ 3,767,953 $ 20,334,389 $ 5,235,778
------------ ------------ -----------
EXPENSES (note 2c):
Management fee (note 4) 281,243 1,502,570 587,278
Shareholder services (notes 4, 5 and 6) 164,973 627,468 331,052
Directors' fees and expenses (note 4) 9,174 12,877 12,742
Custodian and accounting fees (note 4) 49,201 98,383 74,340
Professional services 6,196 39,394 20,298
Reports to shareholders 3,480 17,828 6,467
Registration fees 13,934 23,652 15,441
Miscellaneous 9,779 18,533 11,496
------------ ------------ -----------
Total expenses before reductions 537,980 2,340,705 1,059,114
Expense reductions (note 4) (150,102) (274,989) --
------------ ------------ -----------
Expenses, net 387,878 2,065,716 1,059,114
------------ ------------ -----------
NET INVESTMENT INCOME AND INCREASE IN NET
ASSETS FROM OPERATIONS $ 3,380,075 $ 18,268,673 $ 4,176,664
============ ============ ===========
</TABLE>

See notes to financial statements.

13
<PAGE>

STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,

MANAGED GOVERNMENT
SECURITIES FUND
-------------------------------
1996 1995
------------- -------------
INCREASE (DECREASE) IN NET ASSETS:

OPERATIONS:
Net investment income and increase
in net assets from operations ........ $ 3,380,075 $ 3,681,354
Dividends (notes 2b and 2d) ............. (3,380,075) (3,681,354)
------------- -------------
-- --
------------- -------------
CAPITAL STOCK TRANSACTIONS (note 7):
Proceeds from sale of shares ............ 475,466,734 229,035,361
Net asset value of shares issued in
reinvestment of dividends ............ 2,288,409 2,961,712
------------- -------------
477,755,143 231,997,073
Cost of shares redeemed ................. (499,812,580) (250,578,326)
------------- -------------
Increase (decrease) in net assets
from capital stock transactions ...... (22,057,437) (18,581,253)
------------- -------------
Total increase (decrease) in net assets .... (22,057,437) (18,581,253)

NET ASSETS:
Beginning of year .......................... 49,975,724 68,556,977
------------- -------------
End of year ................................ $ 27,918,287 $ 49,975,724
============= =============

See notes to financial statements.

14
<PAGE>

<TABLE>
<CAPTION>
MANAGED CASH FUND MANAGED CASH FUND
----------------------------------- ----------------------------------
1996 1995 1996 1995
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:

OPERATIONS:
Net investment income and increase
in net assets from operations ........ $ 18,268,673 $ 20,682,893 $ 4,176,664 $ 4,313,224
Dividends (notes 2b and 2d) ............. (18,268,673) (20,682,893) (4,176,664) (4,313,224)
---------------- --------------- --------------- ---------------
-- -- -- --
---------------- --------------- --------------- ---------------
CAPITAL STOCK TRANSACTIONS (note 7):
Proceeds from sale of shares ............ 2,285,419,535 2,168,020,988 605,388,558 561,389,929
Net asset value of shares issued in
reinvestment of dividends ............ 10,791,498 11,385,987 2,369,718 2,171,918
---------------- --------------- --------------- ---------------
2,296,211,033 2,179,406,975 607,758,276 563,561,847
Cost of shares redeemed ................. (2,236,431,853) (2,174,994,810) (580,696,936) (549,766,530)
---------------- --------------- --------------- ---------------
Increase (decrease) in net assets
from capital stock transactions ...... 59,779,180 4,412,165 27,061,340 13,795,317
---------------- --------------- --------------- ---------------
Total increase (decrease) in net assets .... 59,779,180 4,412,165 27,061,340 13,795,317

NET ASSETS:
Beginning of year .......................... 371,519,095 367,106,930 138,392,049 124,596,732
---------------- --------------- --------------- ---------------
End of year ................................ $ 431,298,275 $ 371,519,095 $ 165,453,389 $ 138,392,049
================ =============== =============== ===============
</TABLE>

See notes to financial statements.

15
<PAGE>

FINANCIAL HIGHLIGHTS

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.

<TABLE>
<CAPTION>
RATIO OF RATIO OF NET
OPERATING INVESTMENT
NET ASSET NET ASSET EXPENSES INCOME NET ASSETS
VALUE, AT NET VALUE,AT TO AVERAGE TO AVERAGE END OF
BEGINNING INVESTMENT DIVIDENDS END TOTAL DAILY DAILY PERIOD
PERIOD OF PERIOD INCOME PAID OF PERIOD RETURN NET ASSETS(a) NET ASSETS (MILLIONS)
- ---------------------- --------- ---------- --------- --------- ------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MANAGED GOVERNMENT
SECURITIES FUND
Year ended 12/31/96 ........ $ 1.00 $ .048 $ (.048) $ 1.00 4.91%* 0.55% 4.81% $28
Year ended 12/31/95 ........ 1.00 .054 (.054) 1.00 5.49* 0.55 5.36 50
Year ended 12/31/94 ........ 1.00 .037 (.037) 1.00 3.75* 0.55 3.61 69
Year ended 12/31/93 ........ 1.00 .026 (.026) 1.00 2.68* 0.55 2.65 92
Year ended 12/31/92 ........ 1.00 .035 (.035) 1.00 3.51* 0.55 3.39 151
MANAGED CASH FUND
Year ended 12/31/96 ........ 1.00 .049 (.049) 1.00 4.97* 0.55 4.86 431
Year ended 12/31/95 ........ 1.00 .054 (.054) 1.00 5.57* 0.55 5.45 372
Year ended 12/31/94 ........ 1.00 .038 (.038) 1.00 3.86* 0.55 3.84 367
Year ended 12/31/93 ........ 1.00 .028 (.028) 1.00 2.81* 0.55 2.78 324
Year ended 12/31/92 ........ 1.00 .037 (.037) 1.00 3.74* 0.55 3.76 305
MANAGED TAX-FREE FUND
Year ended 12/31/96 ........ 1.00 .028 (.028) 1.00 2.88 0.72 2.84 165
Year ended 12/31/95 ........ 1.00 .032 (.032) 1.00 3.30 0.79 3.25 138
Year ended 12/31/94 ........ 1.00 .023 (.023) 1.00 2.29 0.77 2.26 125
Year ended 12/31/93 ........ 1.00 .018 (.018) 1.00 1.85 0.78 1.83 107
Year ended 12/31/92 ........ 1.00 .025 (.025) 1.00 2.56 0.77 2.54 91
</TABLE>

(a) The annualized operating expense ratio including expenses reimbursed,
management fee and other expenses not imposed would have been, for the
Managed Government Securities Fund, and Managed Cash Fund, 0.77%, and 0.62%,
for the year ended December 31, 1996, respectively; 0.86%, and 0.68%, for
the year ended December 31, 1995, respectively; 0.84%, and 0.68%, for the
year ended December 31, 1994, respectively; 0.77%, and 0.66%, for the year
ended December 31, 1993, respectively; 0.76%, and 0.64%, for the year ended
December 31, 1992, respectively.

* Total returns are higher, for the periods indicated, due to the maintenance
of the Fund's expenses.

16
<PAGE>

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

Scudder Fund, Inc. (the "Company") is an open-end diversified management
investment company which currently includes three active money market investment
portfolios: Managed Government Securities Fund, Managed Cash Fund, and Managed
Tax-Free Fund (collectively, the "Funds"). The Managed Federal Securities Fund
ceased operations on November 29, 1996.

2. SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies followed by the Company are:

(a) Security Valuation -- Each of the Funds values its investments using
the amortized cost method, which involves initially valuing an investment at its
cost and thereafter assuming a constant amortization to maturity of any premium
or discount. This method results in a value approximating market.

(b) Federal Income Taxes -- The Company's policy is to qualify each Fund
as a regulated investment company under Subchapter M of the Internal Revenue
Code and to distribute all taxable and tax-exempt income, including any realized
net capital gains, to shareholders. Therefore, no Federal income tax provision
is required.

(c) Allocation of Expenses -- Expenses not directly chargeable to a
specific Fund are allocated primarily on the basis of relative net assets of the
Company.

(d) Dividends -- Dividends from net investment income are declared each
business day to shareholders of record that day for payment on the first
business day of the following month.

(e) Other -- Investment transactions are recorded on trade dates. Interest
income, including the accretion or amortization of discount or premium, is
recorded on the accrual basis. Discounts or premiums on securities purchased are
accreted or amortized, respectively, on a straight line basis over the life of
the respective securities. Distributions to shareholders are recorded on the
ex-dividend dates.

3. REPURCHASE AGREEMENTS

It is the Company's policy to obtain possession, through its custodian, of
the securities underlying each repurchase agreement to which it is a party,
either through physical delivery or book entry transfer in the Federal Reserve
System or Participants Trust Company. Payment by the Company in respect of a
repurchase agreement is authorized only when proper delivery of the underlying
securities is made to the Company's custodian. The Company's investment manager
values such underlying securities each business day using quotations obtained
from a reputable, independent source. If the Company's investment manager
determines that the value of such underlying securities (including accrued
interest thereon) does not at least equal the value of each repurchase agreement
(including accrued interest thereon) to which such securities are subject, it
will ask for additional securities to be delivered to the Company's custodian.
In connection with each repurchase agreement transaction, if the seller defaults
and the value of the collateral declines or if the seller enters an insolvency
proceeding, realization of the collateral by the Company may be delayed or
limited.

4. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES

The Company retains Scudder, Stevens & Clark, Inc. ("Scudder") as
investment manager for the Funds, pursuant to investment advisory agreements
between Scudder and the Company on behalf of each such Fund, for a management
fee payable each month, based upon the average daily value of each Fund's net
assets, at annual rates of 0.40% on the first $1.5 billion and 0.35% on any
amount in excess thereof. Scudder has agreed not to impose a portion of its
management fee until December 31, 1996, to the extent necessary so that expenses
of each of the Managed Government Securities Fund and the Managed Cash Fund do
not exceed 0.55%, of the average daily net assets of each Fund.

For the year ended December 31, 1996, Scudder did not impose fees
amounting to $150,102 and $274,989 on the Managed Government Securities Fund and
the Managed Cash Fund, respectively.

17
<PAGE>

NOTES TO FINANCIAL STATEMENTS (continued)

Scudder Service Corporation ("SSC"), a subsidiary of Scudder, is the
Company's shareholder service, transfer and dividend disbursing agent. For the
year ended December 31, 1996, the amount charged to the Company by SSC
aggregated $23,477 for the Managed Government Securities Fund, $66,490 for the
Managed Cash Fund, and $23,477 for the Managed Tax-Free Fund, of which $2,292,
$5,556, and $2,292 respectively, remain unpaid at December 31, 1996.

Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of Scudder, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records for the Funds. For the year ended
December 31, 1996, the amount charged to the Funds by SFAC aggregated $30,000
for the Managed Government Securities Fund, $48,900 for the Managed Cash Fund,
and $39,965 for the Managed Tax-Free Fund, of which $2,500, $4,177, and $3,306,
respectively, remain unpaid at December 31, 1996.

The Company has a compensation arrangement under which payment of
directors' fees may be deferred. Interest is accrued (based on the rate of
return earned on the 90 day Treasury Bill as determined at the beginning of each
calendar quarter) on the deferred balances and is included in "Directors' fees
and expenses." The accumulated balance of deferred directors' fees and interest
thereon relating to the Funds constituting the Company aggregated $205,224, an
applicable portion of which is included in accrued expenses of each such Fund.

5. SHAREHOLDER SERVICES

Each of the Funds has special arrangements with certain banks,
institutions and other persons under which they receive compensation from the
Funds and Scudder for performing shareholder servicing functions for their
customers who own shares in the Funds from time to time. For the year ended
December 31, 1996, payments by the Funds pursuant to these arrangements
aggregated $135,832 for the Managed Government Securities Fund, $536,533 for the
Managed Cash Fund and $301,843 for the Managed Tax-Free Fund.

6. SHAREHOLDER SERVICE, ADMINISTRATION AND DISTRIBUTION PLAN

The Company has a Shareholder Service, Administration and Distribution
Plan adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940
under which participating organizations which enter into agreements with the
Company and Scudder may receive a fee of up to 0.25% on an annual basis from
each Fund of the Company and Scudder. Such fee is calculated on the average
daily net assets of the Company for which such participating organizations are
responsible. No payments have been made by the Company for shareholder service,
administration and distribution assistance under this plan other than as
indicated in Note 5 above.

7. CAPITAL STOCK

At December 31, 1996, the Company had 10,000,000,000 shares of $.001 par
value capital stock authorized, of which 3,000,000,000 shares each have been
designated for the Managed Government Securities Fund and Managed Cash Fund and
1,000,000,000 shares have been designated for the Managed Tax-Free Fund. Net
paid in capital in excess of par value was $27,890,369, for the Managed
Government Securities Fund, $430,866,977 for the Managed Cash Fund and
$165,287,936 for the Managed Tax-Free Fund.

18
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
SCUDDER FUND, INC.

In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Managed Government Securities Fund, Managed Cash Fund and Managed Tax-Free Fund
(each a separate portfolio of Scudder Fund, Inc., hereafter referred to as the
"Fund") at December 31, 1996, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the five
years in the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
when confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 19, 1997

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FEDERAL TAX STATUS OF 1996 DIVIDENDS (UNAUDITED)

The total amount of dividends declared in 1996 by each of the Government
Portfolio and Cash Portfolio of Scudder Fund, Inc. is taxable as ordinary
dividend income for Federal income tax purposes. None of this amount qualifies
for the dividends received deduction available to corporations.

All of the dividends from the Tax-Free Portfolio declared in 1996 are
exempt from Federal income tax. However, in accordance with the Internal Revenue
Code, you are required to report them on your 1996 Federal income tax return.

Although dividend income from the Tax-Free Portfolio is exempt from
Federal taxation, it may not be exempt from state or local taxation. You should
consult your tax advisor as to the state and local tax status of the dividends
you received.

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<PAGE>

Managed Government
Securities Fund

Managed Cash Fund

Managed Tax-Free Fund

345 Park Avenue, New York, New York 10154
(800) 854-8525

Investment Manager
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, New York 10154

Distributor
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110

Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110

Fund Accounting Agent
Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110

Transfer Agent and
Dividend Disbursing Agent
Scudder Service Corporation
P.O. Box 9242
Boston, Massachusetts 02205

Legal Counsel
Sullivan & Cromwell
New York, New York

-----------------

The Funds are neither insured nor guaranteed by the U.S. Government. Each Fund
intends to maintain a net asset value per share of $1.00 but there is no
assurance that it will be able to do so.

This report is for the information of the shareholders. Its use in connection
with any offering of the Company's shares is authorized only in case of a
concurrent or prior delivery of the Company's current prospectus.

MANAGED GOVERNMENT
SECURITIES FUND

MANAGED CASH FUND

MANAGED TAX-FREE FUND

ANNUAL REPORT

DECEMBER 31, 1996