Scudder Balanced Fund
Scudder Income Fund
Supplement to Statement of Additional Information dated May 1, 1997
The following replaces the section entitled "Other Mortgage-Backed Securities"
on page 7:
Other Mortgage-Backed Securities. The Adviser expects that governmental,
government-related, or private entities may create mortgage loan pools and
other mortgage-related securities offering mortgage pass-through and
mortgage-collateralized investments in addition to those described above.
The mortgages underlying these securities may include alternative mortgage
instruments, that is, mortgage instruments whose principal or interest
payments may vary or whose terms to maturity may differ from customary
long-term fixed rate mortgages. As new types of mortgage-related securities
are developed and offered to investors, the Adviser will, consistent with
each Fund's investment objectives, policies, and quality standards,
consider making investments in such new types of mortgage-related
securities.
The following replaces the section entitled "Illiquid Securities" on page 11:
Illiquid Securities. Each Fund may occasionally purchase securities other
than in the open market. While such purchases may often offer attractive
opportunities for investment not available on the open market, the
securities so purchased are often "restricted securities" or "not readily
marketable," i.e., securities which cannot be sold to the public without
registration under the Securities Act of 1933, as amended (the "1933 Act")
or the availability of an exemption from registration (such as Rules 144 or
144A) or because they are subject to other legal or contractual delays in,
or restrictions on, resale.
Generally speaking, restricted securities may be sold only to
qualified institutional buyers, or in a privately negotiated transaction to
a limited number of purchasers, or in limited quantities after they have
been held for a specified period of time and other conditions have been met
pursuant to an exemption from registration, or in a public offering for
which a registration statement is in effect under the 1933 Act. Each Fund
may be deemed to be an "underwriter" for purposes of the 1933 Act when
selling restricted securities to the public, and in such event each Fund
may be liable to purchasers of such securities if the registration
statement prepared by the issuer, or the prospectus forming a part of it,
is materially inaccurate or misleading.
The Adviser will monitor the liquidity of such restricted securities
subject to the supervision of the Board of Trustees. In reaching liquidity
decisions, the Adviser will consider the following factors: (1) the
frequency of trades and quotes for the security, (2) the number of dealers
wishing to purchase or sell the security and the number of their potential
purchasers, (3) dealer undertakings to make a market in the security; and
(4) the nature of the security and the nature of the marketplace trades
(i.e. the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
The following replaces the seventh paragraph in the section entitled "General
Characteristics of Options" on page 15:
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails
to make or take delivery of the security, currency or other instrument
underlying an OTC option it has entered into with a Fund or fails to make a
cash settlement payment due in accordance with the terms of that option, a
Fund will lose any premium it paid for the option as well as any
anticipated benefit of the transaction. Accordingly, the Adviser must
assess the creditworthiness of each such Counterparty or any guarantor or
credit enhancement of the Counterparty's credit to determine the likelihood
that the terms of the OTC option will be satisfied. Each Fund will engage
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in OTC option transactions only with U.S. government securities dealers
recognized by the Federal Reserve Bank of New York as "primary dealers" or
broker/dealers, domestic or foreign banks or other financial institutions
which have received (or the guarantors of the obligation of which have
received) a short-term credit rating of A-1 from S&P or P-1 from Moody's or
an equivalent rating from any nationally recognized statistical rating
organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Adviser. The staff of
the Securities and Exchange Commission (the "SEC") currently takes the
position that OTC options purchased by a Fund, and portfolio securities
"covering" the amount of a Fund's obligation pursuant to an OTC option sold
by it (the cost of the sell-back plus the in-the-money amount, if any) are
illiquid, and are subject to each Fund's limitation on investing no more
than 15% of its net assets (taken at market value) in illiquid securities.
The following replaces (e) under the section entitled "Other Investment
Policies" on page 21:
(e) invest more than 15% of its net assets (taken at market value) in
securities which are considered to be illiquid;
The following replaces (f) under the section entitled "Other Investment
Policies" on page 22:
(f) purchase securities of any issuer with a record of less than
three years of continuous operations, including predecessors,
except U.S. Government securities, municipal obligations and
obligations issued or guaranteed by any foreign government or its
agencies or instrumentalities, if such purchase would cause the
investments of each Fund in all such issuers to exceed 5% of the
total assets of the Fund taken at market value;
July 8, 1997
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