Scudder Income Fund
Supplement to Statement of Additional Information dated May 1, 1996
The following paragraph is inserted after the second full paragraph of "General
Investment Objective and Policies of Scudder Income Fund" on page 2 of the
Statement of Additional Information:
Scudder Income Fund may invest in special purpose trust securities ("Trust
Preferred Securities").
The following paragraph is inserted under "Investments and Investment
Techniques" before the paragraph titled "Zero Coupon Securities" on page 3 of
the Statement of Additional Information:
Trust Preferred Securities. Income Fund may invest in Trust Preferred
Securities, which are hybrid instruments issued by a special purpose trust
(the "Special Trust"), the entire equity interest of which is owned by a
single issuer. The proceeds of the issuance to the Fund of Trust Preferred
Securities are typically used to purchase a junior subordinated debenture,
and distributions from the Special Trust are funded by the payments of
principal and interest on the subordinated debenture.
If payments on the underlying junior subordinated debentures held by
the Special Trust are deferred by the debenture issuer, the debentures
would be treated as original issue discount ("OID") obligations for the
remainder of their term. As a result, holders of Trust Preferred
Securities, such as the Fund, would be required to accrue daily for Federal
income tax purposes, their share of the stated interest and the de minimis
OID on the debentures (regardless of whether the Fund receives any cash
distributions from the Special Trust), and the value of Trust Preferred
Securities would likely be negatively affected. Interest payments on the
underlying junior subordinated debentures typically may only be deferred if
dividends are suspended on both common and preferred stock of the issuer.
The underlying junior subordinated debentures generally rank slightly
higher in terms of payment priority than both common and preferred
securities of the issuer, but rank below other subordinated debentures and
debt securities. Trust Preferred Securities may be subject to mandatory
prepayment under certain circumstances. The market values of Trust
Preferred Securities may be more volatile than those of conventional debt
securities. Trust Preferred Securities may be issued in reliance on Rule
144A under the Securities Act of 1933, as amended, and, unless and until
registered, are restricted securities; there can be no assurance as to the
liquidity of Trust Preferred Securities and the ability of holders of Trust
Preferred Securities, such as the Fund, to sell their holdings.
December 20, 1996
