Institutional Government Portfolio
Institutional Federal Portfolio
Institutional Cash Portfolio
Institutional Tax-Free Portfolio
345 Park Avenue, New York, New York 10154
(212) 326-6656
Scudder, Stevens & Clark, Inc._Investment Manager
Scudder Investor Services, Inc._Distributor
Institutional Government Portfolio, Institutional Federal Portfolio,
Institutional Cash Portfolio and Institutional Tax-Free Portfolio are the active
portfolios of Scudder Institutional Fund, Inc. (the "Fund"), a no-load,
open-end, diversified, management investment company designed to suit the needs
of institutions, corporations and fiduciaries.
Institutional Government Portfolio, Institutional Federal Portfolio,
Institutional Cash Portfolio, Institutional Tax-Free Portfolio and an inactive
portfolio, Institutional Prime Portfolio (collectively, the "Money Market
Portfolios") are money market funds that seek to provide investors with as high
a level of current income (which, in the case of the Tax-Free Portfolio, is
exempt from federal income taxes and, in the case of the Federal Portfolio,
cannot be subjected to state and local income taxes by reason of federal law) as
is consistent with their investment policies and with preservation of capital
and liquidity. The Money Market Portfolios are neither insured nor guaranteed by
the United States Government. Each of the Money Market Portfolios intends to
maintain a net asset value per share of $1.00 but there is no assurance that the
Portfolios will be able to do so.
Institutional Municipal Income Portfolio and Institutional Intermediate
Cash Portfolio, which are inactive portfolios, seek to provide investors with as
high a level of current income (which in the case of the Municipal Income
Portfolio is exempt from federal income taxes) as is consistent with
preservation of capital. Institutional Bond Index Portfolio is an inactive index
fund that seeks to provide investors with a total return that is comparable to
the total return produced by the Salomon Brothers Broad Investment-Grade Bond
Index.(SM)
The minimum aggregate investment in the Fund is $10 million, with a minimum
investment in any single Portfolio of $2 million. Additionally, each investor
must maintain the minimum aggregate investment of $10 million or be subject to
possible involuntary redemption by the Fund.
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This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional information
about each Portfolio has been filed with the Securities and Exchange Commission
in a Statement of Additional Information, dated May 1, 1994, which Statement of
Additional Information is incorporated herein by reference and can be obtained
without charge by writing or calling the Fund at the address and telephone
number printed above.
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Investors are advised to read this Prospectus and retain it for future
reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURI-
TIES 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 ADE-
QUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table 3
Summary 4
Financial Highlights 8
Investment Objectives and Policies 9
Additional Permitted Investment Activities 16
Investment Restrictions 19
Management 19
Determination of Net Asset Value 20
Purchase of Shares 21
Redemption of Shares 22
Dividends and Distributions 23
Taxes 24
Organization and Capital Stock 25
Custodian and Transfer and Dividend Disbursing Agent 25
Reports to Shareholders 26
Yield Information 26
</TABLE>
Fee Table
<TABLE>
<CAPTION>
Government Federal Cash Tax Free
Portfolio Portfolio* Portfolio Portfolio
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses None. None. None. None.
Annual Fund Operating Expenses
(as a percentage of average net
assets)
Management Fees $0.15% 0.15% 0.15% 0.15%
Other Expenses: 0.11% 0.68% 0.07% 0.14%
------ ------ ------ ------
Total Fund Operating 0.26% 0.83% 0.22% 0.29%
====== ====== ====== ======
Expenses
* The management fee shown above does not reflect the investment manager's
assumption of expenses and voluntary waiver of its management fee which reduced
Total Fund Operating Expenses to 0.23% for 1993. The Manager may continue to
waive all or a portion of its fee.
</TABLE>
<TABLE>
<CAPTION>
Example
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% gross annual return and
(2) redemption at the end of each time period:
<S> <C> <C> <C> <C>
1 year $3 $9 $2 $3
3 years 8 27 7 9
5 years 14 46 12 16
10 years 33 103 28 37
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES
WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the various
costs and expenses that an investor in a Portfolio will bear.
Summary
The Fund Scudder Institutional Fund, Inc. is a no-load, open-end,
diversified management investment company with eight separate
investment portfolios. A separate series of shares is offered
with respect to each portfolio. The Institutional Government
Port folio (the "Government Portfolio"), Institutional Federal
Portfolio (the "Federal Portfolio"), Institutional Cash
Portfolio (the "Cash Portfolio"), Institutional Tax-Free
Portfolio (the "Tax-Free Portfolio"), Institutional Prime
Portfolio (the "Prime Portfolio"), Institutional Municipal
Income Portfolio (the "Municipal Income Portfolio"),
Institutional Intermediate Cash Portfolio (the "Intermediate
Cash Portfolio") and Institutional Bond Index Portfolio (the
"Bond Index Portfolio") (collectively, the "Portfolios") are
the only existing portfolios of the Fund. The Prime Portfolio,
Municipal Income Portfolio, Intermediate Cash Portfolio and
Bond Index Portfolio are currently inactive Portfolios. The
Fund was incorporated in Maryland on January 2, 1986. See
"Organization and Capital Stock" and "Management".
Objectives and Each Portfolio, except for the Bond Index Portfolio, seeks to
Policies provide investors with as high a level of current income as is
consistent with its stated investment policies, preservation of
capital and, in the case of the Money Market Portfolios,
liquidity. Each of the Money Market Portfolios invests
exclusively in high quality investments with remaining
maturities of not more than 397 days.
The Government Portfolio invests exclusively in obligations
issued or guaranteed by the United States Government or its
agencies or instrumentalities that have remaining maturities of
not more than 397 days and certain repurchase agreements.
The Federal Portfolio invests exclusively in obligations issued
or guaranteed by the United States Government or its agencies
or instrumentalities of not more than 397 days and certain
repurchase agreements. The Federal Portfolio seeks to attain
the objective of as high a level of current income that cannot
be subjected to state or local income tax by reason of federal
law as is consistent with its other stated policies. The
Federal Portfolio may invest in certain repurchase agreements
when in the judgment of the investment manager this is
advisable for liquidity purposes, in order to enhance yield or
in other circumstances such as when appropriate securities are
not available.
The Cash Portfolio invests exclusively in obligations in which
the Government Portfolio and Prime Portfolio may invest,
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), certain repurchase agreements and municipal
obligations in which the Tax-Free Portfolio may invest (which
may or may not be exempt from federal income taxes).
The Tax-Free Portfolio invests exclusively in a broad range of
securities issued by or on behalf of states, cities,
municipalities and other public authorities ("municipal
obligations") of high-quality that are exempt from federal
income taxes and have remaining maturities of not more than 397
days, except for temporary defensive investments described
below.
The Prime Portfolio invests exclusively in obligations issued
or guaranteed by the 100 largest U.S. banks as determined on
the basis of assets (such banks in each case to have total
assets of at least $2 billion), high-quality commercial paper
and variable amount master demand notes, obligations in which
the Government Portfolio may invest and certain repurchase
agreements.
The Municipal Income Portfolio invests exclusively in a broad
range of investment-grade municipal obligations that are exempt
from federal income taxes and have dollar-weighted average
maturities of approximately eight to ten years, except for
temporary defensive investments described below.
The Intermediate Cash Portfolio invests exclusively in
obligations in which the Cash Portfolio may invest, except that
such obligations may have remaining maturities at the time of
purchase of five years or less. The Intermediate Cash Portfolio
also may invest in mortgage-related pass-through obligations
issued by the Government National Mortgage Association, Federal
National Mortgage Association and the Federal Home Loan
Mortgage Corporation ("pass-through obligations") that at the
time of purchase have remaining maturities of five years or
less. Under ordinary market conditions, it is expected that the
Portfolio will have a dollar-weighted average portfolio
maturity of three to five years.
The Bond Index Portfolio seeks to provide investors with
investment results that are comparable to the investment
results of the Salomon Brothers Broad Investment-Grade Bond
Index(SM) (the "Salomon Bond Index" or the "Index"), a
trademark of Salomon Brothers Inc by investing primarily in
certain debt obligations included in the Salomon Bond Index in
a manner designed to reflect generally the current composition
of the Index.
Inclusion of a security in the Salomon Bond Index in no way
implies an opinion by Salomon Brothers Inc as to its
attractiveness or appropriateness as an investment. Salomon
Brothers Inc is neither a sponsor of nor in any way affiliated
with the Fund. The Index comprises certain debt obligations
issued or guaranteed by the United States Government or its
agencies or instrumentalities, including debt obligations
issued by the International Bank for Reconstruction and
Development, certain debt obligations issued by domestic
corporations and certain debt obligations issued by the
Canadian Government and Canadian corporations that are
denominated in and pay interest in U.S. dollars having, in each
case, remaining maturities exceeding one year. The Bond Index
Portfolio also may invest in short-term money market
instruments in which the Cash Portfolio may invest and, in
addition, the Bond Index Portfolio may invest in pass-through
obligations in which the Intermediate Cash Portfolio may
invest.
The Bond Index Portfolio intends to invest substantially all of
the current value of its total assets in obligations included
in the Salomon Bond Index except during the start-up period of
the Portfolio, to meet redemptions, settlements and expenses or
where the Portfolio has adopted a defensive investment policy.
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Except as provided under "Investment Restrictions" in the
Statement of Additional Information, the Cash Portfolio, the
Prime Portfolio and the Intermediate Cash Portfolio may not
invest less than 25% of the current value of their total assets
in bank obligations (including bank obligations subject to
repurchase agreements). For temporary defensive purposes, each
of the Tax-Free Portfolio and the Municipal Income Portfolio
may invest up to 20% of its total net assets in certain taxable
short-term money market instruments, including U.S. Government
or agency obligations, obligations of certain U.S. banks,
commercial paper and repurchase agreements pertaining thereto.
Income from the Federal Portfolio, Tax-Free Portfolio and
Municipal Income Portfolio may not be exempt from certain state
and local taxes.
There is no assurance that any Portfolio will achieve its
investment objective. See "Investment Objectives and Policies".
Additional The Cash Portfolio, Intermediate Cash Portfolio and Bond Index
Investment Portfolio may invest in obligations of foreign banks, which
Activities involve somewhat different investment risks than those
affecting obligations of United States banks. In addition,
certain obligations in which each of the Portfolios may invest
may have a floating or variable rate of interest or may be
backed by bank letters of credit and each Portfolio may enter
into repurchase agreements with respect to obligations that
could otherwise be purchased by the Portfolio, and investments
in any of the Portfolios may be purchased on a when-issued
basis. In addition, the Municipal Income Portfolio may invest
in investment-grade municipal obligations that have speculative
characteristics. Each of these investments entails certain
risks. See "Additional Permitted Investment Activities".
Investment Scudder, Stevens & Clark, Inc. ("Scudder") is the investment
Manager manager of each of the Portfolios of the Fund. Scudder serves
as investment adviser to various individuals and institutions,
including many other investment companies. See "Management".
As compensation, Scudder receives fees at an annual rate of
0.15% of the average daily net assets of each of the Money
Market Portfolios and 0.20% of the average daily net assets of
each of the Municipal Income Portfolio, Intermediate Cash
Portfolio and Bond Index Portfolio.
Distributor Scudder Investor Services, Inc. (the "Distributor") serves as
the Fund's principal underwriter.
Purchases Shares of any of the Government Portfolio, Federal Portfolio,
Cash Portfolio and Tax-Free Portfolio (the "active Portfolios")
may be purchased at net asset value by writing or calling the
Transfer Agent (as defined below under "Purchase of Shares").
There is no sales charge. The minimum investment is $2 million
for any single Portfolio. In addition, there is a minimum
aggregate investment of $10 million in one or more Portfolios.
Subsequent investments may be made in any of the active
Portfolios in any amount. Shares of the Prime Portfolio,
Municipal Income Portfolio, Intermediate Cash Portfolio and
Bond Index Portfolio are not currently being offered for sale.
See "Purchase of Shares".
Each of the Money Market Portfolios values its portfolio
securities on the basis of amortized cost rather than at market
value. Thus, although the market value of the 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
of the Money Market Portfolios expects to maintain a constant
net asset value of $1.00 per share. There is no assurance,
however, that this can be achieved. The net asset value of each
of the Municipal Income Portfolio, Intermediate Cash Portfolio
and Bond Index Portfolio will fluctuate, as the market value of
their portfolio securities will vary inversely to changes in
prevailing interest rates. See "Determination of Net Asset
Value".
Redemptions Shareholders may redeem all or any part of their investments in
the Portfolios. Shares will be redeemed at their next
determined net asset value. See "Determination of Net Asset
Value". There is no redemption charge. Shareholders should
submit their redemption requests to the Transfer Agent (as
defined below under "Purchase of Shares"). The Fund 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 "Redemption of Shares".
Pricing The net asset value per share of each Portfolio is determined
by State Street Bank and Trust Company, the Fund's custodian
(the "Custodian"), on each day the New York Stock Exchange is
open for trading and on each additional day during which there
is a sufficient degree of trading in the securities of a
Portfolio that such Portfolio's net asset value might be
materially affected. The net asset value per share of each of
the Money Market Portfolios is determined at 2:00 P.M. (New
York time) and the net asset value per share of each of the
Municipal Income Portfolio, Intermediate Cash Portfolio and
Bond Index Portfolio is determined at 4:00 P.M. (New York
time). See "Determination of Net Asset Value".
Dividends Dividends on shares of each Portfolio 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 Portfolio are automatically paid in
additional shares of the same Portfolio unless shareholders
elect to receive payments in cash. See "Dividends and
Distributions". Income from the Federal Portfolio, Tax-Free
Portfolio and Municipal Income Portfolio may not be exempt from
certain state or local taxes. See "Taxes".
Financial Highlights
The following financial highlights have been audited by Price Waterhouse,
independent accountants. This information should be read in conjunction with the
Fund's financial statements and notes thereto that appear in the Statement of
Additional Information. The Fund's Annual Report for the year ended December 31,
1993 may be obtained without charge by writing or calling the Fund.
<TABLE>
<CAPTION>
Ratio of Ratio of
Operating Net
Net Asset Net Asset Expenses Investment Net Assets
Value, at Net Value, at to Average Income to End of
Beginning Investment Dividends End of Total Net Average Year
Period of Year Income Paid Year Return Assets* Net Assets (millions)
------ ------- ------ ------ ------ ------ ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Government Portfolio
Year ended 12/31/93 $1.00 $.030 $(.030) $1.00 3.01% 0.26% 2.97% $196
Year ended 12/31/92 1.00 .037 (.037) 1.00 3.74 0.24 3.69 247
Year ended 12/31/91 1.00 .057 (.057) 1.00 5.94 0.26 5.86 192
Year ended 12/31/90 1.00 .079 (.079) 1.00 8.19 0.31 7.89 174
Year ended 12/31/89 1.00 .090 (.090) 1.00 9.36 0.29 8.96 253
Year ended 12/31/88 1.00 .073 (.073) 1.00 7.58 0.28 7.35 161
Year ended 12/31/87 1.00 .065 (.065) 1.00 6.69 0.31 6.56 146
6/3/86** to 1.00 .036 (.036) 1.00 3.70 0.11+ 6.32+ 82
12/31/86
Federal Portfolio ++
Year ended 12/31/93 1.00 .027 (.027) 1.00 2.74 0.23 2.73 8
Year ended 12/31/92 1.00 .032 (.032) 1.00 3.23 0.32 3.13 9
Year ended 12/31/91 1.00 .054 (.054) 1.00 5.55 0.30 5.51 11
Year ended 12/31/90 1.00 .078 (.078) 1.00 8.04 0.33 7.79 25
Year ended 12/31/89 1.00 .088 (.088) 1.00 9.15 0.35 8.81 21
Year ended 12/31/88 1.00 .070 (.070) 1.00 7.22 0.32 6.92 22
Year ended 12/31/87 1.00 .062 (.062) 1.00 6.40 0.26 6.26 32
5/9/86** to 1.00 .040 (.040) 1.00 4.10 0.09+ 6.23+ 27
12/31/86
Cash Portfolio
Year ended 12/31/93 1.00 .031 (.031) 1.00 3.16 0.22 3.12 468
Year ended 12/31/92 1.00 .038 (.038) 1.00 3.88 0.25 3.66 662
Year ended 12/31/91 1.00 .059 (.059) 1.00 6.12 0.25 5.89 308
Year ended 12/31/90 1.00 .080 (.080) 1.00 8.27 0.32 8.02 152
Year ended 12/31/89 1.00 .089 (.089) 1.00 9.32 0.37 8.94 82
Year ended 12/31/88 1.00 .074 (.074) 1.00 7.60 0.33 7.43 61
Year ended 12/31/87 1.00 .065 (.065) 1.00 6.73 0.31 6.43 51
6/18/86** to 1.00 .034 (.034) 1.00 3.41 0.14+ 6.17+ 114
12/31/86
Tax-Free Portfolio
Year ended 12/31/93 $1.00 $.023 $(.023) $1.00 2.32% 0.29% 2.30% $125
Year ended 12/31/92 1.00 .029 (.029) 1.00 2.92 0.31 2.82 96
Year ended 12/31/91 1.00 .045 (.045) 1.00 4.65 0.36 4.55 75
Year ended 12/31/90 1.00 .058 (.058) 1.00 5.96 0.32 5.79 88
Year ended 12/31/89 1.00 .063 (.063) 1.00 6.45 0.30 6.25 155
Year ended 12/31/88 1.00 .051 (.051) 1.00 5.24 0.30 5.15 168
Year ended 12/31/87 1.00 .045 (.045) 1.00 4.56 0.30 4.46 103
5/12/86** to 1.00 .028 (.028) 1.00 2.80 0.27+ 4.21+ 134
12/31/86
</TABLE>
<TABLE>
<CAPTION>
Ratio of
Ratio of Net
Net Asset Operating Investment
Value, at Net Net Asset Expenses Income Net Assets
Beginning Investment Dividends Value, at to Average to Average End of Year
Period of Year Income Paid End of Year Net Assets* Net Assets (millions)
-------- -------- -------- -------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Prime Portfolio#
Year ended 12/31/90 1.00 .027 (.027) 1.00 0.34+ 7.99+ 1
Year ended 12/31/89 1.00 .090 (.090) 1.00 0.30 9.08 97,489
Year ended 12/31/88 1.00 .073 (.073) 1.00 0.31 7.33 114,024
Year ended 12/31/87 1.00 .065 (.065) 1.00 0.33 6.67 74,345
6/13/86** to 1.00 .034 (.034) 1.00 0.19+ 6.19+ 23,322
12/31/86
</TABLE>
* Had the investment manager not voluntarily waived all or a portion of the
management fee, and not reimbursed certain expenses, the annualized expense
ratios would have been: 0.41% for the Government Portfolio, 0.59% for the
Federal Portfolio, 0.34% for the Cash Portfolio, 0.37% for the Tax-Free
Portfolio and 0.52% for the Prime Portfolio for the period ended December
31, 1986; 0.36% for the Federal Portfolio, 0.31% for the Tax-Free Portfolio
and 0.41% for the Prime Portfolio for the year ended December 31, 1987;
0.40% for the Federal Portfolio and 0.36% for the Cash Portfolio for the
year ended December 31, 1988; 0.45% for the Federal Portfolio for the year
ended December 31, 1989; 0.48% for the Federal Portfolio and 0.35% for the
Prime Portfolio for the year ended December 31, 1990; 0.67% for the Federal
Portfolio for the year ended December 31, 1991; 0.69% for the Federal
Portfolio for the year ended December 31, 1992; and 0.83% for the Federal
Portfolio for the year ended December 31, 1993.
** Date commenced operations.
+ Annualized.
++ The Treasury Portfolio was renamed the Federal Portfolio pursuant to a
change in its investment objective effective May 1, 1990.
# Ceased operations on May 1, 1990.
Note: On January 1, 1989 Scudder, Stevens & Clark, Inc. replaced Lazard Freres &
Co. as the Fund's investment manager.
The Municipal Income Portfolio, the Intermediate Cash Portfolio and the
Bond Index Portfolio have not yet commenced operations and the Prime Portfolio
has terminated operations; accordingly, there are no financial highlights for
the Municipal Income Portfolio, the Intermediate Cash Portfolio and the Bond
Index Portfolio and there is no fee table data regarding any of these four
Portfolios. There are no current plans to commence or re-commence operations of
these Portfolios in the near future.
Investment Objectives and Policies
Set forth below is a description of the investment objective and policies
of each of the Portfolios. The Money Market Portfolios 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 policies and with
preservation of capital and liquidity, in the case of the Federal Portfolio
current income that cannot be subjected to state and local taxes by reason of
federal law, and in the case of the Tax-Free Portfolio current income that is
exempt from federal income taxes. The Municipal Income Portfolio and
Intermediate Cash Portfolio seek to provide investors with as high a level of
current income through investment in high-quality medium-term obligations as is
consistent with their investment policies and preservation of capital, and in
the case of the Municipal Income Portfolio current income that is exempt from
federal income taxes. The Bond Index Portfolio seeks to provide investors with a
total return, that is, price and yield performance, that is comparable to the
total return produced by the Salomon Bond Index. There can be no assurance that
any of the Portfolios will achieve its investment objective. The investment
objective of a Portfolio cannot be changed without the approval of the holders
of a majority of the Portfolio's outstanding shares, as defined in the
Investment Company Act of 1940 (the "1940 Act") and a rule thereunder.
Differences in the investment policies of the Portfolios with respect to
the maturity and quality of investments can be expected to affect the yield of
each Portfolio and the degree of market and financial risk to which each
Portfolio is subject. The Municipal Income Portfolio, Intermediate Cash
Portfolio and Bond Index Portfolio, which may invest in obligations with longer
maturities and, in the case of the Bond Index Portfolio, with lower ratings (see
"Bond Index Portfolio") than the Money Market Portfolios, generally can be
expected to produce higher yields while being subject to greater market
fluctuation and risk. Securities in which the Portfolios 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.
Except as provided under "Investment Restrictions" in the Statement of
Additional Information, the Prime Portfolio, Cash Portfolio and Intermediate
Cash Portfolio may not invest less than 25% of the current value of total assets
in bank obligations (including bank obligations subject to repurchase
agreements). Each of the Money Market Portfolios will maintain a dollar-weighted
average maturity of 90 days or less in an effort to maintain a net asset value
per share of $1.00 but there is no assurance that the Portfolios will be able to
do so.
Government Portfolio
The Government Portfolio invests exclusively in obligations issued or
guaranteed by the United States Government or its agencies or instrumentalities
that have remaining maturities of not more than 397 days and certain repurchase
agreements described below under "Additional Permitted Investment Activities".
Obligations of United States Government agencies and instrumentalities are
debt securities issued or guaranteed by United States Government sponsored
enterprises and federal agencies. Some of such obligations are supported by (a)
the full faith and credit of the United States Treasury (such as Government
National Mortgage Association participation certificates), (b) the limited
authority of the issuer to borrow from the United States Treasury (such as
securities of the Federal Home Loan Bank), (c) the authority of the United
States Government to purchase certain obligations of the issuer (such as
securities of the Federal National Mortgage Association) or (d) only the credit
of the issuer. In the case of obligations not backed by the full faith and
credit of the United States, the investor must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment, which agency may
be privately owned. The Government Portfolio will invest in obligations of
United States Government agencies and instrumentalities only when the investment
manager is satisfied that the credit risk with respect to the issuer is minimal.
Federal Portfolio
The Federal Portfolio seeks to attain the objective of as high a level of
current income that cannot be subjected to state or local income tax by reason
of federal law as is consistent with its other stated policies. To achieve this
objective, the Federal Portfolio invests exclusively in certain obligations in
which the Government Portfolio may invest, including securities issued by the
United States Treasury and by certain agencies or instrumentalities of the
United States Government such as the Federal Home Loan Bank, Federal Farm Credit
Banks Funding Corp. and the Student Loan Marketing Association, and in certain
repurchase agreements when in the judgment of the investment manager this is
advisable for liquidity purposes, in order to enhance yield or in other
circumstances such as when appropriate securities are not available.
Cash Portfolio
The Cash Portfolio invests exclusively in a broad range of short-term money
market instruments that have remaining maturities of not more than 397 days,
certain repurchase agreements described below under "Additional Permitted
Investment Activities" and municipal obligations in which the Tax-Free Portfolio
may invest, except that the Cash Portfolio may invest in municipal obligations
that are not exempt from federal income taxes. Those money market instruments
include those in which the Government Portfolio and the Prime Portfolio may
invest, and other corporate and bank obligations that are described below.
Bank Obligations. These obligations include negotiable certificates of
deposit, bankers' acceptances, fixed time deposits or other short-term bank
obligations. The Cash Portfolio 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. In addition, the Cash Portfolio 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 Cash Portfolio limits its investments in foreign bank
obligations to United States dollar-denominated obligations of foreign banks
(including United States branches) which banks (based upon their most recent
annual financial statements) at the time of investment (i) have more than $10
billion, or the equivalent in other currencies, in total assets; (ii) are among
the 100 largest banks in the world as determined on the basis of assets; and
(iii) have branches or agencies in the United States; and which obligations, in
the opinion of the investment manager, are of an investment quality comparable
to obligations of U.S. banks in which the Cash Portfolio 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 Cash Portfolio may not invest more
than 10% of the value of the total assets of the Portfolio in investments that
are not readily marketable including fixed time deposits subject to withdrawal
penalties maturing in more than seven calendar days. See "Investment
Restrictions" in the Statement of Additional Information.
Except for obligations of foreign banks and foreign branches of United
States banks, the Cash Portfolio will not invest in the securities of foreign
issuers. There is no limitation on the amount of the Cash Portfolio's assets
that may be invested in obligations of foreign banks that meet the conditions
set forth above.
Tax-Free Portfolio and Municipal Income Portfolio
To attain their respective objectives, under normal circumstances, the
Tax-Free Portfolio invests exclusively in high-quality municipal obligations
that are exempt from federal income taxes and have remaining maturities of not
more than 397 days and meet the rating standards described below. Under normal
circumstances, the Municipal Income Portfolio invests exclusively in
investment-grade municipal obligations that are exempt from federal income tax
and have dollar-weighted average maturities of between eight and ten years,
approximately. These two Portfolios may also invest in certain taxable
obligations on a temporary defensive basis, as described below.
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 bonds generally have a maturity at the time of
issuance of up to thirty years. The Tax-Free Portfolio's investments in
municipal bonds are limited to bonds that are rated at the date of purchase "Aa"
or better by Moody's Investors Service, Inc. ("Moody's") or "AA" or better by
Standard & Poor's Corporation ("S&P") or Fitch Investors Service, Inc.
("Fitch"). The Municipal Income Portfolio may invest in municipal bonds that are
rated at the date of purchase "Baa" or better by Moody's or "BBB" or better by
S&P or Fitch, or if not rated, of equivalent credit as determined by the
Directors. Such bonds may have speculative characteristics, and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds.
Municipal Notes. Municipal notes generally have maturities at the time of
issuance of three years or less. The Tax-Free Portfolio'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. The Municipal Income Portfolio may invest in all of the
foregoing and in municipal notes that are rated at the date of purchase "MIG 3"
(or "VMIG 3") by Moody's, "SP-2" by S&P or "F-2" by Fitch. Such notes are
generally issued in anticipation of the receipt of tax funds, of the proceeds of
bond placements, or of other revenues. An issuer's ability to make payments will
be dependent on such tax receipts, proceeds from sales of bonds or other
revenues, as the case may be.
See "Additional Permitted Investment Activities_Municipal Notes" in the
Statement of Additional Information.
Municipal Commercial Paper. Municipal commercial paper is a debt obligation
with a stated maturity of 270 days or less that is issued to finance seasonal
working capital needs or as short-term financing in anticipation of longer-term
debt. The Tax-Free Portfolio and the Municipal Income Portfolio 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.
Opinions relating to the exemption of interest on municipal obligations
from federal income tax are rendered by recognized bond counsel to the municipal
issuer.
If a municipal obligation is not rated, the Tax-Free Portfolio and
Municipal Income Portfolio each may purchase the obligation if, in the opinion
of the investment manager, it is of investment quality comparable to other rated
investments that are permitted in that Portfolio. From time to time the Tax-Free
Portfolio or Municipal Income Portfolio may invest 25% or more of the current
value of their respective 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 Tax-Free Portfolio and Municipal Income Portfolio each 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 investment manager, it is advisable to do so
because of market conditions, elect to invest temporarily up to 20% of the
current value of their respective total assets in cash reserves or taxable or
tax-exempt securities in which the Cash Portfolio may invest. Under ordinary
market conditions, the Tax-Free Portfolio 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 Tax-Free Portfolio.
The Municipal Income Portfolio ordinarily can be expected to produce a
higher yield than the Tax-Free Portfolio while being subject to greater market
fluctuation and financial risk.
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.
Prime Portfolio
The Prime Portfolio invests exclusively in certificates of deposit and
bankers' acceptances issued or guaranteed by the 100 largest U.S. banks as
determined on the basis of assets (each such bank to have total assets of at
least $2 billion), in high-quality commercial paper and variable amount master
demand notes, obligations in which the Government Portfolio may invest and
certain repurchase agreements described below. The obligations in which the
Prime Portfolio invests will have remaining maturities of not more than 397
days. As used in this Prospectus, "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.
Corporate Commercial Paper. The commercial paper purchased by the Prime
Portfolio 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, "A-1" or better by S&P or "F-1" by 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 investment manager in accordance with procedures
adopted by the Board of Directors.
Other Short-Term Corporate Obligations including Variable Amount Master
Demand Notes. The Prime Portfolio may invest in non-convertible corporate debt
securities such as notes, bonds and debentures that have remaining maturities of
not more than 397 days and 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 Prime Portfolio may
invest in a master demand note that, if not rated, is in the opinion of the
investment manager of an investment quality comparable to rated securities in
which the Prime Portfolio may invest. The Fund's investment manager monitors the
issuers of such master demand notes on a daily basis. Transfer of such notes is
usually restricted by the issuer, and there is no secondary trading market for
such notes. The Prime Portfolio may not invest in a master demand note if, as a
result, more than 10% of the value of the Portfolio's total net assets would be
invested in such notes.
Certificates of Deposit, Bankers' Acceptances and Other Obligations Issued
or Guaranteed by Banks in the United States. The Prime Portfolio may invest in
instruments such as negotiable certificates of deposit and bankers' acceptances
of U.S. banks each with total assets of at least $2 billion. Other obligations
may include certificates of deposit, commercial paper or promissory notes issued
by Canadian affiliates of U.S. banks each with total assets of at least $2
billion at the time of investment under circumstances where the U.S. bank
provides an unconditional guarantee of principal and interest.
A particular investment subject to more than one of the above standards
need satisfy only one of such standards.
Intermediate Cash Portfolio
The Intermediate Cash Portfolio invests in high-quality medium-term
corporate obligations, obligations issued by banks and obligations issued or
guaranteed by the United States Government or its agencies or instrumentalities
that have remaining maturities of five years or less. Under ordinary market
conditions, it is expected that the Portfolio will have a dollar-weighted
average portfolio maturity of three to five years.
The types of United States Government securities in which the Intermediate
Cash Portfolio may invest are the same as those in which the Government
Portfolio may invest except that remaining maturities may be five years or less.
The Intermediate Cash Portfolio also may invest in short-term money market
instruments in which the Cash Portfolio invests subject to the same limitations
as the Cash Portfolio and mortgage-related pass-through obligations which at the
time of purchase have remaining maturities of five years or less.
Pass-Through Obligations. A pass-through obligation is a security that
represents an ownership interest in a pool of mortgages and the resultant cash
flow from those mortgages. Payments by homeowners on the loans in the pool flow
through to certificate holders in amounts sufficient to repay principal and to
pay interest at the pass-through rate. The stated maturities of pass-through
obligations may be shortened by unscheduled prepayments of principal and
interest on the underlying mortgages. Therefore, it is not possible to predict
accurately the average maturity of a particular pass-through obligation.
Variations in the maturities of pass-through obligations will affect the
Portfolio'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 Portfolio's ability to maintain positions in high-yielding
pass-through obligations. In the case of pass-through obligations purchased at a
premium, such premiums may be lost as a result of a decrease in value of the
pass-through obligations due to such prepayments. The Intermediate Cash
Portfolio will invest only in pass-through obligations that are supported by the
full faith and credit of the United States Government (such as those issued by
the Government National Mortgage Association) or those that are guaranteed by an
agency of the United States Government (such as the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation). Such guarantees are
only for timely payment of principal and/or interest and do not protect against
declines in market value. The Intermediate Cash Portfolio will invest only in
pass-through obligations of United States Government agencies or
instrumentalities that meet the criteria as set forth for the Government
Portfolio. There is no limitation on the amount of the Intermediate Cash
Portfolio's assets that may be invested in pass-through obligations.
Bond Index Portfolio
The objective of the Bond Index Portfolio is to provide investors with a
total return (that is, price and yield performance) that is comparable to the
total return produced by the Salomon Brothers Broad Investment-Grade Bond
Index(SM) (the "Index"). Inclusion of a security in the Index in no way implies
an opinion by Salomon Brothers Inc. as to its attractiveness or appropriateness
as an investment. Salomon Brothers Inc. is neither a sponsor of nor in any way
affiliated with the Fund.
The Bond Index Portfolio invests substantially all of the current value of
its total net assets in certain debt obligations included in the Index in a
manner designed to reflect generally the current composition of the Index,
except in certain circumstances set forth below. The Bond Index Portfolio uses
the Index as the standard for performance comparison in that the Index is well
known to sophisticated investors and is accepted as representative of the
taxable investment-grade bond market. No attempt will be made to "manage" the
Portfolio in the traditional sense, using economic, financial and market
analysis, and portfolio turnover is expected to be lower than for most other
investment companies.
The Bond Index Portfolio's investments initially are expected to consist of
approximately 30 to 100 obligations from among the approximately 5,000 issues
included in the Index. As the asset size of the Bond Index Portfolio increases,
the investment manager may, but will not be required to, include more
obligations from the Index in the Bond Index Portfolio. The performance of the
Bond Index Portfolio cannot be expected to be the same as that of the Index.
Unlike the Index, the Bond Index Portfolio may be required to make investment
changes to accommodate cash flows into and out of the Portfolio as investors
purchase and redeem shares. In addition, the Bond Index Portfolio incurs fees
and expenses such as management, custodian and transfer agency fees not incurred
by the Index and, as described below, may invest a portion of its assets in
obligations that are not included in the Index.
Historical data on the Index commenced in January 1980, and, in the opinion
of the Fund's investment manager, is one of the most comprehensive indices of
fixed-income securities available today. It is comprised of all obligations
issued or guaranteed by the United States Government (except flower bonds) and
its agencies and instrumentalities including pass-through obligations and all
debt obligations issued by the International Bank for Reconstruction and
Development (the "World Bank") and other supranational issuers and by domestic
corporations and the Canadian Government and Canadian corporations that are
denominated in and pay interest in U.S. dollars ("U.S. Pay Canadians") with
remaining maturities of one year or longer and a minimum outstanding principal
amount of $50 million ($200 million for mortgages) or more ($25 million or more
in the case of obligations in the Index prior to January 1, 1988). In addition,
obligations of corporations must have a rating of "BBB-" or better by S&P, or
Baa 3 or better by Moody's, and the Index excludes floating rate and convertible
securities.
As of January 31, 1994, the Index consisted of approximately 5,000 issues
with an aggregate market value of approximately $4.3 trillion. The weighting of
securities in the Index is based on the relative total market value of each
issue included in the Index. As a result of that weighting, as of January 31,
1994, approximately 52% of the total market value of the Index was comprised of
obligations issued or guaranteed by the United States Government or its agencies
or instrumentalities, approximately 29% of the total market value of the Index
was comprised of pass-through securities and approximately 19% of the total
market value of the Index was comprised of corporate debt securities. The Index
contained securities as of January 31, 1994 with a weighted average coupon of
7.48% and a weighted average remaining maturity of 8.24 years.
Obligations included in the Index have been categorized into sectors that
have been organized on the basis of type of issuer and then further classified
by coupon rates and maturities. The percentage of the Bond Index Portfolio's
assets to be invested in a particular obligation included in the Index, when
aggregated with the percentage of the Bond Index Portfolio's assets invested in
(i) other obligations held by the Bond Index Portfolio and included in the same
sector of the Index and (ii) those "Alternative Investments" (as defined below)
held by the Bond Index Portfolio that are deemed by the investment manager to
qualify as substitute investments for the designated sector, will approximate,
to the maximum feasible extent, the percentage such sector represents in the
Index.
The Index is calculated on the last business day of each month and adjusted
on the first business day of the following month. If an obligation that is
included in the Index on the first day of the month ceases to meet any of the
qualifications for inclusion in the Index during that month, the obligation
remains in the Index through the end of that month and is then eliminated from
the Index. The investment manager will monitor on a daily basis that portion of
the Bond Index Portfolio's securities that is invested in Index securities to
determine whether any obligations have ceased to qualify for inclusion in the
Index. If an obligation has ceased to qualify as a result of a lowered
investment rating on an aggregate outstanding principal amount of less than the
minimum, the Bond Index Portfolio will undertake to sell such obligation as
quickly as is financially prudent, which may be prior to or later than the time
at which the obligation is removed from the Index. If an obligation has ceased
to qualify for inclusion in the Index because its remaining maturity no longer
exceeds one year, the Bond Index Portfolio either will sell such obligation or,
if such obligation otherwise qualifies as an Alternative Investment (as defined
below), continue to hold such obligation in that portion of its portfolio that
may be invested in Alternative Investments. In addition, if an obligation
becomes eligible for inclusion in the Index during a particular month, it is not
included in the Index until the next month. The Bond Index Portfolio, however,
may purchase such an obligation and treat it as an obligation included in the
Index once it becomes eligible even though it is not yet actually included in
the Index.
The Bond Index Portfolio may elect to invest in certain types of short-term
money market instruments that are not eligible for inclusion in the Index (the
"Alternative Investments"). The Portfolio will invest only in Alternative
Investments during its start-up period, for liquidity to meet redemptions,
settlements and expenses and when the Portfolio has adopted a defensive
investment policy. The Alternative Investments consist of all short-term money
market instruments in which the Intermediate Cash Portfolio may invest. See
"Investment Objectives and Policies_Intermediate Cash Portfolio". Assuming the
Index had been available, the investment results the Index would have produced
for the ten years ended December 31, 1993 are set forth below. Bond prices and
interest rates fluctuated widely during the period. The results shown should not
be considered representative of future investment performance of either the
Index or the Bond Index Portfolio. Moreover, prospective investors should
realize that, for the reasons discussed above, the performance of the Bond Index
Portfolio cannot be expected to be the same as that of the Index.
<TABLE>
<CAPTION>
Salomon Brothers Broad Investment-Grade Bond Index_1984-1993 Total Return
Treasury/
Government
Year Ended Sponsored Corporate
December 31 Index Sector Sector Mortgage Sector
------------ ------ ------ ------ ---------------
<S> <C> <C> <C> <C>
1984* + 14.99% + 14.45% + 16.07% + 15.76%
1985* + 22.26 + 20.41 + 24.99 + 25.68
1986* + 15.43 + 15.51 + 17.03 + 13.44
1987 + 2.60 + 2.14 + 2.07 + 4.06
1988 + 7.99 + 7.10 + 9.46 + 8.80
1989 + 14.43 + 14.24 + 13.96 + 15.16
1990 + 9.09 + 8.78 + 7.29 + 10.89
1991 + 15.98 + 15.36 + 18.48 + 15.65
1992 + 7.58 + 7.24 + 8.87 + 7.37
1993 + 9.92 + 10.75 + 12.12 + 7.04
cumulative 207.82% 196.47% 235.48% 217.15%
* Due to reclassification in 1987 of some securities in sectors of the Index,
prior years' percentages were restated to reflect such changes for purposes
of comparison.
NOTE: Table reprinted with the permission of Salomon Brothers Inc.
Securities included in the Index are valued for the purpose of determining
investment results on the basis of quotations supplied by Salomon Brothers Inc.
Total return assumes reinvestment of income on a monthly basis. Although the
information in this table has been obtained from sources which Salomon Brothers
Inc believes to be reliable, Salomon Brothers does not guarantee its accuracy.
</TABLE>
After purchase by the Cash Portfolio, Tax-Free Portfolio, Prime Portfolio,
Municipal Income Portfolio, Intermediate Cash Portfolio or Bond Index Portfolio,
a security may cease to be rated or its rating may be reduced below the minimum
required for purchase by that Portfolio. Neither event will require a sale of
such security by any of the Institutional Municipal Income Portfolio,
Institutional Intermediate Cash Portfolio and the Institutional Bond Portfolio.
Such events, however, would require any of the Money Market Portfolios holding
such security to dispose of such security as soon as practicable unless the
Board of Directors of the Fund determines that such disposition would not be in
the best interests of such Portfolio. To the extent the ratings given by
Moody's, S&P or Fitch may change as a result of changes in such organizations or
their ratings system, the Cash Portfolio, Tax-Free Portfolio, Prime Portfolio,
Municipal Income Portfolio, Intermediate Cash Portfolio and Bond Index Portfolio
will attempt to use comparable ratings as standards for investment in accordance
with the investment policies contained in this Prospectus and in the Statement
of Additional Information. The ratings of Moody's, S&P and Fitch are more fully
described under "Appendix" in the Statement of Additional Information.
Additional Permitted Investment Activities
Floating and Variable Rate Instruments. Certain of the obligations that
each of the Portfolios 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. The Money Market Portfolios may invest in floating and
variable rate obligations even if they carry stated maturities in excess of 397
days, if certain conditions contained in a rule of the Securities and Exchange
Commission are met, in which case the obligations will be treated as having
maturities of not more than 397 days. Each Portfolio will limit its purchase of
floating and variable rate obligations to those meeting the quality standards
set forth above for such Portfolio. The manager 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 Portfolio's right to
obtain payment at par on a demand instrument could be affected by events
occurring between the date the Portfolio 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 Portfolio's custodian subject
to a sub-custodian agreement approved by the Portfolio between that bank and the
Portfolio's custodian.
The floating and variable rate municipal obligations that the Tax-Free
Portfolio and Municipal Income Portfolio may purchase include certificates of
participation in such obligations purchased from banks. A certificate of
participation gives the Portfolio an undivided interest in the underlying
municipal obligations, usually private activity bonds, in the proportion that
such Portfolio'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 Tax-Free Portfolio 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 is met. The income received on certificates
of participation constitutes interest from tax-exempt obligations. It is
presently contemplated that neither Portfolio will invest more than 20% of its
total assets in these certificates.
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 Portfolio 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 Portfolio may enter into repurchase agreements
wherein the seller of a security to the Portfolio agrees to repurchase that
security from the Portfolio at a mutually agreed-upon time and price. Sellers of
repurchase agreements are banks that are issuers of eligible bank obligations
(see "Bank Obligations" under "Investment Objectives and Policies" above) and
dealers that meet guidelines established by the Board of Directors. The period
of maturity is usually quite short, often overnight or a few days, although it
may extend over a number of months. Each Portfolio may enter into repurchase
agreements only with respect to obligations that could otherwise be purchased by
the Portfolio. While the maturities of the underlying securities may be greater
than 12 months, the term of the repurchase agreement, in the case of the Money
Market Portfolios, is never more than 12 months. If the seller defaults and the
value of the underlying securities has declined, the Portfolio may incur a loss.
In addition, if bankruptcy proceedings are commenced with respect to the seller
of the security, the Portfolio's disposition of the security may be delayed or
limited.
A Portfolio may not enter into a repurchase agreement if, as a result, more
than 10% of the market value of that Portfolio's total net assets would be
invested in repurchase agreements with a maturity of more than seven days,
illiquid securities and securities for which current market quotations or bids
are not readily available.
Letters of Credit. Municipal obligations, including certificates of
participation, commercial paper and other short-term obligations may be backed
by an irrevocable letter of credit of a bank which assumes the obligation for
payment of principal and interest in the event of default by the issuer. Only
banks which, in the opinion of the investment manager, are of investment quality
comparable to other permitted investments of the Portfolios may be used for
letter of credit backed investments.
Foreign Bank Obligations. The Prime and Cash Portfolios 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 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 Fund 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 Cash Portfolio may invest in United States dollar-denominated
obligations of foreign banks. There is no limitation on the amount of the Cash
Portfolio'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 United States banks or Canadian affiliates of U.S. banks.
In addition, foreign banks are not subject to examination by any United States
Government agency or instrumentality.
Securities with Put Rights. The Portfolios may enter into put transactions
with respect to obligations held in their portfolios with broker-dealers
pursuant to a rule under the 1940 Act and with commercial banks.
The right of the Portfolios to exercise a put is unconditional and
unqualified. A put is not transferable by a Portfolio, although the Portfolio
may sell the underlying securities to a third party at any time. If necessary
and advisable, any Portfolio 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 Portfolios expect, however, that puts generally will be
available without the payment of any direct or indirect consideration.
The Portfolios may enter into puts only with banks or broker-dealers that,
in the opinion of the investment manager, present minimal credit risks. The
ability of the Portfolios 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 Portfolio might be unable
to recover all or a portion of any loss sustained from having to sell the
security elsewhere.
The Portfolios 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
Portfolio of the underlying security. The actual put will be valued at zero in
determining net asset value in the case of the Money Market Portfolios. Where a
Portfolio 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 Portfolio
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 Portfolio will not be considered shortened
by any put to which such obligation is subject.
Third Party Puts. The Portfolios may also purchase long-term fixed rate
bonds that have been coupled with an option granted by a third party financial
institution allowing a Portfolio at specified intervals (not exceeding 397
calendar days in the case of the Money Market Portfolios) 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 Portfolio receives a
short-term rate of interest (which is periodically reset), and the interest rate
differential between that rate and the fixed rate on the bond is retained by the
financial institution. The financial institution granting the option does not
provide credit enhancement, and in the event that there is a default in the
payment of principal or interest, or downgrading of a bond to below investment
grade, or a loss of the bond's tax-exempt status, the put option will terminate
automatically, the risk to a Portfolio will be that of holding such a long-term
bond and, in the case of the Money Market Portfolios, the dollar-weighted
average maturity of the Portfolio would be adversely affected.
When-Issued Securities. Each of the Portfolios 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 Portfolios 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 Portfolio will establish a segregated account in which it will
maintain liquid assets in an amount at least equal in value to that Portfolio's
commitments to purchase when-issued securities. If the value of these assets
declines, the Portfolio 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.
Portfolio Turnover. Because the portfolios of the Money Market Portfolios
consist of securities with relatively short-term maturities, each of those
Portfolios can expect to experience high portfolio turnover. A high portfolio
turnover rate should not adversely affect any of the Money Market Portfolios,
however, because portfolio transactions ordinarily will be made directly with
principals on a net basis and, consequently, the Fund usually will not incur
brokerage expenses. The portfolio turnover rates of the Municipal Income
Portfolio, Intermediate Cash Portfolio and Bond Index Portfolio are not expected
to exceed 100%. See "Portfolio Transactions" in the Statement of Additional
Information.
Investment Restrictions
The Portfolios may not issue senior securities, borrow money or pledge or
mortgage their assets, except that each Portfolio may borrow from banks up to
10% of the current value of that Portfolio's total net assets in order to meet
redemptions, and these borrowings may be secured by pledges of not more than 10%
of the Portfolio's total net assets (but investments may not be purchased by
such Portfolio while any such borrowing exists). Generally, the Cash Portfolio,
the Prime Portfolio and the Intermediate Cash Portfolio may not invest less than
25% of the current value of their total assets in bank obligations, including
bank obligations subject to repurchase agreements. The Portfolios are subject to
other investment restrictions that are described in the Statement of Additional
Information. These restrictions are fundamental policies and cannot be changed
without the approval of a majority of the outstanding shares of each individual
Portfolio. For a more complete description, see "Investment Restrictions" in the
Statement of Additional Information.
Management
The Board of Directors, under applicable laws of the State of Maryland, in
addition to supervising the actions of the Fund's Investment Manager and
Distributor, as set forth below, decides upon matters of general policy.
Pursuant to Investment Advisory Agreements (the "Agreements") with the Fund
on behalf of each of the active Portfolios, Scudder regularly provides each
Portfolio with investment research, advice and supervision and furnishes
continuously an investment program for each Portfolio consistent with its
investment objective and policies. The Agreements further provide that Scudder
will pay the compensation and certain expenses of all officers and certain
employees of the Fund and make available to each such Portfolio such of
Scudder's directors, officers and employees as are reasonably necessary for such
Portfolio's operations or as may be duly elected officers or directors of the
Fund. Under the Agreements, Scudder pays each Portfolio's office rent and will
provide investment advisory research and statistical facilities and all clerical
services relating to research, statistical and investment work. Scudder,
including the Scudder employees who serve the active Portfolios, may render
investment advice, management and other services to others.
The Portfolios will bear all expenses not specifically assumed by Scudder
under the terms of the Agreements, including, among others, the fee payable to
Scudder as manager, the fees of the Directors who are not "affiliated persons"
of Scudder, the expenses of all Directors and the fees and out-of-pocket
expenses of the Fund's Custodian and its Transfer and Dividend Disbursing Agent.
For a more complete description of the expenses to be borne by the Portfolios,
see "Manager and Distributor" in the Statement of Additional Information.
Scudder is one of the most experienced investment counsel firms in the
United States. Scudder was established in 1919 as a partnership and was
restructured as a Delaware corporation in 1985. The principal source of
Scudder's income is professional fees received from providing continuing
investment advice. Scudder's wholly-owned subsidiary, Scudder Investor Services,
Inc. (the "Distributor"), acts as principal underwriter for shares of registered
open-end investment companies, and Scudder Service Corporation, another
wholly-owned subsidiary, provides shareholder services, transfer and dividend
disbursing agent services to the Fund for customary fees. Scudder provides
investment counsel for many individuals and institutions, including insurance
companies, endowments, industrial corporations and financial and banking
organizations. As of December 31, 1993, Scudder and its affiliates had in excess
of $90 billion under their supervision, approximately two-thirds of which was
invested in fixed-income securities.
Under the Underwriting Agreement with the Fund, 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.
Each of the active Money Market Portfolios is charged a management fee at
an annual rate of 0.15% of its average daily net assets and each of the
Municipal Income Portfolio, Intermediate Cash Portfolio and Bond Index Portfolio
will be charged a management fee at an annual rate of 0.20% of its average daily
net assets. Management fees are computed daily and paid monthly.
Determination of Net Asset Value
Net asset value per share for each Portfolio is determined by the Custodian
on each day the New York Stock Exchange (the "NYSE") is open for trading and on
any other day during which there is a sufficient degree of trading in the
underlying portfolio securities of the Portfolio to affect materially the
Portfolio's net asset value. The net asset value per share of each of the Money
Market Portfolios is determined at 2:00 P.M. (New York time), and the net asset
value per share of each of the other Portfolios is determined at the close of
regular trading on the NYSE, which is currently 4:00 P.M. (New York time). The
net asset value per share of each Portfolio is computed by dividing the value of
the total assets of the Portfolio, less all liabilities, by the total number of
outstanding shares of the Portfolio.
Each Money Market Portfolio uses the amortized cost method to value its
portfolio securities and seeks to maintain a constant net asset value of $1.00
per share. The amortized cost method involves valuing a security at its cost and
accreting any discount and amortizing any premium over the period until
maturity, regardless of the impact of fluctuating interest rates on the market
value of the security. See the Statement of Additional Information for a more
complete description of the amortized cost method.
The value of securities of each of the Municipal Income Portfolio,
Intermediate Cash Portfolio and Bond Index Portfolio (other than debt securities
maturing in 60 days or less) is determined as of the close of regular trading on
the NYSE. Debt securities maturing in 60 days or less are valued at amortized
cost. With respect to the Municipal Income Portfolio and Intermediate Cash
Portfolio, their securities are valued utilizing primarily the latest bid prices
or, if bid prices are not available, on the basis of valuations based on a
matrix system, both as furnished by a reputable independent pricing service. The
value of securities selected from the Salomon Bond Index in the Bond Index
Portfolio will be based upon the closing bid price of each individual security,
which will be supplied by the investment dealer responsible for making a market
in that security. With respect to all Portfolios, all other securities and other
assets for which current market quotations are not readily available are valued
at fair value as determined in good faith by the Fund's Board of Directors and
in accordance with procedures adopted by the Board of Directors.
Because of the difference between the bid and asked prices of the
over-the-counter securities in which a Portfolio may invest, there may be an
immediate reduction in the net asset value of the shares of a Portfolio after
the Portfolio has completed a purchase of such securities, since they will be
valued at the bid price but usually purchased at or near the asked price.
Purchase of Shares
There is a $10 million minimum initial investment in the Fund, with a
minimum investment in any single Portfolio of $2 million. Subsequent investments
may be made in the active Portfolios in any amount. Shares of the Prime
Portfolio, Intermediate Cash Portfolio, Bond Index Portfolio and Municipal
Income Portfolio are not currently being offered. The Fund and the Distributor
reserve the right to reject any purchase order. All monies will be invested in
full and fractional shares. Investment minimums may be waived for Directors and
officers of the Fund and certain other affiliates.
Shares of the active Portfolios may be purchased by writing or calling
Scudder Service Corporation, the Fund's Transfer and Dividend Disbursing Agent
(the "Transfer Agent"). Orders for shares of a Portfolio will be executed at the
net asset value per share next determined after an order has become effective.
See "Determination of Net Asset Value". Orders will become effective when an
investor's bank wire order or check is converted into federal funds (monies
credited to the Custodian's account with its registered Federal Reserve Bank).
If payment is transmitted by the Federal Reserve Wire System, the order will
become effective upon receipt. Orders will be executed at 2:00 P.M. (New York
time) on the same day if a bank wire or check is converted to federal funds by
12:00 Noon (New York time) or a federal funds' wire is received by 12:00 Noon
(New York time). In addition, if investors notify the Fund by 2:00 P.M. (New
York time) that they intend to wire federal funds to purchase shares of any
active Portfolio on any business day and if monies are received in time to be
invested, orders will be executed at the net asset value per share determined at
2:00 P.M. (New York time) the same day. Wire transmissions may, however, be
subject to delays of several hours, in which event the effectiveness of the
order may be delayed. Payments transmitted by a bank wire other than the Federal
Reserve Wire System may take longer to be converted into federal funds.
By investing in a Portfolio, an investor appoints the Transfer Agent to
establish an open account to which all shares purchased will be credited with
any dividends and capital gain distributions that are paid in additional shares.
See "Dividends and Distributions". Certificates for full shares can be obtained
only on specific written request to the Transfer Agent. No certificates are
issued for fractional shares. It is more complicated to redeem shares held in
certificated form, and the Expedited Redemption Service described below is not
available with respect to those shares. See "Redemption of Shares".
Initial Purchase
1. Investors may open an account by calling toll free from any continental
state: 1-800-854-8525. Give the Portfolio(s) to be invested in, name(s) in which
shares are to be registered, address, tax 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.
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: Scudder Institutional Fund, Inc.
Account (name(s) in which to be registered)
Account Number(s) (as assigned by telephone) and amount invested in
each Portfolio
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 Service can be used. Mail the Purchase Application to:
Scudder Service Corporation
P.O. Box 2038
Boston, Massachusetts 02106
Additional Purchases
Instruct the wiring bank to transmit the specified amount to the Custodian
at the address and with the information stated above.
Redemption of Shares
Upon receipt by the Transfer Agent of a redemption request in proper form,
shares of any Portfolio will be redeemed at their next determined net asset
value. See "Determination of Net Asset Value". Shareholders should submit their
redemption requests to the Transfer Agent. Shares may be redeemed by using the
Expedited Redemption Service or, if such shares are held in certificated form,
by mail.
Redemption by Expedited Redemption Service
If shares are held in book credit form and the Expedited Redemption Service
has been elected on the Purchase Application on file with the Transfer Agent,
redemption of shares may be requested by telephoning the Transfer Agent on any
day the Fund and the Custodian are open for business.
Telephone the request to the Transfer Agent by calling 1-800-854-8525, toll
free from any continental state. Each Portfolio 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 Portfolio does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. Each Portfolio will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Proceeds of Expedited Redemptions will be wired to the shareholder's bank
indicated in the Purchase Application. If an Expedited Redemption request is
received by the Transfer Agent with respect to shares of the Money Market
Portfolios by 12:00 Noon (New York time) on a day the Fund and the Custodian are
open for business, the redemption proceeds will be transmitted to the
shareholder's bank that same day. If an Expedited Redemption request is received
by the Transfer Agent with respect to the Municipal Income Portfolio,
Intermediate Cash Portfolio and Bond Index Portfolio by 4:00 P.M. (New York
time) on a day the Fund and the Custodian are open for business, the redemption
proceeds will be transmitted to the shareholder's bank the next day the
Custodian is open for business. Such expedited redemption requests received
after 12:00 Noon and prior to 2:00 P.M. (New York time) will be honored the same
day if such redemption can be accomplished in time to meet the Federal Reserve
Wire System schedules.
Redemption of Certificated Shares
To redeem shares held in certificated form, the certificates should be
sent, together with a letter of instruction, to:
Scudder Service Corporation
P.O. Box 2038
Boston, Massachusetts 02106
The letter of instruction should be signed by the owner of record in
exactly the same way the account is registered, or, in the case of shares owned
by a corporation or fiduciary, by an authorized person(s). The signature(s) on
the letter of instruction must be guaranteed by a commercial bank that is a
member of the Federal Deposit Insurance Corporation, a trust company, a member
firm of a domestic stock exchange or a foreign branch of any of the foregoing.
In addition, signatures may be guaranteed by other Eligible Guarantor
Institutions, i.e. other banks, other brokers and dealers, municipal securities
brokers and dealers, government securities brokers and dealers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies and savings associations. The Transfer Agent, however, may reject
redemption instructions if the guarantor is neither a member of nor a
participant in a signature guarantee program (currently known as "STAMP(SM)").
Signature guarantees by notaries public are not acceptable. Further
documentation, such as copies of corporate resolutions and instruments of
authority, may be requested of corporations or fiduciaries to evidence the
authority of the entity or person making the redemption request. Certificates
for shares to be redeemed should not be signed and they should be sent by
registered mail for protection.
Checks for redemption proceeds will normally be mailed within seven days.
Unless other instructions are given in proper form, a check for the proceeds of
redemption will be sent to the shareholder's address of record. Upon request,
the proceeds of a redemption will be sent by federal funds wire or bank wire to
the shareholder's predesignated bank account.
The Fund reserves the right to redeem involuntarily upon not less than 30
days' notice all the shares in an investor's Portfolio accounts if the combined
holdings in those accounts aggregate less than $10 million. Any investor
affected by the exercise of the right will be allowed to make additional
investments prior to the date fixed for redemption to avoid liquidation of a
Portfolio account or accounts.
The Fund also reserves the right, following 30 days' notice, to redeem all
shares in accounts without a certified Social Security or taxpayer
identification number. A shareholder may avoid involuntary redemption by
providing the Fund with a taxpayer identification number during the 30-day
notice period.
Dividends and Distributions
The Fund intends to declare a dividend on the outstanding shares of each
Money Market Portfolio substantially all of such Portfolio's net investment
income at the close of each business day to shareholders of record at 2:00 P.M.
(New York time) on the day of declaration. Shares purchased will begin earning
dividends on the day the purchase order is executed and shares redeemed will
earn dividends through the previous day. Net investment income for a Saturday,
Sunday or holiday will be declared as a dividend on the previous business day to
shareholders of record at 2:00 P.M. (New York time) on that day.
The Fund intends to declare a dividend on the outstanding shares of each of
the Municipal Income Portfolio, Intermediate Cash Portfolio and Bond Index
Portfolio all of such Portfolio's net investment income at the close of each
business day to shareholders of record at 4:00 P.M. (New York time) on the
previous business day. Shares purchased will begin earning dividends on the day
after the purchase order is executed and shares redeemed will earn dividends
through the day of redemption. Net investment income for a Saturday, Sunday or
holiday will be declared as a dividend on the next business day to shareholders
of record at 4:00 P.M. (New York time) on the previous business day.
Investment income for a Portfolio 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, 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 Portfolio 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 Portfolio 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.
Taxes
The Fund has in the past qualified and intends to continue to qualify each
Portfolio as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986 (the "Code"). Each Portfolio will be treated as a separate
entity for tax purposes and thus the provisions of the Code applicable to
regulated investment companies generally will be applied to each Portfolio
separately, rather than to the Fund as a whole. In addition, net capital gains,
net investment income, and operating expenses will be determined separately for
each Portfolio. By complying with the applicable provisions of the Code, each
Portfolio 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 Portfolio (except each of the
Tax-Free Portfolio and the Municipal Income Portfolio to the extent of their
tax-exempt income) to the extent such Portfolio does not meet certain
distribution requirements by the end of each calendar year.
Dividends from net investment income (including net short-term capital
gains), 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 United States
Government and certain of its agencies and instrumentalities. For example,
shareholders of a regulated investment company will not be subject to New York
State or City personal income tax on the dividends paid by such a fund to the
extent attributable to interest on obligations of the United States Government
and certain of its agencies and instrumentalities, provided that at the close of
each quarter of the fund's taxable year at least 50% of the value of the total
assets of the fund consists of such obligations. Dividends paid by the Federal
Portfolio are intended to qualify for this treatment, and dividends paid by the
Government Portfolio may qualify. In addition to the distributions described
above, in the case of the dividends distributed by the Tax-Free Portfolio and
the Municipal Income Portfolio, that part of each Portfolios' net investment
income that is attributable to interest from tax-exempt securities and that is
distributed to shareholders will be designated by the Fund as an
"exempt-interest dividend", and, as such, will be exempt from federal income
tax.
Distributions of net long-term capital gains, 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 Portfolio 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
Fund will notify shareholders of the federal income tax status of distributions.
In the case of the shareholders of the Tax-Free Portfolio and the Municipal
Income Portfolio, interest on indebtedness incurred, or continued, to purchase
or carry shares of the Portfolios will not be deductible to the extent that the
Portfolios' distributions are exempt from federal income tax. In addition, the
portion of an exempt-interest dividend allocable to certain tax-exempt
obligations will be treated as a preference item for purposes of the alternative
minimum tax imposed on both individuals and corporations. Persons who may be
"substantial users" (or "related persons" of substantial users) of facilities
financed by private activity bonds should consult their tax advisors before
purchasing shares in the Tax-Free Portfolio and the Municipal Income Portfolio.
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 United States
Government and certain of its agencies and instrumentalities, and (ii)
obligations of states and localities, and shareholders should consult their tax
advisors about the taxability of dividends.
The Fund 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 Portfolio and the Municipal Income Portfolio to the
extent it distributes an exempt-interest dividend) and on redemption proceeds,
if a correct Social Security or taxpayer identification number, certified when
required, is not on file with the Fund or Transfer Agent. (See also "Redemption
of Shares.")
Organization and Capital Stock
The Fund was formed on January 2, 1986 as a corporation under the laws of
the State of Maryland. The authorized capital stock of the Fund consists of
25,000,000,000 shares having a par value of $.001 per share. The Fund is
authorized to issue full and fractional shares in one or more separate series.
The Directors have authorized the issuance of shares in eight series,
constituting the Government Portfolio, the Federal Portfolio, Cash Portfolio,
Tax-Free Portfolio, Prime Portfolio, Municipal Income Portfolio, Intermediate
Cash Portfolio and Bond Index Portfolio and reserved authority to issue, in the
future, shares of other series representing shares of additional portfolios.
Each share of a Portfolio represents an equal proportionate interest in
that Portfolio with each other share. Shares of each Portfolio entitle the
holder thereof to one vote per share. All shares of the Fund have equal voting
rights and will be voted in the aggregate, except where voting by class is
required by law or where the matter involved affects only one Portfolio. A more
complete statement of the voting rights of holders of Fund shares is contained
in the Statement of Additional Information. Shares do not have preemptive
rights. All shares of the Fund, when issued, will be fully paid and
non-assessable.
On April 8, 1994, Scudder held of record 100% of the outstanding shares of
each of the Prime Portfolio, Municipal Income Portfolio, Intermediate Cash
Portfolio and Bond Index Portfolio, none of which is currently operational. To
the extent that a shareholder is the beneficial owner of 25% of more of a
Portfolio's outstanding shares, it may be deemed to be a "control" person of
such Portfolio for purposes of the Investment Company Act of 1940. To the best
of the Fund's knowledge, no other persons owned 25% or more of the shares of any
of the Portfolios.
Custodian and Transfer and Dividend Disbursing Agent
State Street Bank and Trust Company, which has its principal business
address at 225 Franklin Street, Boston, Massachusetts 02110, is Custodian of the
Funds' investments. Scudder Service Corporation, Two International Place,
Boston, Massachusetts 02110-4103, serves as the Fund's Transfer and Dividend
Disbursing Agent. Neither the Custodian nor the Transfer Agent has any part in
deciding the Fund's investment policies or which securities are to be purchased
or sold for the Fund's Portfolios.
Reports to Shareholders
The fiscal year of the Fund ends on December 31 of each year. The Fund
sends to its shareholders, semi-annually, reports showing the investments in
each of the Fund's Portfolios and other information (including unaudited
financial statements) pertaining to the Fund. An annual report, containing
financial statements audited by the Fund's independent accountants, is sent to
shareholders each year.
Shareholder inquiries should be addressed to Scudder Institutional Fund,
Inc., 345 Park Avenue, New York, New York 10154.
Yield Information
From time to time the Fund advertises the "yield" and "effective yield" of
its various Portfolios. Both yield figures are based on historical earnings and
are not intended to indicate future performance. The "yield" of a Portfolio
refers to the income generated by an investment in the Portfolio over a
seven-day period (which period will be stated in the advertisement). This income
is then "annualized". That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment.
Institutional Government Portfolio
Institutional Federal Portfolio
Institutional Cash Portfolio
Institutional Tax-Free Portfolio
345 Park Avenue, New York, New York 10154
(212) 326-6656
NO SALES OR REDEMPTION CHARGES
Investment Manager
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, New York 10154
Distributor
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110-4103
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Transfer Agent and
Dividend Disbursing Agent
Scudder Service Corporation
P.O. Box 2038
Boston, Massachusetts 02106
Independent Accountants
Price Waterhouse
New York, New York
Legal Counsel
Sullivan & Cromwell
New York, New York
Institutional Government Portfolio
Institutional Federal Portfolio
Institutional Cash Portfolio
Institutional Tax-Free Portfolio
PROSPECTUS
MAY 1, 1994
----------------------------
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 Fund or the Distributor. This Prospectus does not constitute
an offer of any security other than the registered securities to which it
relates or an offer to any person in any jurisdiction where such offer would be
unlawful.
<PAGE>
Institutional Government Portfolio
Institutional Federal Portfolio
Institutional Cash Portfolio
Institutional Tax-Free Portfolio
Supplement to Prospectus
Dated May 1, 1994
The Fund's investment manager, Scudder, Stevens & Clark, Inc., has
agreed to maintain the total annualized expenses of the Institutional
Federal Portfolio at not more than 0.70% of average daily net assets
of the Portfolio until June 30, 1995.
January 20, 1995
