SCUDDER INSTITUTIONAL FUND INC, 497, 1996-05-07

SCUDDER INSTITUTIONAL FUND INC
497, 1996-05-07

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Institutional Government Portfolio
Institutional Federal Portfolio
Institutional Cash Portfolio
Institutional Tax-Free Portfolio

PROSPECTUS
MAY 1, 1996

Institutional Government Portfolio
Institutional Federal Portfolio
Institutional Cash Portfolio
Institutional Tax-Free Portfolio

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

Investment Manager

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

Distributor

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

Custodian

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

Fund Accounting Agent

Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110

Transfer Agent and
Dividend Disbursing Agent

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

Legal Counsel

Sullivan & Cromwell
New York, New York

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

No person has been authorized to give any information or to make any
representations not contained in this Prospectus, and information or
representations not contained herein must not be relied upon as having been
authorized by the Company or the Distributor. This Prospectus does not
constitute an offer of any security other than the registered securities to
which it relates or an offer to any person in any jurisdiction where such offer
would be unlawful.
<PAGE>

INSTITUTIONAL GOVERNMENT PORTFOLIO
INSTITUTIONAL FEDERAL PORTFOLIO
INSTITUTIONAL CASH PORTFOLIO
INSTITUTIONAL TAX-FREE PORTFOLIO

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

Scudder, Stevens & Clark, Inc. - Investment Adviser

Scudder Investor Services, Inc. - Distributor

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

The minimum aggregate investment in the Company 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 Company.

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

This Prospectus sets forth concisely the information about the Company
that a prospective investor should know before investing. Please retain it for
future reference. If you require more detailed information, a Statement of
Additional Information dated May 1, 1996, as amended from time to time, may be
obtained without charge by writing or calling the Company at the address and
telephone number printed above. The Statement of Additional Information, which
is incorporated by reference into this Prospectus, has been filed with the
Securities and Exchange Commission.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

May 1, 1996

<PAGE>

Table of Contents

Page
----
Summary.......................................................................2
Expense Information...........................................................5
Financial Highlights..........................................................7
Investment Objectives and Policies...........................................11
Additional Information About Policies and Investments........................13
Distribution and Performance Information.....................................17
Company Organization.........................................................19
Transaction Information......................................................20
Shareholder Benefits.........................................................23

Summary

The Company Scudder Institutional Fund, Inc. is a
professionally managed, no-load, open-end,
diversified investment company which offers
the following four investment series:
Institutional Government Portfolio (the
"Government Portfolio"), Institutional
Federal Portfolio (the "Federal Portfolio"),
Institutional Cash Portfolio (the "Cash
Portfolio") and Institutional Tax-Free
Portfolio (the "Tax-Free Portfolio"), (each,
a "Portfolio" and collectively, the
"Portfolios") See "Company Organization."

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

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

The Federal Portfolio invests in obligations
issued or guaranteed by the U.S. Government
or its agencies or instrumentalities. The
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.
Income from the Federal Portfolio may not be
exempt from certain state and local taxes.

2
<PAGE>

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

The Tax-Free Portfolio invests in a broad
range of securities issued by or on behalf
of states, cities, municipalities and other
public authorities ("municipal obligations")
the income of which is exempt from federal
income taxes. Income from the Tax-Free
Portfolio may not be exempt from certain
state and local taxes. See "Investment
Objectives and Policies."

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

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

The Adviser receives monthly an investment
management fee for its services, equal, on
an annual basis, to 0.15% of each
Portfolio's average daily net assets.

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

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

Purchasing Shares Shares of any Portfolio may be purchased at
net asset value by writing or calling
Scudder Service Corporation, a subsidiary of
the Adviser (the "Transfer Agent"). There is
no sales charge. There is a $10 million
minimum initial investment in the Company,
with a minimum investment in any single
Portfolio of $2 million. Subsequent
investments may be made in any Portfolio in
any amount. See "Transaction
Information--Purchasing Shares."

3
<PAGE>

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

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

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 "Distribution and
Performance Information--Dividends and
Capital Gains Distributions."

4
<PAGE>

Expense Information

This information is designed to help an investor understand the various costs
and expenses of investing in Government Portfolio and Federal Portfolio.
<TABLE>
<S> <C> <C>
1) Shareholder Transaction Expenses: Expenses charged directly to an individual account in a Portfolio for
various transactions.

Government Federal
Portfolio Portfolio
--------- ---------

NONE NONE

2) Annual Portfolio Operating Expenses: Expenses paid by a Portfolio before it distributed its net
investment income, expressed as a percentage of that Portfolio's average daily net assets for the fiscal
year ended December 31, 1995.

Investment Management Fees 0.15% 0.15%*
12b-1 Fees NONE NONE
Other Expenses 0.24% 0.37%
----- -----
Total Portfolio Operating Expenses 0.39% 0.52%*
===== =====

Example

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

One year $ 4 $ 5
Three years 13 17
Five years 22 29
Ten years 49 65

</TABLE>

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

* For the period January 20, 1995 to October 31, 1996, the Adviser has agreed
to waive a portion of its management fee to the extent necessary so that
the total annualized expenses of the Portfolio do not exceed 0.70% of
average daily net assets. Because the Portfolio's expenses did not exceed
0.70% during the fiscal year ended December 31, 1995, no waiver was
required.

5
<PAGE>

Expense Information

This information is designed to help an investor understand the various costs
and expenses of investing in Cash Portfolio and Tax-Free Portfolio.
<TABLE>
<S> <C> <C>
1) Shareholder Transaction Expenses: Expenses charged directly to an individual account in a Portfolio for
various transactions.

Cash Tax-Free
Portfolio Portfolio
--------- ---------

NONE NONE

Investment Management Fees 0.15% 0.15%
12b-1 Fees NONE NONE

Other Expenses 0.10% 0.20%
----- -----
Total Portfolio Operating Expenses 0.25% 0.35%
===== =====

Example

One year $ 3 $ 4
Three years 8 11
Five years 14 20
Ten years 32 44

</TABLE>

6
<PAGE>

Financial Highlights

Government Portfolio

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

If you would like more detailed information concerning the Portfolio's
performance, audited financial statements are available in the Company's
Annual Report dated December 31, 1995 and may be obtained without charge by
writing or calling the Company.

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

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the Period
June 3, 1986
(commencement
of operations) to
Years Ended December 31, December 31,
--------------------

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

1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

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

Net investment .055 .040 .030 .037 .057 .079 .090 .073 .065 .036
income

Distributions from (.055) (.040) (.030) (.037) (.057) (.079) (.090) (.073) (.065) (.036)
net investment income ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
and net realized
capital gains

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

Total Return (%) 5.60 4.09 3.01 3.74 5.94 8.19 9.36 7.58 6.69 3.70(b)

Ratios and Supplemental Data

Net assets, end of $80 $118 $196 $247 $192 $174 $253 $161 $146 $82
year ($ millions)

Ratio of operating .39 .28 .26 .24 .26 .31 .29 .28 .31 .11(c)
expenses to average
daily net assets (%)(a)

Ratio of net investment 5.46 3.89 2.97 3.69 5.86 7.89 8.96 7.35 6.56 6.32(c)
income to average net
assets (%)

(a) Operating expense -- -- -- -- -- -- -- -- -- .41(c)
ratio including expenses
reimbursed, management
fee and other expenses
not imposed (%)

(b) Total return is higher due to maintenance of the Portfolio's expenses.
(c) Annualized
</TABLE>

7
<PAGE>

Federal Portfolio

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

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the Period
May 9, 1986
(commencement
of operations) to
Years Ended December 31, December 31,
--------------------

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

1995 1994 1993 1992 1991 1990* 1989 1988 1987 1986
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

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

Net investment .049 .034 .027 .032 .054 .078 .088 .070 .062 .040
income

Distributions from (.049) (.034) (.027) (.032) (.054) (.078) (.088) (.070) (.062) (.040)
net investment income ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
and net realized
capital gains

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

Total Return (%)(b) 5.06 3.42 2.74 3.23 5.55 8.04 9.15 7.22 6.40 4.10

Ratios and Supplemental Data

Net assets, end of $16 $11 $8 $9 $11 $25 $21 $22 $32 $27
year ($ millions)

Ratio of operating .52 .54 .23 .32 .30 .33 .35 .32 .26 .09(c)
expenses to average
daily net assets (%)(a)

Ratio of net investment 4.97 3.39 2.73 3.13 5.51 7.79 8.81 6.92 6.26 6.23(c)
income to average net
assets (%)

(a) Operating expense .68 .77 .83 .69 .67 .48 .45 .40 .36 .59(c)
ratio including expenses
reimbursed, management
fee and other expenses
not imposed (%)

(b) Total returns are higher due to maintenance of the Portfolio's expenses.
(c) Annualized

* The Treasury Portfolio was renamed the Federal Portfolio pursuant to a
change in its investment objective effective May 1, 1990.
</TABLE>

8
<PAGE>

Cash Portfolio

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

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the Period
June 18, 1986
(commencement
of operations) to
Years Ended December 31, December 31,
--------------------

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

1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------

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

Net investment .057 .041 .031 .038 .059 .080 .089 .074 .065 .034
income

Distributions from (.057) (.041) (.031) (.038) (.059) (.080) (.089) (.074) (.065) (.034
net investment income ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
and net realized
capital gains

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

Total Return (%) 5.88 4.13 3.16 3.88 6.12 8.27 9.32 7.60(b) 6.73 3.41(b)

Ratios and Supplemental Data

Net assets, end of $249 $271 $468 $662 $308 $152 $82 $61 $51 $114
year ($ millions)

Ratio of operating .25 .24 .22 .25 .25 .32 .37 .33 .31 .14(c)
expenses to average
daily net assets (%)(a)

Ratio of net investment 5.73 3.94 3.12 3.66 5.89 8.02 8.94 7.43 6.43 6.17(c)
income to average net
assets (%)

(a) Operating expense -- -- -- -- -- -- -- .36 -- .34(c)
ratio including expenses
reimbursed, management
fee and other expenses
not imposed (%)

(b) Total returns are higher due to maintenance of the Portfolio's expenses.

9
<PAGE>

Tax-Free Portfolio

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

If you would like more detailed information concerning the Portfolio's
performance, audited financial statements are available in the Company's Annual
Report dated December 31, 1995 and may be obtained without charge by writing or
calling the Company.

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

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the Period
May 12, 1986
(commencement
of operations) to
Years Ended December 31, December 31,
--------------------

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

1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------

Net asset value, $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.0
beginning of period ----- ----- ----- ----- ----- ----- ----- ----- ----- -----

Net investment .036 .027 .023 .029 .045 .058 .063 .051 .045 .028
income

Distributions from (.036) (.027) (.023) (.029) (.045) (.058) (.063) (.051) (.045) (.028)
net investment income ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
and net realized
capital gains

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

Total Return (%) 3.69 2.74(b) 2.32 2.92 4.65 5.96 6.45 5.24 4.56(b) 2.80(b)

Ratios and Supplemental Data

Net assets, end of $79 $168 $125 $96 $75 $88 $155 $168 $103 $134
year ($ millions)

Ratio of operating .35 .27 .29 .31 .36 .32 .30 .30 .30 .27(c)
expenses to average
daily net assets (%)(a)

Ratio of net investment 3.61 2.73 2.30 2.82 4.55 5.79 6.25 5.15 4.46 4.21(c)
income to average net
assets (%)

(a) Operating expense -- .29 -- -- -- -- -- -- .31 .37(c)
ratio including expenses
reimbursed, management fee
and other expenses not
imposed (%)

(b) Total returns are higher due to maintenance of the Portfolio's expenses.
(c) Annualized
</TABLE>

10
<PAGE>

Investment Objectives and Policies

Set forth below is a description of the investment objective and policies
of each Portfolio. The 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 objectives and policies and with
preservation of capital and liquidity. The Federal Portfolio seeks to provide
current income that cannot be subjected to state and local taxes by reason of
federal law, and the Tax-Free Portfolio seeks to provide current income that is
exempt from federal income taxes. 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. There can be no assurance that any of the
Portfolios will achieve its investment objective.

Each Portfolio will maintain a dollar-weighted average maturity of 90 days
or less in an effort to maintain a net asset value per share of $1.00, but there
is no assurance that it will be able to do so.

Government Portfolio

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

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

Federal Portfolio

The Federal Portfolio seeks to provide investors with as high a level of
current income that cannot be subjected to state or local income taxes by reason
of federal law as is consistent with its investment policies and with
preservation of capital and liquidity. To achieve this objective, the Portfolio
invests exclusively in obligations issued or guaranteed by the U.S. Government
that have remaining maturities of not more than 397 days, including securities
issued by the Federal Farm Credit Banks Funding Corp. and the Student Loan
Marketing Association, and in certain repurchase agreements when in the
judgement of the Adviser this is advisable for liquidity purposes, in order to
enhance yield or in other circumstances such as when appropriate securities are
not available.

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

Cash Portfolio

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

11
<PAGE>

commercial banks that are members of the Federal Reserve System or are examined
by the Comptroller of the Currency or whose deposits are insured by the Federal
Deposit Insurance Corporation. In addition, the 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 Portfolio limits its investments in foreign bank obligations to
U.S. dollar-denominated obligations of foreign banks (including U.S. branches)
which banks (based upon their most recent annual financial statements) at the
time of investment (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) are among the 100 largest banks in the world
as determined on the basis of assets; and (iii) have branches or agencies in the
U.S.; and which obligations, in the opinion of the Adviser, are of an investment
quality comparable to obligations of U.S. banks in which the 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 Portfolio may not invest more than
10% of the value of its total assets in investments that are not readily
marketable including fixed time deposits subject to withdrawal penalties
maturing in more than seven calendar days.

The Portfolio 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 Adviser believes that these risks are substantially less in the
case of instruments issued by Canadian affiliates that are guaranteed by U.S.
banks than in the case of other foreign money market instruments.

The Portfolio may invest in U.S. dollar-denominated obligations of foreign
banks. There is no limitation on the amount of the 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 U.S.
banks or Canadian affiliates of U.S. banks. In addition, foreign banks are not
subject to examination by any U.S. Government agency or instrumentality.

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

The commercial paper purchased by the 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
Investors Service, Inc. ("Moody's"), "A-1" or better by Standard & Poor's
("S&P") or "F-1" by Fitch Investor Services, Inc. ("Fitch"), (ii) issued or
guaranteed as to principal and interest by issuers having an existing debt
security rating of "Aa" or better by Moody's or "AA" or better by S&P or Fitch,
or (iii) securities that, if not rated, are of comparable investment quality as
determined by the Adviser in accordance with procedures adopted by the Board of
Directors.

The 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 Portfolio may invest in a
master demand note that, if not rated, is in the opinion of the Adviser of an
investment quality comparable to rated securities in which the Portfolio may
invest. The Adviser monitors the issuers of such master demand notes on a daily
basis. Transfer of such notes is usually restricted by the issuer, and there is

12
<PAGE>

no secondary trading market for such notes. The Portfolio may not invest in a
master demand note if, as a result, more than 10% of the value of its total net
assets would be invested in such notes.

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

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

Tax-Free Portfolio

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

From time to time the Portfolio may invest 25% or more of the current
value of its total assets in municipal obligations that are related in such a
way that an economic, business or political development or change affecting one
such obligation would also affect the other obligations. For example, certain
municipal obligations accrue interest that is paid from revenues of similar type
projects; other municipal obligations have issuers located in the same state.

The Portfolio may, pending the investment of proceeds of sales of shares
or proceeds from sales of portfolio securities or in anticipation of
redemptions, or to maintain a "defensive" posture when, in the opinion of the
Adviser, it is advisable to do so because of market conditions, elect to invest
temporarily up to 20% of the current value of its total assets in cash reserves
or taxable securities. Under ordinary market conditions, the 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 Portfolio.

The taxable market is a broader and more liquid market with a greater
number of investors, issuers and market makers than the market for municipal
obligations. The more limited marketability of municipal obligations may make it
difficult in certain circumstances to dispose of large investments
advantageously. In addition, certain municipal obligations might lose tax-exempt
status in the event of a change in the tax laws.

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

Additional Information About Policies and Investments

Investment Restrictions

The following investment restrictions and those described in the Statement
of Additional Information are fundamental policies of each Portfolio that may be
changed only when permitted by law and approved by the holders of a majority of

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such Portfolio's outstanding voting securities, as described under "Company
Organization" in the Statement of Additional Information.

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
may not invest less than 25% of the current value of its total assets in bank
obligations, including bank obligations subject to repurchase agreements.

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

Obligations of U.S. Government Agencies and Instrumentalities. Obligations
of U.S. Government agencies and instrumentalities are debt securities issued or
guaranteed by U.S. Government-sponsored enterprises and federal agencies. Some
of such obligations are supported by (a) the full faith and credit of the U.S.
Treasury (such as Government National Mortgage Association participation
certificates), (b) the limited authority of the issuer to borrow from the U.S.
Treasury (such as securities of the Federal Home Loan Bank), (c) the authority
of the U.S. Government to purchase certain obligations of the issuer (such as
securities of the Federal National Mortgage Association) or (d) only the credit
of the issuer. In the case of obligations not backed by the full faith and
credit of the U.S., the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, which agency may be
privately owned. The Company will invest in obligations of U.S. Government
agencies and instrumentalities only when the Adviser is satisfied that the
credit risk with respect to the issuer is minimal.

Floating and Variable Rate Instruments. Certain of the obligations that
each Portfolio may purchase have a floating or variable rate of interest. Such
obligations bear interest at rates that are not fixed, but which vary with
changes in specified market rates or indices, such as the Prime Rate, and at
specified intervals. Certain of such obligations may carry a demand feature that
would permit the holder to tender them back to the issuer at par value prior to
maturity. Each Portfolio 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 (the
"SEC") 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 Adviser will monitor on an ongoing basis
the earning power, cash flow and other liquidity ratios of the issuers of such
obligations, and will similarly monitor the ability of an issuer of a demand
instrument to pay principal and interest on demand. Each 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 obligations that the Portfolios 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 obligations in the proportion that such Portfolio's
interest bears to the total principal amount of such obligations. Certain of
such certificates of participation may carry a demand feature that would permit
the holder to tender them back to the issuer prior to maturity. The Portfolios
may invest in certificates of participation even if the underlying obligations
carry stated maturities in excess of one year, upon compliance with certain
conditions contained in a rule of the SEC. The income received on certificates
of participation in tax-exempt municipal obligations constitutes interest from
tax-exempt obligations. It is presently contemplated that the Tax-Free Portfolio
will not invest more than 20% of its total assets in these certificates.

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<PAGE>

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 "Cash Portfolio" 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 one year, the term of the repurchase agreement is always less than one
year. If the seller defaults and the value of the underlying securities has
declined, the 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.

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

The Tax-Free Portfolio may invest in excess of 25% of its assets in
industrial development bonds subject to the Portfolio's fundamental investment
policy requiring that it maintain at least 80% of the value of its total assets
in obligations that are exempt from federal income tax and are not subject to
the alternative minimum tax. For purposes of the Portfolio's fundamental
investment limitation regarding concentration of investments in any one
industry, industrial development bonds will be considered representative of the
industry for which purpose the bond was issued.

The Cash and Tax-Free Portfolios' investments in municipal bonds are
limited to bonds that are rated at the date of purchase "Aa" or better by
Moody's or "AA" or better by S&P or Fitch.

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

Municipal commercial paper is a debt obligation with a stated maturity of
270 days or less that is issued to finance seasonal working capital needs or as
short-term financing in anticipation of longer-term debt. The Portfolios may
invest in municipal commercial paper that is rated at the date of purchase "P-1"
by Moody's, "A-1" or "A-1+" by S&P or "F-1" by Fitch. If a municipal obligation
is not rated, the Portfolios may purchase the obligation if, in the opinion of
the Adviser, it is of investment quality comparable to other rated investments
that are permitted in the Portfolios.

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

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.

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<PAGE>

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 Adviser, 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 of the 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, 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 the dollar-weighted average maturity of the
Portfolio would be adversely affected.

When-Issued Securities. Each Portfolio 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.

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Distribution and Performance Information

Dividends and Capital Gains Distributions

The Company declares dividends on the outstanding shares of each Portfolio
from each Portfolio's net investment income at the close of each business day to
shareholders of record at 2:00 p.m. (eastern time) on the day of declaration.
Realized capital gains and losses may be taken into account in determining the
daily distribution. Shares purchased will begin earning dividends on the day the
purchase order is executed and shares redeemed will earn dividends through the
previous day. Net investment income for a Saturday, Sunday or holiday will be
declared as a dividend on the previous business day to shareholders of record at
2:00 p.m. (eastern time) on that 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, after
utilization of capital loss carryforwards, if any, will be distributed annually,
although an additional distribution may be necessary to prevent the application
of a federal excise tax. Dividends and distributions will be invested in
additional shares of the same 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.
(See also "Transaction Information--Redeeming Shares.")

Taxes

Each of the Company's Portfolios has in the past qualified, and intends to
continue to qualify, as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Each 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 Company 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 the Tax-Free Portfolio to the extent of its 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 realized net short-term
capital gains in excess of net long-term capital losses), except
"exempt-interest dividends" (described below), will be taxable as ordinary
income for federal income tax purposes. Most states exempt from personal income
tax dividends paid by a regulated investment company attributable to interest
derived from obligations of the U.S. Government and certain of its agencies and
instrumentalities. For example, shareholders of a regulated investment company
will not be subject to New York State or City personal income tax on the
dividends paid by such a fund to the extent attributable to interest on
obligations of the U.S. Government and certain of its agencies and
instrumentalities, provided that at the close of each quarter of the fund's
taxable year at least 50% of the value of the total assets of the fund consists
of such obligations. Dividends paid by the Federal Portfolio are intended to
qualify for this treatment, and dividends paid by the Government Portfolio may
qualify. Dividends distributed by the Tax-Free Portfolio are not excluded in
determining New York State or City franchise taxes on corporations and financial
institutions. In addition to the distributions described above, in the case of

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<PAGE>

the dividends distributed by the Tax-Free Portfolio, that part of its net
investment income that is attributable to interest from tax-exempt securities
and that is distributed to shareholders will be designated by the Company as an
"exempt-interest dividend," and, as such, will be exempt from federal income
tax. Income from the Federal Portfolio and Tax-Free Portfolio may not be exempt
from certain state and local taxes.

Distributions of net long-term capital gains in excess of net short-term
capital losses, if any, will be taxable as long-term capital gains, whether
received in cash or reinvested in additional shares, regardless of how long the
shareholder has held the shares. Because substantially all of the income of each
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 Company will notify shareholders of the federal
income tax status of distributions.

In the case of the shareholders of the Tax-Free Portfolio, interest on
indebtedness incurred, or continued, to purchase or carry shares of the
Portfolio will not be deductible for federal income tax purposes to the extent
that the Portfolio's distributions are exempt from federal income tax. In
addition, a portion of an exempt-interest dividend allocable to certain
tax-exempt obligations may be treated as a preference item for purposes of the
alternative minimum tax imposed on both individuals and corporations. Persons
who may be "substantial users" (or "related persons" of substantial users) of
facilities financed by private activity bonds should consult their tax advisors
before purchasing shares in the Tax-Free Portfolio.

The Company will be required to withhold, subject to certain exemptions,
at a rate of 31% on dividends paid or credited to individual shareholders
(except shareholders of the Tax-Free Portfolio to the extent it distributes
exempt-interest dividends) and on redemption proceeds, if a correct Social
Security or taxpayer identification number, certified when required, is not on
file with the Company or Transfer Agent. (See also "Transaction
Information--Redeeming Shares.")

The exemption of interest income for federal income tax purposes may not
result in similar exemptions under the tax law of state and local tax
authorities. In general, interest earned on obligations issued by the state or
locality in which the investor resides may be exempt from state and local taxes.
State and local laws differ, however, with respect to the tax treatment of
dividends attributable to interest on obligations of: (i) the U.S. Government
and certain of its agencies and instrumentalities, and (ii) obligations of
states and localities, and shareholders should consult their tax advisors about
the taxability of dividends. The Company furnishes each shareholder of record
with a statement of the portion of the previous year's income derived from: (i)
U.S. Government Obligations and (ii) various agencies and instrumentalities,
each of which is specified by name.

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

Performance Information

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

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Company Organization

The Company was formed on January 2, 1986 as a corporation under the laws
of the State of Maryland. The Company is a no-load, diversified, open-end
management investment company registered under the 1940 Act. The Company's
activities are supervised by its Board of Directors. The Board of Directors,
under applicable laws of the State of Maryland, in addition to supervising the
actions of the Company's Adviser and Distributor, as set forth below, decides
upon matters of general policy.

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

Investment Adviser

The Company retains the investment management firm of Scudder, Stevens &
Clark, Inc. (the "Adviser"), a Delaware corporation, to manage the Company's
daily investment and business affairs subject to the policies established by the
Board of Directors. The Adviser is one of the most experienced investment
counsel firms in the U.S. The Adviser was established in 1919 as a partnership
and was restructured as a Delaware corporation in 1985. The principal source of
the Adviser's income is professional fees received from providing continuing
investment advice. The Adviser provides investment counsel for many individuals
and institutions, including insurance companies, endowments, industrial
corporations and financial and banking organizations. As of December 31, 1995,
the Adviser and its affiliates had in excess of $100 billion under their
supervision, approximately two-thirds of which was invested in fixed-income
securities.

Pursuant to Investment Advisory Agreements (the "Agreements") with the
Company on behalf of each Portfolio, the Adviser 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 the
Adviser will pay the compensation and certain expenses of all officers and
certain employees of the Company and make available to each such Portfolio such
of the Adviser'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 Company. Under the Agreements, the Adviser 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.
The Adviser, including the Adviser's employees who serve the Portfolios, may
render investment advice, management and other services to others.

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

Each Portfolio is charged a management fee at an annual rate of 0.15% of
its average daily net assets. Management fees are computed daily and paid
monthly.

Transfer Agent

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

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<PAGE>

Distributor

Scudder Investor Services, Inc., a subsidiary of the Adviser, is the
Company's principal underwriter. Scudder Investor Services, Inc. confirms, as
agent, all purchases of shares of the Company. Under the Underwriting Agreement
with the Company, the Distributor acts as the principal underwriter and bears
the cost of printing and mailing prospectuses to potential investors and of any
advertising expenses incurred by it in connection with the distribution of
shares.

Custodian

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

Fund Accounting Agent

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

Transaction Information

Purchasing Shares

There is a $10 million minimum initial investment in the Company, with a
minimum investment in any single Portfolio of $2 million. Subsequent investments
may be made in the Portfolios in any amount. Investment minimums may be waived
for Directors and officers of the Company and certain other affiliates. The
Company and the Distributor reserve the right to reject any purchase order. All
funds will be invested in full and fractional shares.

Shares of any Portfolio may be purchased by writing or calling the
Company's 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 "Share Price."

Orders for shares of a Portfolio 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. (eastern time) on the same
day if a bank wire or check is converted to federal funds by 12:00 noon (eastern
time) or a federal funds' wire is received by 12:00 noon (eastern time). In
addition, if investors notify the Company by 2:00 p.m. (eastern time) that they
intend to wire federal funds to purchase shares of a 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. (eastern 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.

Checks drawn on a non-member bank or a foreign bank may take substantially
longer to be converted into federal funds and, accordingly, may delay the
execution of an order. Checks must be payable in U.S. dollars and will be
accepted subject to collection at full face value.

By investing in a Portfolio, a shareholder appoints the Transfer Agent to
establish an open account to which all shares purchased will be credited,
together with any dividends and capital gains distributions that are paid in
additional shares. See "Distribution and Performance Information--Dividends and
Capital Gains Distributions."

Initial Purchase by Wire

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

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<PAGE>

name of the wiring bank and name and telephone number of the person to be
contacted in connection with the order. An account number will then be assigned.

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

State Street Bank and Trust Company
Boston, Massachusetts
ABA Number 011000028
Custody and Shareholder Services Division
Attention: [Name of Portfolio(s)]
Account (name(s) in which to be registered)
Account Number (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 by Wire

Instruct the wiring bank to transmit the specified amount to the Custodian
with the information stated above.

Initial Purchase by Mail

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

2. Mail the Purchase Application and check payable to the Portfolio
whose shares are to be purchased, to the Transfer Agent at the address set
forth above.

Additional Purchases by Mail

1. Make a check payable to the Portfolio whose shares are to be
purchased. Write the shareholder's Portfolio account number on the check.

2. Mail the check and the detachable stub from the Statement of Account
(or a letter providing the account number) to the Transfer Agent at the address
set forth above.

Redeeming Shares

Upon receipt by the Transfer Agent of a redemption request in proper form,
shares of any Portfolio will be redeemed at their next determined net asset
value. See "Share Price." For the shareholder's convenience, the Company has
established several different redemption procedures.

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

A shareholder's account in a Portfolio remains open for up to one year
following complete redemption, and all costs during the period will be borne by
that Portfolio.

The Company reserves the right to redeem involuntarily upon not less than
30 days' written notice all shares in a shareholder's Portfolio accounts if the
combined holdings in those accounts aggregate less than $10 million. However,
any shareholder 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.

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<PAGE>

The Company 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 Company with a taxpayer identification number during the 30-day
notice period.

Redemption by Mail

1. Write a letter of instruction. Indicate the dollar amount or number
of shares to be redeemed. Refer to the shareholder's Portfolio account number
and give Social Security or taxpayer identification number (where applicable).

2. Sign the letter in exactly the same way the account is registered. If
there is more than one owner of the shares, all must sign.

3. If shares to be redeemed have a value of $50,000 or more, the
signature(s) must be guaranteed by a commercial bank that is a member of the
Federal Deposit Insurance Corporation, a trust company, a member firm of a
domestic stock exchange or a foreign branch of any of the foregoing. In
addition, signatures may be guaranteed by other Eligible Guarantor Institutions,
i.e., other banks, other brokers and dealers, municipal securities brokers and
dealers, government securities brokers and dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies and
savings associations. The Transfer Agent, however, may reject redemption
instructions if the guarantor is neither a member of nor a participant in a
signature guarantee program (currently known as "STAMPsm"). Signature guarantees
by notaries public are not acceptable. Further documentation, such as copies of
corporate resolutions and instruments of authority, may be requested from
corporations, administrators, executors, personal representatives, trustees or
custodians to evidence the authority of the person or entity making the
redemption request.

4. Mail the letter to the Transfer Agent at the address set forth under
"Purchasing Shares."

Checks for redemption proceeds will normally be mailed the day following
receipt of the request in proper form, although the Company reserves the right
to take up to seven days. Unless other instructions are given in proper form, a
check for the proceeds of a redemption will be sent to the shareholder's address
of record. The Custodian may benefit from the use of redemption proceeds until
the check issued to a redeeming shareholder for such proceeds has cleared.

When proceeds of a redemption are to be paid to someone other than the
shareholder, either by wire or check, the signature(s) on the letter of
instruction must be guaranteed regardless of the amount of the redemption.

Redemption by Expedited Redemption Service

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

No redemption of shares purchased by check will be permitted pursuant to
the Expedited Redemption Service until seven business days after those shares
have been credited to the shareholder's account.

1. Telephone the request to the Transfer Agent by calling toll free from
any continental state: 1-800-854-8525, or

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

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 by 12:00 noon (eastern time) on a day the Company
and the Custodian are open for business, the redemption proceeds will be
transmitted to the shareholder's bank that same day. Such expedited redemption
requests received after 12:00 noon and prior to 2:00 p.m. (eastern time) will be
honored the same day if such redemption can be accomplished in time to meet the
Federal Reserve Wire System schedules.

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<PAGE>

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.

Exchanging Shares

Shares of any of the Portfolios that have been held for seven days or more
may be exchanged for shares of one of the other Portfolios in an identically
registered account. Shares may be exchanged for shares of another Portfolio only
if shares of such Portfolio may legally be sold under applicable state laws.

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

Share Price

Net asset value per share for each Portfolio is determined by Scudder Fund
Accounting Corporation on each day the Exchange is open for trading. The net
asset value per share of each Portfolio is determined at 2:00 p.m. (eastern
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 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.

Shareholder Benefits

Account Services

Shareholders will be sent a Statement of Account from the Distributor, as
agent of the Company, whenever a share transaction is effected in the accounts.
Shareholders can write or call the Company at the address and telephone number
on the cover of this Prospectus with any questions relating to their investment
in shares of any of the Portfolios.

Shareholder Services

The Company offers the following shareholder services. See the Statement
of Additional Information for further details about these services or call or
write the Company.

Special Monthly Summary of Accounts. A special service is available to
banks, brokers, investment advisers, trust companies and others who have a
number of accounts in one or more of the Portfolios. A monthly summary of
accounts can be provided, showing for each account the account number, the
month-end share balance and the dividends and distributions paid during the
month.

Shareholder Reports. The fiscal year of the Company ends on December 31 of
each year. The Company sends to its shareholders, semi-annually, reports showing
the investments in each of the Company's Portfolios and other information
(including unaudited financial statements) pertaining to the Company. An annual
report, containing financial statements audited by the Company's independent
accountants, is sent to shareholders each year.

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

<PAGE>
INSTITUTIONAL GOVERNMENT PORTFOLIO
INSTITUTIONAL FEDERAL PORTFOLIO
INSTITUTIONAL CASH PORTFOLIO
INSTITUTIONAL TAX-FREE PORTFOLIO
345 Park Avenue
New York, New York 10154
1-800-854-8525

Scudder Institutional Fund, Inc. (the "Company") is a professionally managed,
no-load, open-end, diversified, investment company comprised of four money
market portfolios that seek to provide investors with as high a
level of current income as is consistent with their investment
objectives and policies and with preservation of capital and liquidity.

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

Statement of Additional Information

May 1, 1996

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

This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of Scudder Institutional Fund, Inc.
dated May 1, 1996, as may be amended from time to time, a copy of which may be
obtained without charge by writing to Scudder Investor Services, Inc., Two
International Place, Boston, Massachusetts 02110-4103.

<PAGE>

TABLE OF CONTENTS
Page

THE PORTFOLIOS AND THEIR OBJECTIVES..........................................1
General Investment Objectives and Policies..........................1
Government Portfolio................................................1
Federal Portfolio...................................................1
Cash Portfolio......................................................1
Tax-Free Portfolio..................................................3
Investment Restrictions.............................................4

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES...................................5

PURCHASING SHARES............................................................6

REDEEMING SHARES.............................................................7

DIVIDENDS....................................................................7

PERFORMANCE INFORMATION......................................................8
Yield...............................................................8
Effective Yield.....................................................8
Average Annual Total Return.........................................9
Cumulative Total Return.............................................9
Total Return.......................................................10
Comparison of Portfolio Performance................................10

SHAREHOLDER BENEFITS........................................................11

COMPANY ORGANIZATION........................................................11

INVESTMENT ADVISER..........................................................12
Personal Investments by Employees of the Adviser...................13

DISTRIBUTOR.................................................................14

DIRECTORS AND OFFICERS......................................................14

REMUNERATION................................................................16

TAXES.......................................................................17

PORTFOLIO TRANSACTIONS......................................................18

NET ASSET VALUE.............................................................19

ADDITIONAL INFORMATION......................................................20
Experts............................................................20
Other Information..................................................20

FINANCIAL STATEMENTS........................................................21

APPENDIX

<PAGE>

THE PORTFOLIOS AND THEIR OBJECTIVES

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

General Investment Objectives and Policies

Institutional Government Portfolio ("Government Portfolio"), Institutional
Federal Portfolio ("Federal Portfolio"), Institutional Cash Portfolio ("Cash
Portfolio") and Institutional Tax-Free Portfolio ("Tax-Free Portfolio")
(collectively, the "Portfolios") are series of Scudder Institutional Fund, Inc.
(the "Company"), a no-load, open-end, diversified, investment company designed
to suit the needs of institutions, corporations and fiduciaries. The Portfolios
are money market funds that seek to provide investors with as high a level of
current income as is consistent with their investment objectives and policies
and with preservation of capital and liquidity. Set forth below is a description
of the investment objective and policies of each Portfolio. The Federal
Portfolio seeks to provide current income that cannot be subjected to state and
local taxes by reason of federal law, and the Tax-Free Portfolio seeks to
provide current income that is exempt from federal income taxes. 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. There
can be no assurance that any of the Portfolios will achieve its investment
objective.

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. Each Portfolio will
maintain a dollar-weighted average maturity of 90 days or less in an effort to
maintain a net asset value per share of $1.00, but there is no assurance that it
will be able to do so.

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

Government Portfolio

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

Federal Portfolio

The Federal Portfolio seeks to provide investors with as high a level of
current income that cannot be subjected to state or local income taxes by reason
of federal law as is consistent with its investment policies and with
preservation of capital and liquidity. To achieve this objective, the Portfolio
invests exclusively in obligations issued or guaranteed by the U.S. Government
that have remaining maturities of not more than 397 days, including securities
issued by the Federal Farm Credit Banks Funding Corp. and the Student Loan
Marketing Association, and in certain repurchase agreements when in the judgment
of the Adviser this is advisable for liquidity purposes, in order to enhance
yield or in other circumstances such as when appropriate securities are not
available.

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

Cash Portfolio

<PAGE>

The bank obligations in which the Portfolio may invest include negotiable
certificates of deposit, bankers' acceptances, fixed time deposits or other
short-term bank obligations. The 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. "U.S. banks" include
commercial banks that are members of the Federal Reserve System or are examined
by the Comptroller of the Currency or whose deposits are insured by the Federal
Deposit Insurance Corporation. In addition, the 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 Portfolio limits its investments in foreign bank obligations to
U.S. dollar-denominated obligations of foreign banks (including U.S. branches)
which banks (based upon their most recent annual financial statements) at the
time of investment (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) are among the 100 largest banks in the world
as determined on the basis of assets; and (iii) have branches or agencies in the
U.S.; and which obligations, in the opinion of the Adviser, are of an investment
quality comparable to obligations of U.S. banks in which the Portfolio may
invest.

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 Portfolio may
invest in municipal commercial paper that is rated at the date of purchase "P-1"
by Moody's Investors Service, Inc. ("Moody's"), "A-1" or "A-1+" by Standard &
Poor's ("S&P") or "F-1" by Fitch Investors Service, Inc. ("Fitch"). If a
municipal obligation is not rated, the Portfolio may purchase the obligation if,
in the opinion of the Adviser, it is of investment quality comparable to other
rated investments that are permitted in the Portfolio.

The commercial paper purchased by the 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
Adviser in accordance with procedures adopted by the Board of Directors.

2
<PAGE>

notes are not rated by a rating agency. However, the Portfolio may invest in a
master demand note that, if not rated, is in the opinion of the Adviser of an
investment quality comparable to rated securities in which the Portfolio may
invest. The Adviser monitors the issuers of such master demand notes on a daily
basis. Transfer of such notes is usually restricted by the issuer, and there is
no secondary trading market for such notes. The Portfolio may not invest in a
master demand note if, as a result, more than 10% of the value of its total net
assets would be invested in such notes.

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

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

The 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.

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

Tax-Free Portfolio

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

If a municipal obligation is not rated, the Portfolio may purchase the
obligation if, in the opinion of the Adviser, it is of investment quality
comparable to other rated investments that are permitted in the Portfolio. From
time to time the Portfolio may invest 25% or more of the current value of its
total assets in municipal obligations that are related in such a way that an
economic, business or political development or change affecting one such

3
<PAGE>

obligation would also affect the other obligations. For example, certain
municipal obligations accrue interest that is paid from revenues of similar type
projects; other municipal obligations have issuers located in the same state.

The floating and variable rate municipal obligations that the 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 the 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 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 (the "SEC") is
met. The income received on certificates of participation constitutes interest
from tax-exempt obligations. It is presently contemplated that the Portfolio
will not invest more than 20% of its total assets in these certificates.

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

Investment Restrictions

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

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

(1) Issue senior securities, borrow money or pledge or
mortgage the assets of any of its Portfolios. However, each Portfolio
may borrow from banks up to 10% of the current value of that
Portfolio's total net assets for temporary purposes only in order to
meet redemptions, and these borrowings may be secured by the pledge of
not more than 10% of the current value of the Portfolio's total net
assets. Purchases of investments by the Portfolio will not be made
while any such borrowing exists.

(2) Make loans. The purchase or holding of a portion of an
issue of publicly distributed debt obligations, the making of deposits
with banks, and the entering into repurchase agreements shall not
constitute the making of a loan. The Company may also engage in the
practice of lending its portfolio securities.

4
<PAGE>

(3) Invest an amount equal to 10% or more of the current value
of the particular Portfolio's total assets in illiquid securities,
restricted securities, investments that do not have readily available
market quotations and repurchase agreements maturing in more than seven
days.

(4) Act as an underwriter of securities. The purchase of a
permitted investment directly from the issuer thereof, or from an
underwriter for an issuer, and the later disposition of such securities
in accordance with a Portfolio's investment program, shall not be
deemed an underwriting.

(5) Purchase or sell real estate, commodities or commodity
contracts. This limitation shall not apply to securities secured by
real estate or interests therein or issued by persons who deal in real
estate or interests therein.

(6) Purchase securities on margin or make short sales of
securities. This limitation shall not apply to short-term credits
necessary for the clearance of transactions.

(7) Write, purchase or sell puts, calls, warrants or any
combination thereof, except that the Portfolios may enter into put
transactions in order to maintain liquidity, as described under
"Additional Permitted Investment Activities".

(8) Purchase equity securities or securities convertible
into equity securities.

(9) Purchase securities that must be registered under the
Securities Act of 1933 before they may be offered or sold to the
public.

(10) Purchase any securities that would cause more than 25% of
the value of any individual Portfolio's total assets to be invested in
securities of issuers in the same industry, except banks as described
in paragraph 11. This limitation shall not apply to investments in
obligations of the U.S. Government, its agencies or instrumentalities.
Notwithstanding the provisions of this paragraph, the Tax-Free
Portfolio shall not be limited with respect to investments in (i)
municipal obligations (not including industrial development and
pollution control bonds if the payment of principal and interest on
such bonds is the ultimate responsibility of non-governmental users) or
(ii) negotiable certificates of deposit or bankers' acceptances that
are purchased on a temporary basis or for defensive purposes.

(11) The Cash Portfolio may not invest less than 25% of the
current value of its total assets in bank obligations (including bank
obligations subject to repurchase agreements), provided that if at some
future date adverse economic conditions prevail in the banking
industry, the Portfolio, for defensive purposes, may invest temporarily
less than 25% of its assets in bank obligations.

Whenever any investment restriction states a maximum percentage of a
Portfolio's assets, it is intended that if the percentage limitation is met at
the time the action is taken, subsequent percentage changes resulting from
fluctuating asset values will not be considered a violation of such
restrictions.

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
(See "Additional Information About Policies and Investments"
in the Company's Prospectus)

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

TANs An uncertainty in a municipal issuer's capacity to raise taxes as
a result of such things as a decline in its tax base or a rise in
delinquencies could adversely affect the issuer's ability to meet its

5
<PAGE>

obligations on outstanding TANs. Furthermore, some municipal issuers
mix various tax proceeds into a general fund that is used to meet
obligations other than those of the outstanding TANs. Use of such a
general fund to meet various obligations could affect the likelihood of
a municipal issuer's making payments on the TANs.

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

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

Securities of U.S. Government Sponsored Enterprises. The Government
Portfolio, Federal Portfolio and Cash Portfolio may invest in debt securities
issued or guaranteed by U.S. Government sponsored enterprises. These sponsored
enterprises include the World Bank, the Inter-American Development Bank and the
Asian-American Development Bank. None of the Portfolios intends to invest in
securities issued or guaranteed by non-domestic U.S. Government sponsored
enterprises.

Loans of Portfolio Securities. Each Portfolio may lend securities from
its portfolio to brokers, dealers and financial institutions if cash or cash
equivalent collateral, including letters of credit, equal to at least 100% of
the current market value of the securities loaned (including accrued interest
and dividends thereon) plus the interest payable to the Portfolio with respect
to the loan is maintained by the borrower with that Portfolio in a segregated
account. In determining whether to lend a security to a particular broker,
dealer or financial institution, the Adviser will consider all relevant facts
and circumstances, including the creditworthiness of the broker, dealer or
financial institution. The Portfolios will not enter into any security lending
arrangement having a duration of longer than one year. Securities that a
Portfolio may receive as collateral will not become part of that Portfolio at
the time of the loan. In the event of a default by the borrower, such Portfolio
will, if permitted by law, dispose of the collateral except for such part
thereof that is a security in which the Portfolio is permitted to invest. During
the time securities are on loan, the borrower will pay the Portfolio any accrued
income on those securities, and the Portfolio may invest the cash collateral and
earn additional income or receive an agreed upon fee from a borrower that has
delivered cash equivalent collateral. No Portfolio will lend securities having a
value that exceeds 5% of the current value of its net assets. Loans of
securities by a Portfolio will be subject to termination at the option of the
Portfolio or the borrower. The Portfolio may pay reasonable administrative and
custodial fees in connection with securities loans and may pay a negotiated
portion of the interest or fee earned with respect to the collateral to the
borrower or the placing broker. Borrowers and placing brokers may not be
affiliated, directly or indirectly, with the Company or the Adviser. The
Portfolios did not lend any of their portfolio securities during 1994 and have
no present intention to do so.

PURCHASING SHARES
(See "Transaction Information--Purchasing Shares" in the Company's Prospectus)

There is a $10 million minimum initial investment in the Company, with
a minimum investment in any single Portfolio of $2 million. Subsequent
investments may be made in the Portfolios in any amount. Investment minimums may
be waived for Directors and officers of the Company and certain other
affiliates. The Company and Scudder Investor Services, Inc. (the "Distributor")
reserve the right to reject any purchase order. All funds will be invested in
full and fractional shares.

Orders for shares of a Portfolio will become effective when an
investor's bank wire order or check is converted into federal funds (monies
credited to State Street Bank and Trust Company's (the "Custodian") 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. (eastern time) on the same day if a bank wire or check
is converted to federal funds by 12:00 noon (eastern time) or a federal funds'
wire is received by 12:00 noon (eastern time). In addition, if investors notify
the Company by 2:00 p.m. (eastern time) that they intend to wire federal funds
to purchase shares of a 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. (eastern 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.

6
<PAGE>

Shares of any Portfolio may be purchased by writing or calling Scudder
Service Corporation, a wholly-owned subsidiary of the Adviser (the "Transfer
Agent"). Due to the desire of the Company to afford ease of redemption,
certificates will not be issued to indicate ownership in a Portfolio. Orders for
shares of a Portfolio will be executed at the net asset value per share next
determined after an order has become effective.

Checks drawn on a non-member bank or a foreign bank may take
substantially longer to be converted into federal funds and, accordingly, may
delay the execution of an order. Checks must be payable in U.S. dollars and will
be accepted subject to collection at full face value.

By investing in a Portfolio, a shareholder appoints the Transfer Agent
to establish an open account to which all shares purchased will be credited with
any dividends and capital gains distributions that are paid in additional
shares. See "Distribution and Performance Information--Dividends and Capital
Gains Distributions" in the Company's Prospectus.

REDEEMING SHARES
(See "Transaction Information--Redeeming Shares" in the Company's Prospectus)

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

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

DIVIDENDS

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

The Company declares dividends on the outstanding shares of each
Portfolio from each Portfolio's net investment income at the close of each
business day to shareholders of record at 2:00 p.m. (eastern time) on the day of
declaration. Realized capital gains and losses may be taken into account in
determining the daily distribution. Shares purchased will begin earning
dividends on the day the purchase order is executed and shares redeemed will
earn dividends through the previous day. Net investment income for a Saturday,
Sunday or holiday will be declared as a dividend on the previous business day to
shareholders of record at 2:00 p.m. (eastern time) on that 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, after
utilization of capital loss carryforwards, if any, will be distributed annually,
although an additional distribution may be necessary to prevent the application
of a federal excise tax. Dividends and distributions will be invested in
additional shares of the same 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.

7
<PAGE>

Shareholders who redeem all their shares prior to a dividend payment
will receive, in addition to the redemption proceeds, dividends declared but
unpaid. Shareholders who redeem only a portion of their shares will be entitled
to all dividends declared but unpaid on such shares on the next dividend payment
date.

PERFORMANCE INFORMATION

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

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

Yield

The Company makes available various yield information with respect to
shares of the Portfolios, including yield and effective yield quotations based
upon the seven-day period ended on the date of calculation. The yield for each
Portfolio for the seven-day period ended December 31, 1995 was 5.26% for the
Government Portfolio, 4.43% for the Federal Portfolio, 5.70% for the Cash
Portfolio and 4.19% for the Tax-Free Portfolio. Each Portfolio's yield may
fluctuate daily and does not provide a basis for determining future yields.

The yield is computed by determining the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the seven-day period and dividing the
difference by the value of the account at the beginning of the seven-day period
to obtain the seven-day period return. The seven-day period return is then
"annualized" by multiplying it by 365/7 with the resulting yield figure carried
to at least the nearest hundredth of one percent. The net change in value of an
account consists of the value of additional shares purchased with dividends from
the original share plus dividends declared on both the original share and any
such additional shares (not including realized gains or losses and unrealized
appreciation or depreciation) less applicable expenses, including the management
fee payable to the Adviser.

Current yield for all of the Portfolios will fluctuate from time to
time, unlike bank deposits or other investments that pay a fixed yield for a
stated period of time, and do not provide a basis for determining future yields.
Yield is a function of portfolio quality, composition, maturity and market
conditions as well as the expenses allocated to the Portfolios.

Effective Yield

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

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

The result of the calculation is carried out to the nearest one
hundredth of one percent.

The effective yield (i.e., on a compound basis, assuming that the daily
reinvestment of dividends) for the seven-day period ended December 31, 1995 was
5.40% for the Government Portfolio, 4.53% for the Federal Portfolio, 5.86% for
the Cash Portfolio and 4.28% for the Tax-Free Portfolio, respectively.

In computing the yield and effective yield, the calculation of net
change in account value includes the value of additional shares purchased with
dividends from the original share and dividends declared on both the original
share and any such additional shares and less fees that are charged to all
shareholder accounts in proportion to the length of the seven-day period. The
calculations exclude realized gains and losses from the sale of securities and
unrealized appreciation and depreciation.

8
<PAGE>

Average Annual Total Return

Average annual total return is the average annual compound rate of
return for periods of one year, five years, and ten years and the life of a
Portfolio, where applicable, all ended on the last day of a recent calendar
quarter. Average annual total return quotations reflect changes in the price of
a Portfolio's shares, if any, and assume that all dividends and capital gains
distributions during the respective periods were reinvested in Portfolio shares.
Average annual total return is calculated by finding the average annual compound
rates of return of a hypothetical investment over such periods, according to the
following formula (average annual total return is then expressed as a
percentage):

T = (ERV/P)^1/n - 1
Where:

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

Average Annual Total Return for periods ended December 31, 1995

Life of the
One Year Five Years Portfolio

Government Portfolio 5.60% 4.47% 6.03%(1)
Federal Portfolio 5.06% 4.00% 5.68%(2)
Cash Portfolio 5.88% 4.63% 6.12%(3)
Tax-Free Portfolio 3.69% 3.26% 4.28%(4)

(1) For the period beginning June 3, 1986
(2) For the period beginning May 9, 1986
(3) For the period beginning June 18, 1986
(4) For the period beginning May 12, 1986

Cumulative Total Return

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

C = (ERV/P) - 1
Where:

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

9
<PAGE>

Cumulative Total Return for periods ended December 31, 1995

Life of the
One Year Five Years Portfolio

Government Portfolio 5.60% 24.44% 75.24(1)
Federal Portfolio 5.06% 21.64% 70.36(2)
Cash Portfolio 5.88% 25.38% 76.22(3)
Tax-Free Portfolio 3.69% 17.40% 49.81(4)

(1) For the period beginning June 3, 1986
(2) For the period beginning May 9, 1986
(3) For the period beginning June 18, 1986
(4) For the period beginning May 12, 1986

Total Return

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

Comparison of Portfolio Performance

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

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

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

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

IBC/Donoghue's Money Fund Report, a weekly publication of the
IBC/Donoghue's Organization, Inc., of Holliston, Massachusetts, reporting on the
performance of the nation's money market funds, summarizing money market fund
activity, and including certain averages as performance benchmarks, specifically
"Donoghue's Money Fund Averages m/Tax-Free Money Funds/Institutions-only" and
"Donoghue's Money Fund Average m/Institutions-only."

10
<PAGE>

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

SHAREHOLDER BENEFITS

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

Special Monthly Summary of Accounts. A special service is available to
banks, brokers, investment advisers, trust companies and others who have a
number of accounts in any Fund. In addition to the copy of the regular Statement
of Account furnished to the registered holder after each transaction, a monthly
summary of accounts can be provided. The monthly summary will show for each
account the account number, the month-end share balance and the dividends and
distributions paid during the month. All costs of this service will be borne by
the Company. For information on the special monthly summary of accounts, contact
the Company.

COMPANY ORGANIZATION

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

The Company was formed on January 2, 1986 as a corporation under the
laws of the State of Maryland. The authorized capital stock of the Company
consists of 25,000,000,000 shares having a par value of $.001 per share, of
which 5,000,000,000 shares each have been designated for the Government
Portfolio, Federal Portfolio and Cash Portfolio, and 2,000,000,000 shares have
been designated for the Tax-Free Portfolio and 100,000,000 have been designated
for the Institutional International Equity Portfolio. The Company is authorized
to issue full and fractional shares in separate series. The Directors have
created 28 series, constituting the Government Portfolio, Federal Portfolio,
Cash Portfolio, Tax-Free Portfolio, Institutional International Equity
Portfolio, Institutional Prime Portfolio, Institutional Municipal Income
Portfolio, Institutional Intermediate Cash Portfolio, Institutional Bond Index
Portfolio, Institutional Cash Plus Portfolio, Institutional Global Equity
Portfolio, Institutional Emerging Markets Equity Portfolio, Institutional Global
Small Company Equity Portfolio, Institutional Latin America Equity Portfolio,
Institutional Japanese Equity Portfolio, Institutional Pacific Basin Equity
Portfolio, Institutional Growth and Income Portfolio, Institutional Quality
Growth Portfolio, Institutional Value Equity Portfolio, Institutional Small
Company Equity Portfolio, Institutional Defensive Limited Volatility Bond
Portfolio, Institutional Intermediate Limited Volatility Bond Portfolio,
Institutional Active Value Bond Portfolio, Institutional Long Duration Bond
Portfolio, Institutional Mortgage Investment Portfolio, Institutional Global
Bond Portfolio, Institutional International Bond Portfolio, and Institutional
Emerging Markets Fixed Income Portfolio. The Directors have reserved authority
to create, in the future, other series representing shares of additional
portfolios.

On any matter submitted to a vote of shareholders, all shares then
entitled to vote will be voted by Portfolio unless otherwise required by the
1940 Act, in which case all shares will be voted in the aggregate. For example,
a change in a Portfolio's fundamental investment policies would be voted upon
only by shareholders of the Portfolio involved. Additionally, approval of the
Investment Advisory Agreements is a matter to be determined separately by each
Portfolio. Approval by the shareholders of one Portfolio is effective as to that
Portfolio whether or not sufficient votes are received from the shareholders of
the other Portfolios to approve the proposal as to those Portfolios. As used in
the Prospectus and in this Statement of Additional Information, the term
"majority," when referring to approvals to be obtained from shareholders of a
Portfolio, means the vote of the lesser of (i) 67% of the shares of the
Portfolio represented at a meeting if the holders of more than 50% of the
outstanding shares of the Portfolio are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the Portfolio. The term "majority,"
when referring to the approvals to be obtained from shareholders of the Company
as a whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (ii) more than 50% of the Company's
outstanding shares. Shareholders are entitled to one vote for each full share
held and fractional votes for fractional shares held.

Each share of a Portfolio represents an equal proportional interest in
that Portfolio with each other share and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that Portfolio

11
<PAGE>

as are declared in the discretion of the Directors. In the event of the
liquidation or dissolution of the Company, shares of a Portfolio are entitled to
receive the assets attributable to that Portfolio that are available for
distribution, and a distribution of any general assets not attributable to a
particular Portfolio that are available for distribution in such manner and on
such basis as the Directors in their sole discretion may determine.

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

INVESTMENT ADVISER

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

The Company retains Scudder, Stevens & Clark, Inc. (the "Adviser") as
investment adviser on behalf of each of the Portfolios pursuant to Investment
Advisory Agreements (the "Agreements"). The Adviser is one of the most
experienced investment counsel firms in the U.S. It was established in 1919 as a
partnership and was restructured as a Delaware corporation in 1985. The
principal source of the Adviser's income is professional fees received from
providing continuing investment advice, and the firm derives no income from
banking, brokerage, or underwriting of securities. The Adviser's wholly-owned
subsidiary, Scudder Investor Services, Inc. (the "Distributor"), acts as
principal underwriter for shares of registered open-end investment companies.
The Adviser provides investment counsel for many individuals and institutions,
including insurance companies, endowments, industrial corporations and financial
and banking organizations. As of December 31, 1995, the Adviser and its
affiliates had in excess of $100 billion under their supervision, approximately
two-thirds of which was invested in fixed-income securities.

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

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

Under the Agreements, it is the responsibility of the Adviser, subject
to the supervision of the Board of Directors, to manage each such Portfolio's
investments in conformity with the stated policies of the Portfolio by providing
supervision of its investments, including the acquisition, holding or disposal
of securities for the Portfolio, and by effecting purchase and sale orders for
securities of the Portfolio. It also furnishes the Portfolio with bookkeeping,
accounting and administrative services which are not furnished by the Custodian
or Scudder Fund Accounting Corporation, a wholly-owned subsidiary of the
Adviser, office space and equipment, and the services of the officers and
employees of the Company. The Adviser has authorized any of its managing
directors, officers and employees who have been elected as Directors or officers
of the Company to serve in the capacities to which they have been elected.

Total fees paid by the Company to the Adviser for the year ended
December 31, 1995 were $104,332 for the Government Portfolio, $23,561 for the
Federal Portfolio, $476,472 for the Cash Portfolio and $143,025 for the Tax-Free
Portfolio.

Total fees paid by the Company to the Adviser for the year ended
December 31, 1994 were $272,538 for the Government Portfolio, $3,068 for the
Federal Portfolio, $580,110 for the Cash Portfolio and $212,854 for the Tax-Free

12
<PAGE>

Portfolio. See "Investment Adviser" in the Prospectus. For the year ended
December 31, 1994, the Adviser did not impose fees amounting to $12,962 and
reimbursed a portion of expenses amounting to $702 for the Federal Portfolio.
For the year ended December 31, 1994, the Adviser reimbursed a portion of
expenses amounting to $32,600 for the Tax-Free Portfolio.

Total fees paid by the Company to the Adviser for the year ended
December 31, 1993 were $289,955 for the Government Portfolio, $0 for the Federal
Portfolio, $921,933 for the Cash Portfolio and $179,949 for the Tax-Free
Portfolio. For the year ended December 31, 1993, the Adviser did not impose fees
amounting to $10,239 and reimbursed a portion of expenses amounting to $31,242
for the Federal Portfolio.

Each Portfolio will bear all expenses not specifically assumed by the
Adviser under the terms of the Agreements. Such expenses will include without
limitation: (a) organization expenses of the Portfolios; (b) clerical salaries;
(c) fees and expenses incurred by the Portfolios in connection with membership
in investment company organizations; (d) brokerage and other expenses of
executing portfolio transactions; (e) payment for portfolio pricing services to
a pricing agent, if any; (f) legal, auditing or accounting expenses; (g) trade
association dues; (h) taxes or governmental fees; (i) the fees and expenses of
the transfer agent of the Portfolios; (j) the cost of preparing share
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of shares of the Portfolios; (k) the expenses and fees
for registering and qualifying securities for sale; (l) the fees and expenses of
directors of the Company who are not employees or affiliates of the Adviser or
any of its affiliates; (m) travel expenses of all officers, directors and
employees; (n) insurance premiums; (o) the cost of preparing and distributing
reports and notices to shareholders; (p) public and investor relations expenses;
or (q) the fees or disbursements of custodians of the Portfolios' assets,
including expenses incurred in the performance of any obligations enumerated by
the Articles of Incorporation or By-Laws insofar as they govern agreements with
any such custodian. No sales or promotional expenses are incurred by the
Company, but expenses incurred in complying with laws relating to the issue or
sale of the Company's shares are not deemed sales or promotional expenses.

Each of the Agreements provides that if, in any fiscal year, the "total
expenses" of the relevant Portfolio ("total expenses" generally excludes taxes,
interest, brokerage commission and other portfolio transaction expenses, other
expenditures that are capitalized in accordance with generally accepted
accounting principles and extraordinary expenses, but including the management
fee) exceed the expense limitations applicable to such Portfolio imposed by the
securities regulations of any state, the Adviser will pay or reimburse the
Portfolio for the excess. Each of the Agreements, however, limits such payment
or reimbursement to the amount of the annual management fee otherwise payable by
the Portfolio. It is believed that currently the most restrictive state annual
expense limitation is 2.5% of the first $30,000,000 of average daily net assets,
2% of the next $70,000,000 and 1.5% of average daily net assets over
$100,000,000. For the three years ended December 31, 1995, the Adviser has not
had to reimburse any Portfolio because of these limitations.

The Agreements will continue in effect with respect to each Portfolio
if specifically approved annually by a majority of the Directors of the Company,
including a majority of the Directors who are not parties to such contract or
"interested persons" of any such party. Each of the Agreements may be terminated
without penalty by either of the parties on 60 days' written notice and must
terminate in the event of its assignment. Each may be amended or modified only
if approved by vote of the holders of the majority of the particular Portfolio's
outstanding shares as defined in the 1940 Act.

The Agreements provide that the Adviser is not liable for any act or
omission in the course of or in connection with rendering services under the
Agreements in the absence of willful misfeasance, bad faith or gross negligence
of its obligations or duties.

The Adviser places orders for the purchase and sale of securities for
the Portfolios of the Company. The Company will not deal with the Adviser in any
transaction in which the Adviser acts as principal.

Personal Investments by Employees of the Adviser

Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory

13
<PAGE>

clients such as the Portfolios. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.

DISTRIBUTOR

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

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

DIRECTORS AND OFFICERS

The principal occupations of the Directors and executive officers of
the Company for the past five years are listed below.
<TABLE>
<CAPTION>
Position with
Position with Underwriter, Scudder
Name (Age) and Address Company Principal Occupation** Investor Services, Inc.
- ---------------------- ------------- ---------------------- -----------------------
<S> <C> <C> <C>

Daniel Pierce (62)+*# President and Chairman of the Board and Vice President, Director
Director Managing Director of and Assistant Treasurer
Scudder, Stevens & Clark,
Inc.

David S. Lee (62)+*# Chairman of the Managing Director of President, Director and
Board and Director Scudder, Stevens & Clark, Assistant Treasurer
Inc.

Edgar R. Fiedler (67)# Director Vice President and Economic --
50114 Manley Counselor, The Conference
Chapel Hill, NC 27514 Board, Inc.

Peter B. Freeman (63) Director Corporate Director and --
100 Alumni Avenue Trustee
Providence, RI 02906

Robert W. Lear (78) Director Executive-in-Residence, --
429 Silvermine Road Visiting Professor, Columbia
New Canaan, CT 06840 University Graduate School
of Business

14
<PAGE>

Position with
Position with Underwriter, Scudder
Name (Age) and Address Company Principal Occupation** Investor Services, Inc.
- ---------------------- ------------- ---------------------- -----------------------

K. Sue Cote (34)+ Vice President Principal of Scudder, --
Stevens & Clark, Inc.

Jerard K. Hartman (63)++ Vice President Managing Director of --
Scudder, Stevens & Clark,
Inc.

Kathryn L. Quirk (43)++ Vice President Managing Director of Vice President
Scudder, Stevens & Clark,
Inc.

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

Thomas F. McDonough (49)+ Vice President and Principal of Scudder, Clerk
Assistant Secretary Stevens & Clark, Inc.

Pamela A. McGrath (42)+ Vice President Managing Director of --
and Treasurer Scudder, Stevens & Clark,
Inc.

Irene McC. Pelliconi (65)++ Secretary Vice President of Scudder, --
Stevens & Clark, Inc.

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

</TABLE>

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

As of April 1, 1996, the Directors and officers of the Company, as a
group, owned less than 1% of the outstanding shares of each Portfolio of the
Company.

As of April 1, 1996, the following shareholders held of record,
beneficially, or both, more than 5% of the outstanding shares of these
Portfolios:

Government Portfolio. Mercer Williams & Co., Boston, MA 02105-1647, Bowen
David & Co., Boston, MA 02105-1647 and Mr. Damon Mezzacappa, New York, NY
10112-0002 held of record 17.02%, 62.07% and 8.70%, respectively, of the
outstanding shares of the Government Portfolio.

Federal Portfolio. Lazard Freres & Co., New York, NY 10020 held of
record, but not beneficially, 93.12% of the outstanding shares of the Federal
Portfolio.

15
<PAGE>

Cash Portfolio. Bowen David & Co., Boston, MA 02105-1647, Mercer Williams &
Co., Boston, MA 02105-1647, Vicor Securities Corp., Andover, MA 01810-5424, and
Scudder, Stevens & Clark, Inc., New York, New York 10154-0004 held of record
38.04%, 27.18%, 9.42%, and 6.22%, respectively, of the outstanding shares of the
Cash Portfolio.

Tax-Free Portfolio. Bowen David & Co., Boston, MA 02105-1647, Mercer
Williams & Co., Boston, MA 02105-1647, Anchorboard & Company, Boston, MA
02105-1992, Consolidated Edison of New York Health, New York, New York
10003-3502 and Amarillo National Bank, Amarillo, TX 79181-0001 held of record
37.13%, 30.29%, 6.94%, 6.32% and 5.34%, respectively, of the outstanding shares
of the Tax-Free Portfolio.

As of April 1, 1996, no other persons, to the knowledge of management,
owned of record or beneficially more than 5% of the outstanding shares of any
Portfolio. To the extent that any shareholder is the beneficial owner of more
than 25% of the outstanding shares of any Portfolio, such shareholder may be
deemed to be a "control person" of that Portfolio for purposes of the 1940 Act.

REMUNERATION

Several of the officers and Directors of the Company may be officers or
employees of the Adviser, Scudder Fund Accounting Corporation, Scudder Investor
Services, Inc., Scudder Service Corporation or Scudder Trust Company, from whom
they receive compensation, as a result of which they may be deemed to
participate in the fees paid by the Company. The Portfolios pay no direct
remuneration to any officer of the Company. However, each of the Company's
Directors who is not affiliated with the Adviser will be compensated for all
expenses relating to Company business (specifically including travel expenses
relating to Company business). Until May 1, 1995 each of these unaffiliated
Directors received from the Company compensation in the amount of $250 per
Portfolio if the average daily net assets of such Portfolio are less than
$500,000,000, or $500 per Portfolio if the average daily net assets of such
Portfolio are in excess of $500,000,000 for each of: quarterly payments of the
annual Director's fee, each Directors' meeting, and each Board Committee meeting
attended. Effective May 1, 1995, each of these unaffiliated Directors receives
from the Company compensation of $150 per Portfolio for each Director's meeting
attended and each Board Committee meeting attended and an annual Director's fee
of $500 for each Portfolio with average daily net assets less than $100 million,
and $1,500 for each Portfolio with average daily net assets in excess of $100
million, payable quarterly.

The following Compensation Table, provides in tabular form, the following data.

Column (1) All Directors who receive compensation from the Company.
Column (2) Aggregate compensation received by a Director from all Portfolios of
the Company.*
Columns (3) and (4) Pension or retirement benefits accrued or proposed to be
paid by the Company.

Column (5) Total compensation received by a Director from the Company plus
compensation received from all funds managed by the Adviser for which a Director
serves. The total number of funds from which a Director receives such
compensation is also provided in column (5). Generally, compensation received by
a Director for serving on the board of a Scudder closed-end fund is greater than
the compensation received by a Director for serving on the board of a Scudder
open-end fund.

16
<PAGE>
<TABLE>
<CAPTION>

Compensation Table
for the year ended December 31, 1995
========================= ============================= ================== ================= ====================
(1) (2) (3) (4) (5)

Pension or Total
Retirement Compensation
Benefits Estimated From Company
Accrued As Part Annual and Company
Name of Person, Aggregate Compensation of Company Benefits Upon Complex Paid to
Position from Company Expenses Retirement Director
========================= ============================= ================== ================= ====================
<S> <C> <C> <C> <C>

Edgar R. Fiedler, $22,400** N/A N/A $33,570
Director (6 Portfolios)

Peter B. Freeman, $11,766 N/A N/A $126,750
Director (31 Portfolios)

Robert W. Lear, $11,766 N/A N/A $40,850
Director (10 Portfolios)

* Scudder Institutional Fund, Inc. consists of Institutional Government Portfolio,
Institutional Federal Portfolio, Institutional Cash Portfolio and Institutional
Tax-Free Portfolio.

** Mr. Fiedler received $22,400 through a deferred compensation program. As of December
31, 1995, Mr. Fiedler had a total of $206,003 accrued in a deferred compensation
program for serving on the Board of Directors of the Company. Mr. Fiedler also as of
December 31, 1995 had a total of $208,215 accrued in a deferred compensation program
for serving on the Board of Directors for Scudder Fund, Inc. (which has five active
portfolios).

</TABLE>

TAXES
(See "Distribution and Performance Information--Taxes"
in the Company's Prospectus.)

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

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

A 4% nondeductible excise tax will be imposed on a Portfolio (except
the Tax-Free Portfolio to the extent of its tax-exempt income) to the extent it
does not meet certain minimum distribution requirements by the end of each

17
<PAGE>

calendar year. For this purpose, any income or gain retained by a Portfolio that
is subject to tax will be considered to have been distributed by year-end. In
addition, dividends declared in October, November or December payable to
shareholders of record on a specified date in such a month and paid in the
following January will be treated as having been paid by each Portfolio and
received by shareholders on December 31 of the calendar year in which the
dividend was declared. Each Portfolio intends that it will timely distribute
substantially all of its net investment income and net capital gains and, thus,
expects not to be subject to the excise tax.

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

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

Exempt-interest dividends allocable to interest received by the
Tax-Free Portfolio on certain "private activity" obligations issued after August
7, 1986 will be treated as interest on such obligations and thus will give rise
to an item of tax preference that will increase a shareholder's alternative
minimum taxable income. Exempt-interest dividends paid to a corporate
shareholder by the Tax-Free Portfolio (whether or not from interest on private
activity bonds) will be taken into account (i) in determining the alternative
minimum tax imposed on 75% of the excess of adjusted current earnings of the
corporation over alternative minimum taxable income, (ii) in calculating the
environmental tax equal to 0.12% of a corporation's modified alternative minimum
taxable income in excess of $2 million, and (iii) in determining the foreign
branch profits tax imposed on the effectively connected earnings and profits tax
(with adjustments) of U.S. branches of foreign corporations.

Any loss realized on a sale or exchange of shares of a Portfolio will
be disallowed to the extent shares of such Portfolio are reacquired within the
61-day period beginning 30 days before and ending 30 days after the shares are
disposed of. Income from the Federal Portfolio and Tax-Free Portfolio may not be
exempt from certain state and local taxes.

PORTFOLIO TRANSACTIONS

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

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

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

18
<PAGE>

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

NET ASSET VALUE

Net asset value per share for each Portfolio is determined by Scudder
Fund Accounting Corporation, a subsidiary of the Adviser, on each day the
Exchange is open for trading. The net asset value per share of each Portfolio is
determined at 2:00 p.m. (eastern 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. The Exchange is closed on Saturdays, Sundays, and on New Year's
Day, Presidents' Day (the third Monday in February), Good Friday, Memorial Day
(the last Monday in May), Independence Day, Labor Day (the first Monday in
September), Thanksgiving Day and Christmas Day (collectively, the "Holidays").
When any Holiday falls on a Saturday, the Exchange is closed the preceding
Friday, and when any Holiday falls on a Sunday, the Exchange is closed the
following Monday. Although the Company intends to declare dividends with respect
to each of its Money Market Funds on all other days, including Martin Luther
King, Jr. Day (the third Monday in January), Columbus Day (the second Monday in
October) and Veterans' Day, no redemptions will be made on these three bank
holidays nor on any of the Holidays.

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

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

19
<PAGE>

investors or existing shareholders, the Board will take such corrective action
as it regards as appropriate, including the redemption of shares in kind, the
sale of portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity, withholding dividends or
establishing a net asset value per share by using available market quotations.

ADDITIONAL INFORMATION

Experts

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

Other Information

The CUSIP number of the Government Portfolio is 811161207.
The CUSIP number of the Federal Portfolio is 811161108.
The CUSIP number of the Cash Portfolio is 811161405.
The CUSIP number of the Tax-Free Portfolio is 811161504.

Each Portfolio has a fiscal year end of December 31.

The law firm of Sullivan & Cromwell is counsel to the Company.

Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts 02110-4103, a subsidiary of the Adviser, computes net
asset value for the Portfolios. Each Portfolio pays SFAC an annual fee equal to
0.020% of the first $150 million of average daily net assets, 0.0060% of such
assets in excess of $150 million and 0.0035% of such assets in excess of $1
billion, plus holding and transaction charges for this service. For the year
ended December 31, 1995, the amount charged to the Portfolios by SFAC aggregated
$30,000 for the Government Portfolio, $4,232 for the Federal Portfolio, $45,686
for the Cash Portfolio, and $31,636 for the Tax-Free Portfolio, of which $2,500,
$574, $3,730, and $2,500, respectively, remain unpaid at December 31, 1995. For
the year ended December 31, 1995 for the Federal Portfolio, SFAC did not impose
fees amounting to $25,768.

Scudder Service Corporation (the "Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer,
dividend-paying and shareholder service agent for the Company and as such
performs the customary services of a transfer agent and dividend disbursing
agent. These services include, but are not limited to: (i) receiving for
acceptance in proper form orders for the purchase or redemption of Company
shares and promptly effecting such orders; (ii) recording purchases of Company
shares and, if requested, issuing stock certificates; (iii) reinvesting
dividends and distributions in additional shares or transmitting payments
therefor; (iv) receiving for acceptance in proper form transfer requests and
effecting such transfers; (v) responding to shareholder inquiries and
correspondence regarding shareholder account status; (vi) reporting abandoned
property to the various states; and (vii) recording and monitoring daily the
issuance in each state of shares of each Portfolio of the Company. The Service
Corporation applies monthly activity fees for servicing shareholder accounts of
the Company and Scudder Fund, Inc., with a minimum fee of 1/12 of $220,000.
Until September 30, 1995 the difference between the activity fees charged and
the annual $220,000 minimum was allocated among all Portfolios of the Company
and all series of Scudder Fund, Inc. based on relative net assets. Effective
October 1, 1995 the minimum monthly charge to any Portfolio shall be the pro
rata portion of the annual fee, determined by dividing such aggregate fee by the
number of Portfolios of the Company and series of Scudder Fund, Inc. An activity
fee is charged on a monthly basis for the shareholder accounts serviced. When a
Portfolio's monthly activity charges do not equal or exceed the minimum monthly
charge, the minimum will be charged. For the year ended December 31, 1995, the
amount charged to the Portfolios by Service Corporation aggregated $13,570 for
the Government Portfolio, $7,354 for the Federal Portfolio, $32,409 for the Cash
Portfolio, and $15,963 for the Tax-Free Portfolio, of which $2,037 remains
unpaid at December 31, 1995 for each of the Portfolios.

20
<PAGE>
The Company's Prospectus and this Statement of Additional Information
omit certain information contained in the Registration Statement and its
amendments which the Company has filed with the SEC under the Securities Act of
1933 and reference is hereby made to the Registration Statement for further
information with respect to the Company and the securities offered hereby. The
Registration Statement and its amendments are available for inspection by the
public at the SEC in Washington, D.C.

FINANCIAL STATEMENTS

The financial statements, including the investment portfolios of the
Company, together with the Report of Independent Accountants, Financial
Highlights and notes to financial statements are incorporated herein by
reference in the Annual Report to the Shareholders of the Company dated December
31, 1995 and are hereby deemed to be a part of this Statement of Additional
Information.

21
<PAGE>

APPENDIX

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

INSTITUTIONAL GOVERNMENT PORTFOLIO
INSTITUTIONAL FEDERAL PORTFOLIO
INSTITUTIONAL CASH PORTFOLIO
INSTITUTIONAL TAX-FREE PORTFOLIO

ANNUAL REPORT
DECEMBER 31, 1995

<PAGE>

Board of Directors

DAVID S. LEE(1) Chairman of the Board; Managing Director, Scudder, Stevens
& Clark, Inc.

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

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

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

DANIEL PIERCE(1) President; Chairman of the Board, Scudder, Stevens & Clark, Inc.
(1)Member of Executive Committee
(2)Member of Nominating Committee
(3)Member of Audit Committee

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

Officers

DAVID S. LEE Chairman of the Board

DANIEL PIERCE President

K. SUE COTE Vice President

JERARD K. HARTMAN Vice President

KATHRYN L. QUIRK Vice President

THOMAS W. JOSEPH Vice President and Assistant Secretary

THOMAS F. McDONOUGH Vice President and Assistant Secretary

PAMELA A. McGRATH Vice President and Treasurer

IRENE McC. PELLICONI Secretary

</TABLE>

2
<PAGE>

Dear Shareholder:

Operated exclusively for institutions and their clients, Scudder
Institutional Fund, Inc., comprised of Institutional Government Portfolio,
Institutional Federal Portfolio, Institutional Cash Portfolio, and Institutional
Tax-Free Portfolio provided competitive investment results in 1995. These four
money market Portfolios seek to provide high levels of current income while
preserving capital and maintaining liquidity.

All four Portfolios seek to maintain a net asset value of $1.00, and have
done so since their inception (although this cannot be guaranteed). The
Institutional Federal Portfolio seeks to maximize income exempt from state and
local income taxes, while the Institutional Tax-Free Portfolio seeks to provide
income exempt from Federal income tax.

Aggregate net assets were $425 million on December 31, 1995, compared to
$568 million at the start of the year. A table showing dividend payments and
other financial information for the twelve months ended December 31, 1995 is on
page 16. This table also shows dividend payments and financial information for
each Portfolio for the five years ended December 31. In addition, please see the
following pages for audited financial statements for the year ended December 31,
1995, as well as a list of each Portfolio's investments.

If you have any questions concerning Scudder Institutional Fund, Inc.,
please call toll free (800) 854-8525 from any continental state.

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

3
<PAGE>

<PAGE>
<TABLE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
<CAPTION>
GOVERNMENT PORTFOLIO

MATURITY PRINCIPAL VALUE
DATE AMOUNT (NOTE 2A)
-------- --------- ---------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS - 8.2%
Donaldson, Lufkin, & Jenrette Securities Corp. dated
12/29/95 at 5.85% (proceeds at maturity $6,542,250)
collateralized by $6,351,000 U.S. Treasury Note,
6.75%, 2/28/97 (cost $6,538,000) (note 3) ................... 1/2/96 $ 6,538,000 $ 6,538,000
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 92.0%
Federal Farm Credit Bank Discount Note ........................ 1/3/96 8,000,000 7,997,514
Federal Farm Credit Bank Discount Note ........................ 1/5/96 5,000,000 4,996,900
Federal Farm Credit Bank Discount Note ........................ 2/6/96 4,000,000 3,977,800
Federal Home Loan Bank Discount Note .......................... 1/9/96 2,000,000 1,997,533
Federal Home Loan Bank Discount Note .......................... 3/1/96 4,000,000 3,964,533
Federal Home Loan Mortgage Corp. Discount Note ................ 1/9/96 2,000,000 1,997,516
Federal Home Loan Mortgage Corp. Discount Note ................ 1/9/96 3,434,000 3,429,757
Federal Home Loan Mortgage Corp. Discount Note ................ 1/16/96 2,600,000 2,593,890
Federal Home Loan Mortgage Corp. Discount Note ................ 2/20/96 2,000,000 1,984,500
Federal Home Loan Mortgage Corp. Discount Note ................ 6/17/96 4,000,000 3,902,000
Federal National Mortgage Assn. Discount Note ................. 1/8/96 4,000,000 3,995,590
Federal National Mortgage Assn. Discount Note ................. 1/16/96 3,000,000 2,993,013
Federal National Mortgage Assn. Discount Note ................. 1/18/96 3,000,000 2,992,053
Federal National Mortgage Assn. Discount Note ................. 1/19/96 2,000,000 1,994,520
Student Loan Marketing Assn. Variable Rate Note, 6.08% ........ 7/1/96* 5,000,000 5,000,000
Student Loan Marketing Assn. Variable Rate Note, 5.22% ........ 1/2/96* 11,700,000 11,700,000
Student Loan Marketing Assn. Variable Rate Note, 5.40% ........ 1/2/96* 8,000,000 8,025,279
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $73,542,398) ........................ 73,542,398
-----------
TOTAL INVESTMENTS - 100.2% (COST $80,080,398)** ..................................... 80,080,398
-----------
OTHER ASSETS AND LIABILITIES - (0.2%)

Interest receivable and other assets ................................................ 361,328
Dividend payable .................................................................... (353,701)
Management fee payable (note 4) ..................................................... (9,957)
Accrued expenses (note 4) ........................................................... (159,707)
-----------
(162,037)
-----------
</TABLE>

See notes to financial statements.

4
<PAGE>

<TABLE>
<S> <C>
NET ASSETS - 100.0%
Applicable to 79,918,361 shares of $.001 par value Capital Stock outstanding;
5,000,000,000 shares authorized (note 5) .................................... $79,918,361
===========
NET ASSET VALUE PER SHARE ........................................................... $ 1.00
===========

<FN>
* Date of next interest rate change.
** Cost for federal income tax purposes.
</FN>
</TABLE>

See notes to financial statements.

5
<PAGE>

<TABLE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
<CAPTION>
FEDERAL PORTFOLIO

MATURITY PRINCIPAL VALUE
DATE AMOUNT (NOTE 2A)
-------- --------- ---------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS - 99.2%
U.S. Treasury Bill ........................................ 1/4/96 $ 580,000 $ 579,746
U.S. Treasury Bill ........................................ 1/25/96 890,000 886,826
U.S. Treasury Bill ........................................ 2/8/96 3,000,000 2,983,074
U.S. Treasury Bill ........................................ 2/15/96 850,000 844,294
U.S. Treasury Bill ........................................ 3/7/96 1,200,000 1,188,351
U.S. Treasury Bill ........................................ 3/14/96 550,000 544,039
U.S. Treasury Bill ........................................ 3/28/96 3,900,000 3,854,289
U.S. Treasury Bill ........................................ 4/4/96 2,500,000 2,465,599
U.S. Treasury Bill ........................................ 5/2/96 3,000,000 2,949,777
-----------
TOTAL U.S. TREASURY OBLIGATIONS (COST $16,295,995)** ........................................ 16,295,995
-----------
OTHER ASSETS AND LIABILITIES - 0.8%
Cash ........................................................................................ 334,491
Other assets ................................................................................ 5,194
Dividend payable ............................................................................ (100,244)
Management fee payable (note 4) ............................................................. (23,561)
Accrued expenses (note 4) ................................................................... (91,592)
-----------
124,288
-----------
NET ASSETS - 100.0%
Applicable to 16,420,283 shares of $.001 par value Capital Stock outstanding;
5,000,000,000 shares authorized (note 5) .................................................. $16,420,283
===========
NET ASSET VALUE PER SHARE ................................................................... $ 1.00
===========

<FN>
** Cost for federal income tax purposes.
</FN>
</TABLE>

See notes to financial statements.

6
<PAGE>

<TABLE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
<CAPTION>
CASH PORTFOLIO

MATURITY PRINCIPAL VALUE
DATE AMOUNT (NOTE 2A)
-------- --------- ---------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT - 14.4%
Bayerische Vereinsbank, 5.78% ..................... 4/1/96 7,000,000 7,000,000
Canadian Imperial National Bank (Yankee), 5.8% .... 1/30/96 8,000,000 8,000,000
Credit Suisse Zurich (Yankee), 5.75% .............. 1/19/96 7,000,000 7,000,069
Lloyds Bank (Yankee), 5.76% ....................... 4/10/96 7,000,000 7,000,189
Swiss Bank Corp, 5.67% ........................... 3/25/96 7,000,000 6,998,599
-----------

TOTAL CERTIFICATES OF DEPOSIT (COST $35,998,857) ......................... 35,998,857
-----------

COMMERCIAL PAPER - 61.4%
Abbey National North America ...................... 1/31/96 7,000,000 6,966,632
American General Finance Corp. .................... 1/8/96 7,000,000 6,992,242
AT&T Corp. ........................................ 4/9/96 7,000,000 6,892,393
Associates Corp. of North America ................. 1/10/96 7,000,000 6,990,025
Barclays U.S. Funding Corp. ....................... 1/8/96 4,000,000 3,995,574
Ciesco L.P. Discount Note ......................... 1/18/96 7,000,000 6,981,191
Credit Agricole U.S.A. ............................ 2/14/96 7,000,000 6,952,089
Deere Cap Corp. ................................... 1/29/96 7,000,000 6,968,967
Deutsche Bank Financial Inc. ...................... 4/10/96 7,000,000 6,891,111
Ford Credit Receivables Funding Inc. .............. 1/17/96 7,400,000 7,381,286
General Electric Co. .............................. 1/11/96 8,000,000 7,987,289
H.J. Heinz Co. .................................... 1/10/96 8,000,000 7,988,600
Eli Lilly & Co. ................................... 3/5/96 6,000,000 5,940,053
New Center Asset Trust ............................ 1/16/96 10,000,000 9,976,083
Norwest Corp. ..................................... 1/26/96 7,000,000 6,972,292
Pitney Bowes Credit Corp. ......................... 1/23/96 7,000,000 6,975,745
Pitney Bowes Credit Corp. ......................... 2/1/96 5,000,000 4,975,674
PREFCO ............................................ 1/24/96 8,000,000 7,970,764
Prudential Funding Corp. .......................... 1/9/96 7,000,000 6,991,056
Rincon Securities Inc. (LOC Trust Co. of Georgia) . 1/12/96 7,000,000 6,987,830
Transamerica Financial ............................ 1/12/96 7,000,000 6,987,680
Warner Lambert Co.. ............................... 5/6/96 6,500,000 6,376,013
-----------

TOTAL COMMERCIAL PAPER (COST $153,140,589) ............................... 153,140,589
-----------
</TABLE>

See notes to financial statements.

7
<PAGE>

<TABLE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
CASH PORTFOLIO (CONTINUED)
<CAPTION>

MATURITY PRINCIPAL VALUE
DATE AMOUNT (NOTE 2A)
-------- --------- ---------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS - 7.7%
Donaldson, Lufkin & Jenrette Securities Corp.
dated 12/29/95 at 5.85% (proceeds at maturity
$19,179,459) collateralized by $19,586,000
U.S. Treasury Bill, 4/11/96
(cost $19,167,000) (note 3) ............................. 1/2/96 $19,167,000 $ 19,167,000
------------
U.S. Government Agency Obligations - 15.7%
Federal National Mortgage Assn.
Variable Rate Note, 5.68% ............................... 3/14/96* 15,000,000 15,000,000
Student Loan Marketing Assn. Variable Rate Note, 5.22% .... 1/2/96* 14,000,000 14,000,000
Student Loan Marketing Assn. Variable Rate Note, 5.40% .... 1/2/96* 10,000,000 10,031,599
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (cost $39,031,599) ............................... 39,031,599
------------
VARIABLE COUPON RENEWABLE NOTES - 1.1%
Adesa Funding Corp. (LOC Banc One), 5.83%
(cost $2,847,000) ....................................... 1/4/96* 2,847,000 2,847,000
------------
TOTAL INVESTMENTS - 100.3% (COST $250,185,045)** .......................................... 250,185,045
------------
OTHER ASSETS AND LIABILITIES - (0.3%)
Interest receivable and other assets ...................................................... 782,005
Dividend payable .......................................................................... (1,292,461)
Management fee payable (note 4) ........................................................... (34,136)
Accrued expenses (note 4) ................................................................. (212,324)
------------
(756,916)
------------
NET ASSETS - 100.0%
Applicable to 249,428,129 shares of $.001 par value Capital Stock outstanding;
5,000,000,000 shares authorized (note 5) ................................................ $249,428,129
============
NET ASSET VALUE PER SHARE ................................................................. $ 1.00
============
<FN>
* Date of next interest rate change.
** Cost for federal income tax purposes.

ABBREVIATIONS USED IN THE STATEMENT:

LOC Letter of Credit
</FN>
</TABLE>

See notes to financial statements.

8
<PAGE>

<TABLE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
<CAPTION>
TAX-FREE PORTFOLIO

CREDIT PRINCIPAL VALUE
RATING* SHORT-TERM MUNICIPAL SECURITIES - 103.5% AMOUNT (NOTE 2A)
- ------- --------- ---------
<S> <C> <C> <C>
ALASKA - 3.8%
A-1+ Alaska Housing Finance Corp. General Mortgage Revenue Series 1991-A
VRDN, 5.3%, 6/1/26 ..................................................... $3,000,000 $3,000,000
----------
ARIZONA - 4.6%
A-1+ Apache County Industrial Development Revenue Tuscan Electric Co.
Springerville Project Series 1985-A VRDN, 5%, 12/1/20 .................. 500,000 500,000
VMIG-1 Pima County Industrial Development Authority Tucson Electric Power Co.
Series 1982-A VRDN, 5.1%, 7/1/22 ....................................... 100,000 100,000
A-1+ Salt River Project Electric System Revenue Refunding Series 1992-A TOB,
5%, 1/1/09 ............................................................. 3,000,000 3,000,000
----------
TOTAL ARIZONA ........................................................ 3,600,000
----------
ARKANSAS - 0.1%
VMIG-1 Jonesboro Industrial Revenue Bond Farr Co. Project VRDN, 5.6%, 12/1/01 .. 70,000 70,000
----------
CALIFORNIA - 7.6%
SP-1+ California Community College Finance Authority Series B
TRAN, 5%, 8/30/96 ...................................................... 1,500,000 1,504,744
A-1 Lancaster Willows Project Green Meadows Apartments Series 1995-A
VRDN, 5.375%, 2/1/05 ................................................... 1,000,000 1,000,000
SP-1+ Los Angeles County Local Educational Agencies Pool TRAN, 4.75%, 7/5/96 ... 1,000,000 1,003,170
A-1 Riverside Multi-Family Housing Revenue Countrywood Apartments Series
1985-D VRDN, 5.375%, 5/1/05 ............................................ 1,500,000 1,500,000
SP-1+ South Coast Local Education Agencies TRAN, 5%. 8/14/96 ................... 1,000,000 1,002,953
----------
TOTAL CALIFORNIA ..................................................... 6,010,867
----------
COLORADO - 1.8%
A-1+ Clear Creek County Colorado Counties Financing Program Series 1988
VRDN, 5.15%, 6/1/98 .................................................... 400,000 400,000
A-1 Colorado Housing Finance Authority Central Park Coventry Village
& Greenwood Point Series 1985 VRDN, 5.15%, 5/1/97 ...................... 1,000,000 1,000,000
----------
TOTAL COLORADO ....................................................... 1,400,000
----------
CONNECTICUT - 2.5%
A-1+ Hartford Redevelopment Agency Underwood Towers Project Series 1990
FSA Insured VRDN, 5.35%, 6/1/20 ........................................ 2,000,000 2,000,000
----------
FLORIDA - 1.5%
A-1+ Dade County Water and Sewer System Revenue Bond Series 1994
VRDN FGIC Insured, 4.9%, 10/5/22 ....................................... 1,200,000 1,200,000
----------
GEORGIA - 9.2%
A-1+ DeKalb Private Hospital Authority Egleston Children's Hospital at Emory
University Series 1994-B VRDN, 5.05%, 3/1/24 ........................... 1,400,000 1,400,000
P-1 Hapeville Industrial Development Bond Hapeville Hotel VRDN, 6%, 11/1/15 .. 1,100,000 1,100,000
MIG-1 Savannah Downtown Development Authority Series 1985 VRDN, 5.38%,
5/1/15 ................................................................. 4,800,000 4,800,000
----------
TOTAL GEORGIA ........................................................ 7,300,000
----------
</TABLE>

See notes to financial statements.

9
<PAGE>

<TABLE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
TAX-FREE PORTFOLIO (CONTINUED)
<CAPTION>

CREDIT PRINCIPAL VALUE
RATING* AMOUNT (NOTE 2A)
- ------- --------- ---------
<S> <C> <C> <C>
ILLINOIS - 3.8%
SP-1+ Illinois General Obligation Revenue Anticipation Certificates Series 1995,
4.5%, 5/10/96 ............................................................... $2,000,000 $2,004,697
MIG-1 State of Illinois Revenue Anticipation Certificates Series 1995, 4.5%,
6/10/96 ..................................................................... 1,000,000 1,005,150
----------
TOTAL ILLINOIS ............................................................ 3,009,847
----------
INDIANA - 8.1%
A-1+ Purdue University Student Fee Revenue Bonds Series H VRDN, 5%, 7/1/17 ......... 2,200,000 2,200,000
MIG-1 Purdue University Student Fee Revenue Bonds Series 1995L VRDN,
5%, 7/1/20 ............................................................... 2,200,000 2,200,000
A-1+ Sullivan PCR Hoosier Energy Rural Electric Project TECP, 3.75%, 1/25/96 2,000,000 2,000,000
----------
TOTAL INDIANA ............................................................. 6,400,000
----------
IOWA - 1.9%
SP-1+ Iowa School Corporation Warrant Certificates Cash Anticipation
Program Capital Guaranty Insured VRDN, 4.75%, 6/28/96 ....................... 1,500,000 1,506,353
----------
LOUISIANA - 3.8%
A-1+ Louisiana Public Facilities Authority Sisters of Charity Series 1993 TECP,
3.8%, 1/11/96 ............................................................... 3,000,000 3,000,000
----------
MARYLAND - 1.6%
MIG-1 Ann Arundel County Baltimore Electric & Gas Company TECP, 3.6%,
3/8/96 ...................................................................... 1,300,000 1,300,000
----------
MAINE - 1.3%
SP-1+ State of Maine TAN, 4.5%, 6/28/96 ............................................. 1,000,000 1,003,538
----------
MISSOURI - 2.5%
A-1+ Missouri State Environmental Improvement and Energy Resource Authority
Union Electric Company Series 1984-A OP, 4%, 6/1/96 ......................... 2,000,000 2,000,000
----------
NEBRASKA - 1.6%
A-1+ Omaha Public Power District TECP, 3.85%, 2/7/96 ............................... 1,300,000 1,300,000
----------
NEW MEXICO - 1.3%
MIG-1 Albuquerque Gross Receipts/Lodgers Tax Series 1991-A VRDN, 5.15%,
7/1/22 ...................................................................... 1,000,000 1,000,000
----------
NEW YORK - 3.3%
MIG-1 New York City RAN, 4.5%, 4/11/96 .............................................. 2,600,000 2,608,147
----------
OREGON - 4.4%
A-1 Oregon General Obligation Series 1973-G VRDN, 5.25%, 12/1/18 .................. 1,900,000 1,900,000
VMIG-1 Oregon General Obligation Veterans Welfare Series 1973-E VRDN,
5.15%, 12/1/16 .............................................................. 1,600,000 1,600,000
----------
TOTAL OREGON .............................................................. 3,500,000
----------
PENNSYLVANIA - 5.7%
SS&C Elk County Pennsylvania Industrial Development Authority Stackpole
Corporation Series 1989 VRDN, 4.01%, 3/1/04 ................................. 1,000,000 1,000,000
</TABLE>

See notes to financial statements.

10
<PAGE>

CREDIT PRINCIPAL VALUE
RATING* AMOUNT (NOTE 2A)
- ------- --------- ---------
<S> <C> <C> <C>
A-1+ Emmaus General Authority Local Government Revenue Bond
Pool Program Series 1989-G VRDN, 5.05%, 3/1/24 .............................. $ 800,000 $ 800,000
A-1+ Emmaus General Authority Local Government Revenue Bond
Pool Program Series 1989-G5 VRDN, 5.15%, 3/1/24 ............................. 1,200,000 1,200,000
A-1 Emmaus General Authority Local Government Revenue Bond
Pool Program Series 1989-G6 VRDN, 5.1%, 3/1/24 .............................. 1,500,000 1,500,000
-----------
TOTAL PENNSYLVANIA ........................................................ 4,500,000
-----------
TENNESSEE - 5.1%
VMIG-1 Franklin Industrial Development Revenue Franklin Oaks Apartments
VRDN, 4.85%, 12/1/07 ........................................................ 4,000,000 4,000,000
-----------
TEXAS - 14.2%
MIG-1+ Gulf Coast Waste Disposal Authority Texas Exxon Project TECP, 3.5%,
3/13/96 ..................................................................... 2,000,000 2,000,000
A-1+ Austin Utility Systems Revenue TECP, 3.85%, 2/8/96 ............................ 1,000,000 1,000,000
A-1+ San Antonio Electric & Gas City Public Services Series 1995 A TECP,
3.8%, 2/14/96 ............................................................... 3,000,000 3,000,000
MIG-1 Lone Star Airport Improvement Authority Series A2 VRDN, 6%, 12/1/14 ........... 1,200,000 1,200,000
SP-1+ State of Texas TRAN, 4.75%, 8/30/96 ........................................... 4,000,000 4,019,724
-----------
TOTAL TEXAS ............................................................... 11,219,724
-----------
UTAH - 1.3%
A-1+ Salt Lake City Pooled Hospital Financings TECP, 3.85%, 2/13/96 ................ 1,000,000 1,000,000
-----------
VERMONT - 4.6%
SS&C Vermont Industrial Development Authority Mount Snow Limited Series 1904
VRDN, 4.1%, 4/1/99 .......................................................... 810,000 810,000
VMIG-1 Vermont Student Assistance Corporations VRDN, 3.75%, 1/1/04 ................... 2,800,000 2,800,000
-----------
TOTAL VERMONT ............................................................. 3,610,000
-----------
VIRGINIA - 1.3%
MIG-1 Louisa Pollution Control Revenue Virginia Electric Power Co. Series
1987 TECP, 3.6%, 3/8/96 ..................................................... 1,000,000 1,000,000
-----------
WASHINGTON - 4.9%
MIG-1 Washington Public Power Supply System Projects -1 and -3 Refunding
Revenue Series 1993-3A1 VRDN, 5.1%, 7/1/18 .................................. 1,475,000 1,475,000
A-1 Washington Public Power Supply System Nuclear Project -1 Series
1993-1A-1 VRDN, 4.95%, 7/1/17 ............................................... 2,400,000 2,400,000
-----------
TOTAL WASHINGTON .......................................................... 3,875,000
-----------
WISCONSIN - 0.6%
A-1+ Wausau Pollution Control Revenue Minnesota Mining and Manufacturing
Series 1982 VRDN, 5.31%, 8/1/17 ............................................. 500,000 500,000
-----------
WYOMING - 1.1%
A-1+ Lincoln County Pollution Control Revenue Pacificorp Project Series 1994
AMBAC Insured, 6.1%, 11/1/24 ................................................ 900,000 900,000
-----------
TOTAL INVESTMENTS - 103.5% (COST $81,813,476)** ............................... 81,813,476
-----------
</TABLE>

See notes to financial statements.

11
<PAGE>

<TABLE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1995
TAX-FREE PORTFOLIO (CONTINUED)
<CAPTION>
VALUE
(NOTE 2A)
---------
<S> <C>
OTHER ASSETS AND LIABILITIES - (3.5%)
Interest receivable and other assets ..................................................... $ 686,577
Receivable for Investments sold .......................................................... 900,000
Due to custodian bank .................................................................... (2,944,681)
Payable for Investments purchased ........................................................ (1,022,900)
Dividend payable ......................................................................... (275,770)
Management fee payable (note 4) .......................................................... (11,096)
Accrued expenses (note 4) ................................................................ (96,293)
-----------
(2,764,163)
-----------
NET ASSETS - 100.0%
Applicable to 79,049,313 shares of $.001 par value Capital Stock outstanding;
2,000,000,000 shares authorized (note 5) ............................................... $79,049,313
===========
NET ASSET VALUE PER SHARE ................................................................ $ 1.00
===========
<FN>
** Cost for federal income tax purposes.
- --------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>

<TABLE>
* CREDIT RATINGS (UNAUDITED) SHOWN ARE EITHER BY MOODY'S INVESTORS SERVICE, INC., STANDARD & POOR'S
CORPORATION OR SCUDDER:
<CAPTION>
MOODY'S STANDARD & POOR'S
<S> <C> <C>
P-1 A-1/A-1+ Commercial paper of the highest quality.
MIG-1/MIG-1+ SP-1/SP-1+ Short-term tax-exempt instrument of the best quality with strong protection.
VMIG-1 Short-term tax-exempt variable rate demand instrument of the best quality with
strong protection.
</TABLE>

<TABLE>

ABBREVIATIONS USED IN THE STATEMENT:
<S> <C> <C> <C>
TECP Tax Exempt Commercial Paper VRDN Variable Rate Demand Note

OP Security with a "optional put" feature; date shown SS&C These securities are not rated by either Moody's
represents the earliest date the security may be redeemed or Standard & Poor's. Scudder has determined that
or the interest rate will be reset if the security is not these securities are of comparable quality to
redeemed rated acceptable notes on a cash flow basis and are
of appropriate credit for the standards required
by the Fund's investment objective.

TOB Tender Option Bond is a security with a periodic TRAN Tax Revenue Anticipation Note
"put feature"

RAN Revenue Anticipation Note TAN Tax Anticipation Note

</TABLE>

See notes to financial statements.

12
<PAGE>

<TABLE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<CAPTION>
GOVERNMENT FEDERAL CASH TAX-FREE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest Income .......................... $4,067,528 $861,963 $19,021,209 $3,775,939
---------- -------- ----------- ----------

EXPENSES (NOTE 2C):
Management fee (note 4) .................. 104,332 23,561 476,472 143,025
Shareholder services (note 4) ............ 15,640 7,670 34,413 17,678
Directors' fees and expenses (note 4) .... 13,770 10,864 20,650 15,601
Custodian and accounting fees (note 4) ... 63,341 36,086 98,449 77,858
Professional services .................... 51,599 14,580 132,668 61,249
Reports to shareholders .................. 1,791 459 8,992 3,423
Registration fees ........................ 3,005 4,156 3,818 6,120
Miscellaneous ............................ 17,120 9,870 27,728 10,745
---------- -------- ----------- ----------
Total expenses before reductions ......... 270,598 107,246 803,190 335,699
Expense reductions (note 4) .............. -- (25,768) -- --
---------- -------- ----------- ----------
Net expenses ........................... 270,598 81,478 803,190 335,699
---------- -------- ----------- ----------

NET INVESTMENT INCOME AND INCREASE IN NET
ASSETS FROM OPERATIONS ................. $3,796,930 $780,485 $18,218,019 $3,440,240
========== ======== =========== ==========
</TABLE>

See notes to financial statements.

13
<PAGE>

<TABLE>
SCUDDER INSTITUTIONAL FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<CAPTION>
GOVERNMENT PORTFOLIO
------------------------
1995 1994
-------- --------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income and increase in net assets
from operations .............................................. $ 3,796,930 $ 7,073,834
Dividends (notes 2b and 2d) .................................... (3,796,930) (7,073,834)
------------- -------------
-- --
------------- -------------
CAPITAL STOCK TRANSACTIONS (NOTE 5):
Proceeds from sales of shares .................................. 432,240,116 803,305,494
Net asset value of shares issued in reinvestment of dividends .. 1,131,510 1,137,637
------------- -------------
433,371,626 804,443,131
Cost of shares redeemed ........................................ (471,317,385) (882,511,092)
------------- -------------
Increase (decrease) in net assets from Capital Stock
transactions ................................................. (37,945,759) (78,067,961)
------------- -------------
Total increase (decrease) in net assets .......................... (37,945,759) (78,067,961)
NET ASSETS:
Beginning of period ............................................ 117,864,120 195,932,081
------------- -------------
End of period .................................................. $ 79,918,361 $ 117,864,120
============= =============
</TABLE>

See notes to financial statements.

14
<PAGE>

Federal Portfolio Cash Portfolio Tax-Free Portfolio
- --------------------------- ------------------------------- -----------------------------
1995 1994 1995 1994 1995 1994
- ------------ ------------- -------------- --------------- ------------- ------------
<C> <C> <C> <C> <C> <C>
$ 780,485 $ 362,379 $ 18,218,019 $ 15,242,973 $ 3,440,240 $ 3,879,840
(780,485) (362,379) (18,218,019) (15,242,973) (3,440,240) (3,879,840)
- ------------ ------------ ------------- --------------- ------------- -------------
-- -- -- -- -- --
- ------------ ------------ ------------- --------------- ------------- -------------
81,622,544 49,187,822 924,578,235 1,756,715,344 522,266,284 908,058,572
690,840 344,539 6,908,170 2,606,116 907,361 1,407,961
- ------------ ------------ ------------- --------------- ------------- -------------
82,313,384 49,532,361 931,486,405 1,759,321,460 523,173,645 909,466,533
(76,948,070) (46,094,573) (953,063,076) (1,956,022,378) (611,981,728) (866,656,883)
- ------------ ------------ ------------- --------------- ------------- -------------
5,365,314 3,437,788 (21,576,671) (196,700,918) (88,808,083) 42,809,650
- ------------ ------------ ------------- --------------- ------------- -------------
5,365,314 3,437,788 (21,576,671) (196,700,918) (88,808,083) 42,809,650

11,054,969 7,617,181 271,004,800 467,705,718 167,857,396 125,047,746
- ------------ ------------ ------------- --------------- ------------- -------------
$ 16,420,283 $ 11,054,969 $ 249,428,129 $ 271,004,800 $ 79,049,313 $ 167,857,396
============ ============ ============= =============== ============= =============
</TABLE>

See notes to financial statements.

15
<PAGE>

<TABLE>
SCUDDER INSTITUTIONAL FUND, INC.
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH YEAR AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>

Ratio of Ratio of Net
Net Asset Net Asset Operating Investment Net Assets
Value, at Net Value, at Expenses Income End of
Beginning Investment Dividends End Total to Average to Average Period
Period of Period Income Paid of Period Return Net Assets Net Assets (millions)
- --------------------------------- --------- ---------- --------- --------- ------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT PORTFOLIO
Year ended 12/31/95 ........... $1.00 $.055 $(.055) $1.00 5.60% 0.39% 5.46% $ 80
Year ended 12/31/94 ........... 1.00 .040 (.040) 1.00 4.09 0.28 3.89 118
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
FEDERAL PORTFOLIO (a) (b)
Year ended 12/31/95 ........... 1.00 .049 (.049) 1.00 5.06 0.52 4.97 16
Year ended 12/31/94 ........... 1.00 .034 (.034) 1.00 3.42 0.54 3.39 11
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
CASH PORTFOLIO
Year ended 12/31/95 ........... 1.00 .057 (.057) 1.00 5.88 0.25 5.73 249
Year ended 12/31/94 ........... 1.00 .041 (.041) 1.00 4.13 0.24 3.94 271
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
TAX-FREE PORTFOLIO
Year ended 12/31/95 ........... 1.00 .036 (.036) 1.00 3.69 0.35 3.61 79
Year ended 12/31/94 (a) (b) ... 1.00 .027 (.027) 1.00 2.74 0.27 2.73 168
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

<FN>
(a) The annualized operating expense ratio including expenses reimbursed, management fee and other expenses not imposed would
have been: 0.68%, 0.77%, 0.83%, 0.69%, and 0.67% and for the years ended December 31, 1995, 1994, 1993, 1992, and 1991,
respectively for the Federal Portfolio, and 0.29% for the year ended December 31, 1994 for the Tax-Free Portfolio. (b)
(b) Total returns are higher, for the periods indicated, due to the maintenance of the Fund's expenses.
</FN>
</TABLE>

16
<PAGE>

SCUDDER INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

Scudder Institutional Fund, Inc. (the "Fund") is an open-end diversified
management investment company which currently has four active money market
investment portfolios: the Government Portfolio, Federal Portfolio, Cash
Portfolio and Tax-Free Portfolio (collectively the "Portfolios").

2. SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies followed by the Fund are:

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

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

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

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

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

The Cash Portfolio must have at least 25% of its investment portfolio
invested in bankers' acceptances, certificates of deposits, commercial paper,
fixed time deposits or other obligations of domestic and foreign banks.

3. REPURCHASE AGREEMENTS

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

17
<PAGE>

SCUDDER INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES

The investment advisory agreements between Scudder, Stevens & Clark,
Inc. ("Scudder"), the Fund's investment manager, and the Fund on behalf of
each Portfolio provide for a management fee payable each month, based upon
the average daily value of each Portfolio's net assets, at annual rates of
0.15%.

Under certain state regulations, if the total expenses of any of the
Portfolios, exclusive of taxes, interest, and extraordinary expenses exceed
certain limitations, the Fund's investment adviser is required to reimburse
the Portfolio for such excess up to the amount of management fees. Effective
January 20, 1995, the adviser agreed not to impose a portion of its management
fee until October 31, 1996 and during such period to maintain the annualized
expenses of the Federal Portfolio at not more than 0.70% of average daily net
assets. During the year ended December 31, 1995, no such reimbursement was
required.

Scudder Service Corporation ("SSC"), a subsidiary of Scudder, is the
Fund's shareholders service, transfer and dividend disbursing agent. For the
year ended December 31, 1995, the amount charged to the Fund by SSC aggregated
$13,570 for the Government Portfolio, $7,354 for the Federal Portfolio, $32,409
for the Cash Portfolio, and $15,963 for the Tax-Free Portfolio, of which $2,037,
remains unpaid at December 31, 1995 for each of the funds.

Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of Scudder,
is responsible for determining the daily net asset value per share and
maintaining the portfolio and general accounting records for the Portfolios.
For the year ended December 31, 1995, the amount charged to the Portfolios by
SFAC aggregated $30,000 for the Government Portfolio, $4,232 for the Federal
Portfolio, $45,686 for the Cash Portfolio, and $31,636 for the Tax-Free
Portfolio, of which $2,500, $574, $3,730, and $2,500, respectively, remain
unpaid at December 31, 1995. For the year ended December 31, 1995 for the
Federal Portfolio, SFAC did not impose fees amounting to $25,768.

The Fund has a compensation arrangement under which payment of
directors' fees may be deferred. Interest is accrued (based on the rate of
return earned on the 90 day Treasury Bill as determined at the beginning of
each calendar quarter) on the deferred balances and is included in "Directors'
fees and expenses." The accumulated balance of deferred directors' fees and
interest thereon relating to all active Portfolios comprising the Fund
aggregates $425,834, an applicable portion of which is included in accrued
expenses of each of the Portfolios.

5. CAPITAL STOCK

At December 31, 1995, the Fund had 25,000,000,000 shares of $.001 par
value Capital Stock authorized, of which 5,000,000,000 shares each have been
designated for the Government Portfolio, Federal Portfolio and Cash Portfolio,
and 2,000,000,000 shares have been designated for the Tax-Free Portfolio. Net
paid in capital in excess of par value was $79,838,443 for the Government
Portfolio, $16,403,863 for the Federal Portfolio, $249,178,701 for the Cash
Portfolio and $78,970,264 for the Tax-Free Portfolio. At December 31, 1995, one
holder of record of the Government Portfolio held approximately 49% of the
outstanding shares; two holders of the Federal Portfolio held approximately 31%
and 29% each of the outstanding shares; two holders of the Cash Portfolio held
approximately 43% and 25% each of the outstanding shares; and two holders of
the Tax-Free Portfolio held approximately 44% and 32% each of the outstanding
shares.

18
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying statements of net assets and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Institutional Government Portfolio, Institutional Federal Portfolio,
Institutional Cash Portfolio, and Institutional Tax-Free Portfolio (each a
separate portfolio of Scudder Institutional Fund, Inc., hereafter referred to
as the "Fund") at December 31, 1995, the results of each of their operations
for the year then ended, the changes in each of their net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1995 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

1177 Avenue of the Americas
New York, New York
February 12, 1996

- --------------------------------------------------------------------------------
FEDERAL TAX STATUS OF 1995 DIVIDENDS

The total amount of dividends declared in 1995 by each of the Federal
Portfolio, Government Portfolio and Cash Portfolio of Scudder Institutional
Fund, Inc. is taxable as ordinary dividend income for Federal income tax
purposes. None of this amount qualifies for the dividends received deduction
available to corporations.

All of the dividends from the Tax-Free Portfolio declared in 1995 are
exempt from Federal income tax. However, in accordance with the Internal Revenue
Code, you are required to report them on your 1995 Federal income tax return.

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

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

19
<PAGE>

Institutional Government Portfolio
Institutional Federal Portfolio
Institutional Cash Portfolio
Institutional Tax-Free Portfolio

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

Investment Manager

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

Distributor

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

Custodian

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

Fund Accounting Agent

Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110

Transfer Agent and
Dividend Disbursing Agent

Scudder Service Corporation
P.O. Box 9242
Boston, Massachusetts 02205

Legal Counsel

Sullivan & Cromwell
New York, New York

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

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

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

INSTITUTIONAL GOVERNMENT PORTFOLIO
INSTITUTIONAL FEDERAL PORTFOLIO
INSTITUTIONAL CASH PORTFOLIO
INSTITUTIONAL TAX-FREE PORTFOLIO

ANNUAL REPORT

DECEMBER 31, 1995